Clegg's policy to take money from pensions to pay for mortgages is madness

It's housing market madness, writes the IEA's Philip Booth

It is difficult to think of a policy that is as ill-conceived on so many levels as the coalition's announcement on Sunday to allow parents to guarantee their children's mortgages.

Housing is unaffordable today not because buyers are unable to secure yet more credit against the value of their house but because supply is constrained. Not long ago, the average house would have changed hands for three-to-four times average earnings; today, the vast majority of buyers have to pay five-to-seven times average earnings. If you pump more finance into a supply-constrained system, there can be only one result - yet higher prices.

Views differ on the causes of the financial crash and how to deal with the problems that the economy faces today, but one reaction of the government has been to bind banks up in ever-more regulation. Whether that is right or wrong, it is a deliberate policy decision in order to ensure that banks do not fail at the expense of the taxpayer in the future. This has made banks more risk averse. The response by the government has then been to directly take on the risks that the banks have refused, through schemes such as funding for lending or the proposed business bank. This is a bizarre policy. Banks are constrained in their own business models in order to prevent them failing at the expense of the taxpayer and, instead, the taxpayer is now taking on the risks directly.

Clegg's proposal to guarantee mortgages with pensions is another such instance of incoherent policy. In addition to the regulation of bank's capital discouraging banks from risky lending, the FSA is increasingly trying to rein in the provision of mortgage finance at high earnings multiples or high loan-to-value ratios. The government's new proposal seems to work precisely in the opposite direction. Clegg seems to be reasoning that, if everybody can secure their debts on everybody else's assets, then everything will be okay. Is that not the logic that gave us the financial crash in the first place?

Even in terms of the practical details, Clegg's plan seems crazy. Any pensioner who has already reached the age at which they can take their pension is entitled to secure their children's lending on any lump sum they choose to keep as an asset. As such, this proposal is only relevant to future pensioners. If a potential pensioner secures their child's mortgage on a lump sum which legislation prevents them from accessing until at least age 55 what will happen if the child defaults on the mortgage?

Presumably, either the lump sum will have to be taken early - which will cause havoc in terms of the relationship between the lump sum and the rest of the fund which is strictly controlled to prevent tax avoidance - or some complicated contingent loan arrangement will have to be set up. This will all require reams of legislation.

Clegg might also want to ask how many prospective pensioners are so well pensioned that they would be happy to put their pension pot at risk in this way. And, in turn, how many of those prospective pensioners would not, in any case, have a house against which they (or their children) could secure an additional loan for their children if they were so minded?

This is a completely crazy policy which actually works against many of the other things that the government is doing (in some cases probably wrongly) to try to create a more stable financial sector. Parents with assets should have no trouble securing loans for their children if they wish to do so. If banks and parents wish to freely enter an arrangement whereby a pension lump sum is taken into account when negotiating a loan, then so be it - but let's not have the government specially encourage it. The fact that policy proposals in the housing finance area are becoming more and more bizarre ought to focus people's attention on the real problem - the affordability of housing. We cannot make housing more affordable unless supply can respond to demand. Some readers may object to the policy consequences of liberalising development restrictions. However, we should be clear about the housing affordability consequences of not doing so.

Mortgages are advertised in a Halifax window. Photograph: Getty Images

Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs.

 

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Gender pay gap: women do not choose to be paid less than men

Care work isn’t going anywhere – and it’s about time we recognised which half of the population is doing it, unpaid.

Is it just me, or does Mansplain The Pay Gap Day get earlier every year? It’s not even November and already men up and down the land are hard at work responding to the latest so-called “research” suggesting that women suffer discrimination when it comes to promotions and pay. 

Poor men. It must be a thankless task, having to do this year in, year out, while women continue to feel hard done to on the basis of entirely misleading statistics. Yes, women may earn an average of 18 per cent less than men. Yes, male managers may be 40 per cent more likely than female managers to be promoted. Yes, the difference in earnings between men and women may balloon once children are born. But let’s be honest, this isn’t about discrimination. It’s all about choice.

