Housing Market - Was Our Gordon Prudent as Chancellor?

29/04/2009 by Esio Trot.

With the housing market still in freefall, what does this tell us about the integrity of Gordon Brown, our current Prime Minister (also titled of First Lord of the Treasury), who before his appointment to this position was for ten years Chancellor of the Exchequer?

Cast your mind back to 1997, back in the days when a tax concession known as Miras (Mortgage Interest Relief At Source) was still available. Our Gordon, being “prudent”, decided to reduce this concession from 15% to 10%, continuing the stepped reduction started by the previous Conservative government. Nothing much here then - that is until you read what he said, reported in this BBC Budget Summary

What he said was: “I am determined that as a country we never return to the instability, speculation, and negative equity that characterised the housing market in the 1980s and 1990s … I will not allow house prices to get out of control and put at risk the sustainability of the recovery.”

What? Did he really say this?

And what happened since

In the 10 years through to 2007 average house prices rose by 200%, whereas average earnings rose by just 52%.  This was the era of cheap credit, lowish interest rates, lenders taking much higher risks when considering loans, with even mortgage lenders allowing a loan to value of 125% .

Is it possible that either Gordon Brown or Tony Blair didn’t know this? I can assure you they did.

There is a chap called Fred Harrison who wrote to Gordon in 1997, saying “By 2007 Britain … will be in the throes of frenzied activity in the land market. Land prices will be near their 18 year peak … on the verge of collapse [which will precede] the global recession of 2010.” and later in the same paragraph, “[The land price peak and the global recession] will not be coincidental: the peak in land prices … being the primary cause of [the recession]”

Correspondence continued between Fred Harrison and the government, and culminated in a letter dated 5 February 2003 from Alistair Campbell, Director of Communications and Strategy at 10 Downing Street: “… I’m a little bemused why you believe this country’s economic policy is ‘a shambles’. Pretty well every independent expert believes this country is in better shape to weather … storms than our competitors”

Well, the storm is here, and seems to me that when you have the government needing to borrow hundreds of billions of pounds to balance the books, we don’t seem to be weathering it that well.

Gordon has been a key player in government for 15 years. Some say with his experience he is the most qualified person to be in charge in a crisis like this. I say that he is the one that got us into this mess, so I don’t see why he should be be the one to get us out of it.

Reminds me of a story I heard of a newly appointed MD of a company, being shown round the factory. He was introduced to Jim and was told that he was the most valuable asset in the company - whenever there was a crisis, and these were quite frequent, he was always on hand and really good at sorting out the problem. Later that day the MD saw the Personnel Director and told him, “Your first task is to fire Jim as soon as possible.” The director looked astonished, and asked why. The MD said, “Well, he might be good in a crisis but we shouldn’t have any crisis in the first place. Get rid, and that way our people will be more careful and avoid allowing a crisis to develop in the first place.”

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