Budget 2018: six key points to look out for next week

In the meantime, here are six areas to look out for on Monday:

 

The borrowing cap

When the prime minister made her surprise announcement, the concern was that it would come with strings attached when the detail was revealed in the Budget.

That could still happen, but one big fear – a long delay before implementation – has already been allayed by last week’s announcement by housing secretary James Brokenshire that the cap will be lifted from next Tuesday.

However, the impact of the rent cut, the Right to Buy and welfare reform still loom large and are seen as more important than the borrowing cap by some councils.

And suspicion remains that the Treasury is not exactly enthusiastic about a move that will increase public borrowing under current rules.

In which case, as John Perry argues, why not bring the UK in line with other countries and give council housing the same financial independence as housing associations?

And why not, as the Local Government Association argues in its Budget submission, allow councils to reinvest 100% of Right to Buy receipts and decide discounts locally?

To signal their intent, more than 60 council leaders have signed an open letter pledging an immediate drive to build more homes.

Universal Credit

The chancellor is under severe pressure to come up with more money for the government’s flagship benefit amid rising unease on the Tory backbenches as MPs wake up to the implications of the continuing roll-out and especially the managed migration of existing claimants.

Already this month the roll-out has been delayed yet again and documents leaked to the BBC revealed plans to spend hundreds of millions of pounds to alleviate hardship among claimants.

However, the documents also warned starkly that: “We can currently offer no assurance that ultimately these proposals will prove to be deliverable, can survive legal challenges where they can be delivered, and do not invite new political criticism by generating new policy issues.”

Cuts, caps and freezes

If austerity really is over, try living on the benefit cap or making up rent shortfalls triggered by the bedroom tax and Local Housing Allowance (LHA).

Most working-age benefits are frozen until April 2020, meaning that LHA rates will continue to fall behind rents for most private tenants.

In last year’s Autumn Budget, the chancellor found more money for Targeted Affordability Funding for the least affordable areas, but research by the Chartered Institute of Housing (CIH) in August found that this only covers 10% to 30% of the shortfalls.

“If austerity really is over, try living on the benefit cap or making up rent shortfalls triggered by the bedroom tax and Local Housing Allowance.”

The CIH says ending the freeze and realigning LHA rates with local rents would cost £1.2bn, but that has to be set against the cost of rising homelessness triggered by the freeze as private tenancies come to an end.

However, the Institute for Fiscal Studies estimates that higher-than-expected inflation since the four-year freeze was first announced means that the chancellor could afford to end it in April 2019 having already made the expected savings.

 

Letwin and land

The Budget will see publication of the final report from the review led by Sir Oliver Letwin.

Over the weekend, the Sunday Telegraph reported that Letwin will endorse calls for more land value capture, with local authorities able to “seize greater amounts of landowners’ profits to fund the construction of local infrastructure”.

The language suggested potential political opposition and, this being The Telegraph, the report also quoted “fears that this would be toxic among traditional Conservative supporters” and claims by developers that it would be “a wholesale erosion of private property rights”.

However, support for the idea has come from across the political spectrum, including the all-party Housing, Communities and Local Government Committee and the Tory think-tank Onward.

Land value capture is one of the lead items in the Budget submission from the National Housing Federation, which argues it could pay for £5.7bn of the £8.1bn a year in grant it says is needed for affordable housing. It also wants 50% affordable housing on public land.

Draft analysis from the Letwin Review in June included a forensic focus on the current business model for housebuilding as part of a bid to get homes built quicker.

At the time I blogged that the analysis had clear implications for the type of homes that get built: with house builders’ output for sale limited by the absorption rate into the local market, more rapid build-out rates would require a greater variety of different tenures.

 

Help to Buy

For the Home Builders Federation it’s “an unmitigated success” that has led to more new homes and more new homeowners, and left the government sitting on a paper profit.

For critics of the equity loan version of Help to Buy, the main impact has been on house builder profits and bonuses, and too much of the help has gone to higher earners who do not need it.

The government needs to decide soon what happens when the scheme comes to an end in March 2021, and the Budget could provide some clues.

Simply ending the scheme risks a cliff edge that could hit the housebuilding numbers that the government has pledged to increase, while extending it will mean a storm of criticism and could increase government exposure to any post-Brexit downturn in the housing market.

“The government needs to decide soon what happens when the scheme (Right to Buy) comes to an end in March 2021 and the Budget could provide some clues.”

One option would be to target the scheme more effectively on people who really need help, perhaps by introducing a household income cap (the Resolution Foundation says a cap of £60,000 would allow the loan fund already announced to be stretched beyond 2021).

The National Housing Federation suggests linking Help to Buy to wider policy objectives by restricting eligibility to developers that deliver promised levels of affordable housing.

 

Tax

The last few Budgets have been all about stamp duty, with successive increases imposed on landlords and second home owners, and last year’s surprise abolition of the tax for first-time buyers.

Ahead of this one, you suspect that the chancellor will still want to do something to signal that he is on the side of young renters who want to buy, and right-wing think-tanks have given him some options.

Onward has called for tax incentives for landlords who sell to long-term tenants while the Adam Smith Institute wants council tenants who still cannot afford to buy their homes under the Right to Buy to be given their discount for an open market purchase.

If neither of them sounds like a great idea, that has not stopped chancellors in the past.

Needless to say, more fundamental reform of our crazy system of property taxation looks as far away as ever.