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Local Government Act 2003

Sections 38 and 39: Loans by Public Works Loan Commissioners, Payments towards local authority indebtedness

61.The purpose of these sections is to facilitate the transfer of council housing to registered social landlords. Where a local authority transfers the ownership of its social housing to a registered social landlord, it receives a capital receipt. Section 11 of the Act states that the Secretary of State may make provision, by regulations, about the use of capital receipts. Provision is made in regulations (The Local Authorities (Capital Finance and Accounting) (England) Regulations 2003), currently in draft. Under regulation 19 of the draft regulations, (which covers the use of all non-housing receipts and any housing receipts not pooled under regulation 11), receipts may be used to pay for any kind of capital expenditure, or, as the authority prefers, may be used to repay the principal of an amount borrowed or to meet liabilities under credit arrangements.

62.As a condition of consenting to the transfer, the Department requires authorities to use an amount of provision for credit liabilities equivalent to the reserved part of the housing transfer receipt to repay that part of its debt that is notionally attributable to the housing transferred.

63.It is usual for authorities’ debts to be with the Public Works Loan Board, although authorities may have other debts, e.g. with private banks.

64.Normally, the reserved part of the receipt from the disposal of the housing is greater than (and therefore notionally sufficient to repay) the attributable housing debt. In areas of poor housing conditions and low rent the obligation to improve the stock to a decent standard can depress the value of the housing stock and the capital receipt the local authority will receive.

65.Where the net capital receipt is less than the local authority’s housing attributable debt, the Department will agree with the local authority that on the condition that the authority extinguishes debt with the Public Works Loan Commissioners (‘PWLC’) to the level of its net reserved capital receipt, the Department will make a payment to extinguish the remaining housing attributable debt. The Department’s payment is dependent on the local authority’s payment having been made. The Department’s payment is known as an ‘overhanging debt payment’.

66.The payments to the PWLC are currently made in reliance on the Appropriation Acts. So far there have been ten payments made in respect of housing transfers in Burnley, Coventry, Calderdale, Blackburn with Darwen, Redcar and Cleveland, St Helen’s and Knowsley, Carlisle, Bradford and Walsall.

67.The Appropriation Acts do not, however, provide an appropriate mechanism for continuing payments. No mechanism has been put in place for payments made in Wales to date.

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