Tag Archives: budget

Divide and Conquer

Exhibit A

LABOUR-run Durham County Council is poised to axe 1,600 jobs, its leader revealed this week. Faced with £100m of savings over four years, it is to ask its entire 10,041-strong directly-employed workforce for expressions of interest in early retirement or voluntary redundancy.

Over £11m of Durham County Council’s grant has been withheld to protect services in other local authority areas mostly in the South. The Government’s financial damping system which sets a minimum and maximum grant level for every council unduly penalises authorities in hard-hit areas.

In addition, grants for job creation and help to poverty-stricken areas have also been slashed by £25m Coun Henig said that when all grants were taken into account, the council faced a year-on-year funding cut of 15 per cent; and there was “clear unfairness” across the country, with Surrey County Council losing just 0.3 per cent.

Exhibit B

COUNCILS across Surrey are digesting the results of this week’s local government finance settlement, with reduced grants set to have an impact on services.

Communities Secretary Eric Pickles said there would be cuts of between 0.31% and 6.96% in the ‘revenue spending power’ of Surrey’s 11 borough and district authorities, plus the county council. But the real figures for reductions in funding which comes direct from central government are much higher, as the revenue spending power totals included council tax money – which is collected locally – plus other smaller grants separate from the core ‘formula grant’.

… local authorities in the county, where cuts to jobs and services have been part of the landscape in recent years, warned of challenging times ahead. Surrey County Council said its main central government grant was being cut by 25% over the two years, meaning a £41m funding reduction.

Not just another drop in the ocean

Duncan criticises the economics of the proposed public sector pay freeze. Nigel criticises the equity. I’m inclined to criticise the politics.

MPs got a 2.3% pay rise this year. Local Government workers have been offered 0.5%. Already, that doesn’t look terribly good given the headlines of recent months. I appreciate many private sector workers are suffering badly from the recession and high public sector pay increases would anger them. At the same time, public sector pay is obviously less likely to be cyclical, and indeed so it should be. When inflation was roaring up towards 5% at the end of the boom, we were told to accept 2.8% and shut up about it, to help the economy control inflation. I did wonder at the time whether if deflation materialised we would get a huge pay boost to help crank it back up. I rather assumed not and have been proved right – you have to be a banker for the Government to accept that logic.

Steve Bundred at the Audit Commission, who was the first to float the pay freeze as a ‘pain-free’ way of tackling the deficit, is 67th on the Taxpayers’ Alliance list of public sector fat cats, with a salary of £245,000. If you want to freeze my salary at £245,000, Steve, I’m more than happy for you to do that. You would have to double it and then triple it and then add a bit more first, though. Even so, a pay freeze might annoy me at a time when everything I buy is getting more expensive, but it wouldn’t cause me any real hardship – I’m fairly well paid and very frugal. But it makes you look a bit silly, I think, when you are proposing a real terms cut in the income of people earning about 5% of your wedge. Less, in fact, than it costs to live. That’s why it’s often called a ‘cost of living’ increase, Steve.

Alistair Darling, who says that “Public sector pay has obviously got to reflect prevailing conditions and in particular inflation has come way down“, seems not to have noticed that inflation has been above target for 20 months in a row, and indeed for those of us who don’t have mortgages it is still around 3% (slightly more or less depending whether you think the VAT cut is a real fall – I bet wages aren’t increased to compensate when it goes back up!). Alistair Darling earns around £150,000, plus expenses and a small income from a flat he owns in London and rents out since he has a free house in Downing Street. Claiming inflation is low makes you look like a bit of an idiot, Alistair, like when MPs are asked the price of things like a loaf of bread or a pint of milk and turn out not to have the faintest idea. £250 a week, isn’t it?

Of course none of them really mean any of this. Alistair means “Look at me, I’m independent from Gordon and I can prove it. You should vote for me because I’ll be tough on public spending without cutting services”, and Steve means “I know you want to abolish my organisation Mr Cameron, and I know most of your party thinks I’m a Labour stooge, but look at all these helpful things I’m saying, I’m sure we can come to some arrangement”.

Budget: Housing, Building, and Local Housing Allowance

Note to self: 100 lines – this is not a housing blog. Nonetheless:

I was glad to see that some kind of extra housebuilding programme did make it into the budget following my pessimism earlier in the week, though disappointed that it only seems to be £500m compared to the £1bn which had been leaked, and of that only £100m will be delivered through Councils. As I think a Lib Dem MP pointed out, that adds up to about a dozen houses per Council area, on average, and it is dwarfed by the sums being spent to encourage the price of existing houses to go up in mortgage bailouts, guarantees, rescue schemes and the like. Setting Councils free to borrow money and build housing for a mixture of social use, market rent, and sale – in whatever partnership model with building firms they choose, would make a lot more sense in this economic climate and context.

That aside, I was perhaps more worried by something which seems to be being seen as a footnote to the budget. In the press notice here, we see the following;

From April 2010, households will no longer be able to keep any of the surplus if the LHA they receive is higher than their rent.

