Consultation outcome

Use of receipts from Right to Buy sales: Government response to the consultation

Updated 19 March 2021

Introduction

1. On 14 August 2018, alongside the Green Paper: A New Deal for Social Housing, the Ministry of Housing, Communities and Local Government (MHCLG) published a consultation on how local authorities could use the receipts they obtained from sales of council housing under the Right to Buy to deliver replacement homes, and how those replacements were measured.

2. See the consultation paper.

3. The consultation focused on the following areas in particular:

• Offering local authorities greater flexibilities in how they can use their Right to Buy receipts to deliver replacement homes

• Whether to change the target for the replacement of homes sold under Right to Buy to better reflect the wider supply of affordable homes

4. The consultation closed on 9 October 2018.

5. During the consultation period it was announced that the Housing Revenue Account borrowing cap would be abolished in full, with effect from the Budget in November 2018. The Housing Revenue Account cap had been a key barrier to delivery for many authorities and its removal would support the delivery of more council homes. The proposals set out in the consultation and some of the responses received reflect the position before the cap was lifted.

6. In June 2020, in response to concerns raised by local authorities about the difficulties of spending Right to Buy receipts within the permitted 3 years in the context of COVID-19, the government announced a 6-month extension of the June expenditure deadline to December 2020. In December 2020, that deadline was extended by a further 3 months, to the end of March 2021. On 17 November 2020, the government published the Social housing white paper.

7. All responses to the consultation have been analysed and considered fully, and we are grateful to all the local authorities, organisations and individuals who responded. This document provides a factual report of responses and does not attempt to capture every point made by every correspondent.

8. Copies of this document are available from the MHCLG website.

9. Enquiries about this document should be addressed to: RTB@communities.gov.uk.

Summary of responses received

10. We received a total of 198 responses to the consultation.

11. 70% of these came from local authorities, 14% came from individuals, 12% from interest groups of various kinds, including arm’s-length management organisations, and 4% from private companies.

12. The table below sets out a breakdown of the type of respondent.

Type of respondent	Number of responses
Individual	28
Local authority (including National Parks, the Broads Authority, the Greater London Authority and London Boroughs)	138
Private sector organisation (including housebuilders, housing associations, businesses, consultants)	8
Trade association / interest group / voluntary or charitable organisation	22
Arm’s-length management organisation	2
Total	198

13. Some respondents did not answer every question. As such, the number (and percentage) of answers to the questions often differ from the total number of responses received.

Options for reforming the rules around the use of Right to Buy receipts

1. Timeframe for spending Right to Buy receipts

Question 1: We would welcome your views on extending the time limit for spending Right to Buy receipts from 3 years to 5 years for existing receipts but keeping the 3-year deadline for future receipts.

Question 1 response

14. There were 191 responses to this question. Of these:

• 76% wanted to see greater relaxation than proposed – either through a 5-year time limit for all receipts (52%), no time limit at all (18%) or in some other way
• 20% of respondents approved of the proposal as it stood
• 1 respondent specifically wanted the time limit kept as it was

15. Respondents who wanted more relaxation than proposed argued that this would help local authorities to plan longer-term, assemble and remediate larger plots of land and secure the other 70% of funding currently required to fund a replacement home (with 30% funded from Right to Buy receipts).

16. Some respondents suggested that a temporary extension, as proposed in the consultation, would provide no benefit for those authorities that currently held no receipts.

17. Other suggestions for changing the system of returning receipts included annual rather than quarterly returns, to recognise the inherently uneven expenditure profiles involved in development; and allowing receipts to be retained, provided they had been formally committed for spending within the 3 year timeframe, rather than funds actually having to have been spent.

Government response

18. The government acknowledges the widespread call for this flexibility to apply to all receipts going forward, not just to receipts currently held. We accept that, for such a flexibility to unlock maximum council house building, it would be better for it to apply to all receipts to enable local authorities to plan over the longer term.

19. The government also acknowledges the complexity and disproportionate administrative burden on both central and local government that this would entail if, as proposed in the consultation, some receipts had to be spent within 3 years and some in 5.

