One cheer for Gordon?

The criticism this morning of our hapless Prime Minister is a typical media one. He is condemned for arriving in New York on the day the Pope arrives in Washington, for the Pope will take the headlines. It is all part of a world where presentation triumphs over substance, where the media can mistake the image in their distorting mirror for what is going on. What matters is how well the Prime Minister’s meetings go with Wall Street bankers over the credit crunch and with the UN over a range of international issues. Tomorrow he moves on to Washington to meet both the President and the next President, where he has an opportunity to shape the foreign policy views of all three serious candidates for the Presidency.

In the early days of the Prime Minister’s tenure the media gave him rave reviews for no good reason. As a long standing critic of his changes to the Bank of England in 1997, I was expecting financial problems. As a critic of his high spend policy, recklessly expanding the public sector without getting value for money for the spending, I anticipated economic problems ahead. The media told me when he had to handle the flooding and farming problems of 2007 that he did so well. They meant he looked serious on TV and seemed to be taking a proper interest in the difficulties. I wrote that the government had to take a lot of the blame for the crises – it was their laboratory complex which let out the disease, and their lack of preparation which left people vulnerable to floods. Worse still, there was no evidence that after the floods the government put in place the necessary measures – cleaner and bigger ditches and drains – to protect many people. None of this mattered to the BBC. The new PM was just fine, and the polls were holding up.

How different it looks nine months on. Now the fact that the Pope today meeting the President will get more US publicity than the PM arriving in New York is levelled against Gordon. The media should understand that this is a clever set of meetings by the PM. He will get plenty of publicity here in the UK for his trip, where he needs to get some messages across. The reason for the meeting with Wall Street bankers is to try to persuade us that the financial and economic problems in the UK have their origins in the US, and he is boldly trying to help sort them out. The reality is somewhat different. The UK has its own version of the western world’s credit crunch difficulties, and has so far been much less bold and positive in trying to combat them. Gordon’s stewardship as Chancellor has left the UK too heavily borrowed to cut taxes, and left UK consumers too heavily borrowed to maintain their living standards. The present squeeze in the UK owes a lot to the “substance” of Gordon, based as it has been on excessive public waste, excessive public borrowing, and a raft of unpleasant stealth taxes.It was during Mr Brown’s tenure at Number 11 that Northern Rock overstretched itself, and it is Gordon Brown who has foolishly decided to nationalise the Rock with all the adverse consequences readers of this site will know about.

I hear said that yesterday bankers in the UK think they at last got through to the PM the seriousness of the situation we are in. If they did, then maybe some of the ideas I and others have put around for tackling the banking crisis can now go onto the government and Bank of England agenda. The government this week has started talking more like the public – doubtless they have spent another fortune on polling and focus groups to find out the blindingly obvious and are now putting the language of the public back to the public. One cheer for the fact they now share our pain. They now recognise just how intense the squeeze is, and how serious the difficulties in the housing and mortgage markets are. If they had listened when Barker first reported to those of us who warned them that the UK housing market was driven mainly by mortgage finance, not by the supply of new houses, they would be in a better position today. If they had paused to try to answer the obvious question to their account of a shortage of homes, by how much do you want house prices to fall, they might have avoided the worst of the present crisis.

If they are now going to do anything more than just empathise with our pain they need to take strong action. The Conservatives official criticism of the government, that it did not mend the economic roof when the sun was shining is correct. We now need crash repairs on the roof, which include:

1. The Bank of England to make more cash available in money markets, and to accept a wider range of instruments as collateral for loans (with a suitable margin to protect the taxpayer)
2. Further cuts in the Bank lending rate
3. Reductions in stamp duty on buying homes.
4. Reduction in the rate of petrol and diesel tax, to get the forecast revenue back down to the original budget forecasts following the price increases
5. Reductions in wasteful public spending, and a general efficiency drive throughout the public sector
6. Early repayment of the Northern Rock money to the Bank and Treasury through encouraging refinancing of Rock mortgages
7. Abandoning ID cards and regional government, and imposing an administrative staff freeze throughout the public sector .

