Some of the conclusions and recommendations contained within the Report include:
- Quotes from the Chairman of the Treasury Select Committee, Andrew Tyrie MP.
- A full list of the conclusions and recommendations can be found on pages 96 - 105
"The Government’s Help to Buy scheme is very much work in progress. It may have a number of unintended consequences.
Without further detail it is not possible to estimate its effects. The questions the Committee has asked the Government need answering.
Any decision to continue with the scheme should probably be made by Government, on the basis of advice from the FPC."
a. The role of the taxpayer as guarantor
- The Chancellor says that expected losses under the scheme will be covered by the commercial fee charged to participating lenders. No details of the proposed level of the fee nor how it will be structured in practice are yet available. Nor has a date been given. (para 157)
- We...believe that the Government will find it extremely difficult to price the fee in such a way that sharply curtails Exchequer risk. (para 158)
- The mortgage guarantee scheme also makes the Government an active player in the mortgage market. The Committee is concerned that the Treasury now has a financial interest in maintaining house prices to limit losses to the taxpayer. (para 159)
- There is a risk that if mortgage lenders begin to exercise reduced levels of forbearance, repossessions may rise and house prices subsequently lower than they would otherwise be. If this happened, and unless this risk was fully priced into the fee, then the Treasury could end up facing large losses on those mortgages it has guaranteed. (para 160)
b. The impact of Help to Buy on house prices and the supply response
- It is by no means clear that a scheme, whose primary outcome may be to support house prices, will ultimately be in the interests of first time buyers. This is the group the Government says it wants to help. (para 170)
- The Committee finds the Chancellor’s assertion that increased demand for home ownership and rising prices, resulting from the mortgage guarantee scheme, will trigger a corresponding supply response, unconvincing, at least for the short term. In the longer-term there may be an effect. [...]
Overall, though, if the Government’s priority was housing supply, its housing measures should have concentrated there. (para 171)
c. The temporary nature of Help to Buy
- Our concern is that, should the current scarcity of high loan-to-value mortgages reflect structural rather than cyclical factors, the pressure for Government to extend the scheme in three years time will be immense. The unintended and unwelcome outcome could well be that a scheme designed to deal with a supposedly temporary problem in the UK housing market becomes a permanent feature of the UK housing market. (para 175)
- As far as can be understood from the Chancellor’s evidence, the initiative to seek continuance, or require discontinuance, of the scheme appears to lie both with the FPC and the Government. The Chancellor should clarify whether the above interpretation of his evidence is correct. [...] The new task given to the FPC is an onerous one, but is particularly so given that it is a new body, and given the current economic and financial climate. The new responsibility for Help to Buy: mortgage guarantee is an extension of the FPC’s responsibility beyond its current remit, and one with considerable political implications. Given the considerable challenge already faced by the FPC in creating and implementing new macro-prudential tools in the conduct of its central role, this new responsibility may prove a distraction or burdensome. (para 177)
- The closure of housing support measures has often been fiercely resisted. The FPC’s reluctance, even to ask for a loan-to-value macro-prudential tool, preferring instead a less politically visible proxy, sectoral capital requirements, is a reflection of this. There is a strong case that such decisions should be made by politicians acting on advice, in this case advice from the FPC. (para 178)
- If the Government does decide to press ahead in giving the FPC this role, the Government should publish clear criteria against which the FPC should make its decision, before the commencement of the scheme. The FPC should be given the opportunity to comment on the criteria. The Committee will expect to see this exchange and scrutinise it prior to the commencement of the guarantee scheme. (para 179)
d. Support for second homes
- The lack of clarity over whether the mortgage guarantee scheme will be open to those wishing to purchase a second home is concerning on two grounds. First, it is a reflection of the need to think schemes through carefully before announcing them. Second, whilst the Committee is aware of the complexity which may come with an exclusion, we struggle to see the rationale for the taxpayer to stand behind loans for people wishing to own a second property, especially given that the Chancellor has repeatedly stated that the scheme is primarily designed to help people onto the property ladder as well as those who wish to move property. (para 181)
e. Outstanding questions arising from Help to Buy
- The Government’s latest intervention in the housing market raises many questions. These questions require answers to allay concerns that the scheme may have unintended and unwelcome consequences:
- The Government has asserted that the current scarcity of high loan-to-value mortgages—whether for cyclical or structural reasons—represents a market failure. What is the Government’s assessment of the likely duration of this market failure?
