The Tories will find it harder to justify austerity now growth has returned

As the economy accelerates, it will become increasingly difficult for Osborne to defend the 1% cap on public sector pay rises.

With the return of growth (some forecasters predict output as high as 3% next year), the Tories are increasingly confident that they can win the next election. While vulnerable to Labour's charge that this is a "recovery for the few, not the many", with living standards falling even as GDP rises, they argue that higher growth will soon translate into higher salaries. As George Osborne remarked after the publication of the most recent GDP figures, “If Britain is growing then the finances of Britain’s families will start to grow.” The unspoken assumption is that so, too, will the Tories’ poll ratings.

But as I write in this week's NS politics column, Labour doesn't buy this optimistic analysis. In its view, the link between higher growth and higher wages has been severed and will not be easily repaired. Ed Miliband’s team point to the pre-crash period, when incomes for millions of low-and middle-income earners stagnated even in times of strong growth, as evidence that the market can no longer be relied upon to deliver for the majority. In an economy as unequal as Britain’s, any gains quickly flow to the top. If there is wage growth before the election, it will be of the unbalanced kind seen in April, when high earners collected their deferred bonuses in order to benefit from the reduction in the top rate of tax (the one month since May 2010 in which real incomes rose).

A further problem for the Tories is the issue of public sector wages. In his most recent Budget, George Osborne extended the 1% cap on pay increases until 2015-16, entailing further real-terms cuts for workers. But with the return of growth, such austerity will become harder to justify; voters will want their slice of an expanding cake.

If, as the Tories hope, private sector earnings begin to rise, they will no longer be able to defend public sector pay restraint on the grounds of fairnes, while voters in general are likely to become less sympathetic to the case for deficit reduction as growth accelerates. One reason why Osborne imposed immediate cuts in 2010 was that he feared they would be harder to defend if he waited until a strong recovery was underway.

If the Tories want to win over the voters they will need to remain the largest party in 2015, they would be wise to offer some relief to the public sector. As Renewal, the Conservative group aimed at broadening the party's appeal among working class, northern and ethnic minority voters, has noted, the majority of Tory target seats have a higher than average share of public sector workers, including 60% of Labour-held targets and half of the top 20 Lib Dem-held targets. While the Tories are likely to pledge to cut taxes for all workers, in the form of a £12,500 personal allowance, they should also consider easing the squeee on the public sector.

George Osborne and Michael Gove listen to speeches at the Conservative conference in Manchester earlier this month. Photograph: Getty Images.

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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