You can’t get out of a borrowing crisis by borrowing more

 

           Some have pointed to a paradox in what I argue. I both agree with the government that you cannot get out of a state borrowing crisis by borrowing more, and propose that more credit in the private sector would be a good thing to get the economy moving. These statements need not be contradictory.

            It is true that some individuals and  companies overdid the private sector borrowing in the heady years of 2004-7. Some banks clearly went too far, building huge portfolios of risky debt and other financial instruments.  I am not advocating that these individuals or companies shoulod borrow more. They are having to cut their borrowings and sell off some of their assets to repay debts. That is a necessary process to get over the inflation of assets and asset prices of the pre Crash period. The banks have now slimmed down their balance sheets considerably, and are in a position to expand a bit if only the regulators would let them.

           The private sector, however, remains larger than the public sector and includes a large number of credit worthy individuals, families and companies who could take on more debt for sensible projects and purposes. The aggregate level of private sector debt got too high by 2007. It has come down a bit since then. The totals allow scope for the unborrowed and those with little gearing to borrow some more.

            That is where the role of the banks needs changing. Today credit worthy smaller businesses cannot get credit at all, or only at a very high price. Larger companies are put off epxanding, partly because they are concerned about demand, and partly because even they may be worried about working capital facilities needed if they do expand. If people cannot get mortgages for new homes, housebuilding suffers. If people cannot get mortgages for second hand homes, all sorts of activity related to home improvement and buying and selling suffers. If people cannot get loans to buy new cars, the motor industry suffers.

            Some say that too much credit in the past has greatly extended house prices, and these should now be allowed to fall further. It is true that mortgage banks lent far too much prior to 2007, extending higher multiples of joint incomes and allowing a fast appreciation in home prices. There has been quite a big adjustment outside London since 2007. Central London has stayed high owing to strong foreign demand, often based on cash not mortgage money.

            Whilst I agree that home prices are still high relative to income, I am also conscious that falling house prices puts people off making other purchases and makes them less adventurous with their other capital where they have some. We need to establish a sensible clearing price in the market for homes soon to foster recovery. It may not be as low as some would like, but allowing further large falls with a very restricted supply of credit will undermine banks further, leave homeowners feeling bruised and lacking confidence, and may not even in the short term help the first time buyers. They may, after all, delay as they see prices falling.

 

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156 Comments

  1. Posted June 12, 2012 at 5:26 am | Permalink

    It is not so much, what is borrowed, as what is done with the money. Is it being invested in some thing sensible that produces a real return over interest and repayments or is it being wasted on the green religion, HS2, over priced parliament buildings, daft tram systems, white elephant stadia, more layers of government, more regulations, Millennium domes, more bureaucrats, pointless wars, ………

    The banks are putting entirely artificial barriers in the way of lending. Anything not straight forward is refused. No looking at other sources of income, no second charge lending, virtually no development lending, no lending on building with commercial use all sorts of silly artificial restrictions. They are in a sellers market and do not have enough product to sell due to the new regulations. Easier to borrow from a friend in general you can even get tax relief sometimes.

    • Posted June 12, 2012 at 5:32 am | Permalink

      You say:

      “The private sector, however, remains larger than the public sector and includes a large number of credit worthy individuals, families and companies who could take on more debt for sensible projects and purposes.”

      Well only just larger, it needs to be about four times larger in a well run country. The state sector too includes a large number of credit worthy, solid, individuals, and families who could take on more debt for sensible projects and purposes often and with good pensions to fall back on should they fail. Release them to start their own businesses or get other jobs and do something perhaps more useful than inconveniencing and taxing the productive as is so often the case.

      • Posted June 12, 2012 at 5:47 am | Permalink

        They can put their state redundancy money to good use, perhaps in a new business or helping an existing one. I am sure they will be happier and more satisfied doing something rather more useful.

        • uanime5
          Posted June 12, 2012 at 5:53 pm | Permalink

          It’s pretty self-centred of you to just decide what should make people happy. There’s nothing wrong with being happy and working in the public sector.

          • Lindsay McDougall
            Posted June 13, 2012 at 10:15 am | Permalink

            Unless there are too many of you for all the good that you are doing and you are employed at somebody else’s expense.

          • Posted June 13, 2012 at 12:44 pm | Permalink

            I do not want to decide what makes them happy – that is up to them I just make the suggestion that they might be more happy doing something more useful. Also that I do not want my taxes paying for things that are pointless or even negative as is not so often the case.

        • APL
          Posted June 13, 2012 at 7:32 am | Permalink

          Yes, move them out of the tax consuming sector into the tax contributing sector.

    • Posted June 12, 2012 at 5:43 am | Permalink

      I see that:

      Survey shows biggest ever drop in public satisfaction with the NHS
      Public satisfaction with the way the NHS runs fell from 70 per cent in 2010 to 58 per cent in 2011, according to British Social Attitudes Survey data published by The King’s Fund.

      http://www.kingsfund.org.uk/press/press_releases/bsa_survey_results.html

      Time perhaps to start charging those that can pay (at the point of rationing), get them to respond to “customers” for once – (and stop them paying for quack and cosmetic treatments other than in some very exceptional cases). Also reduce the professions and the drug companies strangle hold over the system perhaps.

      • Mactheknife
        Posted June 12, 2012 at 12:03 pm | Permalink

        Why should those who can afford to pay be required to pay when they have already contributed more than many others to the NHS pot ?

        I’m a little tired of this “afford to pay” attictude. If the government were to give me back my tax which goes to the NHS then I would gladly pay at the time of need using medical insurance. Otherwise why should I pay twice ?

        • Posted June 12, 2012 at 2:06 pm | Permalink

          Indeed of course they should give you the tax back. Paying at the time of use would give you rather more control over what service and treatment you got rather than the current take it or leave it mate attitude – when and if the NHS feel like offering anything.

        • Posted June 12, 2012 at 2:20 pm | Permalink

          I agree with Mac. If I will be required to pay for NHS use in future then I want my NI contributions, and those made by my employer on my behalf, returned.

          There should be an opt out from the start. People should have the freedom to take their NI contributions and buy their own insurance, tailored to their personal needs, on the open market.

      • uanime5
        Posted June 12, 2012 at 5:54 pm | Permalink

        How strange that despite all the changes the Government has made to the NHS there’s been a big drop in public satisfaction. Could the two be related?

        • Mactheknife
          Posted June 13, 2012 at 2:44 pm | Permalink

          There is no drop in my sstisfaction level my Leftie friend. I just dont want to pay twice.

    • Posted June 13, 2012 at 3:56 am | Permalink

      Lifelogic, You say “It is not so much, what is borrowed, as what is done with the money.”

      That point is irrelevant. Obviously the better use is made of borrowed money the better. We’ve all worked that out. But even if capital is far less productive than nowadays (as it was say 100 years ago) that does not preclude full employment. Thus the efficiency with which borrowed funds are used is irrelevant for the purposes of getting back to full employment.

      Re the “artificial barriers” that banks are putting in the way of borrowing, that is also irrelevant. Obviously if funds are easily borrowed, that’s nice. But again, relatively high interest rates do not preclude full employment (given enough aggregate demand).

      The latter point might seem to be contradicted by the fact that the higher interest rates are, the lower is demand all else equal. However the flaw in that argument lies in the “all else equal” assumption. That is, it is quite easy to raise demand given constant interest rates simply by having the government / central bank machine print and spend extra money into the economy.

      • Posted June 13, 2012 at 12:49 pm | Permalink

        Do you really think paying people to dig holes and then fill them in again will create a sound economy? Or do you think that sensible investment in, for example, sound growing businesses might be a far better bet in the long run?

        • Posted June 14, 2012 at 4:28 pm | Permalink

          The reason is simple digging pointless holes might cost £20,000 PA per person pointlessly employed. Whereas the same money, when put into a sound business, might employ perhaps 5 with the rest of the funds needed coming from sales or better still exports.

          Worst of all is when they government employs people, not just to dig pointless holes, but to hit the productive sector over the heads with the spade ever hour or so. This so very often what happens – often with Vince Cable cheering them on it seems.

  2. Adam5x5
    Posted June 12, 2012 at 5:36 am | Permalink

    What really annoyed me, as someone who is looking to buy a house for the first time in the near future, was the government’s (can’t remember if it was the last lot or this one) announcement of a bailout fund for people who got into mortgage difficulties.

    Why should this happen?
    If I went out and borrowed to my eyeballs to buy a £250,000 sports car, the government wouldn’t bail me out when I couldn’t afford the repayments.- and rightly so. Why should a house be any different? If you’re daft enough to overextend yourself in the first place, then I shouldn’t have to bail you out.

    the only effect of this policy was to keep house prices artificially inflated.

    • Caterpillar
      Posted June 12, 2012 at 9:32 am | Permalink

      Adam5x5,

      I agree with your critique and example.

      There is a tendency for the Govt to associate a higher (political) value with wreckless mortgagors than with those ‘do the right thing’ deposit targeting savers. This is an ethically bankrupt, totally distasteful approach – those on the inside of the housing market are disproportionately favoured over those on the outside.

      Even JR uses the phrase “homeowners” as a generality. There are actually mortgagors who are unfairly being protected (by extreme monetary policy, banks not foreclosing, debt relief) and there are true homeowners who do actually own 100% of their residence, and are thus usually savers. Lumping these together is a presentational convenience. The fact that the Govt wishes to keep resource misdirected to homes and continue to give precedence to the wreckless over those who ‘do the right thing’ (the ZIRP redistribution from those on the outside to those on the inside) is inappropriate and distasteful.

      I an surprised that JR makes a (partial) defence of the policy distorted market in his final paragraph.

      • Mark
        Posted June 12, 2012 at 8:59 pm | Permalink

        Let the reckless be wrecked!

    • Denis Cooper
      Posted June 12, 2012 at 9:56 am | Permalink

      Well, the main difference is that you and your wife and your children wouldn’t normally be living in the sports car, and so when it was repossessed you wouldn’t be looking for other accommodation and possibly be put on the local council list of carless families who must by law be provided with an alternative car even if it was only a temporary bed-and-breakfast car. However the problem is how to devise a support system which avoids families being thrown out onto the street through circumstances beyond their control, without others seeing that system as unfair and without it creating moral hazard.

