THE government is consulting on the introduction of a new rent policy from April 2026. It runs until 11.45pm on December 23 2024.

The government is consulting on rent policy for council and housing association homes for 2025/26. It is proposing that a rent formula of a maximum of CPI+1 per cent for five years be introduced, although it is prepared to consider it for up to 10 years. Housing Associations and some councils will press for 10 years. This was the Tory government’s policy introduced in 2020, for five years.

What is the argument of the government for the formula of above-inflation rent increases for some of the poorest people in the country? Essentially councils and housing associations don’t have sufficient money to deliver new homes.

The consultation document says: “Registered providers’ expectations about future rental income, their single biggest source of turnover, underpins their business plans and hence strongly influences the financial capacity they have available to deliver new homes.”

The emphasis is definitely on housing associations that borrow from private lenders since it says: “Expectations about future rental income are also important to lenders and to potential new investors in social housing, and partly determine the terms on which registered providers can raise capital… Given the pressing need to expand the supply of social housing, the government must take these effects into account when setting rent policy.”

It does admit to insufficient funding for councils: “In aggregate across all 162 council landlords with Housing Revenue Accounts (HRAs), spending has exceeded turnover in three of the past four years, with councils having to use their reserves to plug the shortfall.”

But they borrow from the Public Works Loans Board and that depends on government funding.

While the consultation document makes reference to the financial impact on tenants whose rent is not covered by Housing Benefit (HB) or Universal Credit Housing Element (UCHE), it fails to mention one factor related to UC. Whereas if you are on HB you are guaranteed whatever you qualify for on your rent, with UC you are not. If you earn “too much” one month, or you have a change of circumstances, you may get nothing.

It's no secret that “eating or heating” is a choice facing many tenants. Above-inflation rent increases for at least five and possibly 10 years will simply ramp up financial pressure on those who do not have all their rent covered by HB or UCHE. Some are also impacted by the increase in the maximum bus fare and other factors. Many have had their rent increase by 14.7 per cent over the last two years.

The Chartered Institute of Housing observes that: “In theory it would be possible to change rent policy to allow rents to increase faster and to a higher level – but there would be extra costs in terms of increased benefits payments and risks in terms of social rents beginning to approach or exceed market rents if this was pursued over an extended period.”

What will the extra 1 per cent raise each year? It will be somewhere in the region of £74 million for English councils. Compare that with the demands of councils in their “Securing the Future of Council Housing” document, see 1). The financial crisis is so severe that they have called for:
• £644 million for two years as a result of the impact of inflation;
• £12 billion over the next five years for bringing council housing up to EPC C;
• £23.5 billion for decarbonising existing stock.

In the light of this £74 million a year is negligible. A regime of above-inflation increases is also self-defeating since it will increase the housing benefit which is paid for by central government. It is also likely to push up rent arrears as well, see 2).

More debt?

The premise of the document appears to be that there will be little money coming from the government and the main driver of new build is going to be housing associations. However, it seems unlikely that they will be keen to take on more debt, especially when they are spending more money on their existing homes as a result of the new Customer Standards they have to adhere to.

They are subject to inspection by the Regulator of Social Housing. In its annual Sector Risk Profile, in October 2024, the RSH said: “Constrained financial headroom reduces the capacity for the sector to manage downside risk and increases the risk that governance failings will lead to financial distress. While it continues to retain many sources of financial strength, including a strong liquidity position, the private registered provider (PRP) sector’s weakening financial position has continued to intensify. Last year, and for the first time since 2009, the cost of servicing debt exceeded net earnings.”

The Risk Profile was described as “25 pages of depression, doom and gloom.”

Councils are hardly likely to take on more borrowing when their financial situation is so precarious. The Chartered Institute of Housing has estimated that in order to be financially sustainable the government should relieve them of £17 billion of the debt they are encumbered with.

There is a long-standing strong case for cancelling HRA debt.

It has to be said that there is a question mark over the future of council housing, not only because the government thus far is not prepared to devote funding on the scale that is needed but because the parlous condition of some existing council housing is beginning to emerge as a result of the investigations of the RSH.

Of the 17 councils that have so far been graded, nine have been given C3 (serious failures), one C4 (even worse). Of those investigated but not given a grade so far, 15 are deemed in breach of Customer Standards.

Taking £74 million extra a year off of tenants will do little to address this crisis. It is a substitute for sufficient government funding.
 
It is ironic that the government admits that HRAs have insufficient funding, when it has signally failed to commit to increasing funding on the scale that is necessary for councils to maintain and improve their existing stock.

It is asking tenants, many low paid, to subsidise new builds through their increased rent.

The response of our campaign to the consultation will therefore be:
• For maximum rent increases to be limited to inflation.
• The government should end “affordable rent” (up to 80 per cent of market rent”), see 3).
• Increased funding for HRAs and grant for new builds/acquisitions, and
 All grants from the Affordable Homes Programme should go to “social rent” homes.

We are calling on all organisations supportive of council housing and council tenants to put in a submission to the government’s consultation, opposing above-inflation rent increases. You can send in your comments to [email protected] or do them online.

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