The decline and fall of Trussonomics

Originally written on Tuesday October 18 (before the resignation of Liz Truss) as a column for Inside Housing.

Growth, growth, growth? Little survives of Trussonomics after a series of astonishing u-turns but in housing at least is still seems to be half-steam ahead.

Just two of the tax cuts announced by former chancellor Kwasi Kwarteng in his statement last month and only because the legislation for them had already gone through parliament.

The scrapping of the health and social care levy obviously begs big questions about funding for both but the increase in stamp duty thresholds now looks even more of a spare part than it did at the time.

While stamp duty is fundamentally a bad tax because it inhibits transactions, cutting it without wider reform of property taxation benefits sellers more than buyers as savings are capitalised into higher prices.

Cutting it permanently now rules out what has always been the first lever the Treasury pulls in a housing market downturn: a stamp duty holiday.

Even on the Treasury’s own figures, it will only generate an extra 29,000 house moves a year. But the limited growth in the wider property sector this generates will come at a cost to the taxpayer of £7 billion over the next five years.

New chancellor Jeremy Hunt has signalled that ‘eye-watering decisions’ about spending cuts and tax rises are on the way, mortgage costs have soared since the not a Budget and the energy price guarantee is now only guaranteed until April.

With even the pensions triple lock not guaranteed, the battle that was already looming over the uprating of benefits next year will now be even more intense.

Further freezes in the benefit cap and – despite rising rents – local housing allowance look more likely with devastating consequences for poverty and homelessness.

All this will be the acid test of  Hunt’s promised return to ‘core compassionate Conservative values’.

The implication of the fiscal position for the Department of Levelling Up, Housing and Communities must be that any budget that is not already nailed down is up for grabs.

The alleged £1.5 billion departmental ‘underspend’ that was leaked to the Telegraph during the Conservative leadership race puts the spotlight on every major programme from levelling up down.

What if a pointless cut in stamp duty ends up being paid for by fewer new affordable homes?

The collapse of the rest of the government’s tax cuts puts even more pressure on the supply side reforms that are expected to be outlined shortly.

The new ministerial team at DLUHC are at the heart of that and they made their debut at departmental questions on Monday.

Housing secretary Simon Clarke repeated the prime minister’s assurances that the government is still committed to the manifesto pledge to abolish Section 21 no-fault evictions, despite intense speculation that it might be ditched as over-regulation.

However, asked by Labour’s Matthew Pennycook to commit to introducing a renter reform bill in ‘the next parliamentary session’, he merely promised that it would be ‘in the course of this parliament’, so it does not look like a priority.

There was, perhaps, better news on another deregulatory measure that is rumoured to be on the new government’s agenda: increasing the threshold for exempting developments from contributing to affordable homes to sites of up to 50 homes.

This was proposed and rejected under the Boris Johnson government because of the impact on affordable housing but looked ripe for revival under the new one’s economic liberal ideology.

Asked about it by Labour’s Ben Bradshaw,  Clarke said that ‘We are looking at all the options that are open to us to try to accelerate house building across the country. We want to make sure that the right incentives are in place for developers to build.’

Which sounds like bad news, but he added that: ‘We have consulted on that particular option before, and we have decided not to do it. It is an issue that we keep under review, but the reasons that applied in our decision not to proceed then are very powerful.’

Significantly, he was also pressed on the issue by Tory backbencher Selaine Saxby, who asked him directly how he would ‘ensure that affordable houses are built in rural Britain if the development size limit moves from nine to over 40?’

 Clarke told her that: ‘We are looking at all the measures that can be used to drive forward and accelerate housing growth, but as I said in response to ( Bradshaw), there are compelling reasons why this option has not been pursued before, and I hope that will give some comfort to my hon. Friend today.’

He was also asked for more details on the proposed investment zones by MPs worried about the implications for departmental budgets and for environmental protection.

Pressed by Labour’s Clive Betts he said that funding for them would be ‘new money – it is coming from the Treasury as part of the settlement’ but that did not really allay fears about other DLUHC budgets.

And the housing secretary said that ‘investment zones are not in any way about cutting away environmental protection. They are about streamlining planning and making sure that lower taxes are on offer in targeted sites. Overwhelmingly, they will benefit brownfield regeneration projects, which would otherwise take years to unlock.’

The session also made clear that the government will face opposition from Conservative backbenchers if it relaxes protections from development for the environment and wildlife. Housing minister Lee Rowley assured them that ‘we are committed to strong environmental outcomes in those areas and across the planning system’.

The exchanges are a reminder that, after ditching tax cuts as a route to growth, the government may also find trouble ahead with its supply side reforms.

And, even as it gears up for them, the signals are already flashing red for the housing market and the economic activity it generates.

Despite that stamp duty cut, mortgage costs are up, analysts are predicting falling housing completions and leading housebuilders are reporting a slump in reservations of new homes.

Little wonder that the government has moved to sideline its manifesto target of 300,000 new homes a year. Growth, growth, growth already looks more like decline, decline, decline.


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