Grenfell update – the tragic result of capitalism’s need to put profits before people

It has been just over two months since the horrific fire at Grenfell tower. In that time, the loudest and clearest response has come from the survivors of the fire and the other residents of the Lancaster West Estate, roundly, and correctly, criticising the council and the government for their disregard for the lives and well-being of social housing tenants.

The survivors and council tenants know that there is a conspiracy against them, orchestrated by the banks, companies, council, and government. Pundits who take the capitalist system as an eternal, natural standard will insist that it is a result of corruption, ‘crony capitalism’, and claim that it only needs more regulation and laws, not only to provide safety and security for the working class but also to fix the housing crisis. This analysis ultimately serves the ruling class, as it entirely misses the nature of capitalism as a temporary economic system and ignores the possibility of the working class taking power for themselves. To better understand the inherent flaws in capitalism that have led to the Grenfell fire we must use the old adage, ‘follow the money’.

The Treasury’s racket

Out of the surviving families, to date only 23 have received permanent housing, although Kensington and Chelsea Borough have recently released a website allowing them to ‘bid’ against each other in a competition for roughly 100 flats. Even in the most cruel of circumstances, they cannot avoid pitting workers against each other for artificially scarce resources (Lucy Pasha-Robinson, ‘Grenfell Tower: Council asks survivors to “bid” against each other for permanent homes’, The Independent, 21 August 2017).

It should not be surprising that in a country that has been selling off existing council housing and building virtually no new council housing since 1980 (when Right to Buy was introduced), it is a struggle to find suitable accommodation for a few hundred households. Councils are not allowed to reinvest the majority of the money they raise from selling council housing into new social housing, being required to reserve the funds to pay off debts and credit agreements (made law in the Local Government and Housing Act 1989).

The government mantra of reducing Britain’s debts rings hollow in the ears of anyone who knows that the national debt has been steadily increasing, from less than £0.5 trillion in 2005 to over £1.6 trillion today, in the wake of the 2007 financial crisis. More than that, the national debt is not at a particularly historic high, so why is there a huge push to make cuts to pay off the deficit?

On a local level, Kensington and Chelsea Council has £1.7bn in assets and a £3bn cash flow, and it reported debts of a mere £135.4 million in March 2017. Despite these healthy-looking figures (which allowed the council to offer a £100 rebate on council tax in 2014), the social-housing maintenance budget is only £60m a year, and the account is £210m in deficit, almost four times the budget. This is because the council charges its own housing revenue account for £79m a year in debt. The Treasury then charges the council interest on their total £131m debt, billing it £13.3m last year in interest.

The Treasury collects interest on debts like this to the tune of £2.9bn a year through the Public Works and Loan Board, all coming from loans taken out for social housing developments. Since construction has been so low for decades, the majority of these debts are for projects completed decades ago, with some councils still paying interest on estates that have since been demolished. These loans were taken out when there was a high rate, with Kensington and Chelsea paying interest of almost 10% annually (the current Bank of England rate is 0.25%). Not only is the Treasury not allowing councils to refinance this debt at a drastically lower rate, they have introduced severe penalties effectively to stop councils from paying off these debts early (councils have gone from paying off early £3bn of debts a year to less than £200m). (See Helia Ebrahimi, ‘The number line that leads from Grenfell Tower to the Treasury’, The Times, 1 August 2017).

With cuts to housing expenditure, spending per head in real terms fell from 2009 to 2013 by 47% in England, 28% in Northern Ireland, and 24% in Scotland. London experienced a cut of 50% in spending on housing and community amenities. (See Prof. Rebecca Tunstall, ‘The Coalition’s record on housing: policy, spending and outcomes 2010-2015′, Social Policy in a Cold Climate, January 2015).

All this essentially traps councils in a cycle of debt that has drained their accounts for the construction and maintenance of social housing. It is no wonder, then, that, with budgets constantly being squeezed year-on-year, councils are opting for the cheapest measures, or attempting to sell off assets to service their debts. It is well known to economists that these short-term financial gains do not pay off for the economy in the long run, but then it is not the intention of the Treasury’s crippling anti-deficit policy to improve the economy.

