Budget 2021: Think tank response round-up

3 Mar

Centre for Policy Studies

Robert Colvile, Director – ‘Should help business and the economy rebound powerfully’

“The combination of business rate reductions, investment incentives and other measures should help business and the economy rebound powerfully in the next few years – and we are pleased to see our proposal for free ports at the heart of the Chancellor’s speech. But there is the danger of a cliff edge later on as support is withdrawn and taxes increased – or that businesses will anticipate higher taxes and fail to invest.

“Britain still has a huge problem with its long-term growth rates – as the latest OBR figures show only too clearly – and the tax burden is set to increase inexorably. We appreciate that the Chancellor needs to balance the books. But the great challenge facing the Government is not just to put the economy back on an even keel in the short term, but put in place permanent pro-growth measures that raise growth rates for good.”

Institute of Economic Affairs

Mark Littlewood, Director General – ‘A barrage of short-term costly measures’

“After months of damage inflicted by the pandemic and lockdown measures, the Chancellor had the opportunity to deliver a pro-business, pro-growth Budget by lowering and simplifying taxes and slashing unnecessary regulations.

“Instead, we received a barrage of short-term costly measures which risk depressing economic growth, reducing employment, hampering entrepreneurialism, and ultimately harming the long-term economic recovery. Dialling up taxes was a mistake, and our economic growth will be less impressive as a result.”

Adam Smith Institute

Matt Kilcoyne, Deputy Director – ‘The most serious attempt to rebalance the economy a Chancellor has made’

“Rishi Sunak’s super deduction will induce investment into Britain’s factories and help businesses bounce back and Britain’s economy boom as we leave the pandemic behind. We’d estimated at 100% full expensing would be worth over £2,214 per worker, going beyond that is a bold move to help the private sector build the recovery. It will benefit most those areas that have been left behind in recent decades. It is the most serious attempt to rebalance the economy a Chancellor has made and it is truly welcome.

“Rates relief and employment support will be welcome while the ability to operate and raise revenue remains suppressed even as we leave lockdown. But the success of vaccines means the economy will reopen and activity will return; the government cannot continue propping up our economy indefinitely. Moving forward, the strategy should be to get the state out of the way, by lowering taxes to encourage investment and cut red tape that hurts entrepreneurs.

“The Chancellor was right to say that the state should not be borrowing to pay for everyday public spending. But it’s hard to square that circle with a new commitment to guarantee mortgages of first time buyers. This is a Fannie Mae and Freddie Mac guarantee to boost the demand side — without a credible plan to boost supply of new homes in the places people want to live we’ll just end up with another housing bubble and the risk of boom and bust.

“Keir Starmer was right to remind the Conservative Party that the proper basis on which to make tax decisions is economics not the political cycle.”

TaxPayers’ Alliance

John O’Connell, Chief Executive – ‘Big tax hikes risk choking off the recovery’

“There were some wins for taxpayers today, but it doesn’t gloss over the fact that this was a tax-raising budget.

“The chancellor is helping to rescue struggling sectors but £30 billion worth of tax increases will hit hard-pressed households and businesses already under the highest tax burden in 70 years. 

“Big tax hikes risk choking off the recovery Rishi wants before it has even started, so let’s hope that other measures in the budget help to boost jobs, spur investment and ultimately revive the economy.” 

The Entrepreneurs Network

Sam Dumitriu, Research Director – ‘Chancellor needs to think hard about fundamentally reforming how international profit is taxed’

“A higher corporate tax rate will discourage investment and make the UK less competitive internationally, so it is right that the Chancellor has combined it with a new 130% Super Deduction for investment.

“However, when the two years are up and Corporation Tax rises to 25%, the UK will fall far down the list on international tax competitiveness. Although, we currently have a low headline rate, the effective rate that businesses actually pay is mid-table by international standards due to stingy capital allowances.

“To avoid an investment slump, as the OBR forecast, when the Super Deduction expires, the Chancellor should allow businesses to write off the full value of their investments – the so-called full expensing he mentioned at the despatch box.

“But a high rate, even with full expensing, increases the incentive to engage in sophisticated tax avoidance and shift headquarters. To counter that, the Chancellor needs to think hard about fundamentally reforming how international profit is taxed.”

Centre for Social Justice

Edward Davies, Policy Director – ‘A huge help to those working low-paid jobs’

“We are pleased the Chancellor is extending the £20 uplift in Universal Credit for another six months. Universal Credit is a lifeline for the poorest people in the UK and today’s decision will make a significant difference to many people.

“Likewise, the announced increase in the National Minimum Wage to £8.91 an hour from April is also welcome and will be a huge help to those working low-paid jobs.”

Joseph Rowntree Foundation

Helen Barnard, Director – ‘Makes no sense and will pull hundreds of thousands more people into poverty’

“It is unacceptable that the Chancellor has decided to cut the incomes of millions of families by £1040-a-year in six months’ time. He said this Budget would “meet the moment” but this decision creates a perfect storm for the end of this year, with the main rate of unemployment support cut to its lowest level in real terms since 1990 just as furlough ends and job losses are expected to peak. This makes no sense and will pull hundreds of thousands more people into poverty as we head into winter.

“Even before Coronavirus, incomes were falling fastest for people with the lowest incomes due in large part to benefit cuts. Ministers know this short extension offers little relief or reassurance to the millions of families, both in and out-of-work, for whom this £20-a-week is helping to stay afloat. This cut to Universal Credit will increase hardship when the economic crisis is far from over and undermine our national road to recovery.

“It is not too late for the Chancellor to do the right thing: announce an extension of the £20 uplift to Universal Credit for at least the next year. It is also totally indefensible that people who are sick, disabled or carers claiming legacy benefits continue to be excluded from this vital support. The Government must urgently right this injustice.”

Resolution Foundation

Torsten Bell, Chief Executive – ‘Need to see wider economic stimulus to drive the recovery’

“It’s welcome that the furlough scheme which has seen British workers through this crisis will remain in place until restrictions are lifted, playing a critical bridging role between the lockdown and the recovery. The phased tapering off over the summer will also avoid a risky cliff edge.

“But the peak of unemployment is ahead rather than behind us. We also need to see wider economic stimulus to drive the recovery this autumn, and support for the millions of people who have been without work for long periods during this crisis.”