20. However, the government is keen to encourage the early delivery of replacement housing and for local authorities to use their Right to Buy receipts to build as soon as possible or return them to be used by Homes England or the Greater London Authority to fund affordable homes. We therefore do not propose to lift the time limit for using receipts completely.

21. We intend to increase the length of time for which all Right to Buy receipts can be retained – both existing and future receipts – from 3 to 5 years. This will include receipts from 2017-18. This change will allow councils to make longer-term plans; allow the time needed to assemble and remediate larger more complex plots of land; and secure the funding required to fund the remaining development costs.

22. In addition, to make expenditure tracking easier for both the department and local authorities, we also intend to move to an annual rather than quarterly process for pooling Right to Buy receipts. Currently local authorities have 3 years to spend receipts from the quarter the receipts were received in, meaning they have 4 separate deadlines for spending receipts in each year. Moving to a 5-year timeframe plus annual pooling will make it much easier for local authorities to plan their expenditure and for the department to administer the process.

2. Cap on expenditure per replacement unit

Question 2: We would welcome your views on allowing flexibility around the 30% cap in the circumstances set out in the consultation paper, and whether there are any additional circumstances where flexibility should be considered.

23. The consultation invited consideration of the following combination of options:

a. Increase the cap on the proportion of a replacement unit that can be funded using Right to Buy receipts to 50% of build costs for homes for social rent in areas where authorities meet the eligibility criteria of the Affordable Homes Programme, and can demonstrate a clear need for social rent over affordable rent.

b. Allow local authorities to “top-up” insufficient Right to Buy receipts with funding from the Affordable Homes Programme up to 30% of build cost for affordable rent, or 50% of build costs for social rent where authorities can demonstrate a need for social rent, with bids for top-up to be submitted to the Affordable Homes Programme.

Question 2 response

24. There were 193 responses to this question. Of these:

• 34% asked for the percentage cap to be lifted entirely
• 31% supported the proposal as it stood
• 22% would like to see the cap increased to 50% for all builds and acquisitions
• Less than 3% of responses said there was nothing wrong with the current cap

25. While a majority expressed support for these changes or a desire for even greater ones, a large number of authorities in lower affordability-pressure areas expressed the view that the attachment of high affordability pressure criteria for the altered ratio would increase the building gap between the north and south of England.

26. Many authorities expressed the wish for a more generous ratio and the option to allow the Right to Buy receipts portion to be combined with grant funding.

27. A number of respondents pointed to higher development costs in rural areas and argued that this flexibility should therefore be particularly targeted at rural authorities, regardless of affordability pressure.

Government response

28. The 30:70 ratio was originally set because this reflected what was achievable under the Affordable Homes Programme and what was considered adequate to obtain credit against future affordable rent income. However, many respondents were authorities keen to build for social rent, and said they were finding it difficult to obtain enough funding for such projects. They argued that these required greater subsidy or were in lower value areas where the rental stream was insufficient to finance the remaining 70% of development costs.

29. The government acknowledges the desire of many authorities to raise the cap for both affordable and social rent developments, and notes the potential administrative complexity for both central and local government of attaching different ratio requirements to different rental tenures - especially where those tenures are both present in one development.

30. Furthermore, the government recognises that many respondents from lower affordability-pressure areas are concerned that the proposed focus on high-value areas could worsen the building gap between different areas of England, and that this would be unhelpful in relation to levelling up. The government also acknowledges the point made around higher development costs in rural areas.

31. It remains an important principle that authorities should be using their Right to Buy receipts to leverage further funds, thus ensuring that Right to Buy receipts provide the best value for money possible and result in additional housing. Whilst the government appreciates the importance of providing homes for social rent, we also acknowledge that building replacement homes for affordable rent may allow for a larger volume of units to be delivered using the receipts, providing more affordable homes. The government does not therefore intend to remove the cap altogether as this could reduce the quantity of replacement units achieved using Right to Buy receipts and it would not be good value for money to raise the cap as high as 50% for both social and affordable rent.

