Birmingham will be ordered to borrow almost £400 million to help pay off debts built up by councils in London and Manchester, under reforms to council housing finance proposed by the Government.
The massive transfer of cash from Birmingham to other cities is the price that must be paid to end an unpopular system which drains money from the West Midlands.
At the moment, Birmingham is forced to hand over £75 million every year from rent paid by its tenants in its 65,000 council homes, many on low incomes.
It’s part of a scheme which means councils with relatively low levels of debt subsidise housing authorities with high levels of debt, many of which are in London.
Birmingham’s housing department actually has debts of £682.5 million, but this is relatively low given that it is Britain’s largest local council.
The Government now plans to scrap the payments, which are paid through a fund called the Housing Revenue Account.
In return, however, it is asking certain councils to make a one-off payment to help authorities with massive debts.
Birmingham will pay £396.4 million while Dudley will pay £333.5 million, Sandwell will pay £35.2 million and Solihull will pay £71.7 million. Authorities such as Walsall, which do not own any council homes, will not be affected.
At the same time, Manchester will receive £273.6 million, the London borough of Newham will receive £552.6 million and the London borough of Hackney will receive £780.5 million.
Councillor John Lines, Birmingham City Council’s cabinet member for housing, said: “I will be pushing the Government to give us a good deal but I welcome this announcement even if it means we have to take on debt.
“It means we won’t have to pay an annual rent subsidy for other councils and it will allow us to invest in new housing. It’s worth it.”
One of the difficulties facing the council under the current system is that it doesn’t know how much it will have to pay to subsidise other councils until it is given the figure each year by the government.
Local Government Minister Grant Shapps said: “This deal brings to an end a centralised system which meant councils didn’t know what funding they would get for housing from one year to the next and were unable to take key decisions about their housing stock . . .I am setting councils free to better meet the needs of their tenants.”