Institute for Fiscal Studies

Paul Johnson, Director – ‘A big reversal of decades of policy direction and a significant risk’

“What we can be sure of is that Rishi Sunak has spent big again, extending some support right through 2021 at a cost of an additional £60 billion or more. As a result borrowing is now forecast to again be above 10% of national income in the coming financial year. Whether the big fiscal tightening planned for subsequent years will actually happen is less certain. It continues to depend on spending being lower than planned prior to the pandemic. And it also depends on a large increase in corporation tax actually being implemented without additional measures to at least ease its long-run impact. Make no mistake, this proposed increase in the main rate of corporation tax is a big reversal of decades of policy direction and a significant risk. For all the rhetoric about it leaving the headline rate here below that in other G7 countries, our effective tax rate will be relatively high.

“Mr Sunak made much of his desire to be honest and to level with the British people. The fact that he felt constrained to raise taxes by hitting companies and through freezing allowances, rather than through more explicit rises in people’s taxes, suggests there are limits to how far he wants to level with us as he attempts to raise the overall tax burden to its highest sustained level in history.”

Bright Blue

Ryan Shorthouse, Chief Executive – ‘The Government has yet again foolishly cut, rather than maintained, the value of the cost of Fuel Duty’

“The Chancellor has been refreshingly generous, adaptive and pragmatic in his response to the economic havoc caused by Covid-19. He is right to extend the flagship furlough scheme until the autumn, gradually phasing in increased employer contributions. It has saved the livelihoods of millions of people. Indeed, considering its success, the Government might consider an adaptation of the furloughing scheme for future crises for businesses and workers – a government-supported insurance scheme requiring employer and employee contributions.

The Chancellor is right to set out how this Government will get a grip on the public finances in the coming years, but postpone action until the years ahead. However, this makes the decision to cut the international aid budget and public sector pay in the coming fiscal year, as announced last autumn, odd and unnecessary.

“There was an agenda that was notably lacklustre in the Budget. In the year of COP26, this was meant to be the year that we trigger a post-Covid green recovery. But the Government has yet again foolishly cut, rather than maintained, the value of the cost of Fuel Duty for drivers of petrol and diesel vehicles. And it still lacks the ambitious and necessary policies to support more people with the path to net zero, especially in the way they drive their cars and heat their homes.”

Britain’s music industry, the EU, the UK – and an early entry for Frost’s inbox

2 Mar

Some post-Brexit barriers to business between the UK and the EU are a consequence of both parties failing to clinch an agreement that one or the other or both already have with third parties – in which the loser is the industry concerned, on both sides of the channel.

Others are a product of our own bureaucracy: of government being ponderous when it might be nimble in offering advice and support.

And others still are simply a product of Brexit as we agreed it, which brings with it friction in trade with the EU, which in turn can be minimised but not eliminated.

The continuing row over the access of British musicians to the EU and EU musicians to Britain offers examples of all three.

In the first category, we have visas.  Some EU states will allow our musicians to visit without a visa for up to 90 days and other won’t.  That isn’t a problem for other third party states, such as St Lucia, Tonga or those which make up the United Arab Emirates, because they have a bileteral deal with the EU that waives the requirement.

In the second, there is VAT. UK exporters of physically recorded music and merchandise must go from paying no VAT to negotiating 27 different EU VAT systems to dealing with a single EU VAT system during this current year.  This is a classic instance of the businesses concerned needing more advice from the government as it seeks to navigate two systems within twelve months.

Finally, there will be more bureaucracy, admin and paperwork – even if the UK and the EU can sort that visa issue, and others that could reasonably be settled (such as carnets, for which there may already be an exemption for portable musical instruments taken into the EU for professional purposes).

That last category is integral to leaving the Single Market and Customs Union – which is outweighed, to some Brexiteers, by the regaining of national independence and, to others, by the gains that come from being outside the EU system and willing to act on it.  Our vaccine success alone could be worth “more than the most pessimistic assumptions about the economic damage of Brexit,” according to Jethro Elsden of the Centre for Policy Studies.

(Northern Ireland, of course, remains in the Single Market for goods and, in key respects, in the Customs Union too for practical purposes.)

Why the difficulty over negotiating a deal on visa waivers or work permits?  Because musicians are caught up in a wider issue of which their story is part: freedom of movement.

To cut a long story short, the EU made a public offer on the issue, which had wider implications for free movement, and the UK made a private one, that did not.

The former would have applied not only to musicians but to other workers and travellers, as Free Movement confirms.  But, for many people who backed Brexit, ending it was integral to the exercise.

Our proprietor’s EU referendum day poll of over 12,000 people found that a third of those who voted Leave said the main reason was that leaving “offered the best chance for the UK to regain control over immigration and its own borders.”

Meanwhile, Oliver Dowden says that “the reason why we rejected the offer from the European Union was that it wasn’t binding, it didn’t cover touring, it didn’t cover technical support staff, and crucially, it didn’t cover work permits.”

This continuing impasse is an early bidder for entry near the top of David Frost’s inbox as he begins only his second day as a member of the Cabinet – though if the free movement obstacle remains immovable, there will be little he can wring out of the EU.

However, Frost knows the ropes, having led the negotiation on the trade deal himself, and is so is well-placed to knock on the doors of individual member states, into whose hands most of these matters fall in the absence of an EU-wide agreement.

UK Music argues that “fishing is of course an important British industry, contributing £446 million to the UK economy in 2019 and employing 12,000 fishers”.

“But it pales in comparison with the UK music industry, which in the same year contributed £5.8 billion to the economy and supported 200,000 jobs.”

It is strange to think that there is more money in Peter Grimes, figuratively speaking, than there is in real fishing – even if because there is less than there might be because of the dispute.

There will be a £23 million fund for fisheries, and Music UK proposes, by way of parallel, a music exports office to help the sector cope with the increased bureaucracy.

Perhaps Rishi Sunak will make an offer tomorrow – after all, today’s papers are full of pre-briefing, as is way with modern Budgets, of £400 million more for theatres, museums, galleries and live music venues.

Tackling unemployment might finally show us what sort of Conservative the Prime Minister really is

23 Feb

As the Prime Minister set out his roadmap out of lockdown in the House of Commons yesterday, there was for the first time a real sense that the nation might actually be on the path back to the distant, half-remembered state of ‘normal life’.

