Labour MPs urge chancellor to forgive councils' debt to boost house building

Labour MPs are urging the Treasury to forgive billions of pounds of legacy debt owed by councils to support Andy Burnham's pledge for a post-war housebuilding boom.

Local authorities with Housing Revenue Accounts (HRA) are servicing around £30bn of debt to central government as a result of a financial settlement drawn up in 2012.

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Sky News understands that 30 Labour MPs have signed a private letter asking Chancellor John Healey to consider a debt relief programme, arguing that paying back the money is limiting the ability of councils to invest in new housing stock.

One of the signatories said it was a "critical issue" that an increasing number of MPs were raising with ministers.

They told Sky News: "Councils are approaching their capacity to borrow. The rate of new building will be incredibly slow as it's a fundamental blockage in the system. We've got to get a grasp on it."

The letter was written by Liverpool Wavertree MP Paula Barker, who said the debt was a "significant barrier" in HRAs - which are the ringfenced landlord accounts of councils that own over 1,000 homes.

MPs who signed said the issue was gaining growing recognition in parliament following research by housing charity Shelter, which found that cancelling the debt could unlock the capacity to build an additional 280,000 homes for social rent.

Shelter said councils collectively spend around £1bn a year paying the Treasury interest on the debt, and the cost of wiping it off would be offset by the benefits of building more homes and ending the use of temporary accommodation, with an estimated 1.3 million households on waiting lists.

A decision is not expected in tomorrow's budget. However, the chancellor is expected to provide an additional £1bn for social and affordable housing, as well as making it easier for councils to borrow with preferential interest rates.

MPs who spoke to Sky News said this was a positive step - but that wiping out HRA was still necessary in the long run.

The additional funding comes on top of a previously promised £39bn to build around 300,000 social and affordable homes over a 10-year period. The first grants were allocated in August and mostly went to social housing providers rather than councils.

However, Mr Burnham has been clear he wants to focus on the delivery of council housing. Shortly before he became prime minister, he promised the biggest such building programme since the Second World War.

MPs in areas with high need see action on HRA debt as crucial, saying grant money is typically not enough on its own to meet construction costs, with additional investment required.

Jayne Kirkham, the Labour MP for Truro and Falmouth, said Cornwall's HRA legacy debt was approximately £92m and "as such there is no capacity to borrow to build or match Homes England's funds".

Fellow Labour MP Apsana Begum, whose constituency includes Tower Hamlets, where there are 3,000 people on temporary waiting lists, said the HRA settlement had left local authorities like hers "hamstrung".

She told Sky News: "Even servicing the interest on this debt costs millions per year. If this government wants [to] realise its ambition of council housebuilding at scale, then it is clear that this settlement must be reviewed as a priority".

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The debt is a result of self-financing reforms agreed by the previous Tory government, where local authorities took on the debt in exchange for keeping all of the rents they received to maintain and build homes.

The initial amount was £29bn, based on assumptions about future rental income, investment and inflation.

But Shelter said that had been undermined by mandated rent reductions, higher Right to Buy discounts and new regulatory standards, raising the debt level to £31.8bn.

The government is introducing new restrictions on Right to Buy in its Social Housing Bill progressing through the Commons.

The Margaret Thatcher-era policy let tenants buy council homes at a discounted rate but has been blamed for depleting social housing stock, as only a fraction of those sold off have been replaced.

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