Number crunching

Posted by: Jules Birch

16/07/2010

Today is the deadline for government departments to submit the first drafts of their plans for 25% and 40% spending cuts to the Treasury.

It’s already clear that the debate is going to be as much about what gets cut as how much gets cut and as much about the knock-on effects of any cuts as the cuts themselves. 

A joint spending review submission by the Chartered Institute of Housing (CIH), National Housing Federation (NHF) and National Federation of Almos makes the economic case for investment in new homes, with a plan they say would safeguard 178,000 jobs and add 0.4% to GDP by the end of a five-year programme. 

On housebuilding they argue that every £1 spent generates £1.40 in gross output across the economy as a whole. On housing-related support they quote research for the CLG that investing £1.6bn a year generated savings of £3.bn in areas such as health, crime and homelessness.

But in tune with the times this is the first spending review submission I can remember that does not argue that the government should be spending substantially more on housing. 

On housing support, the three say investment should be maintained at current levels in real terms between 2011 and 2015.  That should be combined with longer-term revenue contracts, cuts in bureaucracy and greater local transparency.

On housing benefit, they repeat the arguments about the effects of the cuts but also want to see pilots of transition into work payments and a public review of housing cuts before any further cuts are considered. 

On new homes, they argue for £9.5bn of investment over the next four years. This would be matched by £12.6bn from housing associations to provide 150,000 homes. 

That represents a cut of 15% in nominal terms and 25% in real terms after inflation, the impact of increased VAT and the costs of building to higher standards are taken into account. However, they also want action on a range of other issues including VAT, section 106, regulation of asset management and public sector land and no change to the current recycled capital grant fund system. 

On existing homes, they want self-financing for local authorities and almos and greater local responsibility for capital investment and they make their case for switching to a European measure of public borrowing that would free resources and also help reduce the public deficit. Could a Treasury that has previously always said no to changing the rules finally be tempted? 

One key issue could be what happens within the new homes programme. The three organisations envisage a programme that would be 70% for affordable rent and 30% for low-cost homeownership, mainly shared ownership.

That represents a shift in favour of renting from the current position. Shelter argued earlier this week that disporportionate amounts of money were being spent on the intermediate market without a clear policy goal and argued for a combination of concentrating on renting and schemes that generate cross-subsidy and reform of the private rented sector.

Meanwhile, the CML concluded that low-cost homeownership is ‘at a crossroads’ with a shortage of finance from lenders as well as the government and called for a debate about how it can be funded in future. 

And ministers’ instincts - that call by Grant Shapps for a new age of aspiration - will probably in favour of shifting the balance towards homeownership. Greater use of programmes like shared equity, which cost less in public subsidy per home, would also enable them to claim that they are generating more affordable homes. 

Will that be enough to satisfy the CLG and a cuts-hungry Treasury? Almost certainly not but the latest round of exchanges shows just how difficult the decisions are going to be.