Sir George spoke on Savings and Housing in the Debate on the Budget – see below
Sir George Young (North-West Hampshire) (Con): It is a pleasure to follow the right hon. Member for North Tyneside (Mr. Byers), who made a loyalist and supportive speech; indeed, if I may say so, he made a better defence of the Budget than the Chancellor did yesterday. However, as the right hon. Gentleman developed his speech he talked about an enabling Government devolving power to the individual, about taking power away from the Government and about empowering the parent and the patient, but he is much more likely to get a Government who do all that if he supports my right hon. Friend the Member for Witney (Mr. Cameron) than if he continues to support a Government led by the Prime Minister, a man who blocked foundation trusts, for example—an initiative of the right hon. Member for Darlington (Mr. Milburn). That was a very modest move towards independence in the public sector, but it was blocked by the man who is now Prime Minister.
Mr. Byers: There is a problem that all political parties share. I have looked very carefully at the Conservative party’s proposals, and under them the power would go to another group of vested interests: the school head teachers. The Conservatives’ education policies would not empower parents. The situation is the same in respect of patients. The challenge for hon. Members from all parties is to have the courage to devolve power not to another agency acting on our behalf, but to the individual, such as the patient, parent or whoever it might be. We should be empowering them, but the policies of the right hon. Gentleman’s party simply do not do that.
Sir George Young: I am familiar with what I think is called double-devolution, whereby one devolves power not just to the next layer of government, but over its head. It remains my strong view that a Government led by my right hon. Friend the Member for Witney is much more likely to deliver power to the patient and to the parent than a Government who continue to be led by the Prime Minister. My point is made by the fact that the right hon. Member for North Tyneside went on to launch an attack on the tax credit system—a system that symbolises the political philosophy of the Prime Minister: big government. If the right hon. Gentleman wants to reform the tax credit system, he is again much more likely to get that from the Conservatives than from his hon. and right hon. Friends. However, let me develop one or two other points, if I may, having listened with interest to the right hon. Gentleman’s speech.
This was an unusual Budget speech, in that we were not told by the Chancellor what his Budget judgment was. We had no idea at the end of the speech whether he was putting money into the economy or taking it out. He did not tell us the cost of postponing the fuel duty increase or of the increase in the winter fuel allowance. We were not told whether the vehicle excise duty changes were revenue neutral or would raise money. We were not told how much the alcohol and tobacco duty increases would raise. So yesterday, we had an hour-long journey with no signposts or milestones. It was only at the end that we discovered where we were. If this Chancellor delivers another
Budget, I hope that he will revert to the practice of giving the House the figures as he goes along. I do not think that I have ever said this of a speech before, but some statistics would have made it more interesting.
We have heard a lot about the imbalance in the public finances and the Government’s failure to build up a reserve for a rainy day—a point made by my hon. Friend the Member for Sevenoaks (Mr. Fallon). The Government have less money than they thought, but they have an extra bank in which to put it. This might have mattered a lot less, had not exactly the same imbalance been happening in the nation’s private finances. I want here to talk briefly about two issues, neither of which has featured much in our debate so far, the first of which is savings.
The nation’s savings ratio has plummeted—from 9.5 per cent. in 1997 to 3.4 per cent. in the third quarter of last year. The case that I make against this Budget is that this sustained decline is serious and bad news for the British economy, and nothing in the Budget begins to addresses it. If one looks at the Government’s five long-term goals in the Budget press notice, one sees no mention at all of savings. If one looks at the document published yesterday, entitled “The UK economy: analysis of long-term performance and strategic challenges”, one sees that the issue is totally dismissed on page 21. It states:
“Over the past decade, macro-economic stability and low interest rates have given households the confidence to borrow and invest.”
That is Government-speak for “people have stopped saving”. There is also a graph showing that household financial liabilities have almost doubled since 1997. The section on the household sector balance sheet does not mention the collapse in the savings ratio.
It is not until we get to page 64 of Budget 2008 that we come to a section called “Promoting saving, financial capability and inclusion.” However, what is there is frankly derisory and has no chance of reversing the drop in the savings ratio. There are three items under that heading, the first of which is the saving gateway. I welcome the saving gateway—I think it was first announced in 2002; it is not going to come in until 2010—but it is unlikely to generate large volumes of savings because it is targeted, on purpose, at people on benefits and tax credits. These are the very people who have been hit by the Budget’s other measures and who will be least able to save, so that is not going to take the trick. I will read out the second measure, so that the House can judge what impact this will have on the savings ratio. It states that
“the Government announces that, from April 2009, the requirement for providers to receive the CTF”—
the child trust fund—
“voucher from parents before opening an account will become voluntary rather than mandatory.”
What is that going to do to the savings ratio?
