This is the second of three articles on housing
Huge profits are being made out of housing when the Government estimates 4,266 people are sleeping rough. For example Barratts made pre-tax profits in 2019 of £909.8m – even after paying their Chief Executive £3.6m. Nationwide made £833m after paying its Chief Executive £2.37m and the Government collected £9.3m in Stamp Duty.
There is clearly scope to reduce the price of new houses – but this would have a knock on effect leaving many home owners in negative equity. Therefore the solution lies in addressing income inequality so that everyone is able to afford a roof over their head.
The pay of Chief Executives at businesses on the FTSE 100 index surged 11% during 2017. In contrast average earnings failed to keep pace with inflation, rising just 1.7% with inflation at 2.8%. During the banking crisis whilst the majority suffered austerity those we were led to believe brought about the crisis prospered. As a result of the crisis the share value of the banks fell, but after the Government bailed them out share values rose and half the money paid to RBS went straight out in bonuses which were related to share values.
There are now 3.9 million children living in poverty. The Government has focused on making work pay, but two in three children who are in poverty have a parent who is in work. Children brought up in poverty are less likely to do well at school, more likely to have health problems and have a shorter life expectancy.
According to Philip Alston, special rapporteur on extreme poverty to the UN, Government Ministers are in a “state of denial” with a fifth of the UK population UK, amounting to 14 million people, living in poverty.
At just 29% of national average earnings Britain has one of the lowest state pensions in the developed world, with much of Europe paying in excess of 90%. There are 1.9m older people living in poverty many of whom were forced into retirement and condemned to spending the rest of their lives in poverty. In that until 2011 it was perfectly legal to deny people work or retire them on grounds of age alone.
The funding crisis in health and social care could well be eased by increasing the state pension, to reduce demand, in that 4/5ths of the expenditure of the NHS goes on older people and there is a correlation between income and demand upon the NHS. £19.6bn was spent treating malnutrition amongst older people in 2017.
Perhaps legislation is required to restrict the pay of the highest paid Director / Employee of a company (including the banks and utilities and Chief Executives and Chairmen) to an agreed multiple of the lowest paid and bonuses to an agreed percentage of profits (not related to share values or multiples of salaries) and shared pro-rata amongst all who contributed.
Clearly this would not apply to people who get royalties from record or book sales or patents or fill theatres etc but to all those who are appointed to jobs in pre-existing companies. It is thought that Bob Diamond, a former Chief Executive of Barclays, took £125m out of the bank for his personal use during his five year tenure whilst making 30,000 people redundant and leaving counter staff over worked and customers queuing for service.
* Chris Perry is a former Director of Social Services for South Glamorgan County Council, a former Director of Age Concern Hampshire, a former Non-Executive Director of the Winchester and Eastleigh Healthcare NHS Trust and a former presenter of an award-winning public affairs programme on Express FM.
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22 Comments
I very much welcome this. As a party we need to take poverty seriously. We must consider not only the poor but also those who are threatened with poverty. Those for example who are threatened with redundancy, and those in poor health and have to struggle on at work. Apart from any consideration of electoral advantage or disadvantage this is the right thing to do.
Another excellent article from Chris Perry. I hope the leadership hopefuls and the rest of the parliamentary party have taken note.
It would also be helpful if the Social Liberal Forum, as Chris has done, endorsed the Alston Report and lobbied the parliamentary party to campaign on it. How about it, SLF ?
Yet another example of the ill thought out ‘bedroom tax’ legacy from the Coalition days…. BBC News today.
“The government must stop applying the so-called “bedroom tax” to domestic abuse survivors fleeing their partners, 44 MPs have written in a letter seen by the BBC’s Victoria Derbyshire show. One rape survivor, living in a home adapted for her safety, had her housing benefits cut because of her spare room. The European Court of Human Rights said her case was discriminatory. A government bid to appeal was refused”.
The government said it was “carefully considering” the court’s decision – having had the nerve and cheek to appeal. Let’s hope the Lib Dem MPs and leadership hopefuls read, learn and digest should they ever get anywhere near government again.
Why is it that boomer home-owners never talk about wealth inequality?
