How to boost the debt without borrowing: spend on houses

The Help to Buy program uses some nice accounting tweaks to get away with being deficit neutral.

Some new houses. Photograph: Getty Images

One final, quick point on Help to Buy.

One of the two measures announced, in which the Government provides equity loans to people buying a new build house worth under £600,000, involves real cash outlays. The Treasury has budgeted £4.13bn for it:

But the spending counts towards the central government net cash requirement, and it counts towards public sector net debt (Table 2.1 footnote 3, page 65), but it doesn't count towards public sector net borrowing – also known as "the deficit".

The reason is that the government is spending cash, but getting back an asset of equivalent value – in this case, equity in £20bn worth of houses. And when those houses are sold, the loan gets paid back. So assuming house prices continue rising faster than inflation – a fair assumption, given it's basically government policy at this point – it's not really even borrowing, just converting a liquid asset into an illiquid one.

There's still some risk involved. If one of these houses burns down, the Government loses its stake. And if the house is never sold, the Government never gets paid back.

Except. That's basically what infrastructure spending is. You trade £3bn worth of money for £3bn worth of windmills. If you don't want the windmills, you can sell them. And if you get unlucky, you've lost your money.

The Chancellor is perfectly happy to borrow for a guaranteed payoff in the future when it plays well with his voters, but not when it works well with the economy. Shame, that.