Beat recession with 2% interest rates urges John Redwood

We must fight recession is the increasingly urgent message that John Redwood is sending to the readers of his essential blog.  His warning comes after yesterday's large increase in unemployment and growing concern at the inadequacy of Gordon Brown's response to the problems of the real economy.  Mr Brown spoke yesterday of retraining the jobless as home insulators.  In the understatement of the year The Sun Says: "It will take more than that."

Interviewed on this morning's Today programme Mr Redwood warned that higher taxes may not raise any extra revenues if they serve to flatten the real economy.  He is also worried that the bank bailout package is giving the government inadequate room to help struggling businesses.  In his latest blog post he urges a cut in interest rates from the current 4.5% to 2%:

"[The UK authorities] have kept interest rates far too high for too long. They should cut them to 2% today, which would still leave scope for further cuts if the economy does not respond well. Market rates are well above the indicated rate and will remain so. That’s all the more reason to cut the indicated rate, to relieve some of the pressure. If interest rates remain too high more people and companies will default on their payments, leaving banks in a weaker position and savers worried about the security of their funds."

As ConservativeHome revealed on Tuesday the Conservatives are preparing a "Brown saved the banks but not the real economy" message.  George Osborne should take the opportunity of current events to revisit his hitherto caution on economic policy.  Noone will blame him for reviewing policies given the severity of the new situation.  As John Maynard Keynes famously wrote: "When the facts change, I change my mind. What do you do, sir?"

Comments

[Malcolm Dunn]

Events and markets are moving so fast that it is very difficult to know what to think and almost impossible to plan a strategy. John Redwood may be right but if we look back to the interest rate cuts that occured after the 1987 stockmarket crash they were indirectly responsible for the recession of the early '90's.
Whether a Keynesian public spending spree which I understand is being considered by the government will work either is probably doubtful. It didn't in Japan a decade ago.
Not a great time to be a politician.

[Stuart M.]

This would be wrong.
Inflation is high. Speaking as a dedicated saver those of us who prefer to hold on to our money should be entitled to better rates of return which keeps well above inflation.
Borrowers are the only people to benefit from low interest rates - and their excesses of debt caused the credit crunch. Lowering interest rates would dramatically hit savers (who were not the problem) and encourage more borrowers (who were).

This is morally incorrect.

Clearly we need more money in the economy - the best way to do this is to massivly reduce taxes by cutting most, if not all of the 100 billion government waste.

[GB£.com]

Now I know I have been banging on about tackling the causes of the housing price bubble as much as the Tories have been ignoring it, but here is a chance for the Tories to take a lead.

Ben Bernanke in the US is now actively considering a plan to prevent a housing price bubble ever forming again:

"The central bank has been criticized for fueling the housing boom that later turned to bust by keeping interest rates too low for too long in the first half of this decade...

Bernanke signaled an end to the Fed's decades-old aversion to interfering with asset-price bubbles as the financial crisis reshapes some of the central bank's most firmly held views on regulation and monetary policy.

Officials should review how supervision and interest rates can tackle the ``dangerous phenomenon'' of bubbles in housing, stocks and other assets that risk bringing the entire economy down"

In short, the US is considering using interest rate rises to calm the rise of house prices.

Who will be the first forward-thinking British politician to do the same?

[rugfish]

John Redwood is right.
It doesn't matter a damn what tax levels are when there's no one in work to pay them.
Protection of the economy and of broader society in terms of jobs and businesses must be the first priority and interest rates are the way to do that.

Also, where inflation is concerned, someone has to waken up the world and tell people they WILL have inflation and costs will increase. Measures should be taken to manage the effects of it rather then to prevent it, but in the end, people have to be told that the money in their pockets will become worth less than before as a result of the aim to limit the damage to the wider economy and to society itself.

Brown will of course ignore John Redwood's call for this radical measure and we will all continue to suffer his fallout.

[resident leftie]

I thought that the ultra-liberals had come up with peculiar theory that it was low interest rates set by central banks intead of the market, which caused the crash instead of a lack of regulation in the US subprime market. If not even John Redwood believes this, they don't even have a fig leaf to protect their "market knows best" explanation.

[Tony Makara]

I can see the logic of cutting rates and it would be the right thing to do if we were not so dependent on imports. So we have to bear in mind that cutting rates will weaken Sterling and make the cost imports more expensive. This would lead to inflation, and inevitably mean higher rates in the future, leading to less liquidity and another slump.

There is a way around this however and that is for the BOE, the ECB, and others, to agree to cut rates together and at the same rate. This will inject liquidity into the system without bringing inflation into the country on the back of imports. In the long run we need to develop more of an internal market so that cutting rates doesn't always have to be balanced against the effect on Sterling and worries about imported inflation.

[RichardJ]

"Also, where inflation is concerned, someone has to waken up the world and tell people they WILL have inflation and costs will increase."

Only if the money supplt increases too much, which is what will happen when interest rates go down. What's the point of saving money if it's just going to get rapidly devalued?

I'm afraid John Redwood has got this one wrong. The market should set interest rates, not the government or central bank.

[RichardJ]

"So we have to bear in mind that cutting rates will weaken Sterling and make the cost imports more expensive. This would lead to inflation, and inevitably mean higher rates in the future, leading to less liquidity and another slump."

If the cost of imports go up then the cost of goods made at home will go down. Unless of course the money supply increases.

[RichardJ]

"I thought that the ultra-liberals had come up with peculiar theory that it was low interest rates set by central banks intead of the market, which caused the crash instead of a lack of regulation in the US subprime market. If not even John Redwood believes this, they don't even have a fig leaf to protect their "market knows best" explanation."

Resident leftie, The ultra-liberals in question are from the Austrian School. Unless I'm mistaken, Redwood is not one of their fans. Believe it or not there are divisions between free-marketeers. The fact that John Redwood believes something doesn't automatically invalidate an entire economic theory.

[Letters From A Tory]

Osborne knows that Brown has won the battle but he hasn't won the war. Well done Osborne for realising that the Conservatives must change their tune, and change it soon.

[David Belchamber]

Part of the problem with the housing market, as I have argued before, is that a property is not just a roof over your head, it is also an investment - and investments can go down as well as up!

Because of the principle of supply and demand two identical houses, one in Wales, say, and the other in the London area would go on the market at vastly differing prices.

This is patently very unfair for a large part of the population, notably low to middle income key workers.

It would be interesting to have a debate around this point and see what, if any, solutions are proposed to reduce this huge disparity.

[Westminster Wolf]

Politics isn't everything Letters From A Tory! Beating a recession is quite important too!!

[rugfish]

RichardJ, Europe and America need to act simultaneously to reduce interest rates to lessen the effect of inflation but it cannot be totally eradicated because money has to be printed in order to keep the assets within those instruments viable.

