As UK borrowing costs rise, can the budget deliver good news for long term investments like infrastructure and housing?

In just a few weeks, Chancellor Rachel Reeves delivers her first budget, and notably the first budget from a Labour Government in 14 years, alongside announcing new fiscal rules.

Having promised at conference that there will be ‘no return to austerity’, despite the £22 billion black hole undisclosed by the previous government, many will be wondering how the pledge to ‘fix the foundations’ and to ‘rebuild Britain’ will translate into actual spending on public services and capital investment going forward.

Straight after the election, 20 of England’s largest council landlords jointly published an interim report, commissioned by Southwark Council, calling on the new government to start a ‘decade of renewal’ to save council housing. By September, over 80 more council landlords backed the recommendations and signed the Securing the Future of Council Housing report, representing 1.2 million homes.

With securing public funding for housing and future revenue at its core, the council landlord group put forward five solutions, the first of which being the implementation of a “new fair and sustainable Housing Revenue Account (HRA) model” to include an urgent injection of £644m one-off rescue payments, and “long-term, certain rent and debt agreements”.

Reducing the cost of borrowing for council housing from the Public Works Loan Board (PWLB) to the previous rate of 0.15% above central government’s borrowing costs, was also called for, while “confirming a commitment to maintain rate stability for the long term”.

The report cites that that some councils “are now spending more on servicing debt than on delivering local services”

The other recommendations are: Reforms to unsustainable Right to Buy policies; Removing red tape on existing funding; A new, long-term Green & Decent Homes Programme; Urgent action to restart stalled building projects, avoiding the loss of construction sector capacity and a market downturn

Leader of Southwark Council, Kieron Williams said at the time of reports publication that: “erratic policy choices from our last government have left council housing finances completely broken and the system’s future is in danger. Councils are being forced to cancel new build developments, and even sell off council homes, to focus on keeping their existing residents safe.”

Bristol, one of the first councils to sign up to the call for these changes, has already started to see some of the consequences of what has been warned.

At a recent homes and housing delivery committee, the city council announced it would be withdrawing from two of its developments, both with planning permission already in place, as it can no longer afford them due to needing to re-focus funds on the improvement of existing stock. Together, these schemes would have totalled 172 much needed social rent and shared ownership homes, which over time, would have provided a long-term financial return for the council and the public purse.

Rather than build these homes themselves through the council owned housing company, the committee chairman said that it was likely that these would be bought by a registered social housing provider.    

The mechanism of building homes at any scale, where housing builders are under contract to the council, and therefore have a buyer ready to receive them makes excellent business sense but this can only be achieved if the borrowing rates and conditions are right for the, already stretched, public sector to sign up to.

As the number of local authority signatories to the report suggests, the extreme challenge of funding council housing is felt universally across the country. The question is, will the 30th October bring ‘A budget to rebuild Britain’ unlocking additional spending, or will councils need to find some other way to fund the homes and infrastructure of the future?

Report: https://www.southwark.gov.uk/housing/securing-the-future-of-england-s-council-housing