Oil prices rose and house prices fell again yesterday. It is the governmentâ€™s nightmare scenario. They have left the UK short of energy by failure to make early enough decisions on replacement power stations using non imported fuel, and through their wish to tax the North Sea oil province too heavily, discouraging more production. They well know how important house prices are to consumer confidence and jobs in the UK economy, let alone to voter attitudes.
Both subjects were on my agenda in Parliament yesterday. At lunch time HBOS came in to tell any MPs interested what they thought was likely to happen in the UK housing market. Last time they had dropped by I had found them wildly optimistic, anticipating little change in house prices. This time they were gloomier, forecasting a 9% fall in the average price of a home in 2008. I still think that is looking on the bright side. HBOS argued that the supply of houses would remain tight, thanks to a collapse in housebuilding, against a continuing lively pace of immigration and divorce generating more demand for households. I reminded them that fewer migrants will come if the economy gets grimmer, whilst divorce and migration only translates into demand to buy homes if the mortgages are available so people can afford them.
Anecdotage tells me that some sellers of houses are now beginning to cut their prices by rather more in a desperate attempt to find a buyer. For several months the market has held its values better than might have been expected, because there have been precious few transactions. Sellers have held out for the original price, and buyers have simply stayed away. Gradually some sellers will decide they have to take whatever price is available, and a few more buyers will be tempted by significant price cuts. One friend of mine has cut the price by more than 20% and still has no takers. Another cut by almost 15% and found a buyer. Meanwhile mortgage offers have more than halved. Banks are understandably cautious, lending a smaller proportion of the price, expecting a more cautious valuation and seeking a higher margin through a higher interest rate. Thatâ€™s what a Credit Crunch is all about, and thatâ€™s what the government and Bank of England said they wanted when they warned banks to be more careful last summer. Sometimes governments should be careful about what they ask for, in case their wish comes true. This blog said at the time the authorities would reap a bitter harvest from their approach to money markets last autumn. It is not going to make the banks more popular, but it will strengthen their solvency and repair some of the damage to their profitability.
Back in the Commons Chamber in the afternoon we had the opportunity to debate the governmentâ€™s wish to charge people more for owning a car. The absence of most Labour members, and the fears of some of the few who came spoke volumes about their underlying concern. They must know that the plan to increase Vehicle Excise Duty substantially on older cars that emit too much CO2 is seen as unfair, and on their own figures is not a green policy as it achieves practically no reduction in CO2. Most people are stuck with their older vehicles, especially now the price of them is falling to reflect the higher running costs form the higher tax in prospect. The Conservative Opposition offered them a way out, seeking to stop the government from going ahead, but the Labour MPs declined the life line.
For most MPs itâ€™s not easy being a rebel. You are pulled between remembering that your party allegiance accounted for a large part of your vote at the election, and the strong view that your party is making a big mistake which is letting down the voters. On 42 day detention more Labour MPs felt that the principle of the issue mattered and they should vote with their consciences. They had not signed up to eclipsing important civil liberties. On higher taxes they are uneasy because they can see how unpopular they are, yet individually they are drawn to support their party out of their instinct that higher taxes are good. On Tuesday the rebels over the abolition of the 10p band accepted a weak formula to look again at compensation for losers from the Minister and backed off their tabled amendment. On Wednesday the possible rebels on VED did not even table an amendment and returned to tribal loyalties as they queued up to distance themselves from the amendment the Conservatives had tabled.
In each case the rebels felt better for rejoining their party in the Commons â€“ it makes for easier relationships with colleagues. A long summer back in the constituency may serve to remind them just how toxic these higher tax policies have become, bearing down especially heavily on those on lower incomes. Then they may remember why they felt they should rebel â€“ the government is destroying their chances of re-election if they have marginal seats, and hastening the day they will be out of government if they have safe seats. It is now the economy, stupid, which will determine the government’s chances of re-election. If they do not do something soon to lower inflation and ease the squeeze on incomes, they are doomed.
So far the government seems set on intensifying the squeeze on all of us by increasing taxes, whilst spending yet more and more money they do not have in the public sector. Today sees at last the signatures on the contracts for two large aircraft carriers. It is doubtless a coincidence that this brings work for Glasgow ship yards at a time when we are fighting a Glasgow by-election.