The Bank of England announces plans to expand a lending scheme designed to help businesses and households.
Read the original: Small business lending plan extended
George Osborne’s flagship scheme to boost the housing market may not help first-time buyers and could cost the Treasury large sums, MPs have warned.
Read more: VIDEO: MPs voice mortgage scheme concerns
Forecasters Item Club say chancellor’s Help to Buy scheme will get people moving but broader economic outlook still gloomy
The housing market will finally return to life this year with more than a million people expected to move home – the highest number since the financial crisis struck.
The Ernst & Young Item Club, which uses the Treasury’s economic models, predicted that housing transactions this year will rise by 7.5% to 1m. In its spring forecast the respected economic forecaster said the chancellor’s plan to use £12bn of taxpayer funds to underwrite up to £130bn of mortgages will push home moves up a further 7.8% next year to 1.08m.
House moves are also expected to be encouraged by falling mortgage costs due to the Bank of England’s Funding for Lending scheme.
Property prices are not expected to rise this year, but are predicted to increase 2.1% in 2014 and 5% in 2015.
Peter Spencer, chief economic adviser to the Item Club, said: “With export markets continuing to disappoint, the chancellor has focused his firepower on the home front. And the timing couldn’t have been better. Real incomes are already starting to recover, mortgages are becoming more readily available, and homes are more affordable as the house price to earnings ratio continues to fall.
“Although it’s not a long-term strategy, stimulating the housing market and the high street will keep GDP growth positive. Unbalanced growth is better than no growth.”
Spencer said the chancellor’s Help to Buy scheme had the potential to get people moving again, and dismissed claims that it would just put up prices rather than increase supply and make it even more difficult for first-time buyers to get on the ladder.
“We expect [the scheme] to boost the number of housing transactions, particularly at the lower end of the market where the deposit and low equity have been a major constraint,” he said.
However, the Item Club had a gloomier view of the prospects for the economy as a whole, predicting that the UK will have to wait until 2015 before exports start contributing to growth.
It expects GDP to expand by just 0.6% this year and said that with the rebalancing of the economy on hold, the UK will again have to rely on the consumer.
“We should start to feel slightly better off this year, which will help to loosen the purse strings. Consumer spending added 0.7 percentage points to GDP in 2012 and the chancellor’s budget will help ensure the tills continue to ring for some time yet,” Spencer said.
Consumer spending is set to increase by 1.2% this year and 1.9% in 2014, but the 2.2% growth predicted in the following two years is still well down on the 3.7% a year it averaged in the decade prior to the financial crisis.
Spencer added: “Consumers have been burnt by the experience of the recession and are much more cautious with their finances. Households are likely to continue paying down debt rather than racking up huge credit card bills.”
The bitter March weather dragged high-street footfall down 5.2% last month, according to the British Retail Consortium. It was the weakest month since April 2012.
Helen Dickinson, the consortium’s director general, said: “The prolonged cold was the main culprit for deterring shoppers, especially compared against the far milder March of 2012. Although footfall did pick up around the Easter weekend, it couldn’t fully compensate for a weak showing across the month as a whole.”
As a million home sales are forecast for year, analysts warn of dangers of new price boom
George Osborne’s controversial efforts to rekindle the housing market will help to prevent Britain’s economy from flatlining this year, according to a forecast.
In its quarterly health check of the economy, the Ernst & Young Item Club said a million homes would change hands in 2013, 5% more than in 2012 and the highest number since 2007.
“We expect a million households to move this year, helping growing families and labour mobility,” said Peter Spencer, author of the report, which is the only independent forecast to use the Treasury’s model of the economy. “Sales of household appliances and other expenditures involved in moving home will also be buoyant.”
The Treasury has announced a series of measures to underpin the housing market, including a “funding for lending” scheme, which offers cheap loans to banks and aims to bring down mortgage costs. In last month’s budget, the chancellor also promised to introduce a taxpayer-backed mortgage guarantee scheme from 2014. The policies have been criticised by some analysts, who warned that because many households were still sitting on heavy mortgage debts from the boom years, reinflating house prices would be dangerous.
With the new scheme set to be available on properties worth up to £600,000, Osborne has also been accused of giving help to wealthy buyers.
