One arm tied behind our backs

Long-suffering readers of Red Brick are used to being recommended long and, it has to be said, occasionally boring texts on housing.  We like to keep you up to date with the latest research and even try to read it ourselves to give you a flavour of what it concludes.

But if you could only read one thing, once again the most authoritative and useful document of the year is the mid-year Briefing published to complement the Annual UK Housing Review.  The Briefing is only some 20 pages long but it races round the whole housing racecourse commenting on all the major trends and giving the latest housing facts.  Written by Hal Pawson and Steve Wilcox, published by Chartered Institute of Housing and the Orbit Group, it starts with wider economic prospects, summarises changes in the housing market, and examines latest trends in housebuilding, affordability, welfare reforms, and homelessness.  It also takes a look at trends in Wales, Scotland and Northern Ireland and points the way to more detailed sources if they are needed.

The highlight for me this year is the almost despairing plea for policy-makers to look again at the restrictive impact that the UK’s fiscal rules have on investment – not just in housing but across other policy areas too (elaborated in this fascinating piece by John Perry in Public Finance which starts with transport investment).  Steve Wilcox, John Perry and a small band of housing people have ploughed this particular furrow for nearly 2 decades, but the case is as convincing as it ever was, attracting support across the political divide – see here for example – but not unfortunately in the Treasury.

Pawson and Wilcox summarise the case for change:

There are, however, some important differences between the UK and international fiscal measures. The UK focuses on public sector debt, and includes the debts of public corporations (which for national accounts purposes includes council housing). The UK government has, even so, excluded the debts incurred in the recent acquisition of banking assets, on the grounds that this is only a temporary measure before the banks are resold.

In contrast, the international measure is based solely on government debt, excluding the borrowing of public corporations. It includes the government debt incurred in purchasing the banking assets but not the borrowing by those banks. More importantly it is this measure that international financial markets use as their yardstick – not the arcane UK measures.

One consequence of the UK adopting different spending rules is that large elements of our transport and utility sectors are now owned and operated by European state-backed companies. Thus, for example, the energy company EDF is 85 per cent owned by the French government and Arriva Trains is part of the German government majority-owned Deutsche Bahn group. Government subsidies provided to those bodies count against GGGD – but not the borrowing against revenues of the trading bodies themselves, giving them much more flexibility to invest than their British equivalents.

Adoption of international fiscal rules in the UK would open up the option for public sector trading companies to play a more active part in promoting economic growth (as they do elsewhere in Europe), without adding to the debt levels measured by the international financial markets. This change goes far wider than issues about housing policy, but housing gives some examples of the benefits of a move to international fiscal rules.

Borrowing to invest in improving council housing stock or building new council houses would cease to be a matter of concern but instead would be an opportunity both to improve services and promote economic growth. Providing local authority low-deposit mortgages could help to unblock the housing market and support young households that want to move into homeownership.

Changing UK fiscal rules will not solve everything – but at the moment we are missing a trick. We are struggling with unique economic conditions with one arm (of the public corporate sector) tied behind our backs.

Labour flirted with these ideas prior to the 1997 General Election, and it can be argued that the ‘prudential borrowing’ regime came out of that debate, producing more investment than would otherwise have been the case.

We now face restrictions on public investment that make it hard to see a way forward for housing, and unchaining the public corporate sector would once again be worth serious consideration.  It may be arcane, it may be techie, but it could make a major difference in the real world where people’s housing prospects are getting worse by the day.

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