- Does the reduction in the availability of high loan-to-value mortgages reflect temporary/cyclical factors or does it represent a longer-term move by lenders away from such provision?
- If the former, does the Government believe that the availability of high loan-to-value mortgages will increase after three years, rendering the scheme unnecessary?
- If the latter, should the Government be trying to reverse the move by lenders away from potentially riskier forms of high loan-to-value mortgage provision?
- What is the Government’s estimate of the number of home owners it expects to be supported by the mortgage guarantee scheme and what estimate, if any, has been made of the number of first-time home owners who will be assisted via the scheme?
- What is the Government’s estimate of the likely dead–weight costs of the guarantee scheme?
- What is the Government’s estimate of the effect of the guarantee scheme after three years on house prices?
- Has any estimate been made of how much higher house prices would be relative to the likely level of house prices in the absence of such a scheme being in place?
- What is the size of the supply response the Government expects as a result of the introduction specifically of the mortgage guarantee scheme?
- Over what period does the Government expect any tangible supply response to emerge?
- What are the principal constraints on increasing the supply of housing in the UK?
- The Government will receive a commercial fee from lenders who participate in the guarantee scheme. How will the fee be determined? Will the fee be subject to alteration?
- Will the fee income be ‘ring-fenced’ or treated as general Government revenues?
- How will the fee income and the contingent liabilities resulting from the guarantee scheme be treated and reported in national accounts and whole of government accounts?
- Why was the FPC chosen to make the decision on the continuation of the mortgage guarantee scheme after 2017?
- If the FPC is given responsibility for terminating the mortgage guarantee scheme, will this require a change in remit?
- Against what criteria does the Government expect the FPC to make a decision on continuation of the guarantee scheme? To what extent would the FPC be expected to take into account factors other than those related to financial stability?
- The decision as to whether to continue the guarantee scheme after 2017 could be politically controversial. Does the Government accept that giving this decision to the FPC could affect its ability to perform its core role, namely the pursuit of financial stability?
- Why have second homes not been explicitly excluded from the scheme—is it on grounds of complexity or does the Government wish the guarantee scheme to encourage the acquisition of second homes?
The Committee expects the Government to answer these questions in its response to this Report. (para 182)
2. Monetary Policy
"The MPC appears to have interpreted its new remit as one of continuity rather than change.
Nonetheless, any change to the remit has the scope to create uncertainty. Changes should not be frequent.
In the light of the new remit announced, the Committee will launch an inquiry into monetary policy.
Future remit changes should require Parliamentary approval."
- The changes to the monetary policy remit announced by the Chancellor at the time of Budget 2013 create uncertainty. Their effects will become evident when the Monetary Policy Committee’s interpretation of it is clearer. (para 102)
- The initial indications are that the MPC’s interpretation is one of continuity, rather than change, but the Treasury Committee will use its regular hearings with the MPC to elicit greater clarity about the effects of the change and will launch an inquiry into the conduct of monetary policy. (para 103)
- Any change to the monetary policy remit is significant regardless of any MPC interpretation. Monetary policy credibility has been hard won in the United Kingdom, as elsewhere, and could easily be lost. The justification for change must therefore be strong. (para 104)
- The Bank of England Act 1998 stipulates price stability as the primary goal of the Monetary Policy Committee. The Chancellor has reaffirmed price stability as the primary goal of the MPC but the fact that he has changed the remit and given the MPC more flexibility can be taken as an indication he wants the Bank to do more to try to foster the economic growth which the UK has found elusive. The Treasury Committee will continue to monitor the MPC’s performance against that primary target: it is important that Parliament be fully aware of any signs of the slippage of the monetary policy anchor. (para 105)
- In this case the remit has been changed without the need to amend legislation. The Bank of England Act 1998 should be amended to require parliamentary approval of remit changes. This would create a higher hurdle to any change and provide enhanced scrutiny. (para 106)
3. Energy policy
"Business is faced with high energy costs. It is unclear which Government Department is in the lead for energy policy. This lack of clarity must be addressed."
