This is an article published on the Inside Housing website under a different heading..
Swindon Tenants Campaign Group raised the issue of cancelling Housing Revenue Account (HRA) debt in a 2016 pamphlet. Later we had a dialogue with John Healey about it. In 2019, when we met him, he asked us to send him an update of the case for cancellation, which we did. Labour’s General Election manifesto didn’t propose cancellation but there was a commitment to review the debt.
The proposal to cancel HRA debt was widely considered to be unrealistic. There was no way the government would do it was there? We did manage to persuade Swindon council to write to the Ministry of Housing asking them to reopen the debt settlement because of a shortage of funding for capital works. Their response was negative probably because they were fearful of other councils demanding debt relief if they gave some to Swindon.
Today the whip of unprecedented events has forced the government to do things which it would never have considered a few weeks ago. One of those was their decision to cancel £13.4 billion NHS debt. This sets a precedent. If it can be done for the NHS why not for the HRA? The HRA debt held by the Public Works Loans Board is around £26 billion. There’s not a great gulf between the two figures when you consider the scale of government intervention in the current crisis.
It is clear that the financial pressures on HRAs are increasing as a result of the coronavirus crisis. Councils are abandoning all work save emergency repairs. Maintenance has been suspended, together with the critical work of renewal of key housing components (roofs, kitchens, bathrooms, central heating). There is a big backlog of work building up.
Whilst in Swindon voids work is still being done only emergency homelessness cases are being placed in properties. As a consequence there will be an increase in rent lost as compared to normal circumstances. This will be replicated elsewhere.
Given the closing down of wide swathes of the economy those tenants who have been made redundant or stood down will struggle to pay their rent. Arrears are likely to rise sharply. Earnings of council tenant households are lower than other tenures. In 2017-18 67.5% of council tenant households earned less than £400 a week, compared to 36.7% for private renters and less than 10% for those with mortgages. Council tenants are often in precarious work which lacks the better conditions that many employees have.
Cancellation of the HRA debt would provide councils with around £1.25 billion a year extra. This was the sum paid to the PWLB in the last financial year to service the debt. As we have explained before, tenants have paid more in rent than the borrowing associated with historic costs of building programmes. Under previous council housing finance systems, between 1994/5 and 2008/9 council tenants paid £91 billion rent. Yet the ‘allowances’ councils were given were only £60 billion. The £31 billion difference was more than historic debt.
Self-financing was introduced because the previous system was unsustainable. A majority of councils were handing over rent to central government. The Audit Commission predicted it would soon be 100% suffering ‘negative subsidy’. In 2004, in answer to a Parliamentary Question, the government admitted that “the 2004-5 level of allowance would have to increase by about 67% in real terms to reach the estimated level of need”. However, when self-financing was introduced the Major Repairs Allowance was uprated only by 28.9% and the Management & Maintenance Allowance by only 5.7%.
New Labour, which had designed self-financing, proposed to increase so-called debt by £3.6 billion. The coalition, which introduced it, increased debt by £6.6 billion. The debt councils were given was not based on an estimate of actual outstanding borrowing. It was the result of manipulation by the Treasury. Tenants, whose rent pays for debt servicing, were being fleeced.
Soon after the new system was introduced the government made changes which resulted in the income of HRAs being significantly lower than estimated in the ‘debt settlement’. They changed the national rent formula from RPI to the lower CPI. They introduced increased discounts for Right to Buy which led to a fourfold increase in sales. As a result HRAs lost much more rent than was accounted for in the ‘debt settlement’. Then the four year rent increase blew a bigger hole in business plans.
The scale of under-funding of HRAs is reflected in the example of Swindon. Its Medium Term Financial Plan shows an income over the course of its 30 year business plan of over £300 million less than projected income in 2012. All HRAs are to one degree or another under-funded to such an extent that they have insufficient funds to maintain and renew their existing stock over the long term.
These are ample reasons for HRA debt to be cancelled. The bogus debt imposed on tenants was an injustice. HRAs were under-funded by the 2012 debt settlement and government action since then. The impact of the coronavirus crisis on their income will deplete it further. An emergency situation requires emergency action. Debt cancellation can mitigate against the impact of the current crisis and its undoubted legacy. At the same time it can begin to rectify the historic injustice which was incorporated into self-financing. Without action on this scale there will be a deterioration in the condition of stock and the living condition of tenants.
Secretary, Swindon Tenants Campaign Group