Blog: The Road Ahead: Starmer’s Challenges in Local Authority Housing

The Road Ahead: Starmer’s Challenges in Local Authority Housing

                              Neftalem Emanuel, Nuffield College - University of Oxford

Overview

Starmer’s Labour government faces a significant challenge in addressing the financial crises plaguing local authorities, exacerbated by years of funding cuts and increasing service demands. At the heart of this challenge lies the urgent need to, firstly, stabilise council finances and, then, revitalise council housing through sustainable policies – with a focus on repairing existing stock – and targeted investments.

As a legacy of the previous Conservative government, Starmer has inherited a landscape of underfunded welfare services that have placed immense strain on local authorities. A report by the Institute for Government (IfG) (2024) found that, because grant funding constituted a greater proportion of total funding for more deprived local authorities, uniform percentage cuts across all councils disproportionately reduced their ability to spend on services. Councils in the most deprived areas of England faced an average cut of around 35% in overall core funding per person between 2010–11 and 2019–20, compared to a 15% reduction in the least deprived councils. This led to a 25.4% drop in housing services expenditure over the same period (NAO, 2021).

The introduction of the Localism Act (2011) and the self-financing regime for council housing further exacerbated the financial challenges faced by local councils. The Localism Act granted councils more autonomy over funding for housing but the self-financing regime required them to sustain services through their own resources, exposing them to greater financial risk (NAO, 2018).

Impact of Reduced Funding and Repair Crisis

Historically, the government provided significant grants to fund major improvements in social housing. Between 2001 and 2011, over £28 billion was allocated to councils, including £21–£22 billion to bring properties up to the ‘Decent Homes’ standard (NAO, 2010; DCLG, 2006). However, progress stalled as grant funding levels decreased, with councils required to fund a larger share of improvements themselves under the self-financing regime (NAO, 2010; HoC, 2010). By 2021–22, 10% of social homes (383,000 properties) were still classified as ‘non-decent’ (DLUHC, 2022).

These financial pressures, compounded by reduced grants, have led to an unprecedented number of Section 114 notices, which indicate a local authority’s inability to balance its budgets. Since 2018, eight local authorities have issued such notices, with the last one before 2018 being Hackney in 2000 (New Statesmen, 2024). According to the Local Government Association (LGA) (2023), one in five council leaders and executives believe they may need to issue a Section 114 notice by 2025. This underscores the urgent need for sustainable funding solutions to address the ongoing financial crisis and ensure councils can invest in housing.

In response, some councils have sought exceptional financial support through ‘capitalisation directions’, allowing them to use capital funding, including proceeds from selling land and assets, to cover expenditures not normally permitted. Between 2020 and 2024, 17 councils were granted such permissions (IFS, 2024). The Institute for Fiscal Studies (IFS) notes that 19 councils have been granted these permissions for 2024–25, with 12 making these requests for the first time (ibid.).

The ongoing financial pressures and insufficient funding have led to worsening conditions in many homes (HoC, 2022). In 2020, the Affordable Housing Commission estimated that bringing all social housing up to the Decent Homes Standard would require around £2.6 billion (Affordable Housing Commission, 2020). Meanwhile, the backlog of necessary repairs has continued to grow, with thousands of council housing tenants in England waiting more than a year for essential repairs (The Guardian, 2023). This neglect has dire consequences for tenants' health and welfare, who often live in unsafe and unhealthy conditions. Issues such as damp, mould, and structural disrepair can lead to severe physical and mental health problems (Krieger et al., 2002; Pevalin et al., 2017). The tragic case of Awaab Ishak, a two-year-old boy who died from a respiratory illness caused by prolonged exposure to black mould, underscores the severe risks faced by tenants living in substandard housing (DLUHC, 2024).

Next Steps

Addressing the financial challenges faced by local authorities is crucial not only for tackling the existing backlog of repairs in council housing but also for enabling new housebuilding projects. Labour is committed to ‘widening’ devolution for local authorities, recognising that local leaders are best positioned to address the unique needs of their communities. However, it is essential for Labour to avoid the pitfalls of the Localism Act and its subsequent self-financing regime, which left councils struggling due to insufficient financial support. The approach of ‘widening’ devolution must, therefore, be balanced with adequate levels of centralised funding to ensure that local authorities are not left facing difficulties in meeting their obligations.

While ‘capitalisation directions’ may offer short-term relief, Labour must be mindful that this strategy could compromise long-term goals, particularly in council housing development. Selling valuable land and assets for immediate financial gain can undermine the capacity to build new housing, as these spaces might be repurposed for other uses. Labour must ensure a sustainable approach to fundraising that supports the expansion and improvement of council housing stock.

To support this sustainable approach, Labour should consider long-term strategies, including reforming the council tax scheme. The Committee for Financial Distress in Local Authorities has highlighted the need for reforming these taxes, which have been described as ‘outdated’ and ‘increasingly regressive’ (HoC, 2024). Wealthier individuals pay proportionately less in council tax, and poorer local authorities raise less due to more residents qualifying for reductions, forcing them to set higher rates. Therefore, revising the bands to reflect the current market value of the properties would allow wealthier homeowners to contribute more in line with their property values.

