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| At last, George Osborne has got in touch with his inner Keynes | At last, George Osborne has got in touch with his inner Keynes |
| (5 days later) | |
| At first sight, you could not make it up. For three years George Osborne starves the economy of money in an orgy of recession and austerity. Then, just as things pick up, he offers the huge sum of £12bn to precisely the sector – sub-prime housing – that caused the trouble in the first place. He is begging the drunks back into the bar. Is Osborne mad or is he mad? | At first sight, you could not make it up. For three years George Osborne starves the economy of money in an orgy of recession and austerity. Then, just as things pick up, he offers the huge sum of £12bn to precisely the sector – sub-prime housing – that caused the trouble in the first place. He is begging the drunks back into the bar. Is Osborne mad or is he mad? |
| I must admit that when a whole financial establishment thinks a chancellor is crazy, my hunch is that he is probably sane. Osborne's enhanced help-to-buy scheme is opposed by the outgoing Bank of England governor, the Institute of Directors, the Council of Mortgage Lenders, the Homeowners Alliance, the Liberal Democrats and a chorus of BBC and other "economic commentators". Perhaps it is a good scheme after all. | I must admit that when a whole financial establishment thinks a chancellor is crazy, my hunch is that he is probably sane. Osborne's enhanced help-to-buy scheme is opposed by the outgoing Bank of England governor, the Institute of Directors, the Council of Mortgage Lenders, the Homeowners Alliance, the Liberal Democrats and a chorus of BBC and other "economic commentators". Perhaps it is a good scheme after all. |
| The chancellor has finally got the Keynesian point, that starved economies recover when you print cash and throw it at them. They need inflation to go out and spend. Of course, you must know when to stop – the help-to-buy scheme is to last three years – but you cannot stop if you do not even start. | The chancellor has finally got the Keynesian point, that starved economies recover when you print cash and throw it at them. They need inflation to go out and spend. Of course, you must know when to stop – the help-to-buy scheme is to last three years – but you cannot stop if you do not even start. |
| Yesterday's 0.6% growth rate over the last quarter falls into Orwell's definition of pleasure. It is what you feel when someone stops stamping on your head. Economic statistics remain dire. Prices are rising faster than earnings. Exports are down despite a lower exchange rate. Manufacturing is down. Productivity is rotten. Bank lending to business is pathetic. Youth unemployment is desperate. | Yesterday's 0.6% growth rate over the last quarter falls into Orwell's definition of pleasure. It is what you feel when someone stops stamping on your head. Economic statistics remain dire. Prices are rising faster than earnings. Exports are down despite a lower exchange rate. Manufacturing is down. Productivity is rotten. Bank lending to business is pathetic. Youth unemployment is desperate. |
| For all his public rhetoric as a scrooge, Osborne remains as much a government spendthrift as Labour. Public expenditure remains higher than when he took office (£634bn in 2010 against £647bn this year in real terms). State subsidies to banks, energy companies and housebuyers (and therefore builders) are no different from old Labour subsidies to shipbuilders, car makers and film producers. Osborne will leave a nation awash with useless aircraft carriers, wind farms and high-speed trains. How he can complain about Labour's "borrow and spend" is a mystery. | For all his public rhetoric as a scrooge, Osborne remains as much a government spendthrift as Labour. Public expenditure remains higher than when he took office (£634bn in 2010 against £647bn this year in real terms). State subsidies to banks, energy companies and housebuyers (and therefore builders) are no different from old Labour subsidies to shipbuilders, car makers and film producers. Osborne will leave a nation awash with useless aircraft carriers, wind farms and high-speed trains. How he can complain about Labour's "borrow and spend" is a mystery. |
| The austerity has been chiefly visited on the private sector, where demand for goods and services has been ruthlessly repressed with higher VAT, and wages are down (which is why private employment is up). Attempts at monetary expansion have been wholly "conventional", which is why the only sight the economy has had of £375bn of quantitative easing is in a bank vault or a stock market share. | The austerity has been chiefly visited on the private sector, where demand for goods and services has been ruthlessly repressed with higher VAT, and wages are down (which is why private employment is up). Attempts at monetary expansion have been wholly "conventional", which is why the only sight the economy has had of £375bn of quantitative easing is in a bank vault or a stock market share. |
| So what of help-to-buy? British politics spends more hot air on young, mostly metropolitan housebuyers than on the world's poor, hungry and oppressed put together. Note that few Britons actually sleep rough in the street or that houses in Stoke-on-Trent are going for a pound and you will hear harrowing tales of young graduates "finding it desperately hard" to get a deposit on a flat in Camden. To suggest that first-timers rent, as their grandparents did, until they can afford to buy is considered heartless. | So what of help-to-buy? British politics spends more hot air on young, mostly metropolitan housebuyers than on the world's poor, hungry and oppressed put together. Note that few Britons actually sleep rough in the street or that houses in Stoke-on-Trent are going for a pound and you will hear harrowing tales of young graduates "finding it desperately hard" to get a deposit on a flat in Camden. To suggest that first-timers rent, as their grandparents did, until they can afford to buy is considered heartless. |
