28 October 2018

Don’t expect rabbits, but Hammond could deliver some Budget radicalism


Part of the drama of Budgets used to be the Chancellor of the Exchequer pulling a rabbit out of the hat. George Osborne, that most political of Chancellors, was keen on them. But it had become a bit of a tradition – like the Chancellor waving the red despatch box in the air when leaving Downing Street or exercising the right to drink whisky during the speech.

Comic timing is important when putting the rabbit on display. In 1986 Nigel Lawson waited to the end of his Budget speech to say: “Given the need for caution in the light of current circumstances, I do not have scope this year for a reduction in the basic rate of income tax”- long pause – “beyond one penny in the pound.” Boom! Wild cheering and excitement. Part of the sport is to leave it as an expected bit of good news towards the end in order to wrong foot the Leader of the Opposition who has to stand up and respond straight away.

I am afraid that Philip Hammond, the current holder of that great office of state, is not a “rabbit out of the hat” kind of a guy. For “Spreadsheet Phil” dullness is the supreme virtue. Tax cuts in the swashbuckling Lawsonian spirit are not likely to materialise.

Yet recent speculation has suggested that the Budget might not be devoid of radicalism. The Government needs to be able to walk and chew gum. While Brexit negotiations might dominate it can not afford to delay measures to increase the housing supply. That is the only way to make housing more affordable.

Churchill once said that: “For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” That is a maxim that I hope the Chancellor will keep in mind. But it also applies to trying to reduce the cost of buying or renting a home without increasing the number of homes available. So the Help to Buy scheme pushes up prices even more. By increasing the ratio of “affordable” housing – to be allocated and subsidised by the state – the amount of new market housing that most of us are chasing is yet more constrained and still harder to afford.

The single most important means of increasing the supply is to ease planning restrictions. There should be a presumption in favour of development, provided the design is acceptable to the local community, which would usually mean that it is traditional and attractive.

Contrary to what is sometimes assumed it is not that we have run out of space. A study from Sheffield University estimates than only six per cent of our land is urban – other research efforts have come up with a similar tally. Furthermore most of the urban land is not actually built on – it includes golf courses, gardens, parks, roads and also quite a lot of waste land.

But even if we only focus on the tiny proportion of country that is already built on, far more homes could be provided. How? The key is to ease the restrictions on “change of use” — and that is a cause which the Financial Times assures us has found favour with the Chancellor. The case is blindingly obvious when we consider that combined with a housing shortage, many of our towns and cities are plagued with empty shops.

Far more of our shopping is done online, which is wonderful to behold in terms of choice, convenience and low prices. But that doesn’t stop it being a dreary sight going up a local high street when windows are boarded up.

I had some experience of the inflexibility of the planning system when I was a local councillor in Hammersmith. The Ravenscourt Hospital site has remained a derelict eyesore for 12 years. The NHS don’t want it and plans for it be reopened as a private hospital have come and gone. Allowing a change of use for housing would make more sense. Around the corner at 407 King Street there is a row of ground floor premises that have never been used — they are designated under the planning rules to be shops and so sit empty.

Another reform that could provide more homes that people would actually enjoy living in and looking at would be to boost the “self build” sector. There is already a Right to Build which “requires all local authorities in England to assess demand from individuals and groups of individuals that want to build their own home, and to grant sufficient planning permissions for serviced plots to meet that demand”.

At the moment financial burdens such as the Community Infrastructure Levy and Section 106 contributions hit too many small builders — even when exemptions are achieved there is the delay and legal costs of dealing with the red tape. As with other industries its not so bad for the large firms who can cope more easily with the extra admin and have the advantage of their competitors being thwarted.

The Government could level up the playing field by selling off more of the (vast) quantity of surplus public sector land — with the proviso that some of it be allocated for self-built homes.

Then we have all the perversity and muddle of the VAT rules when it comes to providing new homes. Building a new home does not incur VAT. On the other hand it does if you are restoring an empty home to bring it back into use. Sometimes if it is in a derelict state this encourages knocking it down altogether to avoid any risk of a tax bill.

For the self-build industry the “golden brick” VAT requirements are a great nuisance, as they makes it harder to recover the VAT for the initial stage of building foundations.

VAT rules, infrastructure levy exemptions, change of use amendments. All very dull. Unless you happen to be trying to provide a new home. Announcing the removal of some of these obstacles would not cause rowdy scenes in the Commons on Monday. They might not make the front pages of the papers the next day. Yet they would provide hope to a generation worried about their aspiration for home ownership being blocked. For a Chancellor of the Exchequer in a Conservative Government that would be a quiet but important achievement.

Harry Phibbs is a freelance journalist.