Chancellor Philip Hammond is signalling a fundamental departure from predecessor George Osborne’s austerity-driven budget policies with plans to borrow £5 billion to fuel house building in the UK.
Philip Hammond, the Chancellor of the Exchequer, announced two multi-billion pound housing funds on Monday in an attempt to deal with Britain’s growing property affordability crisis.
In his first speech as Chancellor at the Conservative party’s annual conference, Hammond declared that the government will borrow around £2 billion to create a new “Accelerated Construction” scheme that will fund the building of as many as 15,000 new homes on unused public land by the end of the current parliament in 2020.
Hammond also announced a further £3 billion in borrowing to create a Home Building Fund, which will give loans to house builders to build another 25,000 homes by 2020. The fund, a joint initiative from the Treasury and Sajid Javid’s Communities department, forms part of a long-term goal to build 200,000 more houses in Britain.
The Chancellor said the borrowing was needed to increase housing affordability in Britain at a time when “fewer and fewer young people are able to afford to get their foot on the first rung of the housing ladder and buy their own home.”
“Making housing more affordable will be a vital part of building a country that works for everyone,” he told the Tory conference, adding that the new projects are “a clear demonstration of this Government’s determination to tackle this challenge using all the tools at our disposal.”
Hammond’s willingness to borrow and spend is a big departure from the economic austerity of the previous Conservative government. Former Chancellor George Osborne led the UK through an unprecedented period of spending cuts aimed at reducing the country’s budget deficit (the gap between the amount the government collects in taxes and what it spends.)
However, with global growth low and fears about the impact of Brexit on the UK economy, Hammond has joined the growing consensus that fiscal stimulus in the form of infrastructure spending is needed to boost the economy.
Hammond told the BBC prior to his speech: “As we go into a period where inevitably there will be more uncertainty in the economy, we need the space to be able to support the economy through that period. If we don’t do something, if we don’t intervene to counteract that effect, in time it would have an impact on jobs and growth.”
The new Chancellor last week also quietly dropped the government’s Help to Buy scheme, a flagship Osborne housing policy.
However, Hammond denied that his new housing projects amounted to a total abandonment of Osborne’s austerity policies, saying: “There is a distinction in my mind between investing in the things that will make Britain’s economy more efficient in the future, make transport systems work better, communications systems work better, and simply spending more on our day-to-day process of government.”
“We need to keep the lid on day-to-day spending, we need to make government more streamlined and efficient but I do think there is a case that we should look at very carefully for targeted, high-value investment in our economic infrastructure,” he added during an interview with the BBC’s political editor Laura Kuenssberg.
But Hammond reiterated during his conference speech that the Conservative government is no longer targeting a budget surplus by the end of the current parliament — one of Osborne’s key policies. He said: “The fiscal policies that George Osborne set out were the right ones for that time. But when times change, we must change with them. So we will no longer target a surplus at the end of this Parliament.”
Hammond emphasised during his conference speech that the government’s spending plans are relatively modest, mocking the economic policies of the Labour Party and leader Jeremy Corbyn.
Hammond told the audience: “Corbyn’s big idea is to spend an extra half-a-trillion pounds. That’s £7,700 for every man, woman and child in the UK. I just hope he remembers to water that magic money tree every night before he goes to bed! Now, we could speculate as to how Labour would pay for such a spending splurge, but, fortunately, we don’t have to.”