In the coming days, the Commission on London Finance established by Boris Johnson and chaired by Tony Travers is due to publish its final report. The Guardian has obtained an advance copy and it makes for interesting reading.
The commission sets out a stall for the devolution of a number of revenue streams to the Greater London Authority (GLA) and an enhancement of its tax-raising powers. This is a powerful agenda that should be seized by the government and, further, offered to the big cities outside London (in particular the combined authorities of northern England, as argued by the Northern Economic Futures Commission).
Of particular interest is the commission’s backing for IPPR’s ‘benefits to bricks‘ proposal to devolve housing benefit and gradually to switch funding out of rent subsidy and into capital funding for building new homes. The long-term decline in housebuilding since the late 1970s is a major reason for the rise in housing benefit, alongside an increase in the claimant caseload living in the relatively expensive private rented sector.
In recent years, of course, housing benefit spending has gone up as a response to the recession, but its long-term rise has been largely structural, not cyclical, as the graphs below, comparing it to JSA caseloads and expenditure, show.
Relative growth in expenditure and caseload (index 100 = 1978/79) – housing benefit (left) vs jobseeker’s allowance (right)
The consequence is that, in this parliament, 95p in every £1 of government expenditure on housing will go on housing benefit and only 5p on building homes. This is a ratio that we need to start to reverse.
Added impetus for this shift will come from George Osborne’s forthcoming spending review, at which he will announce a new limit on benefit spending. This new benefit cap is likely to bear down heavily on housing benefit, making it all the more imperative to reduce it by building homes rather than squeezing families.
The most common response to this proposal is that you need to build homes first before you can get housing benefit down. It is undoubtedly true that getting building underway quickly would make the long-term shift IPPR is proposing much easier. Tony Travers is proposing to extend the borrowing powers of the GLA and create a class of borrowing that is financed from the receipts of growth and rental income, in order to boost capital investment in housebuilding. This would be very welcome if it could finance new lower-rent properties, generating savings on housing benefit.
In addition, the government could stop guaranteeing mortgage lending through its new Help to Buy scheme, which economists are almost unanimously agreed will simply inflate house prices, and instead guarantee loans to housing associations to build social and affordable homes.
But even in the absence of new building, progress can be made by devolving housing benefit to the big cities in which there are large numbers of tenants in the private rented sector. The relevant public authority could strike deals with landlords to stabilise or lower rents, using housing benefit resources. Occupancy rates could be guaranteed, loans advanced for capital investment, and overcharging for multi-occupancy tenants brought down (this is a particular complaint in northern towns and cities). Planning consent for developers could also be contingent on rental agreements.
All of this can be done while guaranteeing rent protection to existing housing benefit claimants. However, it does require some measure of localisation of housing benefit, rather than leaving it within the universal credit (although ministers may come to see that as a good thing, given its implementation problems).