SocGen strategist excoriates Osborne over Help to Buy

"He may really deserve to be called a moron".

Albert Edwards, a strategist at Societe Generale with a reputation for pessimism, has released a strategy note excoriating the Chancellor for the Help to Buy scheme, which will subsidise mortgages for buyers of new-build house. Via Business Insider and FT Alphaville, some of the choicest quotes:

George Osborne in his March budget proposed an unusually misguided piece of government interference in the housing market. The measures will see government provide lenders with a guarantee of up to 20 per cent of a mortgage in an attempt to encourage lending to borrowers with small deposits. This means that if a borrower defaults on a loan, the taxpayer will be liable for a proportion of the losses. Numerous critics of George Osborne's scheme range from the IMF to the outgoing Bank of England Governor Mervyn King, who said "We do not want what the US has, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position."

…What makes me genuinely really angry is that burdening our children with more debt (on top of their student loans) to buy ridiculously expensive houses is seen as a solution to the problem of excessively expensive housing. I would have thought the lack of purchasing power should contribute to house prices declining or stagnating (relative to incomes), hence becoming affordable once again…

Why are houses too expensive in the UK? Too much debt. So what is George Osborne's solution for first time buyers unable to afford housing? Why, arrange for a government guaranteed scheme to burden our young people with even more debt! Why don't we call this policy by the name it really is, namely the indentured servitude of our young people…

I don’t think Andrew Bridgen at Fathom Consulting was strong enough when he described George Osborne’s scheme as “reckless”. I believe it truly is a moronic policy that stands head and shoulders above most of the stupid economic policies I have seen implemented during my 30 years in this business. It ranks above some of Alan Greenspan’s very worst blunders. And when so many highly regarded commentators speak out against it, only to be totally ignored by George ‘I know better’ Osborne, he may really deserve to be called a moron.

Hell hath no fury like a strategist scorned.

The debate around Help to Buy appears to be settling, and the consensus coming out of it hews close to Edwards' conclusion: Help to Buy will help people who want to own a new house buy one (including as a second home, although thankfully, even Osborn was warned off extending the scheme to buy-to-let landlords). But it will do so by putting the government balance sheet to work, increasing house prices without meaningfully changing the number of houses being built.

Housing supply, particularly in the South East and London, where the largest effects of the policy will be felt, is constrained by land, planning rules and construction times; overheating demand will do little to solve that.

So prices rise, household debt rises, and government debt rises – off-balance-sheet, of course. The question which remains is whether this is malice or incompetence. Was the plan genuinely, if ineptly, aimed at increasing the quantity of housing? Or was it designed to prop up house prices for another five years, keeping homeowners onside into the next election at the expense of the young and the poor?

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Banishing safe seats, and other proposals to bridge the democratic divide

How to improve key areas of democracy.

Labour’s election train is finally pulling into the station, with its new leader announced in just over a fortnight. However, a summer absorbed in the party’s internal democracy has obscured a deeper truth confronting the country: the general election confirmed that unequal political participation rates in the UK – by age, class, ethnicity and region– have become increasingly hardwired into how our democracy operates.

IPPR’s new report underscores the scale of the democratic divide.  For example, less than half of 18-24 year olds voted, compared to nearly four-fifths of the over-65s, while three-quarters of "AB" individuals cast a ballot, against just over half of "DE" registered voters. Critically, this marks a sharp rise in turnout inequality over time. In 1987, for example, turnout rates by class were almost identical but have steadily diverged since.

Similarly, age-based differences have got significantly worse over time. In 1964 turnout for 18-24 year olds was 76.4 per cent, almost matching the 76.7 per cent turnout rate of those aged 65 or over. By 2005 only 38.2 per cent of 18-24 year olds voted against 74.3 per cent of 65+ year olds, with only a very slight improvement this year.

Underlying growing disparities of electoral voice are striking divergences in perceptions of the fairness and effectiveness of our democracy. For example, IPPR/YouGov polling suggests a striking 63 per cent of "DE" individuals think that our democratic system serves their interests badly, while "AB" voters are evenly split.

Given these signs of democratic distress, there remains a strong case for establishing a wide-ranging constitutional convention to reset how our democracy operates. Yet Westminster shows no appetite for such constitutional reformation, and there would only be so much a civil society-led convention could achieve in terms of practical change.

