The Destruction of Local Authorities as Housing Providers

LABOUR AND HOUSING – Part 7.  

The destruction of local authorities as housing providers.

By Eamon Dyas

Determining the economic discourse.

The previous article in this series showed how  building societies and banks were incapable of supplying mortgages on the scale required by the Tory Government’s 1979 Right to Buy scheme. It explained how local councils performed the main role of mortgage providers in the early years of the scheme while further exploring the way in which the banks were subsequently encouraged to fill that role through the removal of the regulatory constraints which had previously contributed to their inability to get seriously involved in the mortgage market (the removal of the Supplementary Special Deposit Scheme in mid-1980 and the Reserve Asset Ratio requirements in August 1981). 

A significant feature of the role of local authorities in facilitating the “Right To Buy” scheme was that, because they were both property seller and mortgage provider, in the majority of cases no actual money was required to change hands in the sale of these properties. But this was to prove a temporary arrangement until the Government felt comfortable in releasing the restrictions mentioned above to enable the banks to act as a significant supplier of council property mortgages. 

The way in which the private housing market was stimulated by the massive discounts of the “Right to Buy” scheme and the simultaneous encouragement of the banking sector to act as a significant mortgage provider meant that by 2015 the equity for which such discounts was responsible was in the region of £150-£200 billion. This was the sum accrued through the difference between the original discounted “Right to Buy” purchase price under the 1980 Housing Act (and its subsequent more generous modifications) and the market value of the properties at the point of their resale. Between 1980 and 2015, nearly three million council and social rented dwellings were sold in the UK under the discounted “Right to Buy” schemes. By 2015 a significant proportion of these properties had been sold on, in many cases more than once. The sheer scale of this movement of property meant that aside from the huge injection of equity into the property market that this represented there were other knock-on effects. On the more mundane level it resulted in a surge in demand for DIY products among those wishing to personalise or improve their recently-acquired property prior to resale. As a result, we see the conversion of large outlets like B&Q and Wickes from exclusively building trade suppliers to retail suppliers of the home improvement market (with a corresponding decline in the number of small local hardware stores). 

However, the most significant impact was in the insurance and credit sectors of the economy as the change in status from tenant to property owner brought with it the need to address the issue of insurance for the millions of new home owners involved. By the same token, those same millions of new home owners now had access to credit on a scale not previously known through the use of their property as collateral. Some of the ancillary measures introduced in the 1980s that fed into this situation included the relaxation on credit controls with stores being permitted to offer bigger levels of credit through a relaxation of the hire purchase regulations and the boom in the use of credit cards. The effect of all of this was to triple the levels of consumer borrowing in the 1980s.

So it was that the outcome of the 1980s Housing Act, together with the general relaxation of financial regulatory controls, directly and indirectly created a widening reliance of the economy on the residential property market. This reliance, together with the associated 1983 de-regulation of the financial markets prefaced the growth of the large international investment corporations and served to accelerate the decline in British manufacturing as these large corporate investors increasingly chose to shun the low returns in that sector in preference to the higher and faster returns that were now on offer in property speculation. 

Determining the political discourse.

But a guarantee of short-term higher returns could not by itself have brought about the permanent shift in investor behaviour that this came to represent. What guaranteed such a shift becoming permanent was the knowledge that the arrival of millions of additional home-owners among the electorate in the wake of the “Right to Buy” scheme meant that future governments would be compelled through democratic pressure to do all they could to sustain the value of residential property for fear of alienating this newly-empowered component of the electorate. As things turned out, the political price of the property-owning democracy was the removal of housing provision from any rational debate. From that point onwards, despite all public pronouncements to the contrary, the primary object of housing provision gave way to the maintenance of property values among the already housed. It was this that became the cornerstone of what passed for the housing policies of both political parties as the 1980s moved into the 1990s.

