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 7^th 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.

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A Different Class?

 

Just under a year ago many of us sat looking at the ONS website waiting for the news about whether or not they would reclassify English housing associations as public bodies for public accounting statistical purposes. On the basis of a review of the powers of the Regulator created under the previous UK Labour Government, the ONS took the view that these powers of disposal of assets, board and senior staff appointments were sufficient to deem that enough degree of control from a government agency meant that reclassification was indeed appropriate. This shifted more than £60 billion of debt on to the public books and initially raised uncertainties about the freedoms housing associations would retain over borrowing.

This fundamental change was not wanted by Government or the sector or other major stakeholders. In the midst of last year’s controversial housing legislation in England, the Government proposed a series of measures aimed at deregulating the English sector sufficiently, they hoped, to re-re-classify the sector back into the private sector.

Still with me? Yesterday morning the ONS announced its decision regarding the classification status for public accounting statistical purposes for housing associations in Scotland, Wales and Northern Ireland, assessing them on a similar basis as was the case in England. They are now described as ‘public non-financial corporations’. The Scottish Housing Regulator (SHR) has been reclassified as a ‘central government body’.

Interestingly, the Scottish Government had taken pre-emptive action by preparing and pre-announcing deregulatory legislation on a similar basis to the English proposal in order to reduce uncertainty and get back to the pre-announcement status quo. In 2012 the ONS re-reclassified English further education and sixth form colleges which it has earlier reclassified in the public sector in 2010 because Government relaxed some of its earlier controls. So there is a precedent.

According to Inside Housing, the reasons for reclassification in Scotland were threefold: the SHR has a degree of control over the management of housing associations, the housing associations need consent from the SHR over ‘constitutional change’ such as mergers and take-overs, and, associations also need consent over the disposal of assets like land and housing.

The Scottish Government plans to respond with new legislation which will first remove the need for consent over the disposal of assets, they will ‘limit’ the power of the SHR to appoint board members and officers, and, remove the need for the SHR’s consent regarding restructuring, voluntary winding-up and dissolution of housing associations. The Scottish Federation of Housing Associations appear to share the Government’s optimism that this will be enough to put the sector back in the private sector, though they reserve the right to scrutinise the ONS details closely. They do make the point that the Scottish regulatory framework has evolved in recent years to put some distance between the sector and public control [link].

This is a statistical exercise but it has real implications, potentially. Governments around the UK would not seek corrective legislation if it were not of significance. Linked to this is the wider question of the degree of autonomy or level of external control applied to an important part of the voluntary or third sector, The reclassification also creates some uncertainty which may impact on policy delivery i.e. the Scottish Government’s preparedness of response in part reflects their desire to protect their priority to deliver the 50,000 affordable housing supply target over the life of this Parliament.

Deregulation is not without its risks – how will lenders respond to the changing regulatory environment? The English experience will provide a guide. Second, is this the end of the matter – will ONS accept the deregulation as sufficient basis for changing the classification back? The plans set out by the Scottish government may well turn out to be quite appropriate and sufficient for this purpose. ONS reclassification could be the dog that did not bark. We will see.

 

Scottish Council Tax Banding Reforms

I was back giving evidence this morning at Holyrood. The Scottish Government has drafted a statutory instrument that seeks to increase the weight and consequent charge applied to properties in Band E, F, G and H. They have also proposed an amendment to the means-tested Council Tax Reduction Scheme (CTRS) such that those households on below median incomes who do not currently receive CTRS will be eligible for all of the increase being met by the CTRS if they are in the higher bands. The extra £100m that this will generate will be hypothecated to support the national priority of closing the educational attainment gap. Finally, it is proposed that the long standing council tax freeze will be replaced by a cap allowing up to 3% increases in annual average council tax bills.

There are wider related issues as well concerning ongoing consultation over localising a share of income tax receipts so as to promote local economic growth.  Second, the Government is also consulting over taxes that encourage the reuse of vacant and derelict land and tax development. Finally, councils will be given the power to charge the full council tax on second homes.

The whole process around the Statutory Instruments and related immediate changes is highly truncated with the rapidly approaching new financial year, changes to CTRS, the new cap – and of course local elections thereafter in 2017.

