Right-to-buy battle looms in Lords

http://www.theguardian.com/society/2015/jul/18/right-buy-battle-lords-housing-association

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The Tories’ plan to extend the right to buy to housing association tenants will face stiff opposition in the House of Lords this week, amid growing concern that it will compromise the independence of charities and add hugely to government debt.

In a move that has support from a cross-party group of peers – as well as the former head of the civil service, Lord Kerslake, who is a crossbencher – Labour has tabled an amendment to the charities bill that would pave the way for a prolonged parliamentary battle over one of the most controversial policies outlined in the Tory manifesto.

Senior figures in Whitehall have told the Observer that the Treasury is increasingly concerned about forcing housing associations to sell their properties, fearing it could add up to £60bn to government debt and mean the Treasury has to step in to fund subsidies to buyers.

Related: Tory right-to-buy plan threatens mass selloff of council homes

The policy has already been criticised by many in the housing industry, as well as by business organisations, who say it was drawn up in haste when the Tories feared losing the election, while the London mayor, Boris Johnson, has voiced concerns about its potential negative effects on housing stock in London.

In its report accompanying the budget earlier this month, the Office for Budgetary Responsibility (OBR) warned that if the government forced independent housing associations, which are charities, to sell off their stock this could mean they would have to be treated for accounting purposes as part of the public sector, which would have to take on their liabilities, adding £60bn to the national debt.

The OBR also said that the decision of the chancellor, George Osborne, to impose a 1% annual rent cut on the social rented sector from April 2016 would have further adverse effects, reducing the income of social landlords and therefore restricting their ability to invest in badly needed new housing.

The OBR said there was “a risk that government policies – including the social rent measure in this budget and the right-to-buy proposals… could prompt the Office for National Statistics to reconsider this classification.

“If housing associations were to be classified as part of the public sector, their approximately £60bn of debt would be added to the public sector net debt, while the social rent reduction announced in this budget would increase rather than decrease public sector net borrowing, because the full amount of the rent reduction would then reduce public sector income, and outweigh the housing benefit and other expenditure savings.”

The warning from the OBR has emboldened critics of the proposals, who say they say they are unworkable, not least because they rest on the assumption that local authorities will sell off their most expensive properties in order to help fund the subsidised sale of homes by housing associations to tenants who want to buy. A senior Whitehall source said last week said that local authorities would not be able to bring about the level of sales in time.

Related: Right to buy: how will it work?

Labour’s amendment does not specifically mention housing associations but would have the effect of protecting them from having to sell off assets. One of the peers opposed to the plans, the crossbencher Lord Best, said: “At present only the grants these bodies receive from government count as public expenditure. So their borrowing from banks and building societies adds nothing to government debt. All that changes if housing associations are classified as public bodies. The £60bn they have already borrowed would be added to the national debt and all their new borrowing – around £4bn this year – would be added to the government’s annual deficit.”

“If compelling housing associations to sell their homes – and compelling them to use the proceeds to try to replace them – leads to these bodies being classified as public bodies, government finances will take a huge hit. And government would then feel obliged to curtail drastically further borrowing by housing associations: which would stop them delivering the affordable homes the nation so clearly needs.

“There are other extremely good reasons for not pursuing the latest right-to-buy sales policy. But this may be the one that causes the Treasury the greatest concern.”

David Cameron insists the government is committed to bringing forward legislation on the extension of right to buy later this year. But Emma Reynolds, shadow secretary of state for communities and local government, said: “Plenty of experts have warned that the government’s plans to extend the right to buy are uncosted, unworkable and risk making the affordable housing crisis worse.”