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Council Housing (Local Financing Pathfinders)

Volume 520: debated on Wednesday 8 December 2010

Motion for leave to bring in a Bill (Standing Order No. 23)

I beg to move,

That leave be given to bring in a Bill to require the Secretary of State to begin negotiations with certain local authorities with a view to those local authorities leaving the current national housing subsidy system and becoming Council Housing (Local Financing Pathfinders) by April 2011; and for connected purposes.

I am sure that most Members from all parts of the House share the experience that I have in my surgery each week of meeting constituents who do not have a good-quality and genuinely affordable home in which to live. Across the country, tens of thousands of families need a home—homes that councils such as mine in Cornwall would like to build. I am in no doubt that we must continue to invest in upgrading existing council housing, but we must also enable councils to build new homes. The ability to deliver the housing and welfare reforms that our society so badly needs is the prize for serving in this Parliament. Together with a good education and a decent job, those reforms will enable millions of hard-working families on low incomes to improve the quality of their lives.

To enable councils to build more homes, we must reform the way in which council housing is financed. Along with Members from all parts of the House, I support the coalition Government’s plans to do so. As the Minister for Housing and Local Government said in October:

“For far too long councils have been left hamstrung in their efforts to meet the housing needs of their residents by a council house finance system that is outdated and no longer fit for purpose. The Housing Revenue Account subsidy is in urgent need of reform.

That’s why I can confirm that we intend to scrap the current system, and instead replace it with something more transparent that will serve the needs of local communities without interference from Whitehall.”

He went on to say that

“we will offer councils the opportunity to keep the rents…This is a key step to transfer powers to councils and communities, so they are free to improve their local services in a way that best meets the needs of local people.”

It is anticipated that the decentralisation and localism Bill will provide for the new system. We also anticipate a revised debt settlement, plans for the allocation of debt between authorities and proposals for the system’s day-to-day operation.

It is worth recapping the previous Government’s work that brought us to this point. In summer 2006, the Housing Quality Network was appointed to undertake business plan modelling with six councils. The six authorities produced model 30-year business plans, based on a one-off settlement with central Government that would allow them to leave the national system. The modelling demonstrated that self-financing could bring improvements in efficiency, long-term planning and asset management. It could attract private investment and provide opportunities for local authorities to add new homes to the housing stock.

In December 2007, the then Minister for Housing announced a full review of the housing revenue account subsidy system to examine further the case for change. That was launched jointly by the Treasury and the Department for Communities and Local Government in March 2008. In June 2009, the then Minister for Housing announced a consultation on the dismantling of the subsidy system and on replacing it with a devolved system of responsibility and funding. The consultation, “Reform of council housing finance”, concluded in October 2009. In March 2010, the findings of the consultation were published, along with a set of proposals for further consultation. Following the general election the Government have confirmed that self-financing will be introduced for all local authorities by 2012.

The Bill will create self-financing pathfinders to contribute to the coalition policy of ending the national subsidy system for council housing finance. It will give central and local government the chance to learn lessons on debt redistribution and to evaluate the impact before allowing the remaining local authorities to leave the national subsidy system. It proposes that three councils, Cornwall council, the London borough of Wandsworth and Stockport metropolitan borough council, be offered the opportunity to negotiate terms of exit with the Secretary of State for Communities and Local Government and to leave the national subsidy system in April 2011. To enable that to happen, a minor amendment needs to be made to section 80B of the Local Government and Housing Act 1989.

The proposed establishment of a pathfinder programme for housing revenue account reform, to be undertaken at the three authorities that I mentioned, could have significant benefits for Government, the council housing sector and wider social housing policy. There would be no cost to the Treasury, which in fact would gain. Although it is impossible to be exact about the final formula, receipts to the Treasury during the pathfinder year would be substantial.

HRA reform is about turning local authorities from state-dependent administrators of council housing in an outdated national system into bodies that are locally financed and develop real long-term plans for more sustainable housing with local people. By working through the complex and detailed processes that are required to transform authorities in that way, we will learn valuable lessons that will minimise the risks of unforeseen problems when the legislative deal is done with the whole sector and 160-plus authorities in 2012. An agreement will need to be signed on a voluntary basis by each of the authorities involved and the Government, and it will need to include the debt settlement for April 2011.

It is worth recalling the housing sector’s responses to the July 2009 review, which show its reactions to the self-financing proposals. Although only 6% expressed disagreement with the principle of self-financing, of the 64% who agreed with the proposals, only 10% did so without expressing significant reservations or caveats. Some 49% offered support for the proposals and accepted the redistribution of debt on condition that the amount of debt to be allocated at local level was acceptable. Clearly there is still work to be done with some councils to build consensus and momentum on the proposed reforms. The Bill offers the Minister an opportunity to work with the evangelists and to help him with the doubting Thomases.

The overriding objective is to use the pathfinders to support preparation for national HRA reform, not to divert resources away from the overall project. Such a process should be seen as complementary and beneficial, because it would provide a live testing environment for the detailed proposals as they continue to emerge. For example, the pathfinder councils would be able to participate in the forthcoming Charted Institute of Public Finance and Accountancy consultation in a live situation and provide detailed technical feedback.

The process would clearly be seen as a pathfinder process so that technical, regulatory and financial lessons could be learned. It would not be to the advantage of the three local authorities concerned, save for the de facto benefit of being out of the HRA subsidy system a year early. The pathfinder councils would produce a report, with input from any of agencies that had been involved, such as CIPFA or the Public Works Loan Board, and that report would be made widely available to inform the ongoing preparations for self-financing.

The three authorities in the programme are included on the basis of their high performance, their high standing in the sector and the capacity that each has to take on the work early. There is a geographical mixture of debt take-on and debt write-down, of arm’s length management organisations and retained management, and of stock sizes. That will provide an opportunity to maximise learning from the process.

I should like to end by thanking colleagues outside the Chamber from the local authorities, who have been generous with their time and very patient with my questions, particularly the housing officers at Cornwall, Wandsworth and Stockport councils and Steve Partridge at the Chartered Institute of Housing. Finally, I thank my colleagues from the official Opposition and the coalition who are supporting the Bill.

Question put and agreed to.


That Sarah Newton, George Eustice, Sheryll Murray, Andrew George, Dan Rogerson, Stephen Gilbert, Jane Ellison, Ann Coffey and Mr David Nuttall present the Bill.

Sarah Newton accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 21 January 2011 and to be printed (Bill 124).