Before we look at what has happened, let us look at the ideal world. In that a person is born, nurtured, educated and grows up to take their place in adult society. They get a job, buy or rent a house, which takes no more of their income than a proportion which leaves sufficient over, to save for the cost of bringing up a family, retirement and old age. Either the home can be bought at the outset and paid for during the working life, or savings will provide the funds to buy one, as often in Germany, at retirement. In this world there is a constructive partnership between the person and civil and private providers as well as the state and capital. Some services are provided by the state, to enable which taxes are paid. The rest is down to you. Insurance can be used to spread privately paid for services.
After the war (WWII) we lived in a period of hard core socialism followed by a period of social capitalism. This was a model of capitalism which promoted free enterprise, but retained political, in other words democratic, control over the shape of the economy. It worked well for a while, but eventually it became unresponsive and inert and failed to deliver competitive outcomes. People became disillusioned and turned away, electing Margaret Thatcher in 1979.
She offered first an economic model driven by control of the money supply, but later modified this to control by the markets. That conformed with new developments in technology which enabled more extensive world trade and ultimately globalisation. At first the new model was very liberating and worked for the majority, whilst leaving a minority whose welfare was, in exchange for the fact that they were somehow left behind, protected by the state. Thatcher also took the decision to sell council houses to their tenants at a discount. Popular and apparently benign, it has proved the cancer which is killing the current economical model.
This is what happened. If Thatcher had given cash raised on the sales back to councils to build more houses and if, when house price inflation first began to exceed general inflation, the Bank of England had introduced a Mortgage Rate, separate to Bank Rate, to regulate the housing market, things would now be very different and much better. Instead housing shortages have built up, savings have dried up, money is sucked in by borrowing countless billions overseas and pumping it into property via huge mortgages, which further inflate a market out of control. Young people cannot afford to buy, so taxpayer money has to be used to guarantee even bigger loans and to boost savings for deposits, inflating the market even more. Rents are so high in the private rented sector that billions have to be paid to landlords by the government, to subsidize the gap which tenants cannot meet. Another thrust on the inflation pump. At this point we no longer have a free housing market, but a government funded scam acting against the public interest.
The result is that people have to work round the clock to pay for housing costs and instead of saving as they did in the past, everything goes into the property, sucking up not only their own resources, but the resources of the state, because of rising benefit costs and lower taxation revenues. By creating an economy which favours asset inflation over wealth creation and borrowing over saving, the state ends up so short of revenue that it has to raid the inflated assets to carry on. And the people who have spent a lifetime borrowing instead of saving, have to accept that. The trouble for May is that they won’t.