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The Daily Mail does the minister's dirty work – again

By regular guest blogger Monimbo
Once again the Daily Mail is the favoured news outlet for a government minister, and once again it fails to check if he’s actually right.  This time the story is about 6,000 council tenants who allegedly earn more than £100,000 per year, and how Mr Shapps wants to make sure they either leave their homes or pay a market rent, because they are costing the taxpayer more than £100 million.  Poor Frank Dobson is rolled out once more as the prime example.
Let’s take a look at some of the facts. First, the article says that not only do 6,000 council tenants earn more than £100k but that 720,000 earn more than the national average wage. What we know is that 18,000 council tenants were identified as earning more than £50k annually in the English Housing Survey, so it’s perfectly possible that Grant Shapps has got his staff to break these figures down further and has found that one third of this group earn over £100k. Let’s give him the benefit of the doubt. What is implausible is that 720,000 households earn above the average wage: the true figure of council tenants earning more than £20k annually is 405,000, and earning more than £30k is much smaller at 154,000.  The Mail is confusing council tenants with all social tenants.
Now it’s important to remember that citing these figures does not mean that anyone knows where these 6,000 high earners actually are. The figures are based on sample surveys, grossed up to apply to all English households.  Apart from a few celebrity cases like Frank, neither Mr Shapps or anyone else could identify the culprits.
Mr Shapps wants to introduce an upper income level above which tenants will have to pay full market rents. But the obstacles he faces are formidable: first, it needs legislation with some careful wording, then it needs a way of rewriting existing tenancy agreements to change the tenancy terms of households who have probably enjoyed them for many years, and then it needs to impose a means test on people who almost certainly have never had to reveal their incomes to the council (e.g. to claim housing benefit).
Finally, given that rent-setting is and for many years has been a power that rests with councils and not with government, he needs a way of telling Camden council to raise Frank’s rent.  The irony, of course, is that he’s floating these plans at the very time when he’s giving councils even more freedom over their council housing finances.
The other part of the Mail’s story is, of course, that it’s the taxpayer who is subsidising these high earning tenants, and who will therefore get the benefit if they pay their full whack.  Wrong on both counts. It might suit Mr Shapps in peddling the story to the Mail to woo their tax-paying readers, but as he well knows they don’t subsidise council housing.  If high earners pay more, it’s councils and other tenants who will benefit. If high earners move out, which is what he and the Mail seem to want, there will be no savings at all, simply a new tenant paying the same rent.  Of course it would free up a council house, but that isn’t a direct saving to the taxpayer.
There is sufficient confusion in the financial aspects of this story that I haven’t even touched on the arguments for having a number of better-off people in council housing, and I’m sure Red Brick readers are well aware of the case that can be made.  The next time the Daily Mail links council estates with the riots or the chronically work-shy, it might pause to ask what the opposite might be. Having a few more people living in those estates who have good jobs and earn above the average wage, perhaps?

0 replies on “The Daily Mail does the minister's dirty work – again”

Just a quick comment that the £100k figure is NOT individual income but household income. So this could mean 4 people each earning £25k (below national average wage) yet the household does meet the £100k figure.
6.000 out of 2,2m council tenants is a whopping 0.27% too – or as shappa and DM would not like to put it 99.73% of council tenants do NOT have a household income of £100k or greater

There’s also an implicit suggestion that Frank Dobson is being subsidised by the taxpayer (and it should be remembered that he is himself a taxpayer as are most social housing tenants of working age, more of whom, I would guess, are employed than not), when the opposite is slightly more probable.
I have no knowledge of his personal circumstances or of the form of housing he occupies, but assuming he has been in the same accommodation for 30 years or more, the chances are that the debt burden relating to the construction or acquisition of the property has long since been paid off, and as likely as not his annual rent exceeds the housing authority’s outlay on maintaining his property. In effect long-standing tenants help pay the interest bill on more recent constructions or acquisitions. It’s called the debt hump. And before anyone points out the taxpayer subsidy to housing authority loan charges, recall that mortgage interest tax relief which existed for many years – and at one stage, for a few years – was unlimited except on the first £35 of interest – was a colossal subsidy for owner-occupiers many of whom were very well-heeled indeed. Those days are past, but the public – and that includes MPs and hack columnists – does not understand the forms and amounts of public subsidy to housing and who benefits from it.
It goes back, in my opinion, to the simple fact that all need to be housed; but the way we give taxpayer support to housing at present boosts demand rather than supply in a market that is, in any case, inelastic by its very nature, and so adds petrol to the fire of the London housing crisis. We subsidise the owning of owner-occupied residential property as an asset by making any gains arising from its ownership free of capital gains tax when most other assets in which we can invest are subject to that tax. This creates an uneven playing-field when it comes to personal investment decisions and, not surprisingly, people put their marginal saving resources more into acquiring as large a house as they can afford rather than, say, into business start-ups or small or medium sized enterprises, or paying off personal debt. I have no objection to people buying a house large enough for their real needs, but Inflation gives a strong incentive over and above that to owning property. In effect our tax subsidy system gives an incentive to those who owner-occupy to wish for inflation as it boosts, proportionately (and also in cash terms if not always in real terms), their equity in the property they own as against the value of their mortgage which remains a relative constant. Gearing makes them rich.
I think the problems of creating a CGT charge on owner-occupied residential property would be considerable, as you would need a form of indexation so that the inflation rise in a property value was not the main source of the gain being taxed (that would unduly penalise those holding a property for a long period); you would need a de minimis exemption for the first tens of thousands of a gain so those who enhance their property by good maintenance or improvements are not penalised; you would need to avoid people holding property right to death for fear of incurring a tax charge; and you would need to create a tax structure that was not evadable by non-domiciles or by ownership through non-resident corporations. In short, it may be better to have a mansions tax on properties valued at say £2million or more which should effectively take the steam out of the insane top end of the London property market and focus developers minds more on creating affordable housing than on extreme luxury housing. Vince Cable, Greg Hands and certain other coalition MPs might be appalled on behalf of their wealthiest constituents, especially those sheltering their ownership behind a Panama company, but it is an idea whose time has come.

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