Mitch Feierstein: Chancellor builds his policies on a Ponzi homes plan

Investment View: George Osborne is putting the good of his party before his country. Shame on him

At the last election, during a TV debate between the three putative chancellors (Messrs Darling, Osborne and Cable), Krishnan Guru-Murthy asked, "Do you agree that cuts we are going to be facing will be deeper than the cuts that Mrs Thatcher had to put through Britain?" Alistair Darling answered, "Well … they're going to have to be pretty deep." The other two men simply said, "The answer is yes."

The economic realism of that (brief) period wasn't simply about cutting Government spending. It also had to do with the kind of economy we wanted. No longer one dependent on property, finance and borrowing, but led by industry, investment and exports. If the Coalition Government had walked that walk, the British economy would be on the road to real recovery. A long, arduous and stony road, for sure, but still one heading in the right direction.

Alas, that road proved too stony, too steep. After some real-world setbacks (eurozone recession, a poor manufacturing performance) and predictable political hiccups (the rise of UKIP, some backbench restiveness), George Osborne has, in effect, chosen to revert to the economics of fakery. The clearest indicator is the nonsense of the Government's help-to-buy scheme. Every single thing about it is terrible, starting with its basic premise. An interest-free government loan guaranteed by taxpayers is intended to make it easier for buyers to raise a deposit, so buyers can purchase homes with as little as 5 per cent of a home's purchase price.

The first obvious point to make is that the scheme does nothing to increase the supply of properties. Britain already has the smallest homes in Europe. Our planning rules are so restrictive that house builders are resorting to ever more marginal brownfield sites. No new towns are planned. Antiquated Green Belt rules are still enforced. Investment in mass transit schemes and high-speed rail is being squeezed by budget cuts. In short, nothing that would make a real-world difference is being done.

Since supply is restricted, easing the financial challenge of property ownership can only lead to higher prices. Those higher prices are artificial (based on Government subsidy) and make the prospect of a housing crash ever more certain – because at some stage, interest rates will need to come back to normal levels and the Government will have to stop wasting cash on meaningless subsidies. Since we've already lived through one boom and bust, it seems astonishing that we should choose to re-awake those evil genies.

The problems don't end there. Higher house prices don't just mean a greater likelihood of a crash, they also mean that, yet again, the Government is deliberately using debt as a growth strategy. Indeed the basic design is, as I've argued in my book Planet Ponzi, simply a Ponzi scheme designed by the Government. You take an already overvalued asset (housing), throw a load of debt at it (mortgages in the household sector, guarantees in the Government one), keep the merry-go-round moving (by keeping house prices on the up), then get re-elected before it all collapses.

The problems escalate all the time. In the US, the federal government used to guarantee mortgages. When the solids hit the air-conditioning in 2008, the US Treasury ended up committing $187bn (£120bn) in saving the two main agencies from collapse. MrOsborne's scheme is smaller, but heading the same way, built on the same disastrous foundations.

The worst thing about the whole scheme is the thinking behind it. The UK currently ranks 159th of 173 countries in terms of investment as a share of GDP, outranked by nations like Mali and Guatemala. Spending on machinery has fallen by a third since 2008. That lack of investment squeezes output today and restricts the economy of the future. It's an economic catastrophe unfolding in slo-mo in front of our eyes.

Certainly solving those problems would be hard – but the issues really, really matter. In chasing the wrong target, in the wrong way, Mr Osborne has shown where his priorities really lie: the good of his party, not the good of his country. Shame on him.

Mitch Feierstein is the author of Planet Ponzi and chief executive of the Glacier Environmental Fund

PROMOTED VIDEO
Voices
Ukip leader Nigel Farage arrives at the Rochester by-election count
voicesIs it any wonder that Thornberry, Miliband, and Cameron have no idea about ordinary everyday life?
Sport
sportComment: Win or lose Hamilton represents the best of Britain
Life and Style
tech
News
ebooksNow available in paperback
Sport
Arsene Wenger reacts during Arsenal's 2-1 defeat to Swansea
footballMan United and Arsenal meet on Saturday with both clubs this time languishing outside the top four
News
i100BBC political editor Nick Robinson had a lot of explaining to do
Life and Style
Nappies could have advice on them to encourage mothers and fathers to talk to their babies more often
newsTalking to babies can improve their language and vocabulary skills
Sport
Tony Bellew holds two inflatable plastic sheep at the weigh-in for his rematch with Nathan Cleverly
boxingGrudge match takes place on Saturday night
Arts and Entertainment
Mark Ronson at PS1
arts + ents
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

Immigration: Obama's final frontier

The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

Bill Cosby rape allegations explained

Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

You know that headache you’ve got?

Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

Scoot commute

Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
Paul Robeson: The story of how an American icon was driven to death to be told in film

The Paul Robeson story

How an American icon was driven to death to be told in film
10 best satellite navigation systems

Never get lost again: 10 best satellite navigation systems

Keep your vehicle going in the right direction with a clever device
Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

Paul Scholes column

England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

Michael Dawson: I’ll thank Spurs after we win

Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

Frank Warren column

Dr Wu has big plans for the professionals yet he should stick to the amateur game
Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

Terror unites Jerusalem after synagogue attack

Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

'How do you carry on? You have to...'

The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
Isis extends its deadly reach with suicide bombing in Kurdish capital

Isis extends its deadly reach with suicide bombing in Kurdish capital

Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
Underwater photography competition winners 2014 - in pictures

'Mysterious and inviting' shot of diver wins photography competition

Stunning image of cenote in Mexico takes top prize
Sir John Major: Negative West End portrayals of politicians put people off voting

Sir John Major hits out at theatres

Negative West End portrayals of politicians put people off voting
Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

Kicking Barbie's butt

How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines