Ken Gibb's 'Brick by Brick'

Housing, academia, the economy, culture and public policy

Category: UK

Thinking about the Budget, Housing and Scotland

I have long felt that making sense of the Budget each year requires a few days and the lifting of at least some of the immediate confusion, argument and data fog that descends. There was considerable anticipation that the Budget would mark an important staging point in the apparent prioritisation of housing by the UK Government for England – something that goes back at least to the Fixing the Broken Housing Market white paper and now continues with the preparations for the social housing green paper. Alongside these developments, it was anticipated that more plans to achieve ambitious housebuilding targets would be set out and that this would include a major commitment to more affordable supply.

I will come back to housing and also some specifically Scottish dimensions of the budget below. The Sunday papers this morning, at least those to the right, have columnists suggesting that, politically, the budget went well. But this seems to be about not compounding ongoing political problems for the government and surviving the immediate period so as to be able to fight on.  However, the troika of the IFS, the OBR and indeed the HMT’s Red Book itself sforecast low productivity growth, difficult public finances and continuing stagnant real earnings. This is a grave context and yet of course it is all too often buried by the understandable but overwhelming Brexit steamroller.

There were many housing announcements, though some were better defined, costed and designed than others. Inside Housing summarised the intended housing changes:

  • £125 million over two years’ increase in targeted affordability fund for LHA claimants finding it difficult to pay rent
  • Changes to universal credit worth £1.5 billion including allowing HB claimants to continue claiming for another 2 weeks after a new claim
  • Committing to achieve the 300,000 net additions to housing supply by the middle of the next decade and to support this through £15.3 billion of a mix of capital funding, guarantees and loan funding which would in part support the unlocking of strategic sites and estate regenerations – although the majority of the money appears to be for private development (though the Treasury say that part of the new financial guarantees ‘could’ be used for affordable housing as well – Inside Housing, 24 November 2017, p.2).
  • £1 billion of extra borrowing capacity for councils to build affordable homes in areas of high demand.
  • Pilots will be carried out in the West Midlands for the new HA right to buy.
  • Councils given the ability to charge 100% council tax on empty properties.
  • On the planning side pledges were made to invest in five new garden towns and also an ‘urgent review’ of how to close the gap between planning permissions and house building.
  • Homelessness initiatives will include three new housing first pilots .
  • Fiscally, stamp duty will be ended for all first time buyers in England, Wales and Northern Ireland purchasing homes worth up to £300,000 (and on the first £300,000 if the property is less than £500,000).

While there has been general recognition of the scale of the supply measures (which also include continued help for SME builders) and the direction of travel on homelessness, there has been less enthusiasm for the perceived limited additional support for affordable housing supply and a sense that they signal incremental rather than fundamental change (as suggested by David Orr).  Even the FT commentary after the Budget suggested that it was time to just end the English councils’ ceiling on housing borrowing altogether. Further valuable commentary from the housing sector on the Budget announcements can be found from various sources can be found here (CiH, Jules Birch, Shelter and NHF).

I want to say a little more about the stamp duty change.  Many economists are rightly critical of transactions taxes in terms of inefficiency compared to recurrent property taxes. The changes announced this week are the latest demand-side housing market interventions which, while targeted to first time buyers, will in all likelihood put upward pressure on house prices to the benefit of existing owners of housing assets and reducing the benefits to the formal beneficiaries. Both IFS and OBR have made this point, as have many commentators elsewhere. The evidence will out on the actual effects (insofar as models can actually, credibly, separate out the effects of the fiscal change on house prices and activity) but there is a wider question.

A slightly perverse outcome of greater fiscal devolution to Scotland has been fiscal competition between rUK and Scotland. So far, this has been exemplified by housing taxation: the tax rates competition between the two parliaments over stamp duty (land building transactions tax in Scotland) and the decision of Scotland to follow the 3% tax hike on second properties and buy to let landlords purchases. Now, the Scottish government has to consider how it will respond to a sizeable reduction in stamp duty in the rest of the UK.

There is an interesting reversal of classic oligopoly theory going on here. Traditionally, it is argued that where a small number of suppliers dominate a market, one firm raises prices and no-one follows; but if one cuts prices, they all follow and reduce their prices too. With fiscal competition in this devolved duopoly of the UK there is a different asymmetry.  Tax increases are followed in this case by Scotland because economic revenue benefits trump political costs (e.g. buy to let landlords are the main losers from higher stamp duty/LBTT rates) but where taxes are cut in the present UK budget for political reasons (and they arguably trump economic arguments in this case) how should or can Scotland respond given its public finance constraints (the opportunity cost is larger because of the smaller budget Scotland manages).

Housing is more prominent now as a domestic policy priority and is much higher on the political agenda. It is complex and multi-faceted and that is represented by the breadth of housing-relevant announcements last week. Policy to move us beyond an incremental change, however, will require sustained commitment over at least a decade. To return to the microeconomics of housing, we need a permanent, structural, change in the shape of the supply curve (so that it is more elastic), not a short term shift, welcome though that may be in its own terms.

 

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Disruptive Ideas for Housing Land & Infrastructure

I chaired a panel session this week at the annual Homes for Scotland conference in Edinburgh. The idea was that our four speakers would consider land and infrastructure challenges around the risks and opportunities created by disruptive changes. These disruptions are novel ways of delivering housing, changing how funding and infrastructure is done in order to deliver more housing that is less expensive and can, arguably, and to different degrees, alter the way our housing system functions.

