So the Chancellor side stepped the banana skins but ...
27th November 2017 by Fiona Hotston Moore
The Chancellor’s budget received a modest thumbs up from the city and his party but was it a missed opportunity?
The Chancellor was walking a tight rope and played it safe with minimal changes. However, he has acknowledged the worsening structural issues in the UK economy but did the Budget introduce measures to address this? The OBR revised its productivity forecasts downwards and clearly sees no light at the end of tunnel. The impact of lower productivity will be lower business investment and a reduction in tax collections.
The biggest headline from the Budget was the stamp duty relief given for first time buyers. Clearly this measure is hoped to boost the housebuilding industry and, historically, increasing house sales increases retail activity as well as employment in the construction sector. However the more likely outcome, says the OBR, is that house prices will increase as a result of the change so eliminating the saving for first time buyers. The OBR estimates the saving will result in just 3,500 new first time buyers at a tax cost of £3.2bn to the Treasury.
Home ownership has fallen substantially in the younger age groups. Between 1991 and 2014 in the 16 to 24 age group home ownership has fallen from 36% to 9% and in the 35 to 44 age group from 78% to 59%.
I am sceptical the much applauded stamp duty relief will address the falling numbers of first home buyers. I suspect the beneficiaries will be existing home owners.
It’s interesting that whilst we see home ownership as a necessity the pattern is quite different in the rest of Europe. The average for the EU is 65% owning their home, whilst in the UK it’s 71%, Germany 46% and Switzerland just 37%. Furthermore, whilst in the UK we favour homes with a garden with flats being just 18% of total homes, in Europe the average is 46%, in Germany its 62% and Switzerland 58%.
For many first time buyers the obstacle to home ownership is the deposit which today is typically over 20% of the purchase price compared to 10% through the 1980’s. The average Briton has £8,000 debt (excluding mortgages) and the age group 25 to 34 have the highest indebtedness. The average household size has decreased with more single people and couples meaning that we need more homes even without population growth.
The stamp duty relief will win votes but is unlikely to result in more houses being built.
Unfortunately, in my opinion, this Budget has done little to address the fundamental economic and political issues including the gulf between the “haves” and “have nots”, the 20 million workers with no pension provision and the relentless growth in demand for the NHS driven by an ageing population, increasing mental illness and public expectations.
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