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The future of council housing: What do the councillors think?

By Paul Hunter, head of research at the Smith Institute

Recent housing stories have rarely been positive. Overcrowding is up. The number of new homes built down to record lows. Many young people are excluded from homeownership. And many tenants face ever rising rents. Yet, it is not all gloom and doom. After decades of decline, council housing is back.

The rebirth of council housing started in 2009 when John Healey, the Labour Housing Minister, consulted on reforming the Housing Revenue Account (HRA), which at the time was the means by which central government controlled local authority housing finance. Beyond the technical details, the ‘Healey reforms’ sought to give local authorities greater autonomy over how they manage and invest in their stock.

The media took no notice, but the reforms have cross-party support and were welcomed by many councils as a significant step. The talk in housing circles was of a ‘council housing renaissance’. The extent of this renaissance is at present still small-scale and cautious, but the potential for a step change is still there for the taking.

Since the HRA reforms began the Smith Institute has conducted several studies into what the changes might mean, including the potential investment that could be leveraged in. The latest report surveyed lead councillors for housing in stock retaining authorities. Councillors viewed the HRA reforms favourably (only 9% of those surveyed were dissatisfied). Moreover, the appetite for building is impressive, with 93% stating that they were planning to build new council housing. Indeed, this backs up CLG figures, which show that councils are now starting to build again.

This is certainly good news given the housing crisis is most acute for those on low incomes. The councillors’ priority for more social housing (64% ranked it highest over new build of other tenures and 82% ranked it in their top two) reflects the demand for more sub-market social housing to ease pressures on waiting lists and reduce overcrowding. Moreover, new housing was ranked as a top investment priority for 60% of those surveyed followed by meeting decent homes (18%) and estate regeneration (16%).

However, whilst the ambition to invest was apparent the scale of new council house building remains modest. Almost two thirds of those surveyed were planning to build fewer than 500 homes over a 10-year period. In addition, 60% believed that new-build would not result in net additions of homes due to the impact of Right to Buy, void sales and estate regeneration.

Managing housing debts
Despite HRA plans to borrow to build, councillors were broadly split about how their authority should manage its housing debts. Just over half said they wanted to reduce or pay off their historic debt over the course of their business plan. Only 9% of plans were to see levels of debt increase. This divide is more evident when splitting responses by the number of tenanted homes — those with fewer than 5,000 homes were much more likely to be planning to pay off their debts, whilst those with more homes were less concerned about maintaining or increasing levels of debt.

Nevertheless, three quarters of respondents were in favour of abolishing the debt cap. This may seem puzzling given cautious attitudes over borrowing. It could merely be a matter of principle about granting greater autonomy over housing issues. Moreover, a similar number of those in favour of greater freedoms to borrow said that if their borrowing headroom was to double they would use the extra capacity to build. Interestingly, especially given the poor state of some council homes, only 7% said they would borrow more to invest in existing properties.

The survey captures the prevailing mood on the future of council housing. Many councillors have a clear desire to build more homes yet the financial constraints are holding them back. Some in the sector, whilst happy with the HRA reforms were far from pleased about housing debt allocation. This, and their views on the debt cap, suggest that freeing councils to borrow would deliver more homes and put authorities on more of a level playing field with housing associations.

Cautious optimism
Whilst there was movement in the Chancellor’s Autumn Statement politicians remain focused on deficit reduction. Indeed although the £300m extra borrowing capacity announced will be welcomed by many councillors (if not the Chancellor’s quid pro quo on selling off some homes), the scale is small considering the number of council properties. It is far from LGA’s estimate of £7bn to build 60,000 homes over five years and small beer compared with bond issues to housing associations.

The survey captures the cautious optimism of councils and the willingness to borrow. However, for councils to seriously scale up house building this is only half the story. Even if councils could borrow more, their debts would still need to be serviced and paid down over the medium-term. Affordable rent is one option (the survey showed most councillors were open to using it) but for many low-income households higher rents are unaffordable. And there is a limit to how much council housing can be financed by cross subsidy either through planning gain or private sales.

The level of new council house building at present and in the short-term is modest — especially compared with the heyday of municipal housing — but it is an important start. It is unrealistic to believe we will see a return to the levels of local authority build of the 60s and 70s (which is perhaps no bad thing given the short-sighted nature of some of the building programmes). Councillors (and the LGA) are keen to do more. Maybe they should have more incentives to do so. Whether this will happen depends on central government really letting go and making housing — and especially social housing — a priority.

This article first appeared on Local Authority Building and Maintenance

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Spending Review – Labour’s response

By Paul Hunter, Research Fellow

It is well known that George Osborne is both Chancellor and the electoral strategist for the Conservatives, something which was particularly apparent in the 2015/16 spending review announcement. Despite all the rhetoric around cutting to invest Osborne stuck to the austerity script.  The fanfare around capital investment proved a chimera and there was no disguising the Conservative’s determination to roll-back the state and punish public sector workers.

