UK Budget: poor finance, good politics

It was hard, driving on the Swiss motorway to work, to avoid shouting at the radio during the morning-after coverage on the BBC of the UK Budget.

So Chancellor George Osborne is going to pump prime the economy by stimulating the housing market. Is it really the government’s job to fund billions of pounds’ worth of mortgages, helping tens of thousands get into an already inflated and under supplied housing market?  

Talk about short memories. Anyone remember how the 2008 crisis started – with all those sub-prime mortgage defaults in the US? All those ‘ninjas’ (no-income-no-jobs) who bought property at over-inflated prices. And then defaulted.

The lack of newly built property in the UK means prices must rise after artificial demand stimulation. Rises in property prices make homeowners feel wealthy – and this is what has fueled boom after boom over the past 30 years. Millions learned to their cost in the 1990s that what goes up will not necessarily stay up.

One listener, texting the BBC’s studios, complained Osborne had failed to deal with the key issue:  stamp duty. This buyer had to pay £1,500 on a property purchase – so couldn’t go ahead. No one thought it odd the lack of a mere £1,500 would stop someone making the biggest financial decision of their life. Surely if someone can’t afford that amount in stamp duty they ought not to be buying a £150,000 property on a 25 year mortgage when interest rates are at historic lows.

Given the Shadow Chancellor’s role in the last government, it’s hard not to admire the sheer chutzpah of Ed Balls as he calls for investing in the housing market – by funding construction. If it was such a good idea, why didn’t he do it when in office? He does have a point though. If you’re considering a multi-billion-pound pump priming, surely it’s better to spend the money on construction rather than on dodgy mortgages?

It’s a shame that, as ever, the Budget is less about financial considerations and more about political ones. Osborne may only be half-right about the economy half of the time, but he knows what voters will do – and that’s what this property purchase subsidy is all about.

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