The populariser of the disruptive innovation concept, Clayton Christiansen, argued that small scale innovators take root and outcompete incumbents. They are, in other words, a silent but growing threat to business as usual. In this context innovations aimed at either using land value uplift capture through planning law reform to fund new infrastructure (rather than from scarce public finances); or, separating out land and infrastructure (into a common good fund underpinned by a state guarantee) and a separate element for the build cost – serves to offer a threat to the status quo business model of land oriented speculative housing developers.

The planning reform proposal, from Thomas Aubrey at the Centre for Progressive Capitalism, and the plan to separate out land & infrastructure from bricks & mortar (Matthew Benson from Rettie and Co) were the central examples provided of disruptive challenge in the panel session.

They entered this lion’s den this morning on the premise that the current housing system is broken – new housing needs to be affordable or at least considerably less costly, there needs to be much more of it and infrastructure critically needs to be funded upfront to facilitate new home development. Typically, in the UK, unlike much of continental Europe, this is funded by central government in different ways and from a range of government departments. It is typically not, and despite initiatives like community infrastructure levy, in the form of capturing (part of) land value uplift on the granting of planning permission.

There is thus a public finance argument in favour of such a shift – a charge or tax could in principle reduce the requirements on public revenues to pay for new infrastructure. Second, lower priced housing costs and the development of the long term funded investment in a common future fund – could reduce the cost of housing over time and again reduce important aspects of the housing budget (ie by reducing unit costs). As my colleague Christine Whitehead has often said, one measure of good housing policy is its capacity to reduce the cost of housing to households and the tax payer.

Our first speaker, Nicola Woodward (Lichfields), went further and argued that new housing and an efficient housing stock, are essential economic infrastructure, vital to growth and productivity. My colleague Duncan Maclennan has been making this argument for some time and indeed goes on to argue that benefit-cost ratio metrics that propose large productivity impacts for things like transport investment are often mis-specified and overstate value relative to housing investments and which in turn are often understated. This is partly about attribution i.e. increased densities attribute to transport rather than housing social returns, but also due to a failure to properly consider the counterfactual i.e. the cost to the economy of not investing in housing. Duncan’s argument, till now at least, seem to have been more positively received in other places like Canada and Australia than here.

What about the critical responses? One interesting response from the panel was that those who might feel that these sorts of new models or reforms to planning would damage the interests of the existing players – were essentially missing the point in that the objective is to improve the working of the housing system. There will be losers and they will typically be loud while winners will probably only whisper at best. So, the political economy of pursuing this credibly is both interesting and challenging. Two possibilities suggested were, one, to set up demonstration pilots; or, second, to attempt forms of innovation in planned new towns.

It might be pointed out second that using funds from value uplift for new infrastructure for roads, schools, water, etc. means those funds cannot be used for S75 affordable housing. On the other hand, as Matthew Benson pointed out, his model could be applied to any tenure mix including social housing and it would all be cheaper than the current new supply status quo. A worry was also expressed that this class of reforms might impact on house prices, though the direction of impact was not completely clear to me. Benson argued in any case that house prices are dominated by the existing stock and the proposals suggested would not in reality be big enough to affect the overall housing market.

Will these or other similar ideas actually disrupt land and planning to support more, less costly, housing supply work? How will they relate to wider community plans, the work of the new Scottish Land Commission and the upcoming planning legislation coming in Scotland? Some of these ideas are not unlike more traditional disruptive ideas like land community truss. Perhaps we therefore need a suite of ideas that can be used at different times across our range of market contexts. I am sure the debate will continue.

 

 

 

Starting Again

This week, I have begun a new job. I am still at the University but the UK Collaborative Centre for Housing Evidence (CaCHE) opens its doors for business. We are still recruiting and setting up systems, policies and procedures but it is finally underway.

CaCHE has been the best part of two years in the making and reflects a long gestation period as ESRC wrestled with how to deliver on its decision to prioritise housing alongside the increased focus on evidence and what works in policy terms more broadly. Eventually, the decision was taken to go for a broad-based multidisciplinary approach, one that should encompass a consortium of universities and non HEI partners. It was also clear (to us) that it needed to encompass the whole housing system and all that features within it, and that the new centre should be genuinely-UK wide and embrace the devolved UK and the different types of markets and housing contexts found across the UK.

Our consortium building process was premised on early sign–up of partners, seeking to do justice to the scope of what we thought would emerge. We embraced the housing system approach and also a pluralist basis by which to assess and review evidence about housing. Importantly, we also decided to fully commit to a co-produced mode of priority-setting. We will set our evidencing and research priorities according to what representative knowledge exchange groups up and down the country tell us are the key priorities.  More so than ever I am convinced this is the right way to go, not just to get buy-in from the wider housing policy and practice world but because it confers legitimacy and a sense of genuine collaboration. It also shapes the way we have to write, report and communicate.

