With 112,000 households in temporary accommodation, more than 1.2 million on waiting lists and millions forced into the expensive private rented sector, hundreds of thousands of social rent council homes with secure tenancies are vitally needed, argues Martin Wicks in a Labour Hub long read.  

Twenty Labour Councils have produced an interim report, ‘Securing the Future of Council Housing’ (STFCH). With Labour now in government, it rings a timely alarm bell that housing revenue accounts are financially unsustainable without urgent government action.

“Without urgent action councils will be tipped over the edge, as the costs they need to maintain their council homes outstrip the income they have to pay these costs.”

The report says that national council housing finances are “now on the brink”, with “a widening financial chasm”. It estimates there will be a £2.2 billion funding gap in council budgets by 2028. The Local Government Association estimates that Housing Revenue Accounts face deficits of over £3 billion over the next 10 years. “Unless something is done soon, most council landlords will struggle to maintain their existing homes adequately or meet huge new demands to improve them, let alone build new homes for social rent.”

Some councils, rather than increasing supply, “will have no option but to sell more of their existing stock, on top of Right to Buy sales, to finance investment in an ever shrinking portfolio of council homes.”

“Faced with these impossible choices, some councils are starting to sell homes to fund investment, elsewhere in their stock, further weakening their ability to meet housing need.”

These councils are calling on the new government to

➢ Give stock owning councils a one-off payment of £644 million to compensate for the last two years, the difference between increasing costs and actual rental income.

 ➢ Reopen the 2012 ‘debt-settlement’ and readjust, that is cut, the ‘debt’ given to councils.

➢ Launch a new Green and Decent Homes Programme, on a similar scale to the original DHP. This should be a priority for the next Spending Review expected in 2025.

➢ Provide £23.5 billion capital funding for decarbonising existing council housing.

➢ Commit to providing £12 billion over the next five years to cover the cost of bringing all homes up to Energy Performance Certificate C, address fire safety issues and meet the original Decent Homes Standard.

➢ Reform Right To Buy to cut the loss of homes, including ending RTB for new homes built or acquired, and allow councils to use receipts as they wish.

➢ Introduce a 10 year rent settlement and reintroduce ‘rent equalisation’.

“Debt settlement”

In 2012 a new financial system, ‘self-financing’, designed by New Labour but implemented by the Tories, was introduced. What was deemed to be the national council housing debt was divided up between councils: 136 of them were loaded up with an additional £13 billion ‘debt’, 33 had £5 billion debt relief. The debt settlement gave councils too little funding and government policy changes since then exacerbated the shortfall. (See our submission to the All Party Parliamentary Group on Council Housing which goes into the financial detail).

 STFCH calls for the debt settlement to be reopened and for a one-off adjustment of HRA debts from councils to central government. (The Localities Act gave government the power to reopen the debt settlement – that is increase or cut debt – if there were significant changes to income or expenditure.)

It calls on the government to “nationalise a share of the debt”. This implies that the government would take over some of the debt and service it directly. The so-called debt councils were given was not actual borrowing but the result of financial manipulation by the Treasury. It is owed to the Public Works Loans Board, which is an agency of the Treasury.

More sensible would be the cancellation of the debt which was rigged by the Treasury to fleece tenants, whose rent pays for servicing it. We have explained The case for cancelling council housing ‘debt’ in detail. Before the introduction of ‘self-financing’, in the 25 years to 2008, ‘allowances’ to councils (not government funding, but merely the amount of rent collected that councils were allowed to keep) gave them £60 billion but rent paid by tenants added up to £91 billion. The £31 billion difference was more than outstanding debt on borrowing for previous building programmes. So imposing extra ‘debt’ was unjust – tenants being ripped off.

Rent

STFCH points out that the rent increases set in 2012 were not honoured. But here the document misses a crucial point. New Labour set rent increases at RPI+0.5% + £2 maximum a week. The rent formula was based on the idea of ‘rent equalisation’ which was presented on spurious grounds as a means of overcoming ‘confusion’ as to the differences in rent for social housing. In fact there was no confusion over the difference between council and housing association rents. Historically housing association rents were about 20% higher than council rents because HAs borrow money from commercial sources, whereas councils borrow money at a cheaper rate from the Public Works Loans Board.

