UK Economy: Growth, Inflation and Productivity

Baroness Thornhill Excerpts

Thursday 29th June 2023 Lords Chamber

[Baroness Thornhill (LD)]

My Lords, I add my thanks to the noble Lord, Lord Eatwell, for securing this important and timely debate. Although I am not an economist nor a financial expert—but feel very much that I am surrounded by them today—I do know housing and am going to focus on the contribution that housing and construction bring to our economy and the housing impact of the current financial crisis on millions of households.

In the longer term, the construction industry can and should be part of the solution to the economic crisis and low levels of productivity. We know we need more homes, though it seems that the nimbys have gone bananas—“build absolutely nothing anywhere near anybody”—and the yimbys’ voice is not being heard loudly enough. It is devastating that progress made in recent years, though still short of the much mentioned 300,000 homes a year, has been slammed into reverse by recent ministerial announcements and proposed changes to the planning framework and the National Planning Policy Framework.

Building homes supports local jobs and apprenticeships, generates billions in economic activity, provides investment for much-needed affordable homes and improvements to local infrastructure, not to mention billions in tax and millions in council tax. More employment means more money cycling through local communities, as well as opportunities for regional growth. The real need is for homes for social rent. Last year, 29,000 were demolished or lost under right-to-buy sales, yet fewer than 7,000 were built as replacements. A nationwide programme would surely kick-start the economy—if only.

In the meantime, millions of people are forced to live in poor-quality, prohibitively expensive private rentals, or are stuck in temporary accommodation or sleeping on the streets. All of these are increasing. Private rents are up; the latest figures from Zoopla see rental inflation running in double digits for the 15th consecutive month. Rents are growing faster than average earnings; rental costs as a proportion of earnings have reached their highest for a decade. Of course, it is the lowest paid, as ever, who are the worst off. Crisis reports from its findings that the poorest 10% of households are spending more than they earn on just rent, food and energy. That is clearly unsustainable.

After the low-waged, who is hurting the most? According to the Institute for Fiscal Studies it is the under-40s and those in London who have been bashed hardest by the mortgage-rise tsunami that is hitting Britain. It estimates that some 1.4 million mortgage holders will see their payments rise by at least 20%. Given that many have borrowed to their maximum, due to an unprecedented period of low interest rates which lulled everyone, especially the mortgage lenders, into lending and therefore borrowing much more, that could mean increases of several hundred pounds a month. Very few people have that kind of headroom in their disposable income simply to absorb these costs.

As a further blow to the economy, the latest figures on GDP growth from the ONS show that monthly construction output is falling. The greatest decrease is in private house repair and maintenance and in new build work, such as extensions and conservatories. That seems to be the first inkling that home owners are putting on hold any repairs or home improvements while times are uncertain. This will surely create a domino effect on employment and jobs and productivity in the sector.

We have not heard much about those in shared ownership agreements, who are seeing both their rents and mortgage payments simultaneously go up by 10%—that is not uncommon. It is worth noting that one person’s rent is another person’s mortgage—usually the landlord’s. They too face the same cost of living and mortgage rises, and are choosing either to sell up or to pass them on to their tenants, so those in the private rented sector are suffering considerably.

The average rent in the UK has risen by 11% across all tenures, with rent in the private rented sector rising much higher. Would the Government consider at least unfreezing the local housing allowance, which leaves renters facing an increasing gap between housing benefit and their actual rent? Given that we have yet to see the much-promised end of no-fault evictions, would the Government consider an eviction freeze under certain circumstances, as was seen during the pandemic? The Government have ruled out—rightly, in my view—a rent freeze for the private rented sector, but they have felt happy to impose one on the affordable housing providers. That helps tenants a little, as theirs is a much lower rent anyway, but not the associations whose finances are already challenging.

Perhaps the Minister can assure us that the Prime Minister, in his talks with mortgage lenders, will seek reassurances from them that the stress and affordability tests introduced after the 2008 crash will be stuck to, so that those in arrears will not have their homes repossessed. That would prevent the domino effect that that would then have on an already stretched system, with cash-strapped councils picking up the evicted and the homeless.

For now, the message from the Bank of England—and possibly from the Government—is clear: it is prepared to sacrifice the housing market to bring down inflation. However, there is a very fine line between tackling inflation and pushing people into the red and out of their homes. That has a cost too. What are the Government’s short-term plans for those in immediate crisis? What is the longer-term game plan to get us building, at scale and volume, those much-needed homes?