32. To strike a balance between increasing flexibility and avoiding administrative complexity, the government therefore intends to raise the cap on the cost of a replacement affordable home (to include social and affordable rent) that can be financed by Right to Buy receipts to 40% across the board, for both existing and future receipts, for all eligible tenures and in all areas of England.

3. Use of receipts for acquisition

Question 3: We would welcome your views on restricting the use of Right to Buy receipts on the acquisition of property and whether this should be implemented through a price cap per unit based on average build costs.

Question 3 response

33. There were 193 responses to this question. Of these:

• 51% disagreed with any such restriction in principle
• 46% agreed in principle with option A, where a price cap per dwelling acquired would be introduced based on average build costs at Homes England and Greater London Authority operating area level
• However, two-thirds of these positive responses suggested that the price cap needed to be more granular, with many suggesting it should be calculated for each local authority
• One respondent preferred option B, which was to allow acquisition in certain areas only, for example, where average build costs are more than acquisition costs

34. Respondents put forward several reasons in support of their response:

• Acquisitions were at times the only way to house larger families and were key in getting such families out of temporary accommodation
• It would be an inefficient incentive for places where build costs were above a region’s average and house prices were below
• It would be unhelpful for places where house prices were above a regional average as this would rule out acquisitions for them altogether

35. Many respondents argued that, if the current 3-year limit for using Right to Buy receipts was extended to 5 years, or if the rates of interest on monies returned were reduced, then the incentive to make last-minute poor value for money acquisitions would be greatly reduced, and a restriction of this kind could become superfluous.

Government response

36. The government understands that many authorities are concerned that a price cap on acquisitions could affect their ability to obtain the housing they need at speed, and that their preference would be to have no acquisition cap at all.

37. However, when the decision was taken to allow local authorities to use Right to Buy receipts for acquisitions as well as new build, the policy intention had been that this freedom would be used sparingly, and mainly to bring dilapidated or unsuitable homes back into use. Yet acquisitions currently make up around 48% of Right to Buy replacement homes.

38. The government is aware that some authorities use Right to Buy receipts to acquire properties at market value shortly before those receipts are due for return to central government, as this is seen as preferable to returning them to the government with interest. While this practice can provide speed and flexibility for councils in meeting the needs of people on their waiting lists, it can represent an expensive way of delivering new social and affordable housing. The government would also note that, while acquisitions can have an important role to play in providing new social housing, unless they bring dilapidated homes back into use they do not add to overall supply.

39. The government is keen for homes supplied using Right to Buy receipts to represent the best value for money, and to add to overall housing supply as much as possible, in order to help towards delivering 300,000 new homes a year across England by the mid-2020s. We therefore intend to proceed with a cap on acquisitions. However, noting the concerns raised by respondents, this will be set as a percentage of a local authority’s total delivery each year using Right to Buy receipts, rather than as a restriction on the cost of individual acquisitions as originally proposed in the consultation.

40. We understand that it will take time for local authorities to prepare for the introduction of this cap and to ramp up their build programmes. There will therefore be a phased approach to the introduction of the cap, with the cap not coming into effect until 1 April 2022, and then reducing from 50% to 30% over the following 3 years, as set out in the table below:

2021-2022	No cap
2022-2023	50% cap
2023-2024	40% cap
2024-2025 onwards	30% cap

41. We are aware that some local authorities receive low levels of receipts from Right to Buy sales, and may find it more difficult to deliver replacement properties through new build. The first 20 units of delivery in each year will therefore be excluded, and this will apply to all local authorities. It should also be noted that local authorities will not be prevented from acquiring properties above the cap but will not be able to use Right to Buy receipts to do so.

42. Setting the cap as a percentage of a local authority’s total delivery each year using Right to Buy receipts, rather than a cap on each acquisition based on regional build costs as originally proposed, will help to address many of the key concerns that respondents raised. Each local authority will be able to decide on the type and size of acquisitions that they need most, including buying larger homes to house larger families when required. The percentage cap will apply in the same way for all local authorities.