In practice the measure was designed to drive up council housing rent to the level of housing associations. The formula imposed a long series of above-inflation rent increases on council tenants. During the years of the New Labour government, council rents in England rose by around 62%, way above inflation of 38.8%. The rationale of ‘equalisation’ was that if council and housing association rents were at the same level then tenants would have no reason to vote against privatisation.

The New Labour government sought to ‘transfer’ council homes to Housing Associations. For Gordon Brown this was a means of removing the debt associated with previous house building programmes from the Public Sector Borrowing Requirement. The government set a target of transferring 200,000 homes a year. But for resistance from councils tenants and some councils, there would be little or no council housing left. As it is, as a result of RTB, transfer and demolitions, there are less than 1.6 million council homes left in England today.

STFCH says that “rents must also be affordable for residents and not put undue pressure on the housing benefit bill, while being sufficient to cover the basic costs of maintaining and managing homes.” But it also says that the “growing discrepancies which have built up across the social and affordable housing over time, both to improve fairness for tenants and to ensure social landlords are not put under undue financial pressure” need to be addressed. This is somewhat ambiguous and potentially problematic, as we shall see below.

STFCH calls on the government to commit to longer term rent settlements that are “more resilient to economic change”. However, we have a real problem with the proposal that the government should reintroduce rent convergence. As we explained above, rent convergence sought to drive council rents up to HA levels. It was to facilitate transfer of council housing stock. Its reintroduction would mean pushing up rents above inflation. To the contrary, we should at least be demanding that the government commit to ending above-inflation rent increases.

The Tories introduced a policy of CPI + 1%. This should be abandoned. To reintroduce above inflation rent increases would mean further impoverishment of tenants and driving up the housing benefit bill. The government should adequately fund HRAs rather than drive up rent s because of inadequate funding.

We should also be pressing the new government to end the category of “affordable rent” (up to 80% of market rents). This was introduced as part of the austerity measures, as a means of cutting grant. It has made council rents less affordable for tenants and also pushed up the housing benefit bill. Some social rent properties have also been converted to “affordable rent”. We need Labour to end it and devote all grant to social rent homes.

One other issue which needs consideration is breaking the link, introduced by New Labour, between social rent and market rents. This has needlessly pushed up council rents. The formula for determining social rent levels is byzantine, based on a combination of 1999 market rents and earnings. There should be no connection between social rent and market rent. Market rents are not at some ‘natural’ level.

Right to Buy

STFCH calls for

➢ a review of discount levels for the RTB. It doesn’t say what they should be reduced to other than “they should be more sensitive to geographic differences and should ensure capital receipts are sufficient to replace homes sold through RTB.”

➢ Councils to be able to keep 100% of the receipts provided these are invested in delivering new or replacement ‘social homes’ within 10 years, whether by building or acquiring homes.

➢ The removal of the cap on the share of RTB which can be used to build or acquire new homes (currently 40%), lengthening the time that councils can use them to 10 years, allowing them to be used in conjunction with all other sources of funding including capital grant.

➢ Lengthening to ten years the qualification period for tenants to buy their council home, and lengthening the period of time before homes bought can be sold on the market without repaying the discount, to ten years.

➢ An end to RTB for new-build homes.

All of these proposals are preferable to the status quo. They would reduce sales. Yet, with no difficulties RTB was ended in Scotland and Wales. It should be ended in England. The fact is that within the Labour Party, and amongst councillors who want to see a renaissance of council housing, there is overwhelming support for ending it. That has been reflected in Conference votes when last discussed in 2019 and 2021 and the support for our statement on ending RTB.

The easiest way to stop the loss of stock resulting from RTB is to end the policy. It would guarantee that for the first time since it was introduced, every new home built or acquired would increase the available stock and open up the prospect of bringing the waiting lists down. Its other advantage is that it is a cost-free policy for the Treasury.

Affordable Homes Programme

STFCH calls on the government to increase the flexibility of the Tories’ AHP “ensuring that capital grants can be spent on acquiring, retrofitting and refurbishing existing housing stock.” It calls for an increase in grant rates which “must reflect recent cost inflation”. It proposes that funding sources for housing should be in two pots; one for investment in existing homes and one for building new and replacement homes. That makes sense.

