Help to Buy: George, David and Ed were all missing for their basic lesson in economics

The cleverness of the politics lies in the invisibility of those who will lose out
  • @johnrentoul

“He needs a basic lesson in economics”, said David Cameron at Prime Minister's Questions, when asked by Ed Miliband about Labour's proposal for an energy price freeze.

So true. But, sadly, so does the Prime Minister. This was exposed by Graham Jones, Labour MP for Hyndburn, who won my Backbench Question of the Day by asking why it was all right to intervene in the mortgage market but not in the energy market.

Cameron responded feebly that the mortgage market isn't working, which is doubtful, implying that the energy market is, which is true.

What it also undeniable is that the Government's Help to Buy scheme, to underwrite mortgages up to £600,000 to allow people to buy with five per cent deposits, is the economics of the perpetual-motion tombola.

It is clever politics, because the beneficiaries will be grateful to the Government for allowing them to buy a house that the could not afford otherwise. But it will do next to nothing to increase the supply of housing, and so for every beneficiary there will be a loser somewhere, who might have bought a house had the scheme not existed, but who will now be beaten to it by a Help-to-Buyer.

The cleverness of the politics lies in the invisibility of these losers, who may not themselves know that they have lost out.

There are only two ways in which the scheme can "work":

1. If prices rise or mortgage availability improves to such an extent that housebuilders build more houses than they would otherwise have done. That would of course put house prices generally out of the reach of even more people.

2. If houses that are now rented are sold to mortgage-backed owner-occupiers. Again, that would happen only if house prices rise or rents fall, and there is no reason why the second should happen.

The Prime Minister and the Chancellor need a basic lesson in economics, and should not be allowed to get away with the politics.