Can Public Services Be Sustained In London If House Prices Continue To Rise?

As far as the sustainability of public services in London is concerned, there seems to be a number of non budgetary factors at work, many of which are related to the affordability of housing, or rather the lack of it. In Lewisham we have started to notice that schools are finding it difficult to recruit Head Teachers. I think this has been a problem in the past across the country, but this was due to teachers not wanting to take on the extra responsibility and stress. Now it seems that part of the issue is that suitable candidates are not applying because they know that they couldn't afford to move here if they were successful. My sense is that this has been an issue for recruitment to senior posts in public services in London for some time.

But house prices are not just preventing good people from coming to London to further their careers, they are also pushing people out. People are leaving London because they can't afford to buy a house here, even though they are in good jobs with good career prospectives. Even those who own their own homes are having to move away because they can not afford to trade up and buy a property big enough to raise a family. People are willing to endure a 90 minute to two hour commute each way, in order in keep their job in London, but also have a modest family home, while their partners give up their London job and look for something local. Others leave the London job market completely. The other force pushing people out is the desire of those lucky enough to have a family home, to cash in on what they consider is a housing market bubble. They have seen the price differential between London properties and those elsewhere expand so far that the trading opportunity is just too good to pass up. I have seen both forces at work in Lewisham.

The good thing about churn at the top of the job market is that it provides opportunities for those lower down to move up, and the more the churn, the more opportunities there are. During the time I visited the primary school that my sons went to in Lewisham, I was struck by how many very young teachers there were by the time the youngest left, compared to when the eldest started. In the couple of school visits I have made since becoming Lewisham's Cabinet Member for Children & Young People, I noticed how many young teachers there were. I don't think this is just a false perception brought on by my own ageing! I know from the people in their twenties who I work with at Hales Gallery, that these young workers are Generation Rent. They tend to be living in rented accommodation with their partners and/or friends and they are childless. I don't know the data on the age profile of employees in public services in London and how it may have changed over the years. However, I suspect that there are an awful lot of Generation Rent employed in our schools, our social services and the NHS. What will happen when this cohort decide to have children? Will we see a slow motion, mass exodus of young doctors, nurses, social workers and teachers from the Capital in the coming years? Who will care for and teach those who remain?

I, of course, am particularly worried about the effect that our dysfunctional housing market is going to have on our schools in the coming years, especially as the situation is being exacerbated by increasing numbers of children needing places and budget reductions. However, I think the situation in adult care may be much worse. We know that the number of elderly people is going to increase in the coming years, and their needs will also increase as they live longer. Thankfully, they have been spared Iain Duncan Smith's welfare reforms so they are not being forced to move to Chatham or Broadstairs to escape the bedroom tax. So in London we are going to have growing demands on adult health and social care that will have to be met by a NHS whose funding was effectively capped at 2010 levels of need, and the social services departments of local councils whose budgets are been drastically cut. And all this will be happening at the time of a possible recruitment crisis.

As I say, I don't have all the data and am just extrapolating and speculating. However, I think the bottom line is that you have to question the viability of a City where a modest family home is out of the price range of young professional people working in the public sector.

London's School Places Challenge - Can Boroughs Solve It On Their Own?

Last week, London Councils published Do the Maths 2014, London's school places challenge. It outlines the problem in the first page of its introduction:

London has been facing an increase in demand for school places for the last seven years, and this demand continues to grow. A combination of rising pupil populations, spiralling building costs and lack of available land is putting increasing pressure on London boroughs to provide places for pupils. These challenges have been compounded in the capital by an ongoing lack of sufficient funding from government to provide adequate pupil places.

The scale of the problem in daunting. London will need to create 112,158 extra primary school places and 20,994 secondary school places by 2018. Currently, individual educational authorities are tasked with planning for and delivering their required additional places at their own borough level. The report makes a number of very interesting points of fact which leads me to think that the only viable solution is one that is centrally planned and pan-London, even regional in nature.

Firstly, the problem is not evenly distributed across the Capital. At one extreme, you have Camden where pupil numbers are forecast to grow by about 6% between 2012/13 and 2017/18, while at the other you have Croydon with growth forecast at over 35%. 

Secondly, the Big Society, quasi 'Free-market' approach favoured by the DfE under the now departed former Secretary of State for Education, Michael Gove, isn't going to help much. Whatever you may think about free schools, the report makes clear that they are not being set up in the areas where there is biggest need for extra places.

In addition, many of the boroughs with relatively high forecast growth rates are next or near to others with much lower expected growth. Lewisham, for example, is expected in the next 5 years to see an increase in pupil numbers of nearly 20%, whereas for neighbouring Bromley the figure is just over 10% and for nearby Bexley its only around 7.5%. Bromley and Bexley are outer London boroughs where London Council's estimate the unit cost of building a school place is about £9,000. In inner London boroughs like Lewisham it's around £15,000.

Lewisham has been dealing with a rising primary school roll for the last 6 years. We have found the extra places in the main by expanding our existing schools, either through adding bulge classes or expanding 2 form entry schools into 3 form entry schools. We have done this because we have so few sites on which we could build brand new schools, even if we had the funding to do so. Bromley and Bexley are far less urbanised than Lewisham and it is therefore hard to believe that they are as pressed for sites as we are.