      • forthurst
        Posted June 12, 2012 at 11:19 am | Permalink

        A mortgagor in default is in exactly the same position as a tenant, not having paid his rent; he is living in a property which he does not own and for which he is not paying. The tenant would have to find a cheaper property he can afford; why not the mortgagor? Why should he become the responsibility of the bank, government, local authority, whoever? Are you not extending taxpayer largesse to another category, after the bankers, of the undeserving getting money from people who have been prudent?

        • Posted June 12, 2012 at 2:08 pm | Permalink

          No quite true – a tenant in hardship gets better state help with the rent than a mortgagee I believe.

          • forthurst
            Posted June 12, 2012 at 6:17 pm | Permalink

            Well, I wasn’t implying that people should be put out in the street. People are entitled to rent support in respective property which the government believes subserves minimum standards when they do not have their own resources to pay. I cannot see why that principle should be extended to people who are living beyond their means as mortgagors.

      • Adam5x5
        Posted June 12, 2012 at 2:42 pm | Permalink

        The use is irrelevant.

        If instead of buying a house, the family bought a large £250,000 boat and lived on it.

        If they then, due to the same circumstances, fell behind on payments and the boat was repossessed I would assume this would not be covered by the government’s policy as it is not a house. ( I may be wrong).
        If this isn’t covered, then it is only artificially inflating the house prices for political gain and is still a tax on people who do not have a house and want one, to subsidise those who do but can’t really afford it.

        At the end of the day, it is the borrower’s responsibility to ensure that they can afford the mortgage. They are aware when they sign the deal that if they fall behind, they may lose their house.

        • Denis Cooper
          Posted June 12, 2012 at 8:31 pm | Permalink

          They’d be homeless, whether their previous home was a house or a houseboat, and therefore at some point the state would intervene in one way or another; they wouldn’t be classified as homeless if they still had a home but had lost a sports car. So you can’t say “the use is irrelevant”, because it clearly is relevant.

          • Adam5x5
            Posted June 13, 2012 at 8:36 am | Permalink

            The point I am trying to make is that the ‘home owner’ holds a special status in the eyes of the government and receives special treatment.

            Under any other circumstances a person in debt would not get help with their debt from the government.
            It is only because the political parties are trying to make political capital by being able to point to rising house prices which have made home owners better off.

            If a person enters into a debt agreement secured on a possession then they are aware that that item is at risk. Other tax payers should not be forced to bail them out because they were unable to meet their obligations.
            It is especially unfair on people, like myself, who are trying to get together a deposit for a house in an artificially high market, to have to bail out people who should by rights lose their house and let the market correct.

      • The Realist
        Posted June 15, 2012 at 8:50 pm | Permalink

        over borrowing is not beyond there control

        • The Realist
          Posted June 15, 2012 at 8:50 pm | Permalink

          their control

  3. Posted June 12, 2012 at 5:52 am | Permalink

    I see the can the Germans are foolishly kicking down the road has bounced back off a tree or something just a few minutes later.

    • Posted June 12, 2012 at 2:18 pm | Permalink

      So according to Sir John Major, Mr Murdoch tried to encourage him to come to his senses on the EU this, even after his ERM fiasco (apology still awaited) when major was holding on to the bitter end that he richly deserved). The party then buried for three terms.

      Major also claimed he implied he could not support him otherwise.

      Good for Murdoch why on earth should his papers support such a daft policy that Major was pushing. It would be harmful to his papers and his readers be rather dishonest to them.

      Why does Sir John have the knighthood and not Murdoch?

  4. Leslie Singleton
    Posted June 12, 2012 at 5:52 am | Permalink

    You paint a depressing picture where everything is ultradependent on debt but some of us might think that debt is more the problem than the solution. Boom and bust and bankruptcies wouldn’t exist but for debt. You say “the totals” show scope but I don’t blame “the banks”, equals individual lenders, one bit for not lending in to this economy and to people with squeezed cash flow. The idea is to be sure the loan gets repaid, or rather it was for me. And to my mind one builds houses etc for people to live in etc not to help the housebuilding etc industry. I watched something on Germany on TV recently and admired the approach of the man in the Strasse they showed who would as he put it “make do with an older and smaller car” rather than borrow to buy a new one. After all, the first thing a lot of people do when they buy a new car is take it home and wash it.

  5. Posted June 12, 2012 at 5:58 am | Permalink

    House prices, outside London, are not in general much too high. If you want new houses they have to be built and, thanks to green and PC nonsense, planning costs, building control costs, land costs and the deliberate devaluation of the pound, plus over regulation etc. they cost more and more to build. The population is still growing whether you like it or not.

    Not everyone can live in Chelsea or London so you have to ration it somehow – price is the right way.

    • alan jutson
      Posted June 12, 2012 at 7:42 am | Permalink

      Lifelogic

      Wait until interest rates get back to their normal historical level, then you may see house prices drop.

      Lots of negative equity, lots of reposessions, that is what will really cause the action.

      Not wishing it on anybody at all, but too many have borrowed too much, at a historic interest rate that is just too low to be sustained for any length of time.

      Agree that demand is still high and building starts are now low, so immigration and a rising population is helping keeping prices higher than they would normally be the case, as for the time being demand still seems to exceed supply.

      • Posted June 12, 2012 at 8:58 am | Permalink

        True people on the new high bank margins will suffer as rates rise even if just a little. They need to get real competition in banking going again and then rates can rise (and bank margins fall a little) to compensate. It is absurd that banks can borrow for .5% unsecured and lend out at, say, base plus 6% or even higher secured.

        Picassos and Gold are over valued too but it is supply and demand. Get the state sector smaller, taxes down and the private sector bigger and prices will rise. It is higher in London because have not had to pay UK tax rates or are nondoms.

      • Adam5x5
        Posted June 12, 2012 at 9:04 am | Permalink

        “… at a historic interest rate that is just too low to be sustained for any length of time.”

        How long have we had it now? 2 years?
        How long did Japan have a virtually nil interest rate?

        It is entirely possible to keep it this low and is part of the plan to keep the government debt in check and prevent a slew of negative headlines about large numbers of reposessions which would make the government look bad…

        • alan jutson
          Posted June 12, 2012 at 11:23 am | Permalink

          Adam 5×5

          I understand that the average 50 year historic rate for mortgages is around 8%

          Given that most mortgages last for 25 years, the fact that for the last 2-3 years it has been nearer to 3% means a lot of people who have taken out mortgages in the last few years, may get a rather large shock when the rate rises perhaps substantially in due course to more average historic levels.

    • A different simon
      Posted June 12, 2012 at 9:35 am | Permalink

      “House prices, outside London, are not in general much too high”

      You appear to be looking at this as a builder and landlord whereas most of us look at it as buyers , renters .

      House prices might not be “generally much too high” in comparison with build costs but I’d suggest they are unaffordable with regards to wages .

      Obviously there are a lot of factors affecting what people can afford but could you please consider the following general cases and let us know what you think are sustainable ballpark accomodation costs ?

      By sustainable I mean without the need for subsidy via housing benefit whilst being able to save enough to provide for their old age without having to have it topped up by means tested old age benefits and without having to use equity release schemes .

      Case 1) Single person aged 30 with no employers contribution to pension , driving 30 miles to private sector job earning £30,000 a year not expecting to inherit anything , not expecting promotion of salary increase beyond inflation .

      What do you think they should be able to afford :-

      i- as rent assuming they will live in rented accomodation their whole life ?
      ii- to pay as mortgage ?

      Case 2) Couple aged 30 with two children aged 5 and 6 , earning £50,000 between them , no employers contribution to pensions , both with 30 mile drive to private sector work not expecting to inherit anything , not expecting promotion of salary increase beyond inflation .

      i- as rent assuming they will live in rented accomodation their whole life ?
      ii- to pay as mortgage ?

      • Posted June 12, 2012 at 2:32 pm | Permalink

        Rent and mortgage are not that different but rents go up mortgages (if you fix the rate) do not – so seem cheaper in the long run.

        People do get help with rents but if they did not then taxes could be reduced by a similar sum.

        You will not get any new houses unless the prices are sufficiently high to justify the building of them. Especially with all the government green, water, planning, stamp duty, land reg costs, utility costs and all the other costs pointlessly added on.

        I tend also to think the costs of going to work and childcare should sometimes be tax allowable otherwise people will and do turn down jobs because of these costs making it not worth while.

        We need less tax, fewer government parasites and higher wages. Deregulation, bank lending and growth policies are what is needed and not just Cable’s pathetic tinkering either – some real action. Alas still no sign of it.

        • Mark
          Posted June 12, 2012 at 9:18 pm | Permalink

          The key is that newbuilds are uncompetitive because of the greenergy building standards, Section 106 and so forth. These impositions need to be removed, so that we have cost effective building standards rather than green plated ones, and so that the financing of infrastructure and public housing is not loaded exclusively on newbuilds: local authorities should be able to raise bonds for this sort of investment. Removing the Prescott inspired planning restrictions that condemn us to building hamster hutches with inadequate provision for vehicles or garden space that will become the slums of the future would also help.

          In some parts of the country, the hoarding of building land as a speculation by the largest building companies is also a big contributor: some of them have landbanks of over five years worth of building. They seem to believe they can avoid losing on their speculation by rationing availability. For now, they’re right. I’d like to see excessive landbanks penalised with a hoarding tax that would encourage their sale to those who would actually develop the land.

          • Posted June 13, 2012 at 2:55 pm | Permalink

            Also they are usually absurdly small with no room for extension and built of sort of cardboard with windows far too small due to the heat reg nonsense. Nowhere to park a second car nor even a normal size first car.

        • A different Simon
          Posted June 12, 2012 at 10:01 pm | Permalink

          Lifelogic ,

          I thought you might have volunteered us figures .

          Higher wages would just makes us uncompetitive and send jobs overseas .

          We need purchase and rental costs simmilar to our competitors .