The proposals are the outcome of the process begun by the Commission on local tax reform. The proposals need to command a majority in Parliament. Not everyone in Holyrood agrees with this current band-tinkering direction of travel (e.g. the Scottish Greens).

There is interesting written evidence on the site, not least from David Bell and form the former minister and co-convenor of the Commission, Marco Biagi.  In the section below, I paraphrase the main reflections in my written evidence.

Reflections on Reform and Beyond

Is the proposal package more progressive (i.e. ‘fairer’)? It makes a regressive tax less regressive and offers significant exemption and hence compensation (albeit through a means-tested route) to all of those on below median incomes. The changes proposed do not appear on reflection to be massively difficult for councils to implement though there will inevitably be opportunity and transaction costs. However, I think there are wider questions and concerns.

While there was not complete consensus on the Commission for the action recommended there was agreement on the need to end the council tax and the freeze. What is being proposed, especially given the absence of a general revaluation, is clearly what the Scottish Government, in carrying through manifesto pledges, feels it can do. But what is maximal for them is less than the minimum in the context of the reasonable expectations generated by the Commission. My worry is that without further commitment to substantive reform we will back in five years saying here is a property-based tax which sets values on market levels from 30 years in the past. The weighting may be more fair but the values that place properties in bands will be in most cases wrong and increasingly illegitimate. It is hard not to see this as a political fudge which does not resolve the underlying problems indicated above.

A second point is that fairness with property taxation is complex. It is not just about tax in relation to current income (important as that is) but it is also about the importance of inequality transmitted and reflected in the housing market and the relative failure to tax housing as an owner-occupier investment. While we repeatedly hear of the importance of social justice and tackling inequality, one of the key sources of that inequality (as well as damage through market volatility to economic productivity) is apparently sacrosanct. Moreover, as John Muellbauer at the University of Oxford pointed out, there are other ways to support low income households pay their local taxes, such as through allowances (like the Greens proposed), deferred payments as well as well-designed benefit systems.

Third, while the CTRS reform is in many ways a neat solution to compensating those in low incomes in higher value properties, it does add a further layer of means-tested complexity, and it is not clear at this point what will be done to ensure the highest levels of take-up. This is all the more germane given that the exemption would go much further up the income scale to immediately below median net incomes. There is a tension here with government policy elsewhere which will likely lead to councils setting full council tax on second properties on the basis to bring properties into more efficient use, yet at the same time CTRS is being used to help households stay in properties that are often only marginally affordable, if that.

Fourth, I was surprised that it was deemed unnecessary to carry out an equality impact assessment for the CTRS and that no wider assessments were required for either the tax change or the CTRS. The £7m figure for the additional cost of the CTRS must have assumptions about take up rates – it would be interesting to know more about these – as I think there would be grounds to think that rates might be relatively low. Additionally, aren’t the lessons from the land building transactions tax introduction that these sorts of tax changes do have market effects at the upper end of the housing market and that this is likely to have some degree of impact on when people decide to move how and could conceivably affect the labour market decisions of higher net worth households. I would have thought that was something working looking into.

Fifth, while ending the freeze and giving councils back the power to charge full council tax on second homes provides more discretion locally, this is offset by the implementation of hypothecation the extra £100 million to a national government priority.

Following the evidence session this morning, a few final thoughts struck me.

First, the truncated nature of the process has left a few uncertainties. There was a lengthy discussion this morning about the mechanism by which the £100 million for education will be managed and allocated locally. Second, we are unclear about the timeline and practical proposals for the localising of income tax receipts. Third, there is clearly no appetite for revaluation within the Scottish Government but the underlying problem and entropy of increasingly non-credible valuations will not go away. Fourth, there may be other unintended consequences and transaction costs if many high band property households seek to have their homes revalued down to lower bands – though I do not know the scope in practice for people to do this.

All in all, to paraphrase Marco Biagi, concerning the council tax, few people would have started from where we are now but equally on reflection how many will be happy with where we have ended up?

