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It’s hard to keep up with the scale of the challenge that lies ahead for Andy Burnham and John Healey because, put simply, it keeps getting bigger.
But what if there was one simple policy tweak to our fiscal rules that our Chancellor and Prime Minister could make to get Britain building the new housing, towns and infrastructure we need to drive growth and improve everyone’s lives?
This week, the Institute for Fiscal Studies (IFS) are warning that Healey needs to find £35bn to plug a hole in his autumn Budget caused by an inflation shock from Trump’s war with Iran and his pledge to raise defence spending to 3 per cent of GDP by 2030.
A debate will rage between now and said Budget about what, if anything, Healey might conspire with Work and Pensions Secretary Pat McFadden to cut from welfare in order to find the money Britain currently lacks.
What will get less attention, however, is the fact that the financial pressures caused by wars in the Middle East jeopardise two of Labour’s landmark programmes and promises which Housing Secretary Angela Rayner will currently be trying to secure cash for.
The first is the next tranche of funding for Labour’s £39bn social and affordable homes programme (SAHP). Just under £10bn was announced at the start of September, but Burnham’s council housebuilding push cannot happen unless more money is brought forward.
The second is Labour’s “next generation” of new towns which, we were promised, would see seven new settlements with a minimum of 10,000 homes each built across England.
Behind the scenes, there has been a fair amount of wrangling over the funding of new towns. Much of it happened when Sir Keir Starmer was still prime minister, and Rachel Reeves was still chancellor. Towards the end of their tenure, it was suggested that private finance would be needed to see the plans through because there was so little scope for capital investment from the state.
Long term, building new towns and social housing would not only increase growth but also generate new jobs and lower the cost of housing for people who have become homeless.
If public investment were used to build homes that would pay for themselves via social rent, or new towns which would see the taxpayer gain a very healthy return on their investment via land value increases and rents, both of these endeavours would create new income streams for the state and be an example of the “spend to save” economics that Burnham has repeatedly said he favours (including in an interview with me in 2024).
And yet, over halfway through this parliamentary term, progress on each of these projects is sluggish at best.
Britain would build more if it learned from these European countries
Part of the problem Healey and Burnham face here is that they are bound by the same fiscal rules that Starmer and Reeves committed to. The current fiscal framework mandates that public sector net financial liabilities must fall as a share of GDP by 2029-30, sharply restricting the amount the Government can borrow.
As a result, Britain’s Government finds itself in something of a financial straitjacket which prohibits it from borrowing money to invest in housing and infrastructure.
It doesn’t have to be like this. Britain could get on with building if we took a lesson from the European countries that do it best. A simple lesson, at that.
In Europe, debt held by public non-financial corporations – like the development corporations that housing minister Matthew Pennycook says should oversee new towns or council-owned housing companies – is not subject to the fiscal rules in the same way as central government debt.
So, as various British think-tanks have pointed out, if Britain’s Government changed the fiscal rules so that such bodies were excluded from the fiscal rules on debt, then a whole new generation of public organisations could deliver new housing and infrastructure.
Broadly speaking, Britain is much worse at building new homes than our European neighbours.
As the Centre for Cities has noted, because of the way our planning system has restricted the availability of land, the restriction of funding for new social and council homes and the lack of public capital investment in housing and new towns overall since the 80s, Britain has lagged behind Europe, building fewer new homes than France, Germany, the Netherlands, Sweden and Finland in particular.
This research suggests that failing to build social housing is a key reason why Britain’s housing stock has not increased at the same pace as other European nations.
Consider France.
In Paris, Paris Habitat – the country’s largest public housing developer – manages more than 120,000 homes.
In 2020, Paris Habitat transformed a 17th-century military barracks into a new eco-neighbourhood called Caserne de Reuilly, which includes 582 social and affordable homes with public gardens, a nursery and a student residence.
And Finland, where rough sleeping has almost entirely been eradicated because municipal housing companies continue to deliver social and affordable homes, which are financed through interest subsidy loans granted by a commercial bank or other financial institution like MuniFin.
Having recently visited France and the Netherlands, I won’t pretend that they don’t have their own housing crises. However, it is striking how much more municipally minded they are when it comes to building. Paris, for instance, has a mandate that at least 25 per cent of housing in the city must be social.
The reasons why Starmer and Reeves committed to their fiscal rules are important. Britain is carrying too much debt and, as a result, we are too often a hostage to fortune in global markets at a painfully volatile moment in modern history.
Somewhere, Reeves is smiling. Despite the difficulties Britain’s economy faces, it has proved tougher than many experts expected, especially amid headwinds from the closure of the Strait of Hormuz.
Just a few days after the IFS’s warning, the International Monetary Fund published new projections at its annual meeting in Bangkok, forecasting that Britain’s economic growth would be 0.3 percentage points higher than it had previously thought at 1.3 per cent.
Now, this is not high enough. It’s not a figure that is cause for celebration. But it does vindicate Reeves and offer some room for manoeuvre to Healey.
A simple tweak to the way debt incurred to invest in housing and infrastucture is classed and carried could change Britain’s fortunes even more.
By setting up the development corporations Labour promised, and exempting them from the fiscal debt rule, Burnham and Healey could deliver everything Labour has promised, make sure Britain remains financially responsible and achieve that elusive growth that we so urgently need.
Housing crisis watch
It is rumoured that the Government might axe funding for heat pump grants in a bid to cut hundreds of millions of pounds from the Boiler Upgrade Scheme (BUS), a flagship element of the Warm Homes Plan. My colleague Alannah Francis has written about the potential fallout of this here.
Next up, on the subject of new towns, later this week, the House of Lords Built Environment Committee will publish its findings after months of grilling experts in a bid to find out what is needed to get new towns up and running.
And, finally, it’s worth paying attention to the fact that Professor Peter Fonagy cited unaffordable housing as a factor in the growing mental health crisis faced by younger people. You can read my column about it here.
What I’ve been watching and reading
Over the weekend, I went to see The Social Reckoning, which is Aaron Sorkin’s new film about Facebook. It centres around a major investigation which was carried out by former Wall Street Journal reporter Jeff Horwitz. Worth a watch.