Only builders will profit from Cameron's sub-prime homes

Simon Jenkins, The Guardian, 23/11/2011

After the SS British Economy hit an iceberg three years ago, survivors were hauled from the freezing sea aboard the good ship Cameron. They assumed he'd be a more reliable helmsman. So what should they make of their new captain deciding to hurl his vessel at full speed towards the self-same iceberg?
David Cameron announced on Monday that he wants to "revive people's hopes and dreams of homeownership". He intends to use up to £650m of public money to reflate what is by definition the sub-prime end of the mortgage market. Public money will this time bail out not reckless bank mortgage lending, but reckless sales to individuals by private housebuilders. It is called kickstart, which is coalition speak for bailout.

Magic gold dust is the stock in trade of the politics of housing. Cameron, like all leaders exhilarating in spending public money, accords the owning of a home (cosy word for house) the status his forebears gave the church. He speaks spiritually of "that magic moment when you get the key and walk into your own flat". It is a dream, he says, "which should be available for everyone, not just the better off". His government wants to meet that hope and realise that dream.

With ministers said to be panicking about growth, every lobby in the country is rushing to town waving bottles of snake oil. Few are as powerful or persuasive as the housebuilders, sharing with bankers a responsibility for the world's current woes. The Guardian on Monday listed six almost identical housing initiatives in recent years. This kickstart is eerily similar to Labour's explicit Kickstart Housing Delivery plan of 2009, with the same subsidies for undeveloped sites and the same £400m incentives package. On each occasion the lobbyists come away with money in their pockets – but with the housing market unmoved. The market tracks not Whitehall initiative but the level of demand in the economy, and this tracking is as constant as government's belief in its power to break it.

On Monday the eager-beaver housing minister, Grant Shapps, indulged in the usual mission creep. "It is not a multimillion-pound expense," he said, which is what it is. The policy is to be "industry-led", with housebuilders "buying into the scheme". This is no wonder when they wrote the rules to enable them to profit risk-free. It is a lobbyist's charter.

There is some new help for renovating existing and derelict properties and some welcome land disposals, but no sign of an end to tax discrimination against repairs and conversions, where big gains in housing capacity are to be found. There is just an incantation of the developers' slogan that 230,000 homes are "needed nationwide", as if a home were a unit in a Leninist housing pool, rather than a flexible concept in a market responding to demand and supply.

There is no shortage of houses in Britain, indeed there is a raw surplus. Many are just too expensive for those who want to live in them. This is hardly new. Every chart of housebuilding and prices suggests that both will start turning up soon, along with mortgage availability, irrespective of government subsidy. The one thing that will send prices into a speculative spiral is a reckless return to Thatcher-style mortgage subsidies and Blair-style sub-prime lending.

The proper use of public money on housing is on the very poor. Here the policy is mystifying. Shapps asserts a hitherto unknown "right" of social tenants to buy the houses they rent. He is offering a 50% discount on the estimated purchase price, thus giving away half the value of the public housing stock, regardless of whether its not-for-profit owners agree. So much for localism and the "big society". This will be exacerbated by a little noticed concession to the housebuilders, releasing them from past promises to supply social housing on already permitted sites. This astonishing capitulation makes a mockery of planning localism.

Social housing remains hopelessly ill-defined in Britain, where 60,000 of its beneficiaries reportedly have second homes and hundreds of thousands more are well-off. Shapps even asserts a social right to a subsidised house near where one's parents live. When the Victorian social reformer, Octavia Hill, launched "three percent philanthropy" to aid the urban poor, she too was aiming away from real need. As Gareth Stedman-Jones wrote in Outcast London, Hill was helping not the truly desperate but a politically emergent class of "deserving poor". The same applied to municipal housing. Only after the second world war was access to a subsidised house loaded in favour of real need.

Under Margaret Thatcher housing subsidy wheeled upmarket, to promote homeownership. Tax relief was explicitly deployed as a means of sucking wage earners into homeownership (and Tory voting). The memoirs of Tory chancellors Lord Howe and Lord Lawson blaze with arguments with Thatcher on this. To her, subsidies were not to relieve housing distress but to aid those heroes of stability and growth, the deserving poor and middling rich. Housing politics has been skewed upmarket ever since.

Today's constant reference to the plight of young people "struggling to get on the housing ladder" reflects the reckless politics of the sub-prime crisis. It humiliated renting, inflated house prices, impoverished young people and ruined thousands in a frenzy of the "homeownership" bubble. Home owning peaked at 70% of Britons, against between 40% and 55% in Germany, France and the Netherlands. It leached savings from the economy and made British workers starkly immobile, compared with Germans or Japanese.

Much could be done to raise the status and availability of renting. The balance of security of tenure has tilted too far from tenant to landlord. Tilting it back could be balanced by fiscal incentives for converting and subletting. The latest kickstart echoes the cliches and slogans of the 1990s and 2000s, inducing hundreds of thousands on both sides of the Atlantic to sink their savings in to properties they could not afford.

