Labour and the Housing Crisis – Part 3.

Council housing, the welfare state and local democracy

By Eamon Dyas

“The Welfare State is a form of government in which the state protects and promotes the economic and social well-being of the citizens, based upon the principles of equal opportunity, equitable distribution of wealth, and public responsibility for citizens unable to avail themselves of the minimal provisions for a good life.” – Encyclopaedia Britannica.

As indicated in the previous issue of Labour Affairs I had intended to examine the role of John Major’s Government and his “Citizen’s Charter” as well as the significance of New Labour’s idea of the “Stakeholder” in the way the concept of the citizen has changed, particularly in the realm of housing policy, since Margaret Thatcher’s election in 1979. However, on reflection I realised that the events leading up to that election required further explanation in order to place subsequent developments in their proper context. Consequently, I have delayed dealing with that aspect of the housing issue until a later date.  

Housing provision as part of the Welfare State

When Thatcher came to power in 1979 the most vigorous elements in the Conservative Party had come to view council housing as the clearest example of the culture of dependency that had been created after the Second World War. The direction in which Britain had evolved since that time had created the “Nanny State” in which the people had been deprived of the power of choice over how they ran their lives. 

While other privatisations initiated under the Thatcher Government were provoked by a determination to “liberate the market” the privatisation of council housing was different. That particular privatisation, which was summed up by the phrase “Right-to-Buy”, related to something much more intimate as it involved a family’s relationship with its home. For that reason, housing represented the arena where Thatcher’s social philosophy could be most effectively applied and the seeds sown for permanent change. However, it would be wrong to think that it was Thatcher’s idea. In fact, it was an idea that pre-dated Thatcher’s leadership of the party and had been gestating inside the Conservative Party for a number of years. It was also an idea that had to await the circumstances when the electorate was ready for the change represented by Thatcher’s overall radical agenda. 

The essence of what Thatcher dismantled through her 1980 Housing Act was those residual parts of the Labour Government’s 1949 Housing Act that had continued to influence the housing policy of successive governments for the previous thirty years. What was forgotten by the electorate in 1979 and what has since been forgotten by the Labour Party is that the Labour Government’s 1949 Housing Act was seen at the time as an integral part of the post-war Welfare State that Labour was in the process of creating. Consequently, Thatcher’s success in this area represents the most significant victory of the Conservatives in rolling back the idea of the Welfare State up to that point.

When Aneurin Bevan became Minister for Health in 1945 he viewed the housing needs of the nation in the same vein as its health needs. Just like his idea for the National Health Service, he believed that the benefits of a housing policy for people who needed decent and affordable homes should apply to everyone. This sentiment was apparent in his introduction to the Government’s Housing Bill on the occasion of its second reading to Parliament on 16 March 1949. In that introduction he made it clear that the bill was not directed at the needs of the working class alone but to anyone of humble means who wished to be housed in decent accommodation. Towards that end he explained to the House of Commons that he sought to replace the use of the term “working class” in the context of housing needs in favour of the idea of the community’s housing needs. He went on:

“I am anxious that the House and the country should pay special regard to this, because, if the House will do me the honour of recollecting what I said on this matter in 1945, they will see that I said that in my view and, I believe, in the view of most people, it was entirely undesirable that on modern housing estates only one type of citizen should live. I referred to them then as ‘twilight towns’ and said that it was a reproach of our modern social planning that from one sort of township should come one income group and from another sort of township another income group. I said that if we are to enable citizens to lead a full life, if they are each to be aware of the problems of their neighbours, then they should be all drawn from the different sections of the community and we should try to introduce in our modern villages what was always the lovely feature of English and Welsh villages, where the doctor, the grocer, the butcher and farm labourer all lived in the same street. I believe that is essential for the full life of a citizen. I believe it is a necessary biological background for modern life and I believe it leads to the enrichment of every member of the community to live in communities of that sort. 