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27 Comments

  1. Matthew Reynolds
    Posted April 16, 2008 at 11:13 am | Permalink

    As ever John – well done ! You have not only summed up how Brown has screwed everything up – but have offered some solid solutions to the problems caused by ten years of batty Labour meddling. Please draw this to George Osborne's attention as the Shadow Chancellor needs to really hit Labour hard over the economy by reminding voters that we Tories can do better by offering the positive alternative that the Lib Dems cannot. They say commonsense ain't too common – thankfully this web blog always has it by the bucket load ! Higher CGT , the botched non dom tax hikes, high stamp duties on shares & property and excess fuel duties are caused by the big Labour client state that wastes money on PC white elephant style rubbish while ordinary folk pay too much tax & the City faces 20,000 job losses. We need virtually zero real terms public spending growth for four or five years just to prevent the nightmare of a £150 billion p/a PSBR and to cut taxes to avoid a recession lasting for four years ( as predicted by one of the responders on this blog last week I think ). Family finances , corporate profits & investment , housing market and share prices need a boost so a bigger personal allowance & lower fuel duty , lower corporate taxes , cuts in stamp duty on property and the end of stamp duty on shares coupled with a 10% CGT flat rate would I think address many of the economic problems facing the UK . Big cuts in public spending & borrowing over five years with tax relief phased in over four years would apply some Eire style medicene to the UK economy. To clear up Brown's mess we need the opposite fiscal policy – the Tory Treasury Team cannot lambast Labour failure while offering more of the same. I think voters would see through that & it would reinforce the widely held & cynical view of the political class . In a democracy voters deserve a choice between high taxing left wing parties like Labour & the Lib Dems and a low tax Conservative Party . We need to offer a positive low tax agenda for change . Lord Forsyth is right – bringing back the gimmicky 10p band just complicates things . Killing off tax credits & age related allowances coupled with QUANGO cuts and having a major rise in the basic personal allowance to say £12,000 p/a in four years time would slash red tape , admin costs , poverty rates while giving the economy a shot in the arm . Please John keep pointing out to messars Cameron and Osborne that tax cuts are no bad thing !

  2. backofanenvelope
    Posted April 16, 2008 at 11:13 am | Permalink

    The trouble is that all your remedies have to start with Brown admitting he got some things wrong.

    Absolutely typical was his response to a question about the sale of UK gold reserves. It was, it seems, the fault of the Tories.

    If he doesn't make a start admitting his mistakes he is going to make heavy weather of correcting them.

  3. James
    Posted April 16, 2008 at 11:14 am | Permalink

    Please don't give Brown any sensible solutions to the crisis,John. We want them OUT of power.We have a feeble Prime Minister who lacks vision, charisma and backbone. I for one, am sick and tired of his same old retoric.

  4. tim holden
    Posted April 16, 2008 at 11:20 am | Permalink

    Items 3,4,5, and 7 on your Crash Repair list are anathema to this government. The issue now is Pretence vs Reality. There is a deep tradition of deception in the Labour administration, coupled with a lengthy record of getting away with it. Any other approach is foreign to them.
    If yesterday's meeting with the Bankers did generate some sort of realisation for Brown, it's unlikely to be followed by a rational response. It might, however, increase a sense of panic that will be further heightened by the May election outcomes.
    There is the distinct possibility of some amusing occurrences over the next few months. And there is always the hope that Brown will get lost in America and not come back. That is probably Labour's last and best hope.

  5. Posted April 16, 2008 at 11:40 am | Permalink

    Honestly, I don't think it's in their DNA to implement the sensible measures you suggest. What price Darling making a Denis Healey style visit to the IMF when the money finally runs our and no-one is lending them anymore?

    There are parallels, Brown like Callaghan was not elected by the people and both were wedded to high spend, high state involvement, though in truth (I never thought I would say this of anyone) Callaghan (sic) seemed more economically competent that Brown now does.

