Budget watch: (1) a long term rent settlement for social housing

For social housing, a new long term rent settlement for social housing is due to be announced. This follows the Deputy Prime Minister's parliamentary statement in July where she said "The Government also recognises that councils and housing associations need support to build their capacity and make a greater contribution to affordable housing supply – which is why we will set out plans at the next fiscal event to give councils and housing associations the rent stability they need to be able to borrow and invest in both new and existing homes, while also ensuring that there are appropriate protections for both existing and future social housing tenants".

Earlier this year the current settlement - which allows social landlords to increase rents above inflation (at CPI plus 1%) was rolled over until 2025/26. It is widely anticipated that the government will continue the current level (CPI plus 1%) but for a longer period of time - an inflation busting ten year settlement at CPI plus 1% is widely thought to have been agreed by HM Treasury. This is expected to embed above inflation rents rises of CPI plus 1% until 2035/36.

There is some speculation that HM Treasury may be persuaded to go further, increasing the additional percentage element in the second half of the settlement period, in a bid to underwrite additional social housing delivery – perhaps at CPI plus 1.5% or 2%.

It has also been mooted that the government will put forward a commitment to underwrite the rent settlement in primary legislation, mirroring the approach on international aid. This is to reduce the likelihood of an agreed rent settlement being reduced or changed, as happened post the financial crisis (where rents were required to be reduced) and during the recent cost of living crisis (where the rents were capped to an overall increase level of 7%).

Under the structural approach set out above for the upcoming budget, there is no need for HM Treasury from a fiscal point of view to address a new rent settlement for social housing now, as opposed to in the Spring Budget 2025 (as the current settlement is already to 2025/26). Politically, given the commitment made by the Deputy Prime Minister, it is expected that a new social rent settlement will be announced on 30 October.