Capital receipts arising from Right To Buy (RTB) sales can be used by local authorities to fund the development of affordable housing, both new build and refurbishment of existing stock.
In March 2012 the Government introduced “Reinvigorating RTB”. The new rules enabled local authorities to retain all surplus RTB receipts, instead of just 25%, if the receipts were used for “one–to-one” replacement. In order to retain these surplus RTB receipts, each authority had to enter into a “Right to Buy Agreement” with the Government.
The balance of RTB receipts are available to the local authority, once various apportionments available to the local authority have been taken into account and after the deduction of an amount known as Government Assumed Income, which is payable to government. The local authority can then enter into a RTB Agreement with DCLG to use the remaining receipts locally.
The RTB Agreement sets out the conditions on which the receipts can be used. These include:
- The grant funding element from the local authority, or any other public body, cannot exceed 30% of the total amount invested in the eligible capital project costs of new affordable rented housing for the benefit of the Authority’s area
- They can be used on the local authority’s own spend, or that of an external body (but not a body in which the authority has a controlling interest)
- They can be used in support of both new build and refurbishment projects, but refurbished property must not be existing social housing properties
- They can’t be used in combination with funding from the Homes England. However a split development site with more than one project could qualify so long as it is shown that the funds are not merged
- They must be spent within 3 years of receipt, or returned to Government with interest
To enhance the use of receipts, the Ministry for Housing, Communities and Local Government has confirmed that a Council can gift land to an external body, in addition to funding up to 30% of the total scheme costs from the available receipts, although it would be necessary not to infringe the rules relating to State Aid.
There are a number of examples of local authorities using these powers to support community led housing, including Leeds City Council and Hull City Council.