LONDON (Reuters) - A British government scheme to help home-buyers risks being costly, counterproductive and a danger to the Bank of England’s political independence, a non-partisan committee of legislators said on Saturday.
Chancellor George Osborne pledged to guarantee up to 130 billion pounds of higher-risk mortgages and offer 3.5 billion pounds of shared-equity loans to home-buyers in his annual budget statement last month.
But in a report on Osborne’s budget, a parliamentary committee said the plans were vague and left the government exposed to large potential losses as well as failing to effectively tackle a shortage of housing.
Committee chairman Andrew Tyrie - a member of Osborne’s Conservative party - said the loan guarantees “may have a number of unintended consequences”.
“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,” the report concluded.
The government has not yet published details of the fees it will charge banks to cover the expected costs of defaults under the scheme, and the committee said this would be hard to calculate accurately. It was also not convinced by Osborne’s claims that it would tackle a shortage of homes to buy.
On Friday, Osborne defended his plans to reporters at a briefing in Washington, where he was attending an International Monetary Fund meeting.
“We are in a period of real weakness in the housing market, so I think the risks of a housing bubble are really non-existent,” he said.
“The absolutely key thing is that this scheme is time-limited and we have given the keys to its continued operation to the Bank of England’s Financial Policy Committee (FPC) which can turn this scheme off in the next parliament,” he added.
But exactly this concerned the MPs, who worried that having to make a final decision on the scheme after three years of operation could hurt the BoE’s independence.
“Any decision to continue with the scheme should probably be made by government, on the basis of advice from the FPC,” Tyrie said.
In his budget Osborne also tweaked the BoE’s inflation-fighting remit to give it more scope to ignore protracted overshoots in inflation if it expects them to be temporary.
Policymakers have said they do not expect it to change how they act, but Tyrie said his committee would launch an inquiry into monetary policy and keep a close watch on inflation.
The committee also called for future changes in the BoE’s remit to require parliamentary approval, rather than being in the gift of the government.
Additional reporting by William Schomberg in Washington; Editing by Jon Hemming