Politically the spending review once again prioritised pensioners over the young and the South over the North. Populist measures on JSA claimants, immigrants and the ‘underserving poor’ will make little impact on the public debt but further re-enforce the dividing lines for the 2015 election. However, it is not clear whether the continued assault on welfare and public servants will be enough – even if it raises the spirits of the chancellor’s backbenches.

To recap, the headline measures included:

  • Continued reductions in public sector workers
  • Cuts to public sector pay with no automatic pay rises for time served
  • Those made unemployed would not receive benefits for a week
  • A cap on welfare spending (excluding pensions)
  • Immigrants will have to learn English to receive benefits

The message again was clear: the UK’s economic malaise was due to overspending (Downing Street under Labour) and not a banking crisis (Wall Street and the international financial community), and whilst there is a lot to do, the worst is over. The target for the new policies: Labour’s core vote.

This narrative may play well. As polls continue to show, cutting benefits for so called ‘scroungers’ is popular. Public servants are portrayed and seen as featherbedded. Immigrants are simultaneously blamed for both taking people’s jobs and for an increasing benefit bill. The nasty party are nastier than they were.

However, the return to type of divide and rule and blaming those with least is not necessarily a big enough vote winner beyond the Tories’ heartlands. Leaving aside the long term impact of cutting public sector jobs which might eventually change the voting intentions of those subsequently employed in the private sector, these measures impact large swathes of voters in places where the Tories need to win.

Attacks on welfare might go some way to doing this, but could make the Conservatives appear too divisive and self-serving. Labour can triangulate on welfare to some degree, but has to do better on the economy – polls still show more people blame Labour for the crisis and trust them less. A switch in attitudes on welfare (which could emerge sooner rather than later if Universal Credit fails in the way some expert predict) and a weak recovery could leave the Conservatives with a mountain to climb.

More importantly perhaps, and as I have blogged before, the policies guiding the spending review are all negative. Nothing in the spending review suggested how the Conservatives were to get the UK out of its wages crisis or tackle income inequality. Welfare bashing might afford those in favour a moment of schadenfreude but they do nothing to improve the living standards of the ‘squeezed middle’ in the key seats.

The dilemma for Labour is how to respond with a positive narrative that’s believable and sellable in 2015. Attack too simply and find yourself portrayed as the party of welfare dependency, bad government and public excess. Set out an alternative agenda around less spending cuts and you face accusations of economic incompetence and (for the leadership the most frightening of all) another ‘tax bombshell’. Ed Miliband knows he must win back the public’s trust, but it has – as he acknowledges – got to be on an agenda which goes beyond defending the NHS and  the welfare state. Labour must take on the mantle of work and fair pay, and start to carve out new policies to achieve responsible capitalism and sustainable growth in all regions.

Public services – time for a new settlement?

Michael Ward, Research Fellow, The Smith Institute

The ignominious collapse of the franchising process for the West Coast Main Line, leading to abortive costs of at least £40 million, brings to a head major concerns about the way we run our public services.

After the Second World War it all seemed to be straightforward: the Government ran the health service and, through public corporations, the railways and the energy industries, while local government ran schools and welfare services.

In the 1970s and 1980s, a different approach began to emerge. We were told that services would be better under conditions of competition. Markets, not government, knew best. The utilities were privatised, and local services were put out to tender.

Over time, this became a new orthodoxy: Public Service Reform. Anyone with a complaint about British Rail, the local gas board or the council housing department was told that the answer to all their worries was simple: a heady brew of choice, markets, competition and outsourcing. Miraculously, one size really would fit all.

Where public bodies continued to provide services directly, they were split into rival bureaucracies – one acting as the ‘contractor’, the other as the ‘client’. Many services went to new providers. Public Service Reform has become the conventional wisdom of the age, enshrined in legislation, and supported by commentators (and politicians) from left and right. Services as diverse as Women’s Aid refuges, and now probation, have been subjected to the same formula.

Now, however, public services face a unique set of challenges:

  • The period of budget austerity, originally planned to end in 2015, has been stretched out, at least until 2017. Councils and health authorities are having to squeeze budgets, year after year. Whether the delivery agency is public or private, there is no more scope for ‘efficiency’ savings – real cuts in standards are taking place.
  • Even when the national budget deficit has been eliminated, tax yields in the future are expected to go down – as taxes on North Sea Oil, and tobacco, and environmental taxes, bring in less.
  • An ageing population puts extra demands on health and social services.
  • Some services, like health and universities, are facing their own, separate, national, top-down reorganisations.

As service providers grapple with these challenges, the need to observe the doctrinal precepts of Public Service Reform, and to restructure so as to promote markets and competition, is just another burden.

Public Service Reform is no longer part of the solution: it has become part of the problem. Introducing markets and outsourcing is neither necessary nor sufficient to cope with the challenges communities now face.