  6. Posted April 16, 2008 at 12:39 pm | Permalink

    It is sad that both Conservative and Labour Governments have created an environment where "investing" in one's house has been more rewarding than investing in something productive.

    We are seeing the consequences of such populist nonsense now. House prices must be brought down until the price of these aging assets bears a sane relationship to real incomes. Lowering interest rates, abolishing stamp duty and feeding liquidity back into the mortgage sector will delay the correction which is sorely needed.

    As soon as is practicable Capital Gains Tax should either be abolished or applied to all gains including those gains on the sale of one's home.

  7. APL
    Posted April 16, 2008 at 1:53 pm | Permalink

    Semper: "As soon as is practicable Capital Gains Tax should either be abolished or applied to all gains including those gains on the sale of one’s home."

    Then capital gains tax should be abolished!

    JR: We now need crash repairs on the roof, which include:

    2. Will penalize responsible savers and those living on their savings. It will have just the opposite effect you claim to desire – encourage reckless borrowing.

    3. Abloish Stamp duty. How can 'stamp duty' reflect a fair charge, when even a modest house pays several thousand pounds to have the transaction registered by the governments books. What buisness is it of the governments who I sell my house to?

    4. I may have asked you previously, is it true ( I believe it is) that excise duty is paid on fuel, then VAT is paid on the gross amount. If so, do you think that is a reasonable way to raise revenue by taxing a tax?

    5 & 7. Essentially the same thing. Waste in the public sector.

  8. Rose
    Posted April 16, 2008 at 2:29 pm | Permalink

    Forgive my ignorance but how did it come about historically and constitutionally that the House of Commons doesn't meet much nowadays? Perhaps Her Majesty's Opposition should be masquerading as American reporters in order to question the Prime Minister on our behalf.

    Reply: A very good ruse – journalists get more access than MPs all too often these days.
    It came about because Labour decided on so-called modernisation. This meant a) cutting back the hours we work when we are there – they don't like late nights on Mondays and Tuesdays, and don't like evening working on Wednesdays in the way we used to. They also decided to add half term holidays to the already generous Xmas, Easter and summer holidays Parliament traditionally took, so now we meet all too infrequently, and when we do the day is often too short to do all we should be doing. They have the majority, so we cannot stop them closing the doors when they wish. They call the new hours family friendly, but if you have a constituency away from London where your family live you still cannot get back to them on Monday, Tuesday or Wednesday so you might as well be allowed to work.

  9. Tony Makara
    Posted April 16, 2008 at 4:07 pm | Permalink

    The emphasis now needs to be put on maintaining price stability and not allowing inflation to come into our country on the back of imports. For this reason I believe the MPC will now have to cut rates in line with the ECB. Such a scenario however would only be a damage limitation exercize. I recognize that we need to cut rates but I fear that if the MPC cuts and the ECB holds steady any gains brought about by rate cuts will be wiped out by inflation which will knock confidence in Sterling even further. Price stability has to come before any other consideration.

  10. Alfred T Mahan
    Posted April 16, 2008 at 5:21 pm | Permalink

    There is one further action the government could take without any fiscal impact – abolish Home Information Packs. In the next year there are going to be loads of forced sellers in a weak and declining market. It is the height of injustice to make them pay for a time-limited HIP – houses will drag on the market and take time to sell, and people may have to pay for a second or a third HIP just when their finances are in deep trouble.

  11. Julian Nicholson
    Posted April 16, 2008 at 6:55 pm | Permalink

    The problems we are having now – large amounts of borrowing and high levels of debt, have been caused because inflation has not been recorded properly for the last decade. Credit has been far too cheap because interest rates have been too low, this has encouraged large numbers of people to get themselves into all sorts of financial problems.

    Neither the RPI or CPI take into account house prices or council tax items that have doubled over the last decade.

    We must stamp on inflation before it happens, it is too late afterwards. Perhaps the BOE needs to be made truly independent? But most of all the government must ensure that going forward the inflation measure actually reflects price rises in the real world (including housing).

