Bang!: A History of Britain in the 1980s (83 page)

The policy’s by-product was to reduce the available housing stock for those on low pay, since the sale proceeds were directed towards reducing the debt burden and the proportion local
councils could spend on reinvestment was steadily reduced over the decade. The funding of new or renovated council estates duly fell (thirteen thousand new council homes were being built per year
at the end of the eighties, compared with twenty thousand annually during the seventies).
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The problem for the Labour Party, which fought the
1983 general election promising to abolish the ‘right to buy’, was that the policy was especially popular among a wide section of what was – although it was ceasing to be –
Labour’s core support, who were on modest earnings and who saw home ownership as creating a valuable nest egg which would otherwise be beyond their reach. Reluctantly acknowledging this
reality, Labour began to retreat from outright opposition and in 1987 opted for a more pragmatic stance, merely promising to redirect the proceeds towards reinvestment in council housing stock.
This ran counter to one of the intentions of the legislation, which was to bring private investment into neighbourhoods that were otherwise dependent upon the budgets of central and local
government, rather than merely to provide a new source of revenue with which to build more council estates. On those estates where significant numbers opted to buy their homes (often where the
houses had gardens), the regenerative signs of ‘gentrification’ were widely discernible. Especially stark, therefore, became the contrast with those estates (often flats in tower
blocks) where home ownership did not take off, a factor that also accentuated the ‘north–south divide’. Such estates faced a spiral of decline, being dependent for refurbishment
upon the council and, with the more prosperous or determined residents moving out, becoming home disproportionately to those dependent upon welfare benefits. In particular, housing benefit replaced
rent control as the means through which accommodation was kept affordable for those without a regular income. In large part, this was a consequence of central government’s reduction of the
subsidies that had kept council house rents artificially low. Local authorities sought to make good the shortfall by charging market rents, which produced a surge in applications for housing
benefit. The Treasury ended up paying out almost as much to individual applicants as it had previously done in providing councils with block subsidies.

The ‘right to buy’ policy accelerated rather than initiated changes in the social structure of council estates, since the process was already under way before
the 1980 act; in fact, it could be traced to a private member’s bill introduced by a Liberal MP, Stephen Ross, which the Labour government had brought on to the statute book as the Housing
(Homeless Persons) Act 1977. This placed a legal obligation on local housing authorities to provide accommodation for the homeless. As the rough-sleepers making do in cardboard boxes in city
centres attested, the need remained intense throughout the eighties, and the legislation’s intent could scarcely be faulted – merely its failure to reach all those who remained in need.
The unintended consequence, however, was fundamentally to change the social composition of many estates. In particular, the prioritizing of the most needy, regardless of where they came from, made
sense on compassionate grounds but cut across the means by which traditional working-class estates retained their historic sense of community. Suddenly deemed discriminatory were the strict vetting
procedures that had prioritized for tenancies local families and their relations and those in steady jobs. The result was the ‘sink estate’.

The scale of the homelessness problem remained such that it was beyond the 1977 legislation’s ability to end it. Indeed, it got worse as the eighties progressed, although there was
disagreement as to how many it involved, with the National Audit Office suggesting that the numbers had risen from 53,000 in 1978 to 126,000 in 1989. Defining the homeless as those with no
permanent address, local authorities estimated that, nationwide, almost 73,000 people fell into this category in the first six months of 1990. Most were being put up in temporary accommodation,
whether in hostels or bed and breakfast residences.
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It was the three to five thousand rough-sleepers who naturally attracted the most concern
and popular outrage. The sight of (often young) people bedding down for the night in the shop doorways and on the pavements of The Strand provided a stark contrast between consumer plenty and
abject poverty in London’s West End. A similar scene of a cardboard shanty-town, inhabited mainly by older ‘down and outs’, in the concrete underpass outside Waterloo Station was
the first sight of Thatcher’s London that greeted commuters and tourists leaving the terminus. In an effort to stem the flow of the destitute into the capital, and other inner cities, the
environment secretary, Nick Ridley, proposed in 1988 ending the benefit rights of homeless claimants who refused to stay in their ‘home’ local authority area. The plan was leaked, and
was dropped after it was attacked as an attempt to hurt the vulnerable and shield them from metropolitan view, rather than to address their deep-seated problems.