This may take a little explaining, please bear with me. Once upon a not very long ago, if you couldn’t afford to live on your income or benefits, and were eligible for help with your housing costs, you found a flat, and the landlord claimed your rent from the Government, or you claimed and it was paid to them. That had some benefits and some flaws, in particular it meant landlords could discriminate – “No DSS”, as adverts used to say. Now, instead, you apply for help, this is calculated based on “Local Housing Allowance” (roughly the average price for the cheapest x% of the number of bedrooms you need in the last year, roughly), and then you find a flat based roughly on that amount.

So suppose you are a single parent with two young children. You will be assessed as needing two bedrooms, and told your local housing allowance in, say, Leeds, is therefore £121.15 a week. Having applied for this, you set about finding a flat to rent. I’m given to understand that isn’t too difficult in Leeds at the moment. Now, if you can find a flat that costs £121.15, so much the better. If you find one that costs £130 a week and are prepared to pay £8.85 out of your own pocket, that’s fine too. Even better, if you can get one that’s acceptable to you for £110 a week, this one, maybe, then you get to keep the £11.15 all to yourself, buy some sweeties or your bus pass or whatever.

That’s where the Government is aiming to claw back the money. Now, the most you can get is what you’re actually paying. In principle, that seems entirely reasonable. In practice, there’s a big flaw with it, which is why personally I’d suggest clawing back maybe 50% to 75% and leaving people with an incentive to shop around.

Firstly, it may not save the sum of money cited. I might be prepared to live in a fairly grotty flat in the dodgy bit of Roundhay in exchange for an extra £10 a week on my low income. Discovering that there’s no incentive to make that saving however, I might decide to spend up to the maximum and get somewhere a bit nicer. I could head a bit out of town but still, I think, technically be in the City of Leeds Council area, and get this nice end terrace with garden and room for a ponyconservatory. Why shouldn’t I, I’ve effectively been given a target expenditure now, instead of a cap.

This threatens to exacerbate another problem some people have claimed exists with local housing allowance, which is that it ‘bids up’ the cost of lower-end rental housing and is necessarily inflationary. If there are ten similarly sized but differently appointed houses on the market in a town, for rent at £100, £200, £300, £400 and so on, then the ‘local housing allowance’ will be set at the average of the lowest three or thereabouts – £200. If, in response to this, the landlord of the first house realises nobody will need to pay less than £200, he can raise his rent to £200. The next year, the average of the cheapest three houses has risen to £233, meaning the local housing allowance needs to go up, meaning… and so on. I’m not certain this has really happened to the extent people believe, but this change certainly makes it more, rather than less, likely that it will in the future.

Of course, if the public sector was the landlord more often… but there I go again.

I’m not holding my breath

I am no economist, but as far as I can tell most people accept that Governments should attempt to smooth the economic cycle – spending more and / or taxing less when the economy shrinks, and spending less and / or taxing more when it grows unsustainably quickly. The expectation is that Alistair Darling is reaching the limit of what the market will bear in terms of lending to the Government, and therefore needs to announce policies which, while raising borrowing forecasts in the short term, will also show how the debt is to be brought under control further into the future.

A range of policies have been proposed which we may see included in the budget, from giving people paying top rate tax less money back in exchange for their pension contributions, to giving people money to buy a new car if they have an old one to scrap. Declaring an interest (I don’t currently have a car at all, I have a slightly used rail season ticket if Alistair would like to buy it off me, or the Bank of England want to swap it for gilts) I think that one’s a bit weird, costing the taxpayer money to create demand for cars today (many of which will be imported anyway) at risk of reducing it next year, and reducing the demand for mechanics, before the recession is over.

My hope is that Alistair Darling will announce a policy relating to the housing market which will stimulate the economy in the short-term, and generate revenue for the Government when the debt needs paying down. I am not talking about the latest scheme to encourage people to take out mortgages and keep house prices up, but rather a simple programme of public sector house-building. Not old-fashioned council tower blocks or monolithic council estates, but mixed developments in sites mostly already identified but stalled because of low demand from buyers, and the lack of finance for developers.

Local Councils are well placed to deliver or commission this work as housing authorities with knowledge of the local market and land availability, though it need not necessarily be done by us. With the construction industry at a low ebb, good prices could be secured for land and labour, delivering a combination of homes for allocation to people on the Council house waiting list according to need, homes for people wishing to rent at the market rate, and homes for either purpose which are to be sold into private ownership in the future to prevent the next increase in house prices from turning into a bubble.

Short-term expenditure by the Government in this way would do something far more important than the demand-stimulation of the VAT cut. It would guarantee a large number of people’s job security, and cost less than even the headline figure, since those people would be paying some of their wages back in tax, rather than claiming benefits while being unemployed. Further down the line, the public sector would have a valuable revenue stream from rent and sales income, which could be used to reduce debt and other taxes.

And it would mean we had more decent housing, which whatever is going on in the mortgage and housing markets, much of the country has too little of relative to the number of people who need it.