But today’s unemployment figures are a sobering reminder of the serious challenges the Government will face even when, deo volente, we have finally brought Covid-19 under control. According to the BBC:

“The Office for National Statistics said 1.74 million people were unemployed in the October to December period, up 454,000 from the same quarter in 2019. The figures show 726,000 fewer people are currently in payrolled employment than before the start of the pandemic. Almost three-fifths of this fall, 425,000, has come from those aged under-25.”

The figure for young people should be especially concerning. Voters in that age group are already deeply reluctant to vote Conservative, and have made huge sacrifices to protect older citizens during the pandemic. If ministers allow a joyous unlocking for some voters to be simply a transition to further economic hardship for others, they risk alienating an entire generation.

Fortunately, the ONS also reports that there are ‘tentative signs’ that the employment market is stabilising. But decisive action will be needed. We have previously explored what it might be, and looked at the measures already covered in the Plan for Jobs. Centre-right think-tanks such as the Centre for Policy Studies have also published their own proposals in reports such as After the Virus and A Northern Big Bang.

The Budget will therefore be illuminating because it might start to give us a firmer idea of what ‘Johnsonist’ economic policy might look like. Freed from the exigencies of the pandemic, the Prime Minister will have to start making more obviously ideological decisions than he has to date. Will he rely on traditional Tory measures, as the CPS would doubtless prefer? Or will he seek inspiration from John Maynard Keynes, as Jacob Rees-Mogg advises in our latest Moggcast?

A man with Johnson’s sense of history will know that his legacy may depend on getting it right. Memories of the Conservatives’ hard-nosed attitude towards unemployment in the 1980s (however justified) helped to lock the Party out of many of the ‘Red Wall’ seats he captured in 2019. Voters will be swift to punish, and slow to forgive, a perceived relapse to being the ‘same old Tories’.

The Universal Credit Uplift. Easy in, but not easy out.

8 Feb

We can’t speak for other enthusiasts for the free market economy – including Allister Heath, our columnist Ryan Bourne, and John Redwood – who urged unprecedented state intervention when the pandemic broke.  (As we did: the economy was undergoing the equivalent of a heart attack, and needed emergency surgery urgently.)

But we believe that they also knew well that, when it comes to the expansion of government, it’s easy in, but not easy out.  Of which the Universal Credit uplift is providing a classic illustration.

The Benefits Uprating Order is being considered in the Commons this week, but a decision on the uplift’s future has been postponed.  Ministers are telling Conservative MPs that “a decision regarding its future will be made in due course…it is only right that we wait for more clarity on the national economic and social picture before assessing the best way to support low-income families moving forward”.

On the one hand, that is not a principle that has been applied to other benefits.  On the other, Universal Credit, though paid to some people who don’t as well as to some who do, is becoming the main employment-related benefit.

In the summer of 2019, 33 per cent of those receiving Universal Credit were in employment, and 41 per cent were in the Searching for Work conditionality regime.  That snapshot from before the arrival of Covid-19 gives a sense of what the payment does and where it was going.

But pandemic has exploded figures like those.  At the start of the pandemic, about three million people were claiming it; now, that figure has all but doubled.  Unemployment has already hit five per cent, or 1.7 million people.

However, this uncertainty isn’t the main reason for the delayed decision on uprating.  The driver of the pause is an institutional clash between the Treasury, the guardian of the public finances, and the Department of Work and Pensions, the steward of what goverments used to call the social security system.

Rishi Sunak has floated one-off payments to keep down costs to the taxpayer (or such has been the briefing); Therese Coffey has said that these are not her “preferred approach” (no briefing here: she said so publicly last week to the Work and Pensions Select Committee).

She can point to Universal Credit as one of the government’s pandemic success stories – the main one, arguably, before the vaccines came along.  As Iain Duncan Smith wrote on this site, “on the old system, these claimants would have to be processed physically ,and the queues and chaos at job centres would have dwarfed anything we have seen so far, as well as increasing infection rates”.

It can be argued that the payment does not target our poorest people.  Philippa Stroud, formerly Duncan Smith’s adviser when he was Work and Pensions Secretary, has put that case.

“The Government could decide to focus on those who are moving in and out of poverty and close to the labour market (the top seven million). That is in effect what the £20 uplift has done in Universal Credit. Or, it could decide to focus energy and resources on those in deep poverty – those who are 50 per cent below the poverty line (bottom 4.5 million),” she wrote on ConservativeHome.

“This is the most vulnerable group and where I would put my energy and effort at a time of national crisis.”  However, the poorest are not necessarily those who have been hit hardest by Covid.

Stroud is now at the Legatum Institute, and a recent report from the think tank found that “poverty has reduced among some groups…this is because many non-working families have seen their benefits increase, meaning that they are less likely to be in poverty than would have been the case in the absence of the Covid-19 pandemic.”

The story of the Coronavirus continues and all judgements must be provisional.  But our take on the virus so far is that manual workers, younger people, women, and a section of the self-employed have been disproportionately affected in economic terms.

A substantial slice of these are the battlers, strivers and just-about managings of electoral legend.  And the number of them on Universal Credit has soared – as we have seen.  They will be well represented in the Red Wall and other former Labour seats in England’s provinces in which the Conservatives did so startling well at the last election.

The debate that Stroud wants about anti-poverty policy is made harder, she argues, by the absence of an offical measure of poverty – abolished in 2016.

“We are allowing others to create a narrative for us, and in the absence of an agreed poverty measure and subsequent strategy, we always will,” she says.  She champions a new measure from the Social Metrics Commission which she has helped to drive; the Centre for Social Justice disagrees, arguing for a focus on outcomes that reduce family breakdown, addiction, worklessness and poor schools instead.

We wrote yesterday that if Boris Johnson wants to take healthcare policy left (which Ministers are denying), Parliament will probably let him do so.  It may be a different matter with the Universal Credit decision.

Our sense is that Conservative backbenchers, as so often, will be driven by their constituents’ immediate needs, first and foremost.  Maybe there is some one-off compromise – the Prime Minister’s reflex will be to hunt for one – that involves some new scheme, such as that floated by the Centre for Policy Studies.

But it is hard to see how the Government can avoid running the uplift for another year: the alternative of doing so for a few months, which would do little if anything to abate the political pressure on Ministers, doesn’t look appealing.

We end where we began.  Once benefit payments have been raised, it is difficult to cut them.  The conventional means of establishing control is either to freeze their value, or replace them altogether – while getting more people into work.  That’s part of the recent story of benefits, through Peter Lilley’s reform of incapacity benefit under John Major to the Employment Support Allowance of the Labour years.

