In a budget a couple of years ago, UK chancellor George Osborne spoke about "the march of the makers" that would lead Britain back to prosperity. That march has been slow to get going, so now Osborne has resorted to new measures.
Over the next three years, nearly 500,000 new homes will be built, or bought with government-backed finance – an admission, if one were needed, that British banks will not properly be doing what banks normally do for a very long time to come. Currently, hundreds of thousands of couples want to buy homes, but are unable to do so because they cannot raise the deposit now demanded by institutions that have become as cautious as they were once profligate.
Over the next three years, £3.5 billion will be given in shared-equity loans: home-buyers will put down 5 per cent as a deposit; the treasury will offer an interest-free loan for a further 20 per cent, with the bank supplying the rest.
The second part of the Osborne plan is even bolder, he told MPs yesterday: a new mortgage guarantee for loans worth between 80 and 95 per cent of the value of the property.
The £12 billion needed to pay for it will not be included in the UK’s deficit figures, but it will be added to the country’s debt figures. Most importantly, it will buttress £140 billion of new mortgages.
Delivering his budget, Osborne was desperate to avoid last year’s budget mistakes, which inflicted perhaps fatal damage on his reputation with Conservative MPs.
Then, his carefully laid plans fell apart within minutes, once it emerged that he intended to tax holiday caravans and the pasty, the pride of a working man’s lunch – as so many MPs later called it.
This time around, he ran up a few populist flags, not just on housing. Petrol prices will not go up, while an escalator which automatically increases beer duties above the rate of inflation will go.
Enjoying the braying support of Conservative MPs, Mr Osborne went one better: the beer duty would be cut by a penny, which could cut bar counter prices by 4 pence.
Rhetoric, however, masks Osborne’s failures: the UK’s borrowing needs do fall this year, but only by £100 million from £121 billion to £120.9 billion – an accounting wheeze.
Three years on, his promise that public debt would begin to fall this year has evaporated. Instead, it will continue to rise and only begin to fall in 2017/18 – five years later than the chancellor declared in the first flush of hope three years ago.
He cut corporation tax and national insurance costs for small firms, but not rates. By 2015, corporation tax will stand at 20 per cent – eight points down from 2010. The changes would, he said, make the UK the best place to do business among any of the world’s largest economies.
Osborne has done enough to soothe Conservative backbenchers, while managing to give a fillip to relations with the Liberal Democrats by delivering their top-ranked pledge to have the first £10,000 earnings tax-free earlier than anyone had hoped.
However, even the office for budgetary responsibility – the independent watchdog set up by Osborne after he had spent years watching Gordon Brown 's manipulation of figures – has doubts that it will actually produce much growth at the end of the day.
Little-noticed, deliberately unintelligible paragraphs about monetary policy may prove in time most significant, since it seems that the chancellor is ready to give the Bank of England even greater authority to play around with the meaning of money.
