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Finding funds for change
How can the new government deliver change without breaking the bank
STRATEGY
Greg Campbell
Partner, Campbell Tickell
Greg Campbell
Partner, Campbell Tickell
Issue 72 | July 2024
This isn’t 1997. The newly elected government is not inheriting a healthy economy. It’s taking over an economy still not recovered from Covid and then the effects of the Russia-Ukraine war, and further battered by the impact of the Truss-Kwarteng ‘mini-Budget’ of September 2022, with interest rates that soared at that time, at the prospect of a string of unfunded tax cuts, and have not yet come down.
What’s more, Labour has, in a sense, made it harder for itself by committing during the general election campaign not to increase income tax, national insurance or VAT, and to maintain the ‘triple lock’ on pensions. It’s understandable why they did this: taxes overall are still at their highest since the Second World War, and the cost-of-living crisis is still very much with us. The prospect of taking yet more money out of people’s pockets would not be popular.
‘Nothing works!’
The problem is though that public services are widely acknowledged to be in an especially poor state – ‘nothing works’ is a familiar refrain. And the new government will come under sustained pressure in areas crying out for resources – health, social care, local government, criminal justice, universities, defence and so on.
Moreover, the position has been exacerbated by the decisions of the former Chancellor of the Exchequer to pay for the two recent reductions in national insurance through further future spending cuts yet to be identified.
As the Institute for Government and Institute of Fiscal Studies have pointed out in recent months, neither the Conservatives nor Labour have been clear on how to pay for their election commitments without more tax rises or damaging the public estate even further.
Labour has indicated some of their plans – such as extra teachers – will be funded through measures such as levying VAT on private schools, clamping down on non-doms’ avoidance of UK tax, and a windfall tax on oil and gas suppliers. Beyond that, the government is committed to deliver significant growth in the economy, through an industrial strategy and other measures. Growth takes time though.
Economic improvements on the horizon?
In the short run, there is reasonable hope of the picture improving.
The Office of National Statistics has reported the economy grew by more than expected in the first quarter of 2024, and as disposable incomes have grown, the Financial Times comments that “higher confidence might lead consumers to spend more of their savings”.
HMRC’s tax take will increase as a result of pay rises while the income tax thresholds remain frozen (‘fiscal drag’, as it is known); and interest rates are expected to come down somewhat this year, reducing the cost of government borrowing while providing some relief for many mortgage holders. Plus there are signs of greater optimism among business at the prospects of stable government.
Meanwhile there are financial levers that could be pulled.
One is capital gains tax; another is changing the fiscal rules to allow more borrowing for capital investment. If the government is not keen on a full council tax revaluation (our current domestic rates are based on 1991 property values), changing the basis of business rates at least may be an option. While work is already in train to encourage investment from pension funds and other institutions in areas such as social/affordable housing.
More will be needed though. A big question is where can savings be made and services improved that are cost-neutral – or at least relatively inexpensive? And the answer is there are a lot more options out there than many people realise.
Quick wins
Sam Freedman, the public policy specialist and former government adviser, recently came up with a list of 10 ‘quick wins’ that do not require primary legislation, could have an immediate effect and be implemented immediately.
- Scrap the two-child benefit limit, as a significant contribution to reducing child poverty – cost £2.5bn in year 1, rising to £3bn.
- Allow councils to keep 100% of right to buy income.
- Scrap tuition fees for teacher training – cost £100m a year.
- Void the Rwanda deal contract and restart processing asylum seekers – saving £100m over two years – the new government appears already to be proceeding with this. Moreover, asylum seekers, a great many of whom will be talented people with a range of skills, should be allowed to work while their claims are processed, saving spending on housing and subsistence and generating tax revenue.
- Index link tuition fees and maintenance grants.
- Halt the sell-off of land compulsorily purchased for HS2, to consider potential future options.
- Divert government advertising to local media, to help local economies and avoid job losses in non-corporate media.
- Increase delegated authority over spending decisions to departments, as part of moves to streamline the workings of Whitehall, so decisions to spend money that don’t in real life need to be signed off by the Cabinet Office, are taking by spending departments, saving time and cost.
- Give the Prime Minister’s ethics adviser the power to initiate investigations, as part of the process of rebuilding trust in politics.
- Scrap the salary rule for British citizens who want to marry foreign partners, which at present means British citizens who don’t earn at least £29k are unable to marry foreign partners, even if they’re already living here on temporary visas.
Low-cost options in housing
Whether or not one agrees with all these measures, they could each make a difference nationally and locally. There are plenty more out there. Here are some further examples, all relevant to housing, and some of which could appreciably reduce the cost of developing new homes. Inevitably some would take time to implement.
- Cabinet Office and Treasury rules on public land disposal could be simplified to allow consideration of wider public benefit rather than always having to achieve best market value, as Greater Manchester Mayor Andy Burnham has proposed.
- Government could consent to write-off local authority debt either to reduce the cost of bringing council properties up to an acceptable standard, or failing that to facilitate stock transfer.
- Health trusts with spare land could be encouraged to explore partnerships with housing associations to develop the land – or reprovide existing hospital property with additional accommodation for nurses, technicians and medical staff, as well as social housing to meet local needs. The land would not even need to be transferred: it could simply be leased and the housing association would operate as the landlord, providing housing management and maintenance.
- Government could underwrite relevant borrowing by registered housing providers to build new homes, and thereby help reduce the borrowing costs. Admittedly this would add to the government’s notional debt, but it would not actually cost money.
- ‘Land value capture’ could be introduced to reduce or remove the ‘hope value’ received by landowners on obtaining planning permission for residential development. This would require primary legislation. It will not be easy to implement, and would face considerable legal challenge, but it would significantly reduce the cost of new housing development.
The above is just a selection of ideas. No doubt many readers will have other proposals for low-cost/cost-neutral policy initiatives that could be straightforward to implement and could make a difference. All thoughts welcome!
