Missing pounds 4bn casts doubt on housing pledge from Blair

Billions of pounds collected by town halls from the sale of council housing has been spent, and is no longer available to be used on new housing projects.

The Independent has learnt that of the pounds 6bn which Labour believes was frozen by the Government and is waiting to be released and spent on new homes, only about pounds 2bn remains.

Last week in Brighton, Tony Blair said a Labour government would let local authorities use the money from the sale of council houses to end what he called "the most telling obscenity of Tory Britain" - bed- and-breakfast slum accommodation. The Government is also contemplating freeing the money - although it will not be used to build new homes. Ministers are thought to be in favour of using capital receipts to encourage industry to regenerate urban wastelands, in partnership with local councils.

It is Labour, though, for whom the whole issue of capital receipts acts as a clarion call. The party's estimate of pounds 6bn in available funds was based on the Department of the Environment's own figure, as at April 1994. Ministers, local government experts and town hall officers say they believe the true figure is pounds 2bn because, since the Government froze the money to curb council spending on capital projects, town halls have been using it to pay off debts or to bolster day-to-day cash-flow.

Stockport, in Greater Manchester, has taken pounds 16.5m in capital receipts. According to a council spokesman, none of this is still available. In Barrow, the sale of houses has earnedpounds 6.9m. Andrew McAdam, the town's director of finance, wrote to Ted Smith, the local Tory leader, stating that the money was being counted towards working capital.

Mr McAdam said that Labour's lifting of the ban to allow councils to spend again would not mean Barrow could dip into a pot of cash. If it wanted to build new homes, Barrow would have to borrow additional capital, which would hit council tax bills. "There would be increased pressure on the council's revenue accounts from servicing the increased debt," wrote Mr McAdam.

The north London borough of Islington is also understood to have none of its capital receipts free to spend.

David Thomas, of the Chartered Institute of Public Finance and Accountancy, said councils have been using the money. "If capital receipts are released, councils will have to arrange replacement borrowing. There is no way that can be done without it costing."

A Department of the Environment spokeswoman admitted the department did not break down the figures between how much had been raised over the years, how much had been spent, and how much was actually available. Another problem is that the money is in the wrong place. Those councils who raised cash from selling homes may not be those who now need to build new ones. Bromley, in Kent, is thought to have made the highest figure from house sales - pounds 50m - while inner-city boroughs whose tenants live in tower blocks have struggled to raise much at all. Any proposal from Labour to force councils to share their cash with the less well-off would attract fierce opposition.

A Conservative Central Office spokesman said: "Capital receipts are part of the way council tax can be kept down by using them to repay debt." Referring to the row about Labour's trumpeting of its deal with British Telecom to link schools and hospitals to the information super-highway, he added: "Labour's pledge to release capital receipts is another glitzy idea which caves into pieces when examined in detail."