Matthew Warburton, Policy Advisor at the Association of Retained Council Housing (ARCH), discusses Theresa May’s announcement to abolish the council borrowing cap.
The system of self-financing for English council housing introduced in April 2012 was widely welcomed by local authorities and the wider housing industry as a key step in unlocking long-term investment and giving councils a real chance to build homes in numbers not seen since the 1970s. There was one fly in the ointment.
Each council’s borrowing for new investment against HRA assets was limited by a debt cap calculated from its notional debt level in the old housing subsidy calculation. This largely arbitrary limit bore little relation to authorities’ actual indebtedness. One in five authorities had no headroom to borrow; others had far more than they were ever likely to need to use.
Since 2012, local government has repeatedly called for the caps to be lifted or abolished. The Labour Party and, since 2015, the Liberal Democrats have made abolition a manifesto commitment. Yet successive Conservative governments have resisted reform. The most they have been willing to concede is the opportunity for selected councils (those in areas of ‘high affordability pressure’) to bid for a share of £1bn in additional borrowing in the three years to 2021/22. A reportedly ‘strong’ set of bids was submitted to MHCLG (Ministry of Housing, Communities & Local Government) towards the end of September this year.
So it came as a complete surprise when, on 3rd October, Theresa May told the Conservative Party conference the Government would scrap the caps. There was no prior heads up of any kind to local government or the housing world. Immediate responses on social media typically included reactions like ‘Wow’ or ‘OMG’. The LGA Chair, Lord Porter, described the announcement as ‘fantastic news’.
However, the announcement seems to have been almost as much of a surprise to the civil servants who will be responsible for implementing it. Journalists asking for the underlying detail were sent away empty-handed. The BBC website initially suggested the proposal would not be implemented until 2022, but later this information was removed.
At the time of writing (8th October), no further detail has emerged and it is widely expected that implementation arrangements will not become clear until the Budget. This has led to media speculation postulating a behind-the-scenes battle between a Prime Minister committed to outright abolition and a Chancellor determined to dilute or delay.
In the meantime, the best local government can do is to demonstrate how much difference abolition of the caps would make in enabling councils to deliver more of the extra homes the nation needs. Although MHCLG has yet to confirm this, it seems likely that the recent bids for extra borrowing approval exceeded the £1bn allocated — demonstrating a real will to build among those authorities entitled to bid.
However bids were only permitted from authorities in areas of ‘high affordability pressure’ — barely half of all stock-retaining authorities. Yet there is virtually no area in England where there is no shortage of affordable housing. We need as many as possible of the councils so far barred from extra borrowing to step forward and say ‘Me, too’ to win the argument for total abolition of the debt caps.