Unfortunately, Matthew Pennycook, now Secretary of State in the Ministry of Housing, has stated that a Labour government will stick with the inadequate funding of the Tories’ AHP. It is difficult to see how the assertion in the manifesto about producing the highest level of “social and affordable” homes for a generation can be true if there is no increase in funding for the AHP.

There can be no return to large-scale council house building without a significant increase in grant from central government. It will save money in the end because council rents are much lower than the private sector so they will cut the housing benefit bill.

A wide range of organisations understand that social rent homes on the scale of 90,000 a year (Shelter), or 100,000 a year (Local Government Association) is an absolute minimum for beginning to resolve the housing crisis. The funding can be found if it is deemed to be a priority as it was by the Attlee government despite far worse economic conditions faced by them than we face today.

Government choice

The document is right in suggesting that the situation we face is similar to that in the 1990s when underfunding meant that there was an estimated £19 billion backlog of repairs. The one positive thing which the New Labour government did was the Decent Homes Programme which enabled modernisation of the majority of the stock, although the Decent Homes Standard was not a very high standard, as our Briefing on the Review shows.

The “need to reverse the decline and bring social housing up to new, higher standards of safety” requires more funding. The estimated cost of fire safety measures, following the Grenfell fire and the subsequent Building Safety Act of 2022, has been estimated at £7.7 billion to 2030. These and other changes were obviously not factored into the 2012 debt settlement.

“Councils can therefore pay for major, unforeseen upgrades, only by increasing rents faster than construction costs are rising, or by receiving new capital investment. Government therefore faces the choice between increasing rents significantly, providing capital investment, or exposing tenants to intolerable safety and health risks.”

Without a significant injection of funding they will not be able to “free up financial headroom to enable councils to ensure their homes are made safe and maintained the way the HRA model used to.” As a consequence of the financial pressure on HRA finances, maintenance programmes have had to be scaled back, which has led to repair costs rising. The £644 million one-off funding would be a start and would show serious intent on the part of the government.

One thing in the report which doesn’t seem to make sense is where it says that councils should “work to reduce the need for major upgrades and improve the value for money of works on council homes by investing in maintenance and minor repairs earlier.” Whilst timely maintenance is important, the key to maintaining and improving the standard of homes is timely capital works to replace key housing components. Under the Decent Homes Standard, each component is given an estimated life span. It’s not clear why STFCH should suggest reducing the need for major upgrades. Replacement of key housing components is critical in improving the standard of stock (hence the living condition of tenants) and prolonging their life. If renewal is not done in a timely fashion than components fail more frequently and drive up the costs of responsive repairs: the faults that tenants ring in.

A Green and Decent Homes Programme

“To meet the government’s climate, housing and growth objectives, a new Green and Decent Homes Programme is now needed, on a similar scale to the original DHP, and should be a priority for the next Spending Review expected in 2025.”

The new DHS has not yet been published. So the full cost across the council housing stock can’t be assessed. (See our Briefing on the Review of the DHS). The government did not want to include decarbonisation in the revised DHS because of the cost implications. It suspended concluding its review on the spurious grounds that they were going to extend it to the private sector and they needed to work on that. Decarbonisation of council housing must be a central part of a new DHS.

A recent study estimated the cost of bringing all council homes in England up to net zero by 2050 at £34.3 billion. It assumes that £10.8 billion would come from the HRAs themselves, but there would still be a requirement for £23.5 billion of additional capital funding. This can only come from the government.

Savills also modelled the cost of bringing all social housing up to Everyday Performance Certificate Level C, meeting the original DHS and addressing fire safety issues by 2030, at £34.6 billion, £12 billion of which would be for council stock. So, “at a minimum a new Green and Decent Homes programme, linked to the new standard expected soon, should commit to providing this £12 billion over the next five years – though in practice investment will need to be larger and longer term than that to achieve the net zero target and the new DHS.”

Hence STFCH says that the next Spending Review in 2025 “should launch a long-term Green and Decent Homes programme, with sufficient additional capital funding from government to bring all council housing up to the new standard of safety, decency and energy efficiency by 2030 – and setting a route map for achieving net zero by 2050. At a minimum this should allocate £12 billion to council landlords over the next five years, an average of at least £2.4 billion each year.” One problem with this is that, given the deterioration in weather conditions across the planet, it seems somewhat dubious to imagine that net zero by 2050 is an acceptable target.