But what the “Right to Buy” scheme went on to create was not only the removal of housing provision from rational debate but the similar removal from rational debate of the political thinking that had framed the post-war British Labour Party. The 1983 General Election was the last one which the Labour Party contested on a policy of restoring the capacity of local authorities to act as significant suppliers of housing and it entered the 1987 General Election having, in effect, surrendered the housing issue to the Heseltine/Thatcher position. Recognising the significance of this, the architect of the “Right to Buy” scheme, Michael Heseltine, commented in 1987:

“It is hard to believe that Socialism in Britain will ever again be as assertive as it was between 1945 and 1979 – not, at least, if it hopes to earn a hearing from the electors.” (Where There’s a Will”, Bloomsbury, London, 1987).

This turned out to be prophetic. Labour had lost the 1979 general election on the back of its failure to convince the trade unions and its own left wing of the opportunities offered by the 1977 Bullock Report. After initially veering to the left on the wave of that opposition the party then re-calibrated to the right under Neil Kinnock as it embarked on a reforming mission that (after a temporary hiatus under John Smith) was to significantly weaken its capacity to formulate policies based on its traditional affinity with the working class. But it was under Blair that the old lodestone that had previously guided the party was finally replaced by a managerial and public relations perspective that sought to find a place for itself within the political reality of which the basis had been laid by the 1979 Conservative government. It was Blair’s succumbing to that perspective that served to permeate British politics with the belief that there was only one political reality – a reality which saw the party’s role as one in which it vied with the Conservatives on the issue of who could manage the economy better and not who it could be managed for. 

It was under Blair’s leadership of the Labour Party that the political world constructed by the Tories finally swept the board of what came to be seen as rational politics. He had been elected a Member of Parliament in 1983, so Blair’s perspective was not “clouded” by a political reality that pre-dated the 1979 Tory Government and when he was elected leader of the party in 1994 the only reality which he perceived was the one which the Tories had set out to create in 1979. His only alternative was to find a place within that reality for a new Labour Party which could manage it in a different way. Not for him any attempt to shake the basis on which that reality had been constructed and as a result he was quite content to operate within the market driven world of the reality he found when elected Prime Minister in 1997. 

It was this movement of the Labour Party onto the ground established by the 1979 Tory Government that effectively exiled the consideration of any policies that might be formulated on the basis of a Labour perspective which pre-dated it. 

Everything Blair did went on to reinforce the original post-1979 political reality created by Thatcher, Heseltine and co., and to expunge the relevance of traditional Labour values from that reality. For Blair as it had been for Thatcher, “there was no alternative” to making the market work. His hostility to Clause IV reflected his attitude towards nationalisation and the reforms he introduced as Prime Minister in the education and health sectors showed his instinctive trust in market-based solutions rather than any alternative solutions involving state participation. 

The characteristics that had formed the basis of the party’s traditional affinity with the working class and had found expression in its post-war policies were now cast aside as being no longer relevant to the post-Thatcher world. In that sense the arrival of Blair’s New Labour represented the ultimate fulfillment of Heseltine’s 1987 prophecy.

Or at least it was until Jeremy Corbyn was elected leader of the party in 2015. His election represented a desire on the part of a significant component of the membership to break free from the post-1979 consensus and re-assert the party’s more traditional attitude towards the role of the state in establishing a more equitable society. For the first time since then, subjects like the re-nationalisation of the railways and the utility companies, workers’ rights and the idea of the rolling back of the market, became topics for serious discussion. Until Corbyn the fact that these issues could not be seriously discussed, despite the failure of the market and much of the privatisations, was testimony to the extent to which the Tory legacy of 1979 had come to dominate British politics. Corbyn’s election as leader of the party came as a shock to the established consensus and when he and his policies did so well in the 2017 general election that shock assumed seismic proportions.

Consequently, the Tories reacted to Corbyn’s 2017 success with an unprecedented and concerted malignment of the man. This was to be expected and it was also to be expected that they would be joined by those in the Labour Party and the liberal media who continued to believe in the post-1979 consensus. However, rather than advance their criticism of Corbyn along lines that challenged the policies that now represented a departure from the 1979 consensus they adopted instead the scurrilous device of stoking and manipulating the fears of the domestic supporters of a foreign entity through the ludicrous claim that Corbyn and most of his supporters were anti-Semites. 

