What will the next government inherit?

In 2019 the Institute for Fiscal Studies said that state expenditure on pensioner benefits and services would rise from 15% to 25% of GDP by 2066. 

Recent analysis by the Office for Budget Responsibility suggested that, assuming current patterns of tax and expenditure, national debt could rise from 100% to over 300% of GDP in 50 years’ time. The costs of decarbonisation, and ballooning interest costs on existing government debt, add to the challenge.

This is not tomorrow’s problem. Year by year the number of pensioners goes up, so year by year government finances become more strained. 

“The combination of a lack of affordable housing, lower benefits and the failure to build enough homes has meant that a growing number of households cannot afford adequate housing”

To successfully tackle this enormous fiscal challenge, we need to do two things. First, we need to grow the economy as much as possible – if the cake gets bigger the choices on how to divide it get easier. Second, and even if the economy grows rapidly, hard choices on tax and spend are inevitable. So, we need an honest conversation on the trade-offs and the political courage to make some significant changes. Genuine efficiencies in the public sector, and improvements in public health, would also help. 

The current government has a poor record on these challenges. It inherited anaemic productivity growth and high public borrowing but will leave the next government in a worse position on both.

And it has attempted to deal with the growing pressure on public finances through a combination of salami-slicing expenditure and stealth taxes. Only pensioner benefits have been spared – a clear sign that demographic changes have informed the government’s political if not its fiscal strategy. That’s why we now have an enhanced ‘triple lock’ on state pensions, despite massive increases in public borrowing. 

The scale of the challenge is far too big to be dealt with by this sort of tactical manoeuvring. It was therefore only a matter of time before public services and the welfare system started to crumble. Ill fortune, in the form of the pandemic, has accelerated the process.

Housing provides an excellent example of how this approach plays out. In 2010, the coalition government cut affordable housing grant, essentially swapping lower expenditure in the short term for much higher expenditure (via housing benefit) over time. Since then, it has squeezed welfare provision, like the Local Housing Allowance, for working age households.

Meanwhile, it has ducked necessary but hard choices that might be unpopular with older voters – who are generally relatively well-housed – for political reasons, for example on planning reform and, arguably, decarbonisation.  

“The current government inherited anaemic productivity growth and high public borrowing but will leave the next government in a worse position on both”

The combination of a lack of affordable housing, lower benefits and the failure to build enough homes has meant that a growing number of households cannot afford adequate housing. 

As a result, we have a worsening housing crisis and a growing bill for taxpayers as more and more people rely on the state to support their housing costs. Sadly, as recent analysis published by the National Housing Federation (NHF) makes clear, we are only in the foothills of the crisis, with plenty more pain to come. 

In other words, we will need to fight our corner more effectively than we have ever done before.

The NHF’s campaign for a long-term housing strategy, alongside Inside Housing’s Build Social campaign, offer us the opportunity to do just that. But these campaigns cannot succeed without support, so it is time for the sector to step up. If we don’t shift the political dial, the past 13 years won’t be seen as an aberration – they will be seen as an early phase of an ever-worsening housing crisis. 

Matthew Bailes, chief executive, Paradigm Housing Group 

Hear from Mr Bailes on 30 November 2023 at the Social Housing Annual Conference, co-located with the Inside Housing Development and Regeneration Summit. Mr Bailes will be addressing how the sector can agree a long-term outcome-based plan for housing, with insights from The Guardian’s political editor Pippa Crerar, Professor Ken Gibb of the University of Glasgow, Melanie Leech, chief executive of the British Property Federation, and Karbon Homes’ Dr Charlotte Carpenter. Find out more about the session here