Opinion: Surviving the Ice Age

In the run-up to this week's Budget, a left-leaning think tank has predicted that housing – along with defence and higher education – faces a squeeze when chancellor Gordon Brown announces his three-year comprehensive spending review in July (HT 12 March, page 8).

According to the think tank, the Institute for Public Policy Research, Brown is a prisoner of arithmetic. If he sticks to Labour's commitments on health and refuses to raise taxes in order to boost total spending, something's got to give. Education and crime spending can grow between 2005 and 2008, said the IPPR, but by no more than the rate of growth in the economy at large. Some sectors, including housing, face zero growth.

That doesn't have to mean "cuts" in an absolute sense: spending could rise in line with prices, meaning the existing staff of registered social landlords (but no more) could expect pay rises that broadly kept pace with inflation.

But the lack of growth in housing spending spells doom for the expansion promised by deputy prime minister John Prescott in the Communities Plan. It also rules out the wish list for affordable housing in economist Kate Barker's final report to the Treasury on housing supply.

Of course, housing could be protected if the spending cake were cut differently. One could abolish a bomber and cut a cruiser, thus diminishing defence. Convicted criminals could be let out of jail, chopping the prison population. Benefits agency staff could get mean and tighten up on welfare benefits. All of that could free up money for social housing grant or council repair and renewal. But who in social housing would be comfortable arguing in that self-interested way?

Alternatively, one could argue for a step change in total spending on the back of a big rise in tax, making the United Kingdom more like Sweden or Germany, where the public sector is so much more generously funded. One could, if one were especially radical, argue that there is a ready-made basis for a tax hike, in the vastly expanded values of owner-occupied housing, but it's not a case one hears the would-be tycoons who run RSLs making these days.

Still, what the IPPR identified as housing spending is only part of the story. The ODPM oversees £7bn of annual spending, £2bn of which is the Housing Corporation's. But a further £11.5bn a year pours into housing, in the shape of housing benefit, which is administered by the Department of Work and Pensions. It's typical of British government that we so rarely think of housing spending as an aggregate, reflecting the way it is split between different departments with different slants on policy.

One could argue that there is a ready-made basis for a tax hike, in the expanded values of owner-occupied housing, but it’s not a case one hears the would-be tycoons who run RSLs making

In its analysis, the IPPR noted how a large chunk of spending is not actually going to be reviewed by Brown this spring, because it is effectively within the Treasury. Although the DWP does housing benefit, it is very much under the Treasury's thumb.

Dream a little dream
But let's just imagine there is such a thing as a "total housing budget", worth more than £18bn a year. Aren't there ways in which it could be chopped up that might free up money for housing development?

Of course there are. Council and RSL rents could be cut, lessening the need for housing benefit, and they could be cut if historic debt were reviewed or reclassified or simply written off (and yes, that is as easy as it sounds, because most of that debt is within the public sector, owed by one bit of the state to another).

Try this logic. Housing benefit exists because tenants cannot afford their rents.

If they did not pay rent, there would be no need for housing benefit. Who doesn't pay rent? Owners, of course. Step forward, New Labour hero Alan Milburn and let's hear more of your thinking about turning tenants into owner-occupiers; is that what you were telling the prime minister when you met him to discuss Labour's third-term manifesto just the other week?