The HRA borrowing cap explained

Timeline of the HRA borrowing cap

April 2012: HRA borrowing caps are first introduced for all 169 stock-retaining councils as part of local government self-financing reforms. These reforms permitted councils to keep the rents they collected locally for the first time – a move started towards the end of the Labour government.

But the Treasury was nervous of stretching the national borrowing too far, so it set a cap on what could be borrowed. Each authority’s debt level is set based on a complex calculation based on the previous HRA subsidy system.

December 2013: At the Autumn Statement in December 2013, then-chancellor George Osborne produced a trademark ‘rabbit out of the hat’: he would provide councils with another £300m of HRA borrowing headroom, across the whole sector. The move, he claimed, would build 10,000 affordable homes. A drop in the ocean, some said, but for others it was a significant step towards greater borrowing flexibility.

October 2014: However, the bidding criteria for Mr Osborne’s £300m was very strict – including rules around partnering with housing associations and selling off higher-value homes to help pay for development. Some councils also claimed the interest on the borrowing was too expensive. All that resulted in less than half the money being allocated to build a measly 1,700 homes – a fraction of the government’s initial 10,000 target. The programme was eventually quietly wound down.

March 2017: A couple of years passed, with councils continuing to call for more borrowing flexibility and managing to build only around 3,000 homes annually between them. Then, in March 2017, three councils – Stoke, Sheffield and Newark and Sherwood – met officials at the Department for Communities and Local Government, as it was then known. They hoped to strike ‘bespoke deals’ with government on their HRA caps, gaining additional headroom in exchange for promises on housing delivery. They met with civil servants a number of times over the coming months, producing reams of data to aid their case.

May 2017: In an interview with BBC Radio 5 Live, sitting housing minister Gavin Barwell reveals that “innovative” councils will be invited to come forward with bids to increase their HRA borrowing caps as part of the Conservatives’ election pledge to deliver “a new generation of social housing”. It’s the clearest sign yet that the government is open to discussing HRA limits again.

November 2017: At the Autumn Budget, chancellor Philip Hammond announces that government will provide £1bn of additional borrowing capacity for councils in “areas of high affordability pressure”. Inside Housing understands that at least eight other councils had approached government with requests for HRA deals by this time, and Savills research had said that lifting the cap could deliver 15,000 homes.

June 2018: The long-awaited prospectus for Mr Hammond’s £1bn programme is published. It reveals that the £1bn will be limited to areas where average weekly private rents are at least £50 a week more than social rents – excluding Stoke, Sheffield and Newark and Sherwood. It’s also revealed that half the money will be reserved for London boroughs. However, there are less strings attached this time around; councils are told they’ll be able to blend the money with grant or Right to Buy receipts.

October 2018: At the Conservative Party conference, just three days after the bidding for the £1bn programme closes, Ms May announces her plan to ditch the HRA borrowing cap. It comes after Inside Housing reveals the programme is likely to be swamped with demand in London – while councils outside the capital are also known to have thrown in chunky bids. The move is warmly welcomed by the housing world, while Savills suggests it could see 100,000 council homes delivered.