The one with loads of housing charts

Afternoon all,

Not much to cheer in a second month of contracting economic growth this morning. Don’t get too obsessed with monthly figures – but the big picture stagnant economy since 2022 and the loss of steam of the late 2024/early 25 growth spurt is not great.

This week we’ve got your lowdown on the Mansion House speech, the growing crisis in temporary accommodation and how (not) to do wealth taxes.

Have a great weekend,

Ruth
Chief Executive
Resolution Foundation

Wealth taxes, done well. If wealth tax revenues had kept pace with wealth creation since 1975 we would be taxing £35 billion more from wealth every year. Though with much of that growth in pensions and (first) houses – are wealth taxes really an easy answer? A recent French wealth tax provides a cautionary tale. This blog examines the less-discussed role of reporting requirements on revenue raised from wealth taxes by analysing French reforms which reduced reporting requirements. Taxpayers immediately started bunching below the reporting threshold. Their reported wealth also apparently grew by 0.5 percentage points less on an ongoing basis – a slowdown not visible in their unchanged income from capital and labour. The authors also identify housing as being particularly vulnerable to misreporting. Designing wealth taxes is not easy – the devil is indeed in the detail.

Horrible horizons. This week, the OBR released their latest fiscal risks and sustainability report – which sets out the UK’s vulnerable fiscal position pretty starkly (see my favourite charts here). The climate change chapter brings together many years of OBR work in the area and shows just how uncertain the impact on the public finances is – just check out the scenarios at the end. New analysis on the pensions landscape is also eyebrow-raising – the projected rise in spending on state pensions is the second-largest increase in non-interest spending (after health), up to 7.7 per cent of GDP by the early 2070s. That’s down to an ageing population, the cost of the triple lock uprating, and rising reliance on means-tested support. The report also highlights the risks posed by the shift from defined benefit to defined contribution schemes on demand for UK gilts. This is tricky to forecast but has the potential to have a big impact, with the OBR saying it could add around £22bn (in today’s terms) a year to annual debt interest. Unfortunately, the concerning fiscal position looks here to stay.

The decadent Dutch. Conventional wisdom holds that the Black Death was the moment when north-western Europe (the UK and the Netherlands) began pulling ahead of the rest of Europe on wealth creation. But this paper posits the ‘little divergence’ may not be all it seems. The old-school take is that the Brits and Dutch (with their institutions and trading networks) were able to escape the ‘Malthusian trap’ that ensnared the rest of Europe. That trap is the idea that when populations grow, resources (such as food) become scarce, driving down living standards. But new analysis (an equilibrium model estimating GDP per capita based on occupation) throws the idea into doubt. Results showed population growth was actually associated with periods of economic growth everywhere. Northwestern Europe may have been better placed to develop economically after the Black Death (due to stronger markets and better institutions) but this seems to have led to different rates of economic growth across the continent, rather than any Malthusian traps holding back the rest of Europe.

Dickensian deprivation. This report on child poverty doesn’t make cheery reading for a sunny Friday afternoon, but it is important and powerful. The authors interviewed 128 children, many of whom felt shame at the knowledge that their families had less than others and experienced a stigma around claiming benefits: “The system’s so muddled up that they make you feel greedy for even wanting it….We didn’t choose to be poor”.  Reflecting on what life would be like with more money, one 16-year-old girl imagined “the heating will be on a lot more and we’ll go out more to places…rather than being at home and cold”. One of the report’s key recommendations is the abolition of the two-child limit – which looks even less likely to be scrapped after the past couple of weeks. The voices of the children are better not in summary – worth a full read.

Something for the weekend? | Adequacy in action

Next Tuesday sees the Chancellor’s Mansion House speech. Every year, the Chancellor gets the chance to set out their stall to senior bankers and corporate executives. Thankfully we’ve moved on, in more ways than one, from the days of debates about whether Gordon Brown should wear a bow-tie. So, what to expect this time around?

Smart money is on the launch of the pension adequacy review, first announced hot on the heels of the election but pushed back after Budget backlash. Recent research has revealed that one-in-five private sector employees aren’t saving into a private pension – and of the ones who are, nearly 40 per cent aren’t saving enough to avert a drop in living standards upon retirement. Savings need boosting across the board to improve financial resilience in both the long and short term.

But further rumours abound. The CBI was keen on floated reforms to cash ISAs (reducing the tax incentive for savers), in the hopes that it would redirect savings into the stock market, thus boosting growth. Those changes appear to have hit the scrap heap following backlash from banks and building societies. We may also see a further beefed up version of Jeremy Hunt’s mansion house compact, and perhaps a permanent mortgage guarantee scheme.

Chart of the week

Picking COTW was tough this week with so many to choose from in our brand new housing indicators dashboard. Think I picked the wrong one? Peruse, pick your favourite and let me know why. I’ve gone for temporary accommodation trends as it highlights the dire living standards consequences of long-term failure on housing. Struggling to save for a deposit is frustrating (we have a chart for that too!). Not knowing where you are staying from one day to the next is truly awful. As the chart shows, the number of households in temporary accommodation has more than doubled since 2010 to reach a record 128,000 last year. The capital is at the centre of this crisis, with the London Borough of Newham (home of our cherished Olympic stadium and village) having the highest rate of any local authority – one-in-20 households are currently living in temporary accommodation. Our Housing Outlook highlights two causes. First, the decline of social housing – where rent is typically set at around 50 per cent of market rates, compared to up to 80 per cent for ‘affordable housing’. Second, the freezing of Local Housing Allowance, which now only covers full housing costs for half of privately renting families on Universal Credit. The good news is that it’s well within policy makers’ power to address these issues.