THE government has introduced a Statutory Instrument in Parliament to cut the discount for tenants when they buy a home through right to buy (RTB).

Discounts were increased by the Tories in 2012. Maximum discounts are currently £136,400 in London and £102,400 elsewhere. The discounts will be returned to pre-2012 levels; from £16,000 to £38,000, depending on the region you live in (see table below). These reduced discounts will be applied from November 21.

Current restrictions mean that councils can only cover 40 per cent of the cost of a new build home with RTB receipts, and cannot combine them with money from section 106 agreements, in which developers make contributions for “affordable housing.” The government is ending these restrictions, so it is effectively up to councils how they use receipts.

In addition, the government’s policy paper says that: “The government, at autumn Budget, confirmed that councils will no longer be required to return a proportion of the capital receipt generated by the sale of the home to HM Treasury, which has totalled £183 million a year. This will ensure that councils are better able to replace homes sold under the scheme.”  

This was always a travesty since in 2012, there was a “final debt settlement” which involved 136 councils being loaded up with more “debt,” to the tune of £13.2 billion. Therefore, for the government to be taking part of the receipts for sales was daylight robbery, so this is a welcome change.

The government’s estimate is that, with the lower discounts, average sales will fall to 1,700 a year. Receipts will be a lot higher than currently. Even so, councils will still have to borrow to cover the rest of the cost of new build, and interest rates are prohibitive.

The previous government gave a 0.6 per cent lower rate of interest on loans from the public works loans board for building housing. Labour is proposing to keep that rate rather than increase it.

The current interest rate for a 30-year maturity loan (you repay the loan at the end of the period) is 5.83 per cent. So councils face a rate of 5.23 per cent, as compared to slightly under 2 per cent as recently as March 2022. Borrow £10 million, and it will cost you £523,000 in annual interest, which has to come from the Housing Revenue Account (tenants’ rent).

While there will be a big fall in sales as compared to currently, the problem is that by reducing discounts by means of a Statutory Instrument, another government can simply reverse the changes by the same means, without discussion.

Consultation on ‘wider reforms’

There will also be a consultation on “wider reforms” of RTB.

“A public consultation is being launched shortly seeking views on wider reforms to the RTB scheme to further support the government’s objective of achieving a sustainable scheme that enables long-standing tenants to buy, protects new build stock, represents good value for money and enables councils to develop their capacity to build new homes.”

This appears to exclude ending RTB since the consultation is “to further support the government’s objective” of enabling “long-standing tenants to buy.” This is a common feature of government consultations where the parameters are limited to what they want.

The consultation will consider amending discount percentages (currently 35 per cent after three years’ tenancy for houses, 50 per cent for flats, then 1 per cent a year for every year after five) “to better align with the new maximum discounts.” Apparently, this requires primary legislation, so they will have to introduce a Bill.

Since they will be introducing a Bill, there is no reason why it could not be one simply to abolish RTB, which will reduce the loss of homes to zero.

Prior to the introduction of the policy, council housing facilitated home ownership insofar as the reasonable rents enabled tenants to save a deposit for a mortgage on the market, hand back the keys to the council, and free a home for a household on the waiting list.

The rationale of the Labour leadership for not ending RTB was that the Tories would accuse them of being “opposed to aspiration.” Yet given the fact that the government is attempting to stem the loss of homes  —  make it more difficult to buy — they will be criticised no less than if they abolish RTB.

Acute council housing shortage

The acute shortage of council housing is reflected in the 1.3 million households on the housing waiting lists, 117,000 households in temporary accommodation, including 151,000 children, and millions forced into the expensive and often poor-quality private rental sector.

There are less than 1.6 million council homes left in England. New tenancies are few and far between. In 2022-23, only 55,000 council lets were to new tenants. It therefore makes no sense to defend a “right” that very few people will, in any case, be able to take up.

One of the consequences of the continuation of the policy is that 40 per cent of homes sold end up in the private rented sector and drive up the housing benefit Bill as a result of the much higher rents.

RTB was nothing less than the privatisation of local government assets — asset stripping. It was introduced by Thatcher as a means of undermining electoral support for Labour on council estates. It was designed to promote self-interest and disregard for the social consequences of the loss of each home to a council.

Abolition of RTB

Since Labour included the abolition of RTB in its manifesto in 2019 when it was debated at the Labour conference, a big majority of the members and affiliates have supported it. It’s high time that England followed Scotland and Wales in abolishing it.

Every home lost is lost to those on the waiting list. Fifty per cent of homes sold are scarce three-bedroom family homes. Councils lose the rental income as well.

Abolishing the policy would ensure that, for the first time since 1980, every new home built or bought would increase the council housing stock. Councils need to be freed to increase the stock rather than have to build to replace lost homes before they can increase their number.

The scale of the housing crisis is reflected in rising homelessness. Councils have to house increasing numbers in temporary accommodation (many in intolerable conditions), the cost of which is driving some of them to the financial edge.

This deteriorating situation makes abolishing RTB a critical starting point for a renaissance of council housing. We cannot afford to subsidise tenants who are privileged to have a council tenancy to become homeowners at the expense of those who are in desperate housing need.

Martin Wicks is secretary of the Labour Campaign for Council Housing.