The U.K.’s “Mr. Austerity” Doubles Down
Osborne and his colleagues would like you to believe that it was the confidence fairy at work: that, after three years of austerity, the British public decided that the government’s policies were working and so, feeling more optimistic about the future, decided to go out and spend more. A more persuasive story is that Osborne, despite his ongoing commitment to austerity, managed to engineer a stimulus in the housing market, which got house prices—a key driving force in the modern British economy—rising again. In his 2013 budget, Osborne launched a “Help to Buy” scheme, which enabled home buyers to borrow up to ninety-five per cent of the cost of a home, with the government guaranteeing their mortgages. In a country that has long been plagued by boom-and-bust cycles in real estate, this was a cynical move, but it was also a clever one. Because the government’s financial commitment came in the form of loan guarantees, it didn’t have much impact on the budget deficit, and so the Iron Chancellor could claim that he hadn’t budged. And because mortgage rates were so low—less than two per cent, in some cases—the policy had a good chance of working. It did. By the end of last year, house prices were rising all across the country, and by this summer it was like old times, with the rate of inflation for houses hitting 12.4 per cent.