“Therefore, we are sweeping away all reference to housing of the working classes. Furthermore, what ought not to be regarded as a minor matter, we cannot get good architectural compositions into a township which has all the same type of house. We can only get the aesthetics of good modern architecture into a township which has the most variegated kind of housing in it. I hope I carry all hon. Members with me when I say that that inhibition should be removed and that local authorities should now be able to plan their estates in the way I have described. We believe it is essential that local authorities should also provide accommodation for single persons, for persons who are following professional life, and that they should provide for old people.” (Hansard, 16 March 1949).

The circumstances in which the 1949 Housing Bill was presented to Parliament were favourable to the radical measures proposed by Labour at the time. Britain had suffered significant physical damage during the Second World War. The housing infrastructure was decimated and when the war ended, aside from those destroyed, there were over 700,000 damaged homes in London alone in need of repair. Many Irish labourers, including my own father, came to London to work on bomb damage repair projects at this time. Housing repair and replacement was therefore a priority for any government. 

Therefore, when confronted with the scale of the task involved the Conservative Party could not be seen as hostile to a radical housing programme. Indeed, such was the sensitivity of the Tories at being depicted as hostile to such a programme that their main criticism of Bevan’s proposals was that it was not radical enough! That sensitivity was apparent in the response of the Conservative member for Hertford, Derek Walker-Smith (later Baron Broxbourne) to Bevan’s introduction of the Bill in Parliament. In his introduction Bevan had criticised the housing record of previous Conservative Governments – something that provoked the following response:

“I cannot let pass the Minister’s suggestion that his party, and the Government of which he is a Minister, view housing as a social service, whereas Governments in the past viewed houses simply as commodities to be bought and sold. I think that the party of Joseph Chamberlain, Neville Chamberlain and Kingsley Wood owes little by way of either apology or explanation to a party represented by Viscount Addison and the right hon. Gentleman. Indeed, it is a fact that a good deal of what is in this Bill is already in Acts of Parliament placed upon the Statute Book by Tory Governments of the past. It is for that reason that there was a faint but perceptible odour of moth balls when the Minister opened up his wardrobe for the edification and admiration of hon. Members today.” (ibid).

Leaving aside for the moment, the significance of Walker-Smith’s reference to the influence of such socially-minded politicians as Joseph Chamberlain on the Conservative Party, even prior to the 1949 Housing Act the Labour Government had made significant progress in its attempts to deal with the post-war housing crisis. According to Bevan’s speech introducing the Housing Bill to the House, 852,025 new homes had been provided since the end of the war. Of course, not all these were council houses for, as Bevan was at pains to stress, the Labour Government was eager to assist in the construction of houses built for private as well as public ownership. However, since he had become Minister for Health in 1945 (a position that significantly also embraced responsibility for housing) the government had overseen the completion of 55,600 new homes in 1946, rising to 139,600 in 1947 and 227,600 in 1948. The council homes that Labour sought to build at this time were built according to what Bevan defined as houses for decent living. The criteria for decent living required the construction not just of houses but of houses with gardens for the physical and mental health of the inhabitants. Given the insistence on this type of high-quality home, the continuing war-time restrictions on material supplies, and the high levels of war debt inherited by the post-war governments (Britain’s war debt to the US was not fully paid off until the end of 2006) the Labour government’s achievement in the late 1940s was nothing short of astonishing. This period of the Labour Government also coincided with the first wave of the new towns movement with the designation of no less than ten new towns in England during Labour’s tenure in office.  

Such was the acknowledged place of public housing in the rebuilding of Britain after the war that the Conservative Government which replaced Labour in 1951 felt obliged to continue with an ambitious housebuilding programme. The Conservative Government under Churchill was elected in 1951 with a promise to build 300,000 new homes a year and Harold Macmillan was given the job of Minister for Housing. Although he never quite met that target in the three years he was in the job Macmillan’s achievement was impressive. However, Macmillan’s contribution was only achieved through a dilution of Bevan’s original requirement that all houses should possess a garden – an idea that had also informed the enthusiasm for the building of new towns. This requirement did not figure during Macmillan’s tenure as Minister for Housing and the public housing generated under the Churchill government consisted for the most part of flats and tower blocks. That the Bevan idea of houses with gardens was not a priority of the Conservative housing policy at this time is also illustrated by the fact that no further new towns were designated in the period between 1950 and 1961.

