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"Bad politics and bad economics"

hattersley streetPlans to build thousands of new social homes will have to be abandoned because of the Government’s decision to cut the amount tenants will have to pay in rent next year, The Times newspaper has reported. Housing associations will warn today that their income will fall by at least £260 million next year if the Government continues to link social housing rent to inflation. The retail prices index is expected to fall below minus 2 per cent in September, the month when rent is set for the next year, presenting the prospect of real cuts in social rental payments for the first time.

In a consultation paper sent out last month the Government said it would set a floor of a 2 per cent reduction in rent and would absorb the deficit if inflation dropped even further. Ministers hoped this would protect both the tenant and housing associations, who have lost millions during the recession due to falling house sales. But the National Housing Federation, which is pressing for a rent freeze, said that although tenants would only benefit by a small rent reduction of £1.36 a week the impact on housing associations could be critical. Ruth Davison, NHF campaign director, said the formula linking rent payments to inflation was designed for positive inflation. “Rents have never been cut in the history of social housing, even during the Great Depression and two world wars,” she said. “The decision to reduce rents at the same time as Gordon Brown has announced a £1.5 billion social housing programme is political ineptitude.”

The National Housing Feeration Director said the plans were “bad politics and bad economics” . Matthew Gardiner, chief executive of the Trafford Housing Trust, which owns more than 9,000 homes near Manchester, said: “In the first year we would lose about £1 million, which we can probably cope with by restricting services, but the 2 per cent reduction would be built into all future years leading to a loss of £30 million over 30 years.” A reduction of this scale could jeopardise a proposed development of 1,400 homes on the edge of Manchester, he said.

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