Libertarianism for the rich, paternalism for the rest

The rich are trusted to make "intelligent" decisions, the rest have to be regulated.

Many will think that the spectre of a "surveillance state" conjured up by the government’s proposal for the real-time monitoring of email and social media will come to haunt the Conservatives.  At first sight, it is nothing but a brutal assault on civil liberties totally at odds with the conservative tradition; indeed, something worthy of the heavy-handed centralism of Gordon Brown. Still, this judgment merits further reflection - for rather than a total anomaly, such a paternalistic approach has already been applied to a subsection of British society. While the rich have enjoyed the light-touch of libertarian incentivising, the poor have been "regulated" by the current government.      

The coalition’s chosen approach to dealing with the causes of the recession, as well as the economic slump that came in its aftermath, was to "incentivise" - at least as far as the rich are concerned. The government did set out to reform the finance sector; it did so, however, through gentle nudging rather than an effective shove. The proposed "penalties" on the "greedy bankers" were set in terms of "mutual co-operation" and were largely undertaken on a voluntary basis.  Likewise, the attempt to revive the anaemic economy has been by way of incentives, most notably those proposed in the Budget. Cutting both corporation tax and the income tax of top earners was presented as a panacea expected to revive the economy, with business investment predicted to increase by 40 per cent. Similar aspirations, but very different methods, compared to the New Deal of FDR… only history will tell which approach is more effective.   

The government’s approach to incentivising employment on the supply side has been markedly different. The Welfare Reform Act replaced some perverse incentives not to work that were embedded in the old system with rather decisive regulations. For instance, neither the requirement for couples with children to increase their weekly work load to 24 hours in order to claim the working tax credit nor the household benefit cap - i.e., the limit of the total amount of benefit that working-age people can receive – can be readily interpreted as "gentle nudges". In a similar vein, the Mandatory Work Activity - the scheme mandating six to eight weeks unpaid work for up to 30 hours a week to those who "have little or no understanding of what behaviours are required to obtain and keep work" - is not in any way voluntary, as indeed is suggested in the name. In these cases, the government might be seen to be taking a rather paternalistic, or "nannying" approach. Of course, one could argue that there is nothing wrong with nannies, nor for that matter with father figures who know what is good for the kids. Still, with the government regulation in question, this approach should be applied consistently.   

When the government opened the Behavioural Insight Unit, its mission was presented as "finding intelligent ways to encourage people to make better choices for themselves". Some complained at the time that the idea of "nudge", central to its operations, was premised on the oxymoron of libertarian paternalism. Perhaps a bigger problem is that the libertarian element of choice and the paternalistic prescription were applied to two different social groups - the rich, with a bit of nudging, are to trusted to make "intelligent" decisions, the rest have to be regulated.

Patricia Kaszynska is a Senior Researcher at ResPublica

Youngsters play football up against a boarded-up pub in the Gorton area of Manchester. Photograph: Getty Images.

Patricia Kaszynska is senior researcher and project manager as ResPublica.

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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.