Freedom

Today was a milestone day in our household. We finally paid off our mortgage. Our journey is probably not too different to many of our vintage and trajectory but certainly it now looks like a housing career much less likely to be possible or typical for many folk starting out now wanting to buy a home.

As many did in the high water mark of mortgage deregulation, we started in the late 1980s with a 100% endowment mortgage. This was for a two bedroom interwar four in a block or cottage flat purchased a couple of months after I started my first full time job as a research fellow. Mortgage rates were 15%. It needed a lot of work, much of which family and friends assisted with and we stayed there, in hindsight, too long. There was a dodgy roof and a comparatively large garden, which were both in their different ways time-consuming and stressful.

I really wanted out of that house by the time we moved- I still occasionally have a recurring dream that we have to move back there (and to be clear I wake thinking I have had a nightmare). We moved about half a mile into a new home and watched it being built, which was an exciting time. This was a semi-detached three bedroom house, our larger mortgage was in two parts (a legacy of that earlier endowment). The new house was an incredible contrast to its predecessor and we had a little more than five years there. We would probably have stayed longer but an attractive, detached house around the corner came on the market and we managed to get it (the vendors also moved to another house in the immediate vicinity).

We have been in the present house more than 11 years now and we were able to use the redemption of the endowment (at nothing like its original supposed value) to pay off one bit of the mortgage and then overpay the other part till we could clear it today. A combination of very low interest rates and two jobs made this possible.

We know we have been fortunate working in comparatively secure jobs while escaping the vicissitudes of economic turmoil both in the early 1990s and late 2000s. We were able to secure a 100% loan in 1989 and make incremental progress thereafter. This is now a much more challenging problem for would-be buyers because of the binds of higher entry level house prices, weaker earnings growth, greater job insecurity and the much more significant down payment constraint.

If people cannot access funds, build savings or inter-vivo transfers or other financial support from family or friends, and do so when it is required or opportune, the average age of first time buyers will remain high except for the lucky few. As an aside I think there would be much merit in detailed and extensive independent research in the binding nature of these down-payment constraints and the effectiveness of policies that try to relax them. While there is much to be said for not returning to 100% mortgage loans the industry may have gone too far in the other direction but it is a complex multidimensional problem and simple pat answers about how to safely increase mortgage lending should be viewed with suspicion.

So, it is no more ‘I owe, I owe, so it is off to work I go’. However, to be honest I never really felt like that about work. Still, it is a rite of passage to close the mortgage account, and, as so many aspects of life increasingly do these days, it does make one feel old. The future will be about maintenance rather than a mortgage. We will just have to plan it ourselves.

 

From Protest to Subversion

 

There is a long-standing history of protest in popular music. In my view a lot of it does not really stand the test of time though there are many honorable exceptions – Free Nelson Mandela by the Specials stands out as one. But many of such songs age, lose their anger and are less effective at directing emotion than other more direct or personal musical forms.

What I am here more interested in, as result of something I witnessed at the weekend, is the capacity of music and other performers to subvert live broadcasts. I remember Saturday morning TV phone-ins and that high risk that there might be a set up for a profanity fest as happened to Five Star. Or the Sex Pistols on Bill Grundy (though John Lydon said at the time that the real punk was the householder who was so horrified by the Pistols that he put his boot through the TV). You may also recall Jarvis Cocker’s stage assault on Michael Jackson at the Brits? A bit more impressive than hacking Corbyn’s tweets.

What happened on Sunday morning was that Andrew Marr has the PM on to discuss the European referendum and a much over-hyped social housing estate regeneration programme, which seemed from the dialogue to be yet more ideas to grow home ownership. Regular watchers will know that Marr often ends his show with live music. This week it was a new song by the venerable post-punk band Squeeze. There should have been a clue in the title of the song ‘From the cradle to the grave’ since this is a well-worn phrase in terms of the UK Welfare State. However, those naughty Squeeze boys changed their lyrics.

A new third verse added lines to the effect: ‘I grew up in a council house, part of what made Britain great, now someone is hell-bent seeking to destroy the welfare state’. You can see the action here.

