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Blog 7th October 2020

Oct 7th, 15:07

Blog 7th October 2020

In this blog I consider how the International Monetary Fund and Rishi Sunak think governments should respond to the economic effects of coronavirus; the prospect of more austerity in Britain; how changes to universal credit will increase poverty; reaction to the Planning White Paper; social attitudes towards rules and our webinars.

The International Monetary Fund has advised that governments of advanced economies should not be unduly concerned about increased debt levels caused by the coronavirus crisis and should increase public investment to offset its economic effects. Their argument is that reducing spending or raising taxes to reduce debt levels would be counterproductive, because it would risk choking off economic recovery, and would reduce future tax revenues. Others argue that record levels of debt are of limited concern because government borrowing costs are historically low while interest rates are artificially depressed.

The United Kingdom government will record a record peacetime deficit in 2020/21. During the first five months of the financial year, the budget deficit has increased to almost £174billion, more than three times the £55.8billion borrowed in 2019/20. National debt has increased to more than £2trillion – equivalent to about 102% of gross domestic product.

Rishi Sunak MP, the Chancellor of the Exchequer, in his speech at the Conservative Party’s online conference at the weekend, took a different view to the International Monetary Fund and suggested that further austerity is on the way. He warned that hard choices will need to be made to tackle the record levels of national debt through tax increases or spending reductions as he saw it as his duty to ‘balance the books’. He said that:

“We have a sacred responsibility to future generations to leave the public finances strong… If instead we argue there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point in us. I’ve never pretended there is an easy cost-free answer. Hard choices are everywhere.”

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Pinderfields Hospital in Wakefield. Health Budgets may be cut following Coronavirus.

So, it appears that all the money spent on ‘eat out to help out’ during August may ultimately be funded through budget reductions in health, social care, and welfare!

The Department for Work & Pensions is already planning to reduce the basic allowance for universal credit and tax credits by £20 a week from April 2021, reversing a decision to increase it at the start of the coronavirus pandemic in March 2020. The Resolution Foundation has calculated that this would reduce the level of unemployment support to its lowest real-terms level since 1991 and to its lowest level ever when compared with average earnings. It would affect six million households across the Britain and would place an additional 700,000 households in poverty at a time of increasing unemployment.

The impact would be especially severe in former industrial areas in the North and Midlands of England, Northern Ireland, and Wales. The Resolution Foundation calculates that one in three working-age families in so-called ‘red wall’ constituencies will be £1,000 a year worse off. The impact would fall disproportionately on families in areas the government has promised to ‘level up’ economically. These include 62% of working-age households in Blackpool South, and 44% in Great Grimsby, Birmingham Northfield and West Bromwich West. People are 50% more likely to lose out in the ‘red wall’ regions than in the south-east of England.

To illustrate the impact on household budgets, the analysis shows how a single worker with no children would have lost just 17% of their income under furlough. Losing their job and moving to universal credit would result in them losing 70% of their income. A further £20 benefit cut in April would result in their income dropping by 77%.

Meanwhile the Local Government Association has reported that the proposals contained in the government’s white paper on planning will lead to almost half of affordable homes in some of the least affordable areas of England not being built. In particular, the proposal to end the duty of developers to build affordable housing on sites for up to forty or fifty homes, would have led to 30,000 of such homes going undelivered over the last five years. Some areas likely to be most affected are the least affordable and under greatest housing pressure.

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Affordable Homes built in Grasmere, Cumbria by Impact Housing Association.

The government admits that increasing the threshold at which affordable housing must be included from sites with more than ten homes to those with over forty or fifty could reduce affordable housing delivery by between 7% and 20%.

Councillor David Renard (Conservative), the Leader of Swindon Borough Council, and housing spokesman for the Local Government Association said that:

“We need to build homes that are affordable to local people and help to reduce homelessness, rather than contributing additional funds to developers’ and landowners’ profits… These current proposals risk allowing developers to game the system by only putting forward schemes for fewer than forty or fifty homes, and so avoid building any affordable homes at all.”

Lewes District Council could lose up to 37% of its affordable homes, based on past trends. Councillor William Meyer (Liberal-Democrat), the cabinet member for housing said that:

“We have massive land shortage in Lewes and if small sites are going to be excluded it will make a difficult situation worse.”

I have written a briefing paper on the Planning White Paper that summarises the paper, considers its implications for housing and provides some commentary. To view or download a copy, please click here.

Mitch Benn, the comedian, musician, and writer, has written an interesting piece for ‘The New European’ about different attitudes to ‘rules’. He writes that:

“Different cultures have… completely different attitudes to the whole concept of the rules. Some cultures regard the rules as the framework within which the game is played, the game only exists within that framework and there can be no victory outside of it. To these cultures… there can be no victory through cheating because they genuinely believe that if you cheated, you didn’t win.

“Some other cultures… regard the rules as just another obstacle between them and victory, to be circumvented like all the others. As far as these… are concerned, anything that leads to a win – and that you can get away with – counts. It’s all legit, rules or no rules. A win is a win is a win, by whatever means it’s achieved.”

This is an interesting analysis, and I can see that the culture around the world is shifting from the first type to the second. People who break the rules and get away with it – whether in sport, business, or politics - are increasingly seen as ‘smart’ rather than as people to be condemned as ‘cheats’. I find this worrying.

We will be holding webinars from October 2020 to January 2021 including:

  • Introduction to Housing Association Finance in England
  • Introduction to Housing Association Finance in Wales
  • Introduction to Local Authority Housing Finance in England
  • Introduction to Housing Association Finance in Scotland
  • Introduction to Service Charges
  • Introduction to Local Government Finance in England
  • Business Planning in the Housing Revenue Account
  • Lifting the Lid on Local Government Finance
  • Introduction to Risk Management in Housing & Local Government

For further information or to make a booking, please click here.

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