A SHAKE-UP in council house funding payments by the Government will mean Darlington Borough Council needs to take out a £33.8m loan.

The loan, of which repayments will be set at about £2.3m a year, will eventually rid the borough council of its reliance on central government, making it more in charge of its own housing stock.

Paul Wildsmith, director of resources at the council, has said the loan will not have any impact on services.

The loan will be taken each year out of the Housing Revenue Account, which takes money from council rents and also pays for maintenance of those properties and the building of new ones.

The money will be borrowed at a 3.5 per cent interest rate from the public works loans board.

A Government spokesman said: "Under the new system, each council will start out with an amount of debt which is equivalent to the value of its housing business.

"The value of Darlington's housing business is £33m higher than the amount of its current housing debt, so it will need to pay the Government £33m to leave the subsidy system. But the interest it will be charged will be less than the money it pays to Government at present, so it will be better off.

"The deal brings to an end a centralised system which meant councils did not know what funding they would get for housing from one year to the next and were unable to take key decisions about their housing stock."

The new system, which was revealed in the borough council's mid-year prudential indicators report, to be approved by full council on Thursday, is part of the coalition's Localism Bill.