In what way is this an ‘article about housing’? Everyone knows there is an acute housing crisis in Britain, but I fail to see how nailing a few of the usual fat cat suspects is anything other than a pointless knee jerk gesture. The issue of housing need was raised here notionally in other recent contributions, but so far nobody in our party seems to have a clue how to solve it. Last September, the only Conference motion relating to housing concerned Assured Shorthold Tenancies. This Spring there is nothing – in fact I just cancelled my trip to York, not because of Coronavirus, but out of despair at the lack of inspiration and engagement with substantive issues on the agenda.
I re-joined the party last year because I wanted to support the Remain cause. Significantly, that was the only major issue on the agenda in Bournemouth; in fact, it is the only really big idea to emerge from the party in a decade. In the case of housing, and most other spheres, our party lacks the leadership and creativity to provide a clear strategic objective, that encompasses delivery as well as aspiration.
The demoralising impact of this current example is more in its puny narrowness of vision than its ineffectiveness. As such, it is emblematic of the failure of our party to come up with big ideas on the major concerns affecting people today. It appears to the world as though our vision is restricted to niche topics, and worse, the private concerns of special interest lobbies.
And this is the crux of the matter, because I suspect the party will soon start to lose members and supporters like me. You won’t hear much, or know why, but we will simply drift away for want of any real sign of serious political competence and inspiration.
Do we have multiple crises to address?
Climate degradation?
Housing?
Wealth creation, storage and distribution?
Ditto power?
Optional, often hybrid, foreign conflicts and interferences usually presented as “help and kindness”?
Infrastructure degradation?
Corporate media news manipulation and state interference with “The Media”?
( Might the Assange case also raise questions about state interference with our judicial system?)
Might we have some research, discussion, policies and ACTIONS on some, if not all, plus any others?
I disagree entirely.
Companies are owned by the shareholders. The state has no role in telling shareholders to limit what they pay to their employees. It is up to Barclays shareholders to decide what they pay the bank’s CEO, and nobody else.
India has such limits, and they are one of the reasons why India’s economy performs less well than it could.
“There is clearly scope to reduce the price of new houses – but this would have a knock on effect leaving many home owners in negative equity.”
A significant fall in house prices would also collapse the economy. The UK economy floats on a sea of private debt with house and land used as collateral . It’s all been done as a deliberate choice. Someone in the UK has to be in deficit. The Govt has decided that Govt deficits are a bad thing so they’ve simply shifted the burden to the private sector.
“Therefore the solution lies in addressing income inequality so that everyone is able to afford a roof over their head.”
I’m not sure I follow this. I would have thought it was more about wealth inequality than income inequality. Consider the, not untypical, situation of owner occupiers living next door to tenants. The properties are similar. Their gross incomes are similar. However the tenants are paying out around £12,000 p.a in rent. The owner occupier’s balance sheet benefits whenever property prices rise.
A fair IHT levy of 5-10 percent on all inherited wealth, double for trusts and companies used to avoid it, money ring-fenced for social housing would not be a bad starting point.
As Tom says, this is a really important topic and needs to be front and center of our thinking. But, as Brian (pleas don’t leave !), Mohammed and Peter have said in different ways, I’m not sure there is an answer here.
The question of the housing crisis is not directly linked to the issue of fat cat salaries and the idea that “there is scope to reduce the price of new houses” is fantasy economics. Barratt Developments make a profit of about 13% on the assets employed of over £7bn. 60% of this profit is distributed to shareholders in dividends. That’s your ISA and my pension !
If they want to give their CEO £x, then that’s their problem. If our government isn’t prepared to levy fair taxes, then that’s ours !
It doesn’t help that In the UK the very rich like to keep their cash for themselves, in the USA philanthropy is expected. “The man who dies rich dies in disgrace”, as Andrew Carnegie said.
There is no simple answer to income inequality. David may be right about the effects of the bedroom tax on individual families, but a fairer benefits system will only ever be a part of the answer. Have governments of all political persuasions not been struggling with this problem for the best part of a century ? Supply side reform (e.g.decent vocational education) and a guaranteed citizens wage might be part of the answer as well.
As for housing, decent private sector housing has always been beyond the pocket of the average working family, hence the need for state provision. And that’s as true today as it was in the 1930’s when my grand parents rented a floor of a town house in Hackney. A person today on a wage of £30 k may get a £120k mortgage. Try getting on the housing ladder for that in much of the UK.
The source of the housing crisis is not difficult to pinpoint. Shelter explains here https://blog.shelter.org.uk/2018/08/land_reform/
” The root of England’s housing crisis lies in how we buy and sell land.’ Think of a problem with the way we build homes – or don’t build homes – and in the end it comes back to our broken land market.
