Late last week the government announced no council tax revaluations in this parliament.
Of course, council's will still be free to change the level of taxes (at least once the government removes it's centrally imposed freeze). So this announcement is about the distribution of the burden of council tax rather than the overall amount. Holding off on a major revaluation exercise probably makes sense when we are promised a full review of local government finance by summer 2012.
It is clear that the review needs to deliver some serious reform if the government wants to meet its objectives of devolving power to LAs. At the moment, LAs are "highly geared" with council tax receipts only covering a small percentage of total expenditures with the balance met by central government grants. This means that small changes in total expenditures need to translate in to much larger percentage changes in council taxes, and any changes can easily be offset by changes to central grants. This creates all kinds of problems for LAs when deciding on spending and revenues.
But the coalition decisions on council tax so far (a freeze plus no revaluations) signal just how difficult is devolution of tax raising powers. It will be interesting to see how that circle gets squared by 2012.
CEP Urban and Spatial Programme Blog (formerly SERC)
Monday, 27 September 2010
Friday, 10 September 2010
Resilience Rankings
Research for the BBC has identified the places most vulnerable to spending cuts. I am not sure it throws up that many surprises. As the Guardian puts it: "Assessing more than 30 separate measures of a local authority's ability to withstand tougher economic times, the report found that poor areas still feeling the effects of the recessions of the 1980s and 1990s were likely to be hardest hit."
The initial shocks in the 1980s were big, but this does highlight the issue that 30 years of intervention has done very little to address the problem. There seem to be two takes on this. One is to say we haven't spent enough and that the UK is sufficiently small that anywhere can be turned around. The other is to suggest that the shocks represented a fundamental shift that reasonable policy expenditure will struggle to ever address. My feeling is that the impact of this recession gives further strength to the latter argument.
The initial shocks in the 1980s were big, but this does highlight the issue that 30 years of intervention has done very little to address the problem. There seem to be two takes on this. One is to say we haven't spent enough and that the UK is sufficiently small that anywhere can be turned around. The other is to suggest that the shocks represented a fundamental shift that reasonable policy expenditure will struggle to ever address. My feeling is that the impact of this recession gives further strength to the latter argument.
Monday, 6 September 2010
NICs Holidays
Not some new, soon to be broke holiday company, but the government's National Insurance Contributions holiday scheme which started today.
According to HMRC: "The ‘Regional Employer NICs Holiday for New Businesses’ offers substantial reductions in employer NICs for new businesses in those parts of the UK most reliant on public sector employment." Looking at the list of eligible regions, this turns out to be the whole of GB except for the SE region and London.
My understanding of the (now quite old) evidence on regional employment subsidies was that they did have an impact but that the costs per job created were quite high. I imagine that will be the case with this holiday as well. It's an employment subsidy, so we expect some positive impacts, but because there will be plenty of deadweight (businesses that would have started anyhow) and quite a lot of displacement (new subsidised businesses driving out old) the net impact will be considerably smaller than the gross impact. It will be interesting to see how the effects play out.
According to HMRC: "The ‘Regional Employer NICs Holiday for New Businesses’ offers substantial reductions in employer NICs for new businesses in those parts of the UK most reliant on public sector employment." Looking at the list of eligible regions, this turns out to be the whole of GB except for the SE region and London.
My understanding of the (now quite old) evidence on regional employment subsidies was that they did have an impact but that the costs per job created were quite high. I imagine that will be the case with this holiday as well. It's an employment subsidy, so we expect some positive impacts, but because there will be plenty of deadweight (businesses that would have started anyhow) and quite a lot of displacement (new subsidised businesses driving out old) the net impact will be considerably smaller than the gross impact. It will be interesting to see how the effects play out.
Monday, 23 August 2010
Housing Starts
CLG released the latest figures for housing starts were released a few days ago.
There were 28,590 starts (seasonally adjusted). According to the press release:
- 13% higher than last quarter
- 84% higher than the March 2009 trough
- 42% below there March 2007 peak
CLG provide more comparisons but all those numbers left me a little dazed. If you take a 10 year pre-recession average of Q2 you get around 42,000 starts. So I guess we should view that figure as about 2/3 of the 10 year average.
