Why I condemn this Budget to the house

During Wednesday’s Budget speech, the deputy speaker intervened repeatedly to calm braying MPs, using words such as “circus” and “pantomime” to shame them into behaving. Regular readers will know that such terms pretty much sum up my view of the Budget generally. It’s an archaic piece of theatre that tends to cause severe outbreaks of “do-somethingitis” among politicians.

This year’s Budget – which like the Autumn Statement was fiscally neutral, and therefore largely an exercise in deckchair rearrangement – has done little to change that view.

True, it was nowhere near as bad as last year’s, with its disasters over grannies, caravans and pasties. A high personal allowance set at one level for all is a credible thing. And the Budget proposed some useful things, such as putting child trust funds out of their misery, cutting tax for smaller businesses, and mobilising some more money for infrastructure funds. Abolishing stamp duty on funds will help investors out, though I fail to see why Aim shares should be exempt when fully-listed ones are not.

By far my biggest misgiving is over the two schemes that extend state backing to mortgage lending. George Osborne presented this as support for aspiration, helping hard-pressed first-time buyers get on to the housing market.

I can see the appeal, from his point of view. In a country unhealthily obsessed with home ownership, rising house prices create a feelgood factor that comes in jolly useful at election time. A combination of state help and dirt-cheap credit makes it fairly certain that, whatever pressure incomes may still be under, house prices will not have fallen appreciably by 2015, when Britain next goes to the polls.

Overvalued homes have other benefits, too. Look at the Office for Budget Responsibility’s predictions for stamp duty revenue; it expects to collect £7.7bn in 2013/14, then £8.4bn, £9.3bn and £10.5bn in 2016/17. Such increases aren’t game changing, but every little helps. The same goes for inheritance tax, the threshold for which is now frozen until 2019. And putting off the day of reckoning in the housing market will help Osborne get shot of those troublesome stakes in Royal Bank of Scotland and Lloyds. Imagine trying to privatise a high street bank at a time when repossessions are soaring.

Osborne’s boss recently invoked the spirit of Thatcher with his “there is no alternative” speech. He would do better to heed one of her other famous mantras: “you can’t buck the market”. House prices are high because there aren’t enough homes in the places they’re needed. The solution to that is to build more homes – creating gainful employment for many – not fiddle about with the mortgage market using policies soaked in moral hazard.

As the subprime experience in the US shows, encouraging people to borrow excessively to buy properties they cannot really afford is rarely a good idea in the long term. What happens if such loans go bad? Who stands where in the pecking order? Do taxpayers get paid back only once banks have got their cut?

The property and construction industries, which can barely believe their luck, will no doubt point out that the schemes are a temporary measure. They’ll argue that even though they’ve got a get-out-of-jail-free card, all loans extended will be subject to the normal checks and that they’ll be incentivised to maintain credit quality. We’ll see about that.

But the bigger issue is that this will just drive house prices, especially in the Southeast, relentlessly higher, reinforcing the apartheid in society between those who bought when prices were remotely sensible and those who stand no chance of buying until prices return to planet earth.

Osborne says he wants to rebalance the economy, but initiatives like this do the precise opposite, tilting us back towards excessive consumption financed by illusions of rising wealth. He doesn’t want to gamble with the national finances, but expects us to do so with our own. Aspiration nation? More like speculation nation.

jonathan.eley@ft.com