Scrapping the borrowing cap

Originally posted on October 3 on my blog for Inside Housing.

After Theresa May’s warm words for housing associations, the big question was why she could not offer something similar for council housing.

She answered it today with the surprise announcement at the end of her Conservative conference speech that the borrowing cap will be scrapped.

Vital details remain to be seen. When and how the cap will be lifted? What’s in the small print? What strings will be attached to the deal?

However, the move deserves the warm initial welcome it has already received from organisations across local government and housing.

The surprise reflects what was assumed to be entrenched Treasury resistance to lifting the cap, despite years of patient advocacy from campaigners, commitment from Labour and outspoken support from the Conservative chair of the Local Government Association, Lord Porter.

Chancellor Philip Hammond did act to raise the borrowing cap by £1 bn in last year’s Autumn Budget but to little effect so far.

In response to that, the all-party Treasury Committee said in January that the cap should be removed and existing policies could not deliver the government’s target of 300,000 new homes a year. The committee concluded that:

‘Raising the cap would have no material impact on the national debt, but could result in a substantial increase in the supply of housing, allowing local authorities to determine the level of additional housing needed in their area.

As Labour’s John Healey pointed out on Twitter, it was the Conservatives who capped council borrowing when self-financing was first introduced and the devil will be in the detail.

Presumably at a minimum scrapping the cap means allowing councils to borrow up to prudential limits against their housing assets in exactly the same way as they can for other things .

It’s absurd that they can borrow to buy offices or shopping centres and set up companies to deliver market rented homes but not borrow to build council houses.

Councils are currently building less than 2,000 new homes a year in England. Estimates of the impact of lifting the cap vary: research for Shelter in 2014 suggested that scrapping the cap could allow them to build 27,500 a year while a study by Savills last year suggest councils could deliver 15,000 a year and 100,000 in total.

The announcement also opens another front in the struggle for control of the Conservative party between Theresa May and her Brexiteer critics.

In his speech to the conference fringe, Boris Johnson delivered his message to ‘Chuck Chequers’and also put housing at the top of his domestic policy agenda as what he called an ‘open goal’ for the Conservatives..

But he had a very different sort of housing policy in mind, one that assumes home ownership creates Tory voters ‘and if you stay in social rented accommodation you are more likely to vote Labour’.

For Johnson, the very idea of council housing recalls a family he met in a damp council flat in Wolverhampton his early days as a journalist:

‘It was a terrible scene.  They were sitting there and with the heating on full blast and a baby crying, and the condensation dripping down the window, and there were these great black spores all over the wall. The chap was in his socks in an armchair and in a state of total despair. He was worried about the baby’s cough – which was getting worse.

‘The council wouldn’t do anything, and he felt he couldn’t do anything – because it was not his property, and I could see that he felt somehow unmanned by the situation. And I felt very sorry for them both – because they were total prisoners of the system.

As many people pointed out on Twitter this was the late 1980s, when council housing that could not be sold off was starved of investment and it reflects none of the huge improvements made to the stock since then.

His solution was the Right to Buy: ‘I thought what a difference it would make to that family if they had been able to take back control – to coin a phrase. To buy that flat.’

Buying a flat riddled with damp, even at a discount, sounds like an even worse deal than a non-existent £350m a week, but for the former foreign secretary it’s all about the politics, just as it seems to have been for George Osborne and David Cameron.

By contrast Theresa May made what I thought was the most pro-social housing speech by a Conservative prime minister in years to the National Housing Federation conference last month.

Warm words, perhaps, with ‘extra’ money promised but not for several years, but they were enough to prompt chuntering in the Telegraph and now from its highest-paid columnist too.

At the time it seemed as though she had carefully edited council housing out of the story but today’s announcement begins to put that right.

As she put it:

‘Solving the housing crisis is the biggest domestic policy challenge of our generation. It doesn’t make sense to stop councils from playing their part in solving it. So today I can announce that we are scrapping that cap.’

All sorts of questions remain, though, about the detail and about the continuing impact on council housing of the Right to Buy.

The LGA is also campaigning to be allowed to keep all sales receipts and the UK Housing Review briefing published yesterday estimates that discounts are running at £300m a year above what it sees as economically reasonable levels.

As with the prime minister’s proclamation that ‘austerity is over’, the real tests of the government’s new-found support for council housing will come in the Budget and the spending review but her speech is definitely a good start.