Private cash proposed for council houses

Plans to allow a dramatic and privately financed refurbishment of Britain's rotting council house stock were published yesterday by the Chartered Institute of Housing and accountants Coopers and Lybrand.

They propose the creation of local "public corporations" operating with commercial freedom but wholly-owned by local government. These companies would take over public housing stock and would borrow in the private sector using those assets and future rents as collateral in order to provide funds for refurbishment of the properties.

The proposal would require a change in government accounting rules so that the money raised did not fall within the Public Sector Borrowing Requirement. Versions of the idea are already being explored by both the Government and Labour.

The Government, in its housing White Paper next week, will take a limited step towards it by allowing the formation of a new type of local housing company whose boards will include tenants and local authority nominees. The Government, however, is to insist that these be "clearly in the private sector" - in effect privatising the houses transferred.

John Perry, the Institute of Housing's director of policy, said yesterday that councils still owned 4 million homes - 20 per cent of the housing stock - but had pounds 20bn of maintenance work outstanding. "Most of this could be dealt with if only councils could use their assets to borrow funds."

Coopers and Lybrand believe the public corporation method could produce up to pounds 1.5bn of private investment a year. The idea was backed by Andrew Sentance, formerly the Confederation of British Industry's chief economist and one of the Chancellor's "seven wise men".

The proposal is also being explored by the Labour Party. Nick Raynsford, its housing spokesman, said: "We are very interested in all options for achieving increased private investment in appropriate partnerships with local authorities both to improve the existing stock and provide new build."

Mr Ransford said that the danger of the Government's approach was that tenants would not vote for an entirely private-sector solution: "The Government has been here before in the 1980s, when tenants refused to vote for Housing Action Trusts and the Tenant's Charter programmes.

"It shows they have learnt nothing from history and an extremely good idea could be entirely jeopardised if tenants see it as a vehicle for privatisation."