Much of the media reporting of today’s IPPR briefing note on the economic recovery focused on the alarm it sounds about the rapid increase in household debt – in particular the risk that Help to Buy II will further increase house prices. The economy may give the appearance of rapid recovery, but it is not occurring on a basis that is sustainable for any economy, and particularly not for one in which households are already heavily indebted.
But to focus upon the issue of debt is to rather miss the bigger point the report is trying to make. The point is that when judged against the objectives the Chancellor set for himself back in 2011 he has fallen a long way short. The talk back then was of a ‘march of the makers’ – a renaissance of British manufacturing and exports – and a rebalancing of the economy away from its reliance on financial services and house price inflation.
What we have seen subsequently, despite initiatives such as the Funding for Lending Scheme, is poor public and private investment performance and an expansion in exports that has just about balanced off the increase in imports. And we’ve seen the Chancellor switch strategy to create a short-term debt-fuelled consumer boom. This is precisely the situation we faced going into the Global Financial Crisis of 2007-8.
Except this time the Government has chosen this road in the full knowledge that it has few supporters and many critics – the Help to Buy initiative, in particular, has few friends beyond the Quad at the heart of Government. [Read more...]