Philip Hammond has insisted his flagship Budget tax cut to assist first-time buyers will help a million people get on the housing ladder.
The Chancellor dismissed criticism of the policy from the Office for Budget Responsibility, saying the Budget watchdog had not taken into account measures to increase the number of new homes being built when it said that abolishing stamp duty on the first £300,000 of a first-time purchase would simply push up prices.
After the OBR downgraded growth forecasts due to poor productivity performance, Mr Hammond said the challenge for the nation was to “prove them wrong”.
The Chancellor’s stamp duty policy was part of a giveaway package which pumped an additional £25 billion into priorities such as housing, infrastructure and the NHS.
But the OBR took the shine off the move by predicting it would push up prices by around 0.3% – meaning many first-time buyers would have to pay more than they otherwise would while the main gainers would be people who already owned a property.
It also suggested that only around 3,500 additional homes would be sold as a result of the incentive.
But Mr Hammond said: “Hopefully, by abolishing stamp duty, which will save the average first-time buyer about £1,700, that will be a help and an incentive to focus on getting the deposit together, getting the money together to get on the housing ladder, and we hope that many more young people will be able to get on the housing ladder.”
He told the BBC: “The OBR looked at a particular narrow question – if you reduce stamp duty and don’t do anything else what would happen?
“But we have not done ‘nothing else’, we have introduced a very big package, £15 billion of extra money going in on top of the billions we are already spending on housing to increase the number of houses that we build in this country.
“So that’s not the situation we will have. We will have many more homes available.
“The important thing is that over the next five years, over the life of this parliament, a million first-time buyers will make an average saving of just under £1,700 when they buy their first home.
“I think that’s a good news story.”
The OBR issued a grim set of economic forecasts, downgrading its predictions for growth for each of the next five years as a result of the UK’s continuing poor productivity performance.
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With growth forecast to average just 1.4% over the period, OBR chairman Robert Chote said it looked “unlikely” Mr Hammond would achieve his target of eliminating the deficit in the public finances by the mid-2020s.
Mr Hammond said the OBR’s forecasts for productivity over the last eight years had been “over-optimistic”.
He said: “The challenge for us now as a nation is to prove them wrong. The challenge for us is to deliver that higher productivity that will feed through into higher economic growth.”
Mr Hammond insisted progress in the Brexit talks would help boost growth.
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“We always understood that as we went through this process of negotiation with the EU there would be uncertainty about the outcome. When you are in a negotiation you never know what the outcome is going to be,” he told the BBC.
“As we move forward into 2018 I hope we will get increasing clarity about how these negotiations are going to move forward, an increasing sense that we are getting on and doing Brexit, and as we get that sense of clarity and sense of movement I think confidence will return, certainty about the future will return, businesses will start investing, consumers will start buying big ticket consumer items again and that will help to get our economy growing again faster.”
Shadow chancellor John McDonnell said the productivity crisis could have been avoided if governments had been prepared to borrow more to invest in boosting the economy.
“I would have stopped the tax cuts to the corporations and the rich, that would have paid for our public services,” he told ITV’s Good Morning Britain.
“I would have borrowed more to invest in our economy.”
He added: “If we had been investing since 2010 we would be growing our economy, we wouldn’t have a productivity crisis.”