Housing Minister Grant Shapps has outlined plans to devolve greater powers to councils to meet the housing needs of their local communities.

Currently, councils are required to pay the council house rents and the majority of receipts from the sale of land and homes to Whitehall, where it is then decided how best to redistribute the funds back to local authorities - known as the Housing Revenue Account subsidy system.

However, Mr Shapps committed to changing the rules so councils will be able to keep all the rents and sales receipts that they collect. In return for these greater freedoms, some councils would be required to take on additional housing debt - but no council will take on a level of debt that is not sustainable for the long term.

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Details of the new system will be announced as part of the forthcoming Spending Review, and will be introduced in the Localism Bill later this Autumn to enable the new system to start in 2012.

Mr Shapps said: "For far too long councils have been left hamstrung in their efforts to meet the housing needs of their residents by a council house finance system that is outdated and no longer fit for purpose. The Housing Revenue Account subsidy is in urgent need of reform.

"That's why I can confirm that we intend to scrap the current system, and instead replace it with something more transparent that will serve the needs of local communities without interference from Whitehall.

"Subject to the Comprehensive Spending Review we will offer councils the opportunity to keep the rents they collect and the receipts from any house or land sales. This is a key step to transfer powers to councils and communities, so they are free to improve their local services in a way that best meets the needs of local people."

(CD/KMcA)