Help to Buy: Odd Priorities
As the Government is moving to bring forward the widely derided Help to Buy Scheme*, the latest Money & Credit data from the Bank of England demonstrate very clearly how misguided this plan actually is.
Consider the following numbers:
- Over the last 12 months lending to private nonfinancial firms has fallen by 2.1%.
- Lending to manufacturers has fallen by 3.9%.
- Lending to construction firms has fallen by 6.7%.
- Lending to SMEs has fallen by 3.2%.
- Mortgage lending has risen by 0.6%.
So, whilst lending for house purchases is on the rise, lending to ‘real economy’ firms continues to fall. And yet the government’s widely signalled [priority is a further boost to mortgage lending.
No one surely doubts, even the most sceptical of ‘industrial policy’ sceptics, that the government has a large role to play in signalling intentions to firms and the wider economy. What kind of signal does it send if the Government is prepared to put only £4bn into the new British Business Bank but to guarantee £130bn of residential mortgages?
Policymakers have argued for the need to support important asset markets, such as housing, with the intent of increasing consumer wealth, consumer demand, and real economic activity… Such intervention may very well increase consumer wealth and consumer demand; however, if the banks are interested in reaping the returns in these supported markets at the expense of commercial lending, firms may be unable to increase investment and real activity in response to that demand.
All the talk of ‘rebalancing’ and export and investment-led growth now feels a like it was a ery long time ago.
*A scheme with a very misleading name – if anything it will make it harder to buy by pushing up prices.