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Listening to the Budget today felt at times like George Osborne was deliberately trolling the online community waiting to play #budgetbingo. We had a recycling of some of the most popular phrases from the Conservative Chancellor including “northern powerhouse”, “long term economic plan”, and “we’re all in it together”. As with previous Budgets, there were notable rabbits pulled from Chancellor’s hat including the news of a compulsory National Living Wage for over 25s. However, as is equally the case, there is usually more detail – and often illuminating detail – found in the Red Book which policy wonks were manically refreshing the HMT website to access almost as soon as the Chancellor sat down.
So what did the Summer Budget 2015 have in store for housing and the north?
The Chancellor noted that, according to the Office for Budget Responsibility (OBR), the UK had the strongest economic growth of any major advanced economy in the world. He stated that the OBR had forecasted growth of 2.4% in 2015; 2.3% in 2016 and 2.4% in 2017. He also mentioned that the OBR’s job forecast suggested 1 million more jobs will be created over the next five years but that the Government were aiming for 2 million new jobs by 2020.
George Osborne also said that he will cut the deficit at the same pace as last Parliament, and that tax receipts were stronger than forecast. This “no faster, no slower” approach to the deficit cuts enabled the Government to “soften” the impact of planned welfare changes with only £8bn identified in the Budget: the remaining proportion to be provided through departmental savings arising out of the Spending Review process. He praised the Government for making extra savings this year highlighting that the Government had conducted more asset sales this year than in any year since 1983. Looking to future borrowing, the Chancellor called on the OBR’s forecast for borrowing that showed a budget surplus – the first budget surplus in over 40 years – by 2019. It is worth noting that 2019 represent a slight slip in the Chancellor’s original fiscal consolidation plan which had anticipated a budget surplus by 2018.
The Chancellor also noted that there would be £37bn cuts over the next Parliament and that in today’s budget £17bn were accounted for –£12bn from welfare and £5bn from tax avoidance measures. He noted that the rest of the efficiencies were coming from departmental savings between now and 2020.
The Chancellor announced that planning reforms will be set out on Friday 10 July. The Northern Housing Consortium will update members on this with an on-the-day briefing.
Reduction of social rents
In a surprise announcement, the Chancellor announced that social housing rents will be down-rated by 1% per year over the next four years which would “require housing associations and local authorities to deliver efficiency savings, making better use of the £13 billion annual subsidy received by registered social landlords from the Government”. This is a significant change to the previous established rent policy and will generate per annum savings of £1.45bn by 2020/2021 and over £4bn throughout the timeframe. Inside Housing are reporting that following the four years of 1% reduction the rent policy would revert to CPI plus 1%, however four years is a very long time in housing fiscal policy terms. It is our early understanding from discussions with the Department for Central and Local Government that the 1% reduction is from a “where you are now” position and not tagged to CPI and that the reduction will apply to both social and affordable rents. However, we should urge a note of caution: as ever with Budgets emerging details can change our understanding. The OBR highlights that the changes to social rent could reduce delivery of new homes by 14,000 and indicate they see no likelihood of the private housebuilding industry to meet this gap.
‘Pay to Stay’
This announcement, trailed at the weekend, will see higher income earners who live in social housing no longer able to claim subsidies for their rent. The policy essentially reduces the threshold previously introduced where housing associations and local authorities have been able to charge market rents on those living in social housing with incomes of more than £60,000.
The new policy will see local authority and housing association tenants on incomes of £40,000 or more in London and £30,000 in the rest of England will, from 2017/18, have to pay a market, or near market, rent.
This group of tenants represent around nine per cent of all social tenants in England. The so-called ‘Pay to Stay’ measure is expected to affect around 350,000 people and save the Treasury around £250m. The Treasury will recoup the additional rental income that local authorities receive, which will be used to reduce the deficit and generate extra income for housing associations to reinvest in affordable housing. Again, the OBR issue a word of caution stating that the rent changes plus extension of the right to buy may end up triggering a reclassification of social housing providers and a movement of £60bn onto the public sector national debt. In the short term the rent reduction would be welcomed by social housing customers, some of whom will be hit elsewhere by wider welfare changes.
The Budget document contains plans for a review of the use of lifetime tenancies in social housing to limit their use and ensure that households are offered tenancies that match their needs, and ensure the best use is made of the social housing stock.
