Member Article

No avoiding the poor state of the economy

Overall this was a fiscally pretty neutral budget. For the average person it will make little difference though a pint of beer being reduced by a penny will be welcome though hardly the most seismic economic news. Probably of more significance is that the planned rise in fuel duty of 3p in September has been frozen.

The announcement of the assistance schemes for those finding it difficult to raise mortgages, in terms of the £3.5 billion shared equity loans, and government interest-free loan, which would be worth 20% of the value of a new house, has certainly stimulated interest in house building. It is to be noted that the share price of all of the major house builders are up, in some cases by almost double digit increases.

The scheme for those buying a new house up to £600,000 will be available to everyone and not just first-time purchasers. It will work by allowing buyers to use a 5% deposit and providing up to 20% of the cost to be assisted by a ‘shared equity loan’ which is repaid when the house is sold (the rest will be funded by a standard mortgage. Some commentators have suggested that if house prices fall the taxpayer will be expected to take the hit.

The other significant announcement made by the chancellor on housing was a new mortgage guarantee scheme which, he contends, will provide financial help to those who want to buy a home but cannot raise the huge deposits which are now necessary after the financial crisis of 2008.

This scheme will operate for three years from January 2014 and provide support for £130 billion of mortgages.

The chancellor also announced a new mortgage guarantee, which he claimed would dramatically increase the availability of loans.

“We’re going to help families who want a mortgage for any home they’re buying, old or new, but who cannot begin to afford the kind of deposits being demanded today,” he said.

It will run for three years from the start of 2014 and will be used to support £130bn of mortgages. This is another ‘shot in the arm’ for the housing market though it must again be asked what will happen if there are a large number of defaults as the government will compensate any lenders who lose out.

Finally, the news that George Osborne is fully supportive of Michael Heseltine’s plan for giving funding direct to regions will be good news to those – most especially the Local Enterprise Partnerships – who believe that they are able to do things more effectively without the interference of civil servants in Whitehall.

Overall, though, the fact that growth is predicted by Osborne to be, at best, anaemic (0.6%) and that public debt continues to increase means that the backdrop will remain bleak. It is hard to see whether the announcements made by George Osborne will really give the economy the fillip it needs to give everyone confidence to consume more.

The fact that the quarterly unemployment figure has gone up by 7000 to 2.52 million shows that we are far from being ‘out of the woods’. Most worrying is that this increase is among the 18-24 year olds. However, it should be acknowledged that unemployment is currently less than it was this time last year; 7.8% compared to 8.3%.

The chancellor cannot avoid the poor state of the economy and calls for more austerity. Assuming George Osborne is still in post this time next year we can pretty much guarantee that he will be giving away a great deal more in the run-up to the general election 2015.

For all our sakes let’s hope that economic circumstances have improved.

This was posted in Bdaily's Members' News section by Birmingham City University .