Councils call for ‘urgent’ £644m injection to stabilise housing accounts

An “unprecedented coalition” of councils has called for an emergency injection of £644 million from the Government to stabilise their housing accounts and prevent investment in new homes being delayed or cancelled.

After Deputy Prime Minister Angela Rayner promised a “council housing revolution”, 100 local authorities have now warned that the financial model for council housing finances is “broken”, with a £2.2 billion “black hole” in councils’ dedicated budgets expected by 2028.

The local authorities said the previous government did not honour a 10-year deal agreed in 2012 which would have guaranteed rental incomes and costs were predictable.

They argue that despite being expected to “deliver on their side of the agreement”, policy changes by the Government imposed new costs on councils and restricted crucial income.

The Housing Revenue Account (HRA), which records expenditure and income arising from the provision of accommodation by councils, is ring-fenced for certain transactions relating to housing such as maintenance and management costs.

However, the councils said this system is “now in a perilous state” and a new rent settlement alone cannot fix it.

A report backed by the 100 authorities concludes that unless action is taken to stabilise the system’s “foundations” soon, most council landlords will “struggle to maintain their existing homes adequately or meet the huge new demands to improve them, let alone build new homes for social rent”.

“Rather than increasing supply, the reality is that some councils will have no option but to sell more of their existing stock, on top of Right to Buy sales, to finance investment in an ever-shrinking portfolio of council homes,” it adds.

The councils said: “In recognition of the severe impact the last decade of national policy choices have had on council housing budgets, we call for an emergency capital funding injection of £644 million, equal to the income lost from the 2023-25 rent cap.

“This will stabilise our HRAs in the short term and prevent further waste caused by delaying or cancelling investment plans.”

The Deputy Prime Minister’s recent announcements demonstrate that they know the critical role councils will play in reaching this ambition. However, the reality is that our national council housing finances are on the brink.

The report, commissioned by Southwark Council, also calls for a new “sustainable” HRA model which includes “long-term, certain rent and debt agreements”.

It also highlights the need for reforms to “unsustainable” right-to-buy policies to reduce discount levels and eligibility, as well as protect newly built council homes from sale.

The report also calls for the removal of red tape on existing funding, a new long-term “green and decent homes programme”, and urgent action to restart stalled building projects to avoid “a loss of construction sector capacity and a market downturn”.

Kieron Williams, Labour leader of Southwark Council, said: “This unprecedented coalition of councils – representing every corner of England – is united in our determination to ensure our residents have decent and affordable homes. For families across our country their council home is a foundation – giving them the security needed to put down roots and flourish.

“Our new government has committed to delivering the biggest increase to affordable and social housing in a generation. The Deputy Prime Minister’s recent announcements demonstrate that they know the critical role councils will play in reaching this ambition. However, the reality is that our national council housing finances are on the brink.

“Our five solutions offer the new government an opportunity to turn this around – lifting the council homes we have up to modern, safe, healthy and green standards, and delivering the thousands more council homes that our country urgently needs. By investing in them together, we can transform lives for the better for generations to come.”

A Ministry of Housing , Communities and Local Government spokesperson said: “We are facing the most acute housing crisis in living memory and that is why we are working at pace to reverse the continued decline in the number of social rent homes.

“The Government has already given councils more flexibility to use Right to Buy receipts to deliver more social housing. This is on top of an additional £450 million for councils to secure homes for families at risk of homelessness.

“We have made clear we will give councils and housing associations the stability they need and will set out further details at the next spending review.”