Treasury Committee calls for end to borrowing cap to ‘unleash’ council potential

The Treasury Select Committee has today called on the government to scrap the controversial Housing Revenue Account cap.

Generally opposed by local authorities, the cap stops councils from borrowing more than a fixed amount of money for housebuilding and development.

However, with the government keen to chase its 300,000 homes-a-year target, the committee has recommended the removal of the cap, allowing more funds to be created for housing.

It argues that the private sector has consistently provided around 150,000 homes every year, which means there needs to be an increase in public housebuilding for the government to be able to hit its targets.

Committee chair Nicky Morgan, said: “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.”

Councils have already asked the government to end the policy on a number of occasions, and the LGA has come out in support of the Treasury Committee’s decision today, describing it as “one of the most pressing issues” faced by the country.

LGA chairman Lord Porter, commented: “We now urge the Treasury to act on the Committee’s recommendation and use the upcoming final Local Government Finance Settlement to completely scrap the cap on the amount councils can borrow to build.

“It also needs to allow councils to be able to keep 100% of receipts from properties sold through Right to Buy to replace homes and reinvest in new housing. A genuine renaissance in council housebuilding would not only increase housing supply but boost home ownership and reduce homelessness.”

The continuation of Right to Buy (RTB) has been closely tied to borrowing, with the government’s latest housing figures showing that new properties need to be added to ensure there are enough houses to continue the policy.

The LGA has also asked that councils be allowed to keep 100% of the RTB receipts, to be funnelled back into housebuilding costs, pointing to the upcoming Local Government Finance Settlement as an opportunity to implement this new policy.

Chancellor Philip Hammond used last year’s Autumn Budget statement to put a number of housing plans in place meant to improve people’s ability to purchase homes, including the removal of stamp duty for the first £300,000 of a home’s value.

The announcements brought criticism from councils for not going far enough, with the failure to remove the borrowing cap high on the list of complaints.

PSE has approached the Treasury for comment.

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