By Claire West

Councils’ ability to build urgently-needed new housing is at risk of being undermined by too much Treasury interference, local authorities have warned.

The Local Government Association, which represents more than 350 councils in England and Wales, is arguing that plans outlined in the Localism Bill to give councils control of their own housing stock do not go far enough.

Councils have long been calling for financial independence to manage their own housing, replacing the current arrangement which forces them to hand over rent and sales receipts to the Treasury.

Ministers pledged to allow authorities to keep money raised from rent and sales to invest in new builds and improving existing stock.

However, under new rules proposed in the Localism Bill, councils would still be made to give 75% of the money raised from the sale of council houses to the Treasury.

Withholding this money from town halls could result in as many as 100,000 fewer new council houses being built over the next four years. It will also hamper the ability of councils to improve existing housing stock.

The LGA believes that the Government should deliver on its promise to introduce a truly self-financing system for social housing by:

Allowing local authorities to reinvest 100 per cent of receipts from the sale of council homes — not just 25 per cent.

Removing the provision in the Localism Bill that would allow the Secretary of State to demand councils pay more money in future. The debt councils take on in return for self-financing should be a one-off amount. What is being proposed would be like buying a house on the condition the seller could demand more money at some point in the future
Scrapping Government-imposed limits on the amount councils can borrow for housing. In the Prudential Code, the sector already has a well-established and effective approach to managing borrowing.

Cllr Gary Porter, Chairman of the Local Government Association’s Housing and Environment Board said:

"Reform of housing finance is long overdue. Councils must be able to retain their rents so they have then money to improve properties for current tenants and build new houses for those who need them. Self-financing — if done properly — would achieve this aim, but it would appear that the Treasury isn’t willing to let go.

"Withholding from councils the majority of the money raised from Right to Buy sales will jeopardise the building of 100,000 new homes. This comes at a time when there is a dire need for new social housing.

"It is undoubtedly good news that the Government is committed to moving towards a self-financing system, but some of the proposals in the Localism Bill clearly run counter to that principle.

"You can’t talk about supporting localism but then impose limits on local borrowing or take local revenue away after both sides have agreed the settlement figure.

"Good quality housing is more essential than ever — particularly given the crucial links between quality housing and wider quality of life. Good homes play a key role in health, education and life chances so we cannot afford to miss this opportunity to reform housing finance for the better."