Decarbonisation of council housing is a key component of decarbonisation of housing overall. It is easier for the government to plan its conversion than it can housing in the private sector, which is dependent on the decisions of millions of individuals. Council housing cannot be decarbonised without central government grant. Failure to do so would undermine the overall effort to decarbonise.

Conclusions

Notwithstanding the disagreements we have with some of the detail, STFCH is a very welcome document. It sounds the alarm on the threat of the physical decline of existing council housing. From 1923, with the Wheatley Act of the first minority Labour government, Labour was the Party which promoted council housing. The Attlee government prioritised it over home ownership. The Wilson governments increased council house building.

It was only when New Labour accepted key parts of the Thatcher programme that it abandoned council house building. It prevented councils from applying for social housing grant until after the Great Crash. During its 13 years in office, despite all investment going to housing associations, there was an unprecedented fall in the number of social housing homes. At the end of its term, there were 655,000 fewer homes available than in 1997, as a result of RTB and the effective ban on councils building homes. This was at the same time that the government was promoting the growth of the private rented sector by tax breaks for private landlords. The only positive thing which New Labour did in terms of housing was the funding provided for the Decent Homes Standard, which enabled the modernisation of most council housing with double-glazing and central heating.

Today, because of the financial impact of ‘self-financing’ and austerity under the coalition and Tories, housing revenue accounts have insufficient funding to renew key housing components and prevent the deterioration of existing homes. They have no subsidy. The only significant income is tenants’ rent and service charges: around 93%.

STFCH is correct when it says that the government has a choice of increasing rents, increasing grant, or exposing tenants to intolerable safety and health risks. The first would impoverish already poor tenants, the third would produce more cases like the death of the young boy in Rochdale and would create widespread public outrage.

 Central government grant is the necessary solution to improve the standards of existing housing and to build new homes on the scale of 90,000 plus. Historical experience tells us that it would be delusional to rely on the housing market and to imagine with a change in planning law and a little prodding, the big builders will build on a sufficient scale to drive down house prices. It is against their interests to do so. They could not give a fig for resolving the housing crisis. Their only concern is their profit margins and the dividends of their shareholders. Shelter and others are right that 300,000 is not possible without at least 90,000 social rent homes a year.

Setting house building targets without setting targets for social housing makes no sense. Between 1953 and 1977, the last year when 300,000 homes were built, 22 of those years topped 300,000. Of these, in 17, council house building comprised 40% or more. In none of the other five years did council housing comprise less than 33%.

It is critical, therefore, that the message of STFCH is amplified by campaigning to pressure the government into providing sufficient funding to improve existing council housing and to fund building/acquisitions on a scale that can begin to resolve the housing crisis.

However, the amount of funding it is asking for will not be provided if the government sticks to its ‘fiscal rules’ and its position of leaving in place a regressive taxation system. This self-imposed economic straitjacket has to be challenged. Rachel Reeves’ approach, if applied in 1945, would have meant deciding that the country could not afford to launch the NHS or to pay for the large-scale council housing programme. Saying that fiscal rules come before resolving the housing and environmental crises is not only wrong, it is nonsensical. It will only increase future costs.

Our campaign first raised the question of a review of council housing debt in our resolution to the 2021 Labour Party Conference. Included in the model housing resolution passed by Conference was “Reviewing council housing debt to address underfunding of housing revenue accounts.” Unfortunately, this has not been addressed by the national Party.

It sometimes felt like we were ploughing a lonely furrow on this issue. So we welcome the fact that 20 Labour Councils are now calling for a reopening of the 2012 debt settlement, funding HRAs sufficiently to maintain and renew existing council housing; to fund a renaissance of council housing.

Given the unprecedented low vote share which Labour won in the general election, its chances of winning a second term will be vanishingly slim unless it begins to resolve the housing crisis, amongst others. Relying on the market and the house building oligopoly to resolve it will guarantee failure. With 112,000 households in temporary accommodation, more than 1.2 million households on waiting lists and millions forced into the expensive private rented sector, they will only be rescued by hundreds of thousands of social rent council homes with secure tenancies. If the political will is there then the funding can be found.

Martin Wicks is Secretary of the Labour Campaign for Council Housing. This article originally appeared here.