Wednesday, 11 December 2013

Something HAS to change

This government, particularly that smug git Gideon Oliver Osborne (that's his name - he added 'George' himself), are very satisfied with themselves. What they've managed to do is shrink the state and cripple the poor and vulnerable enough to reduce the budget deficit a bit* and we even have a bit of growth.

*For anyone who doesn't quite understand these terms yet - and you're in powerful company, because the Tories regularly get it wrong too - the 'budget deficit' is basically the difference between money coming in in taxes and money going out to pay for public services, benefits, pensions, handouts to people like Richard Branson, MPs expenses etc. A 'structural deficit' is a term sometimes used when an economy has been running at a deficit for some time. Deficits can be re-balanced either by recouping more taxes (so closing tax loopholes, or if there were more people in work paying income tax,that would help) or by making cuts. The 'national debt' is the amount of debt the country is in. That hasn't been falling, despite the cuts.

The growth, of course, is based on more personal debt, mostly as a consequence of buying homes. This had to happen eventually: people have been buying far fewer houses in the last 3 or 4 years so it was only a matter of time before people started to buy again. The 'help to buy' scheme has, inevitably, driven prices up because it enables people to get 95% mortgages again, meaning there are more people in the market and very few new homes being built.

So with house prices now back on their pre-recession trajectory, are we in a better place? No, absolutely not. This current flurry of housing market activity will not last unless the economy begins to re-balance and this current government's policies will not help that.

Already there are people in some areas earning good salaries who can't afford a modest home and elsewhere people with average and above average incomes are unable to buy a house that less than ten years ago would have been well within their means. Salaries, which have fallen dramatically in real terms* since the crash, are still rising lower than inflation and significantly more slowly than property prices. So this growth that the government are milking will flat-line again in no time, unless salaries start to rise. But the reason salaries are not rising is not going to change any time soon.

*'Real terms' basically means 'taking into account inflation' and is only used by politicians if it suits their point.

Capitalism works when those at the lower end of the economic scale can afford to buy luxury good. The way that capitalism has evolved in most countries, particularly in the UK and US is not about those with money being liberal with it - unless of course that money is someone else's. Company chairmen/women do not satisfy shareholders by paying staff good salaries and in a time of austerity, those employers who value, reward and share profits with their staff have to be more cautious. On top of this, public sector organisations are suffering - or are at risk of - huge cuts and so they are also having to change pay structures.

So with no one driving salaries up for the majority of workers, who on earth is going to be able to afford to buy homes? At present, a lot of properties in certain areas - particularly London - are being bought by overseas investors who then rent them out. But as the sale prices increase, the rents will rise and eventually, potential tenants and some of these overseas investors will be priced out too.

I can't work out what the Tories' plan is. Either they know that their policies are destined to fail the economy but are using this opportunity in government to rip chunks off the state and feed their wealthy friends and donors with nice public services at bargain prices. Or they are actually completely inept.

I'm not sure which is more worrying.

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