Why is the market broken?
In our housebuilding system, landowners face a choice:
I can sell my land now based on current prices
I can wait and almost certainly get more for my land later
A landowner can always choose to hold their land back from development in the hope of a better price tomorrow. And because, in the end, house prices (and so land prices) always rise, holding out for a brighter tomorrow is often the most rational choice. If a piece of land is to be developed, the offer made to a landowner has to be attractive enough to overcome this hurdle. And so, the value of each individual parcel of land is maximised so that it is as profitable as possible for the landowner.
So land traders imagine a scheme with the highest house prices and the least social housing possible, skimping on size standards, quality and investment in transport and other infrastructure. The objective is to minimise costs and maximise anticipated sales values. That allows land traders to pay more for land, so they win bids.
Once these assumptions have been used to drive up the cost of land, the scheme dreamt up by the land traders is the only one which can be built. A developer who bought this land and tried to build affordable housing on it would find themselves with significant losses. If all this means the scheme will need to build out at a snail’s pace, waiting for buyers looking for homes at the top of the market to come forward, so be it. This isn’t just Shelter’s view. The recent draft analysis of Oliver Letwin’s independent review of build out rates for government also found that the way land is valued pre-determines what can be built, at what price and at what pace.
This is why newly-built homes in England cost on average £60,000 more than existing homes. It’s why the luxury market in London has been oversupplied to breaking point, with 1.6 luxury starts for every 1 sale between 2015 and 2016. And, of course, it is why the market for homes which are affordable to ordinary people on ordinary incomes is desperately undersupplied.”
Cannot the Govnt pay the landowner for the land and then the builder the house. Then the landowner and builder can arrange the rent/ cost of the house. It coild reduce the cost of the house for lower incomes to get on the ladder.Rent it 1st then as income grows obtain a mortgage. In the meantime people already owning a house can hire out the bedroom Equally ,a new idea I hear is that of building an extra floor on a house that can be used to house the children or accommodate another charging rent etc. This would allow income to come into the house owner, a way of combating the drop in house price.
THOSE who own land should be given no more than 6 months to hold the land .Then by law the govnt buys the land and after another 6 months it is built on. LibDem land value tax could be used as an alternative and the tax is increased each year till it is built on.
Two Coronavirus-related articles have been published on this forum, but by now only 5-6 people have comments there. Please, guys, have a look at them. You must see in the pandemic a golden opportunity to distinguish ourselves to public, starting by loudly criticizing the government’s current lack of strong actions and call for aggressive testing, which is currently being done with significant success in South Korea.
Note: you guys ought to do research on how Korea is handling the pandemic and getting it under control.
Judging by the comments there’s a split between members that want a more progressive approach to directly targeting economic inequality. And economic-liberals who baulk at the idea of the state interfering in private businesses.
I hope this debate gets further exposure, and that it’s part of the leadership contest.
Thank you for this article Chris. We Lib Dems must address the complex issues of poverty or we have no purpose as a political party. If work doesn’t raise you out of poverty then we are back in the situation of the 19th and early 20th centuries when a large proportion of the workforce were treated badly to increase the profits of the wealthy.
We have to readjust the balance if the kind of society we believe in is ever to exist.
This valuable article would have attracted less diverse comments if it had indeed concentrated on Reducing Income Inequality. It is full of ideas that are worth pursuing; the trouble is, as Steve Trevethan muses, that it suggests all the major issues we should take up. I, like David Raw and Sue Sutherland, want us to concentrate on ‘the complex issues of poverty’, and welcome the author’s reference to the 14 million living in poverty here today. Are they being aided by today’s Budget? I shall be surprised if so.
Joseph, you quote from the Shelter report, and it is of course true that shortage of social housing and housing costs, whether to buy or to rent, contribute much to the continuation of poverty. Could you please reiterate what needs to be done, in reform of the Land Compensation Act, and in Land Value Taxation? Should we not be mounting a continuing campaign to get these reforms? Please lead us on this. Reading the author’s opening paragraph made me think that there should be a windfall tax on the house-builders’ profits in the meantime.
