Hampshire councils are set to launch the largest council house rebuilding and improvement programme in a generation.

In Southampton, a 30-year housing plan is due to be approved by city councillors will see:

• The largest ever council house improvement programme. Around £115m will be spent in the next four years alone on repairs and refurbishments, insulation, new heating systems, eco-lighting, wiring and replacement double glazed windows.

• £16m will be used to revamp city estates and kick-start the building of over 1,000 new homes over the same period.

Southampton and Portsmouth will each spend £1.4 billion on council housing over the next three decades. At least £3 billion will be spent by Hampshire’s five landlord councils.

Under a similar 30-year plan agreed by Tory council leaders in Winchester, the authority will build its first new homes in the city in a generation in the next two years. Up to 300 are planned in a £42m programme.

But the Daily Echo can reveal there will be a massive cost.

Hampshire councils will be forced to plunge themselves into half a billion pounds of debt as part of a national shakeup of council housing finance – and tenants will be footing the bill.

The opportunity to embark on these huge improvement projects has come amid Government reforms that will allow councils to keep all the rents they receive from their council house tenants – rather than sending millions each year to the Treasury to redistribute to poorer councils.

But in return for keeping all rents, councils must make a one-off payment to Government at the end of March to help share the burden of the nationally-held £29 billion of council housing debt.

And in order to fund this one-off payment, councils must borrow huge amounts based on a complicated 30-year calculation – £74m in the case of Southampton and around £150m each for Winchester and New Forest.

The bad news for tenants is that the council borrowing will have to be paid back out of rents which are already set to rise again this year, by around seven per cent in Southampton, Winchester and the New Forest under national rules to bring them in line with housing association rents.

But councils have defended the new financial arrangements, saying it will leave them much better off in the long run – and enable them to use the all local rents for improvement and housebuilding schemes.

One pressure group branded the new scheme an “unjust tax on tenants”.

Daily Echo: council housing one-off settlement payments graphic

Councils have been offered special borrowing rates by the Government – under four per cent for up to 30-year loans.

Yet officials have warned the borrowing required could expose them to economic downturns and soaring interest rates.

They admit interest rate rises, depending on the terms of loans taken, and changes in building costs could leave debt piles on the books for even longer.

The payments councils must make to the Government are based on the level of debt a council has and the value of its housing stock.

Winchester City Council, which currently has no council housing debt and sees £9m taken annually by the Government in rent income, will have to pay a one-off £157m.

The Tory council insists the deal will “significantly increase investment in repairs and improvements to its stock” and allow it to build the first new council houses in decades as it keeps all rents collected from its 5,000 tenants.

An extra £2m each year would be freed up to fund services to tenants, the council said.

An authority spokesman said “potential risks” were still being assessed and a decision on how the funding will be raised will be made shortly.

The bulk of it is likely to be repaid as a 30-year loan and the deal could save Winchester more than £100m over the next three decades.

Winchester-based lobby group TACT, which has long championed the case for reform, said the debt repayments were still an “unjust tax on tenants” as the city did not owe anything in the first place.

The group called for the whole UK council debt to be written off so each authority could “start afresh”.

It also raised concerns that a clause in the new rules could allow the Government to come back and ask for more money in the future.

Southampton City Council sees around £7.6m each year of rents - £62m and rising - siphoned off to Government.

It already has a historic council housing debt of around £110m and plans to buy a fixed rate 50-year bond to raise £74m for its one-off settlement to keep all rents.

Housing boss Councillor Peter Baillie said the deal was “very good for Southampton” and would free up around £10m more per year, even after debt repayments.

“It’s the biggest change in the history of Southampton’s council’s housing stock,” he said.

“We’ll go from managed decline to be able to look forward a bright future of good quality housing.”

A New Forest council spokesman said: “Despite the magnitude of having to borrow money to pay central Government over £140m, we welcome the new arrangement if it gives us the freedom from Government control to manage our own housing revenue, enabling us to invest in more affordable housing for the district.”

Fareham Borough Council, which has no council housing debt, said the changes would free-up over £3m a year in rents previously paid to the Government.

“These savings will be used to help repay the debt and invest in the current housing stock or new homes. The council has ambitions to modernise and improve the quality of the sheltered housing stock across the borough and will also be exploring the opportunities to help provide new affordable housing in the north of Fareham.”

Portsmouth City Council has already borrowed £84m to fund its payment to Government – before the Government’s reduced rate offer was made.