Will May woo London councils away from Labour funding?

Theresa May’s pledge to lift the strict cap on council borrowing for new developments could be seen as a way of wooing more London councils away from Labour funding. But views are divided as to whether more councils will turn down Labour funding, with some politicians and developers suggesting grants from the Greater London Authority (GLA) – run by Mayor of London Sadiq Khan – will remain at least a first port of call. The relaxation on council borrowing will unlock an estimated £10bn-£15bn for development and offers an additional funding stream for cash-strapped London councils, which have long called for the debt cap to be lifted. Moreover, despite the fact there is roughly £4.8bn of grants available to councils through the GLA, uptake has been slow. Many have focused on launching their own housing companies or even rebuffed the grants as mayoral funding comes with stipulations around affordable housing and residents ballots. Political persuasions One head of development that works frequently with local authorities said lifting the cap would help councils access new funding without having to “do what they are told” by a Labour mayor who has stopped many of them building – even in Labour boroughs. Some (mainly Conservative-led) councils are reluctant to use GLA funding because of the political ties that come with it. One adviser said the lifting of the cap offered a lifeline to local authorities to deliver on their manifesto promises without having to put business cases to the mayor. Westminster Council is a case in point. Earlier this year, it lost £23.5m in GLA funding for its regeneration of Church Street, after it refused to bow to City Hall demands for a second residents ballot. The GLA implemented mandatory residents votes as a condition on any housing grant from July 2018. Sian Berry, Green Party leader and chair of the GLA Housing Committee, was instrumental in putting residents ballots in place. In response to Westminster’s refusal to re-ballot, she says: “It was very political. They are entitled to that grant if they can get the residents to approve the plans. But they don’t want to and they are making a political point about it.” Last month, Westminster Council also returned its arm’s-length housing company, CityWest Homes, to full council control, making the Housing Revenue Account lift even more important for council housing investments. Westminster Council leader Nickie Aiken welcomed the debt cap announcement, which she said had the potential to add 2,000 homes to current Westminster developments. The council said in a statement: “The announcement by the prime minister, Theresa May, that the borrowing cap on how much councils can spend to build new homes will be scrapped is welcome and a very positive step.” It added: “We do not receive funding from the Greater London Authority for housing schemes.” Conflicting agendas More widely, Conservative councils in particular are put off using the GLA funding because of complex conflicting agendas. Even some Labour councils have found the mandatory ballot an issue when it comes to accessing GLA funding. Last year, the GLA announced £1.7bn in its first round of grants had been allocated, with just 9% going to councils and the bulk going to housing associations. Almost half the funds went to the top three providers: L&Q (£394.7m), Peabody (£221m) and Notting Hill Housing Trust (£176m). Of the councils, Lambeth received the biggest chunk, at £54.7m. “The policy requirements from the GLA don’t always match, depending on the objectives of the project and the colour of the council,” says Oliver Maury, a partner at Montagu Evans. Maury explains that councils may have differing views on the level of affordable housing for their boroughs. “There might be some rub with the GLA,” he says. “Given that the prevailing colour of councils across London is red, they will feel an imperative to be seen to be bidding into funding that could deliver more affordable housing.” Berry adds that for some Labour councils, the ballots are still a sticking point. Lambeth Council bid for GLA funds before the balloting took effect. It ploughed the money into major estate regenerations. Berry says residents were “furious” with the developments, and noted that a fifth project at Central Hill has since stalled, with no funding agreed and no planning permissions. “The mayor has said he will fund it with the ballot policy,” she says. GLA funding benefits Despite the challenges, Maury believes councils will still opt for GLA grants. “I think that, as the first port of call, they will always want to go to the GLA to see what money they can access in order to better their schemes, subject to the political point.” He says that GLA money is “free money that helps with viability”, in contrast to the burden of additional debt. “Some projects can’t cope with a certain level of affordability; therefore it comes back to viability.” Savills’ housing consultancy director, Steve Partridge, agrees that grant funding is essential for project viability. He explains that given the expected increase in council housebuilding, they will need as many funding avenues as possible, including the GLA grant. “Rather than being scaled down, all those schemes will now potentially be able to be developed, because there is no cap on the borrowing. That would suggest to me that the call on the GLA grant would potentially be increased.” The Mayor of London, Sadiq Khan, adds: “I launched the first-ever City Hall programme dedicated to council homebuilding earlier this year, because I know that new council housing is absolutely essential to tackling London’s housing crisis. As part of that programme, Ministers had allowed us just half-a-billion pounds of extra borrowing for councils in London – whilst the bids we’ve received have amounted to nearly three times that much. “I am therefore pleased that the Prime Minister is now following a call that I and others have long made to free councils from arbitrary caps on what they can borrow. “But the reforms must not stop there. We need these changes to be implemented quickly and effectively as part of a comprehensive approach from the national government, which must give councils much greater long-term funding for social rented homes, and more powers over land, to support a true step change in the number of council homes we can build.” The HRA cap lift: what we know In her keynote speech at the Conservative Party conference, Theresa May announced that the government would remove council borrowing restrictions in a bid to deliver more homes. She said: “There is a Government cap on how much [councils] can borrow against their Housing Revenue Account assets to fund new developments. “It doesn’t make sense to stop councils from playing their part in solving [the housing crisis]. So today, I can announce that we are scrapping that cap.” The government estimates that removing the borrowing cap against councils’ HRAs will help to deliver an additional 10,000 homes a year. Councils were previously invited to bid for a share of £1bn extra borrowing. The funding was oversubscribed, with London councils asking for three to four times the available amount. Experts say that local authorities could take on £10bn-£15bn in additional debt to build up to 100,000 more homes, with at least 15,000 more council homes built per year. The government said the cap would be lifted “as soon as possible”. Further details will be confirmed in the budget. 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