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Blog 11th June 2020

Jun 11th, 11:43

Blog 11th June 2020

In this blog I refer to: the British economy after coronavirus, public debt, likely government responses and their impact on public services; Tim Farron’s views on housing; the National Health Service; and our webinars and briefing papers.

The British Economy after Coronavirus

Now that the Coronavirus lockdown is lifting, people are increasingly turning their attention to the state of the economy and the impact of the consequent recession on the public finances. The Organisation for Economic Co-operation and Development has forecast that the global economy will contract by 6% in 2020 with Britain being one of the worst hit economies with a contraction of 11.5%.

coronavirus

Coronavirus

The ‘Public Finance’ magazine reports that the Treasury has estimated that government borrowing could rise to £337billion this year – over six times higher than predicted in the March Budget. In the worst-case scenario, borrowing could increase to £516billion. The Office for Budgetary Responsibility and Office for National Statistics predict that next year's debt-to-Gross Domestic Product ratio will increase to 112%, up from 79% in February 2020.

The ratio between government debt and Gross Domestic Product has been the key measure of government indebtedness for many years. As Chancellor, Gordon Brown established the ‘Golden Rule’ that government debt should not exceed 40% of Gross Domestic Product only to borrow in excess of that as Prime Minister in response to the banking crisis of 2008. Since then government debt has continued to increase as a proportion of Gross Domestic Product.

However, in March 2020, Rishi Sunak’s budget shifted the emphasis away from total debt levels to total debt interest payments, committing the government to keeping interest payments below 6% of government spending. As government is currently borrowing at interest rates of 1.3%, they should be able to operate within that target for as long as interest rates remain low. The Bank of England reduced interest rates to 0.5% in 2008 and since then they have stayed below 0.75%, being reduced to an all time low of 0.25% in March 2020.

But, a government document, leaked to the ‘Telegraph’ in May stated that:

“As debt is likely to reach significantly higher levels after the crisis, it will be important to stabilise the debt-to-GDP ratio and prevent debt from continuing to grow on an unsustainable trajectory,”

So, which way will the government jump? Will it continue to borrow; or will it reduce expenditure to reduce the debt to gross domestic product ratio? The consequences for public services will be significant.

Tim Farron and Housing

Last week one of our local MPs, Tim Farron, held an online question and answer session. As he is the Liberal-Democrat spokesman for Housing, Communities & Local Government, I thought I would ask him a question on housing as follows:

“Most people are agreed that the housing crisis has come about because too few houses have been built since the 1970s creating a shortage of homes, high rents and high house prices. When enough homes were being built about half of them were built by councils. After coronavirus, should government facilitate the building of more social homes by councils and housing associations? For example, should Social Housing Grant rates be increased, and should the council housing self-financing settlement of 2012 be revisited so that some of councils’ housing debts could be written off?”

His response was:

“This question answers itself. Yes, to all of that.”

ashfield_houses

New Council Houses being built in Ashfield, Nottinghamshire.

I am pleased that he committed himself to higher grant rates; and that he supports revisiting the self-financing settlement and writing off housing revenue account debt. He also argued that councils that had transferred their housing stock should re-open their housing revenue accounts and build again. However, he pointed out that the construction industry currently only has the capacity to build 62% of the million new homes over five years that the government has set as a target and that this is likely to fall to 53% with the government’s current immigration plans. This means that the construction industry only has the capacity to build 35% of the 300,000 homes a year that most people in the sector agree is needed. So, we have a problem.

Thought for the Day: National Health Service

Liz Gerard, writing in ‘The New European’ makes an interesting point about the National Health Service:

“Health workers don’t need badges, gongs or monuments. They need to be equipped to do their job safely.”

Webinars

I have held several successful webinars during April, May and June; and have received some favourable feedback. Attendees said that:

  • Booking on the webinars was a straightforward process, the confirmation received confirming the booking was clear and comprehensive, they received information regarding the webinar in good time and the online platform was easy to use.
  • The method of delivery was engaging, the webinar was at an appropriate level to meet their needs, the webinar was well paced (the right amount of time was spent on each section), the webinar included a good mix of presentation and feedback activities, the webinar was value for money,
  • The trainer clearly defined the learning outcomes, the trainer was knowledgeable, the trainer had good presentation and facilitation skills and the trainer was responsive to their needs.
  • Delegates said that they would use the materials received as part of the training and that they know where to find further support and resources from AWICS after the webinar has finished. They were very likely to recommend our webinars to a colleague.

Those who attended the introduction to Service Charges said:

  • It provided everything I needed to know to kick start a review of our service charge position.
  • It gave a good understanding of service charges from an accounting point of view.
  • Informative and a very good introduction to Service Charges.
  • Good supporting material with opportunity to ask questions and re-play presentation.  
  • As an authority we are introducing service charges where we haven't before so basic introduction was perfect to set the scene.
  • Many thanks Adrian.
  • Clear & concise information.
  • Thank you for the information.

Those who attended the introduction to Local Authority Housing Finance said:

  • Working in housing but having no knowledge of accounts - the introduction explaining what the different types of accountancy methods used was very helpful. Using examples of what accounts look like. The notes and PowerPoint slides afterwards are a must for me. I thought the examples and explanations were very clear.
  • Thank you so much for the webinar yesterday, it was really helpful. Thanks also for all the documents and links. Looking forward to the next one today! Many thanks for this. The webinars have been really great.
  • Thank you for both webinars this week and thank you for the slides.

Those who attended the introduction to Scottish Housing Association Finance said:

  • The pace and level of content was ideal for me as a relative newcomer to finance.
  • Thanks, Adrian for a very useful series

Further webinars have been arranged from July to September. For further information or to make a booking, please click the links below:

Briefing papers

I have recently published some new briefing papers. To view or download copies, please click the links below:

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