Government expects annual £1bn of council borrowing once debt cap is scrapped

Councils can access cheap borrowing from the Public Works Loan Board, a government agency which provides funding to public bodies in the UK.

They are required by law to borrow “prudentially” – only taking on what they can afford to repay – which will be the only limit on take-up, according to the source.

Councils will not be required to bid for the power to borrow, as they will be borrowing against their own assets.

The loans can be secured against the council housing stock they own and repaid via the rental income from these properties.

A wide range of housing bodies and experts have spent years calling for the government to lift the debt caps on council house borrowing including the influential House of Lords economic affairs committee.

A report last year by housing consultancy Savills estimated 15,000 homes could be built by lifting the cap.

In her speech to the conference today Ms May said: “The last time Britain was building enough homes, half a century ago, councils were making a big contribution…

“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 development.

“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.”

Inside Housing has asked the Ministry of Housing, Communities and Local Government to provide further information on the policy, including when it will be implemented.

The caps were first implemented in 2012, when councils were given the right to retain their own rental income rather than returning it to the Treasury.