          To achieve this we probably need regulation simmilar to countries like Malaysia and the Phillipines which reserve ownership of houses for citizens and only allows foreigners to buy houses in the highest quartiles .

          Also fair rents like Germany , which lost the war but won the peace .

          Rates/council tax for plots of land which have planning permission but are not built on .

          Whilst private investors may expect unrealistic returns to invest in housing companies , a state pension fund which invested in provision of social housing should not .

          There is a strong case for communal ownership of all surface rights in the UK with private ownership replaced by a charge for exclusive use of the commons ; which much of it was before it was shamefully enclosed during the 19th and early 20th century .

      • Bazman
        Posted June 12, 2012 at 5:04 pm | Permalink

        Average wage and average house price are miles apart across the country. Where can you rent a three bedroomed ho8use for less than £500 a month and where can you buy the same for less than 100k?
        £500 rent/mortgage, £120 council tax, utilities £150, travel £200 per month. Add two children and only one parent working. Given many jobs pay less than 20k a year before tax. If you can get one, and eating. Life ain’t cheap.
        lifelogics fantasy. Or shall we say non reality? Again.

        • Mick Anderson
          Posted June 12, 2012 at 7:27 pm | Permalink

          Average wage and average house price are miles apart across the country

          If that were true then half the population would be living on the streets, and that’s patently nonsense. Housing costs and income are apart, but not impossibly for most people. Obviously lots of people would prefer to pay less.

          Why should a family of four or more be able to live off one average salary? At the very least, a home with two adults and children should be able to have one full-time and one part-time income, assuming sufficient jobs in the area. Raising school-age children doesn’t require preclude a part-time job – I remember my mother working part-time from home even before my sister started school.

          There are also other ways to bring personal income and housing costs closer. How about reducing the Governments tax-take by half? That will give everyone a healthy effective pay-rise, reducing the gap nicely.

          • A different Simon
            Posted June 13, 2012 at 11:59 am | Permalink

            Mick ,

            What you say might be true if people were putting enough away for their old age but they are unable to .

            For most people , a large part of accomodation costs are being paid by bringing future consumption forward .

            That is why they are not on the streets now but what is going to happen when they hit 65-68 and they have no income , no savings and no way of paying the rent ?

            The state will end up picking up the tab with housing benefits and old age benefits (probably means tested ones which discourage any sort of saving) .

            The only way I know of closing the gap between accomodation costs and wages is creating a surplus of housing .

            I’m really not sure whether there are any other means of closing the gap .

            The evidence , going back over 200 years , is that in the UK measures which put extra money in the pockets of ordinary people get absorbed by rent increases .

            We’ve almost gone back to a Lord of the Manor / Serf society .

          • Bazman
            Posted June 13, 2012 at 5:55 pm | Permalink

            A single person in my area with no children would probably find a job paying about 1k a month take home. It is not possible to rent a flat for less than 400 a month. I said month. A week? Dreaming. Where does anyone get this money? Of what is left £120 will go in council tax and another £150 in utilities. Leaving £175 a month or £40 a week, left to live on. That is the reality for many. If the person where to live off the state they would live in a bedsit paid for by the council at about 250 a month and just afford to eat using unemployment benifit or income support.
            The council has a legal duty to provide housing for a person or person with children. That is how they afford to live in a larger house.

        • Posted June 12, 2012 at 8:24 pm | Permalink

          The going rate for rents is perhaps circa 5% of property value. So a £200,000 house might rent for £10,000 or about £200PW. To buy it is not much different if you can find a mortgage and some deposit.

          Again all the cost are pushed up by daft government regulations, pushing extra pointless costs onto the landlord – like the absurd deposit regulation, rules and similar.

          • Bazman
            Posted June 13, 2012 at 6:04 pm | Permalink

            That would assume a interest only mortgage and an income in excess of 60k. You presume to think this is real when the average wage is about 25k? You also assume that landlord would pass on the cost savings and not just take any cost savings if the government allowed them to plunder the growing rental sector.
            A tax cut would more than likely be spent on higher mortgage payments. It would be interesting to see what rental rates would be if the government just stopped all housing benefits. Unreal as an idea this is.

          • lifelogic
            Posted June 15, 2012 at 3:02 pm | Permalink

            It would increase supply, cut landlord cost and thus competition would lower rents or restrict increases. Simple supply and demand.

          • Bazman
            Posted June 16, 2012 at 5:36 pm | Permalink

            Simplistic nonsense like your easy hire and fire rules. Just loose your job and get another one. Now be thrown out of your house and just get another one. Not real. Again.

        • A different Simon
          Posted June 12, 2012 at 10:35 pm | Permalink

          Bazman ,

          Assuming people work on average 2/3rd of the adult life and retire for 1/3rd , based on £500/month rental they are going to have to save £250/month just to cover their rental in old age .

          Even if they manage to save anything , it will only take a few months unemployment to drain it all . So many people I know are out at the moment it’s scary .

          I fear we need to be aiming for rents of less than £500/wk .

        • David Price
          Posted June 13, 2012 at 7:36 am | Permalink

          Why should you expect to rent a 3 bed house for £500? It seems to me that people’s expectations have inflated significantly compared to 30 or so years ago. Then, you would start with a smaller property you could afford, probably an apartment, and limit your familiy size to what you could afford.

          Now it would seem people feel they are entitled to a 3 bed detached house with garden straight away. Why should others fund such impatience and sense of entitlement?

    • uanime5
      Posted June 12, 2012 at 5:59 pm | Permalink

      Well if you want people to go where the jobs are you have to provide houses they can afford. Rationing houses by price creates a lot of problems when you need low paid workers in a high cost area.

      • Posted June 13, 2012 at 12:54 pm | Permalink

        We cannot all live in Chelsea – how do you want to ration them if not price?
        If you are a top state sector worker you get one perhaps?

      • Bazman
        Posted June 13, 2012 at 6:06 pm | Permalink

        Does not seem to push up rates for the workers in the expensive areas. Just seems to attract more desperate ones.

  6. Andrew Henley
    Posted June 12, 2012 at 6:07 am | Permalink

    Agree, to a point. People and small business’ used to have readily available current account overdrafts, now these facilities are restricted and charged at a higher rate. So we have the advent of the high interest ‘pay day’ loan, which target the most vulnerable whilst channeling the profit to many of the same institutions that brought about the current dilemma.

    However, we must move away from the idea of limitless economic and social growth and start seeing some moral leadership. A credible leader who leads and says ‘we are not greed, enough is enough’. We need focus on our families and communities because the iniquities bred by rampant money demand will cause greater social strife than an economic collapse.

  7. Javelin
    Posted June 12, 2012 at 6:24 am | Permalink

    The dye in the EU is loooking cast.

    Spain up to 6.5% on the 10yr, up from 6.0% off the back of the 100bn bailout. Plus estimates of at least 200bn more is needed. This will push Spain into the red as Governments borrow off banks and banks borrow off Governments. Esher would be proud of the ironic Ponzu scheme being painted.

    But I still stick to my predictions that these debts are just the foundations and that it will be Italy that will push the EZ over the edge.

    • lojolondon
      Posted June 12, 2012 at 8:08 am | Permalink

      All we can hope for is that when it does collapse, the EU collapses as hard and as finally as the USSR.

      Expect momentary pain, followed by years of self-government, reduced red-tape (if our government does what they promised), more money (as we save £15Billion per annum in wasted fees), and booming trade with the Commonwealth (if they will still have us back after we dropped them due to EU trade laws).

      • Norman Dee
        Posted June 12, 2012 at 1:02 pm | Permalink

        Are you actually watching what is going on in Russia? At least the old regime had a title that was legitimate, they were communists ! Putin and his crew are just (people with v ery questionable conduct-ed). They make it up as they go along, try googling ¨Putins palace¨

        • APL
          Posted June 13, 2012 at 7:56 am | Permalink

          Norman Dee: “They [Russian oligarchs] make it up as they go along,”

          Norman, have you seen what the EU bunch get up to?

          Their Lisbon treaty is so labrynthine it is deliberately designed to be able to drive a coach and horses through it.

          They even now are acting illegally outside the constraints of their own treaties. ( Which are consaquently null and void, by the way).

          So yes, the post soviet oligarchs act without constitutional constraint, but then so do the EU gangsters and by the way, our home grown financial and political terrorists (who attempt to threaten and scare the population each day) have been busily copying from their foreign counterparts playbook, they act unlawfully too.

      • uanime5
        Posted June 12, 2012 at 6:03 pm | Permalink

        Due to rebates the membership fees of the EU are only £4 billion per year.

    • Lord Blagger
      Posted June 12, 2012 at 8:20 am | Permalink

      The main problem is that politicians aren’t admitting to their debts.

      The main fraud relates to pensions. They aren’t on the books.

      Here are the excuses.

      1. Other countries don’t report them.
      2. We can always print money
      3. We can always change the rules.
      4. It’s not a contract.
      5. It’s not how it works.

      The problem with the pensions debts is that they are too large even for the UK to pay.

      Point 1. A bit like any criminal saying you can’t prosecute me because others are getting away with it. Standard defence of any Peer or MP in court for expenses fraud.

      Point 2. Doesn’t work for most of the debts. The pensions debts are index linked. Print money and you cause inflation and the debt is still there. It doesn’t shrink in real terms.

      Point 3. Change the rules = default. They are planing on not paying out. Eg. Tory plans to take the state second pension away from all people who have paid in.

      Point 4. Civil service pensions are a contract. The courts are likely to enforce the state pensions because people have contributed, so they will resort to default (changing the rules). As an example, raising the state retirement age has ripped off a median worker by 20,000 pounds. Nearly 11K in payouts, plus 9K in addition NI contributions

      Point 5. Oh yes it is how it works. It’s Ponzi.

      Reply: The basic state pension is paid out of current tax income, as are health, education and other public service running costs. You do not have to work out capital sums for all of these and treat them as debts.

      • Posted June 12, 2012 at 9:01 am | Permalink

        “You do not have to work out capital sums for all of these and treat them as debts.”

        No but they are liabilities unless they renege on them and they are slowly killing the wealth creators that pay for them.

