Osborne's feeble response to the growth crisis

You can't fault the Chancellor's chutzpah. But his growth strategy is paper thin.

As ever, George Osborne summoned a special chutzpah for his speech to the Conservative conference. In the midst of a growth crisis, he warned that "we should not talk ourselves into something worse", as if he had never spread the myth that Britain was on the "brink of bankruptcy". He insisted that the government could not afford to borrow a billion more to stimulate the economy, forgetting that he announced £46bn of extra borrowing at the Budget. And he hailed the "precious stability" that his deficit reduction plan had brought, failing to mention that it left us with a lower growth rate than every G7 country except Japan.

"Don't tell me this government isn't going for growth," the Chancellor snapped, taking a swipe at Labour and Conservative critics alike. But there were few signs of a change of gear. Osborne's response to the growth crisis? A re-announced £805m council tax freeze that will do nothing to cancel the damage wrought by his £12bn VAT rise.

The Chancellor's wager is that loose monetary policy (interest rates and the exchange rate) will compensate for tight fiscal policy (spending cuts and tax rises). He was clearer than ever on this point today. "We are fiscal conservatives and monetary activists," he declared.

The biggest difficulty for the government is that Osborne has few monetary weapons at his disposal. Interest rates are already at record lows and the exchange rate has fallen sharply since the crisis began in 2008. By contrast, after the savage cuts of the 1981 Budget, Geoffrey Howe was able to loosen the money supply by cutting interest rates by 2 per cent. Insofar as the government has a plan B, it is for further quantitative easing (QE). But with the cost of unsecured loans significantly higher than before the crisis, it is far from certain that another monetary injection will have the desired effect. Today, Osborne promised to begin "credit easing" - government lending to small businesses - a tacit admission that Project Merlin - the government's much-vaunted agreement with the banks - has failed.

It was telling that the most effective passages in his speech were not on the economy but on politics. Like his predecessor, the Chancellor is never happier than when identifying a dividing line (see Rafael's blog for more on this) or a partisan jibe. He quipped that Labour had ceased to be a "producer or a predator", one of the best attack lines of the conference season. He rebuked Vince Cable, who described some Tories as the "ideological descendants of those who sent children up chimneys", by noting that it was a Conservative who abolished the practice and that the Liberals objected. And he described Manchester as the city where Rutherford split the atom and the Miliband brothers split the Labour Party (a decent gag by his standards).

Unlike Cable, who spoke only of "grey skies" in his speech, Osborne ended by turning his gaze to the sunlit uplands, "the calmer, brighter seas beyond". Channeling Jim Morrison, he insisted that we would "ride out the storm together". One can only respond, not with your plan, we won't.

George Eaton is political editor of the New Statesman.

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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