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The coalition came to power with the promise of austerity and small government. Now, on the brink of disaster, state-sponsored initiatives are suddenly back in fashion
For families stuck in cramped and overpriced rental accommodation who'd love to get a place of their own, last week's housing strategy must have seemed like a godsend: 100,000 people would be helped to buy a home, and scores of stalled construction schemes up and down the country kickstarted with taxpayers' cash.
But at second glance, the package is neither as generous nor as radical as it sounds; and it speaks volumes about the way the coalition thinks.
The offer is only available on newbuild homes. In theory, this is to make it worth builders' while to restart projects halted during the past 18 months. In practice, it's likely to allow them to offload unwanted flats in developments that should never have been built, and which are unlikely to hold their value. That's certainly what often happened under similar schemes, such as HomeBuy Direct, the equivalent under the last government.
In fact, this latest housing wheeze only came about after lobbying of housing minister Grant Shapps by the housebuilders. They're sitting on thousands of acres of land, banked during the good years, which it isn't worth their while to develop at current prices. The £400m Get Britain Building fund will come in very handy, thanks.
Under the mortgage indemnity element of the scheme, the government will guarantee part of the cost of a deposit, which is meant to help bridge the gap between the 25% many mortgage lenders are now demanding, and the 5% cash-strapped buyers are able to raise. But if house prices fall, the buyer will still be left facing the first loss; and there was nothing in the announcement about what interest rate the lenders would be able to charge on these new mortgages.
Even if the targeted 100,000 buyers get a loan, the most likely impact will be to artificially drive up the price of new-build homes, with the buyer taking the risk and the builder pocketing the profit. In other words, it's little more than a bung for developers.
A forthcoming report from the IPPR thinktank will argue that the lumbering, uncompetitive housing firms need a kick, instead of yet more encouragement to prop up the prices of poor-quality flats. This is the same government, remember, that is slashing the budget for social housing by more than 60% and has overseen a catastrophic 99% collapse in the number of affordable homes being built.
Homelessness campaigners concede that the sharp drop, revealed in official figures on Tuesday, is partly the result of a hiatus before the government's Affordable Housing Programme comes into force. But that scheme involves social tenants paying higher rents – up to 80% of market rate – to give developers an incentive to build more. At the same time, benefits will be capped, potentially forcing thousands of the poorest tenants to the fringes of expensive cities such as London. It's a muddled mix of standing back and letting the market mechanisms rip – and then floundering about desperately when it doesn't work.
When the coalition was forged last year, with a powerful narrative about a country on the brink of bankruptcy, it had a coherent plan. First, it would get to grips with the demon deficit; then it would tear away the tax and regulation stifling the private sector, and allow long-neglected sectors of the economy such as manufacturing to blossom. Vince Cable and George Osborne might have disagreed about how to tame the banks or whether workers' rights should be torn up, but both could sign up to the classic liberal agenda of getting government out of the way.
This dry economic liberalism was somewhat leavened by No 10's enthusiasm for the idea that you can use incentives – or "nudges" – to tempt firms and consumers into action. Benefits changes would nudge the borderline sick back into jobs; lower corporation tax would coax entrepreneurs to our shores; national insurance holidays for new firms would spark a hiring frenzy. But the driving philosophy was one of fiscal austerity and laissez-faire.
Even by the time of the budget in the spring, this approach was looking threadbare: the economy was tanking and George Osborne was piqued into unveiling what was grandly called a "plan for growth", including a smorgasbord of policies, some of which looked surprisingly interventionist for a Tory-led government.
Eight months and one euro-catastrophe later, the housing strategy is only the latest example of the fact that not only is the economy in a far worse state than it was a year and a half ago, but the government has run desperately short of ideas. Nick Clegg's Youth Contract, announced on Friday, sounds suspiciously like a reheated version of Labour's Future Jobs Fund, which was unceremoniously cancelled by the coalition when it came to power.
This time it will be private, not public sector employers, which will be subsidised to take on young workers; but the structure of the scheme is much the same.
And while Osborne will make much in his autumn statement of 40-plus shovel-ready infrastructure plans hastily brought forward, government capital investment is slated to fall by almost half in cash terms by the end of the parliament, and a rescheduling of projects, while helpful in boosting short-term demand, will mean a sharper cut in future years.
Don't expect to hear anything on Tuesday that will prevent the economy sliding back into recession. Like the business groups that clamoured for austerity and are now squealing just as loudly for massive infrastructure investment and tax breaks, this is a government whose guiding philosophy hasn't stood up to the real world.