It must now be time for a new settlement – one that:

  • Accepts a mixed economy of public service delivery;
  • Halts the forward march of marketization;
  • Accepts that, just because markets, choice and outsourcing may work for some services, it does not follow that they are appropriate for all;
  • Identifies the costs as well as the benefits of separating client/commissioning roles from provider/contractor roles.
  • Starts from need as the basis for service planning;
  • Guarantees full transparency about direct costs and overheads;
  • Ensures democratic scrutiny and accountability;
  • Sets minimum national standards for key services.

At the heart of that new approach must be a commitment to public service productivity. Productivity in the NHS stagnated for most of the last decade. In moving away from market-based solutions, public authorities and their workforce need to develop a new, joint approach to improving value for money. This commitment is as important for trades unions as it is for councils and health organisations.

Public service managers have navigated their way through past periods of austerity with their organisations and structures largely intact, confident that the good times would return, and spending levels would increase again.

This time it is different. There is no early prospect of the years of plenty coming back. It is time to stop creating pretend markets, fantasy castles in the neo liberal air, and start addressing the core problems of community need and service productivity.

Fair Pay is Key to a Labour Election Victory in 2015

Blog by Paul Hackett (Director, the Smith Institute) 

Real wages are still falling and on current trends it may take a decade or more before living standards recover to where they were prior to the financial crash in 2008. “All pain and no gain” is hardly a winning slogan for the Coalition, and it could cost Cameron a second term.  The legacy of the wasted years will be more poverty and more in-work poverty, more unemployment and more under-employment, and widening income and wage inequality.  Labour is working on a recovery plan for jobs and growth, but it will also need an alternative strategy for the world of work which offers better pay for those on low to medium incomes.

Labour’s narrative and core values for a post-austerity age must be centred as much on sharing and redistribution, as it has been of late on growing the economic cake.  That has to include fairness at work and fair pay as well as fairness between the have’s and have nots and between the generations.  A distinctive Labour offer to improve pay and conditions will be critical to winning back the millions of blue collar workers who left Labour since 1997, particularly when contrasted against the Coalition’s wage freeze and Tory plans to promote insecurity at work by giving employers greater flexibility to hire and fire.

Voters are angry about high pay and unconvinced that low pay is the answer.  However, there is widespread cynicism about the ability of politicians to intervene in the market to make a difference. But this could change if the pay gap keeps widening. The latest IFS analysis forecasts that by the time the next General Election comes around, average pay and incomes could slip back to where they were in 2003. We are moving backwards at a quite alarming rate. So by any measure, there can be no speedy return to the status quo ante.

It is worth remembering that the fall in real wages and widening income inequality began under Thatcher in the 1980s but continued under New Labour’s watch. Despite some fantastic achievements (particularly the national minimum wage), real wages stagnated under Labour before the crash. Employment increased, and people were better off, but the bulk of the proceeds of growth went to the top 1%.  Labour did bring poverty rates down, but took its eye off income inequality.

The Smith Institute’s research shows that the reason for this was down to New Labour’s reluctance to support a wider range of interventions in the Labour market. The focus was all on improving the role of the tax and benefit system (especially tax credits), rather than how the market distributes its rewards through pay deals before the state gets involved. Labour was reluctant to challenge the employers’ organisations and make the necessary changes. This is a shame, because there was real repair work to do. The previous Conservative administration dismantled as many of the so-called ‘agencies of pre-distribution’ as they could lay their hands on. Their intention was to empower employers, while keeping the unions firmly in check.

But it wasn’t just the attack on collective bargaining which exaggerated the wage gap between the boardroom and the shop floor, but a deliberate rolling back of labour rights, wages councils and fair wages resolutions. Why Labour was so reluctant to redress the power imbalance at work is for the historians to debate. The key question now must be, what will a 2015 Labour Government do?

There needs to be a strong Labour counter on high pay, but capping top pay doesn’t deliver fairer pay for others. The rewards could just be shifted to shareholders and Sovereign Wealth Funds. Better pay transparency (as offered in the US Dodd-Frank Act) and better corporate governance will help, but if we want so-called “responsible capitalism” we’ll need more than that.

One potential route is to rebuild the unions and other organisations that engage with the workplace – particularly in the private sector. That’s easier said than done, but collective bargaining can make a big difference. Labour  also needs to consider other labour market interventions, such as fair wage clauses in public contracts. Employers will argue that they can’t afford it (as they did with the minimum wage), but the evidence we have shows that this approach works well in other EU countries, so why not here? We could also link fair wage clauses with the Living Wage and with so-called social clauses, which discriminate in favour of using the local workface.

Fair wage clauses are not a panacea to tackling in-work poverty, and will not of themselves narrow income inequalities, but they are a start, and would show that Labour is serious about tackling income inequality.

Welcome to the new Smith Institute blog

Welcome to the new Smith Institute blog. We’ll be using this page to keep you updated with our research projects, inform you with news about the Institute, and offer regular, informed views on policy and political matters.

This page will offer contributions from Research Fellows, friends, and members of staff at the Smith Institute.