Last May, the ESRC and other funding partners, Joseph Rowntree Foundation and the AHRC, published their call specification incorporating six research themes (housing and the economy; understanding the housing market; choice and aspirations; housing and health education, employment, etc.; place, design and neighbourhoods; and, multi-level governance). Each theme had a lengthy shopping list of possible research projects. We decided to ‘announce’ a dozen exemplar/learning projects either evidence reviews or secondary data analyses which would help us refine our approach to evidence reviews, alongside up to ten PhDs co-funded by the partner Universities. Beyond that our collaborative knowledge exchange model would generate our priorities.

We constructed a large team based around contributions from the universities of Glasgow, Sheffield, Reading, Heriot-Watt, Cardiff, Sheffield Hallam, Ulster, Bristol and St Andrews, plus non-HEIs: the Chartered Institute of Housing, the Royal Town Planning Institute and the Royal Institution of Chartered Surveyors. The National Institute of Economic and Social Research also made a major input into our bid. Subsequently, the University of Adelaide has also come on board. More than 200 individual collaborators supported out bid with an interest in working with us, as did more than 20 other partners. The submission date was in October, interviews in January 2017 and we were publically announced as the successful consortium in April and due to start at the beginning of August 2017.

And it is a large team – 30 co-investigators spread across 6 themes and 5 sub-national geographies, plus a data navigator hub, secondment programmes, early career researchers, as well  as research, knowledge exchange and administrative staff. The centre is a distributed across the UK but administered form Glasgow. Even our leadership team is spread far and wide based in Glasgow, Sheffield, London and Cardiff. As many have said, directing and leading this new initiative will be challenging but I am sure also very rewarding. I am very fortunate to have been able to work closely with Craig Watkins from the very beginning of this project and we are doubly fortunate to have so many other excellent positive colleagues to work with and to that end I would include the international advisory board we have assembled, chaired by Lord Kerslake. As is often the way with new collaborative ventures, it is great to work with new people and to see them and our practices in a different and new light.

I decided that the new centre should be a break with the past in a different way too. We are locating off the Gilmorehill campus and shifting eastward to the social sciences research hub in the east end of Glasgow at the Olympia building in Bridgeton. We will share our space with the Glasgow Centre for Population Health and other Glasgow University social scientists. I think this will bring both focus to our work and allow us to contribute to the city civically and in partnership with those we share the research hub with, as the University intends.

I will be nearly full-time in the new role so I am giving up directing Policy Scotland, something I have done since 2013. I am also standing back from What Works Scotland which I helped develop and then co-directed for three years. Both roles have been tremendously rewarding and have re-energised me. Lessons from these two entities made important contributions to what became the CaCHE model. Policy Scotland allowed me to work with policymakers, Parliament and practice and to hopefully learn a little about how to do so more effectively.  What Works Scotland has taken me into new academic areas, forced me to think much harder about collaboration, co-production and evidence. Ideas about pluralism, dialogical approaches, multi-disciplinarity and a much more open attitude to evidence has been a great tonic for someone hitherto steeped in economics methodologies (admittedly a bit more plural and heterodox than some). I am therefore very grateful to colleagues in both institutes and wish them both well in the future. Both will be working with the new housing evidence centre.

It will be a few months before we are fully operational; indeed, we are not formally launching till October. But from August 1, it will be live and I for one cannot wait to get started.  It is a new start (and feels like one) but it is also great to be forging ahead with an ESRC funded housing research centre – exactly the same type of organisation where I started my career in Glasgow in the 1980s.

Good for the Gander? Reflections on the 2017 Housing Studies Association Conference

goose 1 is a goose that for three days strongly defended its space on the main way into the conference on the York Campus at Heslington. It appeared to be protecting its partner and made the odd aggressive shift in direction if any delegate came too near its mate in the undergrowth. I am no David Attenborough but it reminded me of years jogging round Strathclyde Park and carefully avoiding the personal space of gangs of Canadian geese or the attention of fairly abrasive Lanarkshire swans.

The conference this year was themed around precariousness and financialisation and how the housing sector is becoming more unequal, insecure and unstable. Plenary speakers included Oliver Wainwright from the Guardian, Shelagh Grant, CEO of the Housing Forum, Dinah Roake ex of HCA , Paul Quinn from Clarion Housing Group and Bob Colenutt from Oxford Brookes. The final plenary involved David Madden from the LSE and Blase Lambert, CEO of the Confederation of Co-operative housing. The conference dinner also included a memorable talk by the ineffable Ian Cole.

Financialisation and the precariat are well-met topics and they worked well with many of the workshop papers and for once a conference theme seemed to retain purchase across the full event. Not that everyone agreed of course with very different views circulating and also some concern that perspectives were a little too metropolitan and London-focused (something conceded by David Madden co-author of In Defense of Housing). There were also debates about the proactive role of the state in facilitating speculative mega real estate projects and a degree of vagueness about the transmission mechanism that might export people out of unaffordable, overcrowded cities. A key theme throughout was what can be done about these processes – do we despair or are there ways to fight back? There was talk (Madden again) about housing movements but I quite liked Glen Bramley’s discussion point that in fact an important (albeit atomised) housing movement are those older equity-rich often suburban home owners (and sometimes BTL investors) who are such a break on progress with respect to increasing housing supply.