However, Spencer insisted that the “rebalancing” that Osborne had hoped for – away from debt-fuelled growth and towards exports – would be impossible while the eurozone economy, Britain’s biggest export market, remained so weak. “Although it’s not a long-term strategy, stimulating the housing market and the high street will keep GDP growth positive. Unbalanced growth is better than no growth,” he said.
He added that household debts in the UK had fallen since the start of the financial crisis, from an average of 174% of annual income to 146%. Even with a housing market revival, Item expects the economy to eke out growth of just 0.6% this year and 1.9% in 2014, which is still a more optimistic projection than other forecasters. City consultancy Fathom, for example, has pencilled in growth of just 0.2%.
A Treasury spokeswoman said: “The government is committed to building a stronger economy and this report highlights the real and positive impacts of government policies to support hard-working families and those who aspire to own their own homes.”
Richard Donnell, director of research at housing research company Hometrack, said: “I definitely think the air of optimism will continue to grow, but I don’t think we’re suddenly going to see strong house price growth.”
He pointed out that while prices in London and towns such as Oxford and Reading had already regained the dizzy heights set at the height of the market in 2007, in Liverpool and Glasgow they remained 20% below their peak.
The government is watching anxiously to see if the latest GDP figures, to be published on 24 April, will reveal that the economy slipped into an unprecedented triple-dip recession at the start of the year. The latest jobs figures, to be published on Wednesday, could also show that unemployment has begun to increase, after declining through much of last year.
Howard Archer, of information analysts Global Insight, said: “We expect the labour market data to show further signs of fraying strength in reaction to the economy’s persistent softness.”
As well as encouraging British families to head to the estate agents, the government is also hoping that the arrival of the new Bank of England governor, Mark Carney, this summer will mark a shift to a more aggressive policy in Threadneedle Street – by promising to keep interest rates at their current rock-bottom levels for an extended period, for example.
However, Spencer suggested that monetary policy was unlikely to provide much extra support to growth. “Although monetary policy is good at cushioning a recession, it is bad at stimulating a recovery,” the report said.
Department for Business, Innovation and Skills accused of retrospectively rewriting rules of loan scheme
The government is facing the threat of a judicial review into its handling of an investigation into Barclays’ involvement in a state-backed loan scheme.
An investigation into a loan made by the bank in 2006 under the small firms loan guarantee scheme was extended last month by the Department for Business, Innovation and Skills after an intervention by Michael Fallon, a business minister.
However, questions have been raised about the latest examination of evidence by the auditors RSM Tenon on behalf of the department. The loan was made to a company owned by Yorkshire businessman Jeffrey Morris who has alleged Barclays did not comply with eligibility rules imposed by the loan guarantee scheme.
“The new report makes no sense to me,” Morris said. “It is selective in the information it relies upon, it is inconsistent with itself and the evidence, it rewrites the scheme rules and it is inconclusive. The only way I can get justice for myself and the taxpayer is to seek a judicial review. I have spoken to my lawyers who believe there is a case for a much wider and fully independent judicial enquiry.”
The scheme for startup businesses, which guaranteed banks a return if their investment defaulted, has cost the taxpayer at least £200m in compensating banks. The Guardian reported on the loan in September, prompting the department to commission RSM Tenon. Papers seen by the Guardian show, allegedly, that Barclays sought collateral for the deal and gave the loan to a long-established business – actions that contravened the scheme’s terms. Morris defaulted on the loan in 2006, but Barclays reclaimed most of the balance owed – £91,667 – from the taxpayer.
Morris argues that an internal email sent by Barclays in May 2006 shows the bank had arranged a loan under the guarantee scheme for his business, Diamond Shape, even though he still had available collateral. Under the terms of the scheme, a loan could be guaranteed by the government only if the borrower had exhausted all other forms of collateral.
The new investigation examined a key email from Barclays, discussing a meeting with Morris, which indicates that the bank sought collateral for the loan. Referring to the department’s former guise as the Department for Trade and Industry, it says: “Looking for NewCo SFLG of £200k asap – this has been sanctioned by DTI. We advised we would need to see at least either share charge or property charge in place prior to drawdown.”
This suggests Barclays was seeking further collateral before making the money available to Morris, in direct contravention of the scheme’s rules. However, the new RSM Tenon report makes no mention of this part of the email. Instead, it focuses on the shares and property Morris was offering to Barclays as additional collateral. The reports admits that Mr Morris had further collateral available at the time the loan was made.
