Philip Hammond delivered yesterday’s budget in the context of the worst decade for real wage growth in living memory, and at time when households are borrowing at near-record levels just to make ends meet. As always, the Chancellor justified his plans by pointing to the government’s progress towards eliminating the budget deficit. But in doing so, he risks ignoring the other deficit – in household budgets between stagnant incomes and the spiraling cost of living.
Low growth and stagnant productivity mean that most people haven’t had a pay rise since before the financial crash. But during the same period, housing costs have risen dramatically, with the average house price rising by a third since 2010, and rents by over 15%. Quantitative easing has pushed up prices, as lower bond yields have encouraged investors to turn to property in search of a higher return. People have been forced to spend more and more of their incomes on rents and mortgages. And with the price of essentials also going up due to inflation, for many households borrowing has become the only option.
For those struggling to make ends meet, the latest forecasts from the Office for Budget Responsibility don’t offer much comfort. Real wages are expected to remain below their pre-crisis levels well into the next decade, rising by an anemic 0.6% over the next five years, which, according to the Resolution Foundation, amounts to the worst squeeze on living standards since records began. The OBR also revised down its estimate of the amount of money that will be spent on housebuilding, suggesting that house prices will remain unaffordable.
Of the announcements made yesterday, it’s those on housing that have made the headlines. The Chancellor’s announcement of an extra £2.7bn for the housing infrastructure fund will mean local authorities get additional cash to provide infrastructure for new housing projects. If this can deliver the tens of thousands of new homes the government hopes, it will go some way to dampen the upward pressure on prices. But given that extent to which housing costs have outpaced wage growth, its effect on housing affordability is likely to be inadequate, especially for existing stock.
Philip Hammond also announced the abolition of stamp duty for first-time buyers. While this may assist some onto the property ladder, the OBR also confirms that it will increase the value of existing homes. This represents yet another giveaway to the asset-rich which will serve to push housing costs and rents even further out of reach.
We should judge yesterday’s budget on what it does to relieve the pressure on households struggling to make ends meet. On those terms, the Chancellor hasn’t done enough. The scale of the crises we face in terms of private debt and housing demand much bolder ideas to fix the structural issues at the heart of our economy.