| Week after week lobbyists incant that a quarter of a million new homes "need to be built" each year "to meet demand". This figure, for crude household formation, has nothing to do with demand, which is a function of supply and price. The figure is a lobbying tool used by volume housebuilders, who give the Tory party millions of pounds, eager for 350-unit estates on easy-to-market rural sites. | Week after week lobbyists incant that a quarter of a million new homes "need to be built" each year "to meet demand". This figure, for crude household formation, has nothing to do with demand, which is a function of supply and price. The figure is a lobbying tool used by volume housebuilders, who give the Tory party millions of pounds, eager for 350-unit estates on easy-to-market rural sites. |
| Such new building is near irrelevant to the housing market. It is less than 1% of the total stock and under 10% of daily housing transactions. But Osborne's scheme may at least be pushing up prices. This will not help first-time buyers, let alone the social housing sector, but it should bring to market the half a million homes lying idle in builders' property banks. That is a good thing. It may even encourage building on marginal sites in cities, where most poor people live. | Such new building is near irrelevant to the housing market. It is less than 1% of the total stock and under 10% of daily housing transactions. But Osborne's scheme may at least be pushing up prices. This will not help first-time buyers, let alone the social housing sector, but it should bring to market the half a million homes lying idle in builders' property banks. That is a good thing. It may even encourage building on marginal sites in cities, where most poor people live. |
| The new help-to-buy scheme now covers existing properties. This will increase housing turnover and bring under-occupied and disused properties into play – far more important than fiddling with planning rules in the south-east, where an obsession with 350-unit estates invites instant local opposition and planning delay. The biggest impact of the original help-to-buy last year was on brownfield land in the midlands. | The new help-to-buy scheme now covers existing properties. This will increase housing turnover and bring under-occupied and disused properties into play – far more important than fiddling with planning rules in the south-east, where an obsession with 350-unit estates invites instant local opposition and planning delay. The biggest impact of the original help-to-buy last year was on brownfield land in the midlands. |
| If Osborne really wanted to boost housing supply, he would stop dancing to the tune of Barratt and Persimmon, which merely stuffs land banks and drives voters to Ukip. He would subsidise existing renovation and renewal with a VAT holiday or exemption. He would end the Treasury's crazy fiscal bias against urban renewal which does real damage to British cities. This would yield instant results. Renovation needs little or no planning and conserves resources. The housing market needs a nationwide "house-scrappage" scheme, like the 2009 one for cars. It might do something to dent the absurd 25m empty bedrooms lying unused across Britain. | If Osborne really wanted to boost housing supply, he would stop dancing to the tune of Barratt and Persimmon, which merely stuffs land banks and drives voters to Ukip. He would subsidise existing renovation and renewal with a VAT holiday or exemption. He would end the Treasury's crazy fiscal bias against urban renewal which does real damage to British cities. This would yield instant results. Renovation needs little or no planning and conserves resources. The housing market needs a nationwide "house-scrappage" scheme, like the 2009 one for cars. It might do something to dent the absurd 25m empty bedrooms lying unused across Britain. |
| Why taxpayers should pump money into boosting house prices is a puzzle buried deep in Britons' desire to hold and profit from land. It makes no economic sense. It encourages young people to sink their earnings into an inert lifetime investment, while Germans and Scandinavian put their money into circulation by renting and spending on goods and services. It has made Germans cash rich and asset poor and Britons the reverse. | Why taxpayers should pump money into boosting house prices is a puzzle buried deep in Britons' desire to hold and profit from land. It makes no economic sense. It encourages young people to sink their earnings into an inert lifetime investment, while Germans and Scandinavian put their money into circulation by renting and spending on goods and services. It has made Germans cash rich and asset poor and Britons the reverse. |
| But at least Osborne is pumping liquidity into something other than bank vaults. He is gambling that a revival in the "sub-prime" mortgage market will boost confidence, gambling that inflationary expectation spurs growth. It is an acknowledged theory. Of course, the chancellor should have done this sort of thing three years ago, but at least he is doing it now. | But at least Osborne is pumping liquidity into something other than bank vaults. He is gambling that a revival in the "sub-prime" mortgage market will boost confidence, gambling that inflationary expectation spurs growth. It is an acknowledged theory. Of course, the chancellor should have done this sort of thing three years ago, but at least he is doing it now. |
| • The subheading on this article was changed because it referred to a buy-to-let scheme. This has been corrected. |