First of all it was impressive because they cannot have had much warning and indeed chose such an apposite subject given the topic covered in the interview. Second, the Prime Minister seemed oblivious which made it all the more striking – I actually wondered if I had misheard till it was confirmed later.

Of course, we can be cynical about it and view it as a publicity stunt but I really don’t think so. It was rather well-targeted opportunistic subversion of the live music medium.

On this very sad day where we lost David Bowie, I was  reminded by a piece in the press that one of his many impressive acts was to twice refuse an honour from the British state – an act of subversion in itself?

 

What People Think About Local Taxes

 

The final report of the Scottish Commission on Local Tax Reform is believed to be only a few ‘weeks away’. The idea is that the recommendations will help inform the Scottish political parties in the their manifesto development for the May Scottish elections. The main issues that the Commission will report on are:

1. To ask to what extent the council tax needs to be reformed from minor adjustments to significant reform, to abolition and replacement with an alternative form of local taxation?
2. If it is replacement, what for of local tax are we talking about?
3. What is to be done about the council tax freeze, now in its eighth year?

This discussion has been framed around specific criteria that informs the Commission’s work:

“The Commission on Local Tax Reform’s remit is to identify and examine alternatives that would deliver a fairer system of local taxation to support the funding of services delivered by local government.

In doing so, the Commission will consider:

• The impacts on individuals, households and inequalities in income and wealth
• The wider macro-economic, demographic and fiscal impacts, including housing market and land use
• The administrative and collection arrangements that apply, including the costs of transition and subsequent operation
• Potential timetables for transition, with due regard to the 2017 Local Government elections
• The impacts on supporting local democracy, including on the financial accountability and autonomy of Local Government

The revenue raising capacity of the alternatives at both local authority and national levels.” [CLTR Website – Commission Remit]

To whet our appetite and keep us interested until the final report is published, the Commission last week published an analysis of the submissions they received from the public.

There were 4,492 responses to the Commission’s online survey. The sample was not entirely representative. Not surprisingly, there were a lot of people with Band D or above council tax bands, often men, over 55, home-owners and full time workers – all of whom were over-represented.

The main findings included:

• The majority thought that the council tax was easy to pay and understand.
• Three quarters thought that local tax should not be based on everyone paying the same amount; over half felt it should be broadly related to income.
• Regarding views about the council tax – over two-thirds did not feel the council tax was fair; almost half felt it was unclear how council tax payments related to spending on local services; almost two-thirds felt the council tax should be replaced.
• Respondents were asked if there was one thing they could change about council tax what would it be? Only 4% raised the council tax freeze. About a quarter who responded focused on changing the current bands and revaluation. However, to quote the executive summary, many did focus on wider tax reform.: “Almost half of the respondents … said that the main thing they would change about the current system is the basis of taxation. A hybrid tax was the most frequently mentioned of these options, with many supporting a mix of tax based on property, land, wealth and income. Many didn’t comment on their reasons for these suggestions. However, those who did felt that hybrid options which took into account a combination of factors would be fairer than a single system”.

While I would not overstate these views, they are interesting. A hybrid tax or indeed multiple taxes are not uncommon elsewhere and can offer offsetting dimensions e.g. taxing land and/or property but also making a local tax contribution through an income tax supplement. However, the Burt Commission in 2006  rejected a multiple tax system or indeed any alternative to a straightforward property tax.

There is an interesting paradox here. The pure property tax solution proposed by Burt remains a difficult choice politically (despite its many attractions to me) but a hybrid or combination of property and income taxation (starting as a revenue neutral tax) appears to have mileage in some quarters. Many countries have multiple tax systems and the UK is at the end of the spectrum with just one domestic local tax and (outside of Ireland who copied the UK) the only banded property tax.

We will know soon enough what the Commission has to say and I hope, at least, that it is not rejected in the summary way that Burt’s careful and comprehensive analysis was by the then Scottish Executive in 2006.

