Show Hide image

Republican Party to unveil conservative fiscal package

The $4.6tn spending cuts to impact social programmes.

The Republican Party in the US will unveil a conservative fiscal package today that they claim would cut government spending by $4.6tn over the next 10 years and balance the budget within a decade without increasing taxes.

The spending cuts, which exclude defence, will impact social programmes in the country.

Paul Ryan, chairman of the House Budget Committee, will present the budget today. He wrote in an opinion piece for the Wall Street Journal: “We’re offering a credible plan for all the country to see. We’re outlining how to solve the greatest problems facing America today. Now we invite the president and Senate Democrats to join in the effort.”

The US President Barack Obama and congressional Democrats are likely to dismiss the House Republican budget that impacts spending for the poor and the elderly, while senate Democrats will unveil their own competing budget today that is expected to include a mix of spending reductions and tax rises.

Obama, however, will follow with his own fiscal blueprint later this month or in April, according to the Financial Times.

In his previous two budgets, Ryan proposed a massive restructuring of Medicare health plan to convert it into a premium support system.

In 2011 and 2012, Ryan’s plans were unable to reach balance over a decade. However, this year it was possible because of the additional revenues generated in the January deal to avert the fiscal cliff as well as a slowdown in healthcare spending projections, both of which helped America’s long-term budgetary outlook, reported FT.

Republicans had a goal of achieving balance at around 19.1 per cent of GDP to restrict the size and scope of government.

According to the Congressional Budget Office (CBO), federal spending this year is expected to be roughly 22.2 per cent of the economy, while revenues are 16.9 per cent of output.

Over the next 10 years, revenues are forecasted to increase to 19.1 per cent of the economy, while spending is expected to increase to 22.9 per cent of GDP, according to the CBO.

The 2010 bipartisan fiscal commission, co-chaired by Alan Simpson and Erskine Bowles, eventually balanced its books at around 21 per cent of GDP.

Neither the forthcoming budget from Senate Democrats nor that of Mr Obama is expected to come close to balance, highlighting the wide gap on fiscal policy worrying Washington, reported FT.

Usually, the House Republican and Senate Democratic budgets would be reconciled into one compromise document, however, such possibility is not likely to happen.

In the recent times, Obama made efforts to reach out more aggressively to congressional Republicans to find a way out of the impasse without achieving a breakthrough.

Photo: Getty Images
Show Hide image

How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.