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Categorized | Property

Housing change adds £60bn to UK debt

Posted on October 30, 2015

BRISTOL, ENGLAND - APRIL 17: The sun illuminates properties that were recently built by a housing association to provide affordable homes in a mixed use development called J3 on April 17, 2015 in Bristol, England. Housing, like the economy and the future of the NHS have become key election issues in the general election being held in the UK next month. (Photo by Matt Cardy/Getty Images)©Getty

New homes built by a housing association in Bristol

Housing associations have been reclassified as public sector bodies by official statisticians in a move that will add about £60bn to government debt, an increase of 4 per cent.

The decision could potentially lead to fewer homes being built as the government seeks to control borrowing, say the housing providers.

    The government said it would attempt to reverse the change by loosening its control over the sector “as quickly as possible”.

    The Office for National Statistics said it had made the decision because the 1,300 or more regulated social housing providers — which previously existed as privately financed philanthropic organisations — were “subject to public sector control” under European law.

    Housing associations’ bank and bond debt will also be added retrospectively to public sector net debt going back to 2008.

    Because cutting the national debt is a Conservative pledge, the ONS decision to add £60bn — equivalent to 3.2 per cent of gross domestic product — is potentially a setback for the government. The ONS had estimated the public debt burden peaked last December at 81.6 per cent of GDP and had drifted down to 80.8 per cent in July.

    The quest to cut borrowing had led to fears that the government might seek to limit housing associations’ debt once it appeared on the public balance sheet — in turn hampering the associations’ ability to build homes.

    We will bring forward measures that seek to allow housing associations to become private sector bodies again as soon as possible

    – Government official

    Ministers have sought to allay such fears. “We will bring forward measures that seek to allow housing associations to become private sector bodies again as soon as possible,” said a government official.

    The Office for Budget Responsibility, which provides independent forecasts for the government, has previously said that a cut to social housing rents announced in the Summer Budget would also add to public sector net debt after the reclassification, since it would, in effect, become a cut to public sector income.

    That cut is set to reduce landlords’ income from rents by £2.5bn a year, according to the Institute for Fiscal Studies think-tank. The ONS will provide more information on the effect of the extra debt in late November.

    The ONS began reviewing housing associations’ status in September after the government said it would force them to make their properties available for sale under the Right to Buy scheme, although it later reached a voluntary agreement with the associations instead.

    The statisticians said their decision on Friday was based on the Housing and Regeneration Act 2008, a law brought in under the former Labour administration that gives the government powers over the providers.

    The National Housing Federation, which represents affordable housing providers, said it was “disappointed” by the reclassification, which could potentially lead to fewer homes being built if the government did seek to control housing associations’ debt.

    “We therefore welcome the government’s commitment to take the necessary steps through deregulatory measures in the housing bill to address the issues raised in this decision,” said David Orr, chief executive.

    The last organisation to be reclassified by the ONS was Network Rail in 2013, after a change in EU rules. That decision added £30bn to the government balance sheet.

    Housing associations began to receive substantial public funding in the late 1980s and then raised private borrowings to take over ownership of council homes that were sold off by local authorities when they could not afford to maintain them.

    They build one in five of all new homes across Britain, and house one in 10 British households. George Osborne, the chancellor, has previously threatened the associations with a “more confrontational relationship” if they fail to start building more homes.