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The housing sector should be on a war footing ahead of the Spending Review
Social landlords should be very nervous about the state of government finances and what it might mean for the housing sector. We need to put up a fight now, argues Matthew Bailes
The outlook for the UK’s public finances is, at best, very challenging.
We face two big long-term issues.
First, owing to our ageing population, pressures on health, social care and pensions expenditure are all forecast to grow significantly for at least 30 years (the time horizon for the sector’s business plans).
Second, there is pressing need to deal with environmental issues, including decarbonisation and shoring up the UK’s defences against extreme weather events.
To meet these pressures, the state will have to deploy some combination of increased borrowing, increased taxes, new or reformed taxes (given that revenues the government currently raises on carbon-emitting fuels such as petrol will over time diminish) and big cuts to other spending programmes.
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This would be a daunting task even if we started from a position of modest debt and high productivity growth. Unfortunately, our actual starting position is pretty much the opposite.
Before the coronavirus pandemic, the government had managed to stem the increase in borrowing through various spending cuts, but had not managed to erode the stock of debt built up in the aftermath of the global financial crisis. The hole in the roof wasn’t getting much bigger but it hadn’t been fixed.
COVID has now blown what remained of the roof off the building. A plan is needed to replace it if the UK is to retain investor confidence. Absent a cogent strategy, the government (and most of the rest of us) will pay in a different way through interest rate increases.
“Most of the damage from cuts is felt long after the short-term political cycle, and the people who end up losing out… don’t always realise they are being short-changed by the government”
Meanwhile, there is absolutely no sign that productivity will increase at anything other than a glacial pace, which means it will be very difficult to grow our way out of the problem. Brexit may well make things worse.
Just to add to the fun, the pandemic has also created some new short-term spending pressures, notably on health, social care and welfare benefits.
All this means that the chancellor is going to have to make some very hard choices – likely to involve both tax increases and public expenditure cuts – starting this autumn in his Spending Review.
It seems to me that as a sector we should be very nervous about the state of government finances. Much of our income comes from housing benefit – an obvious target for savings – and the government has a simple means of limiting its spending through the control of rents.
We are also highly reliant on government support to subsidise new development, and if we don’t get more government funding on fire remediation and zero carbon, these issues will take a massive chunk out of our balance sheets.
The political context is not that auspicious either. Unlike health and education, social housing is a soft target. Most of the damage from cuts is felt long after the short-term political cycle, and the people who end up losing out (mostly the people who would have been living in the homes we would have built with additional resources) don’t always realise they are being short-changed by the government.
This government has plenty of bad form in this respect. In the past 10 years, we have experienced substantial cuts to grant, rents, welfare benefits and most recently subsidy via planning gain (thanks to the introduction of First Homes). All follow the pattern of cut now and worry about the consequences later.
There are also some tactical problems. Our sponsor department, the Ministry of Housing, Communities and Local Government, is very much on the ‘unprotected’ list and its ministers may well need to use much of their political capital to stave off further cuts to local government and to support the leaseholders affected by the fire safety crisis. These are sorts of issues that can derail an ambitious politician with an eye on higher office – a point that will not be lost on housing secretary Robert Jenrick.
Given this backdrop, my view is that the sector needs to be on something akin to a war footing in the run-up to the Spending Review. We need to make a strong case to the government and an even stronger case in public.
We have some compelling arguments. Ultimately, by limiting the life chances of young, poor and vulnerable people, our broken housing system makes all of us worse off – and it can’t be fixed without investment in affordable homes.
There is also no prospect of the UK meeting its climate change targets without a massive investment in existing housing stock.
After 15 gruelling months dealing with coronavirus, it won’t be easy to muster the time and energy to put up a good fight in the Spending Review. But other sectors have already started battling for their share of the pie.
If we don’t follow suit, there will be an even greater risk that we will have more cuts to contend with – at a time when the people we are here to serve need us more than ever.
Matthew Bailes, chief executive, Paradigm Housing Group
