Don’t make the same mistakes as Canada

Canada’s spending cuts solved a debt crisis but also created mass homelessness.

Who can persuade the government not to follow a deficit reduction model that solved a debt crisis but left in its wake mass homelessness and an even deeper housing shortage? Speaking in the Commons this month, the Chancellor said "we need to look to Canada and their experiences in the early 1990s when they too faced a massive Budget deficit".

True, the Liberal administration there turned a 9 per cent deficit into a surplus in just three years. But the cuts, which included slashing funding for affordable housing, had devastating consequences.

They brought homelessness -- previously a marginal problem -- into the mainstream, hitting families and older people for the first time and forcing the Canadian government to spend even more money in emergency funding. The country also faced a shortage of social housing where supply ground to a halt.

The experience shows how cuts to housing can damage the wider economy. So why is George Osborne looking to the same model to slash our deficit?

In next week's emergency Budget, £610m in funding earmarked for new social and affordable homes is at risk. Coupled with the £150m of cuts announced in May, this would mean 12,625 fewer homes built per year and 19,000 job losses at a time of record unemployment.

Shelter analysis released earlier this week shows that for every pound chopped from public investment in new housing, the economy will take a hit of at least £3.50. Predicted cuts could cost the economy £2.7bn, and this couldn't come at a worse time.

Housing doesn't sit in isolation: cuts not only mean fewer homes for the 1.8 million households on waiting lists. They also bring the loss of jobs, skills and economic benefits that new homes provide.

Pulling funding quickly before the housebuilding industry has recovered would drag an industry of critical importance to its knees, and bring housebuilding to a standstill. Every year we fail to build, we sink deeper into a housing crisis, which will eventually become impossible to get out of.

Large-scale job losses would also cause a skills drain that we know, judging by the last recession, could take a decade to recover from. When housebuilding does pick up again, we won't have the capacity or the expertise to build the homes we need. We owe it to future generations to continue investment so they are not saddled with this legacy.

Housing is one of the keys to economic recovery. More homes built means more jobs, more tax revenue and reduced welfare payments at a time when government is desperate to hack back the housing benefit bill.

It also acts as a catalyst for other markets and is the foundation on which many industries are built.

If the government is to make cuts, they must be intelligent cuts. Working closely with organisations such as Shelter will be critical -- or we will all be paying the price.

Campbell Robb is the chief executive of Shelter.

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Campbell Robb is chief executive of the housing charity Shelter.

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What is the EU customs union and will Brexit make us leave?

International trade secretary Liam Fox's job makes more sense if we leave the customs union. 

Brexiteers and Remoaners alike have spent the winter months talking of leaving the "customs union", and how this should be weighed up against the benefits of controlling immigration. But what does it actually mean, and how is it different from the EU single market?

Imagine a medieval town, with a busy marketplace where traders are buying and selling wares. Now imagine that the town is also protected by a city wall, with guards ready to slap charges on any outside traders who want to come in. That's how the customs union works.  

In essence, a customs union is an agreement between countries not to impose tariffs on imports from within the club, and at the same time impose common tariffs on goods coming in from outsiders. In other words, the countries decide to trade collectively with each other, and bargain collectively with everyone else. 

The EU isn't the only customs union, or even the first in Europe. In the 19th century, German-speaking states organised the Zollverein, or German Customs Union, which in turn paved the way for the unification of Germany. Other customs unions today include the Eurasian Economic Union of central Asian states and Russia. The EU also has a customs union with Turkey.

What is special about the EU customs union is the level of co-operation, with member states sharing commercial policies, and the size. So how would leaving it affect the UK post-Brexit?

The EU customs union in practice

The EU, acting on behalf of the UK and other member states, has negotiated trade deals with countries around the world which take years to complete. The EU is still mired in talks to try to pull off the controversial Transatlantic Trade and Investment Partnership (TTIP) with the US, and a similar EU-Japan trade deal. These two deals alone would cover a third of all EU trade.

The point of these deals is to make it easier for the EU's exporters to sell abroad, keep imports relatively cheap and at the same time protect the member states' own businesses and consumers as much as possible. 

The rules of the customs union require member states to let the EU negotiate on their behalf, rather than trying to cut their own deals. In theory, if the UK walks away from the customs union, we walk away from all these trade deals, but we also get a chance to strike our own. 

What are the UK's options?

The UK could perhaps come to an agreement with the EU where it continues to remain inside the customs union. But some analysts believe that door has already shut. 

One of Theresa May’s first acts as Prime Minister was to appoint Liam Fox, the Brexiteer, as the secretary of state for international trade. Why would she appoint him, so the logic goes, if there were no international trade deals to talk about? And Fox can only do this if the UK is outside the customs union. 

(Conversely, former Lib Dem leader Nick Clegg argues May will realise the customs union is too valuable and Fox will be gone within two years).

Fox has himself said the UK should leave the customs union but later seemed to backtrack, saying it is "important to have continuity in trade".

If the UK does leave the customs union, it will have the freedom to negotiate, but will it fare better or worse than the EU bloc?

On the one hand, the UK, as a single voice, can make speedy decisions, whereas the EU has a lengthy consultative process (the Belgian region of Wallonia recently blocked the entire EU-Canada trade deal). Incoming US President Donald Trump has already said he will try to come to a deal quickly

On the other, the UK economy is far smaller, and trade negotiators may discover they have far less leverage acting alone. 

Unintended consequences

There is also the question of the UK’s membership of the World Trade Organisation, which is currently governed by its membership of the customs union. According to the Institute for Government: “Many countries will want to be clear about the UK’s membership of the WTO before they open negotiations.”

And then there is the question of policing trade outside of the customs union. For example, if it was significantly cheaper to import goods from China into Ireland, a customs union member, than Northern Ireland, a smuggling network might emerge.

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.