Osborne’s rules threaten to end new council house building

Posted: June 15, 2015 in Benefits

Chilling analysis by Red Brick – which shows why we need to argue the case for housing as a public good…

Red Brick

Requiring governments to run budget surpluses earned the headlines from the Chancellor’s Mansion House speech. But few noticed that he also wants to ditch the principle that borrowing is the best way to fund capital investment.

The reasons for borrowing to invest are obvious: it enables the project to be done now, when it’s needed, and the costs are spread over the project’s life, with accountants following familiar rules to ensure that expected income will more than meet the costs of the debt. Gordon Brown enshrined the principle in the term ‘prudential borrowing’, which has applied in local government since 2003. The rules then encoded by CIPFA have been followed for 12 years without any apparent breach. Any council investment must follow the CIPFA code, with council housing uniquely limited since April 2012 by additional, Treasury-imposed borrowing caps. Nevertheless, the system has begun to produce results for housing. In the…

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