The new RSM Tenon report also appears to suggest that although the bank was seeking further personal collateral from Morris, this did not breach the key rule that any such loan could be made only when all other personal collateral had been exhausted. Barclays has said that the crucial email does not relate to Diamond Shape and had no relevance to the SFLG application.
Referring to the email, the report says: “The extent to which he was being asked to support the borrowing … personally does not, in itself, invalidate the making of an SFLG loan.” The department could not explain how this apparent retrospective rewriting of the scheme’s rules was justified. A department spokesperson said: “The department is satisfied that all relevant and necessary evidence from the loan application process, from all parties, has been properly considered.”
Barclays said: “Barclays co-operated fully with the Department of Business Innovation and Skills and RSM Tenon during their thorough audit of the loan made to Diamond Shape Limited by Barclays in 2006. Weare pleased to acknowledge the findings of the final report which found that ‘the loan and business appear to meet the eligibility criteria of the scheme at the time’. Barclays remains committed to lending and will utilise government schemes, where appropriate, to help make funds available to our customers and clients.”
RSM Tenon declined to comment.
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Supermarket teams up with council to give out ‘crisis welfare payments’ to neediest residents in form of prepaid cards
Asda has joined the UK’s biggest local authority to provide emergency welfare to some of the country’s poorest people.
Birmingham council, which represents around 1 million people, said that from 1 April Monday it would give out crisis welfare payments in the form of prepaid cards that could be redeemed only in Asda supermarkets.
The Labour authority said the cards – which Asda said were similar to their gift cards – would restrict spending to a list of predetermined goods, which would exclude tobacco, alcohol, phone-related expenditure and fuel.
As part of welfare changes in April, local authorities will take over running the non-statutory emergency welfare loans and grants known as the social fund, which are meant to help people deal with crises such as leaking roofs, broken boilers and lack of food.
After the Department for Work and Pensions said it would no longer administer social fund payments centrally, Birmingham said that, unlike other councils, it had decided not to give out small one-off cash grants and loans from its newly devolved £6.1m fund.
Instead it would offer prepaid Asda store cards and directly provide bigger items such as white goods to those in emergencies.
Last year the fund, described by Labour peer Lady Lister as “a safety net under the safety net”, helped more than 50,000 people in financial crisis in the city.
The council said it was working out how to stop people purchasing inappropriate items but said the cards were not food vouchers or tokens, and were indistinguishable from other prepayment cards accepted by supermarket chains.
Other councils have said they would also use voucher schemes or plough their social fund budget into food banks. But Birmingham appears to be the first local authority to pair up with just one supermarket chain.
Asda, which is owned by US retail giant Walmart, said its low prices offered an “efficient use of the public purse”.
Asked why Birmingham was restricing choice by partnering only with Asda, a council spokesman said the chain had been “the only main supermarket in the city willing to work with the council”. He said the council hoped the scheme would be extended to other stores after a period of evaluation.
“The scheme is being introduced and will be closely monitored and evaluated for the first three to six months. This is so we can assess how the scheme is being used, by whom, and the levels of grant, crisis payments and overall expenditure.
“This will entail very close working with the supermarkets to address any issues that arise and make further improvements .”
The council added it had decided not to issue cash payments in order to “build in an element of control by utilising payment cards”.
Asda said: “We responded to an approach from Birmingham city council, which was looking for a simple way of delivering social fund payments to claimants.
“Making money available via Asda gift cards rather than cash is a safe way to ensure claimants have access to a huge range of products at low prices, and is an efficient use of the public purse.”
Claudia Wood, deputy director of thinktank Demos, said that by using store prepayment cards, it was not possible to stop people spending on certain products. “In a supermarket you can also buy alcohol, toys, pet food, lottery tickets, everything else … you can’t stop particular products.”
Wood, who recently wrote a report on prepay cards and the benefit system, said that – aside from officials going through receipts retrospectively – the only other way to ensure spending was restricted to certain items was to get checkout staff to monitor goods as they were being bought.
“The only thing you could do would be to have someone at the checkout picking out the things you’re not allowed to use. But … the idea that checkout staff would be enforcing government policy is just ludicrous.
“[It would be] a massive inconvenience, really humiliating at the checkout, a massive imposition on staff to apply that ruling … It just wouldn’t work … I don’t think the supermarkets would stand for it.”