Who will pay to reclad the tower blocks?

Media coverage of the Grenfell Tower fire has been dogged by confusion as to where the money came from for the original work and who will pay for the remedial work now needed to the country’s tower blocks. This is understandable: council housing finance is complicated, but the danger is that the confusion could let the government off the hook.

The fact that Grenfell Tower is owned by a wealthy borough with buoyant council tax income is an important factor in the moral argument about how the fire could have been allowed to happen. But in accounting terms Kensington and Chelsea’s council tax is irrelevant, since its council housing finance (its Housing Revenue Account) is ring-fenced and can’t legally be subsidised through taxes on residents. Like any other council, K&C borrows the money for capital works such as recladding a tower block, and the costs are met either from rents, from the sale of homes under the right to buy (after the Treasury has taken its cut) or – if available – from government grant.

The last Labour government made substantial subsidy available to bring council housing up to its Decent Homes Standard, but this ended under the coalition. With the decline in funding for energy-efficiency work, councils now pay for refurbishment of most tower blocks and other council housing from the rents they receive from tenants. The financing of a project like cladding a tower block is also complicated by flats having been sold under the right to buy, now owned on leasehold, very likely by private landlords. Leaseholders have to pay their share of the cost of major works, often supported by loans from the council.

What are the implications for the massive remedial works now likely to be needed to the country’s tower blocks? Even local politicians, like Julie Dore, leader of Sheffield City Council, seem to misunderstand housing finance, saying that if councils fund the work themselves it will be at the cost school building and other infrastructure investment. However, without a significant change in legislation, councils won’t be able to tap into other capital budgets to get the work done: if their Housing Revenue Accounts won’t support it, their only other source is government grant.

This is where things get even trickier, because having initially appeared to promise financial support the government is now backtracking. It says there is ‘no guarantee’ of any money, that councils will have to look to their own funds first, and extra support will be on a ‘case by case’ basis. So let’s spell out what the options are.

First, councils and housing associations could in theory dip into their Housing Revenue Accounts, principally financed from rents. Council housing is self-financing, and like housing associations receives no day-to-day government subsidy. When councils made their self-financing settlement with the government in April 2012, it was on the basis that they’d be left with sufficient resources to meet foreseeable needs. There are two problems with this, however: the potentially huge volume of extra investment now required after the Grenfell fire was hardly foreseeable, and – as Red Brick has been pointing out – the Treasury has systematically undermined the self-financing settlement over the last five years. They’ve forced councils and housing associations to cut rents, not to help tenants but (as IFS has shown) largely to reduce Treasury spending on benefits. As a result, by 2020 councils will have lost the equivalent of 60% of their maintenance funding. Those that had built up reserves to deal with eventualities like Grenfell are eating into them to keep services going. And their capacity to borrow for new investment has been drastically reduced.

Second, councils might get ‘case by case’ help, as DCLG has suggested. But will this be extra money? DCLG might simply lift the caps that restrict councils’ borrowing (if not being able to borrow is the issue) or let them raise rents (if they need extra income to pay for the new investment). If not accompanied by government grant, this is simply another way of forcing the cost back onto tenants. Some suggest that extra money might come from the so-called Bellwin scheme. This could be useful, but it is only for emergency work (e.g. stripping off old cladding) not for new investment. Also, it is paid in arrears, so councils will be unsure whether they can recover their costs or not.

Third, the government might indeed offer some form of subsidy, which might or might not cover 100% of the extra costs. But beware of which pot this money comes from. If there is no increase in the government’s capital budget for housing, then it will be at the expense of building new affordable homes. It will be a while before anyone has a proper estimate of what the cost of remedial works might be. One expert says that to reclad an individual tower block costs about £1.2 million, and others have suggested that this means a total cost exceeding £600 million. If costs were were to be of this order, and had to be met from existing capital budgets, they would absorb over 40% of the new money earmarked for rented housing in the last Autumn Statement.