        • Mark
          Posted June 12, 2012 at 9:26 pm | Permalink

          The size of the liability depends on actuarial assumptions. It’s now fashionable to assume negative investment returns, or that everyone will live to 100 on average (the yield on a fully index linked annuity implies you don’t get your capital back in real terms unless you survive at least 30 years) . We know government have been keen on negative investment returns (see windmills, HS2, writing off large portions of student fees….), but there are ways of dealing with that.

      • JimF
        Posted June 12, 2012 at 11:33 am | Permalink

        Reply to reply:
        This might be how it works but that doesn’t make it morally right. You’re saying our state pension contributions have been stolen, echoing what the contributor has said. Why should my contract with the State for pensions, where I pay in for 40 years and receive pension, be any different than with a private contribution scheme? I shouldn’t be relying on an ever-growing workforce and contributions to cover what I already paid in.
        An honest government would turn this round.
        On Point 2 the contributor forgets how other state dishonesty can muddle up indices to ensure your index-linked pension devalues (aka why your pension goes up slower than your student loan…)

      • Leslie Singleton
        Posted June 12, 2012 at 11:50 am | Permalink

        How you treat pension liabilities is one thing but that is a slightly different question from whether pensions should be funded–I raised my left eyebrow on learning you apparently support pay as you go.

        • A different Simon
          Posted June 13, 2012 at 6:15 pm | Permalink

          Leslie ,

          It is of course a balance of what proportion is pay as you go and what proportion is funded .

          I’m not convinced that the UK’s 100% pay as you go is a good balance but I have been convinced that 100% funded is not desirable either .

          In order to attract tax relief their should be a requirement to invest the lions share in UK infrastructure which would help future generations earn the money to honour the pay-as-you-go element :-
          – building social housing
          – financing nuclear power stations (difficult to fund privately)
          – financing tidal barrage electricity generation
          – building of water reservoirs
          – purchasing of farms and other real assets which are being sold off by councils at rock bottom prices to cover short-term funding shortfalls .

          Amazingly at the moment , the amount of tax relief on pensions is almost the same figure as the amount paid out by pensions ie it is little more than recycling tax-relief .

          Perhaps this is hardly surprising since stock market returns have been negative over the last 12 years .

          We might well ask what the funds have done with the net of tax payments people have been making .

      • Duyfken
        Posted June 12, 2012 at 12:31 pm | Permalink

        I find JR’s reply extraordinary, or perhaps I have not understood. Just because the state pension scheme is unfunded does not mean there is no future liability for which reserves should be made.

        Reply: I am pointing out that you can make the same point about all public spending – why not demand reserves for future health treatments? There can be some things that are pay as you. If not, you should put in a countervailing asset, the present value of future tax receipts.

        • Brian Tomkinson
          Posted June 12, 2012 at 2:16 pm | Permalink

          The state pension is different from other state spending as we contribute directly through national insurance and the years of contribution determine the size of the pension. Politicians decided to spend all the contributions and make it into a Ponzi scheme. If a private company did that it would be classed as illegal and company directors would be jailed – politicians make laws to suit themselves.

        • JimF
          Posted June 12, 2012 at 2:47 pm | Permalink

          NOT EQUIVALENT
          I pay tomorrow for when the doctor carries out an op. on me, and he receives payment tomorrow from me or the NHS.
          I already paid contributions to my pension, which should be sitting there waiting for me as a 30, 50 or 75 year old who has worked and paid in. In the real (non-state-Ponzi) world, I should be able to stop work at 50 if I want to and take these contributions with me.
          If you can’t see the difference bewtween pensions which should be invested and future health treatments or garbage collections which are a future cost then we’re in real trouble here…..

      • David B
        Posted June 12, 2012 at 9:02 pm | Permalink

        Three are accounting rules for working out future pension liability and they should be applied. Just because they are not provided for does not mitigate them.

        We are also excluding bank bailouts and PFI liabilities from the debt figures. These need to be included

    • Bob
      Posted June 12, 2012 at 8:44 am | Permalink

      According to Order Order dot com

      “Treasury Denies Secret Eurozone Contingency Planning –
      Revokes “Trading With Enemy” Legislation Without Debate”

      Quietly slipped through while everyone was absorbed by the Jubilee celebrations.

      Very timely!

      • Denis Cooper
        Posted June 12, 2012 at 10:44 am | Permalink

        I wouldn’t get too worried about that.

        It was the subject of a typically sensationalist article on another blog on May 29th, and you can read my comment about it here:

        http://hat4uk.wordpress.com/2012/05/29/crash-2-why-has-the-treasury-revoked-debt-trading-sections-of-a-1939-act-without-telling-parliament/

        Well, actually, you can’t read my comment because the owner of that blog doesn’t like it when I point out basic factual errors in his articles, and so that comment is still in moderation; but the last but one comment shown, from “John”, covers some of the same ground.

      • Winston Smith
        Posted June 12, 2012 at 11:48 am | Permalink

        Yes, I too read that. It seems the Govt is removing legal obstacles to trading in Eurozone debts, or more likely repaying the banks money they have lent insolvent States. How will John Redwood defend this one?

      • Mactheknife
        Posted June 12, 2012 at 12:09 pm | Permalink

        I read this also. It looks like Osbourne is planning a back door bung to the EU if required. He’s renaged on his word once by promising the IMF another £10 Billion on the basis that its not directly going to the EU bailout……yeah right……look out for the flying pigs !

    • oldtimer
      Posted June 12, 2012 at 9:48 am | Permalink

      The other aspect, often overlooked, is that the devices set up to provide these loans, the ESM (European Stability Mechanism) and the EFSF (European Financial Stability Fascility) both depend on the support of EZ participants. Ratification of the ESM by all EZ participants is incomplete; EFSF loans need to be guaranteed by EZ governments – not necessarily forthcoming without strings. It is said that Finland will demand collateral.

      What if Italy comes asking for more, as you predict, before any of these facilties have been agreed? Presumably at some point some government, somewhere in the EZ, will decide the game is really up and will withold ratification/agreement? If the EZ has not completed its approval processes, are we able to conclude that the solvent EZ countries will not be liable because nothing has actaully been ratified? An enquiring mind would like to know what then?

  8. Posted June 12, 2012 at 6:32 am | Permalink

    In our debt based monetary fractional reserve ponzi system where money is loaned into existence out of thin air, via BOE or banks, deflation will lead to collapse. Without an ever increasing money supply the interest payable on existing and newly created debt/money cannot be serviced. This is why we shall have ongoing QE money printing which will eventually destroy purchasing power and is a de facto default.

    The debts are too huge. Western societies face a solvency problem jot a liquidity one which is why the bailouts will fail as they do not solve the solvency issue. Politicians do not have the backbone necessary to make the decisions required as they are petrified of the ramifications of fiat currency collapse. However prolongation of the misery is also not the solution and when Grexit finally happens we shall witness the dominoes start to fall. Bloomberg have already reported govts preparing plans such as capital controls, ATM withdrawal limits and border restrictions. Are you prepared for this?

    We need strong and decisive leadership. Professor Steve Keen advocates issuance of large payments to general public which must be used to repay their existing debts. In this way we can reduce the size of general indebtedness and the size of the banks. It is also another defacto default and fiat money destruction but at least those have been prudent receive something whilst trying to resolve problem. It has got to be better than this Kafkaesque situation we now face where everyone loses everything anyway.

    There is a reason that central banks are currently buying all the gold they possibly can. The current fractional reserve ponzi scheme is ending. The elites are desperate to keep it going as long as possible, but it is mortally wounded, US debt has risen from 10TRN TO 16TRN whilst the Obama straw man has been in power. This money is created out of thin air and cannot be repaid.

    Get ready.

    • Andrew Henley
      Posted June 12, 2012 at 11:20 am | Permalink

      Great if terrifyingly prophetic analysis of the economic situation. The defaults will lead to conflicts on national and socio-economic dividing lines. We may even see the resurrection of the dignified politician.

    • Gary
      Posted June 12, 2012 at 1:37 pm | Permalink

      Jed

      Agree with every word of yours, except for your supporting Steve Keen’s debt jubilee “solution”. Inflating the money supply to pay off debts will be counterproductive. Bad debts, which may be the vast bulk of the 500% total debt-to-gdp load, have to be written off and restructured. No possible growth rate, no matter how rosy, can avoid that. Attempting to print our way out of that debt and you lose the currency, capital and savings. A default by any other name.

      • Mike Stallard
        Posted June 12, 2012 at 4:29 pm | Permalink

        As you say, the real problem is very simple: once we in Europe ruled and fed and clothed the world. Today we don’t. Birmingham is no longer the workshop of the world and Queen Elizabeth II is not Queen Victoria.
        Get used to it!
        And that means we have to stop spending and borrowing as if we were back in the 20th century.

      • Mark
        Posted June 12, 2012 at 10:16 pm | Permalink

        My idea is that mortgage payments should be calculated as if the base rate were at a more normal market rate: after all, bubble purchasers saw base rates at much higher levels back in 2007, so they should be able to afford such payments, and if they can’t they ought to trade down anyway.

        The trick is that since actual rates are much lower, a significant accrual towards paying down the mortgage results. For example if the deemed base rate for mortgage calculation were 4.5% that would allow 4% to go towards paying down the mortgage every year with base rates at 0.5%. Nearly 5 years on from Northern Rock, that would have left banks with the ability to sustain house price falls with much lower risk of loss. By reducing the stock of money tied up in mortgage lending, it would have freed funds to lend to the productive economy.

        With house prices lowered, the need for large mortgages goes away. Instead of lending £7.5bn every month to 50,000 borrowers at £150,000 each, the same money could cover 75,000 loans of £100,000, or 100,000 loans of £75,000. It is the volume of transactions that provides health in the economy, because it allows people to move to take up jobs, and spend some of the resulting income on making their new homes to their own taste.