Housing and Local Government democracy

But it should be pointed out that a Labour Party commitment to the building of public housing did not mean the idea of council house sales was anathema to either them or the Conservative Party. In fact, given the nature of publicly owned housing it is in the interest of local councils to retain the option of selling off portions of its housing stock from time to time when the circumstances permit. Council housing was built with the purpose of providing low-rent housing for those most in need. The houses were paid for from public funds in the form of council investment together with a central government subsidy. The rent for these properties was set according to a formula which was based on the initial cost plus the anticipated ongoing maintenance costs. The object was that a rent based on that formula would not only provide low rent accommodation but over the lifetime of the property it would repay the construction and maintenance costs and in time go on to contribute to the funding of further house-building programmes. This meant that the older the council property the more surplus capital would accrue after it passed the point when the original cost had been repaid. But there was always a balance to be struck as the cost of the maintenance of these older properties also rose over time. In other words, there was always a point where the margin of surplus diminished and where, in a situation of low demand, it made the sale of such properties a more attractive option. Exercising that option not only provided the council with the capital sum the property sold for but divested the council of the ongoing maintenance costs associated with that property.

For that reason, the idea of council house sales was always something that both Labour and Tory government’s left to the discretion of the local authorities involved. Central to this arrangement between central and local government was the autonomy provided to the local authorities as the agency that best understood the housing needs of their localities. This autonomy provided them with the freedom to determine their response to local housing needs and balance that against any request from tenants to purchase their council house. It also gave them, subject to available government house-building grants, the freedom to determine their local housing investment programmes as well as the setting of rents within certain constraints (more on this later). The difficulty with this autonomy was that local authorities could mis-use it to encourage the sale of council properties for ideological reasons or to disguise financial mis-management.

This problem was to become increasingly apparent by the end of the 1960s. In 1961, at the start of the decade, 25% of all households in Britain lived in council housing. Within that pool of properties over 1 million council dwellings were more than 20 years old which meant that a combination of the council rental income and inflation during that period had significantly eroded the historic debt associated with these properties. In that situation the cost of the ongoing maintenance requirements of these properties began to outweigh their sale value and became a consideration in the formulation of local authority housing policies. As the decade progressed it is not surprising that some councils, burdened by increasing responsibilities in other areas of social provision, viewed their sale as an attractive proposition. 

Another ingredient that presaged a change of thinking among many local authorities on council house sales was that between 1966 and 1969 Labour lost control of a number of councils particularly in urban areas. This itself would not have tipped the balance of the prevailing attitude of local councils as most (including Tory councils) remained committed to the provision of social housing as their priority over the idea of selling them. However, many of those councils that had replaced Labour at the end of the 1960s took office with a different set of priorities than their Conservative predecessors. At this point we come back to the tradition within the Conservative Party that Derek Walker-Smith, M.P. had called upon in the 1949 to endorse his claim that the Tory party had always been sympathetic to social housing. During the debate he referred to the influence on Conservative thinking by the likes of Joseph Chamberlain. In claiming such a legacy Walker-Smith was emphasising the relationship between Chamberlain and the Tory Democracy component that was epitomised by men like Sir Randolph Churchill (a friend of Chamberlain) and Sir John Eldon Gorst at the end of the 19th century – an influence that was to lead to a formal arrangement between Chamberlain’s successors and the Conservative Party in 1925 when the party became known as the Conservative and Unionist Party. It was the Unionist component that came to be identified with the more socially progressive wing within the Conservative Party from then on and it was the legacy of that component that Walker-Smith was referring to in 1949.