Some people seem to think that children should have the right to go to a local school, by which they mean one that is just down the road, so expecting parents to allow them to schools in neighbouring boroughs is unreasonable. I think there are a number of points to make here. The first is that parents in London tend not see borough boundaries as restrictions, especially if you live close to them. Parents who live in Lee may see Woolwich, the home of Greenwich Town Hall, as something of a foreign country, but many see Thomas Tallis school, which is in Greenwich Borough and only about a mile or so away, as their local school, especially as the 2 nearest Lewisham secondaries are faith schools. Good transport links are another reason parents are opting to send their children to schools outside the borough. There can be no surprise that parents are happy to allow their children to go to school in Bromley or Bexley or as far away as Dartford in Kent, by train when, if you live in Blackheath or Lee, the journey is quicker than a bus ride to a Lewisham school in New Cross or Forest Hill. Indeed, around a quarter of Lewisham secondary pupils go to schools outside the borough.

I accept that parents are less willing to send their children to a primary school that is not down the road, although this may be more to do with the fact that they have the practical requirement to get them there and bring them back, than it is about an emotional desire to keep their offspring close to the family home whilst at school. However, as I have already said, a neighbouring borough is not another country far away of which we know nothing. From where I live in Lee I can get into my car and be out of the borough and at a farm in Bromley, quicker than I can drive to the Town Hall in Catford.

I don't know the situation in other parts of London as well as I know the issues in Lewisham, but I suspect that there are many similarities. Therefore, it seems pretty clear that the London problem can not be solved by each individual borough trying to deal with its own challenge. But can we expect a solution that involves the outer boroughs and the home counties coming to the aid of the inner boroughs, particularly when in many cases this requires Tory authorities assisting their Labour neighbours by building schools on currently green field sites, to come through a route of cooperation and mutual assistance? I think that whoever is Education Secretary after the next Election is going to have to intervene and direct local government to take action to bear their neighbours' burdens, however much this goes against the grain and whatever the backlash. The problem just seems too big for the current structures to deal with in a way that secures the best outcomes for all the children involved.

Why Are The Poor Paying More Tax Than The Rich?

Last week the ONS produced the latest version of its statistical bulletin, The Effects of Taxes and Benefits on Household Income, 2012/13'. What this shows, if we needed reminding, is that we do not live in a country with a progressive tax system and an excessively redistributive benefits system. The facts in this paper are squarely at odds with the assumptions of many on the right that the country's economic growth is being held back by high taxes on entrepreneurs and wealth creators and by a culture of benefit dependency amongst the poor:

The richest fifth of households paid £29,500 in taxes (direct and indirect) compared with £4,700 for the poorest fifth, though both groups paid a similar proportion of their gross income (35.1% and 37.4% respectively).

It is an inconvenient truth for many in the Coalition that even after large rises in the income tax threshold designed to make work pay, the poor pay a larger proportion of their incomes in tax than the rich. I suspect that the figure for the rich reduces more further, the further you go up the income distribution. That is, the richest 10% pay even less than the richest 20%, the richest 1% less than the richest 10% and so on. If my memory serves correctly, even Adam Smith thought that the fairest system of taxation was one where everyone paid the same proportion of their income in tax.

The main reason that the tax burden has been driven down the income distribution on to middle and lower income earners is because, over the years, more and more tax revenue has been generated from indirect taxes rather than from direct taxes like income tax. As the ONS explains:

The amount of indirect tax (such as VAT, and duties on alcohol and fuel) each household pays is determined by their expenditure rather than their income. The richest fifth of households paid just over two and a half times as much indirect tax as the poorest fifth (£9,100 and £3,500 per year, respectively). This reflects greater expenditure on goods and services subject to these taxes by higher income households. However, although richer households pay more in indirect taxes than poorer ones, they pay less as a proportion of their income. This means that indirect taxes act to increase inequality of income.

Thus, in 2012/13 the top 20% of households paid only 14% of their disposable income in indirect taxes while the bottom 20% paid more than twice as much – 31%, and this is up on what it was in 2011/12.

This has, of course, not happened by mistake. Rather, it is the result of a deliberate policy pursued by consecutive Tory governments going back to Geoffrey Howe's first budget in 1979 in which he raised VAT to 15% and cut income tax rates.

The other major cause of the tax burden being driven onto the less well-off is inequality of income growth, as even if everyone's taxes rise by the same percentage increase, but incomes rise faster for the well-off relative to the rest, then the tax burden on the rich reduces relative to that borne by everyone else. Welcome to the UK post 1977, as the ONS says:

However, incomes have not grown evenly across the income distribution. The average disposable income for the richest fifth of households in 2012/13 was just over two and a half (2.53) times higher than in 1977, once inflation and household composition were accounted for. The average income of the poorest fifth of households has also grown over this time, but the rate of growth has been slower (1.86 times higher in 2012/13 than 1977).

This is what this looks like graphically:

Growth in equivalised household disposable income, 1977 to 2012/13

So the richer are getting richer and paying less tax while everyone else is getting a smaller slice of the pie and paying more tax. And it may surprise some to know just how little the poorest households receive in benefits, relative, that is, to the richest 20%. In 2012/13 the poorest households received on average £7,154 in cash benefits, but the richest households received £2,666. When it comes to in kind benefits like health and education the gap is even narrower, with the poorest receiving £7,646 and the richest £5,403. This doesn't seem like redistribution gone mad to me.

If we have a problem in this country of a tax and benefits system that stifles hard work and free-market capitalism, then looking at these figures one wonders how much more of the tax burden currently borne by the rich will need to be passed onto the poor before the 'entrepreneurs' get up and do their thing.

PS.  Here are two ONS infographics on taxes and benefits: