Independence...Integrity...Value

July 2016

Jul 8th 2016, 09:41

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25th July 2016

Following the vote for Britain to leave the European Union the future of regional development and regeneration programmes has been called into question. For example, Cornwall County Council (the largest beneficiary) has been seeking clarification of its position and the potential implications for the West Midlands were highlighted by Mark Rogers, Chief Executive of Birmingham City Council as follows:

“We will lose the European Structural and Investment Funds and transnational funding for programmes such as Horizon 2020 and Interreg and for research in our universities. The West Midlands alone is set to receive €255m of European Structural Investment Fund money in the 2014-20 period.”

Interreg is a programme that helps regions of Europe to share knowledge and transfer experience to improve regional policy.

The Local Government Association has therefore been lobbying the government to guarantee that existing regeneration programmes will continue to be funded. In a statement issued a week after the referendum they said that:

"Communities in England have been allocated £5.3billion of European Union regeneration funding up to 2020. It is important for the Government to guarantee it will protect this vital funding to avoid essential growth-boosting projects stalling and local economies across England being stifled.”

However, I would not be confident that central government will be willing to provide these guarantees for two reasons:

First, while economic regeneration is central to the objectives of the European Union it has never been considered so important by the UK government. I remember working in the Western Isles and being told that it had been the European Union that had funded all the infrastructure including roads and electricity and that this would never have been funded by a UK government. I also remember working on the European programmes in the West Midlands and West Cumbria in the 1990s when it was the European Union that wanted to regenerate those areas while the UK government placed bureaucratic obstacles in the way. During the referendum the ‘Leave’ campaign proposed that all funding for regional development and regeneration programmes should be diverted to the National Health Service. If regional development and regeneration is to continue after Britain leaves the European Union, there will need to be a significant cultural shift in the UK government.

Second, despite the UK government abandoning its target of balancing the budget in 2020 it is clear that there will now be even more austerity and ‘shrinking of the state’ than had previously been envisaged.

Until 2008, the UK government based its finances on the principle that the budget would be balanced in the long-term with deficits at times of recession balanced by surpluses during times of growth. If the UK is to avoid bankruptcy it will need to return to this policy eventually. In 2016/17 the UK government is projecting a deficit of £75billion and that total debt will increase to £1.6trillion. According to the International Spectator, the United Kingdom’s external debt as a proportion of Gross Domestic Product is now 267%. This compares with 205% in France and 194% in Greece. Looking forward, UK debt is projected to increase and so are interest rates.

Ministers have also suggested that, as the UK will now have to shift the focus of its trade away from developed countries in Europe towards developing countries like China and India, there is a need for UK businesses to become ‘more competitive’. This means lower wages and lower taxes.

We are therefore facing a ‘perfect storm’ for the public finances with a need to reduce the deficit, reduce taxation and pay more in capital financing costs.

As Lord Shipley, the former leader of Newcastle-on-Tyne City Council, wrote in the ‘Local Government Chronicle’:

“The impact of Brexit on local government is difficult to forecast. However, one thing is certain, there will be less money around overall.”

However, the UK government has already suspended £3billion of payments under the European Regional Development Fund indefinitely. In these circumstances I would be surprised if the UK government would be willing to guarantee the existing regional development and regeneration programmes; let alone introduce any meaningful programmes after 2020. The Local Government Association will have to be very persuasive if anything significant is to be salvaged.

18th July 2016

Our seminar on ‘All You Want to Know about Local Authority Housing Finance’ was held in Leeds last Tuesday. I am grateful to all those who attended. Delegates said that the information provided was very relevant, the quality of presentation was excellent and that the training met their needs fully. They described the seminar as interesting, thorough, comprehensive and thought-provoking. Individual comments included:

“Worthwhile and informative. Content was relevant and explained well. It was a pleasure.”

“Very good seminar covering a wide range of topic areas. I would recommend it for those new to the local authority housing sector.”

Our next session will be held in London on 1st November 2016. For further details or to make a booking please click HERE

The seminar is also available as an in-house session. For further information, please contact me at Adrian.waite@awics.co.uk or 017683-51498.

The Chartered Institute of Public Finance & Accountancy (CIPFA) and Chartered Institute of Housing (CIH) have just published a report entitled: ‘Investing in Council Housing – The impact on Housing Revenue Account Business Plans’. This report looks at the self-financing settlement of 2012 that was intended to provide local authority housing services with sufficient income to meet their costs; financial certainty that would enable them to prepare robust long-term business plans; and the capacity to build new council homes. This was done by ending the previous housing negative subsidy system but requiring councils to pay the Treasury £7billion instead. This left councils with £30billion of debt to be financed and repaid from council rents on the basis that this would be affordable because rents would increase in real terms. The reform was implemented by the coalition government based on proposals made by the former Labour government and was supported by all political parties and by the local government and housing sectors.

