Today’s Budget will be broadly welcomed by ordinary families seeking a home of their own, or homeowners struggling to keep their home during a temporary setback. However, it laid the long-expected groundwork for a future squeeze on support for renters.
First the good news:
Additional protections for homeowners announced in the wake of the economic downturn will be extended until March 2016. Homeowners who lose their job or are unable to work will only have to wait 13 weeks before being able to claim Support for Mortgage Interest and payments will cover interest on the first £200,000. This will mean homeowners will not be left without support for months after losing a job and will reduce the chance that a drop in income caused by someone losing their job or falling ill will lead to the loss of a home. Prior to the downturn homeowners had to wait over nine months before they could claim support, leaving many struggling to meet mortgage payments in the meantime.
The Budget also announced a series of packages intended to boost supply. These are a welcome first step towards building the 250,000 new homes we need a year. Particularly eye-catching is the proposal to support Self Build, with plans for a £150 million repayable fund to provide 10,000 serviced plots for custom build. It’s also fortunate that the Chancellor is only extending Help to Buy 1, which provides equity loans for buyers of new homes and is at least linked to new supply, rather than the more inflationary Help to Buy 2.
The announcement that the long awaited prospectus for a new wave of Garden Cities will be published by Easter is also good news, as is some much needed financial support for small builders – both of which we’ve called for. It’s crucial that the Treasury sees today’s package as a first step and not the last word on housing. Shelter will be bringing forward detailed proposals in the spring, setting out the programme needed to fix our dysfunctional housing supply system and really start building our way out of the current housing crisis.
But just as the measures on house building potentially pave the way for future improvements, the announcement on welfare tees up challenges for a future government.
Plans to set an overall cap on welfare spending were trailed in the Comprehensive Spending Review and Autumn Statement 2013. The chancellor confirmed today that the cap will – initially at least – be set in line with Office of Budget Responsibility’s projections for welfare spending. This means cuts on the ground will not be needed immediately. However, if welfare spending rises faster than forecast, for example due to the continued growth of the more expensive private rented sector, then a future government will have to find savings elsewhere in the welfare budget. Crucially the pressure to bring spending back under the limit of the cap falls entirely on the DWP, rather than, for example, rising housing benefit expenditure triggering action in CLG to increase supply of genuinely affordable housing to reduce the HB bill.
It is also likely that one or more parties could go into the next election with a manifesto pledge to lower the cap, meaning cuts would then be required. The technical nature of the welfare cap is an effective way of locking parliament and the public into support for cuts without setting out the detail of what they will entail. Reducing the welfare cap by £12 billion probably sounds abstractedly palatable to the average person on the street. Spelling out that this would entail the complete withdrawal of housing benefit for young families or cuts to benefits that enable disabled people to work may be a harder sell.
The welfare cap is an attempt to introduce some long-term planning into the social security budget but it goes about it in the wrong way. Rather than committing a future government into fixed spending caps, action should be taken to reduce the structural pressures on the welfare bill. This should start by incentivising politicians to seek the long-term reward of rebalancing spending on housing on bricks rather than benefits.
Totally agree with this. The government could reduce it’s welfare bill quite effectively by moving to take some of the heat out of the property market (both renting and buying).
We were disappointed that there’s still no talk of taxing buy-to-let more punitively, or looking at restricting (or taxing) non-domiciled ownership. A cultural shift is needed away from seeing houses as investment vehicles rather than homes.
Another important way to reduce house price inflation would be to remove the tax incentive for domestic homeownership. Before 1965 all gains in private house prices were taxed like capital gains. Private landlords already face punitive CGT tax when they sell their properties, so why not level the playing field and make domestic homeowners pay 28% CGT as well?
Or better still, tax house price inflation at 100%, which would crush it entirely and remove all the attractions of houses as investments. Of course people could claim reductions in their assessment if they demonstrate they have spent money improving their house, just as landlords can do at the moment.