Why should tower blocks be reclad, anyway? Isn’t it better just to leave them unclad? Much has been made of Grenfell Tower being refurbished for cosmetic reasons, but of course the main reason for cladding is to improve the thermal insulation of the dwellings. This has led to stupid headlines such as Grenfell: Clad in Climate-Change Politics. However, only this week we have been reminded that fuel poverty will kill 80 elderly people every day this winter. Insulation is vital to help reduce fuel bills, providing of course that it is done properly. As Colin Wiles has pointed out, this means that unsafe cladding must be replaced by non-combustible materials installed according to thorough safety practices. A debate has already started in the insulation industry about the massive implications of the Grenfell fire for their work. And one lesson for government must surely be that it is much better to build homes to high energy-efficiency standards in the first place, rather than have to stick insulation on their outside walls at a later date.

Apart from the tragic consequences of the Grenfell fire for the residents affected, it’s clear not only that the effects are very reaching but also that we are only in the early stages of assessing what they might be, what will be the costs, and what changes will be required to policies and practice in housing design, housing management, fire safety, building regulations, energy efficiency work and other aspects of public administration. Many have said that the disaster is a ‘wake-up call’. One aspect that we must be wide awake to is how Grenfell’s aftermath is to be paid for across the social housing sector:  it mustn’t be paid for by tenants, and it mustn’t be paid for at the expense of new investment in affordable homes. Or as Steve said a week ago, ‘Central government should foot the bill, sharing the load. That’s why we all pay taxes.’

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2 Responses to Who will pay to reclad the tower blocks?

  1. earlscrt says:

    The Kensington & Chelsea TMO is now trying to dissolve itself – see RBKC full council meeting on 27 Sept. But it is not in the long-term interests of the residents of the 10,000 properties for the potentially dangerous Resolutions to be passed at the KCTMO AGM on 17 Oct. Here’s a rival motion: “Motion to postpone voting on Ordinary Resolution 5 and Special Resolution 6 pending Consultation with Members and Residents. We are gravely concerned about the lack of information made available to, and consultation with Members and Residents as regards the justification for and consequences of Resolution 5 and Special Resolution 6. These proposals potentially constitute a violation of statutory duties to consult on matters relating to the management of housing. They also appear to be an attempt to circumvent the correct procedure as designated in the Modular Management Agreement which council should follow if it wishes to terminate the agreement. The termination procedure contains clear steps for the council to follow in addition to significant periods of consultation. The letter provided to Members dated 22 September 2017 contains misleading information in respect of the consequences of not passing these resolutions. The council cannot, as is suggested, simply cease to fund the TMO causing its insolvency. There will not be, as is suggested, wholesale loss of services and jobs, the latter of which will be protected by the provisions of TUPE. This letter is therefore extremely misleading, and may in fact veer into the realm of misinformation. All should be aware that these Resolutions as currently proposed could have very drastic consequences for the future of the management of the Royal Borough of Kensington & Chelsea’s housing stock. On a prima facie view they appear to surrender the Residents’ stake in future decision-making and provide for a complete hand-over of control to the Council. Given the current Council’s less than unblemished involvement in the events leading to the Grenfell Tower disaster, we have no faith that they are the best agents to represent the interests of the Residents at this time, without any oversight. This decision is a momentous one and simply cannot be rushed through without Members and Residents having the opportunity to be further informed, with a view to seeking independent advice on the consequences of such a motion. It is also vital that Members and Residents have a genuine opportunity to look into potential alternatives to the proposals in these Resolutions. We do agree that the functions of the TMO must be systematically reviewed. If it is the case that the TMO comes to an end, it is essential that this is done following correct procedure, and at a time when an acceptable proposal for the ongoing management of RBKC’s housing stock is in place. We firmly believe that the continued participation of the Residents in an oversight role in the TMO is necessary and proportionate in the circumstances. In any event, no decision relinquishing this participation and thus drastically altering the management structure of the TMO can be on such little information and with no consultation. We therefore urge all present to vote against Ordinary Resolution 5 and Special Resolution 6, and to instead support a postponement of decision-making in respect of the future structure of the TMO until proper consultation has occurred.”

  2. kenthompson1 says:

    Government was informed of the problem & chose not to act on recommendations made to it to prevent the problem from becoming worse. It was foreseeable. Therefore, the government should pay for it. Perhaps they could reduce defence spending, reduce spending on overseas travel for politicians, & other similar measures. Or they could simply take the money from their consolidated revenue. The last thing they should do is slug the taxpayer or the residents of social housing for an expense that was the result of a foreseeable disaster. That would simply be adding insult to injury.

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