43. On reducing poorer value for money acquisitions, the government considers that the flexibilities announced in this response will give local authorities greater freedom and time to plan for the use of their Right to Buy receipts, which we would expect to reduce the number of such acquisitions.

44. The key objective of the acquisition cap is to limit the percentage of Right to Buy replacements that are delivered through using Right to Buy receipts to purchase existing housing, principally housing which is bought on the open market from the private sector. The government considers that certain acquisitions that add to overall housing supply should be excluded from the cap, including acquisitions of new builds from a local authority’s own housing company and where commercial buildings are acquired to be redeveloped for housing as part of regeneration programmes.

45. The government will further clarify ahead of the introduction of the acquisition cap the types of acquisitions that will be included in the cap, and will discuss with local authorities any specific challenges that they may face. The government is keen to work with all stock holding local authorities to increase the level of Right to Buy replacements which are delivered through new build.

4. Tenure of replacement home

Question 4: We would welcome your views on allowing local authorities to use Right to Buy receipts for shared ownership units as well as units for affordable and social rent.

Question 4 response

46. There were 190 responses to this question, of which:

• 82% welcomed the proposal
• Around one-third of these were local authorities saying they would be unlikely to use the new powers themselves, as the need in their area was more for sub-market rent
• 16% rejected the idea

47. Respondents argued that this proposal would make it easier to create mixed communities since the same receipts could be used to build both shared ownership and affordable or social rent homes.

48. They also noted that shared ownership homes required a lower loan per unit than rented homes, and thus the overall provision of new homes in the Housing Revenue Account could be increased.

49. A frequent question, however, was how to class further receipts from tenants buying an increased equity share in their home: a number of respondents wanted clarity as to whether these would count as a Right to Buy receipt for pooling purposes.

50. Several respondents expressed concern that authorities could be pressured, either explicitly by rules or implicitly by circumstances, into providing shared ownership properties rather than more affordable tenancies – for instance, if other funding was not available to deliver another tenure. They were clear that their support for the proposal was contingent on this being a genuine choice available to authorities who wanted it.

51. Some respondents, particularly London boroughs, pointed out that shared ownership was not an affordable tenure in their areas in any case, and that it should therefore not be seen as a universal solution.

Government response

52. The government welcomes the positive response to this proposal and intends to implement the proposal and allow local authorities the option to use Right to Buy receipts to provide properties for shared ownership as well as for social and affordable rent.

53. Since the receipts consultation was issued, the government has announced the new First Homes scheme, which will enable first-time buyers to access discounts of at least 30% on new build properties in their area compared to market prices. Local authorities, who know their local areas best, will have the flexibility to shape the scheme to support those most in need of help in their area. To support them in helping to deliver First Homes, the government will also allow local authorities to use Right to Buy receipts to fund First Homes.

54. The flexibility to allow 40% of a replacement unit to be funded using Right to Buy receipts (as set out in section 2. Cap on expenditure per replacement unit) would also apply to Shared Ownership properties and First Homes.

55. We recognise that some respondents were concerned about a potential implicit pressure for councils to favour supplying shared ownership properties because of their lower debt costs, while others noted practical questions not previously encountered in Right to Buy, such as whether receipts from staircasing would count as Right to Buy receipts. We recognise that local authorities may also have questions around using receipts to fund First Homes.

56. We will publish guidance clarifying all these practical questions and making it clear that there is no obligation on any local authority to use Right to Buy receipts for shared ownership properties or First Homes and that it will be down to individual authorities whether they make any use of this flexibility based on the needs of the local area.

5. Changing the way the cost of land is treated

Question 5A: We would welcome your views on allowing the transfer of land from a local authority’s General Fund to their Housing Revenue Account at zero cost.

Question 5B: We would also welcome your views on how many years land should have been held by the local authority before it can be transferred at zero cost, and whether this should apply to land with derelict buildings as well as vacant land.