  9. Pete the Bike
    Posted June 12, 2012 at 6:39 am | Permalink

    The housing market has had a decade or more of a government inspired bubble. Prices grew to ridiculous levels and have not yet fallen to a price where buyers will return. The massive overhang of private debt is still there and as long as interest rates are kept artificially low (to help finance the public sector deficit) a correction won’t happen. Bad debt needs to be routed out, bad investments need to be liquidated, mistakes have to be undone before real capital can be freed up for good investment which is the only way to get real jobs.
    You can’t just fix all that with no pain like politicians want- can’t be done.

    • Simon
      Posted June 12, 2012 at 9:35 am | Permalink

      The BoE rate is used to do two things: control growth rates; control inflation.

      We have no growth, so we don’t need rate rises to dampen it down.

      Inflation is falling fast, so we don’t need rate rises to reduce it.

      The BoE rate is low because we are in an extended period of economic malaise, if anything is artificially low, it’s capital investment by the government (which is only borrowing more to cover the social cost of recession).

  10. Posted June 12, 2012 at 6:51 am | Permalink
    • Electro-Kevin
      Posted June 12, 2012 at 9:07 pm | Permalink

      Quite clearly this talk of going for growth is nonsense.

  11. Posted June 12, 2012 at 7:43 am | Permalink

    So Vince Cable, the anti business secretary, wants to allow employers make offer to employees to get rid of them (but they do not have to accept). He is kindly conceding that this will not be relevant at any tribunal.

    Why on earth such discussions not allowed in the first place? It is clearly in everyone’s interest that such conversations can take place.

    He is hardly going to inspire anything with this pathetic move. If that is really the best this man can do he should go now. Does he have a clue about the many pressures and mad regulation on businesses. Government by the state sector for the state sector is Cable’s idiotic approach – and s** the 80% who work elsewhere and have to pay for all this insanity.

    • Bazman
      Posted June 12, 2012 at 7:00 pm | Permalink

      They are allowed in the first place as they cannot be stopped. What he is saying that the argument will not be allowed to continue at the tribunal. The employee will say he is being coerced into taking cash to leave and the employer will say he is being blackmailed into paying. They have both signed an employment contract. You quote the contract to me and I will quote the contract to you. I do not care about your ‘business’ and you do not care about my ‘business’. You expect the law to be in your favour. Thanks for the employment and thanks for the work. Ram it. What do you propose to stop his way of thinking from an employee with no fear?

    • David Price
      Posted June 13, 2012 at 7:49 am | Permalink

      Of course it happens already, have you not heard of voluntary redundancy? With large businesses where a number of people need to be let go there is normally an enhanced redundancy package. This serves two purposes, the first is to be seen to be a good employer who values people, certainly compared to cheapskates who pay the absolute minimum, as they may want to re-employ those people again. The second is to offset less that absolute adherence to all the bureaucracy.

      Perhaps it is different in small scale businesses.

      It sounds like Mr Cable is trying to simplify things a bit by allowing offers to be made that can’t then be turned into grounds for constructive dismissal. I am certainly no supporter of Mr Cable or the LibDems but I think you are over-tarring this proposal a bit.

      • Posted June 17, 2012 at 7:48 pm | Permalink

        Redundancy has all sorts of other regulations you cannot selectively prune the work force using it – to the benefit the company and the country.

  12. norman
    Posted June 12, 2012 at 7:51 am | Permalink

    Houses aren’t selling where I live, and I’m in area that hasn’t suffered.

    Houses that would have been gone as soon as they entered market are now sitting for over a year. How much of this is caused by a reluctance of people to lower prices (although a couple I’ve been keeping an eye on have come down), reluctance of banks to lend, or the ripple effect caused by fewer first time buyers I’ve no idea. I’ve thought of moving but the uncertainty of putting my house on the market and not being able to find a buyer kills that thought.

    The one thing we can say with absolute certainty is that rock bottom interest rates aren’t sorting the market out despite what government spokesmen tell us. No doubt they’d say things are bad but imagine how much worse they’d be if we didn’t have low interest rates.

    ‘Things are bad but the other lot would be worse / things would be worse if we hadn’t acted how we had / nothing to do with me guv, it’s the Eurozone’ are phrases we’re going to be hearing a lot of in the next few years.

    Hardly inspirational stuff.

    • Winston Smith
      Posted June 12, 2012 at 11:55 am | Permalink

      Houses whee I live are selling fast. One on my road just sold within 3 weeks. I live in a London commuter town, with good schools and very low immigration issues. London suburban residents are queueing up to get out.

    • Lindsay McDougall
      Posted June 13, 2012 at 10:23 am | Permalink

      Unsound thinking. If you NEED low paid workers in a high cost area, you have to PAY THEM MORE.

  13. Brian Tomkinson
    Posted June 12, 2012 at 8:21 am | Permalink

    What about the £40 billion of undeclared losses in British banks? How can they lend more when they are already sitting on such high write-offs?
    As for agreeing with the government that you cannot get out of a state borrowing crisis by borrowing more – if only their actions matched their words. In just five years they plan to have increased the debt by a larger amount than Gordon Brown did in 13 years !

    • Adam5x5
      Posted June 12, 2012 at 9:55 am | Permalink

      don’t worry.
      We’ve just sacked 4,100 of our most experienced servicemen.

      That’ll save us loads.

      But thankfully, there was no mention of job cuts at the MOD…

      \sarcasm

    • Gary
      Posted June 12, 2012 at 10:04 am | Permalink

      “What about the £40 billion of undeclared losses in British banks? ”

      This is being conveniently ignored. The banks are still bust, but this govt (and the last one) will not even consider letting them go. At a wild guess I would say it may have something to do with party funding by the banks , at the least ? So, we plough on into the economic twilight, blaming everything else.

      http://www.telegraph.co.uk/finance/comment/9321796/UK-and-Europe-languish-in-a-zombie-bank-malaise.html

      BTW: the second peg of the three legged PONZI stool, after govt and banks, is property. This too is being underwritten by the govt aka the taxpayer, with renewed first time buyer tax inducements. This is causing capital to be locked up in property, where everyone is waiting “for the recovery” from already bubble valuations , and is not being allowed to be marked-to-market and restructured and the residual capital freed for productive growth. We have a stalemate of stagnation. The govt’s debt reduction target , originally based on a minimum of 2.1% GDP growth last year and 2.6% this year(2.9% next year), is hopelessly off-kilter. Whoever made that prediction must surely have been sacked already ?

      http://www.bbc.co.uk/news/business-12830224

      The govt need an Austrian School economist in their ranks. However, since that would put an immediate stop to their pork barrel spending fantasies and Empire designs, they would never allow such a reality.

      No more North Sea oil to save us, no productive sector to speak of, no remaining financial derivative engineering schemes to make us wealthier than Croesus, and while we finance foreign wars. So, this govt will be voted out in the next election and we will get the last lot coming in again to rinse and repeat.

      Reply: the banks are approved by auditors and regulators as solvent.

      • Mark
        Posted June 12, 2012 at 10:20 pm | Permalink

        Hans Christian Andersen had a tale about that: the courtiers politely failed to remark on the Emperor’s nudity.

  14. Bob
    Posted June 12, 2012 at 8:23 am | Permalink

    Osborne needs to deal with Brown’s silly cliff edge stamp duty rates, instead of fiddling around with taxes based on the temperature of pastry products.

    Then a small increase in interest rates, to make saving and lending a more attractive proposition than precious metals.

    Oh, what am I thinking? silly me – of course the most pressing facing the nation right now is the right to marry someone of the same gender – something that the government neglected to mention in their election manifesto, for some reason. Maybe it slipped Dave’s mind at the time, it happens to the best of us, a bit like forgetting to take your child home from the pub after closing time.

    • alan jutson
      Posted June 12, 2012 at 9:03 am | Permalink

      Bob

      Agree with you about cliff edge stamp duty rates distorting the market.

      But Osbourne will do nothing about them, as he has just introduced a new even more higher rate, for more expensive houses.

      He has also increased VAT rates on maintainance, refurbishment and improvements. Thus the alernative (VAT free) economy now gets the work at the expense of genuine registered builders (who are being put out of business because they cannot compete), and he gets no tax revenue at all, save that raised on the purchase of most materials.

      Joined up thinking ??????????

      Not a clue.!

      • David John Wilson
        Posted June 12, 2012 at 12:16 pm | Permalink

        Why can’t England have a progressive stamp duty regime like the Scots are proposing?

        • alan jutson
          Posted June 12, 2012 at 2:28 pm | Permalink

          DJW

          “Why Can’t England……”

          I know nothing of the Scotish system, but :

          That would be more sensible, and like a progressive income tax, but our Chancellor has decided its not for us in England.

          Scotland seems to have many rather more sensible policies on many things for their citizens at the moment.
          Perhaps that is why their Government is still popular with the electorate.

          • uanime5
            Posted June 12, 2012 at 6:22 pm | Permalink

            Well they do have a more proportionate electoral system than the UK.

    • Caterpillar
      Posted June 12, 2012 at 11:24 am | Permalink

      For me thresholds in all taxes appear stupid. If rates must be be non-flat then one would have thought a smooth rather than discontinuous function would be better. To Jo Bloggs on the street it only takes a formula in a spreadsheet, to civil servants and politicians it must represent some huge cultural change.

    • Mark
      Posted June 12, 2012 at 4:35 pm | Permalink

      I wondered whether Osbourne’s move on SDLT for properties worth over £2 million was actually an attempt to call a halt to the London bubble. It has been some years now that over 50% of purchases in London are made by foreigners – and even more so at the top of the market. That has captured cash inflows that have helped with the balance of payments via the capital account. However, there comes a point when the inward flow slows to a trickle as a bubble top approaches. The tax will reduce buying interest sharply. If prices fall, then the funds invested are captured and can’t be re-exported on sale. Sales become difficult to achieve, even at lowered prices.

      There is little immediate danger from taking the heat out of the top of the London market, as there are fewer British sellers left to cash up and spend on retirement in the shires or abroad. However the change in sentiment may spread more widely, and not before time.

      Perhaps I am crediting too much wisdom, and it was just some unthinking quad bashing of “the rich” as an alternative to the Lib Dem mansion tax.

  15. A different simon
    Posted June 12, 2012 at 9:03 am | Permalink

    The bank tail wagging the economy dog .