However, since 2012 the government has made significant changes to housing policy as follows that CIPFA and CIH say have undermined the settlement:

  • Rent levels have had to be reduced to substantially below expected levels
  • Assets are being sold more quickly than anticipated
  • Welfare reform is making it harder to collect rents

CIPFA and CIH calculate that the effect of this is to reduce the capacity of local authorities to build new council houses from 550,000 over thirty years to just 45,000.

The report also notes that the Decent Homes Standard that was adopted in 2000 and that all local authorities were expected to achieve by 2010 for all their council homes was not achieved in 22% of cases in 2012 and is still not achieved in 15% of cases in 2016. The self-financing settlement did not provide councils with resources for decent homes on the grounds that government grants would be available but in practice insufficient grants have been provided.

CIPFA and CIH produce six recommendations for government and two for local authorities. One of the recommendations for local authorities is:

“That they urgently review their housing revenue account business plans if they have not yet done so, taking into account the full range of factors covered in this report.”

I am already assisting a number of local authorities in reviewing their business plans. If you feel that you would benefit from some assistance in this, please contact me at Adrian.waite@awics.co.uk or 017683-51498.

In my view the fundamental problem with the management of council housing in England is the fact that the Department for Communities & Local Government imposes policy in a top-down manner (often with no consultation and apparently little understanding of the situation on the ground) and insists on micro-managing local authorities (for example setting detailed rules about the calculation of individual rents, use of capital receipts, asset management and caps on borrowing for investment). In addition, the Treasury appears to see council housing as a ‘cash cow’. This bureaucratic approach stifles innovation and reduces value for money; and has been followed by recent Conservative, coalition and Labour governments. Neither the Scottish Government nor the Welsh Government manages council housing in this way and I think the time has come for a radical change in the way council housing is managed in England.

11th July 2016

Our seminar on ‘All You Want to Know about Local Authority Housing Finance’ will be held in Leeds tomorrow. It will provide an introduction and overview of this important subject and is fully up to date with all developments. I am looking forward to meeting the delegates.

If YOU would like to attend, today is your last chance to book. Further information and online booking is available on our website HERE

Last week, the Department for Communities & Local Government announced that the number of homeless households in England has increased by 9% in the first quarter of the year compared with the same period in 2015.

While the Housing & Planning Act 2016 has been passed, many of its provisions do not come into force until Ministers introduce regulations or further parliamentary approval is secured. In view of the vote to leave the European Union and its effects on the housing market and construction industry it may be an appropriate time for Ministers to reconsider some of the measures.

One of the measures in the Act is ‘Starter Homes’. This policy is designed to reverse the recent decline in home ownership by offering first time buyers under the age of forty a discount of 20% on properties valued up to £250,000 (or £450,000 in Greater London). It is planned that 200,000 of these starter homes will be made available by 2020. To focus on this policy, government is drastically reducing financial support for all other forms of housing and is ending financial support for new social housing completely.

In April I published a briefing paper on Starter Homes than can be downloaded from HERE

One concern about Starter Homes is that it is targeted at the wrong people. Research by the Local Government Association’s reveals that discounted Starter homes prices will be out of reach for all people in need of affordable housing in 220 council areas (67%) and are out of reach for more than 90% of people in need of affordable housing in a further 80 (25%) of council areas. Shelter have calculated that to be able to afford a ‘Starter Home’ a person would need:

  • In England, an income of £50,000 a year and a deposit of £40,000.
  • In London, an income of £77,000 a year and a deposit od £98,000.

So, to benefit from the scheme a person has to have a relatively high income and a significant amount of capital. It is not a scheme that will assist people in housing need.

However, I think that ‘Starter Homes’ would also fail to deliver its objective of more home-owners. This is because supply in the housing market is what economists call ‘inelastic’ meaning that if there is an increase in demand there will be an increase in prices rather than an increase in supply. This is why house building by private developers has been remarkably constant ever since the 1950s despite fluctuations in the economy and significant long-term price increases. Therefore, any scheme that is based on subsidising home ownership is doomed to failure because it will simply increase prices and reduce affordability.

If the government really wants to increase home-ownership I would suggest that they:

  • Abandon the Starter Homes scheme.
  • Reduce all public subsidies in the private housing market, including the exemption from capital gains tax.
  • Increase the ‘elasticity’ of supply by introducing more competition to the construction industry.
  • Bring about a fundamental redistribution of wealth and income in favour of people on low to average incomes so that they can afford to sustain home-ownership

The construction industry in the United Kingdom is dominated by a small number of large property developers. Furthermore, at local level the market is often dominated by a single property developer. It appears to me that there is little incentive for these monopolistic providers to provide more homes if their profits are maximised by restricting supply thus increasing property values.

