Housing associations have breathed a sigh of relief at the Housing Corporation鈥檚 announcement that it will not introduce the Treasury鈥檚 new index of inflation 鈥� due to come into force in November 鈥� until next April
Housing association finance directors feared that the switch from the retail prices index to the harmonised index of consumer prices (see box, right) 鈥� announced by chancellor Gordon Brown in his 鈥渘ot yet鈥� euro speech on 9 June 鈥� would push down rents.

Under rent restructuring 鈥� which aims to harmonise rent across councils and housing associations 鈥� rents are not allowed to rise by more than the RPI plus 0.5%.

However, HICP is typically 0.5% lower than RPI, so finance directors are concerned that they will lose 0.5% of their rent income if rents are pegged to HICP plus 0.5%. Figures released on Tuesday by the Bank of England showed RPI to be 1.8% higher than HICP.

A corporation spokeswoman said it would not introduce the index in November because it had already set its complex rent guidelines for this financial year. She added that the Treasury was happy to allow people to phase in the change.

Next April, the corporation will publish its

three-year review of rent restructuring, which will address the issue of HICP versus RPI.

Finance directors want the National Housing Federation to lobby the corporation to tag rents to HICP plus 1% instead of HICP plus 0.5%.

Danny Friedman 鈥� head of resources, research

and information at the National Housing Federation, who will become director of policy in September 鈥� said: 鈥淚f we need HICP plus 1% to meet the needs in the current environment, that鈥檚 what we will be pushing for. We wouldn鈥檛 want anything less than RPI plus 0.5%.鈥� However, he added that the corporation had given no indication of trying to push rents down.

John Bruton, finance director at Raglan Housing Association, said it was good that the corporation was leaving the decision until April. 鈥淚f they were rushing out to implement in the autumn, we would be concerned at the lack of time for comment.鈥�

What is the HICP?

The harmonised index of consumer prices is the measure of inflation generally used in continental Europe. The chancellor wants the UK to move to this so we can compare British inflation with that on the continent before deciding on euro entry.

Unlike RPI, HICP does not include the cost of housing, mortgages or council tax. But it does include tuition fees. HICP is calculated using a geometric mean whereas RPI uses an arithmetic one. This allows HICP to be more sensitive to the particular types of product people buy.

The high cost of housing has exacerbated the difference between RPI and HICP in the past. However, the cost of shoes and household goods has also made a difference to this gap recently.

Source

Housing Today