Rather, this policy is designed to further the liquidation of national assets and services, whittling down council staff and entire departments, forcing more vital services to be outsourced, cut back and/or abandoned. Companies to which services are outsourced then have to provide competitive bids to cash-strapped councils, hence the constant selection of cut-price solutions. In the case of Grenfell this meant choosing a bid for inflammable cladding that was £300,000 cheaper than the non-inflammable cladding, just one of many cost-cutting measures that lead to the horrific loss of life in the blaze. (See Tom Symonds and Daniel De Simone, ‘Grenfell Tower: Cladding “changed to cheaper version”’, BBC News, 30 June 2017).

Affordable homes scheme, but only for developers

Councils are forced to turn to private developers in order to construct any new housing. As space is at a premium (especially in London), any new projects inevitably fall upon existing, and often still perfectly liveable, estates. Throwing valuable real estate and development opportunities into the free market comes with costs, however, the brunt of which are borne by the existing residents.

The affordable housing obligations require developers to include a prescribed number of affordable homes in residential complexes they build, or otherwise negotiate paying a subsidy to fund those affordable homes being built elsewhere in the nearby area. Developers can, and often do, avoid having to provide any of these contributions, with companies such as Savills and S106 Management Ltd (and doubtless many others) offering specialist services to save millions, or tens of millions, on developments by ‘proving’ that a scheme is ‘unviable’, i.e., that it will bring in less than 20% profit. This has led to a host of developers suddenly finding projects were not as lucrative as previously believed. It would, after all, be negligent on their part not to take any opportunity to increase profits for their shareholders. (See Lucy Fisher, ‘Developers able to demolish affordable housing provision’, New Statesman, 30 May 2014).

Previous estate tenants then find that they do not have the ‘affordable’ option of returning to their neighbourhoods by renting flats at 80% of market rate (a huge increase on previous council rates), nor has any other ‘affordable’ housing been built in the borough as the greatly-reduced contributions from developers will have gone to servicing old and extortionate debts for the social housing that is no longer there!

No country for social housing

Although concerns of safety and security on the part of council tenants is entirely justified, the real concern is that there simply will not be any social housing in the not-too-distant future. Haringey council, mere weeks after the Grenfell fire, has approved the Haringey Development Vehicle, a £2bn 50:50 joint-venture between the council and private developer Lendlease. The development covers a huge amount of council-owned housing estates, schools, public facilities, as well as private housing purchased by compulsory order. Despite boasting plans for 5,000 new homes, the council has made no guarantees to existing tenants that they will be able to return, nor that any more than a token amount of the new homes will be ‘affordable’ or available as social housing. Figures revealed by GLA Assembly Member Darren Johnson in February 2016 showed that estate regeneration schemes in London were set to lead to the net loss of 7,326 social rented homes (see https://www.london.gov.uk/press-releases/assembly/darren-johnson-past-staff/loss-of-social-housing-through-estate-regeneration).

Why then, if it seems to make more economic sense for governments to invest in social housing, and infrastructure and development generally, have successive governments deliberately divested billions in public assets, while starving the public sector of funds? The simple answer is that the economic laws of capitalism make sense only from the perspective of capital. The sole purpose of capital is to reproduce itself. Investments must return a profit, and capital must continue to grow.

Within this system there is no regard for human life, happiness, or rationality. In 19th century Britain the government had to introduce laws to limit the working day as factory owners were literally working the population to death. This was not done out of sentiment or kindness, but because the government is constrained sometimes to intervene in the interests of capital where the economic laws of capital do not allow it to regulate itself.

The capitalists and their servants in government know that they cannot simply destroy social security and public provision in one fell swoop, otherwise they would have done so years ago. Instead they have been waging a slow but successful war. In the course of this slow successful war, among other things, the ruling class has thoroughly undermined the provision of social housing. The working class must wage a counter-offensive against this destruction of social housing. While doing this, it must understand that capitalism has never, does not now, and will not in the future, solve the housing crisis. Socialism alone can provide safe, secure, affordable and good housing worthy for human beings to live in.