The era of the council house may return under Prescott

The council house could enjoy a return to favour under John Prescott, the Deputy Prime Minister, who is seeking support from Gordon Brown, the Chancellor, for an ambitious plan to build more council houses with private- sector money.

There were estimates yesterday from the housing industry that giving councils the freedom to borrow money from building societies and banks could provide enough cash from the private sector to build 100,000 council houses a year.

Mr Prescott, who was given responsibility by Tony Blair for local authorities as part of his "super ministry" for the Environment and Transport, wants to give the councils the same freedom as housing associations to borrow money from private firms using housing stock and rent flows as assets. He is also keen to boost public-private investment in the London Underground.

The Deputy Prime Minister will seek to damp down unrealistic expectations in his first major speech today, in a speech to the engineering union conference in Jersey, but he is keen to show that a Blair government can make a difference in Britain, by investing more in decaying public services, and creating jobs, without increasing taxes.

Treasury civil servants may object to the plan on the grounds that it would add to the public sector borrowing requirement. But Mr Brown is sympathetic to the need for more public and private partnerships, and housing professionals are keen to give it their backing. It is part of a clear effort to establish a closer relationship between the Deputy Prime Minister and the Chancellor for delivering what Mr Blair promised would be a "radical" government.

Chris Holmes, the director of the housing charity Shelter, said yesterday: "The two forms of social housing are similar and it is total anomaly that local authorities are restricted by public sector expenditure regulations from borrowing while housing associations who are heavily reliant on the public grants are free do so,"

Labour is committed to the controlled release of some of the estimated pounds 5-7bn receipts from council house sales to build more council houses, but that would provide enough to build an estimated 14,000 homes a year with 30,000 renovations. A cross-party Commons select committee last year pointed to the need to build 100,000 a year to meet the need for social housing.

Shelter estimates that there is a backlog of housing repairs costing pounds 20bn that needs to be tackled. The Prescott plan could help to revive council housing to level that last existed under Labour in the 1970s.

It dwindled to about 1,000 council house starts last year after the Tories switched the funding to housing associations. The associations have raised around pounds 10bn from the private sector for social housing to rent.