Being Scottish, we celebrated with only a wry smile of satisfaction at the news that a totem of Thatcherism had been toppled at last.
Right to buy is no longer. Eradicated from the statute books last Wednesday, with one stroke of the pen, three stages of a bill, a parliamentary vote in place of a drumroll: pouf! it’s gone. But celebration might be precipitate: removing the right to buy could just have added to the perfect financial storm heading local authorities’ way.
Make no mistake, the policy was obnoxious: you don’t rob the taxpayer and worse the rentpayer to enable folk to become property owning. And while in its earliest days, many aspirational tenants did indeed purchase and reap the benefit of overly generous discounts, in later years it became a fairly unscrupulous property investment vehicle. I know of situations where older tenants were effectively pressganged into purchase, then forced to apply for housing benefit to pay rent back to their doting offspring. The policy took decent housing stock out of the system, increasing homelessness and condemning thousands to inappropriate and overcrowded living conditions. And it stole from the system. In its earliest days, councils weren’t even allowed to keep the receipts to meet the debt incurred in the building of the homes. That has changed but the damage had been done: housing revenue accounts (HRAs) have been weighed down by debt repayments for decades.
But the burd can’t help thinking this was the right thing to do but at the wrong time. Local authority housing revenue accounts (HRAs) are in trouble and depriving them of right to buy receipts will simply add to their financial woes. There are five key elements in the mix:
- there is much less money coming into HRAs, especially through capital receipts from selling houses and land. Councils project that in 2010-11 over £68m will be raised through capital receipts, which is way lower than the £135.7 million raised in 2008-09 and £227.2 million raised in 2007-08. The sale of land for private housing development clearly played a role in the boom years and the crash in the market has had a detrimental effect. The role played by right to buy receipts has diminished over the years as fewer houses have been sold but losing this source altogether will have an impact, particularly in the short term.
- add to this the impact of housing benefit changes announced by the UK government. The burd has avoided poring over these due to their complexity but given that about two thirds of council rents are currently met through housing benefit, either fully or partially, and the coalition’s aim is to reduce the overall housing benefit bill, it is inevitable that councils can expect less income from this source in the next few years.
- council housing debt levels are increasing rapidly: by March 2011, local authorities estimate that overall debt will total nearly £2.5 billion. In the last three years, the level of debt has increased after a decade of reduction. Higher interest charges as a result of the financial crisis mean councils paying more to service existing debt, but for the first time in a generation – hurrah! – councils are building substantial numbers of new homes. Some of this is funded by government grant but most of the cost is borrowed, thereby adding to councils’ debt levels.
- councils still have 317,700 requiring maintenance and refurbishment : as the stock gets older, the costs of maintaining it increases. Councils fund such revenue expenditure through capital receipts (known as CFCR) and it is used to pay for double glazing, rewiring, new kitchens and bathrooms. All those houses that have been refurbished in the last twenty years will be needing done again soon and of course, all the new houses being built now will require refurbishing down the line too. There will be more to do and less to do it with.
- HRAs have less money in the “piggy bank” (reserves) and more competing pressures for what reserves are available. At the start of this year, there was £192 million in the reserves with councils indicating that nearly £120m was likely to be spent, largely on CFCR activity. And even though councils are predicting a surplus of nearly £100million in this financial year, the level of reserves will drop, because more money is now going out than coming in. There are other pressures too, some of them extremely worrying. Four councils had so little reserves that they had nothing to spend on CFCR and one council, West Dunbartonshire, actually transferred money from general fund reserves into its HRA. Three councils – Edinburgh, Renfrewshire and Shetland – chose to raid the HRA reserve to shore up their general fund reserves and East Lothian did something similar by using HRA reserves to contribute to general fund expenditure. Both these moves are pretty repugnant, for it effectively means tenants paying twice for services, once through council tax and a second time through rent. Expect more of it though as councils desperately try to offset the need for cuts to services.
It’s a fairly complicated picture but essentially debt is rising, income is falling. The less councils make from sales and from rental income, the less they have to spend on servicing debt and on improving housing stock, resulting in greater debt and a greater need to borrow. You don’t need to be a Nobel Prize winner to work out that this will result in a particularly vicious financial circle. Losing right to buy receipts is only one component in that circle but it is an important one.
And it would be a terrible irony indeed if removing tenants’ right to buy contributed to what Thatcher hoped to achieve when she introduced the policy: the end of mass council housing.