Collect your £120k interest free loans here!
The UK Budget of 2013 was a wasted opportunity for a structural change in the economy.
George Osborne, Chancellor of the Exchequer, skimmed past the historical mistakes, blaming low growth in particular on the antics of the Eurozone. And the government is still borrowing more than when it came to power – much more. Surprisingly also the fault of the Eurozone, and of course the previous government.
But let me start with some praise. He has recognised the importance of housing. End of praise.
His medicine will promote a mini-boom. The UK desperately needs new build housing, of that there is no doubt. We have an increasing population which needs housing in affordable homes.
But we do not need a boom!
30 years ago we stopped building social housing with the Right to Buy – but no right to rebuild as Councils were specifically forbidden to use sale income to replace the social housing stock. We have paid for this folly by grossly inflated house prices that have rewarded those already on the housing ladder. As rents have risen to reflect the increase in house prices there is a double whammy – the growing cost of housing benefit.
Housing is one of the major maladies of the UK economy. Solve it and we will be on a roll. Stoke it up and the next disaster will be round the corner.
Guess what he’s done?
The government has promised an interest free (for 5 years) ‘equity loan’ of up to 20% of a new build home up to £600k in value. So swap your old house for a new one and take the £120k effectively in cash. In fact that’s a jolly good idea – perhaps we will do it. Beats stoozing your credit cards doesn’t it? But it won’t solve any housing crisis. And of course there is still the question of second homes, buy-to-let and other things that don’t seem to have been thought out.
House prices will go up, particularly near the a cliff-edge at £600k but it will do nothing to encourage building affordable homes. Given a plot of land, what are builders going to do? The actual cost of building homes does not vary that much apart from the kitchen and bathroom equipment. History has shown that builders would rather build an estate of 20 £600k houses than an estate of 100 (or more, as the land value may be less) £120k social houses. It would have been much better to set the upper house price limit at £150k or even £200k. Better still, he could have limited the actual equity loan to, say, £30k as well so that the cliff-edge was avoided.
The more people that subscribe to this Ponzi scheme, the more the house prices will increase. So people will feel good and everything in the garden will be lovely. Simple, numpskin!
We need a planned programme of continuous building that takes us past the next three years of this scheme – after which prices may fall and both people and government may be stuck possibly with negative equity.
Oh – sorry – that four-letter word: plan.
Nice one George.
Opportunity missed.
What else? Osborne’s plea has for a long time been that the public sector is too big. But the real problem is that the private sector is too small. In other words it is not that the government is spending too much but the government’s income is too small. Now this may be a trivial difference but it is a mentality.
Now George shows some spirit here. I would agree with the £2k allowance for employers’ National Insurance which will encourage SMEs and some of the other things but he falls short at the second hurdle.
Which brings me to government income – and tax avoidance.
In the past he has complained about large international corporations not paying UK tax when they are manifestly trading in the UK. They have done nothing wrong, it’s the law that is wrong, stupid.
The Budget should be an opportunity to correct this. What is needed is a pro-active combination (a) to capture money that morally has a case to be captured (ie profit from trade in the UK) and (b) lower corporation tax anyway so the incentive to avoid tax is not so large.
He should have declared an intention to legislate a Withholding Corporation Tax, payable monthly and applied to larger companies. This would have the additional advantage of getting some money a year up front, just as happened when PAYE was introduced in 1944 – a whole year’s worth of tax was collected.
As part of the transitional arrangements he should have declared the intention to reduce Corporation Tax not to 20% but to 10%. This will also make it better for UK based companies because they will compete on a (more) level playing field. This will bring more inward investment and the total Corporation Tax take will be larger.
Another opportunity missed.
What else? Well beer will go down about 1p a pint. Wow – I’m off down the boozer immediately to enjoy that one. North of the border they are a bit irate as whisky does not get such benefits. Maybe Osborne thinks this will encourage the independence movement and leave England with a permanent right wing government. Or maybe he has been stung by the Bullingdon epithet and wants to appear to be ‘one of the boys‘.
And while the personal allowance will go up to £10,000 a year this still leaves people paying National Insurance at 12% from £7750, which is a tax by any other name.
Some help is promised with tax relief on child care costs, probably to repair the damage done by last year’s Child Benefit fiasco.
The fuel duty escalator has been abolished, goody. Perhaps we shouldn’t have bought an uber-green car!
Other than that, it was rather a messy show I’m afraid. Par for the course.
This does not surprise me! The U.S, government seems to miss opportunities and makes lot of mistakes as well. This is one of the reasons, we have to look out for ourselves.
How about that though? 1p off a pint, or the way I like to think of it is buy 350 and get one free!
Very interesting breakdown of the Ponzi scheme, John. Great post.
Property is our curse on this island. It is not that we are desperately overcrowded – there are vast tracts away from London and the big cities with few people although it would not be good to end up with Hong Kong housing density. Already the policies are being opposed by nimby’s – not in my back yard. I have seen suggestions that we need at least 3 substantial new towns to meet the demand of an increasing population. We used to plan for such things but this idea has gone out of the window.
Stopping house building in the early ’80s when new house construction collapsed from about 200,000 a year to 10,000 a year by persuading people to buy their social housing – some good, some bad – yet not allowing new builds from the money raised was purely political by those already having substantial homes. There was no economic sense because all housing needs replacing, even with a static population.
The mantra that the market will respond is true -it puts the price up. It is much more profitable to build executive housing than housing for the ‘masses’. There is no reason for this to be entirely publicly financed either – Osborne’s basic concept of equity shared with the state is not new but entirely functional. What he got wrong was fail to direct the housing to starter homes.