I heard some interesting conceptual papers by David Clapham, Keith Jacobs and Tony Manzi, as well as a good paper using Australian evidence on private landlords from Hal Pawson. Duncan Bowie reprised debates about housing tax reform. I did a paper (co-authored with Duncan Maclennan) on Brexit and housing, the fundamental premise of which can be summarised by we don’t know the rules of the game regarding the rapidly approaching negotiations so we cannot really scale or estimate the impacts. Many economists feel they will be negative depending on the scenarios for how Brexit plays out, but we cannot in turn say much specific about housing impacts other than some likely directions of broad consequences via lost trade and growth, out-migration, risks re European funds and EIB, but much more fundamentally, risks to housing policy arising from possible break-up of the UK itself as a consequence of leaving the EU. More to follow on this I am sure.

The conference has a nice informal and friendly feel to it. This was complemented unexpectedly in a city centre bar by a very impressive four piece jazz band playing standards via an excellent trumpeter. Well done to the organising committee. Roll on 2018.

I missed a fair bit of the conference, in part because unexpectedly, the ESRC decided bring forward  the announcement of the UK housing evidence centre which made Thursday a bit of a social media blur but it is great to finally have it in the public domain.  More on that subject in a later blog.

‘The geese are flying westward’ is a fine song by Bill Fay (check it out) – but I am now heading north on the east coast line, eventually back to base for what I hope will be a quiet weekend.

 

 

 

 

Prevention and Predictive Analytics

 

I was at a What Works Scotland seminar this morning, the latest in our joint events with NHS Health Scotland on the Economics of Prevention. Papers and slides and a summary of discussion groups will be posted at the WWS website. We heard papers from Heather McCauley on the use of predictive analytics in New Zealand, on modelling the burden of disease by Diane Stockton and using agent-based models to consider informal care and obesity by Eric Silverman. They were followed by Ian Marr who summed up, drawing on his first-hand knowledge of social impact bonds and the social impact partnership model he has been developing.

A key aspect of preventative thinking, from Derek Wanless to Campbell Christie and beyond, is the issue of understanding where the most public service spending goes and therefore targeting spending, as far as one can, to those people and needs that will otherwise generate disproportionate public cost e.g. early year intervention to prevent what would otherwise lead to, in high likelihood,  negative future outcomes such as less good education and employment outcomes, poorer health and or episodes involving the justice system. A key issue is also how to manage the disinvestment that goes with a shift to prevention.

While it was fascinating to hear Eric Silverman tall about these simulation model as safe playgrounds of policy experimentation without consequences (unlike piloting, for instance), I want to talk  primarily about Heather’s exposition of preventative predictive analytics in New Zealand. She told us about the evolution of the programme, how it works and provided detail in terms of policy spheres such as welfare benefits and children in care.

The three big lessons and challenges that arose for me were as follows:

  • Moving government to think and act in terms of the lifetime costs (on an actuarial basis) rather than the annual cash costs of a high need individual, household or client;
  • Using statistical/econometric methods to uncover the probabilities that signify the high need households and individuals – the diagnosis of where lifetime costs are very high and therefore where large potential savings can be made; and
  • Designing the optimal mix of practice and policies that allow case managers to maximise the effectiveness of intensive interventions (what works?).

All three are difficult – the third, perhaps the most challenging. Let’s look at each in a little more detail.

Heather described the need for culture change to take on the lifetime cost approach. She pointed out that New Zealand has a culture of seeking the best possible value for the public dollar and so the shift from short term to a longer, multi-parliamentary term perspective, can be made and perhaps done so more readily than in the UK or Scotland. Many of us might be comfortable with the idea of focusing on the lifetime savings made by preventing someone falling into the negative outcomes suggested above – but it does require current governments spending money now and postponing benefits to future governments.  Heather provided the example of using a helicopter to transfer a spinal injuries patient from an accident site immediately to hospital with potential long term savings in reduced future health care costs. Lifetime benefits considerably outweigh upfront (helicopter usage) costs.

Second, the New Zealand benefit figures suggest that much of their employability spend goes to job seekers who are a small proportion of the total client group compared to the higher and persistent incidence of for example those on disability benefits and lone parent benefits. They cost more in lifetime terms and represent longer term need. Modelling under certain conditions offers, to different degrees in different policy areas, a reasonable basis to diagnose where highest need is concentrated and where benefits might be maximised by effective targeted interventions. But as was stressed in the presentation, these models produce probabilities and associations; they are not causal and indeed there is a fascinating question about understanding why some highly at risk groups remain resiliently unaffected in future years – what can we learn from their resilience?

Heather rightly recognises the suspicions and criticisms open to these sorts of approaches (often relating to big data and predictive algorithms): bias, non-discretionary model creating discriminatory or arbitrary outcomes, perverse incentives, moral hazard and discrimination like cream-skimming of the cheapest easiest candidates in areas like the work programme.  Transparent models (all on line from the New Zealand government) and independent scrutiny of the models, their assumptions and how they work ‘under the hood’, is essential, as is always seeking to improve the model and to reduce negative aspects of models.

Finally, there is the classic what works question – assuming that the modelling has indicated who and where the highest need target group resides, what are the suite of policy tools and interventions that best reduce the lifetime cost and make those savings because negative future outcomes are significantly reduced? How do we assemble good practice, policies, and effective case management in the variety of policy areas likely to be developed? A sector by sector repository and on-going discussion about these tailored responses is essential.

