Why the two Big Ideas Being Considered for the Tory Manifesto will Add £84 billion pounds to the Deficit

Fraser Nelson Telegraph

Two [big game changing] ideas are being discussed by the Tory leadership. One is Iain Duncan Smith’s proposal to give 2.5 million housing association tenants the right to buy their home at vast discounts, as long as they have been working for a year. When the property is sold, the government would keep a share of the profits, using the money to accommodate others who need social housing. It would be a radical transfer of resources from government to the public. The idea would be to demonstrate the essential Conservative message: that they are in politics to shift power from the state to society.

Another idea being mooted is distributing the Government’s £35 billion shareholding in RBS among taxpayers.

The aim behind both of these ideas is to win over the “strivers”: the lower-middle class and skilled working-class voters who were the backbone of Margaret Thatcher’s support, and then Tony Blair’s. …

The Prime Minister likes the principle but worries about the detail – if a housing giveaway plan backfired, what would this say about his Government’s competence?

He right to be worried as both would cost billions undermining the narrow focus on the deficit which is the main plank of their campaign.

On the first it differs from council house right to buy.  These were state public sector assets.  Sales came off government debt, and future income from rents were lost as well.

Housing associations are mostly Industrial and Provident Societies, a few are friendly societies, their debt is not counted as public debt.  Though there actions are considered those of public bodies their assets are considered privately owned in law,  Under article 1 of the ECHR they would have to be compensated for the loss of assets.  So the sales would add to not come off public debt, the opposite of right to buy.  It would be seen as the biggest seizure of assets by the state since Hentry VIII seized the Monestraries, and would not go down well with the third sector seeing many charities loose their assets.

The Gross Book Value of HA assets comes to around £300bn –according to Cameron’s own dumb tank the Policy Exchange.

Assuming that HA RTB was as successful as CH RTB (half of stock lost over 20 years) then over 5 years it would cost £50Bn about 4% of the deficit (2013-14).

Now consider the RBS sale – 34 billion of sales are planned next year.  A give away would add 2.9% to the deficit (2013-14 baseline).

So both together would add 6.9% to the deficit.   About £84 billion pounds.

The two coalition parties were committed to eliminating the current structural deficit by 2017-18, a target that would require cuts of £30bn,

The only way to fund these giveaways would be to make a one off cut to public spending of 84 billion in one year (as it would be a one year only hot to the deficit),  or cute over many years with the same NPV as the loss plus interest.

If the government spent nothing on Police, Housing, Local Government and Transport for one year that would just about cover it.

Very feasible policies then.

 

 

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