Question 5 response

57. There were 195 responses to the first part of this question and 101 to the second.

58. Of the responses to part A:

• 81% were broadly in favour of this proposal, while the rest were against it
• However, just under one-third of those also suggested alternatives, including:
  • that zero-cost or sub-market transfer should be a flexibility granted to local authorities for them to use as they saw fit, rather than a blanket rule change
  • A “half-way house” approach whereby the Housing Revenue Account could “lease” the land, providing an income stream to the latter that would compensate the loss of capital assets to the General Fund

59. Of the responses to part B:

• 74% of respondents who expressed an opinion considered that there should be no minimum period before land could be transferred from the General Fund
• 13% thought the limit should be under 3 years
• 8% thought it should be between 3 and 5 years
• 3% thought it should be between 5 and 10 years
• 2% thought it should be over 10

60. Many of the respondents who disagreed with the proposal did so on the grounds that General Fund resources were under too great a strain already to support cost-free transfers between accounts.

61. Others sounded different notes of warning - that this could appear presentationally as if General Funds were subsidising the Housing Revenue Account, thus weakening the ring-fence, or that the change might incentivise councils to sell General Fund land to private developers rather than build on it themselves, since at least in that case they would be paid for the land.

Government response

62. The government welcomes the breadth of responses to this proposal and acknowledges that respondents’ opinion was generally positive. However, we found the opposing arguments powerful, including the increased strain on General Funds, the possible perverse incentive for councils to sell General Fund land to private developers rather than develop it in the Housing Revenue Account, and the possible weakening of the Housing Revenue Account ring-fence.

63. We also note that the abolition of the borrowing cap removes some of the incentive to make this change, as there is no longer a fixed limit on Housing Revenue Accounts’ capacity to find funding with which to compensate General Funds for land.

64. The government therefore does not intend to take this proposal forward, and no change to the way local authority land is transferred between accounts will be made.

6. Transferring receipts to a housing company or Arm’s-Length Management Organisation (ALMO)

Question 6: We would welcome your views on whether there are any circumstances where housing companies or Arm’s-Length Management Organisations should be allowed to use Right to Buy receipts.

Question 6 response

65. There were 191 responses to this question, of which:

• 81% agreed that this should be permitted in some circumstances
• Of these, however, around one-third recommended adding conditions – particularly requiring the receipts to be used to build social and affordable housing only, and/or requiring tenants of such properties to retain the rights of council tenants including the Right to Buy
• 14% were opposed altogether

66. A number of responses questioned whether councils would still feel the need to use housing companies to deliver sub-market housing now that the Housing Revenue Account borrowing caps had been removed, as local authorities should now be able to raise debt finance more easily.

67. Many of the opposing answers cited the protection of the Housing Revenue Account ringfence, arguing that, where receipts had been generated from the sale of Housing Revenue Account housing, they should be recycled back into the Housing Revenue Account to deliver replacement housing.

Government response

68. The government acknowledges the positive response received to this question, and the role local housing companies and ALMOs have played in increasing housing supply.

69. Local authorities have often told us that their reason for using housing companies in recent years has been that the limits on borrowing have constrained their ability to finance their building ambitions within the Housing Revenue Account. More recently, following the removal of this borrowing cap at Budget 2018, local authorities have been telling us that they may no longer feel this need to develop outside the Housing Revenue Account. Thus, the argument for facilitating the transfer of receipts seems to us to have become weaker.

70. The government is also concerned that such a freedom would risk blurring the Housing Revenue Account ring-fence, and is alive to some respondents’ concerns that this would unhelpfully remove resources from the Housing Revenue Account.

71. Moreover, the government’s position is to encourage authorities to build within their Housing Revenue Account, ensuring that tenants enjoy security of tenure, social or affordable rent levels and the Right to Buy. At the same time, it would be difficult to make authorities require their local housing companies to build only social or affordable housing with Right to Buy receipts or require them to offer tenants of such homes a Right to Buy.

72. The government therefore does not intend to take forward the proposal to allow housing companies or ALMO’s to use Right to Buy receipts.

7. Temporary suspension of interest payments

Question 7: We would welcome your views on allowing a short period of time (3 months) during which local authorities could return receipts without added interest.

