Repairs grant reforms 'to cost London £1bn'

Signs of a major north-south divide began to show this week as details emerged of who the winners and losers will be after a proposed government shake-up of housing finance.

In a leaked document seen by Housing Today, the Association of London Government claimed that possible changes to the allocation of management and maintenance allowances, detailed in an ODPM consultation paper in July, could cost London boroughs almost £1.1bn over the next seven years.

Meanwhile, housing finance experts have said that the consultation paper's proposals, if adopted, could allow some Northern councils to retain their housing stock rather than opt for stock transfer. The consultation closes on 15 October.

The changes would see Northern councils gain at the expense of authorities in London – in some cases their allowances would rise more than 50%. The new formula would benefit Northern authorities because it takes account of the age of stock and the scale of repairs backlog. One of the biggest winners is expected to be Hull council, which in the past has come in for heavy criticism for mismanagement. Meanwhile, three-star Camden is pegged as a potential heavy loser.

In a letter sent to housing minister Keith Hill, Tony Newman, chair of the ALG's housing committee, said: "London is the only region facing significant losses. Further, the impact is highly concentrated in a third of the boroughs and generally those with the [greatest] social and housing needs."

But Northern authorities are already anticipating the effect the changes could have on their housing strategies.

Richard Bramley, an independent housing finance consultant who has researched management and maintenance allowances for the Northern Housing Consortium, said: "Stock retention will become financially viable in some areas where it wasn't previously.

"In the past a lot of councils faced a Hobson's choice – the government talked about there being four options, but there was really only stock transfer. If the consultation paper is followed, Northern authorities will have real choice."

Michael Laing, director of housing at Wear Valley council, which stands to see a 63% increase in its management and maintenance allowance, said: " If the government delivers what it proposes, it will make a huge difference to the housing services we offer our tenants. The existing system is unfair and does not reflect the market conditions."

The government commissioned researcher BRE to review the formula in August 2002. Its recommendations, which form the basis for the proposals, were for the formula to take greater account of councils' need.

London authorities are expected to lose under the new formula, mainly because the weighting given to councils for the maintenance of high-rise properties will decrease in relative terms.

However, the government has said that councils' allowances will be guaranteed at their present level until the next spending review in 2006. After that, however, London boroughs fear they may see a fall in their allowances.

A London council source said that the general feeling in the capital was that the new formula underestimated factors such as crime and the cost of maintaining communal areas.

A spokeswoman for the ODPM said that the current formula was recognised as being out of date, and that the review was "needed to make sure that the funds are distributed fairly".