The unpopular “Tenant Tax” will be scrapped, with local authorities being allowed to keep all council house rents and sales receipts they collect to reinvest in social housing, under plans announced today by the coalition government.

The proposal, which sees the coalition delivering on a major Liberal Democrat manifesto commitment, will result in the Housing Revenue Account subsidy being scrapped in favour of greater financial freedom for councils. Under the previous system, all council tenant rent was paid into a local housing pot, from which the government was allowed to make deductions to fund subsidies for other local authorities. The government also retained some of the money centrally.

The new proposals will see this Housing Revenue Account subsidy scrapped. Instead councils will be able to retain all of the money from rents and sales receipts to invest in the repair, maintenance and construction of social housing in their area.

Full details of the new system will be announced as part of the Spending Review on 20 October and will be introduced as part of the Localism Bill this autumn.

Commenting, Communities and Local Government Minister Andrew Stunell MP said:

“I’m delighted that we are able to announce the end of the unpopular “Tenant Tax”. Council tenants are invariably on low incomes, and should not be subjected to an additional tax to fund social housing improvements in other parts of the country.

“Our proposals will allow local authorities to invest in the repair and maintenance of the social housing stock in their area, and even invest in more social houses if they wish.

“Liberal Democrats have long campaigned to reform the Housing Revenue Account subsidy and replace it with a fairer system. We’ve now been able to deliver on that pledge in government.”