George Osborne is blowing bubbles

In opposition, George Osborne said that you cannot borrow your way out of a debt crisis. In government, he has proved it. Since entering No. 11 Downing Street, his strategy has been to talk sternly about austerity while borrowing more than anyone else in Europe. With every budget he has presented, the deadline for balancing the books has slipped further forward — now it’s 2020. Britain’s AAA credit rating has gone, we’re paying billions more in debt interest payments as a result. The Chancellor has brilliantly spun all this as the problems of austerity rather than his own profligacy, but for three years he has had no good news to report. Until now.

The British economy seems to be springing back to life in a way no one predicted. Tax receipts are flooding into the Treasury twice as fast as expected. The International Monetary Fund has doubled its growth forecast for Britain. New orders for manufacturing are at levels not seen for 20 years, suggesting next year will prove an economic sprint. House prices are recovering quickly, and people are again borrowing on the back of their wealth. It would all be hugely encouraging, were it not for the lingering suspicion that this boom is as artificial as the last one.

There is an adage that a speculative bubble will occur as soon as the people who remember the last one have retired. Unfortunately, the rule does not seem to apply this time. Dangerously cheap loans, which induced the last bubble, are being pushed out as never before. The Chancellor’s Help to Buy mortgage subsidy scheme has become emblematic of his ongoing debt addiction. There is no reason to give artificial support to the housing market, since prices are still eye-wateringly high in many parts of the country. Yet the Treasury is offering interest-free loans to first-time buyers, increasing buying power and (ergo) house prices.