Housing Minister Grant Shapps announced the steps Government will take to overhaul the complex system of council house finance, including an objective of returning financial control to councils themselves.
Measures include an extra £116 million funding allocated each year for councils to pay for disabled adaptations to homes and an extra half a billion per year for councils to spend on their stock.
The Minister said that these reforms will ensure councils can plan effectively for the long term - enabling them to unlock over £6 billion estimated efficiency savings over 30 years, which they will be able to plough into new investment.
Following the review announced in the Coalition Agreement, Ministers announced in October that they would replace the Housing Revenue Account (HRA) subsidy system where councils are required to pay council house rents to Whitehall which decided how best to redistribute it.
Under the HRA system councils had no certainty about future income, no ability to plan long term and little incentive to be more efficient.
The aim is to replace the HRA with a system that provides a direct link between the rents councils charge, the money they spend, and the services they deliver. The Government argues that tenants and local taxpayers should then be able to hold their landlord to account for the cost and quality of their housing. This will be achieved via a reallocation of housing debt after which councils will retain all the rental income they collect.
The Localism Bill (published in December) includes measures to repeal the existing subsidy system and replace it with powers for the Secretary of State to introduce self-financing.
Subject to Parliamentary approval, these changes will begin in April 2012. The current system will continue to run during 2011/12.
The precise details of the self-financing settlement will continue to be finalised over the next year to ensure they take account of any relevant changes in economic circumstances - for example, up to date valuations of each councils' housing stock.
Notes
The method for calculating the debt reallocation will be based on a 30 year notional business plan of income and expenditure for each landlord. A payment to or from each council will then be made to reflect the difference between the value of the business and the housing debt currently supported under the HRA.
Income assumptions built into the valuation will be based on the existing social rent policy for councils that that their rents should converge with standard housing association rents in 2015/16.
How these reforms will work in practice, together with the underpinning model including updated indicative numbers per council will be set out in a policy document in the New Year. This will also set out the updated methodology in more detail.
