I'm afraid you can't do that, Dave. Photo: Getty Images
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David Cameron's sums don't add up - his cuts would hurt, not help, the working poor

Cameron's merry-go-round isn't as crazy as it sounds - and his attempts to fix it would deal real damage. 

Yesterday's speech by David Cameron, while light on specifics, sets out the broader argument likely to be used by the government to justify the £12bn of welfare savings needed to meet their deficit reduction plan. The key claim in the speech is an assertion that the state currently supports living standards among the low paid through a 'merry-go-round' of taxing their income before handing it back in the form of in-work benefits, such as tax credits. Therefore, it follows that it is possible and desirable to reduce the tax burden on low-income households while also cutting their entitlement to tax credits.

Indeed, over this parliament the government plans to raise the personal allowance to £12,500 in order to take minimum wage workers out of tax altogether. We still don't have much detail of which working-age benefits are expected to be cut in order to reach £12bn, outside of a few small savings such as a two-year freeze in the value benefits. One suggestion that has been discussed at some length is a potential cut in the real value of Child Tax Credit, a key working-age benefit, to its 2003-04 value. Another idea that has been floated is to restrict entitlement to Child Tax Credit to only the first two children in a family.

Comparing the impact of these changes, a generous income tax cut and a dramatic reduction in tax credits, allows us to test Cameron's claim. The chart below shows the average change in family income in each decile of the family income distribution (from the poorest to the richest) from increasing the personal allowance to £12,500 and from restricting child tax credit to two children as well as decreasing its value to 2003-04 levels.

The chart shows that the vast majority of the gains from the income tax cut flow to those households higher up the income distribution, The child tax credit changes, on the other hand, would see those in the bottom half of the income distribution lose far more than the receive back in the form of tax cuts.

The government may not go ahead with these specific proposals on Child Tax Credit, but it is likely whatever package of welfare reductions they settle on will have a similar impact of taking hundreds of pounds from families in the bottom half of the income distribution. The overall picture is that the planned income tax cuts will do little to compensate those families likely to be hardest hit by cuts to working-age benefits.

Spencer Thompson is Economic Analyst at IPPR

Spencer Thompson is economic analyst at IPPR

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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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