George Osborne is using Britons as economic cannon fodder

This is a dangerous time to push the property market. The chancellor won't invest – yet he's happy for us to

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• • Aditya Chakrabortty
  • The Guardian, Monday 25 March 2013 20.01 GMT

Britons are already up to their eyes in debt … George Osborne. Photograph: Stefan Wermuth/Reuters

Massive public debt: bad. Massive private debt: excellent. Gordon Brown's bubble: economic ruin. George Osborne's potential bubble: economic salvation. Benefits for non-home-owners: unaffordable. Cash bungs for property buyers: essential.

Recite this catechism often and loudly, and over time you too will appreciate the wisdom of the coalition's economic policy.

The consensus over Wednesday's budget was that it was a do-nothing affair, a feeble huddle of small measures washed away in a sea of red ink and broken targets. In terms of central government giving and taking – the traditional stuff of Red Books – it was as small beer as that penny off a pint indicates. But stack up the announcements that don't touch the public balance sheets and the chancellor was strikingly radical.

Because it turns out that Osborne does believe in that apparent epitome of economic loucheness, borrowing to invest. He just wants you and me to do it, using our own wee savings. Sure, No 11 will give us a leg-up, by guaranteeing over £100bn of our loans and sloshing easy money through the banks. But, despite all Vince Cable's exhortations, the chancellor will not do the obvious and less risky thing of public investment.

Have a look at the supplementary document on Help to Buy that the Treasury issued alongside the budget. Billed as a "technical paper", it's not half as innocuous as that sounds. Rather, it's one of the biggest state interventions in the mortgage market in Britain's postwar history.

Help to Buy builds on (no pun intended) existing, largely failed, schemes to help first-time buyers purchase a newly built home. This is in itself problematic, since it's really a bung for the likes of Taylor Wimpey and Barratts and all the other purveyors of identikit housing estates. But warning signs really start flashing with Osborne's proposal to offer banks government guarantees on £130bn of mortgages where the borrowers have low deposits. This isn't just for new homes, it's for any house worth up to £600,000 and it's available not just to first-time buyers, but to people moving up the property ladder.

When the scheme was announced, Ed Miliband's troops successfully got ministers squirming over whether it would be offered to those buying a second home. But that is to miss the bigger point. The first is the risk to public finances: if the property market turns seriously sour, the government stands to make a loss. But the second is the way that ordinary Britons are now being used as economic cannon fodder. Osborne may say, as he did last week, that "you can't cure a crisis caused by debt with more debt". But he doesn't really mean that, because he's just about to launch a policy aimed to get Britain out of its depression – and it relies on households sinking into the red to take part in a property Ponzi scheme.

As I say, the policy is new – but the strategy it's part of has been knocking around for about three decades. The postwar British state used to protect citizens against market failure through the welfare state, through government pump-priming of the economy and through rising wages. But after Thatcher, it was increasingly left to Britons to protect themselves by taking on shares in privatised utilities, by buying up council houses – and by taking on debt, with all the attendant risks. This is what the political economist Colin Crouch has dubbed "privatised Keynesianism": debt is used to reflate the economy, but it is taken on not by the public sector but by individuals, couples, families.

Privatised Keynesianism sounds a bit joyless, but the political classes found something to give it extra zap. Call it housing-market heroin: the special high the Brits get when property prices are really taking off and Sarah Beeny is on the telly explaining how we can all cash in. Thatcher was the first PM to really push housing-market heroin with her right-to-buy programme and her Lawson boom but, with their love of aspiration and Home Ownership Task Force, Blair and Brown knew its potency, too.

Osborne's strategy combines both privatised Keynesianism and housing-market heroin. Yet this is a particularly dangerous time for him to push either. For a start, Britons are already up to their eyes in debt and, outside London, the housing market is flat on its back.

The estate agency Knight Frank estimates that it will take until at least 2019 before property prices are back to the levels of 2007. Add to that the Office for Budget Responsibility's forecast that real wages in Britain in 2015 will be 9% lower than they were in 2010. So the housing market looks less of a sure thing than at any time since 1994, and Britons' personal finances are a wreck. Osborne may think he's found an update of right-to-buy, but it looks more like right-to-be-repossessed.

Still, back to that coalition catechism. Government borrowing to build council housing: forbidden. Individual borrowing to buy an overpriced two-bed flat: encouraged. The way to make the economy stronger is to make it more fragile. And we're all in it together, except really, when it comes to managing your way through this depression, you're on your own.

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.