There are some reports that scrapping the regional spatial strategies has led to plans for 84,000 houses being reviewed or cut. Of course, not all of these may not have been planned for the same year, but if these figures are right you would expect them to start showing up in the Q3 figures.
There were 28,590 starts (seasonally adjusted). According to the press release:
- 13% higher than last quarter
- 84% higher than the March 2009 trough
- 42% below there March 2007 peak
CLG provide more comparisons but all those numbers left me a little dazed. If you take a 10 year pre-recession average of Q2 you get around 42,000 starts. So I guess we should view that figure as about 2/3 of the 10 year average.
There are some reports that scrapping the regional spatial strategies has led to plans for 84,000 houses being reviewed or cut. Of course, not all of these may not have been planned for the same year, but if these figures are right you would expect them to start showing up in the Q3 figures.
Wednesday, 11 August 2010
Who benefits from new housing?
I was thinking a little more on the new home bonus and reflecting, in particular on the following: "Mr Shapps urged councils to open up an honest and direct debate with the communities they serve about the benefits of building new homes in their area - how they can reap the benefits of development and not just the costs."
The problem is that new development doesn't tend to benefit existing residents. NIMBY's are generally acting in their own self interest because new housing will tend to decrease the value of the existing housing stock (because it takes away valuable amenities that are capitalised in to prices). An honest and direct debate doesn't address that problem!
[PS: From Today's (11/08) FT Editorial: "But the bonus scheme does not do enough. It smacks of bribing councils not to use the beefed-up powers to veto development the government gave them by scrapping Labour’s housing policy. What if councils think new developments hurt their constituents’ house prices more than extra government money makes up for?"]
The problem is that new development doesn't tend to benefit existing residents. NIMBY's are generally acting in their own self interest because new housing will tend to decrease the value of the existing housing stock (because it takes away valuable amenities that are capitalised in to prices). An honest and direct debate doesn't address that problem!
[PS: From Today's (11/08) FT Editorial: "But the bonus scheme does not do enough. It smacks of bribing councils not to use the beefed-up powers to veto development the government gave them by scrapping Labour’s housing policy. What if councils think new developments hurt their constituents’ house prices more than extra government money makes up for?"]
Tuesday, 10 August 2010
New Home Bonus
The coalition has announced plans to provide LAs with financial incentives to agree to new housebuilding.
In the area of housing, I am no fan of top down master plans (like the, now defunct, Regional Spatial Strategies). We need a mechanism that allocates land to housing where it is needed and that compensates affected local communities so that they support new housing rather than opposing it. Against this background the approach advocated by the government is a step in the right direction.
There are still important problems to resolve. The idea is that the scheme will give LAs incentives by matching council tax receipts for six years on any new homes. This will help resolve the problem that grant funding allocation (which is broadly proportional to population) takes time to respond to population growth. It will not address the problem that new homes may impose marginal costs that are considerably larger than the average costs of serving existing populations (for example, if they require communities to build new local facilities such as schools). Presumably, the intention is that the Community Infrastructure Levy will try to address this problem. Whether the combined incentives provided by the homes bonus and the levy are significant depends on the costs that LAs face - I don't know of any good evidence on this.
Assuming the resulting incentives are "significant" will this be enough to get houses built where they are needed? That's less clear for two reasons. First, house prices provide a strong signal as to where we need new housing but when looking across LAs council tax is not very strongly correlated with house prices. This means the incentives are not much stronger for LAs where there is the strongest demand for new housing. Second, the incentives compensate LAs but not the most directly affected local residents (the immediate neighbours of housing development). Traditionally, the planning system has tried to get around this problem by (mostly) ignoring the wishes of local residents. Quite rightly, the coalition government is trying to move away from this unpopular position. But giving more say to local residents means greater opposition to new developments and, as yet, the government do not have good mechanisms for addressing that problem.
