The Chancellor, George Osborne noted that the Spending Review’s focus would be on economic and national security; promoting opportunity for all and helping to build our defences and society.
He reiterated that he was committed to running a surplus by 2020 and highlighted that the surplus will be £10.1bn in 2019/20. He continued to promise to bring debts down, highlighting that forecasts show that debt will fall this year and every year that follows as part of the Government’s drive to move to a “low welfare, high wage economy”.
In light of the recent tragic events in Paris, there was an unsurprising push by the Chancellor to bolster security services and the armed forces with a 30% increase in counter-terrorism spending as well as an historic commitment to increase the armed forces budget by £12bn.
In a surprise announcement, the Chancellor not only stopped changes to tax credit tapers that had caused considerable unease across the political spectrum but also did not go ahead with rumoured cuts to Police budgets.
The NHS will get an above-inflation £3.8bn boost to help smooth over the spike in admissions expected this winter but the Chancellor has also said the money must be used to extend NHS services to weekends as part of the Government’s drive for a seven day NHS.
The fear leading into the Spending Review was that local government would have been hardest having already suffered significant cuts since 2010. The Spending Review suggests that local government spending (DEL) will have suffered a cumulative drop of 56%.
Local Government Settlements
The Spending Review sets in motion the desire to make local government self-funding by phasing out the local government grant. In his speech, the Chancellor said that “because the amount we raise in business rates is in total much greater than the amount we give to local councils through the local government grant, we will phase that grant out entirely over this Parliament.”
This echoed the announcement previously made that local government will be able to retain 100 per cent of local taxes – including all £26bn of revenue from business rates – to spend on services. However, it is feared that once councils are able to control how much they charge, weaker towns and cities could lose out with stronger towns and cities attracting more shops with cheaper rates.
Matthew Hopkinson, director of the Local Data Company, has warned that the north will suffer the most as many town centres already have a lot of empty shops. A recent report from the Local Data Company showed that the north have the most empty shops at an average of 16.4%.
These are concerns shared by the NHC. It remains to be seen whether or not there will be redistributive elements within the policy to top up areas whose business rates fall below what they currently receive as part of their local government settlement. We also await detail for arrangements should a major employer in an area – and thus big contributor to business rates in a local authority area – close or move production to another area of the country.
Local government settlements for 2016/17 will be determined in December.
2% Social Care Precept
The Chancellor has announced that local government will have the opportunity to raise council tax by up to 2% as a so-called ‘social care precept’.
The condition of this agreement is that local authorities use the uplift in revenues to fund social care if they are struggling to fund adult social care services at present. It is hoped that such a policy would help local authorities raise around £2bn by 2020.
Research by the TUC has shown that funding cuts to adult care services in England resulted in local authorities being unable to provide care to over half a million fewer adults (29 per cent) in 2013 than in 2009.
Such a policy will carry a lot of weight in the North where, owing to historic health imbalances (industrial diseases, and a greater share of aging population), there is acute demand for social care and there is likely to be greater demand in the coming years as best described by the Barnet graph of doom.
Figures from the Treasury show that the average band D property in England will pay £1,484 a year in council tax for the year 2015/16. A 2% rise in 2016/17 would see council tax rising by £29.68 a year or £2.47 a month.
The implications of this policy for the north are stark. By and large, many local authorities in the north have low council tax bases with council tax receipts representing in some cases only 10 or 20 per cent of a council’s overall budget. Additionally, there are areas of the North where many properties fall into an A or B council tax bracket so even with a 2% rise, the revenue raising capability of such a policy will be very light.
The impact of the 2% precept remain uncertain. For instance, in areas where there is a high level of non self-funders for social care (as is common across the North) and it is not yet clear whether there will be redistributive or needs-based funding to fill any shortfall.
It is our concern that those parts of the North who do not have significant proportions of people will be able to self-fund their social care the 2% precept will have to stretch a lot further.
Temporary Accommodation Changes
The Spending Review contained proposals for the temporary accommodation management fee paid from the Department of Work and Pensions to local authorities on ‘per household’ basis will end from 2017/18. The document stresses that “more than equivalent” funding will be devolved to local authorities through a new grant to allow them to better manage temporary accommodation pressures.
