Oh no, not another bung to the housing market. At least our dynamic young Chancellor left extending Help to Buy Builders Yachts off his all-you-can-eat menu this week, but since he has promised us yet another budget in the autumn, it is too early to rejoice at the demise of this baleful scheme.
Instead we had a Stamp duty holiday, to kid ourselves that this would be of particular help to those on the lower rungs of the housing ladder. Why should it? The vendor will charge the buyer whatever he can get, and the Stamp duty saving is likely to be reflected in selling prices. Similar schemes in the past brought forward some transactions in the months before they expired, but the principal beneficiaries were vendors, estate agents and the housebuilders’ cartel.
Underlying these schemes is the article of faith that house prices must never go down. No politician dare argue in favour of a proper bear market. The voters have so much invested in domestic property that prices cannot be allowed to fall to within reach of new buyers. As a result, governments must find ever-more ingenious ways of keeping prices up, while simultaneously trying to get more people into home ownership.
Thus the circle is squared, at a cost of buyers being granted mortgages at increasing multiples of their annual income, with no margin against any rise in interest rates, and vulnerable to the slightest fall in prices. More and more people are forced into rented accommodation.
The partners-in-crime here are the big housebuilding companies. They have little interest in building quality homes to create communities where people really want to live, or in sufficient quantities to make a difference. Their interest lies in accumulating land and building estates, but not so many that the prices might fall. As a business case it has worked well for the shareholders, and brilliantly for the top executives. For the rest of us, not so much.
To keep the gravy train moving, they are already lobbying for a further extension of Help to Buy. One day, the cost of this endless support will become too obvious to ignore. Until then, expect an extension of the stamp duty holiday, and do not rule out yet another dose of HTB, the crack cocaine of the housing market.
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How wealthy is Gus O’Donnell?
Gus O’Donnell was one of the finest civil servants of his generation. For 32 years he climbed the ladder to finish as Cabinet Secretary, retiring aged 60 in 2011. He has not stopped since. His latest contribution is to lead an investigation into whether Britain should introduce a wealth tax, a question that is suddenly fashionable. It seems to command public support, probably from those who envisage a starting point just above the estimate of their own wealth.
Lord O’Donnell says he has no idea whether a big new tax is needed to try and bring the public finances back under control, but his team has had a good run at trying to assemble the evidence for a rational debate. This shows that private wealth has grown much faster than the economy, that inequality is starting to rise, that the over-65s command an increasing proportion of the total, and that London and the south east have the greatest share. Wealth is mostly concentrated in property and pensions.
Well, so far, so obvious, although it’s always good to have your guesses confirmed, and the numbers are helpful. One slight surprise is to find that Britain’s existing taxes on capital (stamp duty, capital gains tax, inheritance tax etc) already add up to more than in Canada, the US and France, and a lot more than in Germany, Italy or Japan.
The study rehearses the familiar arguments about the difficulty of measuring wealth in order to tax it, and how to deal with illiquid valuables owned by people with low incomes. The conclusion: it’s jolly difficult, which helps explain why other countries have abandoned wealth taxes in the past.
However, there is one glaring omission from the team’s trot around the course, which brings us back to O’Donnell. His pension as a former top civil servant is based on a multiple of his years of service and his final salary, to produce a six-figure income for life, index-linked against inflation. According to Hargreaves Lansdown, a 60 year-old retiring today would need £5m to buy an annuity offering an index-linked income of £100,000.
So, dear Gus, is that entitlement wealth or not? His is an extreme example, but index-linked pensions based on final salary, almost extinct in the private sector, remain commonplace among state employees. This vast liability on future taxpayers is almost entirely invisible, and the public sector unions are (understandably) resistant to anything more than fiddling at the edges of the rules.
The treatment of such a valuable entitlement is at least as contentious as whether primary residences should be exempt from a wealth tax, yet warrants barely a mention in the 24 pages of this study. The trio under O’Donnell who are actually doing the work are all employed in the public sector through their university affiliations. If they duck this question, their work will be worthless.