Memorandum by Unison (LGB 08)
1. UNISON welcomes the publication of legislation
that gives effect to the commitment to introduce the prudential
2. UNISON believes that the Government should
end the discrimination faced by council tenants when choosing
their investment option and secure meaningful choice for council
tenants. A level playing field of investment options should be
created between either:
Direct management by the local authority.
the establishment of an ALMO to manage
properties on behalf of the local authority.
3. UNISON believes that the draft legislation
should be amended to require the Secretary of State to secure
equal levels of investment regardless of the management option
chosen by tenants. In this evidence UNISON illustrates how such
an approach could be developed.
4. UNISON does not support the proposal
to give the Secretary of State the power to use public funds to
meet the costs of penalties associated with the early repayment
of debt and believes that this is an inappropriate use of public
5. UNISON welcomes the publication of draft
legislation that will remove rent rebates and housing (rent rebate)
subsidy from the Housing Revenue Account. The proposals contained
in the draft bill mean that rent rebates should be removed from
the HRA by 1 April 2004, implementing proposals first published
by the Government on 15 December 1998.
6. UNISON is the largest trade union in
the UK, representing 1.3 million workers, 850,000 of which are
in local government.
7. UNISON welcomes the arrangements set
out in the draft Local Government Bill setting out the "power
to borrow" for purposes that are relevant to their functions.
8. The draft legislation provides that local
authorities will be under a duty to determine an "affordable
borrowing limit" and to keep it under review. Local authorities
will be required to "have regard" to guidance issued
by the Secretary of State and specified codes of practice, particularly
the CIPFA Prudential Code.
9. While each authority will set its own
"prudential" limit, breach of that limit is expressly
prohibited by clause 2(1)(a) of the bill.
10. In determining the "affordable
borrowing limit" a local authority will need to consider
its ability to meet the debt charges that arise from borrowing.
A local authorities' ability to meet these debt charges will depend
on the future revenue streams available to that authority and
the forecasts for future capital receipts from asset sales.
11. The White Paper "Strong Local Leadership:
Quality Public Services" envisaged a separate prudential
limit for the Housing Revenue Account. The draft legislation does
not preclude this, but it does not specifically provide for a
separate "affordable borrowing limit" for the Housing
Revenue Account. The Committee may wish to examine whether this
is still the Government's intention.
12. In addition to the Local Government
White Paper, the Bill needs to be seen in the context of the development
of housing policy since the Government was elected in 1997. In
particular the 1998 Comprehensive Spending Review (CSR98), the
Spending Review 2000 (SR2000) and the Housing Green Paper "Quality
and Choice: A Decent home for All".
13. The Government inherited a history of
chronic under-investment in the public housing stock and a fragmented
system of resource allocation. The Comprehensive Spending Review
(July 1998) estimated that in England the "repairs"
backlog in the public housing sector amounted to £10 billion.
The Housing Green Paper (Quality and Choice: A Decent Home for
all, April 2000) went further and estimated the backlog of repairs
and improvements at £19 billion. It argued for a "step
change" in investment in order to address the backlog within
14. Additional resources were slow to arrive.
The Comprehensive Spending Review (July 1998) increased the housing
capital resources made available to local authorities to £1.118
billion in 1999-2000 to £1.811 billion in 2000-01 and £2.305
billion in 2001-02. The Government made it clear that it "expected"
the bulk of these resources to be spent in addressing the backlog
in repairs to the existing local authority stock.
15. In the Spending Review 2000 housing
capital resources made available to local authorities, (instead
of being increased), were dramatically reduced from a planned
£2.305 billion in 2001-02 (CSR98) to £0.705 billion.They
will only rise to 0.793 billion in 2002-03 and £0.842 billion
16. It is worth comparing these with the
housing basic credit approvals made available to local authorities
by the previous Government. These were £1.445 billion (1990-91),
£1.420 billion (1991-92), £1.436 billion (1992-93) and
£1.395 billion (1993-94). (Source: DoE, 8 November 1990)
17. This £1.6 million reduction in
capital resources financed the Major Repairs Allowance (MRA).
