Posts Tagged ‘Budget 2013’

Help to Buy is another Tory policy that will help millionaires most

22/03/2013, 10:09:20 AM

by Radhika Madhani

In Wednesday’s budget George Osborne revealed his Help to Buy scheme. On the face of it,this looks great: financial assistance for homebuyers, and a supposed boost to the economy through the stimulation of the property market. But a closer look will reveal that the chancellor has developed a scheme to help the wealthy and create unaffordable housing in the property market.

Help to Buy has two key parts. The first relates to government proposals to loan up to 20 per cent deposits for borrowers, providing they put in at least 5 per cent of the deposit through their own means (thus allowing for a 25 per cent deposit in the mortgage application process).

This deposit assistance will apply to new-build properties in England worth up to £600,000, and will come into effect in April this year. The second part of the scheme relates to a mortgage guarantee designed to support £130 billion worth of loans. Coming into effect next year, this guarantee will place a £12 billion guarantee on the taxpayer for mortgages between 80 and 90 per cent loan-to-value (LTV), and will apply to first-time-buyers (FTBs) and existing borrowers.

Looking at the scheme as a whole, Help to Buy is a real missed opportunity in reforming the property market. Presently, those wishing to buy their own homes face the problem of high property prices, high interest rates (at least when compared with the Bank of England’s current base rate of 0.5%), high LTV requirements, and stringent and complex affordability calculations used by lenders in assessing borrowers’ ability to repay the mortgage. Help to Buy fails to address all of these problems.

The first part of Help to Buy will obviously encourage more people to buy their own properties. With the government providing up to 20 per cent deposits to borrowers, there will of course be an increase in mortgage applications.

But unless this demand is matched in supply, Help to Buy will actually have a severely damaging impact on the economy. It is a basic economic principle that increased demand without increased supply will lead to a rise in prices. Yesterday the chancellor failed to announce a government commitment to build enough houses to stimulate the economy, and without these new homes we can expect a huge increase in property prices that will distort the market even further, especially in the London property bubble.

Property values will be unnecessarily pushed up, and far from helping FTBs and families, Osborne’s budget will actually create an unaffordable housing market. The economic rationale behind the government’s decision is almost impossible to understand, and we have here a clear example of an ill thought out, incompetent, and potentially disastrous policy.


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This “no change” Budget fails to inspire

21/03/2013, 01:34:06 PM

by Simon Fitzpatrick

We were warned that this would be a no-change Budget, and it seems that was no bluff.

Yes, Osborne is cutting a little more from departmental budgets and yes, he’s spending a little more on housing and infrastructure.

He will accelerate the rise in personal income tax allowances, cancel the planned fuel duty rise for a second year and go further on cutting corporation tax.

But predominantly these are measures that were already in place, and going a little further on them in no way alters the direction of travel.

And try as he might, the chancellor cannot disguise the fact that that direction of travel is not pretty. By every one of his self-set tests, George Osborne’s plan is not working.

A chancellor who pledged to eliminate the budget deficit in this Parliament now concedes that we will still be running a deficit of 2.2% in 2017-18. Debt as a percentage of GDP will not begin falling until the same year. And growth forecasts are down again – just 0.6% is forecast this year. If the OBR’s track record on forecasts is anything to go by, we’ll be lucky if there’s not a “negative” in front of that figure.

In the face of so much bleak news, Osborne seemed determined to win himself some positive headlines regardless by announcing some populist measures for the ‘man on the street’. The man on the street George Osborne has in mind drinks beer and drives a Vauxhall Astra, though hopefully not in quick succession.


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Osborne chooses Tory politics over one nation economics

21/03/2013, 11:42:11 AM

by Jonathan Todd

Daniel Finkelstein is a leading commentator and one of David Cameron’s most articulate defenders. No other columnist has the economic gravitas of Martin Wolf. Pieces from Finkelstein and Wolf in the week before the Budget exposed the tensions at the heart of the government’s economic and political strategies.

Finkelstein argued that the Conservatives have three assets: David Cameron; a Labour Party that “has pitched itself too far to the left”; and “the large constituency of voters who … don’t want to borrow more”.

On the same day Martin Wolf demolished David Cameron’s “there is no alternative” speech.

“What truly is incredible is that Mr Cameron cannot understand that, if an entity that spends close to half of gross domestic product retrenches as the private sector is also retrenching, the decline in overall output may be so large that its finances end up worse than when it started.”

What Wolf considers economically indefensible – not taking advantage of rock bottom interest rates to borrow more to stimulate recovery – is what Finkelstein considers to be a political strength. Those who join Wolf in advocating stimulus include: Labour, TUC, CBI, BCC, Vince Cable, IMF, NIESR, Bloomberg, The Economist, and Oxford Economics.

Equally, the political rationale that Finkelstein appeals to is not groundless. That 10 per cent more voters blame the last Labour government for the cuts than the current government speaks to the reputation for dangerous profligacy that continues to attach to Ed Miliband’s party (YouGov, 17/18 Feb). These voters believe that the Conservatives are doing the tough but necessary, while Labour offers only a risk, not a sound alternative.

This popular view, which sustains Finkelstein’s political logic, is, however, challenged by a growing economic consensus in favour of an approach quite different from that offered by Osborne.

He talks of supply-side reform when it is an absence of demand that holds the UK back. He claims fiscal responsibility when the stuff of genuine fiscal responsibility would involve recovering this demand. He pins his hopes on active monetary policy – near zero interest rates and QE – when the experience of recent years provides amble justification for Keynes’ view that loose monetary policy amounts to pushing on a piece of string in a depressed economy.