Those instruments will become worth less or nothing as homes and businesses are repossessed or firms made bankrupt, so in essence there is no other answer other than to carry on as before producing debt to feed the economy, to maintain businesses, jobs, factories, house values and the actual MEANS to repay the debt.

Of course there are also far wider issues to consider notleast the effects on public spending if millions are out of work, but all of the aims of our society too.

The alternative is mass redundancies and bankruptcies along with poverty and government borrowing which will lead to all sorts of political problems within society.

Or, cheaper debt to help prevent more misery but with a reckoning that our money buys less than it did before for everybody until the markets can be righted again with some economic and monetary controls in place to underpin the nightmare which has been created by incompetent government allowing no controls to be in place to start with.

[Tony Makara]

RichardJ, the problem we face is that we are only, at best, supplying 60% of our own food, and are completely dependent on imports for the other 40%. So if home produced food falls dramatically in price we will still be hostage to imported inflation on 40% of our food if we cut rates independently. The answer has to be a co-ordinated effort to cut rates by a number of nations. Acting on our own will cause more problems that it will solve.

David, facinating question on housing. It seems most people these days are buying to sell rather than buying to settle, this has even spawned a television culture dedicated to renovation and the housing market. So we are not only facing an economic problem, but a cultural one too. On house values, it used to be that location determined price but now so many places are composed of good and bad areas. I live approx seven miles from Manchester and renovation has made some places in the city incredibly expensive places to live, yet they stand a stonesthrow away from urban ghettos, many with rows of uninhabited slums. I don't know how we can find a way to equalize house prices across the country because the nature of urban renewal is unpredictable and yesterdays run down mills and canals become the ice palaces of tomorrow. Good point you raised, you've got me thinking about this one!

[sally Roberts]

"Not a great time to be a politician."

Probably not the greatest time to be Gordon Brown! Two days ago he thought he was being hailed as Saviour of the World - now, as William Hague has pointed out, hubris!

Events are coming back to bite Gordon in the rear end!

[The BIshop Swine]

I always thought John Redwood was something of a lunatic, but the truth is that often he is absolutely right. We need to cut interest rates as quickly as is possible. With the current inflation pressure now easing the Bank of England can afford to loosen the curbs on money supply a little. I believe we need a sharp cut now, the very best situation would be if such a cut was made across Europe, Of course we are a way from 2% right now and it would be foolish to do this all in one cut.
We need to keep some powder dry just in case but I would like to see interest rates at 3%
by Christmas. The current Government also needs to put some pressure on the energy companies to cut prices as Oil is now a lot cheaper than in the period before the massive increases in household bills. The reality is that its time to cut rates and the sooner the better. If intrest rates have to fall to 1.25% then so be it.

[John Bell]

Present rate of inflation is a reflection of monetary policy 18 months/two years ago. The coming recesion is already having an effect on food/petrol prices and will inevitably bring inflation down. Interest rates, therefore, should be set for the conditions that we face now and in the coming two years. Along side this, we need a root and branch examination of what government does and how it does it with all unnecessary activities and expenditure stopped. Those activities that remain should be devolved down to the lowest level possible and have their budgets set at or around the present level forcing them to examine how they operate and improving productivity levels in the public sector. Longer term, incapacity benefit should be phased out; those who genuinely cannot do any work should be moved onto disability allowance and the rest to jobseekers allowance and on into work or training. There should also be a time limit for all benefits (unemployed should have to get a job or training place), a law - if there isn't one already - against not supporting your family (aimed at absentee dads) and an end to benefits for new single parents -existing ones should lose benefits once child goes to school - and no benefit should be paid for children born after people go on benefits. Public sector final salary pensions should also be brought to an end. Those hard-working families who struggle to support themselves will cheer that they no longer have to support the 5m on benefits. This should be accompanied by a major simplification of the tax/benefit system ensuring among other things that no one who pays tax receives benefits and no one on benefits or the minimum wage pays tax.

[Arthur Barker]

John Redwood wants the banks to charge only 2% interest on loans. How would this be enforced? People would just lend their money to institutions paying the highest rates - no one can say what they should charge, only the market. How is he going to be able to be in a position to make the Bank of England reduce interest rates to this low level? People with money to lend (the natural conservatives - which includes the grey vote which is increasing daily in numbers and tends to have most of the money available to lend) will not vote for him and others of his persuasion so his ideas would remain dreams (or nightmares to potential money lenders). John Redwood is ignorant of both political and economic reality).

[Paul Kennedy]

If there is a substantial reduction in interest rates, what happens to those people who rely on the interest on their savings.

[Freddie Fencepost]

Vince Cable published an article more than a week ago pushing for a big interest rate cut... and also asked about it at PMQs

We are still behind the curve!!!!

[Tony Makara]

John Bell, the problem is if benefits are stopped entirely as a punitive measure people don't have their rent paid and become homeless, we've already got enough problems with homelessness. I certainly agree that people should take work if its available, but even during the credit-boom there were always around a million more people on JSA than there were vacancies available. So thats a million who cannot work, even if they wanted to.

The problem with the benefit mountain is that punitive measures only punish people and don't solve the problem, namely how do we create a million permanent full-time jobs to end welfare dependency? That will require a radical restructuring of the economy and the revival of hard industries.

[Paul Kennedy]

This should be accompanied by a major simplification of the tax/benefit system ensuring among other things that no one who pays tax receives benefits and no one on benefits or the minimum wage pays tax.

Posted by: John Bell | October 16, 2008 at 10:09

Think you might find that many on the minimum wage do pay tax. In general you start paying tax on earnings of just over £6,000.

Totally agree with simplification of tax/benefit system.

[The Bishop Swine]

Stuart M

"This would be wrong.
Inflation is high. Speaking as a dedicated saver those of us who prefer to hold on to our money should be entitled to better rates of return which keeps well above inflation."

Inflation has hit its peek. I understand that this move would be bad for savers.
Which includes my family and myself. In a Normal economic situation I agree that
Savers should be rewarded with above inflation returns.

“Borrowers are the only people to benefit from low interest rates - and their excesses of debt caused the credit crunch. Lowering interest rates would dramatically hit savers (who were not the problem) and encourage more borrowers (who were).

This is morally incorrect”

That’s a simplistic view of reality. Large businesses need cheap money right now if we are to avoid a slump. The cutting of interest rates would (hopefully) take some of the pressure off of those people who have large mortgages. In the medium term we need to reform the way we do business and we need to instill some old fashioned common sense in people. I agree that excessive borrowing is part of the reason we are now in trouble,
However massive over pricing of assets is the largest reason we are now caught between a rock and a hard place. An economic slump (depression) would have a greater impact on our collective savings than a period of lower interest rates.

“Clearly we need more money in the economy - the best way to do this is to massively reduce taxes by cutting most, if not all of the 100 billion government waste.”