So much for the short term.  What about the medium?  Is the divided backbench reaction to Marcus Rashford’s campaigning the shape of things to come, with Tory MPs taking a less stringent view of welfare than during the years of much higher employment?

James Heywood: A £20 blanket uplift in Universal Credit would miss an opportunity for better targeted change

25 Jan

James Heywood is the Head of Welfare and Opportunity at the Centre for Policy Studies.

One of the iron laws of politics is that it is very easy to give things away and extremely difficult to take them back again. That can prove a particular problem when a government has had to put in place unprecedented levels of support to cope with a pandemic.

This week, for example, the Labour Party has been loudly claiming that the Chancellor is planning to “slash Universal Credit in the middle of a pandemic”. It is transparently disingenuous to claim that ending measures which were clearly intended to be temporary amounts to a ‘cut’, but it is also very easy to do so. As a result, it looks like ministers may be forced into another embarrassing and expensive U-turn.

It’s all too easy to say, with the wisdom of hindsight, that the Government should have made the £20 increase to Universal Credit a separate payment to help alleviate hardship during the pandemic, rather than simply increasing the standard rate.

But there is still an extremely good case that, while legitimate concerns have been raised, a policy which may have made sense as an emergency measure would make no sense as a permanent one.

Apart from anything else, a blanket cash uplift is an incredibly blunt policy instrument. In particular, the £20 increase was worth a lot more, as a proportion of overall income, to claimants who don’t also have children to support. The standard allowance for a single claimant under 25 increased by 36 per cent, compared to 19 per cent for a couple over 25.

The critics are right that it would clearly be unreasonable to cut off this extra support in April, when restrictions will still be in place and furlough is due to end. The idea being floated by the Treasury of instead giving claimants a one-off £500 cheque is slightly bizarre, and would be inherently unfair when claimants are constantly flowing in and out of Universal Credit (although mainly in at the moment, for obvious reasons).

But extending the £20 increase indefinitely will add more than six billion pounds to the annual welfare bill – and do so in a way that is far from optimal.

A better option, as set out by the Centre for Policy Studies this week, would be to replace the £20 uplift from April with a separate Coronavirus Hardship Payment, with the same value and same eligibility criteria so claimants do not see a fall in income while Covid is still overshadowing the economy. This should be clearly defined as a six-month measure, with a further three months at £10 to phase out the support.

It might sound like semantics, but it is much easier to explain why a Coronavirus Hardship Payment is not being retained forever than it is to explain why you’re reducing benefits. What matters is not whether the money is still being spent in three, six, or nine months’ time, but that it doesn’t become a permanent additional liability for the Exchequer.

This move could be accompanied by a much more generous uprating of the standard Universal Credit allowance. It is currently only set to rise by 0.5 per cent in April. If instead a one-off rise of 2.5 per cent (the same rate being applied to the State Pension) were to be applied, this would amount to around an extra £100 a year for a single claimant over 25.

Crucially, all of this should be accompanied by reforms which would meaningfully increase the generosity of Universal Credit – but in a way that would be much better targeted than the £20 blanket uplift.

Currently, if you enter work you lose 63p of benefit for every £1 you earn, once you exceed any “work allowance” you might be entitled to. This acts like a hefty tax on the people we most want to encourage into the world of work. Cutting that rate to 55p, and introducing a new £1,000 work allowance for childless claimants (who are set to lose most proportionally from the £20 being phased out), would mean the lowest paid could take home a lot more of the money they earn. In polling on welfare by YouGov for the CPS, the public were clear that they thought the benefit system should prioritise making it easier for people to get back into work: this would deliver that.

Something clearly needs to be done to address this issue before it becomes a major political sore and forces the Government into a policy it knows would be both bad and hugely expensive. The package I’ve just set out would cost roughly half of what the £20 uplift would cost if it was kept permanently. It could allow ministers to phase out the uplift while highlighting the fact that the Universal Credit system overall will still be more generous post-Covid than it was going into the pandemic – and significantly better at rewarding work.

If the Government won’t force the Tory shires to build more houses, perhaps it should bribe them instead

18 Dec

There was something soul-crushingly inevitable about announcement that the Government is going to abandon the algorithm at the heart of its planning reforms. But how big a setback is it?

To hear them tell it, not much. The core overhaul of the planning system – summarised here by London YIMBY – remains in place, including the part where areas are ‘zoned for growth’, a process that will, as Housing Today puts it, “grant automatic permission for development in certain areas”.

But ‘zoning for growth’ is only useful if you do it where the demand is. It is quite clearly a mechanism for brute-forcing a degree of much-needed development past the “more homes yes, but not here” brigade. Yet following a mutiny by Conservative backbenchers, Robert Jenrick has abandoned the algorithm the Government had been using to decide where such zones should go.

We don’t yet know what is going to replace it, but we do know that it will fall much less heavily on leafy, Tory-voting shire seats in the South East – a tactical victory for MPs such as Theresa May, whose Maidenhead constituency is now spared the shadow of a few hundred new homes.

The go-to solution for these MPs seems to be more development in urban areas. But this is clearly parcel-passing, and the problems are various. In London, where the demand really is, it will likely mean another unpopular application of ‘zoning for growth’ to push for densification in the (also Conservative-voting) suburbs. Otherwise it entails, as Bob Seely suggested in a piece for this site, shifting housebuilding targets northwards (where the demand isn’t) in the vague hope that economic regeneration will follow.

Unless you have ‘simultaneously build more houses and make no dent in the housing shortage’ on your housing policy bingo card – and given the state of British housing policy, you might – this likely isn’t a good idea.

In any event, given the backlash it will likely spark (Google ‘garden grabbing’ for a foretaste of it) it seems probable that the Government will eventually retreat from this as well, raising the spectre of a wholesale surrender of any effort to fix the Southern housing shortage by shifting the focus northwards under the rubric of ‘levelling up’.

If so, that would stand in a long and counter-productive Conservative tradition of trying to solve the problem without aggravating any of the vested interests in the Party’s electoral coalition, such as the repeated efforts of Chancellors from George Osborne onwards to solve a supply problem by pumping more demand into the market via schemes such as Help to Buy.

