The cap on how much councils can borrow to build housing must be lifted if the Government is to reach its target of delivering 300,000 new homes a year, MPs have said.

A report published today by the Treasury Committee called on the Government to abolish the local authority Housing Revenue Account borrowing cap, which MPs argue limits the number of homes councils are able to build.

The committee found that private housebuilders have consistently provided 150,000 units per year - half the amount the Government has committed to delivering on an annual basis.

In last year's Autumn Budget, chancellor Philip Hammond raised the borrowing cap for councils in areas of high affordability by £1bn.

However, the Treasury Committee argued the cap needed to be removed entirely if councils were to build enough homes to meet the Government's target.

Failing this, Whitehall should define the allocation criteria for the additional £1bn ‘more clearly,' they added.

Committee chairman, Nicky Morgan, said: ‘The chancellor pledged to fix the broken housing market, but the Government is going to find it very difficult to meet this ambition.

‘The increase in the cap on borrowing for local authorities to build homes is a step in the right direction, but it doesn't go far enough.

‘The borrowing cap restricts the number of homes that local authorities could deliver.

‘To achieve the Government target of 300,000 new homes per year, the cap should be abolished.

'The potential of local authorities to build should be unleashed.'

Local Government Association chairman, Lord Porter, said: ‘It is great that the influential Treasury Committee has backed our call for councils to be given the freedom to borrow to build more of the new homes our communities desperately need.

‘This is significant recognition of our central argument about the vital role councils must play in solving our housing shortage.'