Cabinet split on homes buy-back

A PLAN to buy back council houses could bring the Chancellor of the Exchequer and the Deputy Prime Minister into direct conflict.

The recent comprehensive spending review completed by Gordon Brown, the Chancellor, has set councils the task of raising pounds 2.75bn a year through asset sales.

But proposals from the Department of Environment Transport and the Regions (DETR), headed by the Deputy Prime Minister, John Prescott, are designed to encourage councils to repurchase assets.

The plan will challenge the Right to Buy scheme whose popularity played a key role in the electoral success of Margaret Thatcher in 1979.

A spokesman for the DETR said: "Because we want to encourage local authorities to look at the assets they can sell doesn't mean that there won't be some areas where it's sensible for the reverse to happen." The Treasury refused to comment.

The DETR green paper is being considered by councils across England and is likely to be enacted during the winter. It will make council houses less attractive to buy and ex-council stock easier to repurchase.

According to DETR estimates, the Right to Buy scheme costs pounds 400m a year in lost rents plus the cost of replacing homes purchased under the scheme. The net flow of housing into the private sector is running at 40,000 properties a year, and the new plans are intended to reduce this number by cutting the maximum discount available to tenants by as much as half.

In addition, a "buy-back incentive" will allow councils to use council house receipts, which have been frozen for years, to cover a quarter of the cost of repurchasing former municipal property.

The buy-back incentives will apply to any former council property, whether or not it was bought from the council by its present owner.

The maximum discount available to council tenants is pounds 50,000 but the DETR believes this amount is unjustifiable and intends to reduce it substantially, in line with local house prices.

In the South-east the proposed maximum will be pounds 38,000; in the North- east it will be as low as pounds 22,000.

Last year 40,000 homes were sold under right-to-buy for an average price of about pounds 21,000, and the average discount was 50 per cent.

Bournemouth Borough Council spent pounds 250,000 last year repurchasing its former stock and has been active in the area since 1994.

A spokeswoman says there is still a "stigma" attached to some council property, making it hard to resell.

Steve Thompson, head of housing in Bournemouth, said yesterday that a range of problems, from the housing boom to high service charges, caused many former council tenants to fall behind with mortgage payments.

Once a property is repurchased the occupants are re-housed and a family from the waiting list is moved in. This prevents people from drifting in and out of home ownership at the expense of the state.

Sarah Foraud, who bought her council flat in 1988, said: "I am really hopeful this proposal is going to bail us out of this mess."