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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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.