A banker of my acquaintance went to Switzerland skiing this winter. A luxury he normally could not afford, but he’d just remortgaged thanks to George Osborne’s Funding For Lending scheme and saved a packet. To his amazement, he was being bailed out by the Chancellor – he didn’t need the money but thought he’d take it if it was going. The cash certainly tricked down – to the après-ski champagne bars of Verbier.
The Chancellor’s stimulus makes the cheapest loans only available to the rich (ie, those with at least 40 per cent equity in their house) and like all of the Treasury’s cheap debt wheezes it was just another subsidy to a grossly overpaid consumer who really, really didn’t need it. Right now, those with a 5pc deposit are charged twice the interest of those lucky enough to have 40pc to lay down.
Make no mistake: if Alan B’stard were to write a budget that rewarded the rich and screwed the poor, he’d struggle to come up with something as iniquitous as Quantitative Easing and cheap debt for for the rich (allowing them to buy more assets, then watch as the value of those assets is inflated by QE).
By no coincidence, London house prices are up 10 per cent year-on-year (Prime London is booming more than anywhere else) and UK prices are now growing at 5 per cent nationally. For the over-leveraged rich, these are the best of times. Ed Miliband didn’t make this point this week, saying only that this recovery is for the rich – that this rising tide ‘only seems to lift the yachts’. In my Telegraph column today, I say that his analysis is correct.
Things are, I’d argue, even worse than he makes out – not because of Tory malice, but because of the effects of the cheap debt policies which Labour started and the Tories have continued. A recovery built on debt is not a recovery at all. And nor is it socially just: cheap debt policies will always advantage the over-leveraged rich and the owners of assets which rise in value when money is cheap to borrow. Any government that decides to turn on the geyser of cheap debt has no control over where it goes. And usually, the richest manage to make it work best for them.
A proper recovery (with normal interest rates) distributes the proceeds of growth far more fairly. A debt-fuelled recovery does not. I have no idea if QE works, economically. But socially, its effects are appalling.
Ed Miliband’s solution is to say he’ll order electricity price freezes, giving the state the power to direct private companies. And then he’ll order property companies to hand over their land, thinking (wrongly) that undersupply of housing is pushing prices up. This would end in disaster, just as it did in the 1970s when panicked governments sought to address cost of living issues by government diktat.
Also, I am not convinced that undersupply is to blame for unaffordable housing. I’d place more of the blame on cheap debt, negative real interest rates and massive state interference in the mortgage market which is pushing prices up in a flatlining economy. Bank robberies in Britain have collapsed – and understandably. Under Osborne’s system, you don’t need a gun. If you want half a million quid, the bank will (in effect) pay you to borrow it. But only if you’re already rich.
Today’s FT says George Osborne has agreed to go easy on more cheap debt schemes if it becomes clear he’s messing with the property market (I suppose the champagne bars of Verbier can only cope with so much demand). But he has to do more.
There is a cost of living crisis. This is a recovery where the rich are doing way better than the poor. The Tories need to recognize the truth behind Labour’s critique and come up with an even more plausible way of tackling this problem. The next election could depend on it.
Tags: Alan B'Stard, BubbleWatch, Ed Miliband, George Osborne, QE