Question 7 response

73. There were 188 responses to this question, of which:

• 45% were content with the proposal as it stood
• Others were happy with a limited interest holiday but preferred a longer period, be that 6 months (5%), 12 months (2%) or another period (7%)
• 23% argued that interest payments should be reduced or removed permanently
• Just over 7% used the question as an opportunity to argue that receipts should not have to be returned at all
• 5% were opposed to any kind of grace period

74. Several respondents argued that the current rate of interest was unfairly punitive (being entirely unrelated to other intra-governmental interest rates such as that of the Public Works Loan Board) and that it incentivised inefficient behaviours by councils, such as the aforementioned acquisition of market-price housing just before the 3-year timeframe for spending receipts was up.

75. A few respondents suggested that a move to annual returns would have a greater impact on councils than any one-off interest amnesty.

76. As with question 6, some respondents suggested that the removal of the Housing Revenue Account borrowing cap would enable councils to commit more of their Right to Buy receipts and thus alleviate the need to return receipts in any case.

Government response

77. The government’s aim in requiring Right to Buy receipts to be paid back with interest is to create an incentive for authorities to return any such receipts as quickly as possible if they cannot use them for development locally. The money can then be used by Homes England or the Greater London Authority to fund new homes, as opposed to keeping receipts for as long as possible in the hope that a development opportunity appears. This timely decision-making around spending or returning receipts is still something the government wants to encourage, and we consider that the permanent removal of interest on payments would disincentivise this behaviour.

78. Moreover, the government considers that the other changes set out in this response – including the proposed move to annual pooling – should provide adequate flexibility to help authorities use more of their receipts locally, resulting in less need to return receipts to central government.

79. The government therefore does not intend to take forward this proposal, and no changes will be made to the payment of interest on returned Right to Buy receipts.

8.Other comments

Question 8: Do you have any other comments to make on the use of Right to Buy receipts and ways to make it easier for local authorities to deliver replacement housing?

Question 8 response

80. There were 188 responses to this question, with a wide variety of suggestions. Of these, the most popular were:

• Local authorities to keep more or all of their Right to Buy receipts (32%)
• Removal of all restrictions and conditions on how receipts are used (25%)
• Local authorities to be given control over Right to Buy discount levels and exemptions (22%)
• Receipts to be allowed to be used alongside other grant funding, such as Planning Gain funding (20%)
• Borrowing cap changes to be implemented as soon as possible, with no restrictive conditions (18%)
• Abolish, suspend or radically review the Right to Buy altogether (13%)
• Increase the percentage of receipt that can be used towards replacement costs (see also question 2) (11%)
• Remove the current 3-year expenditure period for the use of receipts or extend it to at least 5 years (see also question 1) (9%)
• Increase the cost floor (currently 15 years), with suggested periods of 25 to 40 years; or extend it to allow for inflation (8%)
• Increase rent certainty period (to a minimum of 20 years) (6%)
• Waive 4% interest penalty on returned receipts, or even return to local authorities the receipts they have previously handed back to government (see also question 7) (6%)

Government response

Suspension or abolition of the “Government share”

81. A large number of respondents called for local authorities to be able to retain more or all of the receipts from Right to Buy sales with less or none going to the government. A proportion of receipts (averaging around 20%) is returned to the government to help tackle the national deficit. This consideration remains important, and there are currently no plans to release local authorities from the settlement that they agreed to in 2012.

Calls to increase flexibilities and freedoms beyond the extent suggested in the consultation

82. Some respondents did not think that the flexibilities proposed in the consultation went far enough, or suggested additional flexibilities such as the freedom to use Right to Buy receipts along with other grant funding. Some wanted all conditions removed entirely, including the obligation to return funds with interest where they were not spent within the set period.