The message is toxic. Even if the government is underpinning the housebuilders' side of the bargain, and the
money would be better spent on housing the poor, people should not be encouraged to borrow beyond their means in another gamble on rising prices. Sub-prime was an error more grotesque in its consequence than any could have foreseen. No responsible government should head that way again.

The billionaire Virgin boss Richard Branson is no radical, he's no entrepreneur, he's just a plain old-fashioned carpetbagger

Last week, you, me and every other taxpayer in Britain each handed £13 to the billionaire Richard Branson. Not that we were told about this national whip-round. Instead, George Osborne claimed the heavily discounted sale of Northern Rock to the Virgin boss and a few of his chums represented "value for money". That's a funny way to describe a deal where taxpayers come out at least £400m poorer, but at least we now have an answer to that perennial pre-Christmas question of what to give the man who has everything.




And what do Team Branson plan to do with the Rock? Listen to Virgin Money chairman David Clementi's talk of creating "a significant banking competitor" and you'd have come away with wholesome impressions of commitment and investment. If you'd leafed through the FT this weekend, though, you'd have read about how the Virgin consortium will raid the business of its own cash to pay for the purchase – and then, as the chief investor, American financier Wilbur Ross, puts it: "We would hope to sell out a few years down the road." In other words, the business plan is to buy it cheap, strip it of assets – then flog it dear.



Hang on, you're probably thinking. Is this the same Branson who had those record shops? Who always pops up in the papers dressed as a woman or riding in a hot air balloon? Sir Richard of the Beard and the Overbite?



And the answer is: yes. Sure, Branson would like you to believe that he's the greatest iconoclast since John Calvin, leading a Reformation of established business. And if you won't buy that, he'll settle for being cast as a public-school Don Quixote for ever tilting at insiders and interest groups. Yes, the entrepreneur screws up – as with cars, cola, cosmetics and all those other discarded Virgins – but he takes risks.



The more prosaic truth is that the Virgin boss keeps himself in homes in Holland Park and Necker Island by taking taxpayer subsidies and operating heavily protected businesses. After all, you don't get much safer than a small mortgage lender that's had all its rubbish assets taken off it by the Treasury, in a market where the big banks are keeping their eyes down and their fingers crossed.



Think about the great Branson triumphs and you'll see what I mean. Virgin Rail? A monopoly on the West Coast main line, complete with initial subsidies worth hundreds of millions. Virgin Radio and Virgin Mobile? Both granted government licences to operate in a heavily restricted market. Virgin Airlines? The beneficiary of regulators' decision to strip British Airways of landing slots between London and New York and award them to the number two player. Again, a closed market where Branson has tried to keep the door shut tight against further competition.



Despite all the awards and the cosy relationships with whoever's in Downing Street, the Virgin boss neither makes anything, nor changes anything. He's no radical. The Northern Rock purchase is typical of his style: he fronts up a deal where the real money tends to come from someone else (in this case, an American and an Abu Dhabi investment firm), slaps the Virgin name everywhere and then cashes out as soon as possible. Branson isn't an entrepreneur; he's a carpetbagger.



Early in Tom Bower's splendid biography of Branson, there is a scene in which he is giving a Millennium Lecture at Oxford University in November 1999. The "lighthouse for enterprise" is asked what his great hope is for the new century, and a hush falls over the audience. What might he say? Were this Bill Gates, a picture would be painted of a software revolution. The head of Nissan might summon up a vision of Africans and Asians gaily pootling about in cheap new hatchbacks. What does the bearded visionary have in mind? "To run the national lottery."



Of course he does: a government-gifted licence to get his brand name plastered everywhere – the sort of thing Branson is always after.



But here's the thing: in his desire for sheltered money-makers, the Virgin boss differs from the rest of British business only in his desire for publicity. Look at our household names: take out retail, banks and commodities and the things you're left with bear names such as Wessex Water or Centrica or Arriva. In other words, they do things the public sector used to do – pump water or pipe gas or lay on public transport. Alternatively, they're outfits such as Serco, or Capita and they're bidding for contracts from the government; or they're engineers bidding for PFI projects. Now look at the big names in America or Germany: there are firms such as Google or Siemens.



Over here much of the private sector isn't adding anything or innovating – indeed, it's tricky to do that when you're running an administrative office or supplying water. They're simply taking contracts and cutting staffing costs.



This is a picture of lazy British business, either seeking business from the state or the protection of sheltered industries. And yet if you listen to the Conservatives, the problem with the economy is that the labour markets are too heavily regulated. No 10 lets it be known that it's taking seriously ideas to scrap laws around unfair dismissal, so that employees can be sacked without explanation.



The implication of all this is that Cameron and Osborne think the workers are to blame for the malaise of the British economy. Look at the Northern Rock deal, however, or flick through the business pages, and the opposite appears to be the case: it's business that needs to be prodded into working harder.