Help to Buy 'mistaken' and 'dysfunctional' says Posen

Chancellor George Osborne recently extended Help to Buy to 2020 Image copyright Reuters
Image caption George Osborne believes there are many benefits to Help to Buy

An ex-member of the Bank of England's monetary policy committee, Adam Posen, has called the government's Help to Buy scheme 'mistaken' and 'dysfunctional'.

Chancellor George Osborne considers the scheme to be of crucial help to house buyers, and also a means of stimulating the construction sector.

But Mr Posen said: "I find this whole initiative largely mistaken by the Treasury."

The first stage of Help to Buy was recently extended until 2020.

"The idea of pumping up credit for middle to upper-middle class people to spend more on housing, when people have already spent too much on housing, is dysfunctional," Mr Posen told BBC Radio 5 live's Wake Up to Money programme.

"We need a distinction between housing policy and mortgage policy, and we need affordable housing in the great cities of the North.

"London is now semi-detached from the rest of the country. There's a perception that it's just pockets in Kensington or Chelsea, but increasingly the homes in zone two or zone three [of the London Underground map] are going out of the price range of normal people."

'Badly mistaken'

He also said the Bank of England needed to change its "culture of trust", and get tougher with the UK's biggest banks.

Mr Posen, who served on the Bank's crucial monetary policy committee until 2012, said the central bank should "get away from being so trusting of the banks".

"There now has to be a top-down explicit statement that our bias is towards market solutions, not cosy conversations with banks... saying that the Bank of England is neither the friend, nor the enemy, of our banks," he said.

"It was, in my opinion, not corrupt - but it was badly mistaken."

Mr Posen also criticised Bank governor Mark Carney for his policy of forward guidance, which had originally said that interest rates would be reconsidered once unemployment fell to 7%.

That part of the policy has now been sidelined, and forward guidance overhauled.

Mr Posen said it had been an "irresponsible" idea, but applauded the decision to then withdraw the unemployment target.

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