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There is general agreement that the private sector cannot meet the Government's target of two million new homes by 2016. But local authorities could certainly develop more affordable homes for rent. The Budget allocation of £100m for additional council housing signals loudly the need for other funding paths. With the waiting list for council housing forecast to reach five million by 2010, £100m amounts to only £20 per person. There is simply not enough money in the system to build the new houses under current rules. It is time to open up real debate over those rules. Local authorities are allowed, using prudential borrowing, to acquire cash for new council housing, but in practice, this is limited. The prudential code requires borrowing to remain within the limits of what can be repaid from revenue in the medium term. Borrowing must not utilise the value of the council housing as assets or future rental streams. Yet there is real potential to borrow more. For the Government, the biggest obstacle is that additional borrowing would add to the already-problematic level of public debt as currently defined, the Public Sector Net Cash Requirement (PSNCR). Yet most of Europe defines public debt as the General Government Financial Deficit (GGFD) – a measure which excludes borrowing for social housing. Understandably, any government would fear that to redefine public borrowing would invite accusations of ‘fiddling the figures' from the opposition. But borrowing for housing by local authorities would be borrowing for solid, tangible assets not general government borrowing against future tax revenues. CIPFA's supplementary guidance on the prudential code and indicators for impact on council tax and housing rents can be downloaded (free) from the CIPFA website at www.cipfa.org/pt/prudential_framework.cfm Lesley Lodge is finance and policy manager, CIPFA

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FINANCE

Money Matters

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