Yes, housing is a complicated problem and issues such as excessive credit – which we tackled in the ‘Homes’ section of the ConHome Manifesto – are part of it. But if your goal is to spread genuine property ownership, then jury-rigging mechanisms for getting cut-price assets into the hands of first-time buyers runs into the same problem that Margaret Thatcher’s attempt to create a ‘shareholding democracy’ did: how do you stop people selling them on at full price? Laws restricting the scale of mortgage lending to more old-fashioned levels may be part of the answer, but its absurd to pretend that they’re an alternative to building more houses.

Addressing the housing shortage – and once again for those at the back, the Southern housing shortage – has to be a strategic priority for the Conservatives. The current situation is delaying home-ownership, family formation, and otherwise reshaping society in ways antithetical to conservatism.

Not only is this squeezing the Party’s position in London, where the Tory vote in many seats has collapsed even since 2010, but it will spread the issue across the South East and the East of England as more London-based workers trade a longer commute for more affordable housing. Where Brighton and Canterbury have lead, many more true-blue seats could follow.

But what to do? Some of the Conservative-leaning think-tanks have their ideas. Alex Morton, the head of policy at the Centre for Policy Studies and a housing specialist, is working proposals to make an obligation to build part of planning permissions, to prevent developers banking the land value uplift without doing anything in return.

A paper for the Adam Smith Institute suggests the right ‘YIMBY’ policies could unlock up to five million homes in London alone, and they have elsewhere floated the idea of building ‘commuter villages’ near existing railway stations, effectively replicating the ‘Metroland’ project which saw swathes of north-west London effectively built by the Metropolitan Railway. But it isn’t obvious that London’s main commuter lines could take this extra pressure (at least until High Speed ‘it’s-capacity-really’ 2 is finished), and in any event a proposal that involves building on the green belt is politically-speaking just a thought experiment.

Policy Exchange also lean towards densification, drawing on the work of the late Sir Roger Scruton’s lamentably-named ‘Building Better, Building Beautiful Commission’.

However rather than trying to brute-force development through in the teeth of local opposition, which is what ‘zoning for growth’ aimed to do, this agenda aims to win public support both by making sure new developments are attractive (cue the lamentations of architects) and by making sure existing homeowners profit from new developments:

“They propose that we allow streets to hold a vote on whether to let homeowners redevelop their homes. If a two-thirds majority support it, homeowners would receive planning permission to add floors to their homes and to take up more of their plot area. The limits on what streets should be able to grant themselves would be those of traditional European cities: five-storey buildings in a terraced format. Many streets would probably choose to go up to these limits in order to maximise the increase in property values.”

Stuffing the mouths of vested interests with gold is a British policymaking tradition – it’s how Labour sold doctors on the NHS, after all – and is probably going to be essential if the Government intends to succumb to Tory MPs’ demands that planning be ‘locally-led’. The alternative is waiting until Labour get into office and unleash a housing programme drawn up with no regard whatsoever to the interests and preferences of Conservative voters and MPs. Which, at that point, some might feel they deserve.

Whatever path he chooses, the clock is now ticking for Boris Johnson. If he wants the new planning system to have had any impact on the situation in the country by the next election, he really needs to have it on the books by the end of 2021. Otherwise new applications and so on won’t have time to get through. But if he rushes into a second policy that gets thrown out by MPs, that’s very likely to mark the end of any serious efforts at planning reform in this Parliament.

As I noted recently with regards to green targets, this country has a very bad habit of endlessly putting off difficult infrastructure decisions. That the Government is still dithering over expanding Heathrow suggests this hasn’t changed. The Prime Minister’s tendency towards procrastination is well-known.

But solving the housing crisis is not just of national but of existential political importance to the Tories in a way our ports, airports, and road network frankly aren’t. Johnson needs to make a decision; it needs to be the right decision; and it needs to be soon. If he isn’t prepared to be Britain’s house-building Bonaparte, the Prime Minister needs to be clear what Plan B is.

Sunak opts to suck it and see

25 Nov

We must be thankful that no-one is forecasting that Government borrowing will rise to record levels this year.  Or Rishi Sunak wouldn’t have been in a position to announce that Government spending will rise at its fastest rate for 15 years.

Apologies for the sarcasm – which isn’t aimed at the Chancellor’s measures, but is meant instead to provide an introduction to the thinking behind them.

One response to a ballooning deficit is to cut the rate of growth of spending.  That’s what the Coalition did after 2010, when the deficit hit seven per cent of GDP.

The Office for Budget Responsibility is forecasting a peak of 19 per this year.  But Sunak’s response is to raise the rate of spending.  Why?

Because in 2010 George Osborne judged the deficit to be structural (he was right), and his successor judges this one to be exceptional (he’s right, too).

It is almost entirely a product of the pandemic and what has followed.  It is in this context that the OBR forecasts the economy to shrink by 11 per cent this year and unemployment to hit 2.6 million next year.

In these circumstances, the Chancellor has found it impossible to produce the four year spending review he hoped for, and has been forced to issue one for a single year instead.

Furthermore, his statement was only one side of the tax and spending coin. Today, we got the spending.  In the Spring, we will get the Budget – and the tax.

Given all this, it will be very odd if Sunak turns up then with large-scale tax rises to raise revenue quickly.  The foundation of his measures today appears to be: suck it and see.

Broadly speaking, the spending package suggests that the Chancellor is going for growth.  That’s the logic of the infrastructure spending, the coming review of regulation, the new northern bank and the enlarged Restart programme.

The Levelling-Up Fund is a classic Treasury exercise in the English centralist tradition, with its central feature of bids from the provinces to Westminster for money.  So it is in a country with relatively few local taxes.

On that point, Sunak announced “extra flexibility for Council Tax and Adult Social Care precept”.  Local authorities will like that, council taxpayers not so much.

It’s worth stressing that the OBR’s forecasts, like all such animals, shouldn’t be taken too seriously.  Our columnist Ryan Bourne debunked its record on this site earlier this week.

If you walk down the sunny side of the street, you will smack your lips at the thought of a Roaring Twenties effect, as employment recovers, consumers spend, the hospitality sector booms and people pile into holidays abroad.

And it may be that post-Covid changes even out for the better, with a shift in activity and spending from city centres to the suburbs and countryside, together with music, art, theatre and all the rest of it.

That might not be such a bad things for towns and their centres, at which the new Levelling Up Fund is partly aimed.  Our columnist James Frayne believes they are a core concern for provincial voters, and government listens to him.