That they succeeded is now apparent and the fact that the purpose behind Corbyn’s destruction was based on something other than the malicious allegations of anti-Semitism is evidenced by the manner in which his successor, Sir Keir Starmer, replaced him as leader. Being the creature he was and serving the purpose he was always going to serve, Starmer pretended to endorse the policies that had been formulated by the party under Corbyn’s leadership only to jettison them soon after being elected. Those policies had nothing to do with anti-Semitism or indeed Israel but were only relevant to the domestic situation in Britain itself. It had always been an option for Starmer to retain these policies and campaign for them after he was elected leader (as he in fact promised to do) while continuing with his promise to “root out anti-Semitism in the party”. But he abandoned the former while energetically advancing the latter in a way that became an attack on the constituency of Labour Party members who had dared break with the post-1979 consensus.

It has also become apparent that in Sir Keir Starmer the Labour Party now has a leader who is determined to restore the party to the 1979 consensus even if that requires the expulsion or alienation of a significant component of its activist base. Although Starmer is not Tony Blair, the former shares the latter’s antipathy to the state’s involvement in the economy. He has shown this in recent months in his opposition to any idea of re-nationalisation of the privatised railways and utility companies in spite of their abysmal performance. In that sense he shares with Blair a profound belief in the market.

So, is the current situation evidence of the resilience of the Heseltine’s 1987 prophecy? The question remains open but unless those seeking to challenge it understand the basis on which it rests the chances of dissolving it remain problematic. 

But three things are clear in relation to the position in which the party now finds itself. Firstly, that history pivots on seminal events and the seminal event which began the current route to where the party now finds itself started when the British political landscape was changed by the arrival of the Tory Government in 1979. Secondly, that the material providing the foundation for this change was the “Right to Buy” scheme. And thirdly, the mortar which provided the means for making the outcome permanent was the investment of a significantly increased sector of society in the value of their property. 

Shackling public housing provision.

For the millions of new home-owners who had gained their homes through the “Right to Buy” schemes the value of their most important financial asset, their home, now had to be taken into account by any party vying for government if it wished to be elected. 

This was the legacy of what was brought into effect by the 1980 Housing Act. That Act was part of the effort of the Thatcher Government of 1979 to bring about permanent change not only in the British economy but in the way in which British society viewed the role of the state. No longer would the state be viewed as the regulator of a mixed economy where it would use its power to intervene in circumstances where a failure in the market adversely impacted on the wider society. Instead, it would remove itself from such a responsibility and, through the process of de-nationalisation, restore the rigours of the market to those areas of the economy where such interventions had taken place in the past. 

But Heseltine’s ambition, as indicated in his account of the period, (“Where There’s a Will”, 1987), was not only to initiate a reversal of the way in which post-war Britain had evolved, but to make that reversal permanent. In other words, to protect the changes it represented from the threat of them being undermined by any future Labour government. Yet, while Heseltine’s may have found it “hard to believe that Socialism in Britain will ever again be as assertive as it was between 1945 and 1979” in the context of central government neither he nor Thatcher could have the same certainty when it came to local government.

The Tories may have convincingly won the 1979 General Election but they didn’t achieve the same result in the local government elections held on the same day (3 May). In those local elections the Labour Party managed to reverse the trend of previous elections and gained 766 seats while removing the Conservatives from control of several local authorities. And it is also sometimes forgotten that many Conservative controlled local authorities were opposed to the “Right to Buy” policy despite its endorsement by the national party. 

Local government was always something that the 1979 Tory Government remained wary of even after they won the national election on the basis of their “Right to Buy” policy. The fear was that opposition to their plans at local government level could eventually provide the base for a future resurgence of Labour at the national level and a corresponding reversal of the “Right to Buy” housing policy.

