Scotland’s Sceptical Housing Leaders

In today’s Chartered Institute of Housing’s Scotland news and views (27 February 2013), there was a report that Scottish ‘housing leaders’ were sceptical that independence or greater fiscal powers would improve the ‘deal’ for housing. The report goes on to say that:
• One in eight thought there would be a better deal
• Three in eight said it would make no difference
• Fifty per cent needed more data before they could make up their minds.

A few caveats are in order. I don’t know what the sampling frame was for this Scottish housing leader survey or its representativeness, other than it was drawn from council and housing association senior staff (i.e. it would be good to hear from the private sector too). It is of course a survey done to help market the Institute’s upcoming conference in Glasgow next month (and one in which I am also presenting –  the Joseph Rowntree international evidence review I have just completed with Duncan Maclennan and Mark Stephens). Nonetheless, the short piece raises interesting questions.

One of the reasons it suggests for the lukewarm reaction is that housing is already largely devolved. However, there was more enthusiasm for changing London’s control of the purse strings. This is as much about the public accounting rules over borrowing and identifying the legitimate limits to state activities in housing programmes, as it is about the actual level of the block programme to the Scottish Parliament. While any independent European nation has to operate within EU State Aid rules and conform to general principles of public accounting, it is well-known that the treatment of, for instance, councils as housing provider trading bodies could open up significant additional investment opportunities, were the UK/Scottish Governments to view this differently to the status quo (as has been repeatedly pointed out by Steve Wilcox and others).

Would housing be a bigger priority if Scotland was independent or had substantially greater financial autonomy? The sceptics surveyed worried that housing capital programmes are an easy target for cuts. Indeed we know that in the present review period such programmes took a larger hit than capital spending as a whole (broadly 45% against 33%) but that this differential has subsequently been narrowed by additional housing spend, Barnett consequentials and other in-year revisions. Nonetheless, it is difficult to see housing as a protected area and indeed the direction of travel is to spreading shallower subsidy further rather than growing social housing programmes.

Respondents also pointed to the general lack of appetite for using tax-raising powers (including the frozen council tax) for housing. The long-term consequences of sustained council tax freezing should not be ignored in this context. Last week at a David Hume Institute seminar, the former Lib Dem MSP, Jeremy Purviss, made the point that the freeze has the cumulative effect of weakening local financial accountability (and becomes harder to unpick later on). Perhaps the Government will get their nationally fixed local tax (promoted then dropped in their first term) after all – but through the back door?

But in any case – there is the small matter of the new Scottish land and buildings transactions tax shortly to be legislated on and offering the promise of a form of progressive stamp duty for Scotland. Can it be used creatively and innovatively?

Finally, in the survey, the respondents suggested that there should be a better balance between the Scottish housing system, the tax system and benefits. I will leave benefits for another day but, apparently, two in three want more taxation for home ownership!

I would welcome the opportunity of creating the conditions to normalise housing as a commodity and an investment. Along with greater supply elasticity and stronger rental markets, moving to more neutral taxation is the way to eventually provide long-term stability to the volatile housing market. This has been promoted for many years in certain quarters, most recently by the Joseph Rowntree Foundation Housing Market Task and in a paper by Tony O’Sullivan and myself in Housing Studies last year. However, despite making (we thought) coherent academic arguments about sensible and fairer long-term objectives for the housing system and the positive role taxes can play – the point of our paper was to set these against the political difficulties of making that change credible and feasible. I suspect it will be just as hard ‘an ask’, politically, in Scotland as elsewhere in the UK?

The Economics of Independence (Part 97)

This is the first in what I hope will be a series of posts in the broad areas of housing, public policy, academia, economic ideas and beyond. I am an economist in the School of Social and Political Sciences at the University of Glasgow. Once the site gets developed further you will find out more about my research and policy interests. My personal webpage at Glasgow University is at http://www.gla.ac.uk/schools/socialpolitical/staff/kennethgibb/.

As a social scientist in Glasgow and Scotland, these days it is difficult not to touch on or indeed collide with the independence referendum. The debate is gearing up and will undoubtedly rage on through 2013 and beyond. There is much said about the lack of evidence-informed debate, of ideology trumping analysis. In fact, the ESRC is running a major research programme on the Future of the UK and Scotland – a call for a large-scale multi-themed proposal is out just now. The programme aims to shed light and provide empirical material and analysis to help fill the presumed gap.

This evening, the University of Glasgow hosted the eminent economist, John Kay, who delivered a sparkling lecture on the economics of independence (there are, actually, many such public debates and roundtables taking place – the David Hume Institute in Edinburgh held a session earlier on the week on social security and independence). The Scottish commentariat will evidently have increasing opportunity to debate these issues – though one questions the extent to which it will filter beyond these circles either in Scotland or elsewhere in the UK. That is a challenge for everyone involved in public engagement and civic discourse.

John Kay stated that there were problems ahead with an independent Scotland seeking to enter into currency union with the rest of the UK. At the same time, he suggested that fiscal issues of debt, deficit and spending were not dramatically important given Scotland’s broad comparability to UK spending per capita, once one takes account of oil & gas. His currency union argument was as follows: setting himself up as the impartial adjudicator of post-independence negotiations between London and Edinburgh, he felt that it was inevitable given Scotland’s small size that the rest of the UK would seek strong financial control over fiscal and financial regulations and policies. This loss of control would be unacceptable to Edinburgh and it would be pushed towards a Scottish currency (the Euro being quickly dismissed). While expensive and potentially risky, he did not think it impossible to peg a Scottish currency to Sterling – so it was no economic deal-breaker.

Kay felt that small states are potentially economically viable – provided they enjoyed real competitive advantage in specific areas. He identified four potential such sectors in Scotland: financial services, premium food & drink, tourism and life sciences. He did not include either oil & gas, or renewables. He also made three other interesting points. First, that the Scottish Government since devolution had delivered a poor return on higher levels of spending on health and education compared to outcomes in the rest of the UK. Second, he urged growth policy to be focused on enabling and nurturing entrepreneurial skill. Third, he scotched the myth that Scotland has a very high comparative public sector employment figure – in fact it is only slightly above the rest of the UK (in much the same way that across many indicators the Scottish economy is broadly similar to the UK as a whole).

We are having a student independence referendum on campus just now and it is attracting a lot of media interest judging by the cameras and furry microphones evident around the University precincts. The pro-union campaign has adopted the frankly awful motif: “UK OK”. But it seems that John Kay’s conclusion overall was that, as an independent economy, Scotland voting yes would be ‘ok’, too. His key take-home message for me, however, was that people should really not vote simply on perceptions of whether the economy will be marginally better or worse as a result of the vote. Like in India, Ireland and America before them, independence in Scotland is about many more things than crude economic calculation. As important, Kay denied that an independent Scotland could miracle away our profound inequalities, poor health and other wicked problems. Rather, independence would make the responsibility for difficult choices much more explicit and local. But those difficult choices remain whether we are in or out of the UK.