  12. mikestallard
    Posted April 16, 2008 at 7:28 pm | Permalink

    You remind us what you said earlier about Mr Brown and you were right. I want to admit that what I said (that he would be gone by Easter) is wrong. Ouch!
    Why does Mr Brown have to go to USA and do all the negotiating? He is not the Head of State, so there should be no clash with the Pope's visit. Similarly, he is not the Chancellor, so why is he doing the Chancellor's job? I think, myself, that he does not have any idea of the function of the Prime Minister in the Queen's Government.
    Also, I do most firmly agree with the other responses: swanning about in his limo from meeting to meeting and from dinner to dinner, he has little idea of what an appalling mess he is making and has made of people's lives. So he will not change: why should he? Everything, from his point of view is just success after success.

  13. Frederick Charles Sm
    Posted April 16, 2008 at 9:32 pm | Permalink

    "The Bank of England to make more cash available in money markets, and to accept a wider range of instruments as collateral for loans (with a suitable margin to protect the taxpayer"

    The above statement shows me Mr Redwood you have no understanding of classical economics.

    This is precisely the reason we are in this mess. The expansion of money supply only ends up one way, inflation.

    Greenspan is the real culprit and poodle Brown followed in creating cheap money causing asset bubbles. The Tories would have done exactly the same.

    The only way out of this mess is for everyone who has lived financially irresponsibly to take their medicine and undergo a purge of the system by raising interest rates.
    The banks and other fools should not be bailed out by the taxpayer.

    Reply: Credit and money was too easy in recent years, as some of us warned. I opposed the switch of inflation target which required the Bank to keep rates lower than prudent. Now the situation is very different. The problem is insufficient money and credit, as you should be able to see from asset price falls. I am pleased to see – at last – the UK authorities now agree with the Fed and with the advice on this website, and will make more money/bonds available to the banking system.

  14. J Schneider
    Posted April 16, 2008 at 10:25 pm | Permalink

    The one thing that everyone needs to get into their heads is that the house market is one huge overinflated bubble that has been used to finance this country.

    The problem is that it should never have been allowed to be like that. Lending should NOT be relaxed. It should if anything be tightened. The money markets are just demonstrating that natural correction themselves.

    Why should the tax payer buy Bank debt? There is simply no justification for it other than to try and keep the bubble inflated.
    How sad that the economy of this country relies on 1% or 2% in interest variation. It is absolutely unbelievable.

    The markets should be left to sort themselves out.

    The problem is that people think it's taboo to think of house prices reducing. Because that's what all this is about isn't it?
    An economy run on rampant house price inflation. Look at the manufacturing job figures today. At a 30 year low were they not?

    The government is running scared because it fears being voted out. So much for Mr Prudence ( AKA Gordon Brown ). Flying to the US to save his reputation and political skin.

    Inflation is under estimated and the consequences of this will ruin the economy. It's about time that a politician actually had the nerve to stand up and say "let house prices fall to a natural level". Will they? I doubt it. Too interested in not what is right and just but what fills the ballot box.

    Reply: If house prices fall too much it leads to a decline in activity – people spend less, feel less well off, so more people lose their jobs.

  15. Mike
    Posted April 16, 2008 at 10:45 pm | Permalink

    How about this instead John… we don't give the banks any cash, we let their boards and shareholders worry about that.

    Then we stop worrying about house prices falling and just let them fall, and about time too.

    Then we spend the money we saved on educating people to a standard where they can perform enough simple mathematics that they don't take on excessive debt from the banks whilst believing they are being made rich in the process!

    Reply: Nice one, if the crisis was confined to the people and problems you mention. If we do not resolve the intense credit squeeze lots of others will lose their jobs and feel their budgets squeezed, so we need to lift its intensity as the government is now beginnning to do.

  16. Posted April 16, 2008 at 11:29 pm | Permalink

    I am not convinced that we need all the measures you outline, John.

