UK government's welfare reform and housing polices questioned by European Commission

  • The European Commission has called upon the UK government to ensure that welfare reforms are contributing to the reduction of child poverty in low-income households.

    In a report titled ‘Building growth: Country-specific recommendations 2014' the commission say that universal credit and other changers to the welfare system must "deliver adequate benefits by providing clear work incentives and support services", reports 24dash.Annual Report 2

    The commission also expresses concerns over "risks" posed by the UK housing market causing by the "continuing undersupply" of new homes, the "relatively slow response" to addressing increasing demand and the knock on effect of higher house prices. It also wants the government to adjust the help to buy scheme.

    The commission said: "Although the supply of new properties has risen, it remains low and has fallen short of demand by a considerable margin. This has combined with low interest rates and easier terms for mortgage lending (such as higher loan-to-income multiples) to push up house prices in certain parts of the United Kingdom particularly in London. A shortage of supply has long been a structural phenomenon and is likely to extend into the medium term. Action is needed to further boost the supply of houses - by creating appropriate incentives to raise supply at the local level. The authorities should continue to monitor house prices and mortgage indebtedness and stand ready to deploy appropriate measures, including adjusting the help to buy 2 (loan guarantee) scheme, if deemed necessary. Reforms to the taxation of land and property should be considered to alleviate distortions in the housing market. At the moment, increasing property values are not translated into higher property taxes as the property value roll has not been updated since 1991 and taxes on higher value property are lower than on lower value property in relative terms due to the regressivity of the current rates and bands within the council tax system."

    In its summary reponse to the UK government's overall approach, the commission said: "It has taken various policy measures to address youth unemployment, child care, welfare reform, financing of SMEs and its infrastructural needs. The authorities are implementing appropriate policies but need to remain vigilant to any challenges that may arise during implementation. Challenges remain in relation to the housing market, including the need to increase the supply of houses to help dampen rapid rises in house prices, and the need to raise investment in infrastructure."

    Responding to the housing element of report, a Treasury spokesman said: "Figures last week showed help to buy has helped thousands of first time buyers on steady incomes buy properties and finally realise the dream of homeownership. It's an aspirational policy that will remain a key part of our economic plan. We are the first to say we must be vigilant and not repeat the mistakes of the past which is why we specifically gave the Bank of England powers to intervene in the housing market. They should not hesitate to use them if they see fit."

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