Predictive analytics has well founded criticisms but as in so many areas, this is one where continued independent scrutiny, a commitment to transparency and a willingness to continuously improve modelling, can provide valuable prevention benefits but there I can be no guarantee that this will be so. Furthermore, there is the small question of then designing the appropriate mix of policy responses aimed at those in most need

 

Accountable? Transparent? Budgets and Public Finance in Scotland

 

‘Exceptionally complex and opaque’ and ‘without precedent internationally’. Fraser of Allander Institute on the Fiscal Framework, quoted by the Finance Committee, Scottish Parliament in their 2017-18 draft budget report

I found myself reading the Scottish Parliament Finance Committee’s draft budget report  the other day in part to prepare for teaching on public finances in Scotland. I was struck just how non-transparent the fiscal framework is and how difficult it is to communicate the consequences of the rules of the game in terms of Scottish policy intentions and budgetary implications. It is as if the designers in Holyrood and Westminster were seeking to be rewarded for fiendish inventiveness rather than designing a set of financial rules that were clear, transparent and fostered accountability. In that respect, the Finance Committee’s report is remarkably helpful (along with the recent SPICe briefing on the budget).

I will get into the main points that struck me shortly but it also raised a second related question. In the year of the council elections in Scotland, there is a near equivalent lack of transparency regarding the local government settlement and the consequences for local decisions on tax and spend. This has, if anything, been exacerbated by both the implementation of the recent council tax reforms and the controversy over what the draft budget means for local spending by councils. We need more transparency here too and perhaps a local fiscal framework (something being pursued by the Scottish Greens) that makes explicable and straightforward how local tax and spend works, how it is impacted by Scottish ministers and what decisions mean for tax bills and spending choices.

What is it that makes the new national fiscal framework so difficult and why is it so significant? The devolution of new tax powers reduces the size of the Block grant. Critical to how this will operate is,  how the Block Grant adjusts, which comes down to a series of decisions, firstly, about the baseline reduction that is determined by revenue in the year prior to the devolution of the tax in question. Thereafter, the second critical question is how accurately tax revenues for the now devolved tax are forecast in terms of playing into public spending planning and control decisions and the risks of over-estimation. Third, there is the contentious question of how to uprate the block grant adjustment for the devolved taxes in subsequent years. This concerns the extent to which Scottish tax revenues grow relative to UK tax revenue growth and  (and this is where the controversy exists between the two governments) then how adjusting for relative population growth between Scotland and rUK operates.

These Byzantine and head-hurting rules are incredibly important. If Scotland can grow its tax revenue quicker than rUK, the block grant and the size of the fiscal cake expand. This fundamentally depends on relative tax policy changes, which currently benefit Scotland because we are not raising the threshold for the higher rate of income tax by as much as HM Treasury – and other things equal we should grow tax revenue per head more than rUK. But it is also driven by relative population change, relative economic and productivity growth (and these presently all look less favourable from a Scottish perspective). As the Finance Committee stress, the Scottish Government have taken on considerably more responsibility and the technical requirements for forecasting future tax, economic growth and in specific sectors too (e.g. land and buildings transactions tax depend on housing and commercial property markets) – and they have done so in a period of remarkable uncertainty, austerity and Brexit.

The Scottish Government is presently consulting over the Scotland Performs National Performance Framework. In the light of the above maybe they need to change the absolute or top line purpose of Government to maximising relative tax revenue growth?

One might conceivably say ‘well, these risks are what happens with more responsibility and that is what real devolution is all about’. My view however is that what we might be seeing is actually the outcome of bargaining over an inherently complex system and one that consequently is difficult to predict, manage and base fiscal plans on. I am sure the Scottish Government will step up to the plate – they have to get this right and must invest the necessary resources and capacity in doing so. Specific forecasting expertise by the Scottish Fiscal Commission will also become much more important in the future. Moreover, the plan is that in less than 5 years the whole basis of the fiscal framework will be reviewed and the indexing methods and other fundamentals may well be substantially revised. Let’s hope for less haste and that a simpler and more durable set of negotiated outcomes is the result.

Then there is the controversy over the local government settlement. There are several accounts of what is happening to local government spending, depending on what you compare it against (draft or final budget in 2016-17), how wide you draw local government activity, and, if you do include other elements, that you know what these extras are worth. SPICe estimates that local government spend in 2017-18 may either fall (compared to 2016-17) by 1.6% to 3.2% in real terms, or if you just look at the core grant (including non-domestic rates), it may fall by between 4.5% to 5.8%. However, speaking to the local government committee of the Scottish Parliament, the Cabinet Secretary argued (para 273, Finance Committee Report on the 2017-18 Draft Budget) that ‘when wider spend on local services, including funding for health and social care integration and from council tax reform is considered, there is an increase in expenditure on local services by local authorities of £240 million or 2.3 per cent.

Clear as mud. And then there is the interaction between grant, non domestic rates and council tax – we (i.e. tax paying voting citizens of Scotland) surely need to clearly understand how all this works together so that we can make sense of the financial and service outcome implications of different political platforms? Can we not do better?

 

Lessons from German Housing?

 

IPPR has recently been producing a series of reports on housing in Germany asking why can’t the UK follow in its stead and take on some of the apparently desirable features of their housing system. As with other examples of policy transfer, diffusion or mobility, I don’t think it is always as straightforward, though IPPR are demonstrably aware of either the barriers to transfer or that we do need to look closely and critically at the German system as well as positively regarding certain undeniably positive outcomes.

