Taking the pledge

The weekend’s big speech by Ed Balls looks like significant news for housing under a future Labour government – and not just for the obvious reasons.

The national headlines from the shadow chancellor’s speech to the Fabian conference were taken by his pledge to restore the 50p rate of tax and subsequent accusations that Labour is therefore anti-business. The undoubtedly good news for housing was that it will be ‘a central priority’ if Labour wins power in 2015.

But it was Balls’s message about ‘fiscal discipline’ that was more interesting to me:

‘We won’t be able to reverse all the spending cuts and tax rises that the Tories have pushed through. We will have to govern with less money, which means the next Labour government will have to make cuts too. No responsible Opposition can make detailed commitments and difficult judgments about what will happen in two or three years time without knowing the state of the economy and public finances that we will inherit.

‘But we know we will face difficult choices. The government’s day-to-day spending totals for 2015/16 will be our starting point. There will be no more borrowing for day-to-day spending. Any changes to the current spending plans for that year will be fully-funded and set out in advance in our manifesto.’

On the fact of it, that sounds horribly reminiscent of Tony Blair and Gordon Brown’s pledge to stick to Conservative spending plans for the first two years of the Labour government after the 1997 general election. While that was effective politically in signalling New Labour’s determination to break with the party’s tax and spend image, the results were disastrous for housing investment because the Tories had already penciled in deep cuts for 1997/98 and 1998/99. Never mind two years, investment in new homes did not match the level Labour had inherited for another seven in real terms. This was the root cause of the failure to invest enough in new homes that the party now acknowledges.

However, the crucial difference this time around is that the pledge by Balls applies to current spending, leaving room for capital investment and for borrowing to finance it.

This was the context for the passage on housing:

‘We need Help to Build, not just Help to Buy. This would help people aspiring to own their own home, create thousands of jobs and apprenticeships and ensure we have a recovery that is built to last. And it is why housing investment will be a central priority for the next Labour government.’

That was immediately followed by:

‘Of course, there is a careful fiscal judgement to be made. I have said that there will be no more borrowing for day to day spending in 2015-16. But consistent with our tough fiscal rules, we will assess the case for extra capital spending to boost growth and jobs and make our economy stronger for the long-term.’

Housing is particularly strongly placed within this financial framework since it is arguably the only sort of capital spending that simultaneously reduces current spending: more new homes at lower rents means a lower housing benefit bill.

Exactly this point was made by Ed Miliband in an article for the Sun on Sunday yesterday in which he said there will be tough controls on social security: ‘But to deal with welfare spending properly, we will need to make big reforms to cut the costs of failure in the system. We will build more homes to get the costs of housing benefit down.’

In effect, the rule on current spending will necessitate a reversal of the trend seen over the last 35 years of subsidising rents rather than bricks and mortar and letting housing benefit take the strain. The prospectus for the latest Affordable Homes Programme published this morning, with its heavy emphasis on conversions to affordable rent and disposals of high-value stock, moves even further in this direction. 

If Labour’s pledge and a reversal in this trend sound like very good news for housing, there’s just the small matter of winning the election first after a campaign in which the other parties will argue that the financial framework will leave the back door open to more Labour borrowing.

And, even if Labour does win in 2015, new homes will take time to build and to start to bring down the housing benefit bill. If 100,000 additional new social rented homes were built with rents £70 a week lower for 100,000 families moving from the private rented sector the saving would be £364 million a year. That would continue year after year but it compares to a total housing benefit bill of £24 billion.

However, that ignores the short-term fiscal benefits from the construction programme. On a fairly conservative assumption that each home built could save the Treasury £20,000 in higher tax revenue and lower benefit payments (each home generates 1.5 construction jobs), those 100,000 homes could deliver a gain of £2 billion.

Elsewhere at the Fabian conference, rent capping emerged as by far the most popular policy at a Dragon’s Den-style session. The idea was also endorsed by frontbencher Sadiq Khan, according to Mark Ferguson of Labour List. However, shadow housing minister Emma Reynolds promptly tweeted that ‘it is not Labour party policy to introduce rent controls’.