Help To Buy is in a mess - here's how Osborne can rescue it

To avoid a "second home subsidy", the government must limit the scheme to first-time buyers.

The government’s Help to Buy scheme - a handout to the big beasts of the construction industry wrapped up as a fluffy social policy giving the hard pressed a leg up - has had an inauspicious start to life.

The scheme will share out £3.5bn in interest-free loans to buyers who can rustle up a mortgage deposit of just 5 per cent, each loan offering up to 20 per cent of the value of a new-build property worth £600,000 or less, and taxpayer backing for up to £130bn of mortgage lending.

From the off, the policy faced criticism for artificially stimulating the housing market, threatening another disastrous cycle of boom, bubble and bust.

Even the Treasury select committee felt moved to share its concerns about the risks of channelling public money into an investment whose value - like all good property speculators know - could go up as well as down.

But the biggest problem with Help to Buy is the loophole in the mortgage guarantee scheme that will allow existing home owners access to a loan. Parodying the government’s own 'spare room subsidy' (or 'bedroom tax'), shadow chancellor Ed Balls found a new moniker for the policy: "the second home subsidy".

On BBC1’s Sunday Politics show this week, Conservative MP Nadhim Zahawi was challenged on this issue yet again. He gave a halting and stumbling response, which cleared absolutely nothing up and raised new fears about the perverse impact these loans might have.

Asked what the government could do to stop the policy being used to buy second properties, Zahawi said:

One of the things we have to look at is the detail. How do you decide? If parents want to help get [children] to get a 5 per cent deposit in place or if someone is selling a smaller property to help their family into a bigger place?

Clear as mud. But look again at what he asking us to consider: how do you decide if a parent purchasing a second home to help their child onto the property ladder - buying it for them, or with them, or using their existing owner occupied property as leverage - is using or abusing equity loan scheme?

It’s worth remembering that, when he unveiled Help to Buy in the Budget, chancellor George Osborne said that home ownership was now "beyond the great majority who can’t turn to their parents for a contribution. That’s not just a blow to the most human of aspirations, it’s a setback to social mobility."

What is this fudged idea over public funding for second homes if not a double-bolted cap on social mobility?

Allowing parents to purchase a second home through to the scheme to support their younger family members removes the opportunity of government support from the children of those who could never offer them an independent leg up, and uses public funds to consolidate wealth in the hands of those who already have it. And if that’s the case, it must be stopped. Immediately.

Writ large, a policy like this only exacerbates social inequality, with its disastrous consequences for us all (no need to rehash the excellent work of Richard Wilkinson and Kate Pickett here). It’s not clear that this is exactly what Zahawi meant in his fumbled answer to Andrew Neil’s forensic questioning; perhaps he was just having a bad morning, or feared falling foul of the party machine. Either way, a vacuum will be filled with speculation, so government must clarify exactly how, and by whom, Help to Buy will be accessed.

Another dangling question for the coalition is whether Help to Buy has actually pushed the construction industry to develop more homes? We know there is demand for decent housing; the problem is with the lack of supply. Builders aren’t building, and where they are they’re not building the right sort of homes.

As David Orr, chief executive of the National Housing Federation, explained in his response to Help to Buy: "Our housing market has long been weakened by the lack of new houses being built... the government should be focusing on unlocking investment to build more new homes as a way of managing down the housing benefit bill and boosting the economy."

If the policy has only managed to put down the foundations for £600,000 Barrett ‘dream homes’, what is its value to first time buyers?

But listen up, Osborne, because you can rescue Help to Buy with three simple measures:

1. Reduce the limit to 20 per cent of any property valued at the national average of £238,293, rising to £350,000 for London and the South East.

2. Only allow first-time buyers to access the mortgage guarantee scheme.

3. Only open the scheme up to properties with three bedrooms or less, forcing developers to build the type of affordable housing that is so desperately in demand for first-time buyers.

The Chancellor may feel reports that house prices are on the rise for the first time since 2010 confirm that his policy is working. I believe it demonstrates quite the opposite.

George Osborne meets with a couple at the Berkeley Homes Royal Arsenal Riverside development in Woolwich. Photograph: Getty Images.

Hannah Fearn is contributing editor of the Guardian local government, housing and public leaders networks

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What is the EU customs union and will Brexit make us leave?

International trade secretary Liam Fox's job makes more sense if we leave the customs union. 

Brexiteers and Remoaners alike have spent the winter months talking of leaving the "customs union", and how this should be weighed up against the benefits of controlling immigration. But what does it actually mean, and how is it different from the EU single market?

Imagine a medieval town, with a busy marketplace where traders are buying and selling wares. Now imagine that the town is also protected by a city wall, with guards ready to slap charges on any outside traders who want to come in. That's how the customs union works.  

In essence, a customs union is an agreement between countries not to impose tariffs on imports from within the club, and at the same time impose common tariffs on goods coming in from outsiders. In other words, the countries decide to trade collectively with each other, and bargain collectively with everyone else. 

The EU isn't the only customs union, or even the first in Europe. In the 19th century, German-speaking states organised the Zollverein, or German Customs Union, which in turn paved the way for the unification of Germany. Other customs unions today include the Eurasian Economic Union of central Asian states and Russia. The EU also has a customs union with Turkey.

What is special about the EU customs union is the level of co-operation, with member states sharing commercial policies, and the size. So how would leaving it affect the UK post-Brexit?

The EU customs union in practice

The EU, acting on behalf of the UK and other member states, has negotiated trade deals with countries around the world which take years to complete. The EU is still mired in talks to try to pull off the controversial Transatlantic Trade and Investment Partnership (TTIP) with the US, and a similar EU-Japan trade deal. These two deals alone would cover a third of all EU trade.

The point of these deals is to make it easier for the EU's exporters to sell abroad, keep imports relatively cheap and at the same time protect the member states' own businesses and consumers as much as possible. 

The rules of the customs union require member states to let the EU negotiate on their behalf, rather than trying to cut their own deals. In theory, if the UK walks away from the customs union, we walk away from all these trade deals, but we also get a chance to strike our own. 

What are the UK's options?

The UK could perhaps come to an agreement with the EU where it continues to remain inside the customs union. But some analysts believe that door has already shut. 

One of Theresa May’s first acts as Prime Minister was to appoint Liam Fox, the Brexiteer, as the secretary of state for international trade. Why would she appoint him, so the logic goes, if there were no international trade deals to talk about? And Fox can only do this if the UK is outside the customs union. 

(Conversely, former Lib Dem leader Nick Clegg argues May will realise the customs union is too valuable and Fox will be gone within two years).

Fox has himself said the UK should leave the customs union but later seemed to backtrack, saying it is "important to have continuity in trade".

If the UK does leave the customs union, it will have the freedom to negotiate, but will it fare better or worse than the EU bloc?

On the one hand, the UK, as a single voice, can make speedy decisions, whereas the EU has a lengthy consultative process (the Belgian region of Wallonia recently blocked the entire EU-Canada trade deal). Incoming US President Donald Trump has already said he will try to come to a deal quickly

On the other, the UK economy is far smaller, and trade negotiators may discover they have far less leverage acting alone. 

Unintended consequences

There is also the question of the UK’s membership of the World Trade Organisation, which is currently governed by its membership of the customs union. According to the Institute for Government: “Many countries will want to be clear about the UK’s membership of the WTO before they open negotiations.”

And then there is the question of policing trade outside of the customs union. For example, if it was significantly cheaper to import goods from China into Ireland, a customs union member, than Northern Ireland, a smuggling network might emerge.

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.