There is a chain of causes of the Grenfell Tower catastrophe of which the criminal use of flammable cladding is just one link. The circumstances which created this entirely preventable loss of life can be traced back to deregulation and the ideological assault on health safety, derided as 'red tape'. Austerity has also hollowed out much local council and fire service organisation, depleting resources for controlling building work and checking fire safety arrangements.
There is one link in the causative chain which hasn't received the attention it deserves; the starving of council housing of funds. Every stock owning council has insufficient funds for the proper maintenance and renewal of its homes. At a Kensington Council Scrutiny Committee meeting in March of this year, just weeks before the Grenfell Tower fire, the Housing Director gave a report on the finances of their Housing Revenue Account. Such was the impact of government policies, including the 1% rent cut for four years, that there was a shortfall of resources for capital spending (renewal of key components of the properties) of £87 million over the next five years. The level of investment needed was estimated at £146.1 million but the council only has £59 million available in its HRA. The 'ringfence' around the HRA bars councils from using money from their General Fund on council housing.
The Director said: “there will be an increasing challenge to meet the requirements in the medium and long term.” In reality it will be unable to spend what it needs in order to maintain decent standards. In this context “value for money” can translate into cheap and shoddy work which may have life-threatening consequences for the tenants.
The causes of this shortage of funds are
the new council housing financial system, 'self-financing', introduced in 2012, and
government policies since then which have led to a loss of rental income.
When 'self-financing' was introduced 146 councils had additional debt of more than £13 billion imposed on them as part of a so-called debt settlement. This debt was not the product of actual borrowing but of 'creative accounting' by the Treasury. Historically tenants have paid more in rent than the actual cost of borrowing for building council homes. That was why Defend Council Housing, the Parliamentary Council Housing Group and the Local Government Association called on government to cancel this bogus debt. Both New Labour (John Healey was the Housing Minister) and the coalition government rejected this demand. As a consequence in 2015-16, according to the Local Government Statistics for England, local authorities paid £2.143 billion in debt and interest charges, 25% of their total income.
More than 90% of the income of council HRAs is rent and service charges paid by tenants (and leaseholders). HRAs have no government subsidy so the amount of work they can do to maintain and renew their housing stock is entirely dependent on how much rent they take in. The rent cut, increased discounts for Right to Buy sales and other policies mean that councils' rental income is much lower than planned for in 2012. For example Swindon Council is expected to take in £365 million less rent over the remainder of its 30 year “business plan”.
This is the context in which councils carry out investment decisions which can have such disastrous consequences. The “proposed contractor” for the work on Grenfell Tower was Leadbitter. It gave a price of £11.278 million. However, the job eventually went to Rydon for £8.77 million. They called this “value for money”. In the context of cash strapped councils quality of work loses out to cost-cutting. In this case the question is posed, did this “value for money” decision lead to the deaths of Grenfell Tower residents?
In November of last year Swindon Tenants Campaign Group produced a pamphlet, “The case for cancelling council housing debt”, which explained the roots and the consequences of this under-funding. Our pamphlet called on the Labour Party to press the government to reopen the debt settlement and for Labour to commit to cancelling the council housing debt if elected.
When it introduced 'self-financing' the government gave itself the power to “reopen the debt settlement”; in other words to cut the debt payments if there were material changes in the circumstances of councils. In reference to this power, “Implementing self-financing” said
“This provision is necessary to protect both the government and local authorities from being locked into a deal that, because of changes to policy affecting either a landlord's income or costs, no longer reflects a fair valuation and could have a material impact on viability. It could be a major change in national rental policy...”
A “major change in national rental policy” is exactly what happened, twice. Councils are “locked into a deal” which has a material impact on the viability of their HRAs.
The catastrophic events at Grenfell Tower are linked to the under-funding of council housing. Whilst the impact in other localities may not be so deadly, the fact is that the current funding does not provide sufficient resources to maintain the standards and the living conditions of existing tenants never mind building new council housing.
While the responsibility for Grenfell Tower rests with Kensington Council, the finances of their Housing Revenue Account underline that the starvation of council housing of adequate funding has consequences for the work that local authorities carry out. It will result in the deterioration of the condition of the stock and the living conditions of tenants. Cancellation of the bogus debt is necessary to start to provide councils with sufficient funding to begin to tackle the housing crisis and, critically, to prevent cost-cutting which can have the catastrophic consequence that it did in Kensington. It would also provide them with the resources for any work required to make tower blocks safe.