Feb 02 2007
The extra cost of Labour despite an “independent” Bank
The Treasury would not tell me how interest rates in the UK have compared in recent years with our major competitors.
I now have the figures:
??Between 1999 and 2006?? interest rates have averaged 4.72% in the UK. That is 62% higher than the average rate in Euroland (2.91%), 37% higher than the rate in the USA, and 9440% higher than Japan (0.05%)
??Labour’s defence is that rates have been lower in the UK than in the previous decade. That is clearly true, but so they have everywhere else in the advanced economies. There’s no getting away from the fact that we pay a hefty premium with higher rates here under Gordon Brown. The Treasury’s refusal to answer the question shows they know it, and just don’t want to admit the truth.
You don’t have to pay much higher rates if you manage the economy well.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
I’m no economic expert, but I assume that interest rates have increased from their low a few years ago because public spending has increased faster than growth, and the budget and trade deficits have widened.
Prudence vanished long ago!
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What would have happened to property prices if we had had even lower interest rates? 3.5% was too low if you ask me. With zero confidence in the stock market everyone has been playing a game of monopoly with our housing stock. This during a time when more and more families are breaking up and immigration has been going through the roof.
I did some rough sums the other day. If house prices rise on average 10% a year (like most property owners seem to want them to) and wages an average of 4% a year (quite likely given there is a consensus that low inflation is good) in 14 years an average house will cost around three-quarters of a million and the average salary will be around 50 grand. Then what happens to people like policemen and nurses?
What happens then? Will there be some sort of regulated shared equity product? Will the financial institutions be keen on the risk? It would be in the interest of the banks for property to keep on rising and rising if this was the case. What in 100 years? Would the average family only own 10% of their home? 5% of their home?
We’ve come from an era of mass poverty where there were few homeowners, into an era of affluence where the majority own their home and profit from it in their retirement, what next? An era where our homes are owned by city institutions?
For all the short term fixes and ideas politcans band about, you’ve got to admit, it’s unsustainable for property to rise faster than earnings in the long run.
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