Britain is failing to build enough houses to meet demand, and soaring house prices could pose "risks" to financial stability, the OECD warned yesterday.
In its biennial survey of the UK economy the multilateral economic organisation said the Coalition’s Help to Buy mortgage subsidies had revived mortgage lending, but "housing supply has not risen to meet demand".
Official figures last week showed quarterly new housing starts in England fell by 20 per cent in the second half of 2014. The Independent revealed earlier this month that the Treasury’s internal analysis warned in 2013 that the Government’s Help to Buy equity loans would have little impact on new home construction levels.
Meanwhile, UK house prices were up 9.9 per cent year on year in December, according to the Office for National Statistics.
The OECD’s verdict will come as an embarrassment for the Chancellor, George Osborne, who boasted last September that Help to Buy was boosting new housing supply.
The report also recommended regular property revaluations for setting council tax, something that both Tory and Labour governments have shied away from since the early 1990s. "Regularly updating the property valuations that determine the rate of the council tax would dampen large swings in house prices," it said.
In another swipe at Coalition policy the Paris-based OECD called on the Government to loosen its immigration controls on highly skilled workers, describing the current regulations as "too restrictive" and potentially detrimental to the economy.
"The Government should ease quotas on company sponsored visas, which were introduced between 2008 and 2010 at a time of low labour demand, but are too restrictive for the tightening labour market," it said. The Government currently issues only 20,700 visas each year for non-EU workers to fill skilled jobs.
The OECD downgraded its 2015 GDP growth forecast for the UK to 2.6 per cent from 2.7 per cent in November. The organisation’s overriding concern was with the productivity performance of the UK economy. "The sustainability of economic expansion and further progress in living standards rest on boosting productivity growth, which is a key challenge for the coming years," it said.
To boost productivity it called for greater spending on infrastructure and measures to ease the flow of lending to small businesses. It noted that net new lending to small businesses was still negative, despite the joint Treasury/Bank of England Funding for Lending scheme.
Another notable recommendation was that the Government should introduce toll roads.
The OECD said the next government should continue to pursue the Coalition’s controversial overall fiscal consolidation plan. But it added that planned spending cuts "should be reviewed to ease pressure on public services". Under the plans pencilled in by the Treasury, public service spending as a share of GDP is set to fall to its lowest level since the 1930s.
The organisation also cast doubt on the idea that the Government will be able to find significant new efficiency gains from Whitehall departmental spending.
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