Changes to buy-to-let mortgages
The Chancellor spoke of his desire to create a more level playing field for those buying homes to let and those buying to live in. He said that the current arrangements placed too much favour in the hands of those buying to let and announced that interest rate tax relief for buy-to-let owners will be restricted to the basic tax rate which represents a big hit to buy-to-let owners.
The Chancellor remarked that this policy would be phased over four years from April 2017 to avoid any detrimental impacts on the buy-to-let market. He said: “This will reduce the distorting effect the tax treatment of property has on investment and mean individual landlords are not treated differently based on the rate of income tax that they pay. It will also shift the balance between landlords and homeowners.”
Rent a Room relief
The Chancellor, reacting perhaps to a rise in the number of people renting rooms rather than properties in over-heated housing markets, announced that he will increase the Rent a Room relief from £4,250 to £7,500 a year from April 2016. He noted that it had been frozen since 1997, so the increase will allow individuals who rent a room in their main residence to do so tax free on income up to £7,500.
Changes to tax credits
Perhaps the most significant cuts announced by the Chancellor fell on tax credits; he announced that legislation will be introduced to freeze working-age benefits, including tax credits and the local housing allowances, for four years from 2016-17 to 2019-20. This is forecast to save £4 billion a year by 2019-20.
From April 2016, the Chancellor announced that the government will reduce the level of earnings at which a household’s tax credits and Universal Credit award starts to be withdrawn for every extra pound earned.
In tax credits, the income threshold will be reduced from £6,420 to £3,850 with the equivalents in Universal Credit work allowances being reduced to:
- £4,764 for those without housing costs;
- £2,304 for those with housing costs,
- And removed altogether for non-disabled claimants without children.
The government will also increase the rate at which a person’s or household’s tax credit award is reduced as they progress in work, by increasing the taper rate in tax credits from 41% to 48%. The significant changes in tapers are leading to concerns of a detrimental impact on work incentives.
He also announced the Government’s will to limit support provided to families through tax credits to two children, so that any subsequent children born after April 2017 will not be eligible for further support. An equivalent change will be made in Housing Benefit to ensure consistency between both benefits.
This will also apply in Universal Credit to families who make a new claim from April 2017. In addition, those starting a family after April 2017 will no longer be eligible for the Family Element in tax credits. The Chancellor announced that because of his reforms, tax credits were back to 2007/08 levels in real terms.
The reduction in tax credits is counterbalanced by increases in personal allowances and the introduction of the National Living Wage but the impact on individual households as the changes work their way through into the system are still be understood. We understand the Resolution Foundation are undertaking more detailed modelling on this and we will signpost NHC members to this analysis when it is available.
As part of its drive to make work pay, the Budget confirmed extension of free childcare but with the condition that non-working parents (including lone parents) should now make themselves “work ready” and begin searching for work when their youngest child is three years old.
Regional welfare cap
The Conservative manifesto pledged to reduce the overall benefit cap to £23,000 but this has now taken on a regional flavour with the cap outside of London now being set at £20,000. Although this was not detailed in the manifesto, many Conservative politicians have previously called for a different level outside of London.
Cuts to housing benefits for 18 to 21 year olds
As expected, the Chancellor has announced that jobseekers aged 18 to 21 years old will no longer be able to claim housing benefit. The Government estimate that this will save around £120m a year. However, Centrepoint, the youth homelessness charity, estimate that this will affect around 20,000 young people. Research by the Northern Housing Consortium has found that such proposals will affect around 6,000 young people who claim jobseekers allowance and housing benefit in the north. The Chancellor noted that there would be protections in place for those at risk and vulnerable.
Other housing benefit changes
The Budget document contained plans that will, from April 2016, see a new limit on the backdating of housing benefit for a maximum of four weeks. It also contains plans to implement seven waiting days for Universal Credit from August 2015. The Chancellor also pledged that £800m in Discretionary Housing Payments will be given to local authorities.
Changes to Employment and Support Allowance (ESA)
Announcing this measure, the Chancellor said that “the current system creates a financial incentive to claim sickness benefits over Jobseeker’s Allowance”. He announced that from April 2017, new claimants of Employment and Support Allowance (ESA) who are placed in the work-related activity group will receive the same rate as those claiming Jobseeker’s Allowance, alongside additional support to help them take steps back to work. This equates to a 30% reduction.
He noted that this will ensure the right incentives and support are in place for those closer to the labour market to help them make this transition when they are ready, while maintaining the extra financial support ESA provides for those in the ESA Support Group who are furthest from work. Existing ESA claimants will be unaffected. Concerns have been raised by disability campaigners about the quality of support offered to claimants in the WRAG.
