Simple answer to a stupid question

From the Blue-Yellow Corner: Councils in England will be allowed to keep the business rates they collect rather than paying them into Treasury coffers, under new government plans.

Deputy PM Nick Clegg said councils had no financial incentive to boost growth and prosperity in their areas. But he said changes would be "fair" and poorer areas would not get less money than they do under the current system. Business rates are charged on most non-domestic premises, including warehouses shops, offices, pubs and factories.

This is a very good idea, as I explained when The Morbidly Obese one suggested it back in March (it was of course in the UKIP manifesto as well, and I should know because I wrote those bits).

From the Red Corner: Caroline Flint MP, Labour's Shadow Secretary of State for Communities and Local Government, responding to Nick Clegg's speech at the LGA Conference, said:

"Nick Clegg must explain how he intends to localise business rates without pulling the rug from beneath the finances of councils in Britain's most deprived areas. If business rates were completely localised, Westminster Council would gain over a billion pounds*, the City of London would gain half a billion, but many other areas would lose hundreds of millions in vital funding."

That's the easy bit.

Remember that local councils get (say) 75% of their funding from Whitehall and 25% from Council Tax, so keeping it 'fair' is quite simple; on Day One of the transition, each council's central grant is reduced by the amount of Business Rates it could or should be collecting and in future years, the grant is kept constant and it's up to the council to collect as much in Business Rates as possible (any further 'equalisation' makes a mockery of the whole thing, of course).
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So far so good.

What former Housing Minister Ms Flint overlooks is that her successor-but-one, John Healy applied the same good logic to social housing receipts (please read my crash course for an overview of the topic) as the current lot apply to Business Rates, and proposed that instead of councils collecting rents and handing over the proceeds to Whitehall, only for Whitehall to hand it back to pay for the running costs, he would simply allow councils to keep their own rents and pay their own running costs.

So we could do the same exercise with social rents - deduct the amount which councils could or should be collecting in rents and deduct the notional running costs to arrive at a net figure**, which they also knock off each council's current grant and then it's up to each council to maximise rental income/minimise running costs.

As it happens, Council Tax, total (potential) rental income from council housing and Business Rates are of the same order of magnitude - about £25 billion a year each, which would mean that local councils are about 75% self-funded - and all out of taxes and rents on or from land and buildings. If we then doubled Council Tax we could reduce the central grants to more or less nothing and we'd be half way there.

* City of Westminster is a special case, its annual expenditure appears to be about £1 billion a year anyway, in other words to keep things even on day one, if it were allowed to keep all Business Rates receipts (£1.1 billion, as it happens) its theoretical central grant would be negative, so in future it would then have to hand over a net figure to Whitehall, or even better to Transport for London.

** Whether you count 'Housing Benefit' as a reduction in income or as an expense is a separate topic (at present, it's an expense to one government department the DWP and income for another branch of government, local councils), but as far as I am concerned, they might as well scrap it completely and leave it up to local councils to charge below-market rents if they so choose but at their own cost.

DuckSpeak

DuckSpeak is the term used in 1984 to describe people who reel off jargon without really meaning anything.

John Healey gave us a splendid example of this on Radio 4 yesterday morning, the clip is here, ostensibly he's talking about the NHS but actually he's just talking.

Outbreak of commonsense...

... at the DCLG:

Local authorities in England should keep council house rents instead of having them gathered up by Whitehall, Housing Minister Grant Shapps has said. But in return some councils will take on additional housing debt...

The Housing Revenue Account subsidy system currently requires councils to pay council house rents and the majority of receipts from any land or home sales to central government. Ministers then decide how best to redistribute the money back to councils.

Or more to the point, they are continuing with the project which the last Housing Minister in the previous government started, but it's all good.

Outbreak Of Commonsense at the DCLG

Further to point 4 of my recent Crash course in social housing etc, it looks as if they are about to revoke this earlier act of Whitehall-knows-best madness, with all its unintended consequences.

From 24 Dash:

Proposals have finally been tabled to scrap the complex system of cross-subsidies for council housing in England, and allow local authorities to maintain and build homes using their own funds from rents and sales...

Mr Healey said that the four million people who live in England's 1.8 million council properties will get better homes and better services under the new system, which now goes out for consultation with local authorities.

Under the Housing Revenue Account (HRA) system, introduced in 1935, money from rents and sales of land and homes is sent by councils to Whitehall, where the DCLG manages the national housing debt and redistributes funds to the 177 local authority areas according to a complex formula.

The new self-financing system would allow councils to keep their cash and decide for themselves how to spend it on maintenance, refurbishment and repairs of social housing. In return, councils will be asked to take on their share of a £3.65 billion debt* . Town halls will also be able to borrow more cash to fund refurbishment and house-building projects.

"This is a once and for all settlement between central and local government," said Mr Healey, "It will bring council house funding up to date, replacing a system which was introduced before the Second World War. Councils will get the freedom to fund and run their council homes, without central Government subsidy.

"Not a single penny from rents or sales will go to Whitehall and not a single penny will subsidise other councils as the current system dictates... This is a change which councils have been calling for, and which has cross-party support. This is an opportunity for radical change which will allow councils to do much more to provide better services and better meet the needs of local people."

Excellent. One more thing I can tick off from my manifesto. If nothing else, at least it puts local councils on par with Housing Associations.

Also of note is the statistic that "Every year as a country we are raising £6 billion a year from council house rents", i.e. an average weekly rent of £64. I strongly suspect, having calculated this before, that this is the gross figure before deducting Housing Benefit, which 'pays' half of that £6 billion and so isn't real income. If it were up to me, I'd scrap centrally-funded Housing Benefit as well and leave it to councils to sort out as best they can (by hiking rents on their nicer properties, chucking out non-payers or identifying sub-letters, for example).

* Which sounds like a lot, but it works out at about £2,000 per council home.