The causes of homelessness included not just the absence of cheap housing but also the lack of jobs, the breakdown of the traditional family unit and the social atomization that resulted, the
prevalence of recreational
drug dependency, particularly among the young, and the effects of the ‘care in the community’ programme whereby those with mental
health problems were treated with palliative medication rather than being restrained in asylums. While perceived to be driven by government spending restraints, ‘care in the community’
was nonetheless the continuation of a thirty-year liberal approach which decried asylums as the dehumanizing relics of Victorian institutionalization. As a result, the number of beds in mental
hospitals had already been cut from 150,000 in the mid-1950s to 80,000 in the mid-1970s. The intention was for sufferers to take their medicine at home in an environment that fostered their
re-engagement with society – though where patients failed to take their medication or did not respond to it, the danger was that they would enter into a downward spiral of personal problems,
incapacity, homelessness and crime. Those – and the numbers were never adequately quantified – who fell between the cracks of community care had limited options. Only four thousand
places in local authority hostels were created to accommodate the hundred thousand patients discharged from mental health institutions between 1955 and 1990.
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Analysis by the St Mungo Association in the capital suggested that among younger homeless people one third had been in care immediately prior to sleeping on the streets. Two
thirds had been in institutions at some stage during their lives.
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The issue, however, was not just one of building new cheap accommodation. The
Salvation Army reported that thousands slept rough within walking distance of their hostels, which had empty beds. For all the complaint that the ‘right to buy’ had destroyed the social
housing market, the fact remained that by 1990 there were 100,000 empty council houses in England alone. The government set up a £300-million, two-year programme to renovate them.
Furthermore, there were more than 600,000 privately owned properties standing empty, which became central to efforts to increase the available housing stock.
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The government’s Housing Act 1988 proffered two solutions to the shortage of low-rent properties. The first was to encourage the growth of not-for-profit housing associations, which
– where the residents voted for it – were allowed to take over the running of estates from local authorities. The grants that central government made to these charitable organizations
increased from £50 million in 1979 to £1 billion in 1990, ensuring that they became responsible for building three times as many properties for rent as local government.
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The second solution was to try to stimulate the private rental market. Until the 1960s, the country’s private landlords had provided more rented
accommodation than local authorities. Indeed, the sale of council houses in the eighties actually represented the second great wave of property sell-offs of the post-war period, given that in the
1950s and 1960s, private rental landlords had disposed of 2.3 million homes (one third of their
total stock), mostly to private buyers. These properties tended to be terraced
homes, which landlords concluded could no longer produce adequate rental returns in consequence of tight rent controls and the spreading availability of council housing. For most of the eighties,
the private rental market showed no signs of recovery, remaining below 8 per cent of the housing stock until 1988, when the government freed landlords offering the newly created assured short-hold
tenancies from rent controls, creating the potential for a greater return on their investment. In time, this provided the motivation for the ‘buy to rent’ market to take off, and by the
late nineties the sector was staging a remarkable recovery – to the extent that by 2011 there were as many Britons renting from private landlords as from local authorities and housing
associations.

That it took until 1988 for the government to address seriously the interests of those for whom renting remained the preferred or only option perfectly illustrated the priority given to creating
the ‘property-owning democracy’. The resources of the state were actively tilted to help those who wanted to buy. The main incentive was the income tax break offered by mortgage
interest relief at source (MIRAS). The sweetener had actually been introduced by Roy Jenkins when he was Labour’s Chancellor of the Exchequer in 1969, and represented a rare case of a state
subsidy Thatcher was zealously keen to increase: between 1980 and 1990 its cost to the Treasury rose by 200 per cent, to £7 billion. It allowed applicants to claim for the first £30,000
of a mortgage. What was more, two cohabiting persons (so long as they were not married to one another) could each claim the relief, securing a £60,000 tax break on the same property. Lawson
did away with this matrimonial disincentive in his 1988 budget, though the restriction was not implemented until more than four months later, during which time there was a surge in unmarried
couples buying houses, forcing up prices at the very moment when the market was already overheating.

Prior to the eighties property boom, less than 5 per cent of mortgages were issued by banks, the primary lenders being building societies organized along mutual lines, without shareholders. It
was a model that the intensifying desire for home ownership placed under considerable pressure, since building societies lent from the deposits they received from existing customers rather than
from borrowed money, and this limited their ability to offer a sufficient supply of mortgages to meet the multiplying demand. The first relaxation in how these mutuals operated came in 1983 when
Abbey National led the break-up of the cartel, organized since 1939 by the Building Societies Association, which fixed their lending and savings rates so that there was no competition between them.
While the cartel had reduced the incentive for reckless lending, it also ensured a poor return for savers, resulting in insufficient funds and mortgage rationing. Its break-up was brought
about not only by a newly cut-throat attitude on the part of some building societies, but because of the sensible apprehension that a relaxation of bank-lending criteria in 1980 would
bring the major clearing banks into the mortgage market. The threat was real since banks’ ability to offer credit by borrowing from the wholesale capital markets gave them the potential to
reach a broader market – a particular advantage given that property prices were rising far more quickly than savings, making it impossible to fund the necessary mortgage lending from retail
savings. Where previously home buyers might have hoped to secure a mortgage of two and a half times their annual salary, loans were soon being made of up to four times annual salary. In this way,
Britain experienced a vast expansion of borrowing despite the fact that interest rates spent most of the eighties in double digits, far above the retail price index. The increasing value of loans
offered for non-housing purposes, from £4 billion to £28 billion between 1978 and 1988, seemed positively miserly compared with the rise in mortgages from £6 billion to £63
billion over the same period.
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By then, Lawson’s policies were simultaneously taking the economy in two contrasting directions: while
central government exercised mid-Victorian retrenchment by managing to spend less money than it raised, the private sector’s credit-to-capital ratio expanded dramatically.

During the course of this expansion of credit, the services that both banks and building societies offered were transformed. In 1980, clearing banks still did not pay any interest on their
customers’ current accounts, and more than one quarter of Britons of working age did not even have a bank account (that proportion had stood at one half as recently as 1976).
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Though larger payments might be made by writing cheques, most shopping was done with cash and until ATMs began to proliferate, from 1982 onwards, this
necessitated standing in line for a bank teller to count out and hand over the notes. Building societies went through an even more fundamental change. Removing many of the restrictions on what they
could and could not do, the Building Societies Act 1986 permitted them to borrow money like banks, to operate like banks and – if their members voted for it – to demutualize and
effectively to become banks. The first fully to take advantage was Abbey National, which floated on the stock exchange in 1989 after its members had voted overwhelmingly in favour of
demutualization – a decision sweetened by the offer of one hundred free shares for each of them if the flotation went ahead. Over the succeeding two decades, Abbey’s major competitors
all followed the same path, which mostly ended in their merging with or being taken over by the traditional banks.