Being pilloried is an occupational hazard for a chancellor and George Osborne has certainly had his share of criticism, most recently for his dogged insistence that austerity is the only way forward.
But one well-known City economist, Albert Edwards, has taken his dislike of the chancellor's policies to a new level, penning an excoriating critique of Osborne's controversial Help to Buy housing scheme.
Edwards, of Société Générale, is not the first to criticise Help to Buy, which offers would-be homebuyers interest-free loans of up to 20 per cent of the cost of a newly built property (up to a value of £600,000) and requires a deposit of just 5 per cent.
The governor of the Bank of England, Sir Mervyn King, has his doubts about the scheme, unveiled by Osborne in his March budget, and the International Monetary Fund also has reservations.
Chancellor criticised
Their language was more measured than Edwards's, however. In his weekly strategy note released yesterday, he brands the man in charge of Britain's finances a "moron" and savages his house purchase plan.
“I believe it truly is a moronic policy that stands head and shoulders above most of the stupid economic policies I have seen implemented during my 30 years in this business,” Edwards says. “It ranks above some of Alan Greenspan’s very worst blunders. And when so many highly regarded commentators speak out against it, only to be totally ignored by George ‘I know better’ Osborne, he may really deserve to be called a moron.”
Edwards is a notorious bear and is known for the robust expression of his views. But his attack on Osborne raised eyebrows in the City, where criticism tends to be couched in more diplomatic language. His employer, SocGen, was swift to point out that these were not house opinions but Edwards’s own, alternative, viewpoint.
Stressing that he is not being party political, Edwards points out that if a borrower defaults on a Help to Buy loan, the British taxpayer will pick up part of the liability. But what makes him really angry, he says, is that UK house prices – and London prices particularly – have not been allowed to correct to “affordable” levels. First-time buyers need cheaper homes, not greater availability of debt to inflate prices still further. “This is madness,” he says.
"Young people today haven't got a chance of buying a house at a reasonable price, even with rock-bottom interest rates. The Nationwide Building Society data shows that the average first-time buyer in London is paying over 50 per cent of their take-home pay in mortgage payments – and that is when interest rates are close to zero."
'Indentured servitude '
What makes him even angrier, he says, is that we are burdening our children with more debt – on top of their student loans – to buy ridiculously expensive houses, which he likens to "indentured servitude of our young people".
Edwards highlights the fact that the UK, despite being at the epicentre of the global credit bust, has not experienced anything like the correction in house prices elsewhere. It is notable, he says, that in other countries in the eye of the global credit bust, such as Portugal, Ireland and the US, house prices are now unambiguously cheap.
It is unlikely the chancellor will take any more heed of Edwards than he has of Mervyn King or the IMF, or a whole host of other Help to Buy critics, who fear Osborne is simply creating a government-backed subprime mortgage sector that will push prices ever higher – until it all ends in tears.
The scheme has its fans, of course – the first-time buyers benefiting from it and the companies building the new homes.
That has fed through to the first rise in output in the UK’s construction sector since last October, with a survey yesterday showing a bounce-back in May. That is certainly an encouraging sign from a sector that has long been struggling.
But any benefit to the wider economy from Help to Buy could swiftly be wiped out if the scheme turns sour, as so many people fear it will.
Fiona Walsh writes for the Guardian in London
