Chris Buss: Councils need a ‘realistic’ increase in the HRA borrowing cap, not an ’empty gesture’

The autumn budget saw the chancellor lift the HRA cap by £1bn. Chris Buss argues central government needs to get over the idea that all local government debt is bad and offer a hike in the cap that would help councils tackle the need for housing.

After my last article some nine months ago, working full time was not a thought that had entered my brain and working as a director of finance in another neighbouring borough was not even in my thought pattern. Less than six months later the Grenfell fire had somehow meant that I was back in work, in perhaps the most difficult and complex situation I have had to deal with in a very long career in local government.

However, I don’t want to talk about Grenfell now, or the government’s response in the budget to that tragedy, but instead to concentrate on the government response to housing in general and in particular the role of local councils in the direct provision of low-cost rental or social housing or, as I prefer to call it, council housing.

I make no apologies for that, because of my age and background, I am a fan of council housing as it existed prior to 1977, when it was regarded as a step up in the housing hierarchy from the private sector rental market; when, believe it or not, you aspired to get out of private housing with no central heating and no bath to a council flat with both.

Council housing was, back then, aspirational. Unfortunately, this has changed over the past 40 years with successive governments of all parties making council housing, and in particular the building of new council housing, almost a dirty phrase, forgetting that back in my childhood council’s with government support were largely responsible for the provision of more than 300,000 new houses a year, in some years, in the 1950s and 60s.

However, are we about to see a renaissance in council house building? Sadly, I think not. In the budget the chancellor said that he would raise the ceiling on what is one of the main restrictions on letting council’s build new council housing, the housing revenue account (HRA) borrowing cap.

The increase in the cap appears to be a “big number”, £1bn pounds, but in reality is it such a big deal? We will be lucky if the increased cap funds as many as 10,000 homes in total spread over a few years; in reality a drop in the ocean compared to the 300,000 required, or targeted, each year. An empty gesture.

The reality is that an increase of perhaps 10 times that phased in over five years would enable councils to make a real difference to building lower cost rental units without subsidy. Over time, in the HRA, they would both pay for themselves and reduce the benefits bill in a far more cost effective and sustainable manner than the arbitrary policy of reducing rents by 1%, which has cut local government’s ability to invest and done very little to the cost of benefits.

A bigger bang

So, why hasn’t the chancellor been bold and gone for a bigger bang rather than an almost empty gesture? The Treasury mantra of deficit reduction would appear to be the influence, and that is despite the fact that in revenue terms the borrowing, even at standard PWLB rates, pays for itself and the debt is backed by an appreciating public asset. In any sensible investment by a PLC, it is what would be called a “borrow to invest situation.”

But, these normal rules don’t seem to apply to the public sector anymore, at least in terms of council housing. There seems to be no way of differentiating between good debt, i.e., funding assets to reduce current spend, compared to bad debt that is funding current expenditure (something a council can’t legally do, but central government does with abandon).

The offer of a £1bn headroom is a gesture, though I  hope it’s a toe in the water, hinting at a return to the days when councils were able to provide quality housing and were not reliant on the largesse of developers who, in the current era, provide social housing effectively as a price for receiving permission to build housing for sale.

Unfortunately, I don’t think it is, it’s a gesture towards what could happen rather than an incentive to get councils building.

The government says that it wants to fix the broken housing market, perhaps they need to look back to times when the market was less broken (because in all honesty its never been perfect) and look at giving councils a greater ability to build by coming up with a realistic increase in the debt cap, rather than the £1bn gesture.

Many local councils are willing to take up this challenge but are hamstrung by an arbitrary debt cap and a notion that all debt is equal, and all debt is bad. That is a wrong notion. It’s an arbitrary notion that doesn’t evenly apply across council spending, in that general fund capital spending from borrowing is not arbitrarily capped but is judged on its local affordability. Surely, the same should apply to the HRA.

So, Mr Hammond, to paraphrase the words of Del Trotter, we may not be millionaires but also don’t be a plonker, next year be bold, be brave and give councils the ability to fund what many in their communities are asking for: good quality council housing for those who are both in work and not. You really know it makes sense.

Chris Buss is director of finance at the Royal Borough of Kensington and Chelsea and is a former finance director and deputy chief executive at Wandsworth Borough Council.

The views expressed in this article are those of the author and may not be those of his employer.