I agree but this will take time and an administration committed to its implementation.Cutting a large number of government Jobs would make the current situation worse.The last thing any of us need is a depression.Cutting government spending is also not something that this Government is likely to do right now. There are massive savings to be made but they all take time and in some cases changes in the law to implement.As an example there is the need to reduce the cost of welfare but this has to be done in a fair manner and not just a straightforward cut. If we fail to support the weakest in our society we will have done something that is truly morally incorrect. In fact in the short term Welfare reform is likely to cost even more money before the savings start to come in.

[resident leftie]

Posted by: John Bell | October 16, 2008 at 10:09

Wow, an old-school Thatcherite!

As the recession bites and vacancies fall, you want to cut benefits and remove them altogether for people who have just had children if they are single parents or on benefits. Congratulations - that's eugenics 101. You and David Coleman of Migration Watch should consider a civil partnership.

[rugfish]

"John Redwood is ignorant of both political and economic reality".
Posted by: Arthur Barker | October 16, 2008 at 10:11

Arthur, if no one can afford mortgages and houses are repossessed, then the banks capital will reduce and savings rates will suffer. If this happens enmasse, which it will in a recession / depression due to no liquidity as a result of no jobs caused by bankruptcies, then the "grey voter" will lose too. Also, many millions looking forward to becoming a grey voter will have little or nothing in the way of income as shares are wiped out.

The cake can only be divided in proportions where most are fed with it as opposed to a political grey vote which incidentally have families, grand children, sons and daughters who will be out of work and in the street unless action is taken to prevent it. Who will they vote for then ?

[rugfish]

European shares have been trading lower following dramatic falls in Asia that saw Tokyo's Nikkei index fall 11%.

Global falls have largely wiped out the gains earlier in the week, as fears of recession cancelled out any optimism from government bank rescue packages.

http://news.bbc.co.uk/1/hi/business/7673226.stm

[Tony Makara]

The tax-credits system, which creates a half work/half benefits economy should go, as should the minimum wage which actually drags more wages down than it pulls up. However I do not want to see child-based benefits cut, in fact these should be increased in some instances depending on personal circumstances. Single mothers, or parents on benefit, should be allowed to draw on a special childrens fund, which they can repay interest-free once they start work or when the child is older. A Conservative government must find innovative ways to end child poverty as Labour have clearly failed in this area.

[Old Hack]

Redwood has more intelligence and common sense than he is given credit for by profiling media hacks.

Redwood was right about Northern Rock, he has been on the money with his analysis of the current situation and he's more than a match for the likes of Cable and Darling.

It says even more of Redwood that he has not been touring the studios promoting his views, as he could do, but instead giving Osbourne the room to manouevre.

Let's hope that the Leadership realises that it has handled this current situation poorly and that its time to regroup.

Redwood and perhaps Michael Fallon should be given roles in coming up with some better positions on sorting out this whole mess. We need to seize this agenda back.

[GB£.com]

I guess the conundrum is how to help existing homeowners to afford their mortgages to avoid repossession whilst not fuelling the house price bubble further by piling more people into home ownership at a time when house prices are still vastly overpriced.

If house prices are not allowed to fall to their fair-price level (ie not propped up by government intervention) then boom and bust will continue.

How about combining a rate cut with new lending criteria (max 25% of net income can be mortgage payment)? The UK would need to be weaned off of floating rate mortgages to make it possible but full-term fixed rates really help budget-planning.

It would help existing homeowners now and would enable house prices to slowly deflate until they reach affordability according to the new lending criteria.

You've got to love the panicky vested interests in property. Did that guy on TV last night really say that falling prices are the first sign of recovery!

[ACT]

"As ConservativeHome revealed on Tuesday . . ." - dear God, you really do believe that, don't you? That would be 'revealed' as in, "as CH was spoon-fed by CCO on Tuesday" presumably?

[London Tory]

Didn't Brown give the game away yesterday. His answer to 2m unemployed by Xmas is to..... get the public sector to lag people's lofts.

L.O.L

We need to hammer home this message- to recover, the public sector must now start to shrink, not expand.

Brown creating 'jobs' in the public sector at this stage of the economic cycle is no different to Bob Mugabe printing a few million more dollar bills in Zimbabwe.

[GB£.com]

..also by applying max lending criteria as a percentage of net income, it would not stop people buying bigger houses if they have a bigger deposit, but a positive consequence would be that future house prices rises would be much more orderly, as a function of income, maintaining affordability.

[Charles Tannock MEP]

Inflation (or even stagflation) is one solution to the overleveraged situation in western economies as the next great fear after mortgage backed securities is the defaulting on bond payments from securitised loans from the credit card companies from personal indebtedness. Reflating the economy will devalue the costs of servicing as well as the asset value of the debt and might be the medium term solution although its been tried unsuccessfully in Japan for a decade. Speaking personally with no credit card debt it makes me angry we have to bring back inflation to resolve the economic crisis which will erode the value of my savings (ill admit my pension is inflation linked but most peoples' is not)as a consequence of irresponsible bank lending and poor government regulation and supervision.

[Tony Makara]

London Tory, I wish Brown would create jobs, not permanent ones, but public works programmes for those who can't find work. These jobs, as a priority, should go to those who head young families so that living standards are maintained for children and repossessions avoided. Of course the jobs should be productive, so that the state gets its money back through applied manpower, be it in construction, care work, etc, but definately no clip-board jobs.

[London Tory]

We need Redwood in the Shadow Cabinet at this time. The argument about him turning off the electorate no longer applies- the same can be said about Letwin etc and they get a place.

[London Tory]

Tony

there are no jobs in construction at the moment for the existing workforce- the industry is suffering from chronic over supply.

There is an old saying- 'if you see cranes on the sky line, a recession is on the way'.

There are a lot of cranes in sight at the moment.

[Norm Brainer]

How about combining a rate cut with new lending criteria (max 25% of net income can be mortgage payment)?

I don't think I've ever paid less than 25% of my income in rent even.
I'm not sure you can set it like that as people's disposable income varies widely even on the same income.
Also it's not relevant to the banks issue as they have the house as an asset if people overstretch, the problem is when they lend too much compared to the house's value.
Sure, it may cause less repossessions in a downturn but that's the risk people take if they choose to buy.

[rugfish]

The lack of ability of many people to afford a home purchase is not the only problem.

Income multiples and high loan to value loans coupled with self-certificated mortgages and sub-prime rates as low as standard rates ( heightening risk ), fuelled a remortgage market which released large amounts of cash into the economy.

The remortgage market also fuelled redemptions of otherwise unaffordable unsecured debts from inflated equity and many people naturally then went out and replaced that unsecured debt with some more debt, whilst simultaneously living the life of Riley spending money on DIY, Holidays, Cars, Furnishings, Speculating on Buy to Lets, etc,. Which all fuelled increasing house prices and a shortgage of housing.