It is ironic therefore that the city that made Joseph Chamberlain’s reputation as a social reformer should go on to provide the early local council leadership within the Conservative Party for advancing the idea of a more aggressive policy on council house sales. In 1951, a mere two years after Walker-Smith invoked the name of Birmingham’s most famous political son in refutation of Labour’s accusation that the Tories never really cared for the idea of council housing, the local Conservatives in Birmingham abandoned the social conscience sentiments with which Joseph Chamberlain had always been identified. In most years after 1951 the Tories in Birmingham continued to have as part of their election manifesto the promise to advance the selling of council homes. This commitment was strengthened in 1959 and after the Tories gained control of the council in 1966 they became, in the words of one academic “one of a number of councils that adopted a more aggressive and evangelical approach to council house sales”. (See: “The Right to Buy?” by Alan Murie. Published by Policy Press, Bristol, 2016, p.18).

But the Tories of Birmingham knew that the real key to unlocking the door for a serious advancement of their cause lay with getting a Tory government to facilitate it. With that in mind the Tory leader of Birmingham City Council became a major voice within the national party advocating the policy of council house sales. He delivered speeches on the subject at the Conservative Party conferences in 1967, in 1971 and again in 1973. He also wrote two popular pamphlets on the subject, “How to sell council houses” (1967) and “Selling more council houses” (1971), both of which were published by the Conservative Political Centre. The Conservative Party after 1967 went on to endorse the promotion of council house sales by local authorities as a shop-window policy of the party nationally.

However, the legal position remained that the sale of council homes was a discretionary power of the local authorities. Central government could not impose compulsory sales on those authorities nor prohibit such sales as decisions on such matters lay primarily with the local authority. What central government could do was to restrict the volume of sales if the numbers involved threatened central government housing programmes and they could also influence the discount price at which the homes were sold. Thus, governments did have some powers in the way in which a local council interpreted and operated a policy of council house sales. This power was evident in the response of the Labour Government to the circumstances brought about by the changed local government climate during the second part of the 1960s. In 1967 and again in 1968 the Labour Government issued what was called a General Consent document. These documents were designed to discourage councils from adopting an over-vigorous strategy of council house sales by pointing out that such a strategy was financially and socially unwise. But the 1968 General Consent document went further and imposed restrictions on the volume of sales in the four major conurbations of Greater London, Merseyside, South Lancashire and the West Midlands by limiting the annual sales of their council housing stock to one-quarter of 1%.

Besides holding the discretionary power to implement a house sale policy, local authorities also had the power to set council rents. As has already been pointed out, the formula for setting these rents was based on the initial construction cost (minus the government grant) plus the anticipated ongoing maintenance costs for the expected life of the property. This meant that there was little room for council authorities to manipulate rents in ways that encouraged the local demand for purchasing council homes – something that might otherwise be possible by rising rents to the extent that the cost of purchasing a council property became a more attractive proposition than the tenant’s continued payment of the rent on that property.

This constraint on the setting of council rents was seen as a hinderance by those Conservative Councils that wished to expand their policy of selling council houses and it was one that was removed after the Conservative Party’s victory in the 1970 general election. The election manifesto of the Conservatives for that election had stated that it would “encourage local authorities to sell council houses to those of their tenants who wish to buy them.”

However, acknowledging the lack of a national consensus for any frontal attack on the discretionary powers of local councils to accept or deny a tenant’s application to purchase their council home, the Tory Government instead adopted a strategy of “open and nudge”. The former was achieved by abolishing the restrictions on the number of council house sales that had been introduced by the previous Labour Government in 1968 and the latter was achieved through the Housing Finance Act of 1972. This Act removed the discretion of local authorities in setting rents that were based on a calculation related to the local construction and maintenance cost and replaced it with a calculation based on the prevailing private rental market. In future council rents would be linked to the “fair rents” that had been introduced by the Rent Act of 1965 and which up to this point had only applied to private tenancies. 

“These “fair rents” were the estimated market rents that dwellings would command if supply and demand were broadly in balance in the area in which they were situated. For the first time, rent paid by council tenants would not be related to the cost of providing, managing and maintaining council housing.” (Murie, op. cit., p.20).

For this reason the 1972 Housing Finance Act was probably the most significant piece of housing legislation that threatened the legacy of Labour’s 1949 Housing Act up to that point. It opened the door for the local rental property market to influence the rents of council properties for the first time. In the process, it provided an incentive for an increased number of council tenants to see purchase through mortgage repayments as a more attractive option than continuing to rent in circumstances where the rent, in all likelihood, would continue to rise in response to the market.

