Rise in rents should be ploughed back into housing, say councils

A BATTLE has erupted between London councils and the Treasury over a planned £3,500 hike in rents paid by well-off tenants in social housing.

The Chancellor plans to slash “taxpayer-funded subsidies” for higher earners living in homes originally built for people on lower incomes.

The Centre for London think-tank estimated that councils and housing associations could build up to 3,500 extra social homes a year if allowed to reinvest the £250 million revenue. However, George Osborne is planning to keep the money for the Treasury as part of £12 billion in welfare savings.

Some 40,000 tenants pay subsidised rents despite having family incomes of over £50,000 a year, according to the Treasury.

Mr Osborne’s officials are calling it the “Frank Dobson loophole” after the former Labour minister who continued to live in a three-bed council flat in a north London mansion block even when earning over £100,000.

On average, subsidised rents are £3,500 cheaper.

Housing finance expert Pete Redman, who wrote a Centre for London report calling for rents to rise with income, said Mr Osborne would face a backlash if he squeezed too hard and did not let councils reinvest the money.

“I would urge government to tread carefully and slowly rather than rush to fill a Treasury bank account at a time of austerity, which seems to be their main driver,” he said.

A Treasur y source said counc ils would benefit anyway because some tenants would move into the private sector, freeing up homes.

The Chancellor is expected to say that tenants in London should pay a rent close to the market level if they earn £40,000 a year or more, or £30,000 outside London.