In our report we therefore propose a series of achievable reforms that could update the civic, institutional and technological architecture of our democracy in the here and now, with the explicit goal of ensuring that all voices are better heard in the political process.

On electoral reform, while we reiterate our support for proportional representation for national elections, we know this simply isn’t going to happen this Parliament. We had a referendum on change in 2011 and it was heavily lost. The energies of electoral reformers should therefore focus on extending PR in local government, where it is more obviously in the self-interest of the major parties, as a means of extending their geographical reach.

In addition, the reduction in the number of MPs provides an opportunity to chip away at the number of safe seats. More than half of seats are "safe", a number that has grown over time, even allowing for the electoral earthquake in Scotland. Safe seats typically have lower levels of participation, lower turnout rates, and less electorally powerful voters. While safe seats will always be with us in a first-past-the-post system, too many can be damaging to democracy.

Given this, we have recommended that the various Boundary Commissions of the UK be given a new duty to consider the electoral competitiveness of seats – ie. to tilt against the creation of safe seats – when boundaries are redrawn. The priority would be to meet their current duties of ensuring the geographic coherence of a seat and roughly equal electorates.

However, where these duties can be met we suggest that the Commissions should consider revising boundaries to reduce the number of safe seats, as a step to increasing participation and the voting power of the average elector. Of course, this will clearly not "abolish" all safe seats – nor should it  but it could help re-empower millions of voters currently with little meaningful say over the outcome of elections and force political parties to up their game in safe seats.

At the same time, the transition to the individual electoral registration process risks excluding millions from the franchise, people who are disproportionately younger, poorer or from an ethnic minority. For example, there are clear inequalities by age and ethnicity in terms of who is registered to vote: in the 2010 general election, for which figures are most accurate, 90 per cent of people aged 55-64 were registered, compared to 55 per cent of those aged 18-24, while nearly 20 per cent of BME individuals were not registered to vote, compared to only 7 per cent of the "white British" population.

There are simple steps the government could take to ensure all who are eligible are able to vote: extending the registration deadline to December 2016, and making support available to local authorities to assist registration efforts, weighted towards authorities with higher levels of under-registration, could help reduce inequalities.  In the longer term, electoral registration officers should be given new duties, and the Electoral Commission more powers, to drive up registration rates, with a particular focus on presently under-registered demographics. 

Finally, we recommend introducing a Democracy Commission. At present, the Electoral Commission effectively regulates elections and party funding. Democracy, however, is far richer and broader than electoral processes. It is about formal representation, but also about participation and deliberation, in what Marc Stears has called "everyday democracy".

A statutorily independent Democracy Commission could give institutional ballast to the latter and help reinvigorate democratic life by providing research, resources and capacity-building to facilitate local, civil society-led initiatives that aim to increase broad-based levels of powerful democratic participation or deliberation in collective decision-making processes.

For example, a Democracy Commission could work with the GLA to introduce participatory budgeting in London, assist the Greater Manchester Combined Authority in instituting a public deliberative body with real teeth over how to integrate health and social care in the area, help the Scottish government conduct citizens’ juries on the future constitutional shape of the country, or support civil-society experiments to bring people closer to collective political decision-making processes in their locality.

We are living in a paradoxical political era, where growing political inequality is accompanied by ongoing social and technological change that has the capacity to collapse unnecessary political and economic hierarchies and build a more inclusive, participatory and responsive democracy. However, there is no guarantee that the age of the network will necessarily lead to democratic revival. The institutions and technologies of our political system, products of the 19th century, are struggling in the fluidity and fracture of the 21st century, inhibiting democratic renewal.

With our economy post-industrial, our ways of communicating increasingly digital and more networked, our identities and relationships ever more variegated and complex, it is therefore critical public policy seeks to update the democratic infrastructure of the UK, and, in so doing, help reverse entrenched political inequality.

Such an agenda is vital. If we simply accept the current institutional arrangements of our political system as the limits of our ambition, we must also content ourselves to live in a divided – and therefore inherently partial – democracy. Yet our democracy is not immutable but malleable, and capable of being reformed for the better; reform today can make democratic life more equal. After all, the story of British democracy’s evolution is one of yesterday’s impossible becoming today’s ordinary.

Mathew Lawrence is a research fellow at IPPR and the co-author of "The Democracy Commission: Reforming democracy to combat political inequality". He tweets at @dantonshead.