In the area of housing, I am no fan of top down master plans (like the, now defunct, Regional Spatial Strategies). We need a mechanism that allocates land to housing where it is needed and that compensates affected local communities so that they support new housing rather than opposing it. Against this background the approach advocated by the government is a step in the right direction.
There are still important problems to resolve. The idea is that the scheme will give LAs incentives by matching council tax receipts for six years on any new homes. This will help resolve the problem that grant funding allocation (which is broadly proportional to population) takes time to respond to population growth. It will not address the problem that new homes may impose marginal costs that are considerably larger than the average costs of serving existing populations (for example, if they require communities to build new local facilities such as schools). Presumably, the intention is that the Community Infrastructure Levy will try to address this problem. Whether the combined incentives provided by the homes bonus and the levy are significant depends on the costs that LAs face - I don't know of any good evidence on this.
Assuming the resulting incentives are "significant" will this be enough to get houses built where they are needed? That's less clear for two reasons. First, house prices provide a strong signal as to where we need new housing but when looking across LAs council tax is not very strongly correlated with house prices. This means the incentives are not much stronger for LAs where there is the strongest demand for new housing. Second, the incentives compensate LAs but not the most directly affected local residents (the immediate neighbours of housing development). Traditionally, the planning system has tried to get around this problem by (mostly) ignoring the wishes of local residents. Quite rightly, the coalition government is trying to move away from this unpopular position. But giving more say to local residents means greater opposition to new developments and, as yet, the government do not have good mechanisms for addressing that problem.
Wednesday, 4 August 2010
Social Housing Swap Shop
Social housing is associated with three "mobility" problems relating to tenure (people are unlikely to move out to renting or owning), size (people have homes that are too big or small for their current needs) and geography (allocation is quite localised making it hard to get housing in another Local Authority and making it hard to move). The coalition government has been talking about how to tackle these problems.
In terms of size and geographical mobility, CLG have been talking about mechanisms to encourage swaps. I am retired with a big house near the city centre, you are a working family with a small flat in the suburbs. We are both better off if we can swap. It really is hard to see why anyone should object to this, aside from the fact that it may have relatively little impact on the problem (at some point early on in economics, students learn that one of the roles of money is to facilitate exchange because it removes the need for double coincidence of wants - i.e. we both have to want to swap).
Other proposals are more tricky. For example, giving people the right to ask to move must be good from the point of view of the person asking. But, the overall effect depends on the supply of social housing in different areas. In unpopular areas it means low occupancy, while in popular areas it means excess demand. How do you square the latter with the idea that Local Authorities should be allowed to prioritise "local people"?
Similarly, removing the job market disincentives created by social housing provision (and through the housing benefit system) would seem to be very important, but changing tenure conditions may well exacerbate that problem, not mitigate it. More generally, insecurity of tenure is (at least according to the anecdotal evidence) a major cause of considerable distress to many social housing tenants. That isn't to say that you shouldn't try to tackle these issues but it does highlight how difficult is the road ahead.
In terms of size and geographical mobility, CLG have been talking about mechanisms to encourage swaps. I am retired with a big house near the city centre, you are a working family with a small flat in the suburbs. We are both better off if we can swap. It really is hard to see why anyone should object to this, aside from the fact that it may have relatively little impact on the problem (at some point early on in economics, students learn that one of the roles of money is to facilitate exchange because it removes the need for double coincidence of wants - i.e. we both have to want to swap).
Other proposals are more tricky. For example, giving people the right to ask to move must be good from the point of view of the person asking. But, the overall effect depends on the supply of social housing in different areas. In unpopular areas it means low occupancy, while in popular areas it means excess demand. How do you square the latter with the idea that Local Authorities should be allowed to prioritise "local people"?
Similarly, removing the job market disincentives created by social housing provision (and through the housing benefit system) would seem to be very important, but changing tenure conditions may well exacerbate that problem, not mitigate it. More generally, insecurity of tenure is (at least according to the anecdotal evidence) a major cause of considerable distress to many social housing tenants. That isn't to say that you shouldn't try to tackle these issues but it does highlight how difficult is the road ahead.
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