Smith Commission and Housing: A Missed Opportunity?

Published: 16 December 2014

Guest blog from Ken Gibb of Policy Scotland

The devolved nature of housing policy might be considered less relevant to the debates around the devolution of further powers. However, as with so much in this space, it is not quite so simple. In the first place, housing is not completely devolved. Second, there are important facets of Smith’s proposals, which do speak directly to the housing sector, its tenants and communities.

It is the case that much of social housing policy, including key affordable housing initiatives, regulation and homelessness are devolved to the Parliament, as is policy directed towards private renting. But housing policy does not stop at this point. First, key housing taxes are not devolved, in particular, the asset taxation treatment of home-owners and private landlords; neither is VAT. So while noting the position of local taxes and the new Land Building Transactions Tax (LBTT) that comes in next April, considerable tax powers remain in London. Second, Smith aside, the dominant subsidy Housing Benefit, shortly to be rolled into Universal Credit, has been ostensibly reserved. Third, the mortgage market (including lending for social housing) is essentially UK-wide with powers for regulatory and interest rate setting in Westminster and the Bank. Fourth, the fiscal framework, the rules determining what is legitimate public spending and what is not and the ability for the Scottish Government to borrow for infrastructure investment like housing - are set by HM Treasury.

So, as a result of this hybrid status, two aspects of the Smith proposals are relevant for the housing sector: the changes to borrowing and to welfare benefits. Two other non-Smith initiatives also warrant comment: the introduction of LBTT; and, the Government’s recent announcement that it will review Council Tax.

The Scottish Government has been hamstrung by its inability to borrow directly on capital markets for infrastructure. Both the 2012 legislation and the Smith proposals will give limited new powers for borrowing in addition to the smoothing out of in-year spending deficits (something more significant with the proposed devolution of income tax and assignment of half of VAT). However, the investment borrowing powers are circumscribed and must remain within the UK fiscal framework – it is unclear how this will work in practice.

Despite the expectation of the wider devolution of social security benefits and that this would include Housing Benefit, what happened was actually more subtle. Again, it is not, however, entirely clear how it will work. Under Smith, Scotland will have Universal Credit (UC) albeit with more discretion around its administration, but the Scottish Government will have the power to vary the housing cost element (including removing the bedroom tax), discretionary housing payments are to be devolved and, critically, the administration of UC will continue to allow the housing cost element to be paid directly to landlords – a key demand from the sector. The Scottish Government will also have powers to augment housing benefit (assuming that is what vary means) but the responsibility would be paid for at the margin out of the Block Programme.

While these benefit changes meet many of the key short run complaints with welfare reform in Scotland – they do not address wider issues with that programme (e.g. conditionality and sanctions) and they do not confront the broader problems arising from the design of Housing Benefit[i].

In the recent Autumn Statement, the Chancellor’s announced the immediate reform of Stamp Duty on similar grounds to the Scottish LBTT, adopting a more progressive non-slab structure similar to income tax. This means, among other things, that the Scottish housing market faces three different sets of transactions tax systems in less than five months. It also raises the thorny problem of the fiscal settlement between Westminster and Holyrood about how much it will cost or be worth to devolve stamp duty. This will set a precedent for the many further deals to be done across the piece (e.g. the devolution of disability benefits)  as a result of the Smith Proposals. We should watch what happens closely.

Finally, there is the council tax. The SNP have made clear their general support for an income-based tax and have promised a genuinely independent review from which proposals could go to the electorate in 2016. The remit will also include the status of the council tax freeze. This is a classic wicked problem – tax reform is overdue but so is review of the fundamental relations between central and local government, the geography of our councils and their wider financing. There is a real danger that simply resetting the basis of domestic taxation will leave these other interlocking dimensions unchanged.

[i] See: Gibb, K and Stephens, M, 2012, Devolving Housing Benefit to Scotland, Chartered Institute of Housing, Scottish Federation of Housing Associations.