The Government have argued that this will give local authorities greater flexibility to invest in preventing homelessness and this is something we will consult our local authority members about.
Other Council Tax Changes
The Government’s Spending Review document also contained plans for council tax flexibility for policing. It notes that the government will provide further flexibility for police forces with the lowest council tax bills to raise income from council tax by £5 rather than 2%. This proposal provides extra flexibility to those forces who have historically kept the police element of their council tax bill low, and could allow them to raise up to an additional £12 million per year.
The government announced that they will expand the Enterprise Zone programme in England with the announcement of 18 new sites across the country and the extension of 8 sites on the current programme. This involves doubling the size of the Enterprise Zones programme in the North, creating 7 new Zones, meaning that over a third of all new Enterprise Zones announced in this Spending Review will be in the North, while extending a further 2 Enterprise Zones in the North.
“And I am clear: in this Spending Review, we choose to build. Above all, we choose to build the homes that people can buy”, George Osborne
The Chancellor has promised £7bn to build 400,000 new subsided homes and said that it is his intention to make house building a priority over the course of the next Parliament. The mechanics of these new funding streams will of course be essential but the money includes:
• £2.3bn to build Starter Homes (paid directly to developers)
• £4bn to help build shared ownership properties for those earning less than £80,000
• £200m for 10,000 new homes that tenants can live in for five years while saving for a deposit
• £400m to help build 8,000 specialist homes for older people or those with disabilities
The £2.3bn for Starter Homes is welcome but questions remain about the affordability of such homes, both in over-heating housing markets in the North (such as Leeds, York) as well as areas in the north where it is not supply that is the barrier to home ownership but finance.
From our understanding, the £4bn for shared ownership properties will be offered as grants, where residents buy some of the equity and rent the remainder. The existing threshold for shared ownership will rise by £10,000 to £80,000 (£90,000 in London) and the Chancellor has announced that other restrictions on the type and size of properties that can be offered for part sale will be scrapped.The £4bn announcement to help build shared ownership properties for those earning less than £80,000 is welcome. Traditionally, the shared ownership model has had mixed results in the north but given the changes to the thresholds as well as the loosening of restrictions of the type and size of properties that can be offered, we remain hopeful this model will become a viable product in boosting affordable housing supply.
Beyond this, there is little more information available and it is likely that amendments implementing these changes may yet be introduced to the Housing and Planning Bill 2015 and this is something the Northern Housing Consortium will be keeping an eye on in the coming weeks and months.
On the Chancellor’s commitment of £200m for homes tenants can live in for five years while saving for a deposit, this is a measure we strongly support. As previously indicated, the biggest barrier to home ownership in the North is access to finance and we believe that this product will help to boost affordable home ownership in the North.
The £400m to help build 8,000 specialist homes for older people or those with disabilities is again welcome. There is little information available on the mechanics of this policy at present, it is recognised that building specialised homes is far more costly than building general purpose housing but the funding announced breaks down to around £50,000 per dwelling – well below the cost price of an average home never mind a specialist home.
It remains to be seen if this money is ‘new’ money or will be reallocated funds from Homes and Communities Agency (HCA). This is something the NHC will follow up on in our regular meetings with the HCA teams in the North. The accounting of new housing is categorised as ‘social and economic infrastructure’ spending in breakdown of spending provided as part of the Spending Review.
While we welcome the Government’s commitment to building new affordable homes as part of their strategy to boost low cost home ownership, we believe that DCLG ought to continue with support for affordable rented homes in addition to its current priorities.
New Homes Bonus
Within the Spending Review, it was announced that the government will consult on reforms to the New Homes Bonus. The consultation will focus on the means of sharpening the incentive to reward communities for additional homes as well as reducing the length of payments from 6 years to 4 years. This will include a preferred option for savings of at least £800 million, which can be used for social care in the local area.
Details of both reforms will be set out as part of the local government finance settlement consultation, which will include consideration of proposals to introduce a floor to ensure that no authority loses out disproportionately Housing Benefit Changes.
The Chancellor announced changes to stamp duty that will see a 3 percentage point surcharge on rates of Stamp Duty Land Tax on purchases of additional properties like buy to lets and second homes.
