It may buy votes, but it won't get many houses. (Image: Getty)
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Help to Buy ISAs are a great election gimmick. That's a relief, because they're no good for first-time buyers

Help to Buy ISAs are eye-catching - but useless.

Let’s start by giving George Osborne some credit: seven weeks out from a general election this is no time for sensible, long-term policymaking. He knows what he’s doing with his Help to Buy Isa, which is trying to win an election, not address the country’s long-term housing challenge. Which is just as well, because it will not help with that at all.

The UK has a housing shortage, or at least parts of it do, notably the South-East where many (too many) of the jobs are. Demand has been growing faster than supply for many years, and so prices have been increasing rapidly with the average home now costing many multiples of the average salary. It is quite plain that the scales need rebalancing away from demand and towards supply.

And yet. The Chancellor, in one of the major announcements of his pre-election Budget, has decided to go instead for boosting demand. A new Help to Buy Isa will be available from this autumn for first-time buyers, who will effectively have their savings topped up by 25%, up to a maximum of £3,000 (although this seems to be per person so could amount to £6,000 for a couple purchasing their first home together). This is an extension of earlier Help to Buy initiatives but it marks quite a fundamental shift in that previous measures have amounted to loans and guarantees: now, the state will be directly topping up buyers’ savings at the point of purchase. It will be giving people money to buy homes with. There is no direct precedent for this that I can think of.

On the face of it, this is a great idea. Owner-occupation has been declining since the early 2000s. The latest English Housing Survey puts it at 63%, its lowest level since the mid-1980s. In London it is only 48% - a minority, which owner-occupiers in the rest of the country are expected to be in by the 2030s. And a major obstacle for those being shut out of the market is indeed the difficulty of saving up a big enough deposit, especially since mortgage lending tightened after the 2008 crash. These people certainly need greater government support, but not via a subsidy like this which will simply increase aggregate purchasing power in the housing market and so hold up house prices for everybody, including first-time buyers and future generations who will have even less chance of purchasing their own home. The Treasury’s spending forecast for this scheme is something like £1 billion a year by the end of the next parliament, depending on take-up.

If the Chancellor really wanted to help first-time buyers – and not just those that might be voting in  May, but the young people of the next couple of decades – then he would be doing something to bring prices down rather than helping to keep them up. There are two principal ways in which he could be doing this.

Firstly, he could build more homes. Not just encouraging the private sector to build enough (which it never has and never will) but actually committing significant public investment to building the homes we need. This was how the post-war governments managed to build the homes the country needed until such spending was wound down from the 1970s. The period since has amounted to a prolonged experiment in getting the market to pick up the slack – and failing. He could start by diverting this Help to Buy cash into housebuilding. Those sceptical about the cost should remember that we already spend £25 billion a year in housing benefit (which goes to landlords in rent subsidies), largely as a result of our failure to build enough homes.

Secondly, he could severely restrict further house purchases by private landlords. Young people are being priced out of the market not by each other, in the main, but by a private rented sector which has been booming since the 1990s. The decline in owner-occupation has been in inverse proportion to the growth in the landlord class, which has more than doubled the number of homes it owns in just over a decade and now accounts for 19% of the housing stock in England. It is continuing to grow, fuelled by a housing benefit system which effectively under-writes the demands of landlords already charging more than a quarter of their tenants can afford/

Of course if this government had intended anything meaningful on housing it would have initiated it five years ago, not at the tail end of its time in office. There are too many vested interests standing in the way of what is really needed, which is real action to tackle the causes of house price growth. But these interests are not confined to developers, housebuilders, estate agents or private landlords – it also includes the millions of people who already own their homes, who enjoy seeing their assets rise in value. This amounts to a formidable lobby, and one that Osborne has not taken on. But this close to an election, who would?

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Why Angela Merkel's comments about the UK and US shouldn't be given too much weight

The Chancellor's comments are aimed at a domestic and European audience, and she won't be abandoning Anglo-German relationships just yet.

Angela Merkel’s latest remarks do not seem well-judged but should not be given undue significance. Speaking as part of a rally in Munich for her sister party, the CSU, the German Chancellor claimed “we Europeans must really take our own fate into our hands”.

The comments should be read in the context of September's German elections and Merkel’s determination to restrain the fortune of her main political rival, Martin Schulz – obviously a strong Europhile and a committed Trump critic. Sigmar Gabriel - previously seen as a candidate to lead the left-wing SPD - has for some time been pressing for Germany and Europe to have “enough self-confidence” to stand up to Trump. He called for a “self-confident position, not just on behalf of us Germans but all Europeans”. Merkel is in part responding to this pressure.

Her words were well received by her audience. The beer hall crowd erupted into sustained applause. But taking an implicit pop at Donald Trump is hardly likely to be a divisive tactic at such a gathering. Criticising the UK post-Brexit and the US under Trump is the sort of virtue signalling guaranteed to ensure a good clap.

It’s not clear that the comments represent that much of a new departure, as she herself has since claimed. She said something similar earlier this year. In January, after the publication of Donald Trump’s interview with The Times and Bild, she said that “we Europeans have our fate in our own hands”.

At one level what Merkel said is something of a truism: in two year’s time Britain will no longer be directly deciding the fate of the EU. In future no British Prime Minister will attend the European Council, and British MEPs will leave the Parliament at the next round of European elections in 2019. Yet Merkel’s words “we Europeans”, conflate Europe and the EU, something she has previously rejected. Back in July last year, at a joint press conference with Theresa May, she said: “the UK after all remains part of Europe, if not of the Union”.

At the same press conference, Merkel also confirmed that the EU and the UK would need to continue to work together. At that time she even used the first person plural to include Britain, saying “we have certain missions also to fulfil with the rest of the world” – there the ‘we’ meant Britain and the EU, now the 'we' excludes Britain.

Her comments surely also mark a frustration born of difficulties at the G7 summit over climate change, but Britain and Germany agreed at the meeting in Sicily on the Paris Accord. More broadly, the next few months will be crucial for determining the future relationship between Britain and the EU. There will be many difficult negotiations ahead.

Merkel is widely expected to remain the German Chancellor after this autumn’s election. As the single most powerful individual in the EU27, she is the most crucial person in determining future relations between the UK and the EU. Indeed, to some extent, it was her intransigence during Cameron’s ‘renegotiation’ which precipitated Brexit itself. She also needs to watch with care growing irritation across the EU at the (perceived) extent of German influence and control over the institutions and direction of the European project. Recent reports in the Frankfurter Allgemeine Zeitung which suggested a Merkel plan for Jens Weidmann of the Bundesbank to succeed Mario Draghi at the ECB have not gone down well across southern Europe. For those critics, the hands controlling the fate of Europe are Merkel’s.

Brexit remains a crucial challenge for the EU. How the issue is handled will shape the future of the Union. Many across Europe’s capitals are worried that Brussels risks driving Britain further away than Brexit will require; they are worried lest the Channel becomes metaphorically wider and Britain turns its back on the continent. On the UK side, Theresa May has accepted the EU, and particularly Merkel’s, insistence, that there can be no cherry picking, and therefore she has committed to leaving the single market as well as the EU. May has offered a “deep and special” partnership and a comprehensive free trading arrangement. Merkel should welcome Britain’s clarity. She must work with new French President Emmanuel Macron and others to lead the EU towards a new relationship with Britain – a close partnership which protects free trade, security and the other forms of cooperation which benefit all Europeans.

Henry Newman is the director of Open Europe. He tweets @henrynewman.

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