 

Housing’s Autumn Statement and a View from Scotland

I have just read Alex Marsh’s excellent post on the housing elements of the Autumn Statement/Spending Review. The key things that I agree with that are worth repeating are, first, that this is a full-blooded return to tenure-based rather than an (all) housing strategy (I particularly liked the proposed renaming of shared ownership as mostly renting). Second, this does indeed look like a serious threat to general needs social housing development in England. Third, as Alex says – there is absolutely no guarantee that the measures proposed and the money directed to home ownership/shared ownership initiatives will actually deliver the scale of change required. That depends on the market and levels of activity. At the moment these claims for housing supply are just words that need the market and local planning functions to accommodate them if they are to approach reality. They did not in previous rounds of housing supply claims made by the Coalition Government. Fourth, it is certainly not all bad – the planning reforms outlined in the statement may in the longer term actually be quite positive but we need to see the details.

A few other points that are housing-related. First, the decision to squeeze social sector housing benefit further by capping it at Local Housing Allowance levels will have most impact in the short run on single people and will matter more regionally where LHA rates are closer to social rents. But there is also a longer term question that arises – is this the first stage of the process of unifying Housing Benefit for all tenants across a common allowance like structure? More broadly, the reversal on tax credits neither reduces the long term impact of their absorption into Universal Credit nor does it resolve the issue of how the Government makes it additional £12 billion in welfare savings. This has just been pushed off stage for a wee while.

Second, I am a bit more sanguine about the stamp duty changes proposed by the Chancellor on buy to let landlords (less so for second homes) for several reasons. The first is that we are told that this will help fund affordable housing and it is not clear to what extent that this hypothecation will be the source of funds rather than a general contributor to the pot. I raise this because for one thing both in rUK and in Scotland the new tax rates have delivered less than projected revenue – a timely reminder of the standard risks of hypothecation. It is all very well to target a tax revenue source but it is another thing to guarantee that it will raise the required funds.

A related point is that SDLT or LBTT (the Scottish acronym) is simply not a very clever tax in that as a transactions tax, it inhibits mobility (as the Mirrlees Review makes clear  and far better to raise revenue from property with an annual tax. Instead Osborne is ratcheting up the transactions tax with one presumes more market consequences in the private rented sector. It is a little odd that private renting has been taking such a fiscal buffeting with the reduction in tax relief on interest on borrowing at higher rates of tax and now this further tax. From a wider housing system point of view I don’t think we should deterring investment in this non-neutral but populist way. Intervention should be more about regulation. Interestingly in Scotland (where Osborne’s BTL/second homes stamp duty changes do not apply), we are about to legislate to support tenants and longer tenancies (but also introducing second generation local rent increase limitations in areas designated to be high pressure).

Meanwhile in Scotland we wait to see how this translates into the draft Scottish budget in December when we will also hear for the first time what the proposed Scottish Rate of Income Tax will be for 2016-17. The  SR headlines  thus far are that capital spend will increase by 14% in real terms but revenue funding will fall in real terms by 5.7%. John Swinney has also been helped by the ONS’ decision that their non-distributing model of funding capital infrastructure (Hub) projects through the Scottish Futures Trust has not been reclassified into the public sector.

Unlike rUK, we have a Parliamentary election in May – so there is both a lot of party political noise obscuring policy debate but at the same time there is an opportunity to influence platforms and engage debate. Two examples of this are the SNP’s pledge that, if re-elected, they will up their affordable housing supply programme from 6,000 units per year to 10,000 units (in response to the new national needs figure of 12,000 per annum). Secondly, we anticipate the publication of the Commission on Local Tax Reform’s final report in the coming weeks. It is supposed to provide options to help the political parties to put forward their own local tax reform proposals for the election.

Reflecting on the Play-Offs

I have just been through my first experience of the SPFL play-offs. I hope it will be the last for a while – I don’t think my nerves could stand it. I am a Motherwell supporter, in case you didn’t know. More than 20 years of season tickets: a lot of games and a fair share of triumph and disaster; pain and delight.

It had been a pretty awful season. Partly it was because, if I am honest, that we exceeded all reasonable expectations in 2013-14 and massively over-performed to come second in the league (chiefly I think because of a good winning run in the middle of the season and unaccountable stuttering by other teams later on). This season was a mirror-image: a really bad losing run in the middle of the season and other clubs around us, notably Ross County, performing heroics when it mattered. The fact is on most days any result is possible between almost all premier league sides and it all too easy for things to go wrong and subsequently for problems to compound. It had to happen to Motherwell eventually.

