Letter: It doesn't pay for councils to borrow

Sir: In your article, 'Councils set to sell off millions of properties' (1 August), you highlight a study in five Labour councils into selling off council stock to housing companies. Unfortunately, you did not give the full story.

The reason why councils are looking into the potential of housing companies is that private companies would be free to borrow on the financial markets to fund repairs and improvements - whereas council borrowing is restricted by government regulations because it counts as Public Sector Borrowing.

But this 'freedom' to borrow is costly for tenants, because long-term borrowing on the private markets is more expensive than the rate councils can borrow at. For a housing company, tenants' rents are the only extra source of money to service loans if the interest rate rises. This is why the rent increase limits mentioned in your article are usually guaranteed for only five years.

In Thamesmead Town, a GLC estate sold to a private company in 1986, tenants are now paying almost double the average pounds 45 per week rent of neighbours in Greenwich council.

Finally, selling off council estates is a one-way street: there is no going back to the council if the finances do not work out. For the Treasury, sell-offs will reduce the PSBR and housing subsidies, but tenants will pay the price.

Yours sincerely,

MARGARET MORAN

Chair of London Housing Unit

London, NW1

2 August