The SIMPLE way to bring down houses prices is to reduce interest rates whilst simultaneously banning NEW Buy to Let purchases, and telling banks to treat current Buy to Let mortgages as COMMERCIAL transactions.

Also, bringing MIRAS back for FTB's, would enable residential First Time Buyers to have a competetive edge over commercial speculators and would offset the cost of housing. This would lead to more BTL owners selling their assets in a market which is invigorated by residential purchases.

Repossessions in the BTL market will also enhance availability and result in falling prices in accordance with demand.

Also, councils should be able to step in where there is an over supply of housing caused by repossessions, and backstop the possibility of homelessness which could occur as a result of builders currently not being able to build in a recessed economy.

As time passes, the situation will right itself and councils will then be able to sell on the assets to residential buyers under the Right to Buy scheme.

[Tony Makara]

London Tory, the govt can use construction workers for urban renewal, this is an opportunity for the govt to clean up so many of the eyesores that dog every town in the country. After all it has the ability to do so, all that is lacking is the political will. As I have argued many times in these forums, it is crazy to pay an unemployed person JSA, rent and council tax rebates etc, when the state could top up the benefit so it becomes a living-wage and by so doing the state actually gets something back for its money in terms of manpower.

[Norm Brainer]

The lack of ability of many people to afford a home purchase is not the only problem.

Is it a problem?
It's the banks that have the problem, the talk of people not affording the houses is dangerously sneaking socialism in through the back door.

[resident leftie]

Posted by: Tony Makara | October 16, 2008 at 11:52
London Tory, the govt can use construction workers for urban renewal, this is an opportunity for the govt to clean up so many of the eyesores that dog every town in the country.

Make work doesn't work.

There is a much easier way to do this than making specific unemployed people do specific make-work jobs, and that is public sector building programs for social housing, power stations, public space renewal projects, railways lines - infrastructure. Let the private sector choose who they want to build them - not force a mismatch between people and unsuitable jobs, thus stimulating the economy in the short term, providing employment, and give long term benefits which can be reaped by everyone, the private sector included.

Who benefits from improved new tube lines and better rail connections which stop people being late for work?

[Edward Huxley]

I am a Redwood fan but has he thought this through? The 2% rate could only be temporary to kickstart the economy- no doubt it would revive the housing market for a start. There would be another rush to buy with low mortgage payments but the pain would come later, when higher rates were restored. Back to square one.

I`m an Oap relying on interest on investments made from hard earned money during my business career. People like me don`t matter of course.

Sorry Mr. Redwood, 6 out of 10 for trying.

[David_at_Home]

John Redwood inhabits a different planet.

We need to save (i.e invest) a lot more and spend very much less. Furthermore, central banks have largely lost control of interest rates.

[London Tory]

The bottom line for any Conservative is that Governments do not/cannot/must not create jobs. All they can do is create the economic conditions in which employers can afford to employ people. Creating public sector jobs is no more than recycling income tax and council tax from employed to unemployed people.

Labour will tell you that the vast expansion of Male Cottaging Advisers is a mark of the 'civilised society', I would argue that it is the opposite.

[GB£.com]

Sure, it may cause less repossessions in a downturn but that's the risk people take if they choose to buy."

I 100% agree Norm.

I'd rather governments did not get involved in either suppressing or supporting asset values, or the purchase of particular assets, but we seem to have politicians who continually want to find ways to 'help' people buy one kind of asset, houses, with various schemes (the Tory one being the stamp duty changes) instead of accepting that some people simply cannot afford to own a house.

No-one has a right to own a particular asset, but no politician seems willing to say this.

However, for those intent on meddling, max % lending criteria in used in France, and I bet their house prices are not impacted anywhere near those in the US, UK and Spain.

[rugfish]

Norm and GB£, I agree with you both in an idealistic sense that 'politicians' may well have an ideology about it all and of course they do and have done for many years.
This is how Labour painted itself into a corner in 79, and how we painted ourselves into a corner in those years subsequent.

Today we talk about what a 'government' could or should do, and it is my belief that a government has a responsibility to 'help people' in ways it can balance the needs and aspirations of society as a whole whilst gripping on the need to remain in government so it can promote sensible change.

If a 'government' is not catering for the asiprations of society then it is not performing its reason to be there.

Many millions of people, as has been said, want to buy their own homes. It stands to reason this is also a main ideal for Conservative thinking otherwise there would not have been a Right to Buy scheme and we'd have shed loads of council houses still on the books.

The very fact that some people cannot or do not want to buy their own home, doesn't really detract surely from the premise that some DO ? ( Many do ) for it is mainly in our culture to want to do so.

The gains made in home equity are utilised within society in many ways for the good too, so it is certainly a way of encouraging growth in the economy, income in retirement and security of tenure for those who aspire to buy their homes, and should in my view be seen on that basis, which fits well into Conservative thinking as opposed to a pure capitalist idea which doesn't serve all the needs and aspirations of the whole of our society.

Such ideology limits policy to a have and have not society which is plainly out of sync with at least what half the voters actually want and many do not want even in our own party.

It's not 'socialism', it's more the case of caring capitalism, which in this case is caring conservatism which would put us at the centre of politics and gain more support if taking into consideration the millions of homeowners struggling to pay mortgages on homes they want to keep, as well as the millions of prospective homeowners which would thank the Conservative Party for making their aspirations possible ?

I was once apolitical, saw the country suckered by Blair and Brown and now I want to be free with the Conservativism, but I don't see freedom just for me I see it for everyone.

Does that make me a socialist or a caring Conservative or just a simple minded British Democrat ?

[David Sergeant]

I am amazed that no one above, or Redwood or Cable, has pointed out the operational problem regarding this. The BoE works to criteria set by Brown in 1997 and inflation targets that Brown changes when it suits him. To follow the point of this argument for real,practical, purposes you need to revisit the BoE/FSA split, the BoE criteria, the relevance of Brown's last interest rate target fiddle and propose a changed inflation calculation and target. I would not know where this would end up but if the result is not to taste the only answer is to cancel the BoE independence, otherwise we are just a fatuous talking shop. I have never thought much of Redwood but to produce this idea without reference to the organisational complications makes me think substantially less of him.

[Raj]

I agree that further cuts in the interest rate will probably be necessary, but I don't agree with slashing it all the way to 2%. Any benefit from that will be temporary as they can't be held down that long - we don't want to cause another housing boom. Also if that fails to do anything then there's not much elbow room left.

Plus, remember that some people depend on interest rates to boost their savings and income. Cuts can be dealt with, but not a slash to 2%. Indeed one problem this country has had is that people keep refusing to save, as David_at_home says. We'll stay a credit-card-culture until people can see that saving pays off - will they put money aside if inflation is higher than the basic rate? I think not.

