Ruling out extra borrowing that adds to government debt or has to be paid for from taxes is fair enough, but council housing investment needn’t do either. That is the message that Labour’s Treasury team still seemed unwilling to receive at this week’s Labour conference.
Ed Balls earlier appeared to leave scope for extra borrowing for capital investment but then closed the option down in his Manchester speech. Following this, Chris Leslie said the economic situation would preclude extra borrowing for new homes and that those who expected it to happen would be disappointed.
Obviously, the Treasury team has two concerns, one is getting down the level of government debt, and the other is avoiding new spending that will have to be funded by making cuts elsewhere or by raising taxes. However, the argument in favour of building council houses – as opposed to, say, hospitals or schools – is that the investment needn’t impact either on government debt or on taxes.
Council housing and one or two other areas where Labour might want to invest (an example is rail infrastructure) are different from most areas of public sector investment in these two key respects. They can be funded from charges (in the case of housing, from rents) and the borrowing only counts against national debt because of current Treasury rules. Chris Leslie seemed to gloss over these distinctions. He was quoted as saying:
‘But those of us who believe in having a collective public realm for public services – whether it’s the NHS, education, housing – have to prove to the public that we can live within our means and manage efficiently those particular budgets.’
He added that injecting capital funding into social housing could ‘make a big difference’ to the housing sector, but ‘what I can’t do is raise your expectations and promise you that straight after the election there will be this splurge in borrowing’.
Fair enough. And Labour understandably doesn’t want to frighten the horses now by promising a change in borrowing rules that would embrace international conventions rather than those that traditionally (and uniquely) apply in the UK. However, it could tell the truth, which is that council housing investment is funded through rents not taxes, and there are councils which have the potential to finance new investment from their rental income but are prevented from doing so by the current borrowing caps. It could say that it wants to explore the possibilities for extra borrowing to build homes, given that it needn’t cost the taxpayer more and that it’s a vital part of achieving Labour’s 200,000 homes target. When in power, it could then look at embracing international rules about borrowing that are already used as the yardstick to compare Britain with its competitor economies.
We could add to the case by pointing out that money spent on house building – unlike that spent on schools and hospitals – also feeds quickly back into jobs and extra tax income. This is because houses can go on site more speedily than just about any other form of capital investment, so the boost they give to the economy (and returns to the Exchequer) are faster.
So, lumping housing investment in with health and education is to misrepresent housing’s unique case. Of course, new schools and hospitals are highly desirable, but because they provide services that are free to the public, the investment inescapably boosts government debt and adds to taxes. Housing is different. Treasury team, please note!