With less than a week to go until the autumn Budget, speculation is building about what “radical” plan the chancellor will rustle up in order to convince Generation Rent not to vote for Jeremy Corbyn.
Well, here’s my prediction. There is bound to be an almighty cock-up.
I mean, what could possibly go wrong? Philip Hammond has less room for fiscal manoeuvre than the rabbit we are expecting him to pull out of his threadbare hat.
Can he pull off the conjuring trick of raising taxes to fund giveaways without enraging rich Tory voters, or getting sawn in half by members of his own party?
The odds do not look good.
What the chancellor needs is a piece of feel-good legerdemain that will fool young people into believing that the dream of owning their own property could one day become a reality.
Strutt & Parker, a stuffy Mayfair-based firm of estate agents, has provided a well-timed example of how not to do this by telling millennials to stop buying sandwiches at Pret A Manger in order to finance the £90,000+ cost of the average property deposit in London.
OK, the blog post and subsequent Evening Standard article were slightly more nuanced — but the avocado well and truly hit the fan as enraged millennials vented on social media.
Giving up sandwiches, coffees and takeaways for five years could save the average millennial couple tens of thousands of pounds, according to the estate agents’ shonky looking calculations.
Vice journalist Joel Golby’s utterly brilliant online takedown pointed out that these “savings” don’t factor in the cost of making your own lunch. Nor “the emotional labour of having to send a passive-aggressive message to the house WhatsApp group asking where 60 per cent of your Cathedral City went. You don’t get that with a Pret baguette”.
If young couples abstaining from flat whites and sourdough pizza also ditched holidays, gym membership and nights out for five years, they could allegedly save £63,000. This wrongly assumes they have money to burn in the first place.
Assuming your relationship survives having no fun whatsoever for five years, the Bank of Mum and Dad would still need to cough up nearly £30,000 to get you on the ladder in London.
In the words of one commenter who said he paid £500 per month to live in a sub-let living room: “If I gave up drinking, I’m not sure I could make my life much more miserable than it already is.”
We are odds-on for housing-related Budget promises next Wednesday, but even if the chancellor cuts stamp duty, extends Help to Buy, promises to build more homes and hastens the ban on letting agents’ fees, how much lasting impact will it have?
Help to Buy should be renamed “ help the housebuilders”.
The policy was first launched in March 2013 Budget. Back then, if you had the foresight to buy £25,000 worth of shares in Persimmon — the UK’s second-largest housebuilder — you would now be sitting on that £90,000 deposit according to Hargreaves Lansdown, which calculates total returns of 254 per cent over this period (other builders are not far behind).
At best, this policy is a distraction. Ten years of monetary stimulus and ultra-low interest rates have sent our personal finances down an Alice in Wonderland-style rabbit hole.
Those in the Southeast who borrowed to buy property before 2008 have enjoyed the magical combination of soaring house prices and cheap mortgage debt.
Even if today’s first-time buyers can scrape together a deposit, they now face the reverse situation — interest rates are rising, and house prices are faltering.
In any case, the mortgage debt they’d be saddled with would force them to subsist on miserable packed lunches for years. And I haven’t even mentioned how much young people also need to save into their pensions!
The same forces of market distortion means that older workers with a final salary pension worth £30,000 a year can currently expect to receive a transfer valuation of nearly £1m if they cash it in.
Meanwhile, workers in less-generous defined contribution schemes currently need a savings pot of £1m to buy a £30,000 annuity.
Those of us diligently saving away will no doubt be worried that the chancellor will tinker with pensions tax relief.
A flat rate of pensions tax relief would be a much fairer system. Most people don’t understand pensions tax relief, and are blind to the current inequalities. However, those who do understand it are the ones currently benefiting from it — so any changes would be a high-stakes gamble.
Rewarding those who are “just about managing” with jam tomorrow in the form of greater pensions tax relief is of little use if they can’t afford to save for retirement.
This is particularly pertinent for rising numbers of self-employed workers, who have missed out on auto enrolment.
At his last outing, Mr Hammond’s attempt to boost the tax take by reforming national insurance was reversed after a nasty collision with White Van Man. Current talk of VAT reforms— which could reduce the current £85,000 threshold — carry a similar risk.
Those with property, pensions and buy-to-lets will have prospered over the past decade. Yet attempting to increase taxes on these assets would be a bold move for a Tory chancellor.
Whichever sandwich he stops buying to make the sums add up, this Budget will be no picnic.
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