Two further issues compounded our difficulties – a lot of injuries to a small squad (something we have managed to escape in recent seasons) and considerable off-field change. After Stuart McCall’s departure of a club in late Autumn when we struggling on the pitch, we were also groping towards new ownership of the club. Since then and in rapid succession:
• Ian Baraclough took over as manager
• Alongside an entirely new coaching and scouting team, the club was taken over by a philanthropic buyer (Les Hutchison) pledged to run things until the community in the form of the Well Society could take over majority ownership.
• The new manager brought in a virtual team of new players in the January window including the return of Steven Pearson and Scott McDonald. After a good start we went on a long losing streak as the team got to know each other.

There were some green shoots: on three of four occasions in the last third of the season we played really well; I would argue better than we did most of the previous season. We had two fast wide men, a much more purposeful midfield and some threat in attack. But it was never quite enough to achieve escape velocity and we tumbled into the play-offs in eleventh position. The inevitable re-acquaintance with McCall at Rangers loomed large in everyone’s minds.

The last two weeks of the domestic season leading up to the play-off final were surreal. First of all we had a meaningless game against Partick Thistle and the manager took no risks with injuries by playing a vastly different team to what had become the norm. Second, we had to stand back and wait while the teams that finished 3rd and 4th in the Championship played off (the quarter final between Rangers and Queen of the South), and then the semi-final between Rangers and Hibs (who had finished 2nd). This meant that by the time we did meet Rangers, they were playing their fifth of six play-off games in a matter of a couple of weeks or thereabouts.

The received wisdom is that the play-offs favour the team seeking promotion but this year that has not been the case with several of the teams from the higher division winning, despite, obviously, having poor seasons. Alan Burrows, who is Motherwell’s general manager, said after the final that Scotland should move to the English model and have two leg semi finals and a one off final at a neutral venue. That does seem fairer. However, this may all be undercut by rumours of further league reconstruction.

And what about the final with Rangers? I watched the first leg on TV and went to the second leg at Fir Park. In a strange way I was pleased that the game at Ibrox, although strongly to our advantage, was not definitive. Somehow defending a two goal lead would not make us over-complacent (and there was in truth no danger of that when you felt the palpable tension at the second leg). Nonetheless the period between the two matches was incredibly tense and I took to doing all manner of work-related things to take my mind off the game.

The second thing that I will retain was the Fir Park crowd. Decades of going to games against the old firm has made me used to a large away support, often I think exceeding the home support. Sunday was different because, as is well known there was a dispute between the clubs about away supporters and Motherwell had most of the ground to themselves. And, undoubtedly because of the importance of the game and the first leg, we had a noisy committed full house in the rest of the stadium. Our average gates have been on a downward trend for a while (despite the success of recent years) so it was great to have such an atmosphere.

The game was never going to be a high quality affair and it was nervy, competitive and settled by two deflected goals and a last minute penalty. The joy of staying up was well worth all of that tension but you’ll understand, if I hope we are not in such a situation next season. I will not add to the many things said about the after match fighting between players and the partial pitch invasion that ensued (and always does on the last day of the season).

The manager is now rebuilding, has already signed a player and is in talks with others. Several of the existing squad are now gone too. He has been vindicated in his approach – and I do hope we persist with the fast counterattacking down both flanks. If we can sort out our defence we might well be on to something. For once we will avoid the usual early exit from European football and thus have a normal pre-season. The footballing future is not so bleak after all.

The OBR and Welfare and Housing Benefit Spending Trends

The intrinsic difficulties facing agencies tasked to produce reliable forecasts for future years spend and caseload across different policies, are well known and understood. In the present debate over how future cuts in welfare spending will be achieved and the all too frequent implementation gap between planned savings and actual outturn spend, a degree of skepticism about deliverability is appropriate (before we get to questions of desirability or otherwise).

