Balls exploits the Tories' normality deficit

Calling for cheaper prices is an attempt to portray Cameron and Osborne as out of touch.

The big news line from Ed Balls's speech at the London School of Economics this morning is the call for an emergency tax cut. George Osborne's Plan A for the economy isn't working, the shadow chancellor argued. Again. The economy needs a jump start of fiscal loosening in the form of a temporary VAT reduction. Balls made a pretty robust case for cutting sales taxes -- it can be implemented immediately; it releases cash directly to consumers and company bottom lines. He also argued that the VAT cut introduced by Alistair Darling in the 2008 pre-budget report worked, citing an Institute for Fiscal Studies analysis for corroboration.

Labour got rough ride over that decision. In fact, it was widely ridiculed with jibes along the lines: "how does shaving a few pennies off the price of a new TV save the economy from crisis?" But that was before inflation had become an urgent concern for squeezed consumers and the government. When challenged on the effectiveness of the proposed cut in the Q&A after the speech, Balls had a deft political parry: Tory critics might not notice a VAT holiday (the implication being that they can afford higher prices) but ordinary folk would.

Both Labour and Tory private polling shows the public are wary of David Cameron and George Osborne as "not like ordinary people" -- distant, aloof. Balls and Miliband haven't yet found a way of really capitalising on the Conservatives' normality deficit, but calling for cheaper prices at the checkout is a try.

This was billed as a lecture rather than a speech -- a forensic critique of the government's macroeconomic strategy and not just another blast of political rhetoric.

But this is Ed Balls, we're talking about; the man who was once described to me by a senior Labour party strategist as "someone who wakes up every morning asking himself how he can destroy the Tories." The economic argument around the deficit was pretty familiar -- a rococo riff on the established theme of "too far, too fast". The political angle shone through in repeated references to the Tories' shambolic exit from the Exchange Rate Mechanism (ERM) in 1992. The argument is that George Osborne's single-minded determination to stick with fiscal Plan A is starting to resemble Norman Lamont's predicament, sticking with a fixed exchange rate as evidence mounted that it was an unsustainable arrangement. Whereas Lamont was institutionally locked into the ERM, Balls argues, Osborne could change course. There are alternatives. Lamont's hands were tied; Osborne's are not. That makes the rigidity all the more perverse and the Chancellor more culpable if things go wrong.

I counted ten references to the ERM. It was the unifying theme of the speech. Of course it was. The ERM exit -- Black Wednesday -- was famously the moment the Tories lost credibility on the economy. David Cameron was an advisor to Lamont at the time. No wonder Balls wants the analogy to stick.

An aside: Balls had a relatively contrite line about Labour's fiscal record. "Of course we didn't spend all of the money wisely. No government does." When I asked him to specify where there had been a lack of wisdom he cited Labour's multiple and wasteful reorganisations in healthcare, in particular the fiddling around with the structure of Primary Care Trusts. It's a good one to own up to, for pretty obvious reasons.

The spending line was one of a few very last minute additions to the speech, tacked on this morning, apparently; recognition perhaps that Labour needs to sound a little more penitent about the past before it can be trusted to talk about the future?

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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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.