The MRA was not provided to address the backlog of repairs and
improvements as, according to DTLR, the MRA "represents the
cost of maintaining the current condition of the stock".
18. The introduction of the MRA also had
the effect of significantly reducing the extent to which HRA surpluses
were being used by the government to offset the costs (to the
government) of rent rebates (housing benefit for council tenants).
This issue is addressed in more detail in paragraphs 39-41.
19. The Housing Green Paper and the Spending
Review 2000 also provided £460 million of additional resources
over a three year period to 2003-04. These resources would only
be available where a local authority established an arms length
housing management organisationnow known as ALMOs. Successful
councils can get £5,000 per property provided these organisations,
once established, secured a 2* or 3* rating from the Housing Inspectorate.
20. The introduction of the prudential framework
provides the Government with an opportunity to enable local authorities
to invest in the existing housing stock without stock transfer
or establishing an ALMO to do so.
21. However, it will be necessary to ensure
that local authorities have sufficient future revenue streams
to be able to do so. This requires either that a specific HRA
subsidy stream is provided or that the assumptions built into
the subsidy formula about rent levels and management and maintenance
allowances produce a revenue surplus that can be utilised to meet
new future debt charges.
22. Currently under the HRA subsidy system,
the government sets guideline rents for each local authority.
In calculating HRA subsidy the government assumes that the local
authority has set its rent at the guideline figure. These guideline
figures are gradually (over a period of 10 years) being brought
into line through the rent convergence framework.
23. Local authorities that set rent levels
below the guideline determined by the government therefore have
to make savings in other elements of the HRA budget to meet this
loss of assumed income.
24. One mechanism that the government could
adopt would be to introduce a guideline rent for HRA subsidy purposes
at a given level below the guideline rent. This would have the
effect of releasing a rental stream that could be taken into account
in calculating the affordable borrowing limit.
25. The table below illustrates the income
that, nationally, could be generated and the borrowing power that
it could generate for different gaps between guideline rents and
HRA subsidy guideline rents. The figures are based on 2.8 million
council dwellings and an assumption that the revenue stream represents
25 per cent of the amount that can be borrowed.
|Gap between Guideline rent and HRA subsidy guideline
||Annual value/property||Revenue stream
||Capital investment that|
could be financed
26. UNISON believes that the Government should adopt
such an approach as a means of providing council tenants with
a meaningful choice investment between:
Direct local authority management
Local authority establishes an ALMO to mange properties
27. The draft Bill amends S79 and S80 of the 1989 Local
Government and Housing Act. Payment of HRA subsidy may be made
subject to conditions.
28. The Secretary of State or the National Assembly for
Wales are given the power to calculate the level of HRA subsidy
payable to an individual housing authority by:
wholly or partly by formulae
taking into account an assessment of:
29. The explanatory notes state that these powers "will,
for example, allow the Secretary of State...to target additional
subsidy to authorities which provide better services to their
tenants, perhaps by establishing arms length housing management."
30. UNISON questions the principle of turning the subsidy
system as a "penalty/reward" framework. There is no
evidence that supports the contention that "arms length housing
management" is intrinsically better than the retention of
direct management by the local authority.
31. The Housing Green Paper argued that tenants and local
authorities would have choices about the future arrangements for
the ownership and management of the local authority housing stock.
Creating a financial framework where additional revenue streams
are available to support new debt charges for only one option
(ALMO) means that choice becomes illusory.
32. The explanatory notes are explicit in stating that
"the purpose of these clauses (48 and 49) is to facilitate
the transfer of council housing to registered social landlords".
33. Currently the Government requires local authorities
to use the "set aside" capital receipt to repay outstanding
debt on housing transferred. Usually the reserved receipt is sufficient
to repay all outstanding debt.