    This has been the entire story for the last 4 years and no doubt will be the story for the next 40 years .

    John , unless we have accomodation prices around half of what they are now we will never be competitive as a country . All that high house prices do is trickle money up and transfer wealth upwards and generate bigger interest payments for banks .

    The only way of achieving lower cost accomodation is by creating a surplus . I’d suggest the best way of doing this is a massive social housing programming .

    This can be funded by pensions contributions which would otherwise be flushed down the toiled of the doomed to fail NEST scheme which is due to start in October .

    There is no long term future for the UK with house prices anywhere near their current levels .

    • Jim J
      Posted June 12, 2012 at 12:32 pm | Permalink

      Agreed NEST is nothing but bad news because of its deflationary effects on the economy. In that it is just another tax on jobs. Apart from those workers who are going to be railroaded into making contributions rather than buy things. In the current climate how can an employer realistically be expected to take on more staff, who will then go out and consume more once they get their wages, if he has to make compulsory pension contributions for the people he already has?

      Hopefully the personal finance journalists will soon be writing articles on how you can buy yourself out of this POS once you have been “auto enrolled”. Its not if NEST and the other workplace pension schemes relieve you of the annuity and investment risks, it guarantees nothing and if it does work it will probably disbar you from collecting benefits in retirement that you would otherwise have gotten regardless.

  16. Hugh Mackenzie
    Posted June 12, 2012 at 9:06 am | Permalink

    John,
    I am constantly impressed by your blogs here. I come here to get the real story not what the BBC gives me. The comments from Lifelogic etc are also very interesting and insightful.

    BUT

    Today I sat down with my cup of tea ready to read the latest John Redwood blog, “you cant get out of a borrowing crises by borrowing more” excellent I thought John at his best this will help me bolster my arguments against the odd balls/brown fan I meet. However I was using my iphone. Once the page loads you get a cookies message that won’t go away. Please fix this. Us young folks tend to use these new fangled iphones etc more than computers and its important young people read your blog in my opinion.

    Any keep it up, in my opinion the best blog on the web!

    • Denis Cooper
      Posted June 12, 2012 at 10:11 am | Permalink

      That’s probably a consequence of the new EU law on cookies, which came into effect in the UK on May 26th.

      As explained here, for example:

      http://www.henmansllp.co.uk/are_you_compliant_with_new_cookies_laws

      “New laws on the use of internet cookies came into effect in the UK on 26 May 2011 under the amendments to the Electronic Communications (EC Directive) Regulations 2003 (SI/ 2426/2003) (the “Regulations”). The Regulations provide that organisations with a website must provide its users with certain information about their internet cookies and obtain consent before placing those cookies on their users’ computer or mobile equipment.

      The Information Commissioners Office (ICO) is responsible for enforcing the Regulations. Due to considerable technical difficulties putting the new laws into effect, the ICO granted a year’s grace period before it would exercise its enforcement powers. This grace period expires on 26 May 2012, so it is important that organisations running a website ensure they are compliant with the new laws.”

      I’m sure it’s a very wise and good law, as are all those coming from Brussels.

    • norman
      Posted June 12, 2012 at 12:16 pm | Permalink

      Works fine on my phone (Android though) after I accept the warning. Maybe there is some cookie setting somewhere you need to check?

      I can’t get rid of a ‘Privacy Settings’ box that hovers around the bottom right on either phone or desktop though. I suspect that whoever looks after the backend of this site is having a joke at our expense, or a virus has found a home here.

      When you click through the link to the site in question it brings you to a company who promises that they can provide software to ensure compliance with a new EU Cookie Directive!

      Can’t we have adverts for viagra again? At least that’s something that has some use!

      • norman
        Posted June 12, 2012 at 12:25 pm | Permalink

        Had a quick look at the EU Cookie Law and it must be a wind-up. That site reckons it came into force in May 2011 but this is the first time I’ve had to opt into anywhere.

        I also control a domain and have done since before May 2011 and I’ve had no notification from my domain provider that I had to change anything.

        Looks too elaborate to be a wind up but strange this is the only site I’ve came across to actively prompt users to allow cookies on a site by site basis.

        Reply: There is a new law and each site has to be compliant. I have asked my server to make sure this site does comply.

    • Tad Davison
      Posted June 12, 2012 at 12:17 pm | Permalink

      I thought it was just my ipod Hugh. It’s doing the same to me, and I can’t get rid of it.

      Tad

    • BigJohn
      Posted June 12, 2012 at 3:23 pm | Permalink

      This is because of some new EU law about cookies :-

      http://www.ico.gov.uk/for_organisations/privacy_and_electronic_communications/the_guide/~/media/documents/library/Privacy_and_electronic/Practical_application/cookies_guidance_v3.ashx

      The fact that anybody who is worried about such things can disable them in their browser anyway, dosn’t seem to stop the goverment wanting to try and regulate it anyway.

      Most sensible people have just ignored this rubbish, as it is just stupid, but I suppose John Redwood can’t, as he is a member of the govenment.

      • zorro
        Posted June 12, 2012 at 9:30 pm | Permalink

        He is a Conservative MP but not a member of the government. I’m sure that John is happy to maintain that distinction.

        zorro

  17. sm
    Posted June 12, 2012 at 9:08 am | Permalink

    Falling house prices, enable those who have not been able to purchase prudently at a prudent sensible price to income ratio. This then allows surplus income to be spent or shock horror saved or used to pay down the mortgage debt early if at all!

    How can the deleveraging and fall of some asset prices happen with the least damage to those not responsible? Without unduly rewarding reckless or just plain bad lending. QE needs to be directed at the private per capita individual level like rations for permitted useage such as 1) permanent debt paydown or other official liabilities loans penalties 2) pension saving or annuity purchase 3) energy/water efficiency measures 4) Job specific training in shortage skills areas 5) debt advice
    6) Cash ISA savings in deemed weak banks then if non of this is needed general spending on UK goods or services only.

    How can we incentivise and ensure that banks in general pull the right bad loans and finance worthy ventures?

    So why don’t we help out by 1) insisting on rights issues for banks 2) Statutory caps on pay, bonus and distrubutions.3) Split up the banks into units that can be better understood and regulated more easily. 4) Directly encourage ‘virgin’ NewBank companies with direct QE funding of minority share capital. 5) Encourage re-mutualiaation. 6) Insist a small random percentage of all asset classes are turned over establish fair non rigged market price.

    We could build houses for social needs or indeed buy back distressed assets for social rent needs. Do we have a surplus housing or just too expensive housing?

    Meanwhile downsizing the army of non-bureaucrats is not a good idea, the soldiers could be retasked to border protection duties, that is assuming we wish to take the basic steps of internal security and stability.

    Although i bet we cant do anything because of the EU or some other reason not to be disclosed.

    Is our debt burden per capita rising faster than our real population increase?

  18. Denis Cooper
    Posted June 12, 2012 at 9:35 am | Permalink

    If you want a paradox, how about that between the government’s words:

    “you cannot get out of a state borrowing crisis by borrowing more”

    and the government’s actions in borrowing more, and on a massive scale?

    It can be covered up to some extent by ministers “accidentally” claiming:

    “And we’re taking firm action to cut the debt”

    when it should be “cut the deficit”, but that no longer fools many people.

    Why is a government which believes that you cannot solve a debt problem by taking on more debt, nevertheless taking on more debt?

    Because they know that it would be even worse NOT to take on more debt, and instead try to balance the books by drastic spending cuts.

    • APL
      Posted June 13, 2012 at 8:10 am | Permalink

      Denis Cooper: “Because they know that it would be even worse NOT to take on more debt, and instead try to balance the books by drastic spending cuts.”

      It would be worse in the short term.

      But in the long term it would be much better.

      In any case, they cannot go on borrowing indefinitely, so they will be forced to cut later when the impact of cutting will be so much greater.

      In short, with our current politicians we are in a death spiral.

  19. oldtimer
    Posted June 12, 2012 at 9:55 am | Permalink

    This site:
    http://www.propertysnake.co.uk/
    gives a useful indicator of how property prices are moving. It tracks asking prices for specific properties across the UK, how much they moved (up or down) and over what time period. Just pop in your own post code to see how prices are moving where you live.

    • Winston Smith
      Posted June 12, 2012 at 12:04 pm | Permalink

      That site is useless. Its analysis of price reductions only. When does a property increase its asking price? Only in a gazumping situation. Logic for the stupid.

      • oldtimer
        Posted June 12, 2012 at 5:58 pm | Permalink

        Apologies! My mistake! It only shows reductions in the asking price over time. That does not make it useless because it indicates trends. It is also possible to check out realised prices via the internet if you are serious about price trends in your area.

      • Mark
        Posted June 12, 2012 at 10:37 pm | Permalink

        I haven’t looked at propertysnake recently, but I recall it did actually show increases in asking price which are quite common at this time of year, as agents recommend higher prices to take advantage of the supposed “Spring Bounce”, and allow a higher base for price “cuts” to try to entice buyers in.

        There are other sites that are perhaps even more effective in revealing the history of marketing of individual properties. Several offer histories of sales prices including of nearby properties back to 1995 at least in England and Wales, and some track changes in advertisements in property websites.

        These services certainly help prospective buyers – and should also help mortgage lenders and valuers to be realistic. I’ve heard that some of the cleverer estate agents make use of the information to hone their strategies, and also to make client pitches by showing how their competitors don’t do so well in achieving a sale e.g. by overpricing.

  20. Tad Davison
    Posted June 12, 2012 at 9:58 am | Permalink

    It strikes me, that it boils down to a question of judgement and risk assesment.

    If a business, perhaps regardless of size, needs cash to fund an expansion, and thus make it more profitable, it should then be given the cash on favourable terms, provided the project can be shown to be viable.

    The problem in the past, had been to lend frivolously without proper safeguards and assurances.  By contrast, few now have access to capital that would, when taken in conjunction with other business throughout the country, give Britain a head start, and thus put us in a better position to weather the coming storm.

    So what happened to the banker’s, and the regulator’s ability to make a good sound judgements?

    Does anyone else get as frustrated as I do, by obstinacy, intransigence, and a total unsuitability in some quarters, to actually do the job they’re being paid for?