It would indeed be tempting, Chris, to propose legislation to enforce a limit on some Chief Executives’ remuneration, in relation to their workers’ income. The idea should surely be promoted, to achieve public acceptance that there should be such a relationship, before it has any chance of being enacted. I am also impressed by your pointing out that 1.9 m. pensioners now live in poverty. It may indeed be the case that many who retired early in the happy days when it seemed good to do so, now find that with expectation of living to a ripe old age and no chance of increasing savings, what appeared to be more than sufficient wealth is no longer so. (I declare no interest for myself in writing this, but certainly on behalf of a close friend.)
Finally on this, however, I cannot go along with Brian Edmonds’ comment. This party is concerned with income inequality, with health inequality, and (yes, TCO) with wealth inequality too. We certainly do ‘have big ideas on the major concerns’, and not only in articles here, but in policies as well.
Katharine.
Chris complains of the huge profits being made from housing and in his first article writes “Despite schemes like “Help to Buy” …there are too few would be first time buyers able to afford them.”
It is important to recognise that it is because of schemes like help to buy that house prices and the mass housebuilders profits are as high as they are https://www.lovemoney.com/news/85788/help-to-buy-housebuilders-cost-fees-government-loans-isas
Social inequality arises as a legitimate consequence of economic activity; some people are more talented, work harder, or are simply luckier in their enterprise than others. It is in the interests of society to reward wealth creating behaviour. However, there is no justification at all for a tax and subsidy system that promotes inequality, as happens in the UK. Taxes on wealth in the form of land and buildings must be part of a fair system, operating along with income tax. Property ownership is an excellent indicator of overall wealth, and is easy to identify: land cannot be moved or taken offshore, unlike financial assets.
There is a popular belief that income tax is the fairest tax, since it reflects ability to pay. This is wrong. Income tax is easy to extract, and for the very wealthy is relatively painless: but it does not truly reflect ability to pay. LVT must be part of a progressive tax system. With a tax system based mainly on earned income, middle income earners will continue to complain bitterly that their taxes are too high. They will be right, but the real pain will be endured by the poor.
Politicians must find the courage to tax wealth, not just income, or gross inequality will continue to afflict British society.
ALTER is the Libdem associated organisation that lobbies the party to adopt Land Value Capture policies. Members interested in furthering these efforts can join or donate here https://libdemsalter.org.uk/en/page/join-alter
Thanks for responding, Joe. But though having just learnt from Michael that York is cancelled, I think I will still go to bed earlier than the 2 or 3 am of recent nights, and comment again in the morning. Useful and enjoyable dialogues recently, I appreciate! And now it can’t be face-to-face for a while. Best wishes to you and yours.
“There is no justification at all for a tax and subsidy system that promotes inequality, as happens in the UK.” I understand and agree with you, Joe, and with ALTER. What I am not clear about is how far all this is party policy, as I know some of it such as taxing wealth already is, and think all of it should be. Do you know if we have deplored Help to Buy? (I gather there is a new Rent to Buy scheme, which sounds more useful.) I really do think there should be a windfall tax on the house builders, but it isn’t going to happen!
Let us make Land Value Taxation and the rest of it central to the party’s attack on poverty, along with other agreed ways to increase the income of the poor. Attention must now turn to Autumn Conference decision-making, so I wonder if a new policy motion bringing together and developing existing agreed measures could be proposed by you?
Katherine,
Alter’s focus this year is centred on council tax reform and we will be looking to support a policy motion in this area at Autumn conference.
We are also supporting the APPG on Land Value Capture which is a cross-party initiative. This article https://www.libdemvoice.org/the-planning-affordable-housing-and-land-compensation-bill-60066.html discusses the issues the group is seeking to progress, now that the new Parliament is sitting. , The Labour MP Helen Hayes has taken over the chair from Vince Cable. This is her article for the Fabian society https://fabians.org.uk/reforming-the-plan/?fbclid=IwAR2_C-QNh-E3_66qu1NvkGGfujlLg-e5TYEN3_ITSYzatDyzrweMu9zRynQ
That is a helpful update, thank you, Joe, We will hope the deliberations at the APPG result in proposed legislation, though none is so far forthcoming, but I am pleased to hear that council tax reform is to be the subject of an ALTER proposed motion for our autumn Conference.
I suppose more generous financing of local government to allow depleted services to expand again is not yet proposed, and surely must be demanded from this government. We have fortunately a powerful voice in local government now; without May elections to fight, perhaps our LG association can co-ordinate pressure?
(Katharine with an ‘a’ again, please. Best wishes for your continuing activity on all fronts.)