I was therefore pleased to see Greg Clark, Secretary of State for Communities & Local Government, taking up this issue in his recent speech to the Local Government Association conference where he said that:

“I don’t think it is at all acceptable or desirable that the domination of the house building sector by a relatively small number of the biggest players should be there unchallenged… You want to have a mixed economy, and you want to have competition and diversity, so we need to have more competitors of all kinds.”

I hope that we will now see fundamental change in the government’s approach to home ownership.

4th July 2016

Last Tuesday I presented a session of ‘All You Want to Know about Scottish Housing Association Finance’ to Board Members at a Scottish Housing Association. The session went well with members saying that the information provided was very relevant, the quality of presentation was good to excellent and that the training fully met their needs. They described the session as thorough, practical, clear, comprehensive, interesting and useful. One of the board members commented as follows:

“Clear, well-paced presentation, ample time for discussion. I would have liked to have seen some middle managers there to develop their understanding.”

I have in-house training sessions available for housing associations and local authority housing services for Scotland, England and Wales. If anyone would like any further information or to make a booking, please contact me at Adrian.waite@awics.co.uk or 017683-51498.

The decision for Britain to leave the European Union has dominated the news again this week. One of the issues that was prominent during the referendum campaign and will be prominent during the negotiation of Britain’s new treaties with the European Union will be the free movement of labour. Currently, citizens of any European Union state are free to sell their labour in any of the European Union states. One of the arguments for leaving the European Union that was put forward during the referendum campaign was that this right should be curtailed or removed. Today, there have even been reports in the media that some contenders for the Conservative Party leadership have refused to rule out repatriating European Union citizens who are already living and working in Britain.

However, it is clear that many of our public services rely on workers from other European Union countries.

Sue Evans, the President of the Public Service People Managers’ Association and Head of Human Resources & Organisational Development at Warwickshire County Council is reported in the ‘Local Government Chronicle’ as saying that Councils will find it harder to employ the staff they need as a result of leaving the European Union, potentially affecting the quality of services. She says that social care workforces will be the hardest hit because councils have been recruiting staff from European countries due to a lack of experienced staff. Mark Rogers, President of the Society of Local Authority Chief Executives and Chief Executive of Birmingham City Council has also said that there are potential staff shortages in social care, nursing and transport.

The construction industry operates on a pan-continental basis (remember ‘Auf Wiedersehen Pet’?) with many British construction companies currently dependent on labour from other European Union countries. Any restrictions on the free movement of labour would have an adverse effect on their ability to provide construction, major repairs and revenue maintenance services to local housing authorities and housing associations at a reasonable price. Brian Berry, Chief Executive of the Federation of Master Builders told 'Inside Housing' that the UK construction industry is heavily reliant on migrant workers from Europe and 12% of British construction workers are of non-UK origin. He said that it was the government¹s responsibility to ensure that the 'free-flowing tap of migrant workers from Europe was not turned off.

And Jackie Daniel, Chief Executive of Morecambe Bay National Health Service Foundation Trust stated in the ‘Westmorland Gazette’ that the National Health Service would not be able to function without the European Union workforce throughout the service, describing them as a vital and valued part of the National Health Service family.

Politicians bandy about statistics about ‘net migration’ but we are talking about real people here and I would like to give you some examples of real European Union migrants who I know:

  • Herman is from Bavaria and has lived in Britain since the 1990s. He is now running his own business, based in Northumberland, that trades across the European Union.
  • Stavros is from Athens. He came to work for me a couple of years ago and did an excellent job. He is now working in Edinburgh.
  • Sebastian is from Berlin. He came to work for me last year and did an excellent job. He is now working in Newcastle-on-Tyne.
  • Ann, was born and grew up in Guildford but since the 1980s has lived and worked in Germany.

The Single European Market and the Free Movement of Labour has opened up opportunities to all these people and have been of benefit to the British economy as well as the economies of other European countries. No one seems to want to end the free movement of goods, services or capital and in my view the free movement of labour should not be ended either. If the free movement of labour does end or is restricted, I do not think it would be good for Britain’s public services.

This week, the ‘Cumberland & Westmorland Herald’ published a letter that I wrote about what Britain’s relationship with the European Union should be after leaving. A copy can be downloaded from HERE

Next week I will be presenting ‘All You Want to Know about Local Authority Housing Finance’ at Leeds. For further information or to make a booking please click HERE

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