Lifetime ISAs: further provision

Part of Savings (Government Contributions) Bill – in a Public Bill Committee am 12:30 pm ar 27 Hydref 2016.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Peter Dowd Peter Dowd Shadow Financial Secretary (Treasury) 12:30, 27 Hydref 2016

New clause 3 would require the Government to conduct a review within a year of the Act coming into force of the potential impact of the lifetime ISA on house prices in the United Kingdom. The review must be made publicly available and laid before both Houses of Parliament. The Opposition recognise that many people want to own their own home. However, we are concerned that the Government’s housing policy will only inflate house prices further. We have concerns that the LISA will make things even more difficult in a housing environment that is already strained because of the limited number of houses being built nationwide, not to mention the huge cost of housing, particularly in London and the south-east; the average figure is £250,000.

Evidence to the Committee on Tuesday was cautionary. Martin Lewis from, while acknowledging the potential popularity of the LISA, flagged up its potential impact on the housing market. He highlighted that

“Unintended consequences are possible—the lifetime ISA might pump the housing market, which is a concern”.––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 50, Q95.]

The Institute for Fiscal Studies, referring to the Office for Budget Responsibility, made a similar point.

I do not want to over-emphasise the point, but it is worth noting—and perhaps assessing, as suggested in the new clause—the effect of the LISA on house prices overall. It is worrying that fewer homes were built in the last Parliament than under any previous peacetime Government since the 1920s. LISA may help—if that is the right word—to overheat a market that is already short of capacity. The Government’s priority should be to try to mitigate that, not to add to the problem. I do not think that is an unreasonable point to make.

The fact is that people are increasingly chasing a product in a market that has low supply levels. It so happens that the product is a house. The facts speak for themselves. Since I sat on the Housing and Planning Bill Committee around this time last year—it may well have been in this very room—the housing market has remained pretty tight, with supply remaining low. The national planning policy framework, which the Government were warned would create confusion, has done so. That all adds to the broth and is creating problems. By now, according to the plan, and the former Housing Minister, Brandon Lewis, there have should been a better housing supply. Alas, he was wrong.

The lifetime ISA, which will in effect replace the help to buy ISA in due course, provides a Government bonus that can be used towards a deposit on a house—if one can be found. If I remember correctly, concern was expressed by a witness that the help to buy ISA had been poorly articulated, and that the current one was potentially being poorly articulated as well. There was the impression that an ISA could be used for a deposit. Of course, there was a smorgasbord of consternation, anger, disappointment, frustration and bewilderment when many young people found that that was not the case. The problem is that if people are encouraged to borrow money for a house in a tight market, the more house prices rises, the bigger mortgages they need, and so on. The fact that the Government are helping to do that is not helpful. The problem is exacerbated. When the growth of mortgage lending outpaces the supply of housing, prices just keep rising and rising, making it increasingly difficult for people to access the housing market at a reasonable rate. There is no doubt about that.

The Government have identified the right problem but are coming up with the wrong solution. We need to build more houses. That is the only way to solve the housing crisis. New products are fine, as far as they go. Lots of people welcome the LISA—I cannot argue against that—and many people do not, but the comprehensive solution is to deal with the continuing housing supply problem. It is worth noting that the house shortage is simply a physical manifestation of the shortage of skills in the construction sector in general and the housing market in particular.

The Government are almost two years through their five-year housing plan, not counting the previous five years, and we are still falling badly behind on targets. The question is whether the proposals really deal with the substantive issue of supply, and the answer is no. In that context, it is important to look at whether this policy will have an impact on house prices. If it will, in addition to there being a lack of action on housing policy in general, that is a concern. It is legitimate to ask the Government to review the impact on the housing market of this product.