Osborne called it wrong on private sector employment

New figures show that the private sector isn't making up for public sector job losses.

New figures show that the private sector isn't making up for public sector job losses.{C}

In November 2010, George Osborne told the House of Commons that private sector job creation would "far outweigh" the job losses in the public sector. The Chancellor, an adherent of the theory of expansionary fiscal contraction, assumed that a bloated public sector was "crowding out" pirvate sector growth.

But today's employment figures tell a different story. Osborne's fiscal contraction has turned out to be, well, contractionary. In the last three months, 67,000 public sector jobs have been lost but just 5,000 private sector jobs have been created. The number of public sector jobs lost in the last year (276,000) now exceeds the number of private sector jobs created (262,000). As a result, unemployment has reached levels not seen for 17 years. There are now 2.64m people (8.3 per cent) out of work, including 1.03m young people. Youth unemployment is now 22 per cent, above the eurozone average of 21.4 per cent.

Over the course of this parliament, the Office for Budget Responsibility still expects private sector job creation to outweigh public sector job losses. By 2017, it forecasts that there will be 1.7 million more private sector jobs and 710,000 fewer public sector jobs. But given that the OBR has already had to raise its forecast for public sector job losses by 310,000, I wouldn't put too much faith in those figures. If the government wants to prevent unemployment hitting three million, it should call a halt to its job cuts now.

George Eaton is political editor of the New Statesman.

Getty
Show Hide image

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.