    The old adage applies.  Speculate to accumulate.  The only other possible explanation I can give for not supporting business in a pro-active way, is that those ‘in the know’ have some inside information, and can see what a crash is on the horizon, and doesn’t want banks and businesses to be stretched come the inevitable collapse of the Euro.

    On a different issue, I was grateful to (I think it was) Brian, who put me in mind of a complaint to Leveson about the lack of impartiality on the part of the BBC.  Those who know me, also know I’m not one to mess around when I get the bit between my teeth.  I was advised this morning by a Conservative MP friend, instead, to write directly to Chris Patten.  I may do both, as I have no faith in Clarke-like Heath-ite, but, with John’s permission, it would be interesting to know what others think.

    Tad Davison

    Cambridge

    Sent from my iPod
    The old adage applies. Speculate to accumulate. The only other possible explanation I can give for not supporting business in a pro-active way, is that those ‘in the know’ have some inside information, and can see what a crash is on the horizon, and doesn’t want banks and businesses to be stretched come the inevitable collapse of the Euro.

    Does anyone else get as frustrated as I do, by obstinacy, intransigence, and a total unsuitability in some quarters, to actually do the job they’re being paid for?

    On a different issue, I was grateful to (I think it was) Brian, who put me in mind of a complaint to Leveson about the lack of impartiality on the part of the BBC. Those who know me, also know I’m not one to mess around when I get the bit between my teeth. I was advised this morning by a Conservative MP friend, instead, to write directly to Chris Patten. I may do both, but, with John’s permission, it would be interesting to know what others think.

    Tad Davison

    Cambridge

    • Tad Davison
      Posted June 12, 2012 at 12:24 pm | Permalink

      This problem that Hugh refered to earlier is clearly messing things up!

      Tad

    • Alan Wheatley
      Posted June 12, 2012 at 1:50 pm | Permalink

      There was a Select Committee hearing last Autumn that looked into the BBC. One of the Committee Members (Conservative MP, forget who) put it to Chris Patten and Mark Thompson that the BBC are biased in favour of the EU.

      Patten was incredulous that such a thing could possibly be true.

      Thomson believed that the BBC was even handed, but when the MP offer to show him the evidence of what the BBC had actually broadcast he agree they should meet up “over a coffee” to consider the matter. I do not know if such a meeting has happen, but Thomson is going!

      • Tad Davison
        Posted June 12, 2012 at 2:17 pm | Permalink

        Thanks Alan, I have copied your post and sent it to others to get their take on the instance you refer to. I’m not a big fan of Patten, but needs must. I won’t be having coffee with the bloke to talk it over, anything he says to me, I want in writing. He’s a Europhile after all, and I’d rather trust a rattlesnake than one of those!

        Tad

    • Brian Tomkinson
      Posted June 12, 2012 at 2:26 pm | Permalink

      Tad,
      I don’t think you will get much joy from Patten.
      Only if the BBC were owned by Murdoch could we expect any real interest from Lord Leveson!

  21. waramess
    Posted June 12, 2012 at 10:03 am | Permalink

    There is always an argument if enough facts are ignored. Brian Tompkinson points out that the banks are sitting on undeclared losses and that is in addition to the unrealistic bad and doubtful loan provisions.

    We are supporting zombie banks with “pretend assets” and assets that will only perform if interest rates can be maintained at aa artificially low level. Until this is dealt with the prospect of a robust lending environment will not return.

    No good relaxing the capital and liquidity requirements, it’s like asking a cripple to enter a 100 meter sprint.

    More credit will not do the job but a smaller government might. Allow the private sector the opportunity to flourish without the imperetive for credit and we may see a strong revival.

    The answer is not to borrow more but to produce more and this is not inexorably linked to credit availability. Growth may be slower but for sure it will be more sustainable.

  22. JimF
    Posted June 12, 2012 at 11:16 am | Permalink

    “but allowing further large falls with a very restricted supply of credit will undermine banks further, leave homeowners feeling bruised and lacking confidence, and may not even in the short term help the first time buyers. They may, after all, delay as they see prices falling.”
    So you’re trying to buck the market?

    So, first time buyers delay until prices are at a proper market level, not being propped up by Zombies. Where’s the problem?
    Undermining Zombie banks further also wouldn’t lose me any sleep.
    Existing homeowners feeling bruised? Well here’s one who’d be only too happy to see their kids being able to buy a London flat, just a place to put their heads in a decent area for less than £350K = more than 20 years’ net wages. I’ll live with the bruises if they can buy at half that.
    As for the banks, Ram it.

    As to creditworthy Companies or families being ready to borrow – we are both and can see interest on our cash at zero to 2%, we can see the banks borrowing from us as taxpayers at 0.5%… why should we pay 4-7% plus charges to borrow back our own money???

    Fix the banks first, then the creditworthy borrowers will come forward. By that I mean a complete clear out of all the casino stuff, CDOs, swaps, mega-bonuses, whatever and show me a sterile healthy bank to borrow from. I guess like the Building Socirites of old. Then we’ll come back.

    • zorro
      Posted June 12, 2012 at 9:20 pm | Permalink

      Indeed, maybe some homeowners will be ‘bruised’ but at least they have a roof over their heads unlike younger people who have very little chance whatsoever….

      zorro

  23. Michael Lewis
    Posted June 12, 2012 at 11:46 am | Permalink


    It may not be as low as some would like, but allowing further large falls with a very restricted supply of credit will undermine banks further, leave homeowners feeling bruised and lacking confidence, and may not even in the short term help the first time buyers. ”

    I think that is rubbish to be honest. The market should be allowed (no QE) for an adjustment to take place.

    “They may, after all, delay as they see prices falling.”
    Of course, that would be sensible, nobody wants to catch a falling knife. And the best thing to happen, when the market has reached a floor, people can pick up bargains and a genuine recovery can happen.

    Anything else is just indirect taxation (of savers to debtors) and mis-use of investment capital.

    Trying to ‘buck the market’ will just slow down the inevitable. Better to get the correction out of the way, rather than make other people pay for mistakes they didn’t make. Same could be said about bailouts etc…

  24. Mactheknife
    Posted June 12, 2012 at 12:22 pm | Permalink

    Its reported that British businesses are sat on 750+ Billion of cash waiting to invest. However, they see no strategy, plan or financial incentives from the government to spend their cash pile. Osbourne tinkers at the margins but gives with one hand and takes with another. All we hear from some Conservative ministers is that the private sector is not doing enough, but its a catch 22 situation. Businesses are looking for the government to show some vision for the future but the government want businesses to act as the stimulous. Whilst both engage in this standoff the country goes nowhere. Meanwhile Osbourne concentrates on the crucial questions such as “can I tax pasties?” Someone in government has to show some leadership at some point – or am I being too optimistic ?

    • Tad Davison
      Posted June 12, 2012 at 4:29 pm | Permalink

      Frustrating innit!

      Tad

  25. WB
    Posted June 12, 2012 at 12:26 pm | Permalink

    Mr. Redwood – it never ceases to amaze me that you can get some things so right and some things so horribly wrong.

    You of all people must know that this: “We need to establish a sensible clearing price in the market for homes soon to foster recovery.” is crazy. It would require huge and damaging interventionism and wouldn’t work. What is actually necessary is a massive recorrection in house prices simply by normalising interest rates. We can’t pretend it isn’t happening and unfortunately that may mean the banks are on the hook again but out of the rubble – alongside a properly liberalised planing system – would come a functioning housing market which didn’t suck in huge amount of private money that otherwise would / could be invested in the productive economy (and the government wouldn’t feel the need to take the obscene step to provide mortgage guarantees to first time buyers).

    • JimF
      Posted June 12, 2012 at 5:00 pm | Permalink

      Host has a couple of blind spots – property prices and MPs pensions – I’d be interested to see a post from him giving clear public interest reasons for supporting property prices and MPs/public sector pensions over and above free market rates.

      Reply: I do not support property prices over free market rates. The problem with free market rates is they are very driven by mortgage availability. I would have have raised interest rates and had less mortgage availability in 2005-7 – and said so at the time. I do not think starving people of mortgages now to drive house prices down further is a particularly good idea.
      I did not think I had a blind spot over MP pensions. I did argue that the government should close the MP scheme in 2010 on taking over. The government did not agree, but did decide to hike contributions from MPs as part of their attack on public sector costs, and to reduce the number of MPs from the next Parliament.

      • zorro
        Posted June 12, 2012 at 8:14 pm | Permalink

        John is the MP for Wokingham….http://www.telegraph.co.uk/news/uknews/1566409/Wokingham-is-named-the-best-place-to-live.html

        There is as more chance of John running bacwards up the M1 in a Liverpool football shirt than him advocating a lowering of house prices….think of his votes

        Prices are overvalued compared to what people actually earn. The only thing holding them up is the government’s inability to control immigration and a ZIRP/QE policy to hold up nominal values. If normal interest policies were in effect prices would fall but more accommodation is still needed…

        I am neutral here, I benefit greatly from ZIRP and QE on my mortgage and precious metal investments, but it is clear to anyone that there is a false market in housing. Remember what Mrs T said…..’You can’t buck the market’

        zorro

        • JimF
          Posted June 13, 2012 at 12:22 pm | Permalink

          The point is that for all the fine words on this blog there are 2 things that would immediately boost the productive economy – halving public sector pensions and numbers employed and halving property prices. For all the carping about Europe, bankers bonuses, blah blah blah those 2 things alone would be an enormous release for the economy.

      • JimF
        Posted June 12, 2012 at 9:38 pm | Permalink

        Fine but please realise you’re defending the entrenched position of a public sector worker/MP who owns property against that of a new graduate, 25 years old, looking at contributing to a private sector recovery and pension and wanting to buy a house. I think we need fewer of the former and more of the latter.

    • zorro
      Posted June 12, 2012 at 8:47 pm | Permalink

      Agreed.

      zorro

  26. Observer
    Posted June 12, 2012 at 12:33 pm | Permalink

    Nor can you get out of a recession by austerity measures alone. History has always shown this.

