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UK MPs Recommend Removal of Borrowing Limits to Boost Council Housebuilding

UK MPs have been calling for restrictions to be lifted on the ability of local councils to borrow, saying that public sector-backed housebuilding is essential if Britain is to reach its target of 300,000 new homes a year.

With the Prime Minister having pledged to fix the country’s broken housing market, the Commons Treasury select committee said that council housebuilding had to increase. 

The committee also called on the Office for Budget Responsibility to produce a forecast about Brexit’s impact before the MPs are expected to vote on the conditions of the UK’s withdrawal from the EU.  

The recommendations were part of the committee’s response to the Chancellor’s November budget, which planned to tackle the high cost of housing in the UK using measures such as reduced stamp duty for new homebuyers and a lifting of borrowing restrictions that affect council housebuilding. 

Committee chair Nicky Morgan said that a current borrowing cap limits the number of homes that local councils can deliver. To meet the government goal of building 300,000 new homes per year, the cap needs to be removed. 

Organisations like the Local Government Association, which represents councils, and the National Housing Federation, which speaks for housing associations, were doubtful that the goal could be achieved without additional measures. 

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Local Government Association chair Lord Porter welcomed the recommendation to eliminate the council borrowing cap. He said that unless council housebuilding increases, there is little chance that housing supply will ever meet demand. 

The report by the Treasury committee concluded that the Budget’s stamp duty cut for new buyers who purchase homes valued at up to £300,000 would only raise house prices and accomplish little else. 

Meanwhile, the report called for the Office for Budget Responsibility to create a special edition of its biannual report into the country’s fiscal and economic outlook before Parliament votes on Britain’s departure agreement with the EU. 

The Treasury committee noted that the Office had not yet included any expectations about the final British relationship with the EU into its forecasts and that Chairman Robert Chote had commented that any positive or negative impact Brexit had on economic growth would be minor compared to the size of the UK’s divorce bill with the EU. 

The report said that Parliament needed to be completely informed about these fiscal impacts before it votes on the legislation that formalises the withdrawal agreement. The Treasury committee also recommended that the retail price index no longer be used as a measure of inflation. 

It approved of the government decision to make the switch from RPI to the consumer price index as a way of deciding on yearly business rate increases that UK companies pay in relation to their properties. Among other things, RPI is used to establish yearly increases in train fares, and its proclivity for overstating the rate of inflation means that it is no longer regarded as a national statistic. 

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