LONDON, Jan 22 (Reuters) - British lawmakers said on Monday that raising the borrowing cap on local authorities to boost the supply of new homes and a cut in the tax paid by first-time buyers would not “fix the broken housing market”, as the government had pledged.
Finance Minister Philip Hammond said in his budget speech in November he would get local councils “building again” by allowing them to bid to increase their caps by up to 1 billion pounds ($1.39 billion) by the end of 2021-22.
The increase was part of a raft of measures aimed at increasing the supply of new homes by a net 300,000 by the mid-2020s.
The Treasury Select Committee, however, said with private builders providing about 150,000 new homes a year, local councils needed the cap to be abolished completely if they were to increase supply enough to bridge the shortfall.
“The increase in the cap on borrowing for local authorities to build homes is a step in the right direction, but it doesn’t go far enough,” said Treasury Committee chair Nicky Morgan, a member of Prime Minister Theresa May’s ruling Conservatives.
“The borrowing cap restricts the number of homes that local authorities could deliver. To achieve the government target of 300,000 new homes per year, the cap should be abolished. The potential of local authorities to build should be unleashed.”
The committee also noted that the Office for Budget Responsibility (OBR) had said abolishing property purchase tax on the first 300,000 pounds of any property costing up to 500,000 pounds for first-time buyers would result in only 3,500 additional people being able to buy their first home.
“In isolation, the reduction in stamp duty is likely to increase prices for first-time buyers by as much, if not more, than the amount they save as a reduction in stamp duty,” it said.
The committee also said the government needed to agree transitional arrangements with the European Union for a period after Britain leaves the EU to encourage private investment and help improve Britain’s persistently low productivity.
“The government’s commitment to increase public investment is welcome, but a revival in productivity also requires action from the private sector,” Morgan said.
“The OBR expects a fall in private sector investment due to Brexit-related uncertainty. An agreement between the UK and the EU27 (remaining members of the EU) on a ‘standstill’ transitional arrangements is therefore urgent.” ($1 = 0.7217 pounds) (Reporting by Paul Sandle; Editing by Adrian Croft)