If on the other hand you stick to the shady side, you will point to the economic equivalent of Long Covid: fearsome economic and social bills for damaged mental health, postponed operations, lost educational opportunities.

All that is a big minus for levelling-up – because it’s the disabled, poor and disadvantaged who have been hit hardest by restrictions and lockdowns, especially if they work in the private sector.

The background in recent years is not encouraging.  Since the financial crash exploded, we haven’t grown at more than 2.6 per cent a year.  That suggests recovery may be sticky.

Sunak’s persuasive manner, grip of detail and spare eloquence have served him well during this crisis.  Others holding his post would not have survived roughly ten major finance annoucements in less than a year.

It’s not as though he hasn’t sometimes had to recast his plans – as in October, when he pumped more money into his Job Support Scheme.

And if the economics of his strategy are straightforward enough, its politics was sometimes a bit odd.  If the Government’s overall plan in the short-term is expansionary, why raise the minimum wage but curb public sector pay?

If spending on nearly everything else is rising, why crack down on the 0.7 per cent aid spend?  Doing so because you think aid is wasted or the target is wasteful is one thing.

But that wasn’t the basis of Sunak’s decision – since, after all, he said that the Government intends to return to 0.7 per cent “when the fiscal situation allows”.

The Chancellor also left a big unresolved question hanging in the air.  What will the Government do about the Universal Credit uplift?  Will it be extended or not?

The sense of a statement with contradictory messages was picked up Rob Covile of the Centre for Policy Studies.  (The Treasury would do well when the Budget approaches to look at its supply side ideas.)

“Feels slightly like Treasury couldn’t decide whether the message was ‘tighten belts’ or ‘we’re still spending’,” he tweeted. “So we’re getting two or three minutes of each in turn.”

That first element in the Chancellor’s statement, plus the OBR’s horrid short-term forecasts, comes at a bad time for the Government.

For tomorrow, the toughened tiering details are announced. Lots of Conservative MPs won’t like them.  The detail of which tiers apply in which areas will be published, too.  Many Tory MPs will like those even less.

Graham Brady, Steve Baker, Mark Harper, and the Covid Recovery Group will say that the economic damage of restrictions is so severe that the Commons should not vote for more – at least, without an impact assessment.

They may not be alone.  “These measures may be a short-term strategy, but they cannot be a long-term one,” Jeremy Wright declared in the Commons during the recent debate on the lockdown regulations.

He and Edward Timpson (another ex-Minister) plus other MPs backed the Government but, sounded a cautionary note.

Will the prospect of vaccines be sufficient to rally the doubters round?  Or will they take a leaf from the book of Theresa May, who savaged the regulations during the same debate?

We shall see – but Ministers are not helping themselves by dodging requests for that impact assessment, urged by this site and others, and the subject of a dogged campaign by Mel Stride, Chair of the Treasury Select Committee.

All in all, Sunak is shaping up to go for growth.  Good for him.  Nonetheless, he must watch and wait to see how and when the economy rebounds.  Brady and company are less patient.

Spending Review 2020: Think tank response round-up

25 Nov

Adam Smith Institute

Matt Kilcoyne, Deputy Director:

“The Chancellor set out plans for big-spending and big-borrowing to get the country through the pandemic, and set the course for the country in the years ahead. It is necessarily expensive to confront the Covid-19 pandemic. But this public sector spending splurge fails to put the United Kingdom onto a strong fiscal footing for the recovery. Rishi Sunak cannot tax our way out of debt or spend our way out of a recession. 

“Increasing departmental budgets as the economy shrinks is just spending money we don’t have. It is fair that while private sector wages have fallen, public sector wages do not rise. Every public sector worker does not automatically deserve a pay rise while the rest of the UK loses out. 

“Raising the minimum wage during a recession will hit the most vulnerable the hardest by preventing businesses from hiring out-of-work Brits. It risks fewer jobs and hours for the lowest skilled, young, and minority workers. For the party of business, the lack of thought about their needs and the increase in costs they’re facing coming from the government, this is a massive and unforgivable oversight.”

Institute of Economic Affairs

Mark Littlewood, Director General:

“The Chancellor’s diagnosis was correct – and it is encouraging that he grasps the scale of the problem. The eye of the economic storm has yet to hit. The Covid contraction is more than double that of the Great Depression in 1931. Five years from now our economy will be smaller than it was at the start of 2020.

“If the diagnosis is good, the medicine is inadequate. ‘No return to austerity’ is a good slogan, but austerity there will be – either in the public or the private sector. It is just a question of when, and the longer the delay the more austere it will be.

“While today was a Spending Review rather than a Budget, the Chancellor must swiftly turn his attention to mapping out a path to recovery. This will involve creating a better tax and regulatory environment, so businesses can bounce back and thrive.”

Centre for Social Justice

Edward Davies, Director of Policy:

“Amidst the eye-watering barrage of numbers, the focus first and foremost on jobs, was the right one. It is not just important for the recovery of the economy but as the Chancellor said, a job is the best route to personal prosperity – an identity, purpose, and reason to get up each morning. Various investments in housing, city growth deals, and a very welcome community levelling-up fund will all help to enable this.

“And for those out of work the announcement of the £3bn Restart Programme is welcome too. This can build on and expand the Work Programme and Work and Health Programme. But it must be personalised and human, as per the original design of Universal Support, to go alongside Universal Credit. As the Shadow Chancellor said it must address the needs of those furthest from the job market and work with the small local actors, who know their communities best.

“Lastly, support for the most vulnerable such as rough sleepers, and our prisons was welcome, but warm words on families and communities, where many find their greatest support, must be followed by action.”

TaxPayers’ Alliance

John O’Connell, Chief Executive:

“The lack of focus on value for money in today’s spending review will no doubt disappoint taxpayers.

“Coronavirus has undeniably left a large hole in the nation’s finances. But instead of forever dipping back into taxpayers’ pockets, the government should prioritise policies to get the economy going.

“With the tax burden at a 50 year high, targeted tax cuts will be vital for employment, productivity and, ultimately, economic growth.”

Centre for Policy Studies

Robert Colvile, Director:

“Today’s spending review recognises the extraordinary scale of the Government’s fiscal response to the pandemic, but also the extraordinary and long-lasting economic damage that it has inflicted.

“It is right to prioritise jobs, health and public services now, rather than immediately closing the deficit, but also right to acknowledge the enormity of the challenges ahead. The temporary cut to international aid and the imposition of public sector pay restraint, both called for by the Centre for Policy Studies, recognised this changed environment – but the country is still committed to increasing spending on a shrunken tax base.

“The Chancellor’s announcements on infrastructure investment and levelling up were extremely welcome, echoing for example the CPS’s proposal for a National Infrastructure Bank. But ultimately it will be the private sector, not the public, which digs us out of this economic hole – so as the pandemic recedes we urge the Chancellor to embrace pro-growth, pro-enterprise stimulus measures, such as tax incentives to encourage businesses to hire and invest.”

Joseph Rowntree Foundation

Helen Barnard, Director:

“Remarkably for a much-hyped statement on levelling up opportunity across the country, the Chancellor’s word’s ring hollow as weaker local economies will be getting less money than previously in the aftermath of the pandemic.

“The growing numbers of people in or at risk of being pulled into poverty in our country will have taken little solace from the plans laid out by the Chancellor today. The latest economic forecasts are stark and deeply troubling.

“Behind the figures there are real families wondering how they will get through this winter and beyond. The Chancellor has not risen to the challenge facing the nation. In the here and now families need to know how they will pay for food, childcare and keep a roof over their heads.

“The Chancellor has failed to live up to their manifesto commitment to invest significantly in skills around the UK and allow the funds to be administered locally via mayors, devolved administrations and local authorities. The additional funding for employment support is eye catching and necessary because of the anticipated wave of long-term unemployment in the coming months.

“There is mounting concern in the UK about tackling poverty and inequality, and the time to tackle these issues is now, as we recover from a crisis which has already hit the worst off hardest. This was a moment when the Chancellor could have taken action to solve poverty – instead many families will now be preparing for still harder times ahead.”

Resolution Foundation

Hannah Slaughter, Economist:

“The Chancellor has confirmed a modest increase in the National Living Wage for next April – the smallest since 2013. After large increases in recent years, the slowdown reflects that the wage floor is rightly linked to typical earnings which have taken a hit during the crisis.

“Crucially, this increase still leaves the Government on track to abolish low pay by the middle of the decade, with one of the highest minimum wages in the world.

“Continuing on the path towards ending low pay – with bigger rises in the National Living Wage coming as earnings recover – should form part of a wider post-Covid settlement for low-paid workers, including more dignity and security at work.”

Nick King: Johnson’s Reset. The Government needs business if it’s to build back better.

22 Nov

Nick King is a Research Fellow at the Centre for Policy Studies

Much has been written in the last week, on this site and beyond, about what a Government ‘reset’ might look like, following Dom Cummings and Lee Cain’s departure from Number 10. Broadly. those perspectives have focused on what might be termed ‘the three Ps’ of positioning, people and policy.

In terms of positioning it has been argued that Number 10 needs to take a less confrontational approach – whether that is towards the media, public institutions or, indeed, Conservative backbenchers.

On people, the part played by the indomitable Carrie Symonds and the increasing importance of Allegra Stratton has been acknowledged, but the search continues for the right Chief of Staff to promote and protect Boris Johnson’s own interests.

The issue of policy is perhaps the least clear cut, with competing views espoused as to whether or not the Government can be the party of Workington as well as the party of Notting Hill. My own view is it can and it must.

But there is a final P which needs to be thrown into the mix – not as a fourth horseman, but as a corollary of the three Ps – and that is the private sector.

The fact is that British business is at a low ebb right now, in terms of performance, confidence and its relationship with Government. Covid-19 is the most obvious explanatory factor for those first two issues – forcing millions of businesses up and down the country to close will take the wind out of their sails however generous the set of support packages provided. But introducing those measures only serves to make the job of working constructively with British business all the more important for government. On this task, it has been found wanting.

Across industries, sectors and different parts of the country, there has been consternation and confusion as different restrictions have been introduced, without any (published) economic analysis of the potential impacts or of the evidence base upon which these decisions have been made.

As we approach December 3rd, businesses remain in the dark about whether or not they might be able to reopen, despite the long lead times needed for various parts of the hospitality sector in particular (a sector whose import will perhaps never be as keenly felt as it will be in December 2020).

That businesses don’t feel like the Government supports them is hardly new news, however. Successive polls commissioned by my think tank, the Centre for Policy Studies, has shown that a clear majority of small businesses don’t think that the Government is on their side. Indeed, the Government’s own survey data shows that only a quarter of businesses think government understands business well enough to regulate it. But in the context of a national economic shutdown, this is simply not good enough.

This is not to say there aren’t people around Government who understand business, or who are keen to support it. Rishi Sunak, Alok Sharma, their political teams and Departments are obviously on businesses’ side, as is Ed Lister and Alex Hickman’s business relations team in Number 10. But the disregard of other influential figures towards business has meant that much of the private sector has failed to get a proper hearing throughout 2020.

The anticipated ‘reset’ is an opportunity for the Johnson administration to put that right. Which duly brings us back to our three Ps.

On positioning, the Government needs to be unapologetically pro-business, free enterprise and open markets. The Conservative Party must defend the role of enterprise and the private sector and be resolutely on the side of the millions of small business owners up and down the country. This is important ground both ideologically and politically – and ground which the Conservative Party is in danger of ceding if it isn’t more full-voiced in its support for business.

In terms of people, Andrew Griffith and Neil O’Brien’s recent appointments are welcome, and will help emphasise the role of business, but change is needed in Number 10 itself. A Chief of Staff with extensive private sector experience would be welcome but, failing that, an understanding and sympathetic attitude towards enterprise should be regarded as a sine qua non. Just as important is for Number 10 to have a strong and expert voice for business sitting within its policy unit. That there has not been a business policy function sitting within the policy unit since David Cameron was Prime Minister is extraordinary – the existing business relations team needs to be strengthened and given a proper policy role.

Which brings us onto the final P of policy, which is the most important of ‘the three Ps’. Positioning and people are all well and good, but fine words doth butter no parsnips, as they say – so Johnson needs to ensure his Government is putting business front and centre as he looks to build back better.

Post-pandemic, securing growth is the only game in town. Without that there is no hope of new jobs, greater opportunities or improved living standards – whether in Workington or Notting Hill. And none of this can be achieved without unleashing the awesome and dynamic power of the private sector.

