Nick Pollard: Is a rent freeze in 2023-24 financially and economically logical for Scotland?
Finance director Nick Pollard provides an economic analysis of the Scottish Government’s potential freeze on social housing rents from 2023-24.
In 2020-21 the overall rent collected by the social housing sector was £1.39 billion. That doesn’t include last year’s increases.
On average 50% of social housing tenants are in receipt of full or partial rental payments met by Universal Credit (UC). Whilst this may not entirely be accurate it’s a reasonable estimate.
In the Local Authority (LA) sector then the rents collected in 2020-21 on the Housing Revenue Account (HRA) amounted to £1.3bn. Again let’s ignore any increase for last year. The rent rebate subsidy rate was 39%.
The UC bill is reserved to the UK Government albeit administered by Local Authorities in Scotland. As a result, UC does not come from Scottish Government financial resources but from Westminster.
UC usually matches the rent increase for that 50% of RSL tenants and 39% of LA tenants whatever that may be. Those tenants see no discernible gain or loss from any rent increase applied next year whatever it may be. There is no change to their disposable income as a result of a rent increase. A rent freeze is, therefore, a moot point however the same cannot be said in terms of the loss of resources to the wider Scottish economy.
If we assume an increase being applied of 5% to illustrate the point then UC would meet the costs of that 5% rent increase.
For Scotland that equates to UC funds flowing from Westminster to Scotland of £34 million in the social housing sector and £25.6m in the LA sector, a total of almost £60m. That is £60m of funds which are derived not from Scottish Government resources not from tenant resources but from UK Government and the Treasury.
More importantly, that £60 million would be recycled back into the wider Scottish economy together with the multiplier effect supporting in particular the repairs and maintenance and construction sectors.
If a rent freeze is applied none of those funds would be received, no doubt much to the delight of Westminster and the Treasury.
Whilst it may be argued what about the self payers in affordable housing? The response may well be given that if a rent increase of 5% is applied then average weekly earnings growth is exceeding that level currently, that the living wage is increasing at 10.1% and pensions uprating although it is unlikely to revert to the triple lock would be uprated to a similar level as benefits then those elements would mitigate the impact on self payers. If support from the Scottish Government was targeted at the working poor or retired not on benefits then that impact could be effectively ameliorated.
On balance therefore whilst it is understandable from a political perspective to have a rent freeze doing so in reality denies the Scottish economy access to £60m of funds or thereabouts that would ordinarily be ‘free money’ from Westminster whilst having little impact on tenants.
It does therefore seem quite illogical financially and economically to impose a rent freeze in 2023-24 for Scotland.
- Nick Pollard is group finance director at Link Group Ltd