  27. David Langley
    Posted June 12, 2012 at 12:57 pm | Permalink

    I ran my business with cash generated through the business, as I worked harder and saved profits I reinvested them in the business and lived frugally even when the business was successfully running in its 4th year. I never had a business account manager who was interested in visiting me. I changed my bank regularily to take advantage of free banking, that would only last so long I appreciate.
    If I had a local manager who was interested in my efforts and wanted to offer some small facility to grow and develop together at low rates of interest I might have been attracted. I needed someone who was really interested in me making money not themselves making money out of me. The Area set up does not encourage lending to SME,s and so we are seeing only those who get into trouble eventually borrowing big time defaulting and reinforcing banking prejudice against easy lending to SME,s.
    It was casino banking and the death of traditional building societies through greedy shareholders/ depositors/account holders that ruined banks. The debt burden of fraud through credit card debt and defaults are also a reason. These accounts were often masked in balance sheets due to a reluctance to class as impaired if there is any chance of a payment and crystalised as soon as a bailout was sniffed in the air, and then written off. Giving credit where it is due is a banking art and not learned at head office.

    • JimF
      Posted June 12, 2012 at 2:55 pm | Permalink

      Agreed. Who needs the aggravation and cost? Better to look at local Business angels or close by lenders than these viper banks.

  28. peter
    Posted June 12, 2012 at 1:12 pm | Permalink

    What we are seeing is a slow and painful recovery. I think the point is that the financial markets will self adjust once confidence returns and the slow process of recapitalization has taken place.

    In the naughties the German housing market was severely depressed whilst Ireland, Spain etc powered away in property due to easy credit and low interest rates – the German govt could have done something about it then but they stuck to their guns and kept their economy stable, now who’s right?

    I do get fearful when govts intervene too much – like QE but one thing that is needed is that UK govt must focus heavily on lowering the overall tax burden, you cant even move something without it being taxed these days.

    Also fuel is another killer, where we pay VAT on tax – find a way of stopping all this price fixing by the oil giants and lower the duty by around 20p litre – that would help.

    I appreciate we are a ‘borrow’ society and there are instances where borrowed cash can help but outside the area of mortgaging and large capital spending for which something useful comes out the other end we all need to learn to be more imaginative with how we do things – I don’t agree with much Lord Sugar says but he made a very good point about this in the Lords a few months back.

    On a small level I have seen people purchase multiple pubs which have been virtually given away by breweries then been refused loaned money by the banks to refurb them to carry out the work needed so they have done a little at a time with ready cash which is far slower but they have got to the point where they have half a dozen refurbished venues with no loan repayments to worry about the next few years – Surely this type of approach is good business?

    If I remember rightly the Germans used to work like this before they amalgamated with the East – major projects would run until money ran out where they would put them on pause, so you would build a house until you ran out of cash then you save up again to complete – totally at odds with our borrow now culture.

    With new cars surely you don’t need to buy them, there are plenty of lease options on the market even now.

  29. Alan Wheatley
    Posted June 12, 2012 at 1:16 pm | Permalink

    Was it not Gordon Brown who advocated only borrowing to invest. The fact that the reality did not match up to the words does not invalidate their wisdom.

    So borrowing can be a wise move if there is something profitable in which to invest. This can be as true for the borrowed as the un-borrowed. Of course, for the over-borrowed it may be difficult to find a lender, no matter how much the potential, certain profit from the scheme being promoted.

    How does the current position compare with investment and fortunes made and lost in previous ages? For instance, the Victorians seemed up for many a venture.

    • oap
      Posted June 12, 2012 at 5:48 pm | Permalink

      For GB the word “invest” was redefined for his purposes as camouflage for a sharp increase in government spending and debt. It would not be allowed to be so defined in company accounts.

  30. Derek Emery
    Posted June 12, 2012 at 1:52 pm | Permalink

    Banks hardly ever lend to small business because they usually do not have the collateral that banks can call on when the business fails. In the US private investors take shares in a set of small companies or start-ups. Only around one in ten needs to succeed to create a handsome profit that more that covers the losses of the others that go down the tubes. I can’t see High Street banks getting into this market as they prefer no risks i.e. that they are covered whether an individual company survives of not.
    The second problem with using High Street banks is that they can and do call in loans at a moment’s notice which can force a company into closure even when making a good profit.
    The only time its worth small company borrowing from a High Street bank is when you don’t really need the money and could pay it back at a moments notice.

    The big problem is that the liberal elite think that you can get out of trouble by expanding the public sector based on yet more debt. This is in spite of the fact that taking this approach has created a situation where the UK is overwhelmed by debt.

    I wonder how much the rating companies would be impressed by this approach? They are capable of doing the sums and it they don’t like the answers they will reduce the UK rating.

    • Mark
      Posted June 12, 2012 at 11:01 pm | Permalink

      I think you’re right to hint that encouraging equity funding would be rather better that trying to rely on banks. Equity funding can’t be withdrawn by the provider of funds, although shares can be bought out or sold on. Shareholders can of course vote members of the board out of office, but they’re more likely to offer advice.

  31. The Prangwizard
    Posted June 12, 2012 at 5:42 pm | Permalink

    Consider these comments about mortgages http://www.libertarian.co.uk/?q=node/705

    • zorro
      Posted June 12, 2012 at 8:45 pm | Permalink

      I would personally prefer this approach to housing. I suspect that there is an unwritten policy around repossession now which is pushing banks not to throw people out on the streets. I suspect that there will be even greater pressure to maintain this position even if the economy gets worse.

      Fractional home ownership is a con particularly with the maintenance costs and I think that there should be generous reductions for purchasers to buy extra shares particularly if they have rented for some time. The house builders/house associations will already have made enough money out of them or the owners will subsidised other housing association tenants.

      zorro

  32. Electro-Kevin
    Posted June 12, 2012 at 5:55 pm | Permalink

    It seems that lenders sense that house prices are over valued and are asking buyers to take on more of the risk.

    The problem is not the availability of mortgages but the requirement for larger deposits and far higher standards for measuring creditworthiness – especially with public sector cuts yet to bite and unemployment set to rise among existing home owners (a surfeit of property for sale/reposessed.)

    The high stamp duty on ordinary houses does not help either.

    • Electro-Kevin
      Posted June 12, 2012 at 7:27 pm | Permalink

      Lower house prices = Lower consumer confidence

      Should economic growth be based on the rising/stable value of housing ?

      Shouldn’t it be the other way around ?

      Wasn’t the recent economic boom/bust caused because people borrowed against the notional (false) value of their houses ?

      We cut up our credit cards and limited our overdraft four years ago. This has meant staycations for two years and few meals out in that time. This on a decent family income.

      Our people simply have to stop using credit to shore up a falling standard of living and false expectations of house prices are not helping the situation.

  33. Bazman
    Posted June 12, 2012 at 6:44 pm | Permalink

    But John it’s all just the price of a pizza every week! If you have a few quid spare why not spend it? Or even better get a loan?

  34. Mark M
    Posted June 12, 2012 at 7:07 pm | Permalink

    Quite right about aggregate v individual. Around this time last year I bought a house, in the process taking out a mortgage. This was not a problem for me because even though the country as a whole has overborrowed, I had no debt other than my student loan.

    The economy can recover if banks review how they assess credit risk and the government stops asking banks to hoard cash. Loans to credit worthy people/businesses are a good thing and we need more of it.

  35. Martin
    Posted June 12, 2012 at 7:26 pm | Permalink

    Growth of course would also help.

    Will any government minister bother to even reply to Mr Walsh’s criticism of policy?

    http://www.telegraph.co.uk/finance/newsbysector/transport/9325936/UK-government-is-damaging-aviation-industry-warns-BA-boss-Willie-Walsh.html

  36. Mark
    Posted June 12, 2012 at 11:45 pm | Permalink

    I checked out the regional house price statistics from Nationwide, conveniently available in spreadsheet here:

    http://www.nationwide.co.uk/hpi/datadownload/data_download.htm

    Firstly, looking at the extent of the boom, we find that every region has seen more than a trebling of prices from the lows in the mid 1990s that followed the double MIRAS boom of 1989 to the peak in 2007: in the South East, prices more than quadrupled, almost quintupled in London, while in Northern Ireland they multiplied by a scary factor of almost 7.5.

    Since the peak, prices have fallen by 52% in Northern Ireland, which still leaves them 3.5 times as high as the 1990s trough. Elsewhere, prices have only fallen back by around 15% in Wales, the North, North West, and Yorks and Humberside, around 12% in the Midlands, 10% in the South East, East Anglia, Scotland, the South West, and a scant 3-6% in the London area. This leaves nominal prices having risen by at least 2.75 times, up to 4.4 times in London.

    Looking at the effects of RPI inflation, nationally house prices have almost exactly doubled in real terms since Q4 1995 even with the mild nominal falls factored in. Clearly there is still a large amount of downside potential, particularly in overheated London – but even in the areas that didn’t participate in the bubble to the same extent.

    Interestingly, the average real house price in the 1980s was the same as in the 1990s corrected for RPI inflation. To reach the same level prices would need to fall by 43% in real terms from current levels.

    • Mark
      Posted June 12, 2012 at 11:58 pm | Permalink

      Incidentally, the period of fastest growth ended in 2004, when real prices were already over 90% of the peak in 2007. The acceleration can be dated back to Brown’s changes to the responsibilities of the Bank of England, with a brief pause for 9/11.

  37. Lindsay McDougall
    Posted June 13, 2012 at 12:11 am | Permalink

    Quite. And borrowing more to lend to another nation to prop up its banks is the height of stupidity. This is what Italy in now doing. They currently borrow at 5% and will lend money to Spain at 3%. Italy is providing / guaranteeing 22% of the € 100 million ‘non-bail-out’ loan that Spain is to receive. Italy is expected to have state debt of 137% of GDP by 2014. They tell me that Italy is run by a technocrat; that must mean a person who has ferrous material where his brain should be.

  38. backofanenvelope
    Posted June 13, 2012 at 5:53 am | Permalink

    Of course, we could take the pressure off housing by ceasing to import a quarter of a million people a year.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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