- The Committee is concerned that the competitiveness of UK business is being undermined by high energy costs, in particular in manufacturing and energy-intensive industries. This is a matter of significant concern, especially in the current economic circumstances. (para 192)
- The tension between the Treasury and the Department for Energy and Climate Change, and lack of clarity over which department is in the lead on energy policy, has created uncertainty. This must be addressed. It must not be allowed to undermine business and investor confidence. The two departments need to clarify, as a matter of priority, their respective responsibilities. (para 195)
4. Premature disclosure of Budget information
"The Committee has concluded that the practice of pre-releasing information from the Budget to selected media organisations should end.
It would be inappropriate to re-release information in order to influence media coverage, even in secure conditions."
- The Treasury briefed selected media organisations about the Budget in advance in order to influence media coverage. The ‘lock-in’ practice of the ONS seeks to eliminate the scope for market abuse, and allow markets to function; the purpose of the Treasury’s actions may have included a desire to obtain better coverage. If so, the two practices are therefore wholly different in purpose and effect. The Committee recommends that there should be no Treasury pre-releasing of Budget information, even in secure conditions. (para 205)
5. Annually Managed Expenditure
"AME accounts for half of Government spending. Any new method of controlling it could be highly significant."
- Annually Managed Expenditure (AME) accounts for about half of Government expenditure. It is not known precisely how the Government intends to alter its controls over AME. If the practical effect of the changes was to transform a substantial proportion of AME into departmentally limited expenditure, this would constitute a very significant change. The Committee will examine the Government’s plans for reforming AME when further details are announced at the spending review in June 2013. (para 143)
- The Committee will monitor whether the Government anti-avoidance measures succeed in generating the revenue predicted of them. The Committee recommends that the Office for Budget Responsibility publish an assessment of how successful anti-avoidance measures have been, and how this has been used to inform the costing of new anti-avoidance measures. (para 129)
- Tax complexity and instability remain of considerable concern to the Committee. We recommend that the Government set out, in its response to this Report, its assessment of the overall progress it has made against its commitment to simplifying the tax system. The Committee further recommends that in future Budgets the Chancellor make a statement as to whether the overall changes announced simplify the tax system. (para 120)
7. 2012-13 Underspend
- Departments have forecast an unusually large underspend for 2013–13. This has led the Chancellor to impose additional cuts for next year. Such large underspends may indicate the development of a culture of thrift in Whitehall, or they may be a sign of weak financial planning, or both. A retrospective assessment by the NAO of the underspending would have merit. (para 135)
8. Ring-fenced expenditure
- Ring-fencing carries political attractions for any government, but it threatens to reduce scrutiny of ring-fenced spending, it can lead to waste or worse and it can distort the balance of spending as a whole. The Spending Review, the fruits of which of due in late June, will provide an opportunity to the Government to address these risks and provide an explanation of how these risks will be avoided. The Committee will scrutinise the spending round that the Chancellor will announce on 26 June 2013 in order to assess, among other things, the process by which decisions have been made, the economic impact of the decisions, and the justification for any ring-fencing. (para 137)
9. Single-tier State Pension
- The change to National Insurance Contributions as part of the Government’s implementation of the Single-tier State Pension is the single most significant measure in the Budget for the conduct of fiscal policy. It will not come into effect until after the next election, however. The change will result in higher National Insurance Contributions for employees with defined benefit occupational pension schemes and their employers. There is a risk that this may result in the closure of existing pension schemes. (para 111)