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Mind the gap made worse by austerity cuts and housing bubble

DUrING a visit to London this week, it seemed that all anyone wanted to talk about was house prices and the Scottish independence vote.

The excited chatter about the housing market was probably to be expected, particularly given the spectacular, although also somewhat alarming, surge in prices in the UK capital in recent times. And it may well be music to the ears of the Conservative Party, given the degree to which this senior Coalition Government partner's push for re-election next year appears to hinge on a concerted drive to fuel the residential property market and, consequently, consumer sentiment.

An increased focus on the Scottish independence vote by people in London is probably no real surprise either, as the big day draws closer.

However, it still came as something of a surprise when a member of London Underground staff, following an inquiry about the timing of the next tube to Heathrow Terminal 5, asked with some enthusiasm and great interest about where this traveller would be putting his cross on the referendum ballot paper.

He had been doing something of a straw poll. His finding so far from his unscientific polling exercise, based on a sample of people from Scotland taking the tube, had been that those in favour of independence appeared to outnumber those against.

The key message, however, was not this result but his seeming appetite to hear the arguments, for and against.

On the face of it, there might appear to be absolutely no connection between the two hot topics of conversation in the capital. But, on further reflection, they are probably not as unrelated as you might think.

Conventional wisdom would probably be that the recent UK economic recovery, albeit fuelled by short-term and high-risk measures to stimulate the housing market ahead of the 2015 General Election, would help the Better Together campaign's case.

After all, people might be expected to focus on the headline activity figures, as opposed to the increasingly unbalanced nature of growth and the attendant hazards.

However, is there a possibility that perceptions of an inequitable geographic pattern of recovery might actually boost the fortunes of the Yes Scotland camp?

It has been an excruciatingly slow recovery for millions of people, in Scotland and elsewhere in the UK. And there is much more pain to come.

The non-partisan Institute for Fiscal Studies this week declared that only 40% of the Coalition's planned public spending cuts would be in place by the end of March. In this context, it is interesting that Chancellor George Osborne, in spite of the recovery in UK economic output in recent quarters and expectations that growth will continue at least in the short term, appears to be getting his excuses in early.

On Tuesday, in an appearance before the House of Lords' Economic Affairs Committee, Mr Osborne flagged recent signs of softening in the US economy and weakness in the eurozone as risks to the UK recovery.

This is perhaps no great surprise either. As we have waited, and waited, for UK recovery to emerge, Mr Osborne has taken none of the blame for the dampening impact of the scale and mix of his austerity programme but rather cited international factors.

Never mind that his "march of the makers" failed to materialise and that Mr Osborne and his colleagues, at pains to portray the Coalition's economic policies as oh so responsible, have resorted to inflating the UK housing market to get things going.

Millions of people outside London and south-east England, and many in these areas being hammered by the likes of the UK Government's welfare cuts, could certainly be forgiven for thinking the Coalition's economic policies are hurting, not helping.

It will be interesting to see whether the Better Together or Yes Scotland camp benefit most in coming months from the UK's economic performance, taking into account the mix and the geographic composition.

According to Halifax's highly regarded survey of the housing market, prices in Scotland in the fourth quarter of last year were down 0.8% on the preceding three months.

This meant Scottish house prices in the fourth quarter were down 0.4% on the same period of 2012. The average house price north of the Border in the final three months of 2013 was £117,045, according to Halifax.

The contrast with Greater London is truly remarkable.

Halifax has calculated that house prices in Greater London in the fourth quarter were up by 4% on the preceding three months. And that's not all. They were 15.4% higher than in the same period of 2012, with the average price surging to £310,113 in the fourth quarter of 2013.

It is important to note the London housing market is being helped by an inflow of international buyers.

However, amid continuing controversy over the Coalition Government's decision to cut the top rate of income tax from 50p to 45p, it will be interesting to see whether a perception develops that it is the high-flyers, concentrated in London and south-east England, who are benefiting most from the Coalition's policies. It will be fascinating to observe how all of this plays out in the short term as the referendum looms.

However, over the longer term, there is little doubt that the Coalition's determination to fuel the housing market could be dangerous for every part of the UK, including London.

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