Former Chancellors Norman Lamont, Alistair Darling and Nigel Lawson have added their significantly powerful voices to a call for Osborne to scale down Help to Buy.
Cognisant of the negative impacts of spiralling house prices on the economy, there is rising concern that unless the supply shortage be urgently addressed, bubbles will continue to form and continue to burst as they have done historically – at the taxpayers' expense.
Lord Lamont, Chancellor in the Conservative government of the early 1990s, has said that George Osborne is more than aware of the potential problems he is heading towards implying that the issue is not being dealt with effectively because of a reluctance to upset the applecart ahead of the general election in May 2015.
However, although increasing house prices will be welcomed by those already on the property ladder, it is becoming more and more difficult for first time buyers to get a look in – thereby leaving a whole generation of electorate out in the cold.
Lamont has expressed his concern about the Help to Buy scheme: "What will happen is that demand can be increased quickly, through measures like Help to Buy, but supply can only be increased slowly. My concern is that it will become even harder for young people to buy a home in the future."
This fresh wave of heavyweight criticism comes in the light of recent comments from the Organisation for Economic Cooperation and Development (OECD) claiming that the current chancellor, George Osborne is deliberately fuelling a housing boom to gather votes before the election.
The first phase of Help to Buy provides a 20% contribution to a property purchase up to a value of £600,000, requiring just 5% deposit to be made by the buyer. The second phase of Help to Buy was implemented three months earlier than anticipated in October 2014 and involves a £12bn liability fund that guarantees up to 15% of a mortgage, affording a degree of indemnity for the banks and building societies who sign up and allowing them to offer higher loan to value mortgages.
In essence, the taxpayer underwrites a significant proportion of the UK housing market which places every tax paying citizen in a vulnerable position should the proverbial hit the fan at any point in the future.
Business Secretary Vince Cable has also voiced doubts about the Help to Buy scheme suggesting that it should be operated locally so that it can be scaled back in areas like the south-east of England where prices are inflating at a rapid pace and used as stimulus in more moderate growth areas in the UK.
UK house prices have increased by 9.1% in the past year – over 18% in London – sparking criticism that it is not in the public interest for house prices to become even more expensive or for mortgage levels to return to their 2007 peak.
Adding fuel to Lamont's supply argument is Alistair Darling, Chancellor in Gordon Brown's Labour government. He told the Financial Times that successive governments had each presided over "bubble after bubble" and the cycle of boom and bust is constantly revolving. "We keep repeating the same mistakes," he said. "Supply of housing is the biggest single thing. Unless supply can be increased substantially, we will exacerbate that situation with schemes like Help to Buy."
Lord Lawson, Chancellor in Margaret Thatcher's government, has appealed directly to Osborne to end Help to Buy in London and halve the maximum value of properties bought under the scheme to £300,000. Vince Cable and Ed Balls, the shadow chancellor, have also called upon Osborne to reduce the threshold in a debate that is rapidly gaining weight in opposition.
Senior Liberal Democrats, 3 former Chancellors and the OECD are all of the view that the Chancellor is prepared to see the housing market overheat to boost economic confidence and increase the chances of a Tory victory in the next election. Mr Osborne said in Brussels earlier this week "we should be vigilant about the housing market and this government has given the Bank of England the powers, the tools to do that in an independent way."
And so the answer to the headline question would appear to be that the government will continue to fudge the Help to Buy issue and absolve itself from all responsibility for the consequences.
- Friday 09 May 2014