The result of these measures was that in 1970 – the year that the new Conservative Government came to power under Edward Heath – the number of council houses sold was under 7,000 and by 1972 it was nearly 46,000. Given this was the case, the conclusion must be that this surge was significantly influenced by the manner in which the 1972 Housing Finance Act created the environment in which purchase was seen by an increasing number of council house tenants as the more attractive option over continuing renting.

But this reliance on the replacement of the certainty of the non-market formula for setting council rents with the vagaries of the private rental market was soon revealed as a two-edged sword. While the fear of a market-driven rent may have convinced tenants to opt for a purchase-and-mortgage option this in turn left them vulnerable to a rise in property value (as the discount offered was based on prevailing sale market value) and/or interest rates on those mortgages. So it was that the relative attraction of rent over mortgage would be revealed as an unstable mechanism in the years after 1972 when the number of those tenants seeking to buy was not sustained in conditions where the rise in the market value of the property together with interest rate increases conspired to make the purchase-and-mortgage option less attractive.

As things turned out sales of council houses after 1972 were to fall to a mere 2,723 in 1975. Although they rose consistently after then the 1972 figure was only surpassed in 1980 – the year in which the Thatcher government provided local authority tenants the legal right to buy their council properties.

Coincidental with these developments many within the Conservative Party doubled down on the assertion of the need for legislation to provide tenants with the legal right to their council homes. But, the vociferous campaign for this legislation did not necessarily reflect a similar sentiment in the wider society or even within the council house communities. Indeed, even within the Conservative Party much criticism was directed at Conservative local councils that still retained an affinity with their discretionary powers in the area of council house sales and when it came to the first electoral test of the Right-to-Buy policy it failed to be endorsed by the electorate.

As early as 1973, the Conservatives, while in opposition, had introduced the idea to Parliament in a Private Member’s Bill and in the lead up to the 1974 general election the party’s manifesto specifically stated that, “in future, established council tenants would be able, as of right, to buy on reasonable terms the house or flat in which they live.” The Conservatives went on to lose that election – an outcome that indicates that the electorate were not at this time prepared to sanction such a radical departure from what continued to be seen as an essential component of local democracy – the right of local councils to determine what happened to their housing stock. 

It was only in the 1979 election that the voters changed their mind and began to view the question differently. Most commentators describe the 1980 Housing Act as something that was more or less inevitable. According to their explanation the Right-to-Buy represented the culmination of a natural transition from a society that viewed rented homes as normal to one where that normality shifted towards the appetite for home ownership. While that may have been the outcome that resulted from the 1980 Housing Act it does not follow that it was an outcome that represented a natural and unmitigated progression from all that went before. The subtle policy of nudging council tenants towards an appetite for purchasing their houses by both local Tory local councils and the national party combined with the blatant objective of the less than subtle 1972 Housing Finance Act would indicate otherwise. Even then, when the electorate was presented with the opportunity to pass judgment on the Right-to-Buy proposals contained in the Conservative Party’s election manifesto of 1974 it was rejected by the voters. 

The fact that the same proposal was endorsed as part of the Conservative Manifesto in the general election five years later does not mean that it was on the basis of that proposal alone that the electorate changed its mind. Far more significant things happened during the intervening five years that proved conclusive in the change of mind by the electorate. Not least among these was the so-called Winter of Discontent between 1978 and 1979 when the trade union movement ran rampant in defiance of the Labour Government. If we are to seek an explanation for this change of heart by the electorate between 1974 and 1979 it won’t be found in looking for some kind of new-found aspirational instinct among the vast majority of council tenants. Rather, the explanation has to be sought in the way in which the Labour Government endorsed by the electorate in 1974 failed to take a defiant trade union movement in hand and left society helpless in the face of the irresponsible exercise of its power. It was the electorate’s response to that rather than any inherent attraction of the Right-to-Buy policy that led them to elect the Conservatives in 1979. The Tories did not win that election but rather, it was Labour that was made to lose it.

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