Another strategy for generating revenue is to abolish council tax exemptions for empty and second homes. The Institute for Public Policy Research (IPPR) (2019) suggests that introducing a premium on these properties could be an effective fundraising tool. For example, in London, a premium of 200% on empty homes and 300% on homes vacant for over two years could generate approximately £200 million for local authorities. With the recent announcement of a £20 billion shortfall, this approach could alleviate pressures on central government to provide grants and allow local authorities to invest these funds in the housing building and repair of housing stock.

By addressing these commitments, Labour could establish a sustainable framework for local authorities that would ease financial pressures, enhance their capacity to invest in housing development and repairs, and empower local governments to provide responsive housing services tailored to their communities' needs.

References

Affordable Housing Commission (2020) Making Housing Affordable Again: Rebalancing the Nation’s Housing System, Nationwide Foundation. Available at: https://nationwidefoundation.org.uk/wp-content/uploads/2020/03/Making-Housing-Affordable-Again.-The-Affordable-Housing-Commission.pdf (Accessed: 19 August 2024).

Department for Communities and Local Government (2006) A Decent Home: Definition and guidance for implementation, Department for Communities and Local Government. Available at: https://assets.publishing.service.gov.uk/media/5a7968b740f0b63d72fc5926/138355.pdf (Accessed: 18 August 2024).

Department for Levelling Up, Housing & Communities (2022) English Housing Survey 2021 to 2022: Housing Quality and Condition, Department for Levelling Up, Housing & Communities. Available at: https://www.gov.uk/government/statistics/english-housing-survey-2021-to-2022-housing-quality-and-condition/english-housing-survey-2021-to-2022-housing-quality-and-condition#decent-homes-standard (Accessed: 18 August 2024).

Department for Levelling Up, Housing & Communities (2024) Awaab’s Law: Consultation on timescales for repairs in the social rented sector, GOV.UK. Available at: https://www.gov.uk/government/consultations/awaabs-law-consultation-on-timescales-for-repairs-in-the-social-rented-sector/awaabs-law-consultation-on-timescales-for-repairs-in-the-social-rented-sector (Accessed: 19 August 2024).

House of Commons (2010) The Decent Homes Programme, House of Commons. Available at: https://publications.parliament.uk/pa/cm200910/cmselect/cmpubacc/350/350.pdf (Accessed: 18 August 2024).

House of Commons (2022) What is the Current Condition of Social Housing in England?, House of Commons Committees. Available at: https://ukparliament.shorthandstories.com/condition-of-social-housing-in-england/index.html (Accessed: 19 August 2024).

House of Commons (2024) Financial Distress in Local Authorities. Available at: https://committees.parliament.uk/publications/43165/documents/214689/default/ (Accessed: 19 August 2024).

Institute for Fiscal Studies (2024) How have English Councils’ Funding and Spending Changed? 2010 to 2024, Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/how-have-english-councils-funding-and-spending-changed-2010-2024 (Accessed: 18 August 2024).

Institute for Government (2024) Fixing Public Services, Institute for Government. Available at: https://www.instituteforgovernment.org.uk/ (Accessed: 19 August 2024).

Institute for Public Policy Research (2019) A Poor Tax: Reforming Council Tax in London, Institute for Public Policy Research. Available at: https://tfl.ams3.cdn.digitaloceanspaces.com/media/documents/A_poor_tax_Reforming_council_tax_in_London_May2019.pdf (Accessed: 19 August 2024).

Krieger, J. and Higgins, D.L. (2002) ‘Housing and Health: Time again for public health action’, American Journal of Public Health, 92(5), pp. 758–768. doi:10.2105/ajph.92.5.758.

Local Government Association (2023) Section 114 Fear for almost 1 in 5 Council Leaders and Chief Executives after Cashless Autumn Statement, Local Government Association. Available at: https://www.local.gov.uk/about/news/section-114-fear-almost-1-5-council-leaders-and-chief-executives-after-cashless-autumn#:~:text=Almost%20one%20in%20five%20council,to%20keep%20key%20services%20running. (Accessed: 19 August 2024).

National Audit Office (2010) The Decent Homes Programme, National Audit Office. Available at: https://www.nao.org.uk/wp-content/uploads/2010/01/0910212.pdf (Accessed: 18 August 2024).

National Audit Office (2018) Financial Sustainability of Local Authorities: 2018, National Audit Office. Available at: https://www.nao.org.uk/wp-content/uploads/2018/03/Financial-sustainabilty-of-local-authorites-2018.pdf (Accessed: 18 August 2024).

National Audit Office (2021) The Local Government Finance System in England: Overview ..., National Audit Office. Available at: https://www.nao.org.uk/wp-content/uploads/2021/11/The-local-government-finance-system-in-England-overview-and-challenges.pdf (Accessed: 18 August 2024).

New Statesman (2024) Council bankruptcy tracker: Authorities under increasing financial strain, New Statesman. Available at: https://www.newstatesman.com/spotlight/economic-growth/regional-development/2024/01/council-bankruptcy-tracker-local-government-authorities-finances (Accessed: 20 August 2024).

Pevalin, D.J. et al. (2017) ‘The impact of persistent poor housing conditions on Mental Health: A longitudinal population-based study’, Preventive Medicine, 105, pp. 304–310. doi:10.1016/j.ypmed.2017.09.020.

The Guardian (2023) Council Tenants in England Wait More Than a Year for Repairs to Damp, Mouldy Homes, The Guardian. Available at: https://www.theguardian.com/society/2023/apr/02/council-tenants-england-wait-years-repairs-mouldy-homes (Accessed: 19 August 2024).