83. We acknowledge that many local authorities are keen to build more council homes, and feel constrained by the existing conditions on using Right to Buy receipts. However, for the reasons outlined earlier in this response, the government is concerned that a complete relaxation of these conditions might lead to slower building rates in some authorities and would have value for money implications. The government therefore proposes to retain some restrictions on how receipts can be used to encourage the early delivery of replacement homes and to help ensure value for money. As set out earlier in this response, we intend to increase the flexibility around the 30% cap and the time limit for using receipts further than the options set out in the consultation paper.

Localisation of discounts and exemptions

84. A slightly smaller, but still significant, number of respondents wanted to empower authorities to set their own Right to Buy discounts. The Right to Buy is a national right for local authority tenants across England, with a national discount level – except for in London, where the exceptionally high property prices in the capital are recognised by a higher discount level. To allow authorities to define their own Right to Buy discounts could create unfair differences around the England, where tenants on one side of a road may receive a significantly different level of discount to tenants on the other side determined by their local authority. In some areas this could lead to smaller discounts and narrower eligibility, which would restrict the ability of some tenants to take up their Right to Buy. The government does not think that this would be fair and does not intend to move to local discount levels.

Suspension or abolition of the Right to Buy

85. Some respondents wanted to abolish or suspend Right to Buy altogether in England, as has been done in Scotland and Wales. The government does not agree and believes that anybody who works hard and aspires to own their own home should have the opportunity to realise that ambition. The government is committed to the Right to Buy which gives people from a broad sector of the community the opportunity to own their home, encouraging stronger links and a wider interest in their local communities. The scheme has helped nearly 2 million families into home ownership since 1980 and over 125,000 since 2010.

86. The government agrees that it is vitally important to continue to increase the supply of social and affordable housing, and the receipts local authorities obtain from Right to Buy sales play a vital role in making that happen. We believe that the flexibilities we have announced in this response will make it easier for them to build new homes and the types of home most needed in their community.

Freedom to use Right to Buy receipts in conjunction with other grant funding

87. The question of using Right to Buy receipts in conjunction with other grant funding was also raised. The government does not plan on taking this forward, as under the self-financing settlement homes built with Right to Buy receipts are meant to be in addition to those built using other grant money. To combine these resources might make certain developments easier to fund but would run the risk of reducing the overall additional supply of council housing.

Technical suggestions

88. Other respondents brought more technical options to the table, including extending the cost floor and increasing the period of rent certainty beyond 2025. While we have not chosen to implement these changes at this time, we will continue to consider the appropriateness of such measures in the future. We would wish to see the impact of the present package of flexibilities before we would consider any additional changes.

The Housing Revenue Account borrowing cap

89. A number of responses, submitted before the 2018 announcement on lifting the Housing Revenue Account borrowing cap, called for the removal of that cap for all authorities without conditions. This has now been done, and since the November 2018 Budget there is no limit on Housing Revenue Account borrowing within prudential regulations. The government warmly welcomes the enthusiasm we have seen from local authorities to make use of this freedom to fund new council homes.

90. The package of measures proposed here, on top of the abolition of the Housing Revenue Account borrowing caps at Budget, demonstrates the government’s strong support for local authorities as housing deliverers with the aim of further increasing the overall supply of affordable housing. The tenure of new homes will be a matter for individual local authorities based on the needs of their area, with greater flexibility making the delivery of homes for social rent more achievable, where needed.

9. Reforming the replacement commitment

Question 9: Should the government focus be on a wider measurement of the net increase in the supply of all social and affordable housing instead of the current measurement of additional homes sold and replaced under the Right to Buy? If the target were to change, we would welcome your views on what is the best alternative way to measure the effects of government policies on the stock of affordable housing.

Question 9 response

91. There were 121 responses to this question, of which:

• 41% supported the change to the target
• 29% wished to keep it as it was
• 18% wanted to measure both the proposed definition and retain the current target at the same time
• A further 6% wished to retain the target but to widen it to include all Right to Buy sales, not only additional to the numbers forecast before the significant increases in maximum discounts implemented in 2012

92. Supportive responses argued that a wider measurement would provide a more holistic overview of whether affordable housing was increasing or decreasing both nationally and in each local authority area. Some responses also noted that the move away from the focus on “council” housing could support the government’s ambitions to remove the stigma that separates council housing from other tenures.

