Jeff Salway: New budget watchdog boss could provide much-needed bite

AS glimmers of hope go it's a desperate one, but news that Robert Chote is to head the government's budget watchdog will be welcomed by those who fear the government's masochistic spending cuts will propel us into a new recession.

It's a long shot, but there may be some encouragement to be drawn from it, as the Institute for Fiscal Studies (IFS), of which Chote is a director, has done much to highlight the potentially ruinous implications of the government's approach to reducing the deficit.

Just three weeks ago the IFS expressed serious reservations about chancellor George Osborne's claims to progressiveness when it published research showing that households with the lowest incomes will be hit hardest as the government takes the axe to the benefits system.

The analysis triggered a flurry of toys from Osborne's pram as the Chancellor desperately tried to undermine the credibility of the report. He claimed it was selective and insufficiently robust, an accusation that served only to reinforce the impression that the IFS had hit the nail on the head.

But credit to the government for naming Chote as the new head of the Office for Budget Responsibility, given that the IFS has consistently challenged its claim to be progressive. The move might be perceived as a bold one by Osborne, but it has the potential to be a gamble that backfires. As head of an body that was set up with the aim of providing independent analysis - independent being the key word - Chote will be in a strong position.

It's probably unrealistic, but we can hope that under his watch the OBR - set up in May to provide independent analysis of the public finances and government borrowing - will prove an effective political thorn in the side of an administration seemingly hell bent on sending us into a double-dip recession.

TALKING of being hell-bent on making matters worse, the City watchdog seems determined to exacerbate the biggest single problem it needs to address. In restricting access to interest-only mortgages - perhaps hastening their demise altogether - the Financial Services Authority (FSA) will reduce choice in the mortgage market at a time when it should be looking to do the exact opposite.

In its polite and reasoned way the Council of Mortgage Lenders this week warned that a limit on the availability of interest-only mortgages would lead to the deals being withdrawn entirely, causing even more people to be excluded from the market.

There can be no recovery without demand from first-time buyers, but lenders' demand for substantial deposits and squeaky clean credit records continues to freeze most would-be buyers out of the market. The demise of interest-only mortgages would make matters worse. The FSA wants to restrict interest-only lending because it is concerned that many borrowers have been allowed to take them out without a realistic repayment plan. That's reasonable enough, but the FSA has proposed that lenders take responsibility for ensuring repayment schedules remain on track, and that is what will trigger the end of interest-only mortgages, meaning even less choice for first-time buyers.

Options such as interest-only mortgages play an important role in ensuring that people with decent incomes but unable to stump up the tens of thousands of pounds now needed for a deposit have an opportunity to enter the market and provide the lifeblood it needs.