[Raj]

David S, and yet we're told by various people here that he's precisely the man to replace Osbourne. Yes, stand up in the Commons and suggest ways of dealing with the crisis which as Chancellor he would have no power over under current rules - unless he is proposing to bring the interest rates back under political control, which I completely object to.

At the moment this is nothing more than a plea to the BoE to cut rates - it's not a workable policy.

[Tony Makara]

London Tory, you say:

"The bottom line for any Conservative is that Governments do not/cannot/must not create jobs. All they can do is create the economic conditions in which employers can afford to employ people."

However during the period of high unemployment in the 1980s the Thatcher government had public works programmes and gave those who could not find work fully-waged 12 month contracts. Those on the programmes would be able to pay their mortgages and have disposible income at hand. Events of the last few weeks must surely have taught you that the idea market forces can do everything is blind faith, an ideology that has had its day. There are times when the state can be a force for good and public works programmes in a time of recession can change lives and help families to stay in their homes.

[sally Roberts]

"but I don't see freedom just for me I see it for everyone.

Does that make me a socialist or a caring Conservative or just a simple minded British Democrat ?"

I think it makes you a decent human being - good on you, Rugfish!

[Norm Brainer]

Many millions of people, as has been said, want to buy their own homes.

Yes, I do, but I don't want the price pushed up by part-ownership and other schemes to provide for peoples desire to buy who haven't got the means.

I guess by your definition that government should provide for peoples desires then it is indicative of a problem, but not the problem itself. Playing with the indicator just makes the source problems worse.
Whilst not nessicarily being socialist, labour definatley like to do this which looks good in the short-term but as has happened, the chickens always come home to roost at some point.

[GB£.com]

I agree with you too rugfish. My point was that if politicians are intent in helping people buy a particular asset, a house, however much I disagree with that idea, it is imbalanced for them to find ways to stop that asset falling in price without also combining ways to stop that asset rising too much in the first place.

Such one-sided intervention will always causes prices to overinflate and subsequently crash, which is why Bernanke is considering now also getting involved in limiting price rises using interest rates.

Helping people to purchase a home is not the same as creating a culture of enormous capital-free asset gains for some for a short period followed by enormous losses for others (who bought near the end of the cycle) later.

For such a policy, would it not make more sense to apply some kind of brakes to the *pace* of the gains (not eliminating them entirely) to ensure that they are both sustainable and available to all?

Seeing as they are now considering doing just this in America, it could present the Tories with an advantage if they do the same, unless the culture of massive short-term gains is now so ingrained in British culture that it would be too unpopular to do so. If that is the case, then the Tories would simply be repeating the boom and bust process all over again.

[Tony Makara]

Resident Leftie, I certainly would not object to investment in infrastructure, in fact David Cameron is very keen on bringing our transport infrastructure up to date. Certainly any jobs that govt creates should give leeway to applicants who are long time unemployed and those who head young families. A rare example of positive discrimination being able to help people.

[London Tory]

Tony

'Investment'- whether that be in infrastructure or public works programmes, has to be paid for. Money can either be raised through government borrowing- there has been rather a lot of that in recent weeks to the extent where the national debt now exceeds our GDP, or by raising taxes.
Raising taxes will merely give people less money to spend in the service industries, which in turn will inevitably result in more unemployment and thus the need for more public works programmes.

As somebody once said;

"You cannot buck the market".

And as with so many things, she was right.

[rugfish]

Posted by: GB£.com | October 16, 2008 at 13:16

Cheers GB£ I sort of knew instinctively that you and I agreed on this issue to a large extent so I won't bang on about my own ideology too much either.

I've just been reading John Redwood who's advocating we start building power stations etc and cutting interest rates.

The thing is, I don't think people are really seeing the whole picture here as it happens. We know the financial sector ( used ) to bring in 60% of GDP and industry 40%, yet people are failing to see the financial sector is in ruins and the remaining 40% is heading into recession / depression. Without government intervention the UK is on a collision course to economic disaster ( In my opinion ), and intervention is the only way to save it because the financial sector is unreliable.

Home values are dropping like stones because businesses are making people jobless, repossessions are filling the place up with unwanted houses, thus creating more available product at a time of less demand and capable purchasing power.

"Something" has to be done and Brown isn't doing it.

First Time buyers have to be promoted in order to stabalise house values. This is what many people are looking to retire on as a result of Brown's pension robbery. So 'anything' to hold values up and get people into their own housing which they can afford with jobs will win votes.

I think we need radical proposals too, such as I've advocated for the return of MIRAS. I also feel stamp duty should be switched to the seller, I'd like to see Buy to Lets on new housing ceased, and I'd like local government to take the up the excess in order to both leave a socially responsible backstop whilst maintaining values where ever possible.

Granted, a move in interest rates should be actioned globally or at least between ourselves and Europe. I think America's is already around 1.5% !?

The sole purpose of what I'm saying is really to help save the economy and millions of British people falling into depression, and without trying to sound too gloomy, someone has to say what's around the corner if we like Brown, continues with an action which defies all reason, to just keep throwing taxpayers money at the banks which keep it to restore their own profits instead of making it work for US, the people, US taxpayers in OUR economy.

P.S. Thank Sally, and Norm I agree with what you say.

[Tony Makara]

London Tory, what you say is very true. However if we want something lasting and of value for the nation, like infrastructure, then we have to pay for it. The whole issue of taxation revolves around whether that taxation is providing value for money. I am certainly not advocating increases in taxation, however I do feel that public works programmes would be far more productive than the 3.4 Billion New Deal because the state would have manpower at its disposal and would be providing the service sector with the waged consumers it needs.

Its all about making the revenue from taxation work in the national interest. The government should close down the New Deal immediately and use the money to create waged public works programmes for those families who have mortgages and others who can't find work. Twelve months on a public works programme would allow a familiy to keep a roof over its head. That is the sort of good politics that can change lives.

[Raj]

Bishop

Savers should be rewarded with above inflation returns.

Usually, but they're based on interest rates not inflation. If interest rates were cut to 2% there is no guarantee inflation would fall to below 2%.

[rugfish]

Tony, I agree with you.
John Redwood says we should start building power plants.....equals WORK.

Tory planned high spped rail network.....equals WORK.

We have the Olympic thing to do.....equals MORE WORK.

Housing needs to be kicked off for first time buyers to stabalise prices so people can hold on to their real assets and a lowering of interest rates would make WORK achievable and HOMES affordable.

The government's plan is to LAG LOFTS !!
Once all the lofts in the UK have been lagged and everyone's forgotten how to do a trade because they've had no work for 5 years, maybe someone will get around to lagging Brown's mouth with fibre wool too but meanwhile we need concerted action from the initiatives put forward from a Tory government in the face of a present government completely barren of ideas other than to re-train people for jobs which don't exist.

