The financial crisis has loomed heavily over government decisions since the Coalition came into power in the UK. In order to alleviate the pressure this has put on all areas of the economy several policies, like the National Loan Guarantee System, have been directed towards the task of making credit available for small businesses (BBC, 2012).
First-time and potential home owners have also been targeted with assistance, with schemes being launched to make mortgages more accessible (Osborne, 2012). But these policies have risked lurching into the desperate, as the quest for economic growth continues. The latest proposals from the Liberal Democrats involve clearing the way to parents and grandparents using their pensions to guarantee their children's mortgages (Mulholland, 2012).
Critics have urged caution (Parkinson, 2012). The use of pensions as collateral is a risky move - potentially gambling a person's retirement on the ability of a new home owner getting (and staying) on the property ladder. There is a significant worry that the plan has been developed to offer some short term growth boosts at the risk of longer term dangers.
These fears run parallel to those that have surrounded the cuts agenda. From fear of the long term effects of large-scale unemployment on the UK's social fabric, to the long term effects of cuts to education funding - the primary concerns about the Coalition's economic strategy appear to be the narrow focus on the here and now.
These arguments were presented with some particularly damning evidence in July, when tax receipts were substantially less than expected (BBC, Aug. 2012) - necessitating the borrowing of around £600m. Despite news that the UK is recovering from recession, albeit slowly (Rowley, 2012), there remain concerns that austerity has 'choked off the recovery'; in particular, The Economist warned against interpreting the meagre recovery as an opportunity for more cuts.
In his critique of Mr Gordon Brown's time as Chancellor and Prime Minister, Professor Stein Ringen called Labour's time in government a failure (Ringen, 2009). Professor Ringen suggested that statistically their effect upon various important policy areas had been negligible - even though they possessed massive funds for investment, had no shortage of power and demonstrably used both to exercise control. The problem he points to is instead an economic approach that was 'poor value for money'.
It is this same trap that the coalition is at of risk falling into, but with the complete opposite approach to public investment. The short term focus on proving Labour's economic ineptitude, the short term focus on eliminating debt & deficit, and the search for policies to provide short term economic growth - there is a danger that the huge long term cost of the cuts might have stymied the short term recovery, while offering little of value in return for the long term development of the UK.
The Liberal Democrats went into the 2010 UK general election with plans to revitalise the economy by reorganising the banks to get credit flowing and making public investment available for numerous regeneration projects - not least the refitting of shipyards into centres for green energy production (Telegraph, 2010). These are policies with real consideration for long term concerns - for increasing jobs, skills and production; and lowering energy prices by increasing competition, thereby decreasing the financial pressure on both consumers and businesses.
However, the grim state of the economy served as the spur for Lib Dems to join the Tory led Coalition in focusing instead on the short term goal of deficit reduction - a goal to which numerous public investment policies were sacrificed, not least university funding (BBC, 2010). Those prior policies could be providing a much needed boost right now as energy prices continue to rise. Yet they seem to have disappeared under what began as a temporary redirection of focus, but has become an entirely new direction.
Before these proposals for using pensions as mortgage guarantees comes to fruition, serious concern needs to be given to the long term effects of such a policy. In the scramble to make credit available in an economy where too much money is getting stuck too far up the ladder, policy makers need to start considering whether more debt and credit is the answer to problems caused by debt and credit? What will this open the door to? Where will this end?
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References:
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+ BBC's 'Bank lending scheme targets smaller businesses'; 20 March 2012.
+ Hilary Osborne's 'Funding for Lending scheme launches amid scepticism'; in The Guardian; 1 August 2012.
+ Helene Mulholland's 'Nick Clegg: parents can use pension pots to help young people buy property'; in The Guardian; 23 September 2012.
+ Justin Parkinson's 'Lib Dem conference: Pension funds could back mortgages - Clegg'; on the BBC; 23 September 2012.
+ BBC's 'UK government borrows £600m in July as tax receipts dip'; 21 August 2012.
+ Emma Rowley's 'GDP figures show Britain's double-dip recession is over'; in The Telegraph; 25 October 2012.
+ Stein Ringen's 'The Economic Consequences of Mr Brown'; on RSA Animate; 14 September 2009.
+ The Telegraph's 'Nick Clegg wants disused shipyards to become production centres for wind turbines'; 11 February 2010.
+ BBC's 'Tuition fees vote: Plans approved despite rebellion'; 9 December 2010
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