The final item under this heading is a small increase in the individual savings account allowance, announced some time ago, which fails to keep pace with inflation. Those three items are a wholly inadequate response to a collapse in the personal savings ratio. Although the Government at least recognise the dangers of Government overborrowing, they do not recognise the dangers of the personal sector overborrowing and putting insufficient savings to one side. If they do not want to go on increasing direct taxes, they could, and should, encourage saving. In particular, action should have been taken to freshen up the product range issued by National Savings and Investments—the Government’s savings wing—which is beginning to look stale.
The Government have only about 7 per cent. of retail savings. Given that people are cautious about investing in the stock market, the buy-to-let market is looking risky and there has been a loss of confidence in many traditional products such as endowment policies, they have a real opportunity to help balance their books and help people to save by launching a new range of National Savings and Investments products. I am thinking of something to whet the appetite, such as the launch of premium bonds 50 years ago or the launch of personal equity plans and tax-exempt special savings accounts 20 years ago. I hope that next year’s Budget will contain a proper saver’s package to put that particular deficiency right.
Ms Keeble: Does the right hon. Gentleman agree that one priority product National Savings and Investments might usefully examine is child trust funds, which it does not provide but is ideally placed so to do.
Sir George Young: I welcome the child trust funds, but the sums involved are relatively small, they build up over a period of time and they will not get us back to the 9 per cent figure that I mentioned—a statistic that has fallen to about 3.7 per cent. A much more imaginative approach is needed to whet the public appetite for savings, over and above the child trust funds.
The second subject I want to touch on briefly is housing. At yesterday’s Prime Minister’s questions, the Prime Minister mentioned the target of building 3 million new homes by 2020. That was an ambitious target when it was announced, and in the light of subsequent events, I am worried that neither it nor, within it, the target of 1 million affordable homes may be achieved.
A fundamental change in the funding of social housing has taken place over the past 20 years. Traditionally, the Government gave grants to housing associations or borrowing powers to local authorities, and they built social housing. The social housing market was insulated against the broader housing market. Nowadays, that has all changed and social housing is a by-product of market housing. Some 48 per cent. of the Housing Corporation’s national affordable housing programme is being delivered on section 106 sites. Typically on such sites a private developer is building market homes, 25 or 30 per cent. of which must be affordable. That form of funding has many advantages: developments are mixed rather than polarised, and the cost of providing social housing falls in effect on the land owner, who gets slightly less of a windfall gain, rather than on the taxpayer.
Far from being insulated against the wider housing market, social housing is now, crucially, dependent on it. My concern is that the softening of the housing market will mean that both the 3 million figure and the social housing target will not be hit. If one examines the annual reports and the share prices of the country’s house builders, and the comments of the Council of Mortgage Lenders, one finds that the outlook for housing is not good.
The Government could address two particular problems. One is in the Planning Bill that is going through the House, which will introduce the community infrastructure levy in place of the planning gain supplement. As the housing market begins to turn down, the community infrastructure levy will squeeze out the social housing that would have been provided under section 106, because that levy will take priority over affordable housing. That will result in an overall reduction in the number of affordable homes built and will threaten the delivery of mixed tenure developments.
The second problem, which should concern the Treasury, is the unresolved problem of the classification of housing association debt. The Government have been warned that the Housing and Regeneration Bill, which is going through the House, will add £47 billion to the public debt by redefining housing association borrowing. That would nationalise housing associations and lead to that sum being added to the public borrowing requirement. Not only would all that borrowing be added to the public debt, but housing associations would not be able to borrow in the future, blowing a hole in the plans to build 1 million social homes. The Government could address that problem in the Housing and Regeneration Bill and thus avoid it.
I turn to the wider housing market. The number of new home buyers in January was down to 50,300, which is a third down on the figure a year ago and is the lowest figure since 2002. First-time buyers face either higher interest rates or having to provide higher deposits. The average rate for a two-year fix with a 5 per cent. deposit rose 0.3 per cent. last month, although base rates fell. With the changes going on in the mortgage market, costs are likely to rise whatever happens to base rates. Interest and capital repayments are now at their highest level for some 20 years.
There was nothing in the Budget for ordinary first-time buyers. The bands for stamp duty remained unchanged and 61 per cent. of first-time buyers will pay it. While some changes were announced, only 4,000 buyers have been helped on to the property ladder since Open Market HomeBuy was launched. Having quickly read the housing finance review, I can see nothing that will change that position in the short term. Just one sentence shows that it is a very cautious document:
“As financial markets develop, a variety of innovative products may come on to the market that could help households access the housing market...However, these products usually involve an extra degree of complexity and will not be suitable for everyone.”
So my second and final suggestion for the Government is that they may need up their sleeve a package of measures to restore confidence in the housing market if the future turns out to be less rosy than the Chancellor currently believes.