[rugfish]

If anyone is worried about savings being eroded under a scheme to lower interest rates, then they should be shouting for a Tory government and asking George to initiate a good selection of government gilts and bonds along with high threasholds on ISA's....( £20K at least )

Bank deposit accounts would indeed be a complete waste of time if rates were at 2.5% and inflation was at 5 - 7 or 10%.

[Raj]

Home values are dropping like stones because businesses are making people jobless, repossessions are filling the place up with unwanted houses, thus creating more available product at a time of less demand and capable purchasing power.

First, house building has slowed so any increase of properties on the market through repossessions would be mostly balanced out. I haven't read anything to suggest that there is an unmoveable glut of housing.

The main reason prices are dropping is because the banks are demanding 10% deposits and are not giving such generous income ratios as they did. Although the 10% deposit can be difficult to bring together, otherwise mortgages are being given out on a more affordable and reasonable basis. The market was FAR too high before the price drop began. Predictions were made that it might come down significantly, but most people either assumed it would keep going up and up or there would be a "slight correction". Furthermore suggestions that something should be done about the price rises were often objected to very loudly by numerous greedy homeowners who took a "I'm alright, Jack" view to things and didn't care about people who didn't have a foot on the ladder. Sadly the nicer people have suffered too, but those who resisted change cannot complain.

Also first-time buyers are waiting until they think the market has bottomed out. Which is fair enough because I don't see why they should have to pay fairy-land prices because other people were given loans they could barely afford to pay back.

[RichardJ]

The problem with the government spending our money on public works or infrastructure schemes is that a)it denies us the choice of where to spend our money and b)there may not be any real demand for the services being provided, which means more and more money has to be pumped in to make them viable. Best thing to do is cut taxes and let the private sector invest, responding to consumer demand and price signals.

[Raj]

Rugfish, I agree that a high-speed rail network is a good idea - I think the UK should have that. However we need to think about how to fund it. You can't buy growth with public works projects.

[Steve Tierney]

There is no easy fix for the problem. Any of the tricks being suggested just defer the problem for later.

People, businesses, banks and governments have borrowed money they could not afford to repay, based on assets that are not worth the amounts they expected.

Cutting interest rates, cutting taxes, increasing spending, its all just a quick fix and a problem deferred, not a solution. Encouraging people and organisations to lend more crazy money, or spend more money they don't have, just compounds the situation.

There is only one solution to having spent more than you can afford to repay. Tighten your belt. Live in some lean times. Work your way out of it.

Charles Dickens had it right when he wrote:
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Nobody wants to hear this, of course. Everybody wants the magic wand. There is no magic wand. This is the real world. All the government can do is try to protect vulnerable people from the mess it has helped to create. Sadly.

[Mark Williams]

Resident leftie:
"Make work doesn't work.

There is a much easier way to do this than making specific unemployed people do specific make-work jobs, and that is public sector building programs for social housing, power stations, public space renewal projects, railways lines - infrastructure. Let the private sector choose who they want to build them - not force a mismatch between people and unsuitable jobs, thus stimulating the economy in the short term, providing employment, and give long term benefits which can be reaped by everyone, the private sector included.

Who benefits from improved new tube lines and better rail connections which stop people being late for work?"

Hey, resident leftie speaks sense for once! The best time to build and repair infrastructure is when the cost of doing so is at an all time low - wait a few months and the case will be compelling.

While we are about it Brown could endcourage some industrial investment by putting the rate of capital allowances back to where it was 10 years ago, and repealing all the legislation n finance leasing to encourage some inbourd investment in big capital projects.

[Tony Makara]

Rugfish, the next Conservative government has to bring manufacturing back and encourage the creation of an internal market, making it profitable to invest in and supply Britain. The service sector has its place of course but has become too dependent on imported goods, which are likely to dry up as Eastern markets are squeezed. Our manufacturers should supply our retail service sector, our agricultural sector to supply our food and other materials. The way out of recession, and as a guarantor against future global recessions is an internal market. Buying British is the way we can build a healthy economy, to last!

[rugfish]

Posted by: Raj | October 16, 2008 at 14:43

"I agree that a high-speed rail network is a good idea - I think the UK should have that. However we need to think about how to fund it".

Raj, I think they are on about this being financed privately same as the power stations. Certainly it's better than an airport extension to acrry passengers which won't be flying due to no job wouldn't you say ?

P.S. Moderator's, please give a shout to someone to get reply buttons on here will you. It's so archaic not to have all the trimmings on a new forum honestly. Also, quote's and fonts so we can actually see others words distinct from our own please.

[Mark Fulford]

Redwood is completely wrong on this proposal.

Interest rate reductions would further weaken the Pound, thereby boosting the home / export market at the expense of imports. Sadly we’re not in a position to benefit from those changes while fuel, already our main source of inflation, and so many other goods are mostly imported.

A 2% interest rate reduction saves the average adult around £50 per month (based on £30,000 debt per adult). That saving would be completely wiped out by only a 3% rise in inflation – a rise that would be inevitable with a rapidly devalued Pound.

The change that Britain really needs is to return to self-sufficiency. We should be producing our own energy, growing our own food and building our own machines. £33 billion injected into our economy on those objectives would have been money well spent.

[London Tory]

The real cause and problem for our unbalanced economy and welfare system can be summed up in one word- accession. Allowing economic migrants to cross many borders to basically undercut our own workforce will be a long term disaster for this country. Labour realises it now, but saw the danger too late.

It never ceases to amaze me that a Pole can work in the UK and send in excess of 50% of his earnings back to his family 'at home', whilst we pay our indigenous population £60 a week to sit at home and do nothing.

[rugfish]

Posted by: Tony Makara | October 16, 2008 at 14:58

I've said the same myself mate.
You'll have heard dingbat Brown the other day demanding that no one returns to protectionism ?

This globalisation is another word for giveaway Britain because we are trying to 'compete' with countries who pay wages of Five Quid a month to people and don't have the support systems we do. Buying British is indeed the way to rid ourselves of many problems and living within our means is another. Also, it's diabolical to bang on about the environment and global warming when your policies mean goods are shipped all over and artound the world when they could have been sold here.

An internal market coupled with expansion of industry and home agriculture to build more self sufficiency will undoubtedly have plusses in the voting percentages too. We really do need radical overhauling, one of which is to direct our efforts to restoring democratic powers to our own parliament so we have the means to do it.

The British worm must turn !

[rugfish]

2% cut in interest rates means a mortgage holder with a debt of £150,000 would see an increase of £250 per month or £3,000 per year. Inflationary pressure can be counteracted by applying Steve Tierney's Dickens Theory.

[rugfish]

An increase to disposable income of course. Not to his mortgage payments.

