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Autumn Statement special Matthew Warburton - 06/12/2013

osbo_300In yesterday's Autumn Statement, the Government finally responded to calls for housing borrowing limits to be lifted to let more new homes be built. Not by conceding the argument that there is no coherent economic justification for denying councils the right to borrow as much as they can afford to repay, but by setting up an old-style Government competition with a new twist - councils will be given the opportunity to bid, not for a pot of Government funding, but for the right to borrow and spend their own - or rather their tenants' own money.

Details of the proposed arrangements have not yet been published - and since the announcement bears the hallmarks of a last minute deal stitched together within the Coalition, the details may not yet have been worked out. But it is clear that the Government hopes that the incentive of additional borrowing approvals will be sufficient to lever in substantial additional resources.

Councils will have the opportunity to bid for £150 million in additional borrowing in 2015/16 and the same amount again in 2016/17, to form part of local growth funds run by Local Enterprise Partnerships. Successful bids would be expected to involve partnerships with housing associations and substantial contributions of public land.

Councils would also be expected to sell off some high value homes. Spending £300 million on building council homes would yield around 2,500 homes; that the Chancellor's statement suggested that the initiative might yield 10,000 gives a clear indication of the scale of additional contribution that councils are expected to make.

The Government seeks to justify housing borrowing caps by insisting that the nation's economic recovery depends on reducing public sector net debt. It remains obstinately and unaccountably insistent that borrowing by public corporations and quasi-corporations - such as local authority housing operations - should be treated in the same way as other government borrowing.

Thus it is prepared to invest an undisclosed, but unlikely to be insubstantial, sum on a new piece of bureaucratic machinery to oversee a bidding process to allocate an additional £300 million in borrowing. At the same time, it has decided to spend £100 million on boosting Right to Buy sales by helping tenants access mortgage finance.

Not only is this likely to ensure that more homes are sold through the Right to Buy than are built through the additional borrowing approvals, but the value of the public assets given away far outweighs the net addition to public debt. It is only because the Government refuses to look at the value of public assets alongside the volume of debt that the illogicality of this approach is not obvious.

 

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