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Fears of a new housing bubble brushed aside

DANNY Alexander has brushed aside concerns the Coalition's "responsible recovery" will be based largely on consumer debt that could inflate a new ­housing bubble.

VIGILANT: George Osborne says the UK economy is undergoing a 'responsible recovery'. Picture: Rui Vieira/PA
VIGILANT: George Osborne says the UK economy is undergoing a 'responsible recovery'. Picture: Rui Vieira/PA

In a briefing after Chancellor George Osborne delivered the Autumn Statement, the Chief Secretary to the Treasury said the UK Government would remain ­vigilant but insisted figures thus far showed the recovery was balanced, and not skewed towards the housing market.

The government's ­independent forecaster, the Office for Budget Responsibility (OBR), has predicted house prices will jump 10% by 2017/18.

The Halifax yesterday reported an annual surge of 7.7% in the three months to November compared to the same period last year, the fastest rate since the financial crash. This was the 10th monthly increase in a row.

Last week, Mark Carney, the Governor of the Bank of England, sought to cool the market by announcing that from February the Government's Funding for Lending Scheme would no longer apply to household loans.

The OBR also said ­residential property transactions would rise from 931,000 last year to 1.1 million this year, 1.3 million next year and 1.4 million by 2015/16.

The Treasury will benefit from this thanks to a sharp increase in revenue from stamp duty, particularly if the Chancellor keeps the tax thresholds as they are.

Last year, some £6.9 billion flowed in from the property transaction tax. It is due to generate £8.9bn and £10.8bn next year, and by the end of the forecast period of 2018/19 the Exchequer is predicted to pull in £16.8bn.

Commenting on the latest house price figures, the Halifax's housing economist Martin Ellis said: "Low interest rates, improvements in consumer ­confidence and official schemes such as Funding for Lending and Help to Buy all appear to have boosted demand.

"However, pressures on household finances are expected to remain a constraint on the rate of growth of house prices."

But the OBR notes the strong growth in house-buying - which will leave many home-owners in the red, particularly if interest rates begin to rise - "may pose risks to the sustainability of the recovery in the medium term".

Asked if the Coalition was repeating the mistake of building a recovery on consumer debt, risking another housing bubble, Mr Alexander said: "It's not, actually. If you look at the forecast it's based on, the last few quarters of growth figures have shown balanced growth across consumption, construction, manufacturing and so on."

He noted: "If you're saying do we need to be vigilant to make sure that the recovery continues to be balanced - yes, absolutely."

The Highland MP also pointed out that the number of residential property transactions for, say, 2012/13 were "at a very low level by historical standards.

He said: "What you are seeing is a recovery in the number of transactions that have been seen more often over the last few decades. We are a very long way indeed from a housing bubble."

He pointed out that even ­according to the OBR forecasts, the level of house prices at the end of 2018/19 would still be lower than the peak before the crisis.

l North Sea oil and gas revenues in the first year of an independent Scotland would only create half the amount of money the current UK system does, new analysis claims, leaving a black hole of about £4bn for 2016/17.

If the government of an ­independent Scotland decided not to raise taxes or cut spending, "it would require higher borrowing to retain the same level of public spending," said Glasgow University's Centre for Public Policy for Regions. It calculated the funding gap based on the latest projected figures for oil receipts from the OBR.

A Scottish Government ­spokesman responded by saying Scotland could more than afford to become independent, stressing that oil revenue was a bonus.

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