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Will all councils benefit? Questions raised over borrowing freedom

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Numerous questions need to be answered before councils can start to become major housebuilders once more.

Theresa May used her speech to the Conservative party conference to pledging local government greater freedom to solve the housing crisis: “It doesn’t make sense to stop councils from playing their part in solving it. So today I can announce that we are scrapping that cap.”

The cap to which she was referring is the limit on councils borrowing against the value of their existing housing stock to fund the construction of new council homes.

It remains to be seen how the prime minister’s words will result in action.

Indeed, there is no obvious indication from the Ministry of Housing, Communities & Local Government’s press office that any preparations had been made in advance of this significant announcement. However, one government source has indicated to national newspapers that the impact of the move could be £1bn annually.

The housing revenue account

The housing revenue account (HRA) is ring-fenced account for the local authority’s housing responsibility. Revenue, such as council housing rent, is paid into the account and housing costs, such as property management and maintenance, are paid out. It is kept separate from the council’s other funds and accounts by law.

Not all councils have an HRA account however, as some councils chose to transfer their housing stocks to private providers such as housing associations. These “non-stockholding authorities” do not largely hold HRA accounts and therefore will not be able to borrow against them.

Graeme McDonald, director of the Society of Local Authority Chief Executives & Senior Managers, speculated that a technical notice would have to be laid before Parliament with guidance sent out. He warned that the sector should read the small print to this closely.

“Experience tells us that government rarely gives away this sort of freedom without a high degree of specificity,” he said.

The move was likely to increase the borrowing powers of those areas with housing revenue accounts “up to the level” of housing associations, he stated, warning that there was not necessarily a correlation between the areas that can take advantage of the new freedom with those experiencing the greatest housing need.

District Councils Network chairman John Fuller (Con) said: “Many of the councils with the greatest housing potential are those that surround large cities transferred their own stocks (those that are registered social landlords) in the last 20 years and thus those councils don’t have HRAs to borrow against.

“So if the true housing potential is to be realised, all councils, whether they have HRAs, or not need to have to have the borrowing capability to build the homes the country needs. Otherwise this welcome change will only partially successful.

“If you are a non-stockholding authority, are you going to be able to borrow because you don’t have an HRA? Otherwise, that’s a show-stopper.”

Adam Lent, director of the New Local Government Network, tweeted: “Praying this announcement on the scrapping of the borrowing cap isn’t going to be hedged around with the usual Treasury-imposed conditions or is yet another competitive bidding scheme that pits councils against each other.”

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