[rugfish]

Posted by: London Tory | October 16, 2008 at 15:11

The economics alone of it adds up to utter madness but the social implications and cost to society itself double that to lunacy.

Also, we all know the unemployment figures are fiddled because many hundreds of thousands are not registered and millions are in transient, temporary, contractual and itty bitty jobs from 8 hours a week to 20.

Meanwhile, they laud up the fact they have a minimum wage but mention nothing of the fact that it really only applies any benefit if people have enough hours to actually make it worth their while.

[Tony Makara]

Rugfish, I have taken a lot of criticism and even abuse on this website for advocating that Britain become less dependent on imported goods. I've argued that buy supplying our own market we can end the millions on welfare and will no longer require the higher interest rates needed to keep the cost of imports cheap. Now that the global economic system has broken down its time to get back to fundamentals. Here is my article in case anyone missed it. Although written six months ago it outlines the strategy needed to take us out of recession.

http://conservativehome.blogs.com/platform/2008/03/anthony-makara.html

[Yet Another Anon]

I wish Brown would create jobs, not permanent ones, but public works programmes for those who can't find work.
Public works programmes are best done as needed, the people who they should take on are those who have the skills or aptitude to do the work required, anything else and the quality of work is likely to be poor and late.

Schemes such as ET and YTS ended up being state subsidised jobs that in most cases would have been supplied anyway, the person concerned went to an interview with the employer who said yea or nay, but then a lot of the money for that job was paid out of public revenues - that was why such schemes were run down in the 1990s.

What there needs to be is a programme of cuts in public spending, stopping many of the new NHS proposals to extend services available to the public, scrapping many of the targets, commercialising many public services, shedding government involvement and funding in some and then using the money saved to cut the Budget Deficit and pay for some tax cuts and for a simpler tax system.

As for interest rates, the problem has been one that there has been over the past 30 years a growing culture of living on credit, having lower interest rates may delay the effects of that, but will do nothing to end it - by making it easier on existing debtors, it will also make it easier for people wanting to borrow more.

[rugfish]

http://conservativehome.blogs.com/platform/2008/03/anthony-makara.html

Posted by: Tony Makara | October 16, 2008 at 15:43

You have my support on this.
I am of the view that we have engaged in what I call rampant capitalism which has gifted power over our economy to speculators, rich elite and hawks who prey on the vulnerabilities of loosely controlled begging governments.

Governments are that eager to please investors, they give grants to these people and compete only on the level of taxpayers money they stick in the back pockets of the rich elite.

Those speculators up sticks and hold our economies to ransom at the threat of pulling out.....thus we have limited democracy and parliamentary powers because speculators went GLOBAL with our economies.

It needs a change, only to a degree whereby power returns to government in order to exact change to remove competetion between countries so the trade area is even and with as little upset as possible to what we have now. We need LESS bureaucracy to free up business, less control at the front end of finance and MORE deliberate control of the back end where it counts. i.e. A government which can deliver what is needed in terms of the economy, backed up by external agreements of countries acting the same toward socially responsible ends.

No investor is going to pull out of an enlarged economic area which promotes values which are focused on a social agenda first with the ability of business to trade freely within it but with no advantage to be gained as to location. In fact there should in all sensibility be some method by which government collectively decide the locations of industries to suit the business, the consumer and the labour.

This isn't socialism by the way, it is simply governments acting in a chesive manner to deliver the goods in the right place at the right time for the right people to fulfill the right needs of business and the people, under private industry but with social conscience.

Why can this not be ?

[RichardJ]

"This isn't socialism by the way, it is simply governments acting in a chesive manner to deliver the goods in the right place at the right time for the right people to fulfill the right needs of business and the people, under private industry but with social conscience. Why can this not be ? "

Because we don't want taxes slapped on our cheap goods from China. Try and introduce tariffs on cars, electronics etc and you will have a consumer riot.

[Roy lewis]

Has anybody noted what this link has to say about the real architects of the bailout? It wasn't Brown!
http://atoryblog.blogspot.com/2008/10/does-nayone-remeber-brown-giving-credit.html

[Jane Gould]

1. we want to avoid specifics. this isn't our mess. we will have to sort it out in due course and do not want to be tied to over-keen pronouncements.
2. in 1997, we handed over a simple, straightforward, anomaly-free tax system. (courtesy of Howe, Lawson, Major, Lamont and Clarke) The PM as Chancellor - lest we forget - introduced successive measures, accompanied by ever more complicated and incomprehensible credits, thresholds, rebates and clawbacks.
3. Job creation. Well, Mr Brown & his mates will shortly be unemployed themselves. Will they volunteer for retraining as loft - laggers? This might be more use to society than yet another slew of bleating self-justification. AKA the political memoir.

[Jake]

Redwood is basically correct.
Try 3% for starters.

[ross warren]

Yet Another Anon !

I totaly agree with your observations about the YTS. I worked as a Tutor co-ordinator helping 16yr olds to use IT and find work. However I left after 2 years because I could not justify the con to myself anymore. There was very little money to pay for training and in most case's the Jobs lasted only for a year, after which the employer got another youth. It was a very wrong-headed scheme that in effect stole money from the public purse and stole at least a year out of the life of young people who were exploited. In addition the training for the staff was of a very poor nature. The old community program was a little better in so much as the wages were of a decent level in line with the work being done. YTS was just a rip off.

[Tony Makara]

Rugfish, we now need to enter an era of positive capitalism, one in which decent entrepreneurialism is rewarded. A world of decent wages and low taxes, of people being able to buy food without fear it might poison them, or that the cheap shoddy TV they bought from the East isn't going to break after a few months. In my home I have a radiogramme made in 1973, it is a huge beast of a machine, a beautiful piece of furniture, and still plays records and the radio works perfectly. It says on the back 'Made in England' The men who made that radiogramme are probably now dead, we must get back to the level of workmanship that they put into making that machine. Let's bring our hard industries back.

[ChrisD]

"The change that Britain really needs is to return to self-sufficiency. We should be producing our own energy, growing our own food and building our own machines. £33 billion injected into our economy on those objectives would have been money well spent."

Totally agree, and its an investment that should have been a priority over the last 11 years. Both food and energy self-sufficiency were flagged up as being an important investment for the future, as was the need for a transport system that could stand up to future demands. All should have been priorities for this government.

[Marian]

If we are going to create jobs, why not reopen the mines and produce steel again.
Then we could start building battleships.

[Tony Makara]

Its clear from the many comments that there is a groundswell of opinion that Britain should become self-sufficent again and by so doing provide the jobs needed to get us out of this recession.

Senior Conservative politicians, please take note and listen to what your party is saying.

[The Bishop Swine]

Even if it means a little protectionism?

To right, this world crash shows how very exposed we are to other people’s problems.

