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22 September 2014

Labour will not lift cap on council borrowing for housebuilding

Party continues tough fiscal stance by ruling out allowing local authorities to borrow more to build. 

By George Eaton

As I reported earlier, Ed Balls has toughened Labour’s fiscal position by pledging not to fund any new policy pledges through extra borrowing. But what about allowing councils to borrow more for housebuilding?

The idea was being explored as part of the Lyons Review, which is examining how Labour can meet its pledge to build 200,000 homes a year by 2020. In June, its head, Michael Lyons, told the Guardian: “In England there is a specific cap on the council Housing Revenue Account (HRA). The overwhelming weight of the evidence that has come to us from public and private bodies, says ‘for goodness sake lift the HRA cap’.” Last Thursday, Labour PPCs, councillors, and London Assembly Members published an open letter calling on Lyons to “recommend lifting the remaining cap on council borrowing for housing, and for the Labour leadership “to include a commitment to lift this cap in the next Labour manifesto.” 

There are good reasons for doing so. As I’ve previously noted, The Chartered Institute of Housing estimates that raising the cap by £7bn could enable the construction of 60,000 homes over the next five years, creating 23,500 jobs and adding £5.6bn to the economy. In his recent manifesto for London 2020 Vision, Boris Johnson argued: “We should allow London’s councils to borrow more for house building – as they do on continental Europe – since the public sector clearly gains a bankable asset and there is no need for this to appear on the books as public borrowing.”

Despite this, I can reveal that Labour will not pledge to lift the cap, a move that some shadow cabinet members, such as Sadiq Khan, have been pushing for. A spokesman for Ed Balls told me: “We want to prioritise housing, but we also want to be fiscally responsible.” He suggested that the 200,000 target could be met through other sources such as self-builders and SMEs. The political motive, of course, is to deny the Tories any space to attack Labour over borrowing. But given the urgent need to dramatically increasing building, and the clear benefits of doing so, some in the party will regard this as excessively cautious. 

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