Compulsory National Living Wage
Perhaps the Chancellor’s most significant announcement was that from next April, there will be a compulsory National Living Wage (NLW) for over-25s beginning at £7.20 an hour and rising to £9 an hour by 2020. This represents a 70p rise relative to the current National Minimum Wage rate. The government will ask the Low Pay Commission (LPC) to set out how the new NLW will reach 60% of median earnings by 2020.
Based on the OBR’s earnings forecasts, this means that the NLW will reach the government’s target of over £9 by 2020. This will mean a direct boost in earnings for 2.7 million low wage workers, and the OBR have indicated that knock-on effects further up the wage distribution could mean a further 3.25 million people also see an increase in wages as a result of the NLW.
Public sector pay freeze
The Chancellor announced that the 1% public sector pay freeze would be extended from the planned two years to four years.
Personal allowance increase
The Chancellor has announced in previous Budgets his will to increase the personal allowance to £12,500, thus exempting those on the minimum wage from tax all together, by 2020. He used today’s Summer Budget to announce that he will do so earlier than anticipated. This will cost £1.05bn in 2016-17 rising to £1.2bn in 2020-21.
40p tax threshold
The 40p tax threshold, currently levied on incomes over £42,385, will rise to a threshold of £43,000 by 2020 which represents a significant delivery of a Conservative Party manifesto to do so. Chancellor said it is a ‘strong start’ to raising it to £50,000 as he wishes to do so. It is estimated that this will benefit 800,000 middle income earners saving them around £1,300 a year.
Non-dom tax status
Borrowing a policy from the Labour Party’s manifesto, George Osborne announced that he would be abolishing the permanent non-dom tax status when someone has been resident in the UK for more than 15 years and that he expected £1.5bn will be raised in extra taxes. He noted that this arrangement will be in place by 2017.
Work and skills
On the now infamous but geographically undefined Northern Powerhouse, George Osborne announced that following further meetings and consultations with the leaders of the Greater Manchester Combined Authority, the Authority would now receive new powers over fire services under the control of the elected Mayor; new powers on children’s services and a land commission for Greater Manchester. The land commission is particularly interesting when coupled with the housing fund already underway in Greater Manchester and may provide more housing and regeneration opportunities.
He revealed that Sheffield, Liverpool, Leeds, and West Yorkshire were all in negotiations for devolution deals with powers similar to what have been given to Greater Manchester. There may be concern in the north east that no mention was made of their progress towards devolved deals. Does this suggest the NE is running behind the Powerhouse race? Additionally, the Chancellor announced that Transport for the North will become enshrined as a statutory body with statutory duties underpinned by £30 million of additional funding over three years to support Transport for the North’s running costs and enable them to advance their work programme. He also said that he would be devolving far reaching powers over transport to the north’s Mayor-led city regions to deliver fully integrated public transport systems, supported by smart and integrated ticketing technology.
Health and social care
The Budget protects spending on the NHS in England and backs its five year plan. The government will continue to spend more on the NHS in real terms every year, as it has in every year since 2010. It will fully fund the NHS plan which called for £8 billion more by 2020-21. This additional funding comes on top of the £2bn announced in the Autumn Statement 2014.
The government will ensure the NHS becomes a seven day service by 2020-21. Hospitals will be appropriately staffed at weekends to ensure people can obtain the care they need every day of the week. Everyone will be able to access GP services from 8am – 8pm seven days a week. These improvements will allow people to better balance work, health and family and will be a key to a more productive economy.
Politically this Budget has a bold Conservative vision: promoting aspiration and moving from a “high welfare and high tax” to a “low welfare and low tax” one. For the north, there was progress on some devolved deals and more to come as we reach the Spending Review and Autumn Statement. We knew significant welfare changes were planned and most were announced as we had envisioned. The push back on the date to hit surplus has allowed the Chancellor to phase in welfare changes which he will hope will mean he avoids political backwash. However the extent of the some of the changes, particularly in terms of income tapers under Universal Credit and changes to child tax credit, will be significant.
In terms of the housing sector directly, the 1% reduction in rents will lead to reviews of business plans, cost bases and investment decisions. The hours after a Budget announcement only ever give a partial understanding on the impact and we will be continuing to assess the details as they emerge in further Bills and Plans over the coming days. It is also worth reminding ourselves that further significant changes may yet be pencilled in for the Spending Review.