The day after the Budget was never going to be an easy one for George Osborne. Sure enough, the Opposition clamoured for a U-turn; there was widespread criticism of the Treasury’s sleight of hand that kept borrowing lower (albeit fractionally) this year than last; and the respected Institute for Fiscal Studies warned of sharp tax rises to come after the next election. But it is the Chancellor’s plan for the housing market that is cause for most concern.
The Help-to-Buy scheme has two parts: it will offer interest-free loans to buyers of newly built homes, and it will support some £130bn of cheap mortgages for eligible buyers of any kind. The plan is certainly radical, shifting from targeted intervention – helping first-time buyers, say – to an offer of assistance to well-nigh anyone. It is far from wise, however – and not only because of the ructions over the Government helping the well-off purchase second homes.
In fact, Help-to-Buy is the wrong solution to the wrong problem. Rather than responding to Britain’s very real housing crisis, it risks exacerbating the problem; and rather than giving a lift to the flagging construction sector, and with it the economy, the Chancellor is merely encouraging potentially unaffordable consumer debt. At best, he is exhibiting the same lack of imagination that has dogged his non-response to Britain’s growth crisis thus far – turning to the old trick of debt-fuelled growth in the absence of any better ideas. At worst, however, he has simply thrown caution to the wind in the race for the 2015 election.
In fairness, Mr Osborne is in a tricky position. He needs growth; but the tiny increases in government investment pencilled in for the next few years are economically meaningless. Nor can he raise borrowing without sacrificing the central tenet of his strategy (and with it his political career).
What the Chancellor should have done is use the Budget to put an end to universal pensioner benefits and to the ring fences around some of Whitehall’s most inefficient budgets, and used the proceeds to build houses. Lacking such courage, he is forced to look elsewhere.
Mr Osborne had hoped, of course, that Britain’s animal spirits would take over. Yet both net trade and business investment are falling. And here, too, there is an opportunity missed. Although corporate balance sheets are groaning with cash, the Chancellor has repeatedly failed to encourage companies to invest. True, the euro crisis has much to answer for. But Mr Osborne has spent more time blaming the upheavals in Europe than trying to ameliorate their confidence-sapping effects.
With no hope of help from Government or business, then, all that remains is the consumer. It is here that the politics come in. Indeed, seen through the prism of a general election – and this is the last Budget the effects of which will be felt before 2015 – the Chancellor’s scheme could be a political masterstroke. More people owning property, house prices rising, perhaps even a lift to consumer spending: all give the false impression of a return to prosperity. And by spreading his smoke-and-mirrors largesse among those looking to move up the housing ladder, rather than just first-time buyers, Mr Osborne is focusing on exactly the aspirational “strivers” so crucial to either party’s electoral majority.
But such a plan makes a mockery of the efforts to “re-balance” Britain away from an unhealthy reliance on consumer debt. The prospect of a round of tax increases in the next parliament is far from encouraging. But it is as nothing compared with the Chancellor’s attempts to buy the illusion of growth by reflating the housing bubble.