What do IPPR say in their reports? The first one says why is it that Germany builds more homes, has a less volatile housing market and a bigger private rented sector? The second report, out last week, describes renting (i.e. the PRS) as the dominant tenure, more stable and with greater rights than for those in England. Since 1995,  and with much lower levels of volatility, German house prices have risen by 50%; in the UK they have gone up 400%.

IPPR argue that greater levels of housing construction are associated in Germany with a wider range of builders, both SMEs and larger firms. Ostensibly similar (a plan led system like in the UK), Germany seems to do better at converting planning permissions into new supply (i.e. the housing delivery system) but they have also seen a significant reduction in the volume of affordable housing being constructed. Perhaps more significantly, German public authorities are more proactive in the land market assembling sites and delivering infrastructure. Unlike the English, they continue to use planning gain to support the development of affordable housing. The lending environment is  more conservative than the UK and mortgage debt to GDP is considerably lower. While the housing tax regimes are not dissimilar, the German system of capital gains tax encourages long term property holding rather than speculation.

Interestingly, the IPPR conclusions include what they call mis-steps that should be avoided in the UK: first, they argue that a model of long term covenants (20-30 years) has failed to deliver more affordable units and second, they argue that there are higher transactions costs and inflexibilities that may impact negatively on the labour market.

Turning to the second report on private renting, IPPR stress that alongside security of tenure, private rents in Germany are much less likely to be associated with housing stress or very high housing cost to income ratios. Germany has a large supply of rental properties (which helps reduce the impact of longer tenancies on the supply of vacancies and this is supported by rent controls and a further control or brake on rents when properties are re-let. Not surprisingly, in such a different tenure distribution, tenants are also organised politically and have voice in a way that does not exist in the UK. This leads IPPR to recommend for the UK that: government should let LAs construct build-to-let schemes as part of the PRS and also recommends longer tenancies if public subsidy is involved.

The reports are worth reading and make excellent points. However, one must recognise the universal challenges of lesson-learning, transfer and diffusion of policy across national boundaries where market contexts, institutional settings and the evolution of housing systems move differently. Germany has more than half of its households in private renting but the institutional features of the PRS in Germany are quite different, as we have seen, from the deregulated UK. The benefits of the system stability and much more moderate volatility have taken decades to achieve and have had to overcome the challenges of reunification and surplus low demand social housing in the East. They have also enjoyed a comparatively stable policy framework without the catalogue of initiatives and innovations that we suffer from.

Yes, it is true that they do not meet their housing need targets and affordable housing completions are moving in the wrong direction. It may also be the case that the German mortgage market is more conservative and it is undoubtedly true that their rental market (by definition) is less flexible than that of the UK. But this may be an acceptable trade-off in terms of overall housing policy outcomes?

The point about the mortgage market is interesting for other reasons. Recently, in the House of Lords Economics Affairs Committee inquiry into housing, Dame Kate Barker made the point that there is a massive tension between housing-related government departments trying to boost housing supply and home ownership while, at the same time, HM Treasury, the Bank and the financial regulators are re-regulating and constraining mortgage lending.  Acknowledging this difficult trade-off and trying to develop the right balance is a critical requirement for housing policy and the forthcoming White Paper on housing.

I think these reports are a fundamentally good idea because it is by looking at other places in some depth that we shed light on some of the things wrong with our housing system. However, apart from one references to legislating over letting agency fees, I was a little surprised that IPPR did not make more reference to Scotland, given that we have just undergone fundamental reform to our tenancy laws (creating open-ended tenancies and limited specific routes only for eviction) and also proposed rent uplift limitations in pressured market areas. It is Ironic that there appears to be less interest with intra UK policy diffusion. After all while housing policy is diverging rapidly across the UK, it is nonetheless much more similar than comparisons made with Germany. Although it is early days and the law is not yet in force,  considering reform along Scottish lines might be preferable to the IPPR proposals suggested above which are premised on retaining the present tenancy laws and hence privileging, it seems to me, labour market flexibility over housing security.

 

 

Scottish Welfare Benefit: Using the New Powers

The Scottish Government last week announced the first use of its new devolved powers over welfare benefits. The 2016 constitutional legislation gave Scotland power over specific benefits amounting to around 15% of all benefit spend in Scotland as well as powers to top up and create new benefits in most areas (though not pensions) which would be funded from within Scotland, as well as discretion to amend specific benefit rules in certain ways as they apply to the application of Universal Credit. 

