Blog 25th September 2017

Blog 25th September 2017

In this week’s blog, I refer to: John McDonnell MP, the Labour Party Conference, the Private Finance Initiative, the United Kingdom government credit rating, Scottish house-building, Housing and Homelessness, the Chartered Institute of Housing, Welfare Reform and Local Authority Housing Finance.

John McDonnell MP, the Shadow Chancellor made an interesting announcement about Private Finance Initiative schemes at the Labour Party conference earlier today, saying that:

"The scandal of the Private Finance Initiative has resulted in huge long-term costs for taxpayers while providing enormous profits for some companies… Over the next few decades, nearly £200billion is scheduled to be paid out of public sector budgets in Private Finance Initiative deals. In the National Health Service alone, £831million in pre-tax profits have been made over the past six years… I can tell you today that when we go into Government. We'll bring these contracts and staff back in-house… Never again will this waste of taxpayer money be used to subsidise the profits of shareholders, often based in offshore tax havens "

The Private Finance Initiative was introduced by the Conservatives in the 1990s and continued by Labour from 1997 to 2010. Under the scheme there were considerable investments in services including the National Health Service, Education, Highways and Housing. Some of my clients have Private Finance Initiative schemes and while some complain that they are not ideal others are happy with how they operate. However, during recent years these schemes have attracted criticism from across the political spectrum as being too complex and costly; and few new schemes have been started since 2010.

Private Finance Initiative schemes are contracts under which private companies agree to provide significant capital investment and ongoing services to public bodies for periods of up to thirty years in return for significant payments. The early termination of large and profitable contracts would involve the government (or other public body involved) having to pay significant early termination charges. It is possible that these costs would outweigh the savings in most cases. It is interesting that no costings have been provided for this policy and that the BBC is reporting that ‘Labour sources’ are saying that they would ‘review’ rather than ‘bring… in-house’ these contracts!

Last June, the United Kingdom government lost its AAA credit rating (the highest available) and was downgraded to AA1. However, Moody’s have now downgraded the credit rating further to AA2 following Theresa May’s speech about ‘Brexit’ in Florence last week. Kathrin Muehlbronner, an analyst with Moody’s told ‘Public Finance’ that:

“Moody’s expects weaker public finances going forward.”

My prediction is that further down-gradings will follow and that, combined with the weakness of sterling and increased inflation rates, this will result in interest rates being increased from their current extremely low levels. Furthermore, I don’t think that the current discussion about whether the United Kingdom government will meet its financial liabilities when it leaves the European Union will strengthen its credit rating!

It is reported that Scotland’s councils are ready to deliver 35,000 new social rented homes during the current Scottish Parliament with plans in place to double the number of new homes they provide each year. The 26 council landlords have plans in place for over 14,000 homes by 2021 including the 1,085 homes added in 2016/17. Councils will invest over £1.3billion, around 60% of which will be paid for by tenants through their rents with most of the remainder provided as grant from the Scottish Government.

However, the Scottish Association of Local Authority Chief Housing Officers has raised concerns about some of the challenges that councils, housing associations and the private sector face in delivering new homes and the risk to the supply of new supported housing caused by welfare reform and the difficulties in delivering new homes in remote and island communities.

Meanwhile, two interesting reports on Housing, Homelessness and Welfare have been published:

First, Sheffield University has produced a report for the Chartered Institute of Housing entitled ‘Tackling Homelessness Together’. This report reveals that half of all housing associations admit they are reluctant to house tenants who claim housing benefit because of welfare reforms, and that local authorities state that 60% of applicants who are on benefits are affected. Consequently, tenants on housing benefit are being denied social housing tenancies and instead are being housed in the private rented sector or temporary accommodation at considerable cost.

Second, the Association of Retained Council Housing and Vivid Housing Association have sponsored a report, written by the Chartered Institute of Housing and entitled ‘Building Bridges’ that calls for closer relationships between councils and housing associations. It calls for housing associations and local authorities to work more closely on homelessness, including through policies for allocations and lettings and collecting combined data on rough sleeping and complains that:

“In many areas, it has become difficult to balance the need of local authorities to accommodate the most vulnerable and lowest-income households with the needs of housing associations to limit the risk that applicants cannot pay affordable rent and to reach new customer groups who can afford low-cost homeownership.”

Both reports have a similar message about how welfare reform is preventing local authorities and housing associations from addressing housing and homelessness issues adequately.

In December, we will be holding a seminar on ‘Welfare Reform 2017 – the implications for Housing’. For further information or to make a booking, please click HERE

Our next seminar on ‘All You Want to Know about Local Authority Housing Finance’ that will be held in London on Wednesday is now fully booked. I am grateful to all those who are attending and am looking forward to seeing them all. Our next session of this seminar will be held in London on 13th March 2018. For further information or to make a booking, please click HERE