    I am a potential first time buyer. For millions of other people like me, plus existing home owners wanting to move to a bigger property, a crash is exactly what we want. A house price crash is not bad, it is good. Prices are far too high at the moment and they need to come down dramatically.

    What we don't want now is to bail out irresponsible banks for their mistakes. It's been painful enough not being able to buy an affordable property for many years. It should not be made worse by pumping more money into the system to try and keep this bubble inflated.

    Let free market economics teach us a harsh but beneficial lesson that boom is followed by bust and that borrowing more than you can afford is irresponsible.

    The sooner we let this crash happen, the sooner we can get our economy and financial system back into a healthy state.

    Reply: First time buyers are the first to suffer in a credit squeeze – prices fall, but you will find it more difficult to raise the money to buy a home.

  17. Richard Hayward
    Posted April 17, 2008 at 8:45 am | Permalink

    I'm against providing more money liquidity, as others have said this is the reason we are in this mess. As a nation we're far too obsessed with house prices – probably because some 55% of our national "wealth" is tied up in it. That said – it doesn't make for sound economics. Stratospheric house prices only serve current owners. This provides not just a feel-good factor but also a temporary boost to the economy through "equity release". The flip side is that this money has to come from somewhere… the new money from first time buyers. This is tantamount to a lifetime of serfdom engaging in wealth transfer just so we can prop up a fragile economy and filling the pockets of property owners who have no disposable income, only a hyperinflated home. Naturally this can only last so long, and we need a sustainable economy based on sustainable foundations and sensible levels of borrowing. In Germany they think we are insane that hyperinflation of housing is a good thing – they look at it like any other consumable subject to inflation. Already we have opted to save house prices at the expense of inflation and the value of the pound (currently 1.2 x Euro!). In my opinion this is more about PR and saving face than providing for a strong economy based on sound fundamentals. Low house prices = more to spend on goods & services with real money, not propping up our national illusion of wealth.

  18. Steve
    Posted April 17, 2008 at 8:55 am | Permalink

    It puzzles me why taxpayers' money should be used to bail out banks that have indulged in ludicrously reckless lending. Aren't banks private companies? Why should I bail them out? They pay even minions millions in bonuses but now their stupidity is causing them pain I am supposed to bail them out! I have to say the whole concept makes me furious.

    We have an economy which is now based on debt. Without ever increasing debt we have no growth. Anyone could see that this state of affairs could not last forever yet, during the last 11 years the conservatives have been strangely quiet about this. When was chancellor Brown ever called to account and ridiculed over his boasts of 48 consecutive quarters of growth? It's easy to get growth against a benign background of low inflation courtesy of Chindia's emergence as the world's manufacturer because, as we all know, when interest rates are low people will borrow more.

    When did the conservatives call Brown to account for the endlessly fiddled inflation figures? Even now we're told inflation is 2.6% when in fact it is well above 5%. The whole thing baffles me. There has been utter silence from the opposition of the last 5 or 6 years when it was obvious that debt was getting out of control. Brown has doubled tax revenues over the last 10 years and stood by and watched consumer debt more than double from 650 billion to 1.4 trillion. Yet no-one has been screaming 'this will all end in tears, you cannot have debt based growth forever'. If the conservatives had been calling the government to account for this, now your warnings would have been vindicated.

    But instead of saying 'let the banks sort their own problems out, it is not the government's job to use taxpayers' money to bail out banks that have lent recklessly (and which, even now, will not admit the extent of their mistakes)', you are saying 'let the bank of England take toxic debt as security for taxpayers' money'. This is wrong in my book and will simply prolong the agony.

    A 3 bed semi near me (in Wokingham) is currently on the market for £345k. How are my children ever going to be able to afford a house as humble as that. As we are at the moment, there is no future for youngsters in this country. They leave university with debts around their necks and face the prospect of having to take on mortgages of hundreds of thousands of pounds just for a shoe box to live in. The sooner we have a house price crash and get back to some reasonable relationship between house prices and salaries the better. Let the banks burn.

