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Growth based on cheap money and artificial mortgages is fool's gold Growth based on cheap money and artificial mortgages is fool's gold
(2 months later)
The chancellor will claim he's pulling off the well-known royal baby effect if, as expected, growth figures improve on Thursday. Prince Charles's birth in 1948 came as Britain entered a quarter-century of recovery, Prince William's heralded green shoots in 1982. Can Prince No-Name-Yet do it again?The chancellor will claim he's pulling off the well-known royal baby effect if, as expected, growth figures improve on Thursday. Prince Charles's birth in 1948 came as Britain entered a quarter-century of recovery, Prince William's heralded green shoots in 1982. Can Prince No-Name-Yet do it again?
The short answer is no. To hit what George Osborne originally promised his austerity would achieve, GDP has to rise by an impossible 5.3% in each of the next two years. Whose growth is it anyway? The great majority will see no improvement in living standards, with wages still falling behind inflation, year after year. And what kind of growth? Instead of his promised rebalancing, the bartender in the Treasury brings the down-and-out alcoholic a bottle of the rot-gut feelgood that put us all in the gutter in the first place. No productivity, no manufacturing, no exports, no investment but instead cheap money, zombie banks primed with quantitative easing who still won't lend, unsustainably low interest rates – and now Help to Buy to pump up house prices.The short answer is no. To hit what George Osborne originally promised his austerity would achieve, GDP has to rise by an impossible 5.3% in each of the next two years. Whose growth is it anyway? The great majority will see no improvement in living standards, with wages still falling behind inflation, year after year. And what kind of growth? Instead of his promised rebalancing, the bartender in the Treasury brings the down-and-out alcoholic a bottle of the rot-gut feelgood that put us all in the gutter in the first place. No productivity, no manufacturing, no exports, no investment but instead cheap money, zombie banks primed with quantitative easing who still won't lend, unsustainably low interest rates – and now Help to Buy to pump up house prices.
Homeowners may feel better by the election, able to remortgage and spend again – and what else matters? But we are back on the bottle big-time. Savings are falling, investment is down by a quarter since the crash and 158 countries invest more than Britain. Foreign investment into Britain has been good – but that's put at risk by Conservative euro-madness: as the Engineering Employers Federation said, it relies on access to EU markets.Homeowners may feel better by the election, able to remortgage and spend again – and what else matters? But we are back on the bottle big-time. Savings are falling, investment is down by a quarter since the crash and 158 countries invest more than Britain. Foreign investment into Britain has been good – but that's put at risk by Conservative euro-madness: as the Engineering Employers Federation said, it relies on access to EU markets.
So is this the time to spend £12bn on urging people to buy with a 5% deposit, not even restricted to first-time buyers, on properties up to £600,000? True, neither prices nor quantity of sales have reached pre-crash levels – but that's a dangerous benchmark. It's rare to see such a phalanx of loyal Tory-supporters, such as the Institute of Directors, throwing their hands in the air in horror as happened after Osborne's Help to Buy launch on Tuesday. By 2017 the scheme is supposed to end – but as with the Lawson-induced house-price bubble, how do you take the bottle away without another collapse, his critics asked?So is this the time to spend £12bn on urging people to buy with a 5% deposit, not even restricted to first-time buyers, on properties up to £600,000? True, neither prices nor quantity of sales have reached pre-crash levels – but that's a dangerous benchmark. It's rare to see such a phalanx of loyal Tory-supporters, such as the Institute of Directors, throwing their hands in the air in horror as happened after Osborne's Help to Buy launch on Tuesday. By 2017 the scheme is supposed to end – but as with the Lawson-induced house-price bubble, how do you take the bottle away without another collapse, his critics asked?
Although home owning is falling, down to 64% of the population in 2011, property prices remain our national addiction: just count the number of stories a week gleefully predicting rises. Osborne is betting that homeowners will bring home the electoral bacon. But people now know apparent growth based on cheap money and artificial mortgages is fool's gold. Here is Labour's chance to be the wiser party, ready to sober up the nation.Although home owning is falling, down to 64% of the population in 2011, property prices remain our national addiction: just count the number of stories a week gleefully predicting rises. Osborne is betting that homeowners will bring home the electoral bacon. But people now know apparent growth based on cheap money and artificial mortgages is fool's gold. Here is Labour's chance to be the wiser party, ready to sober up the nation.
House prices are highly sensitive to government words and actions. Labour should say loudly and firmly that it will do everything in its power to freeze prices. Language and firm intent can chill expectations. Lay out a policy whose stated aim is to house people well and restore homes as a commodity like any other, not a one-way bet to wealth. Plan to build at least a million homes, instruct and enable local authorities and housing associations to build and force developers to use their hoarded land or sell it on. Freeze rents so they rise by no more than annual inflation to stop property being used as investment, redirecting that money productively. Warn that if prices still rise, from now on capital gains tax may be imposed on homes to chill the market. Do whatever it takes, and say so loudly.House prices are highly sensitive to government words and actions. Labour should say loudly and firmly that it will do everything in its power to freeze prices. Language and firm intent can chill expectations. Lay out a policy whose stated aim is to house people well and restore homes as a commodity like any other, not a one-way bet to wealth. Plan to build at least a million homes, instruct and enable local authorities and housing associations to build and force developers to use their hoarded land or sell it on. Freeze rents so they rise by no more than annual inflation to stop property being used as investment, redirecting that money productively. Warn that if prices still rise, from now on capital gains tax may be imposed on homes to chill the market. Do whatever it takes, and say so loudly.
Labour will borrow to invest outside the current spending straitjacket it has accepted for year one, that investment sum to be announced nearer the election. Why not describe that as the national mortgage, the nation borrowing to build massively to invest in the future generation, just as households do? A national mortgage to build would contrast well with Help to Buy inflating existing stock into new bubble prices.Labour will borrow to invest outside the current spending straitjacket it has accepted for year one, that investment sum to be announced nearer the election. Why not describe that as the national mortgage, the nation borrowing to build massively to invest in the future generation, just as households do? A national mortgage to build would contrast well with Help to Buy inflating existing stock into new bubble prices.
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