This is likely to benefit rural areas of outstanding natural beauty in the North like the Lake District. Liberal Democrat leader and MP for Westmorland and Lonsdale, Tim Farron, and Labour MP for Workington, Sue Hayman have both lobbied vociferously for such measures to avoid local people being priced out of areas in the North that are popular with second home owners.
One unintended consequence of this measure could be that where buy to let landlords are hit with a 3% in stamp duty, it could see private tenants facing higher rents to cover the costs.
Welfare and Work
Tax Credit Changes
The main headline coming through from the Chancellor in today’s Autumn Statement was the announcement that tax credit cuts, due to come into effect from July 2016, would be abandoned altogether. This means there will be no cuts to tax credits or any changes to the tapers with taper rates and thresholds to remain as they are. The threshold will remain at £6,429 and the tax credits taper will remain at 41% of gross income.
This has come about as the forecast shows £27bn improvement in the public finances compared to the summer budget. The government can therefore afford to give families longer to adjust to the transition to a higher wage, lower tax, and lower welfare society.
This announcement is welcome by the NHC, as we know that this will prevent deepening poverty for many working families across the North, however NHC are concerned around what this means for those transitioning to universal credit, and the impact that this will have on household and personal finances.
In the summer budget the Chancellor announced some significant changes to Housing Benefit,. Today’s announcements have taken this further to ensure fairness between those receiving housing benefit and those paying for the system. New social housing tenants receiving housing benefit will be capped to the relevant Local Housing Allowance, from April 2016 – this is the rate paid to those living in the private rented sector claiming housing benefit. This will include the Shared Accommodation Rate for single claimants under 35 who have no dependent children. The Treasury expects to save £225m a year by 2020-21 from restricting social sector rates to LHA.
The Spending Review documents states that “this reform will mean that Housing Benefit will no longer fully subsidise families to live in social houses that many working families cannot afford, and will better align the rules in the private and social rented sectors. It will also ensure that Housing Benefit costs are better controlled and will help prevent social landlords from charging inflated rent for their properties”
A further announcement made today was limiting housing benefit and pensions credit payments to 4 weeks for claimants who are outside Great Britain, from April 2016. At present housing benefit recipients can go abroad for up to 13 weeks, and continuing to receive housing benefit.
This announcement is concerning for NHC, specifically for those who will now be eligible for the shared accommodation rate as it could mean up to a 50% reduction for some tenants. Although we cannot predict future demand for housing in the social sector by under-35s, we currently understand that there are up to 50,000 (source: DWP figures) who could be affected by this.
The NHC would welcome further clarity around this announcements made today on the LHA rates for new social housing tenants from April 2016, with entitlements changing from April 2018. NHC would also welcome clarity around groups who would be exempt from this, i.e. those in supported accommodation.
Apprenticeships are now the cornerstone of the skills system and 3 million apprenticeships will have started by 2020. By 2019-20 government spending on apprenticeships, including income from the new apprenticeship levy, this is double the level of spending in 2010-11 in cash terms. The apprenticeship levy on larger employers announced in the Summer Budget will be introduced in April 2017.
Each employer will receive an allowance of £15,000 to offset against their levy payment.
The government will establish a new independent employer-led body to set apprenticeship standards and ensure quality and advice on the level of levy funding each apprenticeship should receive. Programmes which have high costs and are of high quality will be entitled to receive more funding.
Such a measure is welcomed by the NHC, particularly setting up standards to drive up quality, as across the North we see higher unemployment levels compared to nationally, and by providing high quality opportunities to train and up skill, it tackles some of the barriers to employment.
Today the Chancellor made an announcement, echoing the messages around their aim to get more people into work and make the system fairer, Universal Credit will extend the same Job centre Plus support that those claiming JSA receive, to an additional 1.3million additional claimants who currently get little or no support, by 2020.
There will be more emphasis on extensive support at the start of a JSA claim, ensuring claimants are ‘not relying on a life on benefits ‘, jobseekers will be required to attend the Jobcentre weekly for the first three months of their claim, and the government will also bring forward the more intensive support element of the Help to work programme which is currently available to those who have been in long term unemployed.
There was also an announcement of a new Work and Health Programme, to replace the current Work Programme; this will provide specialist support for claimants with health conditions or disabilities and those unemployed for over 2 years.