34. In some areas the "reserved receipt" is
insufficient to meet the outstanding debt liabilities leading
to what is sometimes referred to as "overhanging debt".
The draft Bill will enable the Secretary of State and the National
Assembly for Wales to make payments to local authorities in England
to enable them to meet the outstanding "overhanging debt"
whether these overhanging debts arise from Public Works Loans
Commissioners (PWLC) or non-PWLC loans.
35. The early repayment of loans (whether PWLC or non-PWLC)
may also attract the payment of premiums or penalties for early
repayment. The draft Bill also enables the Secretary of State
or the National Assembly for Wales to include provision to meet
these premiums in the payments made.
36. In a recent parliamentary written answer the Junior
Housing Minister revealed that the Government had made significant
financial provision for the payment of outstanding loan debt.
Ms Keeble: [Holding answer Tuesday 26 March 2002] The overhanging
debt payments made to date are £21 million in 1999-2000 and
£256 million in 2000-01. No payments were made in 2001-02.
The projected costs are £500 million in 2002-03 and £800
million in 2003-04. These are estimates and are likely to change
as details of transfer proposals are finalised.
37. The provision of £800 million made for the financial
year 2003-04, is only £42 million less than the national
provision of £842 million for housing credit approvals.
38. UNISON does not support the proposal to give the
Secretary of State the power to use public funds to meet the penalties
associated with early debt redemption.
39. It believes that if resources are available they
should be used instead to increase the level of basic credit approvals
or with the arrival of the prudential framework to finance the
revenue stream needed to support additional investment.
40. Using the resources the government was willing to
make available to finance the repayment of overhanging debt in
2003-04 and the assumptions in the table in paragraph 25 it would
be possible to support additional investment of more than £3
billion in 2003-04.
41. The votes in the Dudley and Birmingham transfer ballots
mean the government's Decent Homes target is now in jeopardy.
The results have reinforced the need for a level playing field
when tenants determine how the decent homes standard will be met
for their homes.
42. Significant meaning must be given to the statement
made by the Secretary of State when asked what happens if tenants
vote no in a stock transfer ballot.
"It is a commitment that will be met irrespective of
any decisions which are taken by tenants" House of Commons
Select Committee Wednesday 16 January 2002
43. UNISON welcomes the publication of draft legislation
that will remove rent rebates and housing (rent rebate) subsidy
from the Housing Revenue Account.
44. UNISON has consistently opposed their inclusion within
the HRA and the practice, introduced by the previous Government
(from 1 April 1990) of offsetting HRA surpluses against housing
(rent rebate subsidy). The cumulative effect of this accounting
practice, since 1 April 1990, has been to reduce rent rebate subsidy
payments to local authorities by in excess of £13 billion.
45. The proposals contained in the draft bill mean that
rent rebates should be removed from the HRA by 1 April 2004, implementing
proposals first published by the Government on 15 December 1998.
46. Local authorities are currently required to set-aside
75 per cent of the capital receipt from Right to Buy (RTB) sales
and 50 per cent of the capital receipt from the sale of land held
in the HRA.
47. For non-HRA capital receipts the set-aside percentage
has already been reduced to zero, allowing local authorities to
re-invest up to 100 per cent of capital receipts from the sale
of general fund assets.
48. The current system for distribution of annual capital
guidelines (ACGs) and basic credit approvals (BCAs) reflects the
level of capital receipts held by a local authority through a
mechanism called Receipts taken into Account (RTIA).
49. The draft Bill removes the requirement to "set
aside" and replaces the system of RTIAs with new pooling
arrangements for a proportion of housing capital receipts.
50. UNISON supports the principle of "pooling"
so that "spending power can be redistributed from richer
authorities to those in areas with a greater need for new housing
investment" provided that "pooled receipts" are
not used for any purpose other than investment in the council
51. UNISON believes that the Local Government Bill offers
the Government the facility to create a level playing field of
investment choices to improve and maintain council tenant's homes.
In this submission UNISON is offering the solutions to this simple