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And the real winner of yesterday’s budget is…Nick Clegg

21/03/2013, 07:00:58 AM

by Peter Watt

For many in the Labour party one of the few pleasures of opposition has been that they have been able to indulge in a much loved pastime – Lib Dem hating.  It is a visceral thing that stems from the scars of countless bloody local election battles.  “They don’t fight fair and once you’ve got them they’re bloody hard to get rid of,” as one hardened Labour activist from a marginal seat said to me a few weeks ago.  Their ranks are seen by many in Labour as a cynical but ragbag mix of the politically directionless, the anarchic and a sizeable chunk that are basically Labour or should be.  Oh, and of course the odd orange Tory!   Lib Dem politics is dismissed as opportunistic as opposed to Labour’s politics of principled idealism.

So the anger and betrayal was very real for many on the left when Clegg took the Tory shilling.  Indeed according to the polls, many formerly Lib Dem voters felt the same as they quickly switched to Labour.  Clegg went from hero-to-zero in weeks as he became Cameron’s Poodle and was widely ridiculed for having sold out his and his Parties principles for a stint in a Ministerial car.  My particular favourite Calamity Clegg joke is:

“Q. What does Nick Clegg stand for?

“A. When David Cameron walks in the room.”

It may be cruel but it sums up the view of Labour party activists across the country.  And to be fair, he did seem pretty determined to confirm this view as he was outmanoeuvred on the AV referendum and then clumsily supported the increasing of tuition fees allowing himself to be branded a hypocrite.

His party’s polling numbers went into free fall and Clegg’s personal ratings fell further still.  He and his party often looked a bit amateurish and they were blamed over and over by Labour politicians for propping up Cameron’s cuts.  The possibility of House of Lords reform came and went as once again the Tories scuppered a favourite Lib Dem policy.   And then UKIP started occasionally, and then consistently, pipping the Lib Dems for third place in the polls.  The consensus within the Labour Party has been that Nick Clegg lacks principle, is a busted flush, a bit of a joke and that his party should and will dump him before the next election.

But I think that this view is wrong and that Labour has let its own prejudice cloud its strategic judgement.  Nick Clegg entered government with two very clear aims.  Firstly to prove that the Lib Dems could be a responsible party of government prepared to take tough decisions.  And secondly to deliver as much of the Lib Dem manifesto as possible.

And on both he has succeeded.


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Labour must not be smug about bad economic news

07/03/2013, 07:00:54 AM

by Peter Watt

This time in two weeks we will all be chewing over the chancellor’s budget.  If the mood music is to be believed then we will not be reviewing a dramatic budget replete with economic flourish.  Rather it will basically be a restatement of the deficit reduction plan outlined in the coalition agreement.

There will in all likelihood be the addition of a few targeted tax breaks, some nod to infrastructure spending and some extension of the state backed business bank.  But basically no real change in approach.  However Osborne is no fool, so we can safely say that he will have something up his sleeve that will be the measure that he hopes will define his budget.

Presumably he and his team will do a better job of politically sense checking his budget this year than last!  Team Osborne is under pressure from their own side as MPs can see the possibility of winning the next election slowly becoming less likely.

But Labour will also be under pressure.  Whilst Labour’s economic numbers are improving they are still blamed by much of the electorate for causing the economic woes facing Osborne and the country.   And that is why the tone of their response will really matter.

Generally speaking, if you are held responsible for causing a problem it is not a good idea to appear really pleased that someone who is trying to sort out your mess is struggling!   It certainly won’t convince anyone that you didn’t actually cause the problem in the first place.  It is unlikely to make you look clever; in fact it will probably simply reinforce the idea that the whole thing was your fault anyway, and that you had failed to learn the lessons and were in fact in denial.


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The public’s fear of the future will frame George Osborne’s budget

04/03/2013, 04:10:05 PM

by Jonathan Todd

It is not only Charlie Brooker who thinks the future is broken. Businesses and households do too. This is why businesses are sitting on billions of pounds. They don’t think there is a future worth investing in. This is massively economically significant, but perhaps more politically significant is the resignation of the public to their grim economic fate.

Some of the public are drowning, few are waving, and most are shrugging their shoulders. George Osborne’s biographer, Janan Ganesh, recently noted in the Financial Times: “The regular focus groups that are conducted by Downing Street paint a picture of an electorate that is bleak about the economy, yes, but so bleak that they don’t believe things would much improve under an alternative policy.”

Those that aren’t drowning, waving or shrugging their shoulders, are getting angry, which increasingly means voting for UKIP. Not as a principled stand against the EU but, as Michael Ashcroft’s polling attests, an anguished cry against the established parties. UKIP recoils, as Matthew d’Ancona accurately puts it, not from Europe specifically but from change generally.

UKIP is an emotional spasm against the political class and the inadequate modernity that they represent, as well as an insatiable longing for an unrecoverable past. While a growing minority of the electorate fall for this spasm, most are bleakly indifferent.

Allister Heath on the right would sacrifice short-term deficit reduction for a dramatic cut in corporation tax and Will Straw on the left for increased public investment. There is, though, scant evidence that the public believe that the methods of either the left or the right will make much difference. And the public might have a point.

Given the piles of cash on which businesses currently sit, Heath’s policy may only deepen these piles. Straw is right to see the cuts to public investment as the most economically damaging of those inflicted by Osborne but only rapidly “shovel-ready” projects are likely to make a difference to GDP in the near-term.

While both left and right urge upon Osborne a focus on recovering growth, not short-term deficit reduction, there are reasons to be sceptical about the capacity of the policies of the left and right to secure their shared objective. And sceptical is certainly what the public feel about the ability of politicians to improve things.


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