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Councils say scrapping debt cap will boost housebuilding capabilities
Council leaders have said that plans to scrap the borrowing cap would enable them to increase their building rate and replace more of the homes lost through the Right to Buy.
Prime minister Theresa May said during her speech to the Conservative party conference on Wednesday that the borrowing cap would be removed, but gave no further detail on when this could happen.
Local authorities cautiously welcomed the news, and said that more detail was needed.
Paul Smith, cabinet member for housing at Bristol City Council, said the local authority would “definitely be up for building council houses at scale”.
The council had last week applied for £42m of funding from an extra £1bn of headroom which chancellor Philip Hammond announced in last year’s Autumn Budget, which was available to areas with high demand.
Mr Smith said this money would allow the authority to increase its council housebuilding from 60 homes a year to more than 120. “If the cap is removed we could potentially build even more,” he said.
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Rebecca Rance, chief executive of Newark and Sherwood Homes, said lifting the cap “enables us to have the flexibility to choose what we can do”. The ALMO had been trying to agree a bespoke deal with the government for extra borrowing headroom, and had been turned down from accessing the £1bn fund.
It currently builds around 70 homes a year, but Ms Rance said scrapping the cap “absolutely will help” the programme in the future.
Nick Murphy, chief executive at Nottingham City Homes, said the council’s debt cap had limited its ability to replace homes lost through the Right to Buy.
“The Right to Buy receipts that the council has in excess of the debt cap equates to another 200 homes just with the existing receipts. [Scrapping the borrowing cap] opens the door for a sustainable building programme for the future,” he said.
John Bibby, chief executive of the Association of Retained Council Housing, said: “It’s amazing, it’s exactly what we’ve been asking for.
“What we don’t know is whether there is going to be a bidding process, what that process is going to be and how much it’s going to be raised. I’m sure there will be some sort of restrictions on it in some way. We have argued in the past that it should be based on the prudential rules that apply to the general fund – that would free up quite a lot of finance for councils to build.”
Conservative Party sources told Inside Housing that the cap would be based on prudential rules and would contain no formal bidding process.
However, the government is yet to officially confirm any technical details about the change.
Eamon McGoldrick, managing director of the National Federation of ALMOs, said: “Obviously it’s fantastic news. It’s the result of a lot of hard work and lobbying by individual councils and the sector organisations. I’m assuming that they probably have had a big response to the £1bn bidding programme.
“It also starts to balance out Theresa May’s speech to the National Housing Federation conference last week – there was a feeling afterwards that housing associations were the only game in town.
“We are assuming there’s going to be some rules around it still. I think it may be restricted to borrowing for new build and I would have thought the government will want to see mixed-tenure development.”
More on the HRA cap announcement
Government now appears to recognise the role of councils - but it needs to scrap Right to Buy Terrie Alafat finds much to like in Theresa May’s council borrowing cap announcement, but wants the government to go much further
New council house borrowing will be under prudential rules, says Porter More details of how new council borrowing rules are likely to work, from the chair of the Local Government Association
More details to come in Budget on borrowing cap The government has been unable to provide any further detail on its plans to scrap the borrowing cap, saying more information will follow in the Budget later this month.
The HRA borrowing cap explained A useful explainer of the context to the council borrowing cap along with a timeline of the story so far
Councils say scrapping debt cap will boost house building More reaction from local authorities
Scrapping HRA cap ‘could see 100,000 homes built’ Details of estimates from Savills on the potential impact of the government’s decision
May’s HRA announcement deserves its warm welcome – but the Budget will be the real test Blogger Jules Birch picks over the announcement
Sector heralds lifting of the borrowing cap as excellent news Reaction to the HRA cap axe from across the social housing sector
Government expects annual £1bn of council borrowing once debt cap is scrapped The first indication of the amount of borrowing ministers are expecting once the cap is no more
Theresa May announces plan to scrap council borrowing cap All the details of Theresa May’s surprise announcement
May's Conservative Party conference speech: the housing bits in full
Below is the text of the housing section of Theresa May's party conference speech:
"Last year I made it my personal mission to fix another broken market: housing.
We cannot make the case for capitalism if ordinary working people have no chance of owning capital.
To put the dream of home ownership back within their reach, we scrapped stamp duty for most first-time buyers – and over 120,000 households have already benefited.
We’ve helped half a million people onto the housing ladder through other schemes like Help to Buy.
And this week we have announced that we will charge a higher rate of stamp duty on those buying homes who do not live and pay taxes in the UK, to help level the playing field for British buyers.
The money raised will go towards tackling the scourge of rough sleeping.
But the truth is that while these measures will help in the short term, we will only fix this broken market by building more homes.
And that is what we are doing.
More new homes were added to our stock last year than in all but one of the last 30 years.
But we need to do better still.
The last time Britain was building enough homes – half a century ago – local councils made a big contribution.
We’ve opened-up the £9 billion Affordable Housing Programme to councils, to get them building again.
And at last year’s conference I announced an additional £2 billion for affordable housing.
But something is still holding many of them back.
There is a government cap on how much they can borrow against their Housing Revenue Account assets to fund new developments.
Solving the housing crisis is the biggest domestic policy challenge of our generation.
It doesn’t make sense to stop councils from playing their part in solving it.
So today I can announce that we are scrapping that cap.
We will help you get on the housing ladder.
And we will build the homes this country needs."
Speech given to the Conservative Party conference on 3 October, 2018.
