11:36am Thursday 3rd April 2014
© Press Association 2014
Chancellor George Osborne has spoken of the need to be "vigilant" about increases in housing prices, but insisted that fears of a bubble should not get in the way of giving older people more flexibility on how they deal with their pensions.
Mr Osborne's Budget decision to lift the requirement for OAPs to use their pension pot to buy an annuity sparked warnings that many would chose to invest the cash in buy-to-let property, driving prices up and freezing younger people out of the market.
But the Chancellor told the House of Commons Treasury Committee that the Office for Budget Responsibility had built his reform into its forecasts for the housing market, and said experience suggested that the impact of buy-to-let on overall prices was more limited than sometimes thought.
Amid fears that a bubble is already developing in London and the South-East, Mr Osborne confirmed he is keeping "a close eye" on house prices, but stressed that conditions in other parts of the country were very different from the capital, where international investors have forced up prices at the top of the market.
H e rejected suggestions that the Government's Help to Buy mortgage guarantee scheme had acted as "fuel" for a surging market.
The Chancellor said that the Financial Policy Committee of the Bank of England was keeping "a very close watch" on prices and debt.
Challenged over warnings of a house price bubble, Mr Osborne told the cross-party committee of MPs: "I say we have to be vigilant. I think we have to keep a close eye.
"Clearly house prices have started to rise. But that is why we have created the FPC.
"There is of course a regional variation in this. I think you should at least draw a distinction between some of the phenomena in central London, which is caused by international money and the like coming into central London as a form of investment, and what you see in most of the places represented by members of this committee. That's just a feature of our housing market."
Asked if he was concerned that pension liberalisation may force prices up, Mr Osborne said: "The OBR was aware of the policy when they did their house price forecast and the impact of buy-to-let historically... has actually been a bit more limited than perhaps the hype would lead you to believe on house prices.
"I don't think that would be a reason not to go ahead on pensions flexibility because we have in the Financial Policy Committee a body with the tools and the responsibility to address mortgage standards and debt in the economy. That's their responsibility. I think our responsibility is to support people who have worked hard and saved hard through their lives, and trust them to be able to look after their savings."
Despite claims that Help to Buy would drive up prices, the Chancellor said that "the evidence is that three-quarters of the homes bought through it have been outside London and the South-East and the average house price has been below the national average and the great proportion of those buying using this scheme are first-time buyers".
He added: "It has not been the fuel to house prices that the parliamentary critics of this scheme thought it would be."
Mr Osborne said that Britain needs more homes, telling the committee: "Ultimately, I want to live in a country where people who have the aspiration and who can afford to buy their own home are able to do so, and that means that we need to build homes for them."
Mr Osborne was accused by a Labour MP of planning a "tax grab" which would outstrip Gordon Brown's record of increases as chancellor over a 10-year period.
John Mann cited figures from the Treasury's own Budget Red Book, which he said showed that revenue from taxes would rise over the decade after the Chancellor took office by £261.6 billion - almost £60 billion more than the £201.8 billion increase which Mr Brown presided over during his tenure at the Treasury.
In real terms - after inflation is taken into account - the tax take will increase by 26.7% over the period, said Mr Mann.
The Bassetlaw MP also quoted Office for Budget Responsibility (OBR) projections suggesting that 760,000 immigrant workers will be added to the workforce over a six-year period.
"You are increasing the tax take in real terms by 26.7%, in cash terms by more than Gordon Brown, 33 out of 34 categories of tax you are increasing, including National Insurance contributions, and y ou are not prepared to say how many of the new employees coming into the labour market will be immigrants," said Mr Mann .
"The public can make its own judgment on that."
Mr Osborne said: "I think you are confusing tax rates with receipts you get as the economy grows and people get paid more. Tax receipts will increase in cash terms as GDP increases.
"We are forecasting a small reduction in tax take as a percentage of GDP over the coming years."
On migration, Mr Osborne said: "The OBR uses the Office for National Statistics statistic of around 100,000 net (migrants per year), but obviously it is the Government's stated policy and the Prime Minister's ambition and mine to reduce net migration to the tens of thousands."
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