An important starting point would be to curtail the steadily increasing regulatory burden on business. Each measure, taken on its own merits, seems important and its impact trivial to business. But the corrosive, drip-drip effect takes its toll and as growth flatlines and productivity stagnates, politicians stand with their hands on their hips, double teapoting, wondering why.

Take the recent HFSS (foods and drinks high in fat, sugar and salt) consultation for example – likely to cost British industry hundreds of millions of pounds. No doubt full of noble intent, but hardly what the economic doctor might order as we look to recover post-pandemic.

More worrying still are the suggestions that we will increase both the rates and the scope of business and enterprise taxes in 2022. This is no way to stimulate and incentivise the businesses who are our only way out of the economic morass in which we find ourselves. Rather than clipping its wings, the Government should provide the wind to help business soar.

Speaking of wind power, the vital role of the private sector was clear in the Prime Minister’s 10 point plan for a Green Industrial Revolution. But the truth is that few of his priorities can be achieved without the business community. Levelling up? It requires business investment and private sector jobs in the North and the Midlands. Net zero? Industry needs to transition and innovate our way towards it. Protect the Union? Champion our British businesses and demonstrate our reliance on the free flow of goods and access to important markets both north and south of the border. Global Britain? Remain open to inward investors and get more companies exporting.

Pfizer, BioNTech and other companies have all too ably demonstrated just why we need the private sector recently – it’s the key to solving so many of our problems. Which is why Boris Johnson needs to put it front and centre through his reset exercise.

A reformed Number Ten must get on the front foot with business relations and business policy. It needs to articulate a clear vision of our post-Brexit future, rooted in entrepreneurship, investing in success, focused on innovation, with a skilled workforce, trading with the world and built off the back of our brilliant SMEs. That’s a reset worth waiting for.

Rosalind Beck: Punishing private landlords is a flawed method to bring about “generation buy”

3 Nov

Dr Rosalind Beck is a doctor of Criminology and a Conservative Party member in South Wales.

Boris Johnson’s announcement that he will turn ‘generation rent’ into ‘generation buy’ by introducing five per cent deposit mortgages for two million first-time buyers (FTBs) will have been widely welcomed by young people keen to get a foot on the property ladder.

According to an estimate by the Centre for Policy Studies (CPS) there may be as many as 3.6 million ‘resentful renters’ who could have been home-owners by now.  Superficially, it looks like a great idea to help these buy.

Unfortunately however, I believe this policy is not only a non-starter but frankly outrageous, for reasons outlined below.

The first problem is: where would these homes come from?

An obvious answer is ‘new-build properties.’ However, why would the Government’s poor track record on getting developers to build sufficient supply be any different this time? These properties are also often expensive options. Help to Buy has meant young people paying over the odds while developers make a handsome profit.

Further down the line, many are unable to re-mortgage and are stuck on high interest rates. The CPS’s idea that they instead have long-term fixed rates would not solve this if those rates are uncompetitive. This is what has previously happened.

The only other way of sourcing homes for FTBs involves a transfer of assets from the private rented sector (PRS) to owner-occupation. However, when I conducted a straw poll of landlords it was their view that only two per cent of tenants would currently be viable and willing purchasers even if they were gifted the entire deposit by the taxpayer.  My own experience confirms it is very rare for a tenant to buy the home they are renting (reasons for this below).

If we put this to one side though and assume these resentful renters and perhaps young adults still living at home are in a position to purchase, what type of existing properties would they want?

We can discount larger properties in the PRS, 500,000 of which in England and Wales are Houses in Multiple Occupation (HMOs). The idea that two to three million tenants could be decanted so their homes could be sold to people who would under-occupy them is ludicrous.  What’s more, where would the displaced tenants go?

At the other extreme, studio flats are not usually bought by FTBs as they can be difficult to obtain mortgages on. Also undesirable since the Grenfell disaster are flats in high-rise blocks and/or any in buildings with safety concerns. three-bed homes are also not feasible for FTBs, except in cheaper areas.

So probably the key target properties for FTBs would be one and two bed flats in low-rise buildings and two-bed houses. If FTBs are somehow to be given access to these, what is the Government’s plan for the millions of individuals, couples and families already living in them?

This reminds me of the time someone told me that as a landlord I should be housing Syrian refugees. As I pointed out, having no vacancies, I would first have to evict my tenants.

Judging from Johnson’s negative comments about the PRS though in his speech and the Government’s consistently damaging and misguided policies towards the sector, the grand plan is to drive landlords into evicting their tenants in order to sell.

The most vulnerable to this would be those in cheaper rental homes; people who before successive governments’ sell-off of social housing would have been accommodated by that sector. The majority of these would not be in a position to buy; they couldn’t save a five per cent deposit, they wouldn’t meet mortgage criteria, millions rely on benefits, are on low pay, have a poor credit rating, are foreign nationals, or are of an age which would disqualify them.  Home ownership is not on their radar; something I know, coming from this segment of the population myself.

If in this ridiculous scenario, these people were evicted, they would find no refuge in the social sector.  Supply has been restricted here for years, for obvious reasons.  Even handing over a gift-wrapped council house to many lower-paid people would not guarantee a Conservative vote. I have previously written about the Conservatives’ problematic relationship with social housing.

The PRS is the only possibility for them; but available homes in this fantasy world would presumably be reserved for FTBs (as that would be the whole point).

Incidentally, what is not mentioned is how hard it would be to sell; the Government has extended even non-payers’ rights to remain for up to two years in properties which therefore cannot be sold with vacant possession.

The CPS paper concludes that an increase in home-ownership ‘is deeply, urgently necessary.’ I find that a highly emotive way to put it.  In fact, a roof over everyone’s head trumps the type of tenure.  It would plainly be immoral to evict tenants in order to create new owners.

Although this policy has been promoted with the acknowledgement that private landlords will be affected, with the CPS stating they must be persuaded or forced to sell, it is evident that tenants would bear the brunt in what would constitute a type of social cleansing.

In terms of emotive language, this is not unusual in housing discussions, of course, with Boris Johnson saying it is ‘disgraceful’ that people can’t buy their own homes. This was a curious word to use and, looking it up, I found one definition of ‘disgraceful’ is ‘scandalous behaviour.’

So, who exactly has behaved scandalously? Developers for not building enough homes?  Why should they? Or is it private landlords for the crime of meeting the housing needs of more than nine million people by financing new-builds and buying old housing stock to refurbish for rent, while the Government took a back seat? If the Government wants to blame anyone, it can start with itself.