HOUSING REVENUE ACCOUNT SUBSIDY DETERMINATIONS (Hansard, 21 December 1989)

§ Lord Hesketh

The Housing Revenue Account subsidy determinations for 1990–91 have been made today. Every local housing authority in England has been sent a copy of the determinations together with provisional figures on which its subsidy entitlement will be based. The figures for each individual authority are subject to change in the light of new information supplied by the authority itself. Copies of the determinations and of the provisional figures for all authorities have been placed in the Library.

The new Housing Revenue Account subsidy was introduced by the Local Government and Housing Act 1989. It replaces the existing main housing subsidy, housing benefit subsidy for rent rebates and the element in rate support grant related to authorities' own housing costs. The total Exchequer subsidy for 1990–91 is estimated to be some £3 billion, a similar sum to the combined figure for the different subsidies this year.

Each authority's subsidy will be calculated in accordance with the formula which is prescribed in the determinations. For 1990–91, the formula assumes that there will be a national increase of 10 per cent. in gross rent income. That produces an average guideline increase of £2.08 a week compared with £1.95 last year. However, unlike previous years, the determinations this year provide for different guideline rent increases in different authorities. The rent guidelines are set by reference to the value of each authority's housing stock, but are subject to a minimum and a maximum guideline increase. We estimate that the maximum guideline increase of £4.50 will apply to 66 authorities, and that 156 authorities will benefit from the minimum guideline increase of 95p, which is less than would be required nationally to keep pace with inflation. Over half of all council tenants are on housing benefit and will not have to pay for any increase in rent because this will be fully rebated.

Overall, the effect is that guideline rent increases are lower in parts of the country where the value of housing is lower, and higher where it is relatively high. Within any area, guideline increases are also lower for authorities with high rents at present than they are for authorities where rents are lower. In this way authorities will be encouraged to move towards a more sensible pattern of rents across the country which relects the value of the housing being provided.

For 1990–91, the subsidy formula provides for an 8 per cent. increase in the provision for management and maintenance expenditure, which allows for at least 3 per cent. growth. The allowance will in most cases be related to authorities' past actual expenditure. There are two additional safeguards for authorities whose past expenditure has been low. First, if their past spending was lower than their allowance for management and maintenance spending under the existing housing subsidy system, then we will base their allowance for 1990–91 on the previous allowance. Second, we have set a minimum allowances per dwelling which will benefit the 10 per cent. of authorities whose allowances would otherwise (after adjustment for regional cost variations) have been the lowest in the country. To provide for the cost of the minimum allowance we 404WA have transferred £30 million from the local authority housing capital expenditure programme for 1990–91. In future years we intend that the provision for management and maintenance should be progressively directed towards those authorities with the greatest needs.

The subsidy formula also takes into account the full cost of loan charges and of rent rebates, subject only to safeguards to prevent double subsidy and to provide an incentive for efficient operation of the rent rebate scheme. The existing system of admissible cost limits for capital works, under which subsidy is only paid on loan charges where the average cost of schemes falls within unit cost limits prescribed by the Government, will be dropped. Rents on leasehold property will also be taken into account in subsidy, but in this case the admissible cost limits will continue to apply for the time being.

The draft determinations were the subject of consultation with local authorities, their associations, and other professional bodies. A large number of representations have been received, in response to which we have clarified and simplified the determinations wherever possible. We intend to publish a new edition of the housing subsidy manual, with practical guidance on the operation of the new subsidy system, early in the New Year.

The combined effect of these proposals is to direct the £33 billion of taxpayers' money which will be paid out in HRA subsidy towards the authorities which most need it.