Response Paper
Housing Transfer in England
Dealing with overhanging
debt and
altering the LSVT levy
Response by the
Chartered Institute of
Housing
to the DETR’s Consultation
Paper
October 1999
Housing
Transfers in England:
Dealing with
overhanging debt and
altering the
LSVT levy
The Chartered Institute of Housing is the only professional organisation representing all those working in housing. Our purpose is to take a leading and strategic role in encouraging and promoting the provision and management of good quality, affordable housing for all.
The Chartered Institute has over 15,500 individual members working for local authorities, housing associations, educational establishments and the private sector.
Chartered Institute of Housing
Octavia House
Westwood Way
Coventry
CV4 8JP
Tel. 024 76 851751
Fax. 02476 422022
Email: john.perry@cih.org
For further information on this response please contact our Director of Policy, John Perry, at the above address.
HOUSING TRANSFER IN
ENGLAND -
DEALING WITH
OVERHANGING DEBT AND ALTERING THE LSVT LEVY
Response by the
Chartered Institute of Housing to the DETR Consultation Paper
Introduction
The Chartered Institute of Housing welcomes the intentions of the proposals to deal with overhanging debt and decide the future of the LSVT levy. CIH has always argued for transfer to be an option open for tackling poorer quality housing, as well as housing in attractive areas, and the proposals support this objective. We also wish to see, as far as possible, the pooling of resources between the better and poorer parts of the stock. Decisions on the way forward, particularly with the LSVT levy, should be taken in this light.
The proposals help to clarify DETR policy on transfer, but this remains uncertain in some areas. The demise of the ERCF has left uncertainty about the potential for estate-based transfers in situations where a dowry is required. And there is continuing uncertainty about the status of the size limit on transfer. CIH would welcome the Government making an overall statement of policy on transfer, perhaps when it announces its conclusions on the two current consultation papers.
Summary
· Of the options for dealing with overhanging debt, option 3 is preferred.
· Option 4 offers some advantages if it could be combined with option 3.
· A further option should be considered - transfer of debt to central government.
· Other ways of minimising the impact on housing capital investment should be examined.
· The LSVT levy should be retained and made more progressive - option 3 is favoured.
· The levy on PRTB sales could be simplified but the principle of the money being recycled into housing capital investment should be maintained.
Options for Dealing
with Overhanging Debt and the Transfer of Poorer Quality Stock
In commenting on the debt issue, we have in mind the objectives of dealing with poorer quality stock, whilst keeping procedures as simple as possible and minimising damaging effects on housing capital investment.
Of the four options presented, CIH prefers option 3. However, we have some comments on other options.
Option 4 does have some merits in cases of relatively small overhanging debts. As our recent report Housing Associations - A Viable Financial Future? showed, RSLs do have capacity - which will increase over time - to assist with regeneration. One way in which this might be done is through taking over small outstanding debts. This would also have the advantage of avoiding any direct impact on housing capital investment (but would - presumably - be reflected in other aspects of the transfer deal). If the DETR were to favour this option alongside option 3, a mechanism would be needed to give option 4 cases some priority so that councils and RSLs had incentives to develop such solutions.
A further option, not apparently considered, would be to transfer the outstanding debt to the DETR or to the Housing Corporation. This would have the advantage of avoiding breakage costs and also the initial impact on housing capital investment. Has this option been examined? Also, if PWLB debts were paid prematurely by a government department (as opposed to a local authority), would the PWLB still impose breakage charges?
Grants for Repayment of Outstanding Debt
The Institute broadly supports the proposals for financing debt redemption, if option 3 is adopted, although can foresee difficulties in getting a reliable valuation at an early stage in the transfer process. We would prefer approvals to be based on estimated debt overhang, but with actual debt overhang qualifying for grant, subject to a maximum plus or minus variation on the original estimate.
On the issue of paying breakage costs to the PWLB, apart from the point already made we would question how the Treasury/PWLB can justify imposing premiums when these in effect will be transfers of funds between public sector accounts?
CIH remains concerned about the potential impact of grants to repay debt on housing capital investment. We believe that the department should make some assessment of the proportion of the total LA housing debt which is likely to require grant support, assess the impact on housing capital investment, and consider ways of minimising this impact (such as those mentioned above).
LSVT Levy
CIH supports the reintroduction of the LSVT levy and welcomes proposals to make it more progressive. We would like to see the levy explicitly recycled into dealing with the transfer of poorer quality stock.
Of the options suggested for the levy, the progressive rate (option 3) is preferred.
Levy on Preserved Right to Buy Sales
CIH welcomes the idea of simplifying procedures, although we believe that some form of levy should remain in place and that (again) the money should be recycled into new investment. Several commentators have suggested a mechanism whereby the LA and RSL could reach a deal to buy out the levy on an agreed formula. This seems worth pursuing. Another alternative would be for the RSL to be allowed to keep receipts on the basis of certifying through its accounting procedures that the money would be re-invested in procuring housing (not necessarily building new stock).