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Disappointing but predictable Matthew Warburton - 03/08/2012

Bricks300The Government has issued its formal response to the CLG Select Committee's report on financing new housing supply, about which I blogged on 10 May.  It is disappointingly predictable.  Debt caps on housing borrowing will stay, it says, in order that self-financing should not "jeopardise the Government's first economic priority of reducing the deficit". 


The case for changing the accounting treatment of housing debt - which is in effect the case for treating borrowing to finance housing investment which yields a rental return differently from other government debt because its economic impact is different - is shrugged off.   In other words, all elements of the deficit will go on being treated as if they are the same.


What is disappointing about this response is the absence of any visible willingness to take the case for reform seriously.  The explanation of the government's position on debt caps is a masterpiece of opacity.  The Committee's report argued for debt caps to be removed leaving councils free to borrow within prudential limits.  The Government's response begins by declaring support for the prudential borrowing rules.  But these, it says, were "designed to focus solely on local affordability". 


However, "borrowing made possible by any income stream must be affordable not just locally but within the national fiscal framework".  The debt caps are there, along with reserve powers to revisit the self-financing settlement, to address any "nationally unsustainable" - but presumably locally affordable - increase in borrowing .  I read these sentences twice, and then a third time, searching in vain for some clue to their meaning.  What is the difference between local and national affordability?  How can borrowing be affordable locally but not nationally?  Where are these arcane distinctions explained and justified?  No joy.


Disappointing, but, sadly, predictable.  So long as reduction of the deficit remains the Government's first economic priority, we have to expect arguments for exempting particular classes of borrowing to be seen as special pleading and given short shrift.  If we want more housing borrowing and more housing investment, we need to help win the argument for cutting the deficit by stimulating economic growth rather than simply cutting public expenditure.

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