The real success of Thatcher’s and Heseltine’s housing plans lay in the way they engineered the means by which they permanently impaired the capacity of local authorities to supply local housing needs. That was ultimately achieved not simply through the introduction of the “Right to Buy” scheme. While that may have achieved the object of reducing the local authority housing stock, by itself it was not enough to bring about a permanent shift in the way in which housing was to be supplied in the future. If everything else was left in place local authorities could have replenished their housing stock over time and if that was permitted then the “Right to Buy” scheme could be reversed in the event of a return of a Labour government. In other words, as long as there remained in place the machinery for local authorities to resume building homes the “Right to Buy” system was never likely to remain invulnerable to subsequent political developments. 

Understanding how Thatcher and Heseltine ensured against this possibility is critical to any solution to the housing issue. 

There are three main cost components in the construction of office blocks or dwellings. These consist of: the price of the labour, the price of materials, and the price of land. When it comes to the provision of public-funded housing, prior to 1979 local authorities could, to some extent, control the cost of the labour through their direct-labour workforces. They could also maintain a downward pressure on the cost of materials by using their position as major house builders in their negotiations with suppliers. They also had the power, under the previous Labour government’s 1975 Community Land Act, to purchase development land at its existing use value. This, together with the Development Land Tax introduced by the Labour government a year later, gave the local authorities a significant advantage over private developers. It meant, for instance, that local authorities could purchase disused or non-residential zoned land at the knock-down price for such land and use it for the construction of public housing estates while the private developer who might procure similar land ran the risk of having to wait a considerable time to have the land re-zoned for private housing development and even then, there was no guarantee that permission would be granted. But should the private developer manage to have the land re-zoned, under the 1976 Development Land Tax, he was compelled to pay a tax of up to 80% on the value increased through such re-zoning while, at the same time, the local authority was exempt from that tax.

The land in which the future of local authority housing is buried.

Of these three cost components, the ability of local authorities to exert favourable terms for the first – labour, and the second – materials, was undermined by the direct impact of the “Right to Buy” scheme. 

The wholesale removal of large swathes of the local government housing stock meant that it was difficult not only to justify but to pay for the upkeep of direct labour resources. This was exacerbated by the reduction of the central government grant and the constraints imposed on their capacity to raise money through domestic rates (a problem that was compounded in 1990 when the Government required local authorities to pass on the revenue from business rates to the Treasury).

Nor could local authorities rely on the revenue from the sales of their housing stock to finance housing provision on any meaningful scale. To ensure against this the Government only permitted local authorities to use 20% of the annual revenue from Right to Buy sales for re-investment in replacement housing. Aware of the likely negative public reaction to the government taking all of the revenue from that source it conceded that the remaining 80% of sales could be carried forward by local authorities to the next year. On paper this looked to offer the prospect of local councils eventually being able to roll over this revenue until it reached a point when it could use the full sales revenue to replace their housing stock. However, in effect it meant very little. This was because in the early years of the Right to Buy scheme it was the councils themselves who, as was explained earlier, acted as both seller and mortgage suppliers in the majority of sales. It was only if the purchasing tenant subsequently sold their property or re-mortgaged with a bank or building society that actual money became visible as far as the local authority was concerned. This continued to be the case during the first few years of the operation of the “Right to Buy” scheme.

Then, before local authorities could reap the full rewards of the rolling revenue allowance the government changed the rules. It did this through the 1989 Local Government and Housing Act which came into effect on 1 April 1990. The terms of this Act permitted local authorities to retain a more generous 25% of sales receipts for reinvestment. However, as was the case with the earlier arrangement, this concealed a fateful sting in the tail that effectively took away the freedom of local authorities to use the remaining 75% as a roll-over fund for subsequent reinvestment. The 1989 legislation now stipulated that “the other 75% had to be reserved to redeem debt or set aside for future debt redemption.”

With regard to the third component where local authorities previously held an advantage – the component consisting of land – it became one of the earliest targets of the incoming Tory government. The Community Land Act was repealed in the same year that the 1980 Housing Act became law. At the same time, the government reduced the Development Land Tax to 60% before abolishing it altogether in 1985. (For an explanation of this see: Lund, p.40).