    Reply: I did oppose the change of inflation index and have regularly pointed out that true inflation is at least RPI level, not CPI. I have also opposed the great run up in government spending and debt.
    I do not favour letting the banks burn, as we all use banks to carry out our business and pay our bills. We need solvent and liquid banks. I do want the Bank of England to make more cash and bonds available, but on terms which means the taxpayer does not lose. That is the proper role of a Central Bank. Many jobs outside banking rest on getting this right.

  19. CS London
    Posted April 17, 2008 at 9:05 am | Permalink

    House prices have to be relative to income, it is evident that the availability of cheap credit has caused a massive bubble. There will be a price to pay for such exuberance; I do not believe this should be the burden of the taxpayer or the younger generation who are waiting patiently to own a home.

    Lowering interest rates in light of inflation is a short-term fix, for the long-term health of the economy they should go up. We need a recession to correct the imbalance, I understand for a politician to say this would be political suicide.

    Houses prices need to come down and homes need to be seen as a place to live and not an investment.

  20. Milton Keynes
    Posted April 17, 2008 at 9:24 am | Permalink

    If we are going to give taxpayers money out, we really shouldn't be giving it to the people who caused the problems.

    Financial crises happen when prodctivity falls below the level required to service the debt burden. In general these are caused by matters external to the financial system, such as oil price shocks, natural disasters, wars, famine etc.

    This crisis is caused by massive malinvestment in non-productive housing, with simultaneous underinvestment in productive industries. The "shock" was that investors and the Government didn't notice the problems with this. Low interest rates encourage speculation in favour of productivity; borrowing over saving.

    The last thing this Government should be doing is propping up this system. The bust is the cure for the malinvestment of the boom. The quickest way out of this would be to hike interest rates to kill inflation, and provide stimuli for production (tax cuts, investment). We can help the banks short term, but they MUST take their losses, and they must refocus lending on production and away from speculation.

    The working population are becoming very demoralised. Speculation has been the only game in town for 10 years, it needs to be stopped before people abandon saving, or worse, abandon the country.

  21. Acorn
    Posted April 17, 2008 at 11:15 am | Permalink

    Here in Little Britain, on my left, the US FED is saying forget the inflation, liqidity is the priority. On my right the EURO FED is saying inflation has to be the target.

    The one on the left has a massive current account deficit, the one on the right has a little surplus. Politically I am confused; is the one on the left being right wing? The one on the right being left wing? Answers on a postcard please.

    While your thinking, listen to Axel at http://www.merkfund.com/about-us/news/2008-04-10….

    BTW; Radio station KNX 1070, does not mention "the pound" much nowadays.

  22. Rose
    Posted April 17, 2008 at 1:51 pm | Permalink

    I can't abide the cocky, slapdash school of reporting led by the BBC's Nick Robinson, which by each evening has infected all the news programmes with its froth and inaccuracy. And how I miss their John Cole, who though a Labour man, strove meticulously and conscientiously to understand, and then explain, what was going on.

  23. Michelle Mary
    Posted April 17, 2008 at 7:20 pm | Permalink

    Dear John, I was drawn to this piece by the title because as you know, I for one do not like to hear any disrespect or blame in politics, preferring instead to see a united government – if they have to be, from different political parties – comming together around a table and making good everything they can for the benefit of all. Like the Queen, the public through the political voting system in this Country, which is not ideal, have to accept that we have a Prime Minister who is chosen by the people of this Country. I beleive therefore… whatever our personal opinions… we should give the current Prime Minister all the respect and support we can – and that includes the media – at every opportunity for it is He (or She) who, like our Queen, goes out as a Public Ambassador for this Country… Like you, I too write articles and I've watched with interest and listened to many MPs recently and I think you are the first one who… although may not entirely agree, has the respect and discipline to write about our Prime Minister in a way that I can accept and consequently go on to read more of what you have written. The detail involved in the high level discussions, iniatives, reports etc from within the Government are what we the public delegate you the responsibility to act on and therefore have to learn to trust and work also with our local MPs. So… having also been in directlly in touch with you, your office and your local council team… I would publically like to thank YOU for representing Wokingham in a way that can make us proud (even if we don't always fully understand or agree on everything either!!)