Listen, for instance, to Mark Littlewood, director general of the Institute of Economic Affairs:

“When people make the decision to go part time, either for familial reasons or to gain a better work-life balance, this can impact further career opportunities but it is a choice made by the individual - men and women alike.”

Women can hardly expect to be earning the same as men if we’re not putting in the same number of hours, can we? As Tory MP Philip Davies has said: “feminist zealots really do want women to have their cake and eat it.” Since we’re far more likely than men to work part-time and/or to take time off to care for others, it makes perfect sense for us to be earning less.

After all, it’s not as though the decisions we make are influenced by anything other than innate individual preferences, arising from deep within our pink, fluffy brains. And it’s not as though the tasks we are doing outside of the traditional workplace have any broader social, cultural or economic value whatsoever.

To listen to the likes of Littlewood and Davies, you’d think that the feminist argument regarding equal pay started and ended with “horrible men are paying us less to do the same jobs because they’re mean”. I mean, I think it’s clear that many of them are doing exactly that, but as others have been saying, repeatedly, it’s a bit more complicated than that. The thing our poor mansplainers tend to miss is that there is a problem in how we are defining work that is economically valuable in the first place. Women will never gain equal pay as long as value is ascribed in accordance with a view of the world which sees men as the default humans.

As Katrine Marçal puts it in Who Cooked Adam Smith’s Dinner?, “in the same way that there is a ‘second sex’, there is a ‘second economy’”:

“The work that is traditionally carried out by men is what counts. It defines the economic world view. Women’s work is ‘the other’. Everything that he doesn’t do but that he is dependent on so he can do what he does.”

By which Marçal means cooking, cleaning, nursing, caring – the domestic tasks which used to be referred to as “housework” before we decided that was sexist. Terms such as “housework” belong to an era when women were forced to do all the domestic tasks by evil men who told them it was their principal role in life. It’s not like that now, at least not as far as our mansplaining economists are concerned. Nowadays when women do all the domestic tasks it’s because they’ve chosen “to gain a better work-life balance.” Honestly. We can’t get enough of those unpaid hours spent in immaculate homes with smiling, clean, obedient children and healthy, Werther’s Original-style elderly relatives. It’s not as though we’re up to our elbows in the same old shit as before. Thanks to the great gods Empowerment and Choice, those turds have been polished out of existence. And it’s not as though reproductive coercion, male violence, class, geographic location, social conditioning or cultural pressures continue to influence our empowered choices in any way whatsoever. We make all our decisions in a vacuum (a Dyson, naturally).

Sadly, I think this is what many men genuinely believe. It’s what they must tell themselves, after all, in order to avoid feeling horribly ashamed at the way in which half the world’s population continues to exploit the bodies and labour of the other half. The gender pay gap is seen as something which has evolved naturally because – as Marçal writes – “the job market is still largely defined by the idea that humans are bodiless, sexless, profit-seeking individuals without family or context”. If women “choose” to behave as though this is not the case, well, that’s their look-out (that the economy as a whole benefits from such behaviour since it means workers/consumers continue to be born and kept alive is just a happy coincidence).

I am not for one moment suggesting that women should therefore be “liberated” to make the same choices as men do. Rather, men should face the same restrictions and be expected to meet the same obligations as women. Care work isn’t going anywhere. There will always be people who are too young, too old or too sick to take care of themselves. Rebranding  this work the “life” side of the great “work-life balance” isn’t fooling anyone.

So I’m sorry, men. Your valiant efforts in mansplaining the gender pay gap have been noted. What a tough job it must be. But next time, why not change a few nappies, wash a few dishes and mop up a few pools of vomit instead? Go on, live a little. You’ve earned it. 

Glosswitch is a feminist mother of three who works in publishing.