By Claire West

Councils could spearhead a resurgence in the construction industry by delivering up to 100,000 new council homes over the next decade — as long as they are given real independence to manage their own housing budgets.

Housing Minister Grant Shapps announced this week that town halls will be allowed to keep the rental income and receipts from the sale of council homes, replacing the current system which sees the majority of proceeds funnelled off by Whitehall into a central fund.

The Local Government Association - which campaigned for this overhaul - today publishes a report which shows how councils will be able to use the money they earn from rent and sales to pay for thousands of desperately needed new council homes.

The number of new council houses built could be increased at least 20-fold under a more localised system, at the same time creating thousands of new jobs in the building industry.

However the LGA is warning that town halls' efforts to get Britain building again risk being crippled if the Government imposes unreasonable levels of debt on them or introduces further restrictions on borrowing in this month's Comprehensive Spending Review.

Today’s LGA report, entitled, Council Housing — Efficient, Effective, Local, urges that:

Councils are not made to pay an unreasonable price to buy the council houses in their area back from the Government The Government scraps proposals to place a new cap on councils’ ability to borrow money. The LGA believes that existing rules are sufficient to ensure town halls are financially prudent The Government should continue to fund the £6bn backlog of housing maintenance repairs. Cllr Gary Porter, Chairman of the LGA’s Housing and Environment Board, said:

“The Government’s commitment to this long overdue overhaul is a tremendous breakthrough.

“For the past three years the LGA has been lobbying for councils to be freed to invest the money they collect in rent in improving properties providing new homes for those that need it.

"Devolving this power to councils is vital to turning around a house-building slump which saw has seen just a few hundred new council homes built per year recently.

“At the moment, the majority of rent tenants pay get funneled off by Whitehall either to be spent in other parts of the country, or to sit in a Treasury vault.

“This underfunded system has left councils guessing from one year to the next how much of the money will be given back to them and prevented them from being able to plan effectively for the long term

“Clearly it is far better that councils, in consultation with local residents, decide how that money should be used to benefit their neighbourhoods and communities — improving existing housing stock, and building the new houses that are so desperately needed."

For councils to be able to get on with the job of providing homes for the 4.5 million people on housing waiting lists, it is vital that town halls are able to manage their finances independently and are not hamstrung by having to pay off billions of pounds of debt.

The Government has said that in return for councils being allowed to take control of council housing finances, town halls will have to pay the Treasury millions of pounds to buy themselves out of the current system.

The LGA is urging that the total sum does not exceed the additional £3.6bn suggested in the Prospectus consultation launched by the previous Government earlier this year.

Based on that figure the LGA estimates that financially independent councils will be able to invest in the building of 30,000 new council homes over the next five years. An upturn in the economy could help that figure reach 100,000 by the end of the decade.

Cllr Porter added: “Investing in housing not only boosts the economy and provides new jobs, it ultimately leads to a reduction in public spending by reducing waiting lists and housing benefit bills.

“This is why it is so vital that, in setting councils free of one counterproductive system, the Government does not place them into another. Lumbering town halls with unmanageable debts, or placing further restrictions on how they manage their money will ultimately hamper the ability of councils to invest in the new housing which people desperately need.

"Councils were forced into the Housing Revenue Account subsidy system and should not be made to pay an unreasonable price to get out of it.

"Now, more than ever, it is vital that town halls are finally freedom unnecessary burdens and counterproductive restrictions so they can get on with the job of meeting the housing needs of the people they serve."