The current Housing Revenue Account (HRA) scheme is to be revamped by Housing Minister John Healey and will be replaced by a new self-financing system in 177 local authority (LA) areas.

It will give councils the freedom to fund and run their council homes, without any subsidies from central Government and also create the funding capacity to build over 10,000 new council homes a year.

Healey said: "This is a once and for all settlement between central and local government. It will bring council house funding up to date - replacing a system which was introduced before the Second World War. Councils will get the freedom to fund and run their council homes, without central Government subsidy. Not a single penny from rents or sales will go to Whitehall and not a single penny will subsidise other councils as the current system dictates.

"The deal will release at least +10% more money in every council for maintaining and managing their homes. Above all, it will mean that four million tenants living in 1.8 million homes will get better homes and better housing services from their council.

"This is a change which councils have been calling for, and which has cross party support. This is an opportunity for radical change which will allow councils to do much more to provide better services and better meet the needs of local people."

Under this new self-financing system, councils will retain all the rent they collect from the homes they run as well as all the receipts from any sales of houses or land. None of the money will go to the Government or will subsidise other councils as the current system dictates. In return, councils will accept a share of an additional £3.65bn debt. With no council taking on a level of debt that is not sustainable for the long term.

Tim Hamilton-Miller of Knight Frank’s Affordable Housing Consultancy team, said: “Under the previous system rents were put into the local authority’s HRA for pooling and redistribution by central government according to complex rules. Funds were not reserved solely for housing and were not retained at a local level.

“The shake up of the old system with the introduction of a self financing model will enable councils to take advantage of the land they already own to build new homes for local people, using locally collected rents. Many authorities will not currently have staff with the necessary development experience but by working closely with housing associations and consultants such as ourselves I can see great possibilities for homes, jobs and regeneration on the horizon.”