The NHC welcome these announcements made around additional and intensive support, the DWP and JCP need to ensure that the support is targeted to those who require it, there is a consistent approach and claimants are provided with all the relevant information at each stage. However, we remain concerned about potential for overly draconian application of conditionality. NHC would also recommend that DWP and JCP work closely and communicate with housing providers and Local Authorities where applicable.
The Chancellor was still keen to reiterate the importance of the ‘Devolution revolution’ stating that more people are currently employed in the ‘Northern Powerhouse’ than ever before. With the north growing faster than the south, George Osborne stressed that the re-balancing of the UK’s economy through devolution is one of Government’s top priorities. The Chancellor once again stated that the Government will provide the necessary investment in a ‘determined effort to change the economic imbalance’ in the country.
We were reminded that deals have recently been made in Sheffield, Liverpool, the Tees Valley and the West Midlands to have elected mayors and wrestle control over local spending from Westminster.
In an attempt to support this agenda, the Chancellor announced a ‘big package of new powers for local councils’ whereby they are to keep all receipts from the sell off of council properties and 100% of business rates. Funds for temporary accommodation for the homeless will also be devolved. The Chancellor calculates that the total raised will be greater that the central government grants, which will now be phased out completely. It remains to be seen how the lower value properties in the north will generate sufficient revenue to cover the loss of grant or whether this will this mean more hard times for local authorities in the north of England?
In further policies aimed at making the Northern Powerhouse a reality, the Chancellor announced that councils can reduce their rates to attract new businesses to their areas and that elected mayors will have the power to raise rates provided they use the additional revenue to fund specific infrastructure projects, supported by the local business community.
In transport, concerns have been raised that poor connectivity between the major cities of the north and across the Pennines will hold back economic regeneration. In particular, the National Infrastructure Commission, who recently launched a Call for Evidence focussing on the infrastructure challenges facing the northern regions and calling for major investment. Today, the Chancellor announced £150m to start rolling out a new ‘Oyster Card and smart ticketing system for the North’ which will link bus, rail and tram networks from east to west. In addition, significant investment was announced in transport infrastructure which will see the long awaited electrification of the Transpennine route.
For housing and local government, the Spending Review has been a mixed bag. While we welcome housing being at the centre of the review, we remain concerned about local authorities and their abilities to provide services to their local communities. Some of the pre-spending review rumours proved to be exactly that, although with the Housing and Planning Bill 2015 having not yet passed through Parliament there may be more detail that produces a devil. As ever with announcements of this nature, our on the day briefing is designed to give you and immediate assessment of the thrust of the document but we will continue to work over the coming days to more fully understand the impact across NHC members. To that end, please do let us know your thoughts and do sign up for our forthcoming round of engagement sessions details of which can be found below.
Commission for Housing in the North and Spending Review Impact : Engagement Session
The Commission has been striving to understand the following issues
- What does the housing market need to look like to support a successful Northern Powerhouse
- What is the distinctive cumulative impact of changes to economy, housing policy and welfare reform on access to and demand for housing in the North
- What is working in accelerating development
- How is regeneration work best positioned
- What could work to underpin equitable outcomes from growth
- What are the key trends in the different tenures and how do these now interact
- Where are the investment opportunities and how do we capture value uplift from these
In particular at these engagement sessions we are keen to hear members views on:
- Future role of social housing
- Role of regeneration in economic growth
- The impact of the Spending Review
- Housing and Devolution
The engagement sessions will take place at:
10th December 9.00 – 10.30am Thirteen Housing Group, Stockton on Tees
15th December 9.00 – 10.30am Northwards Housing, Manchester
17th December 9.00 – 10.30am Wakefield and District Housing, Wakefield
17th December 9.00 – 10.30am Torus, Warrington
18th December 9.00 – 10.30am St Leger Homes, Doncaster
Places at the engagement sessions are limited so will be available on a first come first served basis. To register your interest in attending please email firstname.lastname@example.org indicating which session you would like to attend.
We are also exploring an online engagement session and more details on this will follow shortly.
If you have any queries regarding the Commission or comments on the Spending Review please contact Charlotte.email@example.com