  24. Posted April 18, 2008 at 10:41 am | Permalink

    Should you not add when listing Brown's deficiencies the splitting into three (BoE, FSA and Treasury) of the regulatory control of banks etc? Had the BoE had sole responsibility for the oversight of Northern Rock's management policies, might it have been reined in earlier and escaped the worst of the sub-prime disaster?
    As Michael Parkinson pointed out: "Committees of three are best – when two are in hospital".
    On inflation, if the word is to have any meaning to us members of the public (and not Gordon Brown's abstruse economic one), it must reasonably measure the rise in the cost of living – and that includes some housing costs.
    Will the conservatives please consider introducing a more realistic index and also hammer home the fact that inflation, as it affects ordinary people, is more like 5% to 6% than the 2.5% that Brown claims?

    Reply: Please see my views on this under the Northern Rock tab – I agree with your thoughts.

  25. Steve
    Posted April 18, 2008 at 3:53 pm | Permalink

    Have you ever stated publicly and unequivocably over the last 5 or 6 years … 'house prices, fuelled by debt, are getting out of control and we need to regulate a banking sector that is essential to our economy and which we cannot allow to get itself into trouble through risky lending'.

    If banks are a special case – they are essential to our economy – they why aren't their lending practices regulated? The conservatives de-regulated consumer spending in the 1980s and, whilst this may or may not have been a good thing, the way that lending has got out of control in the last few years has been, surely, utterly irresponsible and reckless. Did the banks really think house prices could go up forever? Surely a child of 5 knew there had to be some affordability constraints and that when they were reached the housing market, being a MARKET, would likely correct and put some of that lending at risk. Northern Rock and many other banks were recklessly lending people 125% of the price of a property. How insane! Yet no-one said a word – until they ran into trouble.

    The proposed bail-out sends the wrong message to the banks. Perhaps lending and banking services need to be separated.

    There are many private companies that are essential to our economy. All the utility companies leap to mind. But they are heavily regulated – yet the banks aren't. Brown has enjoyed boasting about growth and, being financially illiterate, thought it would go on forever and that he was immensely clever creating growth in the economy. The man was and is a fool and I am annoyed that the conservative voices were strangely quiet as the average British consumer was led into a noose of debt by Brown and the banks.

    Reply: I made a strong atack upon the switch from RPI to CPI for inflation targetting, warned that it would lead to interest rates being too low and explained it was probably designed to do that ahead of an election.

  26. Steve
    Posted April 22, 2008 at 12:49 pm | Permalink

    Do you believe that the current level of house prices is unfair from the point of view of would-be first time buyers?
    House prices have been driven up by cheap and easy credit and now young people face taking on huge mortgages to get on the housing ladder. Given that no-one can see into the future and predict where interest rates might go, it is clearly dangerous to take on massive levels of debt at (currently) low interest rates.

    Would a conservative government do anything to prevent another house price boom? We had one in the late 80s under a conservative government and it led to a pretty unpleasant recession in the early 90s. We are about to have on now and, amongst other things, it seems to be threatening the entire banking system. It is clear that relying on house price growth as the engine of the economy is not a good idea. Would you agree? What would you do to prevent another boom after this one has corrected? We cannot allow banks and the market to let this happen again.

    Reply: Yes, current house prices are preventing some young people buying their first home. It needs to be corrected sensibly, not by a crash. I would want a future government to tighten money supply in the upswing of the cycle – not to relax on the upswing as this government has just done.

  27. Adrian Peirson
    Posted April 26, 2008 at 1:00 am | Permalink

    How about this. as a One off, Declare all Mortgages paid off, the British Public now own their own homes.

    What will the British Public do with this extra disposable income, they will start spending again.

    Punish the Banks, not the Public.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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