How effective these measures were in taking local authorities out of the picture as significant providers of homes is starkly illustrated by the fact that these authorities went from managing 28% of the total housing stock in England in 1981 to only 18% by 1994. At the same time council house completions constituted around 33% of all house building in 1980 but by 1994 it constituted less than 1%. (See: Institutional Structure of Social Housing Finance in the U.K.” Recent Developments, by Michael Oxley. Published in Urban Studies, April 1999, p.674).

The impact of these measures on the capacity of local authorities to invest financially in housing is graphically illustrated by the fact that it was under Harold Wilson’s Labour government that a peak of over £12 billion was spent in the year 1974/75 (however it has to be said that in 1978 Labour’s house-building performance under Jim Callaghan was quite abysmal) but by 1996/97 this had plummeted to just over £2 billion (at 1994-95 prices).

By the time Heseltine came to make his prophetic statement in 1987 the Conservative governments had put in place a raft of measures designed to prevent any immediate return of local authority public housing provision on any meaningful scale – a fact described by one contemporary housing expert as follows:

“Since 1988, the government has made it clear that it wishes local authorities not to be housing providers but to be ‘strategic enablers’. The enabling role means that authorities oversee and monitor housing provision in their area, working particularly with housing associations, but do not get involved significantly with new developments” (Bramley, 1993, quoted by Oxley).

But there was another purpose to these measures which is not mentioned by the above housing expert. These measures were never only meant to replace local authorities with private developers in social housing provision. They also had the object of providing a more favourable environment for the expansion of private developments generally. However, there was one area where the desire to permanently diminish the capacity of local authorities to act as significant public housing providers came in conflict with the desire to facilitate the expansion of the private developer’s role in expanding the reach of the domestic housing market and that conflict revolved around the question of land. In this regard, such was the determination to ensure that local authorities could no longer regain a significant foothold in the provision of housing the Thatcher government and its immediate successors were prepared to defy the “laissez faire” instincts of the section of the Tory party that they represented. 

Land is ultimately required for every kind of human activity whether it be for the production of food, the building of factories, churches, offices, railways, roads, and, of course, houses. As mentioned earlier, housing development of all types requires land. Of the three components that go into house-building, unlike labour and materials, land is unique in the sense that it is both immobile and finite. But though it is finite, in the urban age, it has always been subject to political management in the sense that governments use their powers to prioritise how land is used to meet the specific requirements of any given circumstance.

When it came to the twin objectives of freeing housing provision from the hold of local authorities and giving private developers a more favourable environment within which to operate many in the Tory party thought that this favourable environment would also include permission for such developers to encroach on the existing green belts surrounding the urban areas. But that would not have suited Thatcher’s political objective of destroying local government’s capacity to return to the position of being the major supplier of housing. To ensure against this the final barrier was supplied by Thatcher’s most blatant interference in the operation of the market – the market in land.

In formulating her policy on land not only did Thatcher resist the calls from the traditional laissez faire exponents in the Tory Party who were demanding a loosening of the green belt planning laws to facilitate development but she doubled down on tightening the green belt constraint. In the process she used the green belt arrangement in a way which ensured that the cost of land within the metropolitan areas increased out of the range of local authorities to purchase. This is the observation of one of the most informed voices on housing (now unfortunately deceased):

“The commitment to green belt policy by the Thatcher/Major governments meant that between 1979 and 1997, the total size of the UK green belt increased from 721,500 hectares to 1,649,640 hectares.” (Housing Politics in the United Kingdom, by Brian Lund, p.50).

The effect, as it was known it would be, was to artificially reduce the available land for development within the existing urban areas as it removed the room for such areas to expand. Land may have been a finite resource but Thatcher’s policy, through the exploitation of the “green” agenda of its day, was to ensure that the finite resource was made even more finite with the inevitable result that it increased significantly the value of land in urban areas now encircled by the newly enlarged green belt constraint. Of course this was not the only factor which led to the surge in land values since the 1980s (the freeing up of the financial sector in the City meant that the resultant increase in land values in that area made Canary Wharf an attractive alternative) but it was a significant component in ensuring that the purchase of land by local authorities was made much more difficult. The way in which this measure went on to impact urban housing will be explored in the next article. 

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