Political high-fliers need to keep an eye on the gauges

Aug 13 2008 by Tony McDonough, Liverpool Daily Post

TO MY knowledge, both Labour and Liberal Democrat policy is in favour of a free market economy for the UK. So why can’t they just leave well alone?

There is a phenomenon not uncommon among rookie or inexperienced pilots.

When they fly into cloud and visibility is low, they are told to trust the instruments on board the aircraft, in particular the gauge that tells them they are flying level.

But all too often it seems the longer they fly through the cloud, the less they trust the instruments. So they make an adjustment, and then another, and then another.

Apparently, the number of such pilots who emerge from the cloud completely upside down is incredible.

Which brings me to Alistair Darling and Flo Clucas.

The Chancellor of the Exchequer is reportedly considering a plan to allow homebuyers to defer stamp duty until a later date in an attempt to kick-start the UK’s beleaguered housing market, and give a vital hand to first-time buyers.

And the deputy leader of the Liberal Democrat- controlled Liverpool City Council, Flo Clucas, wants the Government to launch a pilot scheme here offering deposit grants to people trying to buy their first home.

They want to use some of the £200m set aside for housing associations to purchase unsold homes.

In 1997, the year Labour came to power, the Treasury raked in £675m from stamp duty. The 11 years since have seen the biggest house price bubble in our history.

Accordingly, during that period, stamp duty has raised more than £30bn – £6.4bn in 2007 alone.

In October last year, the International Monetary Fund claimed house prices in the UK were overvalued by as much as 40%.

If its assessment was correct, then, despite the recent fall in prices due to the credit crunch, they could still have a long way to fall.

Lender Halifax is forecasting a fall of 9% over 2008, but some analysts now believe this could be a conservative estimate.

Yet, despite this fall, properties are still out of the reach of many first-time buyers – even if they could get a mortgage. Affordability is the key issue.

Deferring stamp duty or raising the threshold on which it is paid will make little difference if you can’t afford the price of the house in the first place.

It will also run the risk of reinflating a still over-inflated housing market and pricing first-time buyers even further out of that market.

The Treasury will, of course, lose out on stamp duty revenues at a time when it could do with every penny it could get its hands on. So every taxpayer in the land will be subsidising this nonsense.

Flo Clucas’s idea also makes little sense for precisely the same reason. Handing over taxpayers’ cash to people to use as deposits to buy homes also runs the real risk of pushing prices up again.

Her colleague, Cllr Marilyn Fielding, Liverpool’s executive member for housing, talks about solving the slowdown in the housing market.

Like the rookie pilots in the clouds, politicians cannot resist tinkering. There is no problem to solve, Cllr Fielding.

Markets go up, they come down. The UK market may carry on falling next year and maybe into 2010. But when the banks start lending again, which they will, the market will rise.

By that point, prices may well have come down to a level that would allow first-time buyers to get a foot in the door. That’s how markets work – that’s how they are supposed to work.

Politicians putting on their size nine hobnail boots and attempting to "kick- start" the housing market is the last thing we need.

tonymcdonough@dailypost.co.uk