Alternative ideas for funding the Right to Buy: some ways out for the government on the Housing Bill

There’s not much doubt about it, the government are having a bit of a nightmare when it comes to the Housing Bill, and specifically the forced sale of council homes.

A quick recap for the uninitiated: this is not the Right to Buy, but rather George Osborne’s way of funding Right to Buy discounts for Housing Association tenants. Councils in ‘high value’ areas will be required to auction off a certain number of their council homes to the highest bidder when a tenant moves out or dies, and hand most of the sale proceeds to central government, which is then funnelled to Housing Associations.

The precise definitions are yet to be revealed but the risk is, to raise sufficient funds, the bar for what constitutes ‘high value’ would have be set so low that a number of areas across the country will be forced to sell huge chunks of their stock (e.g 60% in St Albans, 30% in Harrogate, 76% in Westminster would go under one set of proposals floated before the election).

It’s a bit of a Frankensteinien creation – concocted during the heat of an election campaign on the half-basis of a Policy Exchange report – that’s aroused concern from all corners of the political spectrum.

The cross-party Communities and Local Government Select Committee are today the latest to say that the policy is unworkable and should be dropped. They have released a report condemning the policy as “extremely questionable”, lacking robustness, accusing Ministers of having little idea about how it will work in practice (or at least not revealing it), and saying it should just be shelved.

For a committee made up by a majority of Conservative MPs, it’s pretty strong stuff.

They are in good company, though, joining respected Crossbench Peers, Bishops, the Conservative-led LGA, and many of the government’s own MPs in areas of the country likely to be highly impacted, all of who have said the Treasury and DCLG need to think again.

More than that, the numbers don’t really add up – there’s a big shortfall in the revenue the government thinks it needs to raise to pay for the Right to Buy (c.£4.5bn annually) and likely revenue from council sales (c.£1.2bn).

So pointing out the policy is flawed is the easy bit. I suspect many in Whitehall are well aware by now what they’ve lumbered themselves with.

But what are the ways out for the government? Well, firstly, there are a few alternative funding mechanisms for RtB discounts. These would get the government out of a hole but still allow them to  meet their manifesto commitment on Right to Buy for Housing Association tenants:

  1. Equity loans. This has been proposed by Lord Kerslake and Boris Johnson. It would entail the government extending a Help to Buy-style equity loan to Housing Association tenants to cover the cost of the discount. This is not only a more equitable funding mechanism (requiring no loss of council homes), it’s a more secure and reliable one that would much better suit Housing Associations.
  2. General taxation. This was proposed by the CLG Select Committee. There’s obviously not a whole lot of money about at the moment – but how about ring fencing some of the money raised from new stamp duty and capital gains taxes levied on landlords? At around £1bn a year it won’t cover the whole cost, but it will go some way towards it.

Failing that, if the government want to push ahead with forced sales as a funding mechanism, they could put in place the following safeguards:

  1. Like-for-like replacement. A requirement could be placed on the Secretary of State to leave councils with enough of the revenue from forced sale to replace the council home sold. Though this would take a chunk out of the revenues, it would still leave a lot of money flowing to the Treasury each year.
  2. Exempting internal transfers. One of the unintended consequences of this policy is it could lead to local authorities using their stock less efficiently, and tenants being stuck in homes that are too big or small for them. Because the number of homes forcibly sold will be based on when they become vacant, local authorities will do everything they can to reduce vacancies, in order to reduce the homes they have to sell. One way they will do this is to reduce internal transfers as much as possible, stopping tenants who are under-occupying or overcrowded from moving. This runs counter to government policy elsewhere, which is keen to encourage social housing tenants to move on if they are under-occupying or their home is not appropriate for them. Exempting internal transfers from the definition of a ‘vacancy’ would be the minimum that could be done to make this policy work better.

On these last two ideas, Shelter is working with Conservative and Crossbench Peers to push amendments to the Housing Bill to this effect. We will see what Minister’s response is – but there is still time for them to avoid the harsh impact, and political problems, that this policy will end up causing them.