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English local authorities have been unable to spend £300m of extra funding earmarked for council housing.

The revelation calls into question councils' demands for increased borrowing powers, known as prudential borrowing.

Figures in this year's UK Housing Review show £600m of capital receipt money – raised by the right to buy and sales of other council assets – was freed up in the financial year 1999/2000 and 2000/01 as part of the government's capital receipts incentive.

But although councils spent £300m of the money on housing, they effectively spent the remainder elsewhere by decreasing the amount of their own funds used for housing investment by £300m.

According to Chartered Institute of Housing policy director John Perry this practice is acceptable under current local authority finance regulations.

He said: "Local authorities have got discretion over their own funding. Instead of keeping their own contributions the same [towards total housing investment] they have cut them back as central government resources have risen."

York University housing professor Steve Wilcox, author of the report, said: "There has been quite a significant increase in the level of borrowing that the government has given to local authorities.

"In 2000/01 the permission went up by £600m, but actual spend only went up by £300m." (See "Money matters", right).

Wilcox said calls for councils to be permitted to borrow against future rental income could be affected. He said: "Whenever local authorities decide not to use all the resources that are made available to them, it makes their position harder when they come back to the table asking for more."

He said the drop in spending could be explained by a time lag in investment coming on stream, but pointed out that councils had a track record of diverting money from the Housing Revenue Account to be spent on other things such as repairs to the town hall. The Local Government Association and Office of the Deputy Prime Minister were unable to comment on the figures.

Wilcox also argued this week that the right to buy should not be restricted.

As most sales are to sitting tenants, he said, the properties would not have become available for an average of 10 years. "In many cases, the right to buy has helped to blur the boundaries between council estates and private housing areas," Wilcox added. He said restricting the policy would impose costs on the government.