While scanning through the Budget’s supporting documents, I happened upon the OBR’s Welfare Trends Report, published in the Autumn of 2014. Of course, this turns out to be part of the immediate political narrative about welfare spending cuts following from the Chancellor’s statement, but I am actually interested here more in what it says about underlying factors and expected trends in welfare spending and their ‘forecast-ability’. In particular I want to look at the figures for Housing Benefit. I may be rather late to reading this report but I thought it was still worth exploring a little.

OBR argues that past data on a small number of drivers explain long-term trends in welfare spending (and implicitly will continue to do so in the future). The main candidates are: demographic trends, labour market trends, inflation & earnings growth, and, housing market trends. We can also point to successive incremental and then non-marginal policy changes especially after 2010. How policy change impacts on spend and caseload is of course far from straightforward, particularly in terms of assumptions made about second round behavioural changes conditional on benefit policy changes e.g. on labour supply or landlord behaviour. We return to this below.

Future welfare spending trends are forecast of the period 2013-14 to 2018-19. OBR expects welfare spending to rise in cash terms by 12.5%. However, this is less than the forecast growth in the economy. Thus, as a percentage of GDP, welfare spend will fall from 12.8% to 11.6%.

The forecasts are of course subject to risk. The chief risks are seen to be, first,  the uncertainty associated with the future of Housing Benefit, which may vary as a result of how the economy performs (jobs, wages and rents are the key variables). Second, policy change associated with disability and incapacity benefit is also viewed as an important source of risk to the forecast. Third, and believed to be less significant than the first two, the introduction of universal credit is also identified as a risk to the accuracy of future welfare spending forecasts.

Chapter 9 is the Housing Benefit (HB) chapter. Spending on HB in 2013-14 was £23.9 billion (more than £20 billion of which counted within the benefit cap). The OBR forecast that HB will rise in cash terms to £27.4 billion by 2018-19 but that because of forecast larger economic growth this will constitute a falling share of GDP – from 1.5% to 1.3% between 2013-14 and 2018-19.

There are some striking facts in this chapter. The remarkable rise, for instance, in those in employment on HB. This was 0.4 million in 2008 but had risen to 1.1 million in the middle of 2014 (i.e. 3.5% of all employed adults). Second, the important drivers of trend growth in HB has been real rent increases over time, the shifting caseload by tenure into the private rented sector (with its average higher rents) and also the impact of being the recipient of other benefits associated with HB. In this case the forecasts also assume an impact from the cumulative effects of welfare reform and that includes the retention of the bedroom tax.

OBR disaggregates the source of the increase in HB spend up to 2018-19 and much of it is the result of what they call HB only cases – almost entirely, renters in employment. They also point to the importance of the expected growth in Incapacity Benefit caseload linked to higher HB average awards. The growth is offset by expected falls in JSA through anticipated falls in unemployment, and also as a result of a decline to come in the pensioner HB caseload as a result of shifts in their treatment via benefits like pensioner credit.

However, OBR recognises that they have systematically underestimated the growth in HB spending in the (recent) past, and, while they think they have corrected for this, we should be cautious. It turns out that much of the risk or uncertainty in their forecasts will depend on the future pattern of tenure change and in particular how much home ownership grows relative to renting.

The home ownership tenure change  outcome is construed as the net effect of different policy impacts on home ownership rates: between help to buy schemes like the new ISA package versus the restrictive impact of the Mortgage Market Review condition.  I think there are several other tenure choice variables and market processes, not least likely rising future mortgage rates, that will shape this home ownership figure and perhaps, in the end, housing policy is actually less important to that change than the commentariat believe but that is another story. OBR also recognise that the future path of rents and the way the labour market evolves (in terms of wages and employment) will also matter. It would be helpful and very interesting to see how the model builders at OBR conceive of and operationalise the underlying housing and mortgage market within the wider models they use to construct these key parameters for welfare spend forecasts.

International Evidence on Housing Booms

This post authored by Alex Marsh and Ken Gibb

A recent NIESR paper by Armstrong and Davis (November 2014) compares the last two booms and busts in major OECD country housing markets. The authors present a thoughtful macroeconomic analysis of national housing markets and from there conduct panel data analysis of the determinants of house prices focusing on financial, debt and related variables.

