Behind the Spending Review’s smoke and mirrors

Originally published as a column for Inside Housing.

This was a spending review that didn’t really feel like a spending review as far as housing is concerned.

It’s the first multi-year review since 2015 but compare it to the austerity seen then and in 2010, the cuts of 1998 and even the relative largesse of 2007 and it seems to contain little that is really new.

Aside from what is claimed to be an additional £1.8 billion for brownfield land, almost everything in it has already been announced, in some cases several times.

The 2021 spending review (SR21) ‘confirms’ £5 billion for cladding removal and ‘reconfirms’ £11.5 billion for the Affordable Homes Programme alongside an existing £10 billion for housing supply but the numbers in it play fast and loose with the difference between the five years of this parliament and the three covered by the review (2022/23 to 2024/25).

A classic example is the claim in the Red Book  that: ‘SR21 demonstrates the government’s commitment to investing in safe and affordable housing by confirming a settlement of nearly £24 billion for housing, up to 2025-26.’ Rishi Sunak also used this impressively large number in his Budget speech.

The Treasury has not yet replied to my question about how that total is made up but it has told George Hammond of the Financial Times (see this Twitter thread) that it consists of:

  • £10bn affordable homes programme
  • £6bn to boost housing supply
  • £1.8bn on brownfield
  • £3bn on Help to Buy
  • £3bn on building safety

Total = £23.8bn, or ‘nearly £24bn’.

If you’re wondering why some of those figures do not tally with the numbers above, it’s apparently because some of the money has already been spent, including £2.2 billion of the housing supply money, £1.5 billion of the AHP and (I think) £2 billion on building safety.

Since this column was originally published, I’ve had clarification from the Treasury about the breakdown of the ‘nearly £24bn’. The figures are as above but the only bit described as new money is the £1.8bn on new housing supply on brownfield sites.

However, this spending covers the time period 2022/2023 to 2025/26 whereas the spending review is for the three years 2022/23 to 2024/25. This would seem to explain some of the disparities I highlighted (for example, that only £7.5bn of the AHP is in the spending review period).

Then there’s the inclusion of £3 billion of Help to Buy equity loans. The government has been able to lavish so much on the scheme precisely because loans are classified as financial transactions in the national accounts – they will be repaid by the borrowers – rather than actual spending.

The use of ‘confirms’ is the clue that the £5.1 billion for building safety is not new money (this is the fourth time it has been announced) but this did not stop much of the national media reporting it as new: the BBC TV news fell for the spin yesterday and last week the Daily Mail even claimed it as a ‘victory’ for its campaign on the issue.

What it actually ‘confirms’ is that the government intends to ignore all the evidence that £5.1 billion falls well short of what the work will actually cost and the potential bills facing leaseholders.

Also confirmed is a Residential Property Developer Tax that will be levied at 4 per cent on profits exceeding an annual allowance of £25 million and raise around £200 million a year over the next 10 years.

This is not additional to the £5.1 billion but will help pay for it. As many cladding campaigners are pointing out, once you add that to the VAT receipts the government will reap on the actual cost of building safety works that could be £15 billion or more (VAT £3 billion or more) there is barely any net cost to the Treasury.

The funding gap for building safety is already prompting many social landlords to scale back their plans for investment in new homes. The same will apply to decarbonisation work since SR21 confirms what was promised in the Conservative manifesto and announced last week in the Heat and Buildings Strategy but this will fall well short of the actual cost.

In a general climate of rising inflation, building safety, decarbonisation and new-build housing will all come under severe pressure soaring construction costs but there is no recognition of this in SR21.

Perhaps these cost increases will turn out to be a temporary effect of the pandemic but there must be real questions about how far the budget for all three programmes will really stretch.

Smoke and mirrors also surround SR21’s claim that ‘as part of the government’s commitment to end rough sleeping, SR21 provides £639 million resource funding by 2024-25, a cash increase of 85% compared to 2019-20’.

The clue is the year chosen for the comparison. While you could make a case that the effects of the pandemic should be stripped out, that 85 per cent increase  is actually a cut on last year (£750 million) and this year (£700 million). 

Perhaps the most significant new announcement in SR21 was not directly related to housing: the reductions in the taper rate for additional earnings for people on Universal Credit from 63 per cent to 55 per cent.

The latter is the level that was originally planned before George Osborne imposed deep cuts and, taken alongside an increase in work allowances, it will benefit low-income tenants.

But only those who are working. The increases worth £2.2 billion do nothing for those seeking work or who are unable to work and in any case only partially make up for the £6 billion that they will lose because of the end of the £20 a week uplift.

And there is one more nasty surprise lurking that was not actually announced in SR21 and is not mentioned in the Budget Red book. Buried in the policy costings document published alongside it is a Treasury forecast that Local Housing Allowance (LHA) rates will continue to be frozen at 2020/21 rates.

This would need to be confirmed in decisions on annual uprating but this is exactly how the freeze was revealed for 2020/21 and, if correct, it means that shortfalls between rents and LHA will continue to grow along with pressure on rent arrears and homelessness. 

Two freezes in a row would be halfway to the four-year freeze imposed by George Osborne in 2015 and it puts the otherwise welcome £65 million of support for low-income households in rent arrears into perspective.    

SR21 could turn out to be as much about the announcements that were not made as those that were announced all over again.



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