Populism to Win an Election?

PatternsofPower.org raises concerns when politicians act against the best interests of the populations they serve – and in democratic countries politicians make populist proposals in order to win forthcoming elections, even if those proposals might harm people at a later date or in a non-obvious way. One common pattern is for politicians to misuse the economic powers with which they are entrusted, relying upon people not to understand, or to forget, what has been done.  There are two recent examples of this happening in Britain: the posturing over energy prices, and the reckless relaxing of credit for house-purchase.

Opposition leader Ed Miliband made an eye-catching and popular proposal to impose a freeze on energy prices if he were elected to form a Labour government.  This angered the energy companies, who have predictably reacted by increasing their prices this year ahead of a possible 20-month price freeze if Labour were elected in May 2015.  Four companies have now announced increases that average 9.1%, even though “wholesale electricity and gas together have risen by just 1.7% over the last year”.  Perhaps consumers were expected to be angry with the energy companies rather than blame the price rises on Labour.

The Conservative Chancellor, George Osborne’s “Help to Buy” scheme was also proposed as a popular measure to help first-time buyers to join the housing market.  The “Help to Buy equity loans”, on 20% of a house’s value, were introduced in April 2013 and they are confined to new houses – so builders are encouraged to increase the rate of house-building and that helps to correct an underlying shortage of housing supply.  The “Help to Buy mortgage guarantees”, which have only just been put into operation, allow people to buy any house with a deposit of only 5% – giving a government guarantee to the mortgage-lenders to protect them from losses in case of defaults.  These new mortgage guarantees will increase the demand for houses without any compensating pressure to increase the housing supply so, as The Independent put it, “we ain’t seen nothing yet” – but already there are signs of a housing price-bubble in areas like London, where the demand for housing exceeds supply; one report cites a house-price rise of 60% since last year in one London district.  Many first-time buyers will not in practice be helped by the scheme, because (a) they will be affected by the short-term rise in house prices and (b) they might be left with negative equity when the price-bubble bursts.  A fall in house-prices would probably, though, be after the next election and people would not remember this government’s contribution to the price-bubble.

These two examples of short-term populism appear to be tactical moves ahead of a general election which is more than 18 months away.  Voters should not reward a Labour Party which has almost certainly caused energy prices to spike in the short term, or a Conservative Party which is feeding a new housing price-bubble while everyone is still feeling the pain of bailing out bankers who lost money when the previous bubble burst.  Most voters are likely to support one of these two parties anyway, but those who are well informed might reflect that British politics would be much improved if politicians behaved responsibly.

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