Economists attack Chancellor's new FTB scheme

The Firstbuy Direct scheme announced in the Budget has come under fire in Parliament.

Intended to help first-time buyers get on the property ladder, economists told the Treasury Select Committee that it would actually make things worse.

Jonathan Portes, director of the National Institute of Economic and Social Research (NIESR), said that Firstbuy Direct was a measure that would “exacerbate economic distortions and make things worse over the long run”.

He said: “House prices in the UK are too high and that has all kinds of damaging economic and social impacts. The main financial impact of giving help to first-time buyers is to pump extra money into the demand side and boost house prices.

“That’s the last thing future first-time buyers or the economy as a whole needs.”

Roger Bootle, managing director of Capital Economics, also gave evidence to the committee.

Asked by the chairman Andrew Tyrie what housing measures he would have introduced, Bootle replied: “I certainly would not have done this scheme to boost the position of first-time buyers.

“This is simply increasing demand and in the process doing nothing at all to ease the housing shortage in this country.

“There might well have been more aggressive moves that could have been made on the planning system.

“This is a supply problem. If we want to ease the shortage of houses, we’ve got to make sure more houses are built.”

Agents have also criticised the measure. Eric Walker, of Bushells in London, said it was like putting a sticking plaster on a broken leg, whilst David Newnes of LSL warned that the scheme was a ‘fig leaf’ to cover the real problem of economic uncertainty.

He also said that new-build houses were more expensive than secondhand ones, and were therefore not necessarily the best option for first-time buyers.

*The shares of housebuilder Barratt Developments rose strongly yesterday – up almost 7% and fuelling criticism that the Firstbuy Direct scheme is a ‘Barratt bonanza’.