On the steps of Downing Street, Theresa May outlined the core of her political strategy: “If you are just about managing, I want to address you directly”.
The just about managing – the so-called JAMs – saw their cost of living significantly squeezed in the aftermath of the financial crisis, and it is indeed vital that the government enacts policies to offer relief to this group.
In the lead up to the Budget this week, many will argue that better than expected economic growth and tax receipts mean the chancellor has significant wriggle room to help the JAMs. And, of course, a degree of fiscal loosening will be required to address the discrepancies within business rate reform and the underfunded social care sector.
Significant fiscal giveaways, however, cannot be a feature of this Budget. The deficit remains above 3 per cent of GDP, and it is imperative that the UK achieves a budget surplus at the earliest possible opportunity. A persistently high debt to GDP ratio is associated with a negative impact on economic growth and would be detrimental to the UK economy’s future prospects.
But this does not mean the government’s hands are tied in helping the JAMs. In particular, there is plenty of scope to reduce the cost of housing and household bills without any hit to Treasury revenues in the short or long term.
There is now a huge opportunity for the government to implement planning reform and increase the supply and quality of homes. Nimbyism is in dramatic decline. Support for new local homes doubled from just 26 per cent in 2010 to 57 per cent in 2016, according to the latest British Social Attitudes Survey.
The government’s direction of travel in this area is encouraging. Ministers and the public at large understand that growing median earnings to house price ratios – which have more than doubled since 1997 – are simply unsustainable.
The recently published Housing White Paper advocates a series of planning measures that would, if pursued, certainly improve the housing market. This includes a new national housing standard for councils and a reduction in planning restrictions. And it is particularly welcome that the Centre for Policy Studies’ proposal of identifying geographical areas for deregulation is being actively considered.
However, the government has failed to produce an equivalent strategy to reduce household bills. This is disappointing. When utility bills increase, it effectively acts as a regressive tax given that a greater proportion of poorer household income is taken up from any increase. Around 10 per cent of the poorest decile’s expenditure is on energy bills, falling to 5 per cent for the middle deciles and just 3 per cent for the top decile.
Here the government must review the impact of climate policies on low and middle income families. The Office for Budget Responsibility estimates that renewable energy subsidies on energy bills will reach £10.7bn in nominal terms by 2020.
If these subsidies were frozen from next year, the cost saving would equate to an average of £173 per household per year by 2020. One third of this would come directly off household energy bills and the other two thirds would come off business energy bills. Households would, of course, also benefit from the reduction in business energy bills through lower prices for products and potentially higher wages.
But the government should go further. Retail competition in the residential water sector could offer modest savings for customers, according to Ofwat’s latest analysis. Breaking BT’s stranglehold on broadband infrastructure could lead to more competition and lower costs for consumers. And more on-track competition across UK railways could encourage greater choice and lower fares for rail passengers.
All of these policies would offer cost of living relief to the JAMs without any fiscal impact for the Treasury. Yet, disappointingly, the government has failed to effectively advocate and pursue more choice and competition in these areas.
None of this is a “silver bullet”. Fiscal policy is a vital tool in boosting the incomes of working families, and there is a particular need to reduce marginal tax rates that are, incidentally, some of the highest in the OECD.
However, at a time of fiscal restraint, policies that help the JAMs without any short-term hit to Treasury revenues should be a no brainer. This Budget is the perfect opportunity to outline a package of proposals to reduce the cost of housing and household bills.