93. Opposing responses argued that the Right to Buy could only be justified as a policy if it was enabling one-for-one replacement, and that a widening of the target would take the focus off the need for that replacement. One response took this argument further, suggesting that aggregating net gains and losses across different programmes risked masking the outcomes of ineffective programmes.

94. Several others expressed concern that a wider target based on “affordable” metrics would conflate very different types of sub-market housing, from social rent right through to shared ownership.

95. A number of responses suggested that, far from broadening the measurement, it ought instead to be made more granular. Respondents argued variously for measuring net change in social and affordable stock, and by tenure, size, accessibility and rurality.

Government response

96. The government appreciates the breadth of views represented in the responses and has carefully considered all the arguments.

97. The government recognises the argument that a broadened measurement would provide a more holistic overview of whether affordable housing is increasing or decreasing both nationally and in each local authority area. The net increase or decrease in the supply of affordable and social housing is important, as this will make the difference to vulnerable people and families currently living in temporary council accommodation or overcrowded privately rented homes. The use of Right to Buy receipts does form part of a suite of government policies designed to help local authorities and registered providers to supply new housing, including the Affordable Homes Programme.

98. The government also acknowledges, however, that the wider measure might not show whether the money received from Right to Buy sales was replacing the additional homes sold under the policy, and might take the focus away from the need for that replacement.

99. The government understands the desire to make the measure more granular, increasing the amount and quality of information available to policymakers and stakeholders. We are mindful, however, of placing additional administrative burdens on local authorities charged with providing the information and on balance we do not intend to include the additional detail.

100. The government therefore intends to retain the current target and the commitment to providing replacements on a one-for-one basis nationally using Right to Buy receipts. The target already includes homes for affordable rent as well as social rent, and as proposed in our response to this consultation, we also intend to allow the use of Right to Buy receipts for shared ownership properties and First Homes. It therefore follows that new homes in these tenures built using Right to Buy receipts will be included in the measure of replacement housing, and against the existing target.

101. The proposed package of measures in this consultation response will enable local authorities to build more new affordable housing. The government will continue to track replacements and progress against the national target. In line with the move to annual pooling returns and payments, the target will be reported on an annual, rather than quarterly, basis.

102. The government will continue to collect quarterly data from local authorities on Right to Buy sales and replacements but this will be used to provide management information for quarters 1-3, with only the fourth quarter published as official statistics. The management information will be published quarterly, with the official statistics published annually. As part of the annual Local Authority Housing Statistics, the government intends to start collecting data on completions that count as one-for-one replacements (including acquisitions) broken down by tenure. The government also intends to collect more granular data on acquisitions, to monitor the acquisition cap. To help monitor the impact of the reforms, the government also intends to ask local authorities to provide annual pipeline build plans for the next 5 years, which will be used for management information only.

Next steps

103. The government will amend the agreements made with local authorities under Section 11(6) of the Local Government Act 2003 to reflect the changes to the current requirements on the use of Right to Buy receipts set out in this response. These are:

• Increasing the time limit for expenditure of receipts from 3 years to 5
• Increasing the proportion of development spending permitted to come from Right to Buy receipts from 30% to 40%
• Allowing Right to Buy receipts to be used to deliver shared ownership homes and First Homes, should a local authority wish to do so
• Setting a percentage cap on the use of Right to Buy receipts for acquisitions
• Requiring yearly rather than quarterly pooling returns and payments

104. The agreements will make it clear when and how the new requirements will come into play and guidance on the operation of the new system will be issued to local authorities.

105. The government will consult on revisions to the Local Authorities (Capital Finance and Account) (England) Regulations 2003 needed to implement the proposal to move to an annual rather than quarterly pooling system for Right to Buy receipts and, subject to the results of the consultation, will introduce the necessary secondary legislation to implement this change.

106. The intention is for the new agreements and new requirements to take effect from 1 April 2021, with the exception of the acquisition cap, which will be introduced from 1 April 2022, on a phased basis.