While not underestimating in any way the importance of the devolved benefits to their recipients, it is in truth the medium term development of top-up, new benefits and the use of these discretionary rules that will mark out Scotland’s own path on welfare benefits mostly distinctively. And of course this will also be where the political debate will be most intense.
A strand of the party political discourse in recent months has been the Government’s reluctance to take on the new financial powers and use spending, tax and benefit powers to pursue a range of home-grown policies. In truth, there are plenty of reasons not to alter radically income tax rates, contemplate fundamental reform of council tax or spend block grant at the margin on extra benefit spending. The overall budget is undoubtedly under pressure which makes extra spending more difficult. Equally there is caution over raising taxes or being seen to threaten property owners via local tax reform. Third, Scotland has a minority government where tight votes over budget issues and their implications have to be carefully thought through. Fourth, the new benefit powers require new local policy and service delivery infrastructure that cannot be rushed – delay to the full devolution of benefits is inevitable and should not be surprising.
It was in this somewhat risk-averse context that it was encouraging to see the Scottish Government last week announce that it would (a) look at moving the frequency of Universal Credit payments to be shortened to fortnightly rather than monthly (with scope to consider who receives the payment too) and (b) that the rental element of Universal Credit could be paid direct to landlords, both social and private rental providers. These are low hanging fruit in the sense that they are relatively simple and low cost but they are important to the people affected, symbolic of what is possible and in the current circumstances, offer sensible policy development.
The direct payment issue is an interesting topic. Private landlords have longer experience of tenant responsibility for making rent payments but both social and private will undoubtedly welcome the security of payment offered by rent paid direct. It was always apparent that vulnerable households and people already in arrears should be exempt but that begs further questions about definitions of such categories and the opportunity cost of setting up systems to manage them and to prepare social tenants for payment responsibility. One might in principle want to shift over time cautiously  to a system of tenant payment responsibility but this is simply not realistic at present or in the foreseeable future. The benefits of direct payments to landlords far outweigh the cost.
The big challenges remain – in particular, for housing costs, removing the ‘bedroom tax’ and contemplating increasing the levels of housing costs covered by Universal Credit. These will have direct spending implications (though will be offset in the case of the bedroom tax by reducing the need for discretionary housing payments to go to help tenants meet the spare room charge as well as other contributions from the Scottish Government). But we do have a start in the announcements made last week. And, as Frank Herbert once said ‘a beginning is a difficult thing’.

Welfare Reform and Devolution

 

I was part of a panel at the Social Security Committee of the Scottish Parliament today talking about their work programme priorities for the next five years. It was particularly attractive as a session because Steve Fothergill from Sheffield Hallam was first presenting new evidence  on the impacts of the post Coalition Government welfare reforms on Scotland. However, train problems on the way to Edinburgh meant I only heard his discussion session with the MSPs. In this  post I am going to go over his and Christina Beatty’s findings and then move on to the discussion we had about the committee future priorities.

Beatty and Fothergill’s analysis is a model of clarity, it builds on an established body of work, it makes clear where the data and evidence shortcomings are and it implies where new research is needed. Fothergill was refreshingly straightforward and more than willing to point to the political dimensions of welfare reform. The main findings suggest that, first, there will be big financial losses to households as a result of the additional post-2015 election welfare cuts in Scotland. These will be of the order of £1 billion a year as a result primarily of – the four year freeze on many working-age benefits and reductions in the work allowances within Universal credit (i.e. the point where benefit withdrawal tapers kick in). Cuts arising from the move to PIPs from DLA will also be important, as will planned reductions in tax credits.

Second, there are significant variations across Scotland with older ex-industrial and more deprived areas tending to fare more badly on a per capita basis (although the Scottish average is close to the GB average as a whole). Third, the expected figure of an annual additional financial loss of a £1b per annum for the post 2015 period needs to be added to the 2010-15 welfare changes which themselves imposed a financial loss of £1.1b (admittedly a lower figure than was anticipated because of the challenge in bringing down spending on ESA).

The report is thought-provoking stuff and it is great to see this analysis done at a Scottish level. I was struck by some of the housing-related evidence implied by their research.  Some of the housing information included:

  • The lower benefit cap (£20,000 p.a.) will impact on 11,000 Scottish households and cost £25m a year compared to just 900 under the previous regime.
  • Mortgage interest support, converted into a repayable loan (on entering work or on sale), affects 17,000 Scottish households and costs £25m a year.
  • 1,500 people are set to lose out because of the exemption of Housing Benefit for those aged 18-21 (and not deemed vulnerable – existing an estimated £4m a year.
  • The LHA cap extension to the social sector is estimated to affect 55,000 Scottish households and to cost £40m a year (not clear how this disaggregates between general needs and supported housing, the latter of which is expected to be particularly problematic though it will not be initially affected). Also it was not clear from the report whether this 55,000 sum explicitly includes the under 35 single person households who are treated as if they are sharing housing (ie receive benefit up to the shared accommodation rate).

While the report is about welfare cuts post 2015 in Scotland, it does allude to possible offsetting effects – higher personal tax allowance, enhanced child care, and the minimum wage. But more could have been done to bottom these figures out and and quantify the balance between winners and losers in net terms. In the discussion with the MSPs Fothergill argued strongly that there was no evidence that employment growth follows from sharper benefit incentives as experience din recent economic cycles. He also argued that the long term growth, for instance, in levels of ESA are about lack of jobs. The demand-side explanation is strengthened by the evidence that in high demand labour markets in southern regions people with disability or illness are more likely to get work and can find jobs – but this is more difficult in low demand areas. Supply does not create its own demand.

Turning to the priorities for the committee in the coming Parliament, I recognise that the housing end of social security does not always come top of the bill and today we focused much more on disability, employment support allowance, work assessments and broader system level questions associated with the devolution of social security powers. Consequently, my contributions were modest.