If we are going create jobs then it makes sense to start by getting our armed forces back up to a decent level. Frankly I would support a little regime change in Rhodesia right now, on a humanitarian ticket.

One thing this crisis has proven is that despite everything Britain is still a global power, I
Put it down to our national spirit even after 10+ years of Labour we can still show the world how its done.

I you feel this is Jingoism then perhaps its time to look again a what being British really means.

[Northern Tory]

I read these informed pieces with interest as I must admit that I don't have as informed a grasp on economic issues as the majority of posters. However, even I, realise that we need to put down Osborne's pop gun and pee shooter and send some real HOWITZERS shots across - like the proposal from Redwood...

[THe Bishop Swine]

Mark your right:

"There is a much easier way to do this than making specific unemployed people do specific make-work jobs, and that is public sector building programs for social housing, power stations, public space renewal projects, railways lines - infrastructure."

May I add:

As for the lazy and feckless, rather than wasting tax payers money on schemes to force them to work. Make a campaign out of prosecuting the worse offenders for persistently failing to maintain themselves. There was a time when even Labour were not afraid to use the law to its full extent, to discourage the lead swingers. I recall a number of such case’s in the early 70’s.

[Tony Makara]

The Bishop Swine, I agree fully that people should support themselves, but how are we going to get the 1.79 million on JSA into 600,000 vacancies? Only manufacturing would be big enough to employ so many people. This has to be the big idea from the next Conservative government, total committment to building our manufacturing industry up from the mere 9% of the economy that it represents today.

Our economy has become service-sector heavy with services now accounting for 76% of the economy. We have lost the economic balance, and unless we restore it, these millions will be trapped on the dole indefinately.

[The Bishop Swine]

The vast majority will of course be genuine claimants who we should support. However we all know that there is a hard core that don't want to work. As it is a few prosecutions will help to keep the rest focused. I am of course not proposing we use the law for the average honest claimant. The economy will not be depressed forever in any case. Up until quite recently there were more than enough unfilled jobs to justify an Iron Hand in a velvet glove approach. As I noted above the last Party to use this law was Labour around the time of the lib-lab pact.

[Resident Leftie]

Posted by: Tony Makara | October 16, 2008 at 22:29
The Bishop Swine, I agree fully that people should support themselves, but how are we going to get the 1.79 million on JSA into 600,000 vacancies? Only manufacturing would be big enough to employ so many people. This has to be the big idea from the next Conservative government, total committment to building our manufacturing industry up from the mere 9% of the economy that it represents today.

And wouldn't the irony be palpable? The party that destroyed out manufacturing base and made us reliant on services, building a mixed economy like that of Germany.

[John Broughton]

ChrisD @ 18:36 and the commentator you quote.

Agreed.

Self sufficiency as far as possible should be the prime objective of ant UK government.

This flies in the face of many eu objectives - see Italy fined for excess milk production and similar.

It is time that the UK's governemnt concentrated its efforts on benefitting the UK rather than conforming to eu policies which have dubious "benefits" to us.

[Tony Makara]

Resident Leftie, the shift towards a service sector economy was never going to be able to employ enough people for a population of our size. The service sector has a vital role in the economy, but as the sell-on point for manufacturing and agriculture. Sadly the service sector has also introduced a lowering of working conditions with the proliferation of part-time low wage jobs, many of these jobs being little better than pin money. We need to get back to decent jobs, fair pay that doesn't need a govt top-up and more sociable working hours. The only reason the service sector has been able to last as long as it did as the economic mainstay of the national economy is because of the artifical credit-boom fuelling spending on imports and financial services. Now the cash-flow is no longer available the service sector is collapsing. The need to redress the imbalance in our economy has never been greater, we now need to start all over again and bring the hard industries back.

[Bob B]

"[The UK authorities] have kept interest rates far too high for too long."

Rubbish. He doesn't know what he is talking about. Interest rates in Britain have been too low for two long, which is why we have a house-price bubble and a consumer debt mountain.

"Britain's debt mountain has nearly tripled over the past decade and now exceeds the total size of the economy.

"Consumer debt swelled to some £1.345 trillion by the end of the second quarter [2007], some £15bn more than annual gross domestic product, accountants Grant Thornton said."
http://www.thisismoney.co.uk/credit-and-loans/article.html?in_article_id=423642&in_page_id=9

Look at this chart in The Economist [3 April 2008], based on IMF data, to see how the size of the house-price bubble in Britain, from 1997 through 2007, compared with the bubbles in other affluent economies:
http://www.economist.com/finance/displaystory.cfm?story_id=10974135

Why was no one in government watching?

[Bob B]

Charles Goodhart was warning about the house-price bubble in Britain back in 2002:

"CHARLES GOODHART, a former member of the Bank of England's monetary policy committee, warned yesterday that the Bank is failing to take sufficient account of the house price boom in setting interest rates.

"His warning comes amid growing fears among economists that house prices, fuelled by the lowest interest rates for 38 years, are getting out of control. Yesterday, new figures showed that homeowners are borrowing record amounts against the rising value of their homes. . . "
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2002/04/06/cngood06.xml

But then in December 2003, Gordon Brown as Chancellor, went and relaxed the inflation target remit to the Bank of England - against the advice of the Bank - by redefining the target in terms of the CPI instead of the RPIX, a more broadly based price index which included house prices when the CPI doesn't. According to the ONS, the two price indices since diverged until very recently:
http://www.statistics.gov.uk/cci/nugget.asp?ID=19

Had the inflation target stayed fixed on the RPIX, the Bank of England would have had to set higher interest rates. Of course, that would have been electorally unpopular in the run up to the general election in 2005.

[rugfish]

Tony and other British builders.

Someone needs to get in touch with Sir Clive Sinclair and Richard Branston to get them to come up with an electric motor car which they could have ready for mass production by next summer.

It needs to have all its parts resourced in Britain and a logo design with Virgin Sinclair written through a Union Jack badge.

Someone should also get on the phone to China, India, America, Russia and Europe and start taking orders and deposits NOW so we can get British Car manufacturing running British 'VS-Elek' cars out to the world under a British label !!

I estimate a workforce of 5,000, ancillary service jobs of another 10,000, truck loads of orders of around 5,000 a week, plenty of over-time, a correction to our balance of payments deficit, a massive increase in electricity consumption which would need more power stations and nuclear power plants leading to more jobs, less oil consumption leading to cheaper petrol and less imports, leading to less inflationary pressures and lower prices, a great step forward for the world's environment, less requirement to include ourselves in squabbles in the middle east, and a giant leap forward for mankind !

I've got it all planned on the back of this envelope here if anyone wants to buy my idea ! lol

Sinclair

[Bob B]

I note that my posts showing why John Redwood is wrong - and with appropriate citations - have not appeared.

That speaks volumes.