The Liberal Democrat policy to allow councils to pool borrowing limits for housing is a first step, but doesn’t go far enough. It’s disappointing that plans for a wider review of debt definitions look set to be kicked into the long grass.
The Liberal Democrats backed away from their own radical policy on council housing investment this week. While passing a resolution calling for pooling of the borrowing limits on council housing investment, they rejected the policy they adopted last year of abolishing the borrowing caps completely.
The difference between the two is very significant. Although claims have been made that merely pooling the borrowing potential of different councils could produce an extra 25,000 homes per year, I believe they lack credibility.
Any pooling would have to be on a voluntary basis, and it’s unclear how many councils would actually give up their borrowing potential to a neighbouring authority. Even if a council isn’t planning to use its borrowing capacity to build new homes, it may well intend to invest in its existing stock.
Moreover, if a council cedes its borrowing caps to another council, it is likely to want something in return, such as nomination rights to a proportion of the houses built. Such agreements will take time to negotiate and no one knows how much extra building might actually result from them.
The LibDems were hitherto the only major party to advocate abolishing the borrowing caps completely. Their 2012 policy paper Decent Homes for All said explicitly that ‘Liberal Democrats will abolish the “cap” on local authority borrowing for housing investment’.
The Social Liberal Forum’s amendment to Monday’s resolution called for exactly this, but it was not accepted. Yet as the Chartered Institute of Housing and a range of bodies said in last year’s report Let’s Get Building, abolishing the caps could potentially boost house building by 60,000 homes over five years.
Since then, the proposal has gained support from a wide range of organisations and across the political spectrum, but has so far failed to sway George Osborne. The danger is that, by acceding to the much milder demand to allow borrowing limits to be pooled, the Chancellor can draw the sting of the more radical measure.
The conference made a concession to the broader proposal by calling as well for the government to examine urgently whether its debt definitions could be brought into line with those of other European Union countries. The aim would be to make the liabilities of trading corporations (such as council housing) ‘off balance sheet’, thereby allowing more investment.
While the resolution is an awkward summary of a complex argument, it is nonetheless worth pursuing and – if fruitful – offers many more long-term benefits than simply pooling borrowing caps. It would complement and add to the financial freedoms given to councils when their housing operations became self-financing last year.
However, during the debate Nick Clegg dampened expectations. While he suggested that the pooling idea would be pursued quickly within the coalition, the international review was merely party policy. The clear implication was that it would be pushed into the long grass until after the election, as he knows Osborne is unlikely to accept it.
This is a missed opportunity as an official review would at least highlight how Britain’s rules differ from everyone else’s, and potentially make the change easier to sell to any doubters in the markets. After all, the proposal for a change in the rules has gained widespread acceptance over the last year and recognition of the need to build more homes has never been greater.
The LibDems had the chance to adopt a distinctive position on housing that would have marked them out from the other major parties. What a pity they didn’t take it.
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