The authors argue that comparison of the two most recent housing market cycles (1985-94 and 2002-11) can test the hypothesis that there was something unique about the most recent boom and its aftermath. They state that the housing market is widely considered to be the main cause of the global financial crisis (quoting such authorities as the IMF). However, the authors come away from overall reading of the data for the two cycles unconvinced. In their view the two cycles are sufficiently similar that it difficult to draw the conclusion that the most recent cycle is different in meaningful ways: it is certainly not unique. The implications is that if the received wisdom is incorrect and other factors were important in causing the crisis then macro-prudential policies in countries like the UK may be incorrectly targeted at the control of house prices and mortgage lending.

We are interested in this broad area for several reasons: why did economists miss the bubble nature of the housing market and its departure form fundamentals? Why did they miss the downturn in national housing markets? How plausible are the microfoundations of the models being used to analyze the housing market and explain what is actually going on? What do these analytical weaknesses tell us about the health or otherwise of economics and its capacity to evolve and learn for future challenges?

On reading the Armstrong and Davis paper we were struck by several points that we felt warranted comment. First, is there something of a straw man at the heart of this paper – do we really consider the house price boom to be the source of the GFC? Second, while the descriptive analysis is valuable and the technique is sound and well-derived from the literature, might it have been done differently? Third, does the principal policy inference, regarding the greater regulation of house prices and mortgage lending, stand up on the basis of this analysis?

Do analysts really generally view the housing market boom as the cause of the GFC? It is surely more that the sub-prime securitization and its exposure in the market for US mortgages in 2003 or 2004 onwards left the housing market vulnerable. Accelerating default contagion both collapsed the US housing market nationally (and that was different from the previous cycle) and spread through those exotic mortgage securities to stifle the wholesale money market and create the credit crunch which negatively impacted in many national housing markets across the OECD. Housing, and more particularly lending for housing, triggered a national market downturn which undermined wider international banking and thereafter fed back into other national housing systems.

Unfortunately, the data and analysis offered by Armstrong and Davis does not allow for this type of argument to be tested. In some senses, it requires a reconceptualisation of the housing (finance) market to recognise interdependence and network effects. It certainly requires a stronger focus on institutional innovations that is possible with the data available. To be fair, having presented their analysis, Armstrong and Davis note a range of factors and hypotheses ripe for further investigation. These include some of these institutional changes. So from our perspective it feels a little like the paper stops before it has a chance to grapple with some of the most interesting questions.

The analysis, understandably, constrains itself to using standard periods in order to attempt to capture national housing market cycles. Yet, despite the widely recognised increase in the synchronisation of housing market cycles cross-nationally, there is no reason to think that the OECD countries examined had similar period market cycles. The UK for instance moved into housing market downturn much later than the US. Moreover, downturns had different implications because of different default laws and bankruptcy implications. Getting a stronger sense of the timing of the turning points of these national cycles would itself be a useful contributor to the causal story being constructed.

Finally, the paper draws the policy inference that greater caution may be justified regarding the strength of the macroprudential case for regulating house prices and mortgage lending. It is important here to be clear what macroprudential regulation is seeking to achieve. Setting aside the macroeconomic stability arguments for a moment, isn’t there a housing-specific case for moderating the volatility of house prices and reducing market cycles? Whether macroprudential policy instruments are the right levers to use or are effective in damping price cycles are separate – and bigger – questions.

It may be that financial instruments are less effective than more direct housing policies in stabilizing the housing market. Or it may be that such policies can be complementary and work in tandem. Yet, in reality we face a context in which there is a willingness to consider active macroprudential regulation but a reluctance to intervene directly to generate greater housing market stability – if not an inclination among politicians to introduce policies that are more likely to increase volatility. Macroprudential tools can have more or less targeted impacts on housing markets. We should be cautious about bypassing them as a policy option. There is, of course, much more to learn about the most effective design for macroprudential policy instruments. This is an area in which a number of countries are experimenting with different approaches and there is undoubtedly scope for cross-national policy learning.

Alex Marsh is at the University of Bristol and is the purveyor of Alex’s archives at http://www.alexsarchives.org/