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Councils count the cost of chancellor's rent cut plan

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The Summer Budget was always expected to be something of a battleplan to get the country’s housing benefit bill under control.

What few people anticipated was the method and means the chancellor deployed to tame what he apparently sees as an increasingly significant section of the social security budget.

One of his most striking and surprising moves was to axe a government policy allowing councils to raise their rents each year by 1% above the consumer price index for a decade.

In an effort to slice £4.3bn off the housing benefit bill, the chancellor has replaced the policy with one that forces authorities to cut rents by 1% over four years from April 2016.

While cast as a benevolent effort to help social housing tenants, the scale of the rent cut could hit council landlords’ plans to build new homes and repair those they already own.

Several authorities have already counted the cost of the government’s revised rent policy.

Southwark LBC predicts it will lose £4m year as a result of the rent reduction, according to Fiona Colley (Lab), its cabinet member for finance, modernisation and performance.

While the authority was “disappointed” with the change, it would look for ways to work with the new settlement, she added.

Canterbury City Council, which owns about 5,000 homes, estimates the rent cut could cost it as much as £500,000 a year.

The significant reductions in rental income caused by the rent cut will not hit all council plans to build new homes, however.

Many authorities are developing homes through standalone firms that allow them to finance new build outside their housing revenue accounts, over which the Treasury clearly retains some control.

While councils can currently only manage up to 50 social homes outside the HRA with these vehicles, such a restriction does not stop them from developing homes for sale or market and sub-market rents.

The imposition of previous government policies that undermine the economics of development – such as the inflation of right to buy discounts – has already led many to build outside the HRA.

The rent cutting policy will only make such an approach even more attractive, according to Brian Reynolds, a programme director at the Local Government Association who is helping to create LG Develop, a new vehicle to help councils develop homes outside the HRA.

“This will strengthen the local authority view that building outside the HRA puts them much more in control and much less at the whim of central government decisions,” Mr Reynolds added.

Manchester City Council is confident a development programme run by Matrix Homes, a development firm it established with the Homes and Communities Agency and Greater Manchester Pension Fund will continue.

The city may, however, have to revise the scale of a separate plan to develop homes within its HRA once the impact becomes clear, according to Paul Beardmore, the council’s director of housing.

“We do have to have a rethink on how ambitious we are on the development plans. [Our] priority will be repairs, maintenance and services to our existing tenants and stock.”

Another announcement on housing in the Summer Budget that caught many by surprise was a plan to force social tenants in England to pay rent at the full market rate when their earnings hit £40,000 in London or £30,000 elsewhere.

While social landlords can already charge market rate for homes with household incomes in excess of £60,000, they rely on tenants to declare their income voluntarily.

As we report this week, the new “pay to stay” policy may gain legal force, as ministers intend to introduce legislation in a forthcoming housing bill to force tenants to declare their income.

Despite this proposed legal measure, Treasury documents admit there is a “great uncertainty” about the £1m it expect to raise from the policy by creaming off the extra rental income collected by councils.

In what some will argue is an unfair distinction, the housing associations that will also benefit from pay to stay will be allowed to keep the extra income.

Matthew Warburton, policy adviser at the Association of Retained Council Housing (ARCH), sees this creaming off of rental income as a return to days when the Treasury ran council housing finance.

“It is barely three years since local authorities bought themselves out of the [Treasury-run] housing subsidy system,” he added.  “This just rows back to the days when councils were seen by the Treasury as a way of raising money for central government.”

THE SUMMER BUDGET: Key Housing Points

·         1% cut in rents over four years from 2016-17

·         Social tenants charged full market rent when household income reaches £40,000 in London or £30,000 elsewhere

·         Review of lifetime tenancies


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