It was not long when despite the conclusion from Beatty and Fothergill that we should not overstate the Importance of devolution of social security powers to the Scottish Parliament, we nonetheless agreed that this was in fact the priority, but also a huge challenge and an opportunity wrapped up in one.  Despite the fact that the Scottish Government does not intend to fully take on the powers till 2020 as one MSP said, the time is now to start planning, and also to ensure the infrastructure and systems are established, and to build the necessary policy and delivery capacity.

My view was that the 15% figure (the proportion of social security spending to be devolved) is a bit of a red herring (though Kirstein Rummery made the good point that it us like being given a block of cash that, now devolved, the Scottish Parliament can design it and use it as it thinks best – there are therefore many opportunities). This is because it is the additional powers to top up, create new benefits and change the rules applying to things like Universal Credit and its housing cost elements that create open-ended flexibilities and choices for Government. However, they all have to be paid for out of the Block and this means Scotland has to consider both its revenue-raising capacity and economic growth (including its new tax powers) to fund expansion and also whether there are choices between spending headings that could change to meet the social objectives of new and better social security benefits. There are opportunity costs from constrained political choice but there are also genuine opportunities.

Much of the discussion was about work assessment, disability benefits and also of course conditionality and sanctions. I was struck by the fact my colleagues around the table had so much relevant evidence to bring especially on their own direct projects and in relation to reviews of international studies. There does seem to be, as was true also in the last parliament, that committees do genuinely want to work from a proper evidence base. This has to be a positive sign in these otherwise concerning times.

True Grit – Ken Loach and the reality of welfare conditionality

 It has been quite a week. I saw ‘I, Daniel Blake’ in the cinema, there has been considerable media scrutiny of the new lower benefit caps and their impact, the DWP has produced a controversial green paper on the future of Employment Support Allowance and the Scottish Parliament debated the effects of sanctions and welfare conditionality, in part as a result of the ongoing ESRC programme which includes the excellent work of my colleague Sharon Wright.

The new lower benefit cap moves the likely burden from very large working age households or people often only in high cost housing reliant on benefits to many more households and often with children right across the UK. From 7th November 2016, the lower benefit cap begins to be rolled out. For couples and single parents, it will fall from £500 per week to £384.62 outside of London and for single people it falls from £350 to £257.69 outside of London (higher costs in the capital mean the reduction in the cap is less there). The benefits primarily affected are housing benefit, universal credit (and its components) and other working age benefits but also things like child tax credits and child benefit. The Guardian reported that 116,000 households would be materially affected.

The Green Paper (Improving Lives) is focused on increasing economic activity among the sick and vulnerable.  It is critically summarised by Paul Spicker in a blog this week who said: “It proposes to extend to those for whom working is least viable the kind of regime that has so signally failed for people in the ‘work related activity group’. If people who are sick cannot find ways to engage with the labour market, why should we imagine that people who are  sick and vulnerable should fare any better?”

The conditionality debate in Parliament highlighted the strength of feeling among our politicians about the impacts of sanctions and the problems they pose for welfare policy and people affected. In a piece for the Daily Record Sharon Wright summarised the key difficulties evidenced in her research:

  • Sanctions led to short term crises and long term debt repayment problems.
  • They were associated with rent arrears, the threat of eviction and possibly homelessness.
  • Sanctions often come without warning – and if people don’t know about the sanction how can it effect the DWP’s desired behavioural change?
  • Sanctions had profound negative wellbeing effects on those directly affected and in the end it was support to help people into work that mattered not sanctions – carrots not sticks.

And what about the film? ‘I, Daniel Blake’ was highly-charged and emotional. I will long remember the complete silence in the cinema when the credits abruptly come up. People looked stunned and many were upset. The film uses highly plausible scenarios to document the descent into poverty of normal people who are dealing with  common human circumstances like sudden ill health or family break-up. Engaging with benefits and systems like Employment Support Allowance and ultimately conditionality, is overwhelming for those less skilled in the world of digital by default and coping with the abrupt shifts into conditionality, as also reported by Sharon in her research. Vulnerable people can be forced to turn to food banks for resources and the black market and illegality for income. There is a strong Kafka-like feeling in the film as Job Centre Plus officers repeatedly use the ‘decision maker’ as the disembodied arbiter of whether or not one gets the benefit they are applying for.

It is a great piece of fiction but one that has a real sense of authenticity. It is well acted and brilliantly made. I did however think the Job Centre Plus staff were with one or two exceptions a little two dimensional, especially the nurse ratchet character and the general demeanour of the staff who were ‘just following orders’.

Thinking on the big themes of the film, I think a complete overhaul of the employment support allowance is needed and the DWP has to end the byzantine and often impossible choices created by the system facing the lead character who was turned down for ESA and can only apply for JSA when he is patently not fit for work. Paul Spicker’s views about these matters as suggested in the new Green Paper seem to be a good place to start. Second, there can be no basis or situation where individuals and especially children in families face destitution as a result of sanctions. This has to end. Third,  the film stressed the confusion and lack of help available to vulnerable people so that they have some chance to navigate (consistently) the arcane complexities of this obtuse and often dehumanising system. There must be a clearly stated rapid assistance system 24/7 on the end of a phone or for working hours  in a town centre office that offers clear and independent advice across all of the UK. Or if it already exists, people must be clearly directed towards such support and this should be done at the earliest possible point in the journey.