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Of course, it is not just bad decisions on tax and borrowing that have created some of the problems in the housing market. It is a pity that the Chief Secretary
to the Treasury is not in the Chamber this afternoon, because in her former role as a Minister of State with responsibility for housing she was the mastermind behind one of the biggest cock-ups in the housing market for many generations—home information packs. They have had an impact on the housing market. Their early introduction has led to concerns about the number of properties coming on to the market and the additional costs that they will impose on home owners. They are part of the problem in the housing market, and people are rightly expressing concern about them.
Alistair Burt: Before my hon. Friend leaves the topic of the Chief Secretary, perhaps he will persuade one of the Ministers present to give us a statement that the Government have so far not given us. Why was the chief executive of the Thames Gateway project sacked barely a year after her appointment by the Chief Secretary, whereas she received a promotion following a series of reports on the Government’s poor handling of that project?
Mr. Hoban: My hon. Friend makes an important point. I have yet to work out how competence and promotion work in this Government. It is a mystery to us all, but perhaps the Exchequer Secretary to the Treasury will be able to explain it in her winding-up speech.
The Exchequer Secretary to the Treasury (Angela Eagle): That was way above my pay grade.
Mr. Hoban: The Exchequer Secretary says that it was way above her pay grade, but of course it was not way above her pay grade at the time to recognise that 5.3 million households were going to lose out as a consequence of scrapping the 10p rate of income tax.
Before we got slightly distracted, we were discussing the impact that the introduction of home information packs has had on the housing market. It is not surprising that Which? has said:
“The new ‘half-HIP’ will be a useless but a very expensive waste of time...This half-baked compromise will result in something that is of little value but of real expense to consumers and Which? cannot therefore continue to provide support”.
One can always rely on Which? to come up with a pithy judgment: one of its former directors, who is now a No. 10 employee, said:
“Gordon Brown doesn’t need a new speechwriter. He needs a magician”.
As one can see, Which? is very good at identifying the issues in consumer problems; it does not always identify the solution, but it identifies the cause of the problem.
The Government’s interference in the housing market has not helped the situation. The poor state of the housing market, a squeeze on the cost of living, and higher taxes and higher borrowing costs make it more difficult for families to make ends meet, and could therefore lead to higher levels of repossessions. The rise in stamp duty revenues, which has been such a godsend for the Government’s tax take, has become a problem for first-time buyers, who now pay an average of just under £1,700.
When lenders were more relaxed about multiples and were happy to combine secured and unsecured loans, such as with the Together loan, which has been the topic of debate over recent months, first-time buyers could roll stamp duty up into their mortgage but now, with tighter rules and lower loan-to-value ratios, they will need to fund stamp duty up front. That will add both a further barrier to their buying their first home and another brake on the housing market. That is why we announced last October that we would abolish stamp duty for first-time buyers on properties costing less than £250,000, which would mean that nine out of 10 first-time buyers would no longer have to stump up for stamp duty. That would offer practical help for first-time buyers.
As I said, we need to be wary about talking down the housing market, but we must recognise that conditions are tough and we must strike the right balance in this debate. The combination of higher taxes, lower real earnings, a tighter housing market, higher mortgage interest rates and tougher conditions on home loans creates uncertainty and difficulty. People whose fixed-rate mortgages are coming to an end particularly need to look at the options available to them. They need to find the best deal available and secure it before they flip on to the default option of the higher standard variable rate.
The pressure of higher mortgage rates and rising living costs will mean that more families will find it harder to make ends meet, but given the relative ready availability of consumer credit, people must avoid the temptation to pay for everyday essentials using their credit cards, as that could lead to further problems. People facing financial hardship should seek advice sooner rather than later so that they can take control of their financial affairs, rather than allow someone else to do so at a later stage when their situation has deteriorated. Services such as Citizens Advice, the Money Advice Trust and the Consumer Credit Counselling Service all offer advice to people struggling with their bills.
The scale of any problems will depend in part on the overall economic circumstances. Four key factors have driven economic growth in recent years: finance, housing, public spending and immigration. Finance has grown four times as fast as the economy as a whole; housing has grown twice as fast as the economy as a whole; and the size of government has grown a third more than the economy itself. So the credit crunch will have a growing impact on the fast-growing financial services sector. That factor was borne out by yesterday’s CBI survey of employers in that area: future job losses in the sector were predicted, as was the impact on housing of the tighter availability of credit. Both those factors will impact on tax revenues in the year ahead.
Problems are potentially on the horizon, which is why we need to broaden the base of economic growth and encourage a series of reforms to get the economy back on track again so that we have broader base of growth in future. Because the Government failed to prepare for a rainy day, they have been forced through necessity to rein in the growth of public spending below the rate of growth of the economy as a whole.
We have that policy by conviction; it is the sort of policy that allows a Government to prepare for a rainy day.
We are heading towards difficult and uncertain times, but the hon. Member for Twickenham has done hard-working families no favours by talking up the problems in the market. Having said that, we cannot afford to be complacent either. The Government have failed to prepare the economy for these times and they have let the public finances get out of control. While our competitors can cut taxes to support families and businesses, this Government have had to raise them. Householders see the rising cost of living and increased mortgage payments, but they cannot expect the Government to help, as this year’s Budget showed. It included tax increases on alcohol and cars, and the scrapping of the 10p rate. This Government have let our families down at a time of uncertainty by failing to prepare. They will pay a price for that.
2.49 pm
Mr. George Mudie (Leeds, East) (Lab): I think I understood why the Minister was upset with the Liberal Democrats about the motion. They have done the serious subject of repossessions no service through the motion. For example, the Conservative shadow Minister spoke for 20 minutes, 15 minutes of which concerned the economy, but because of the careless, lazy ritual and the Punch and Judy system that we have—
Mr. Mudie: It is all right for the hon. Gentleman to shake his head, but it is lazy and it has played into the hands of the Minister and the Conservative shadow Minister. It has taken valuable debating time and taken the Conservatives, in particular, away from discussing the problem and putting suggestions forward, which was what the hon. Member for Twickenham (Dr. Cable) did. That is outrageous. The title given in the Order Paper for the debate is “The economy, repossessions and the housing market”. If the object of the exercise is to deal with the emerging problem of repossession, which hon. Members in their constituencies know to be a real problem as they sniff the wind, speak to people and attend surgeries, the hon. Gentleman and his party—or whoever wrote the motion—are not doing us any service by lumping it in with the economy. The motion allows us all to have a ritual run around the economy. I think that the Minister was right about the motion.
I do not tend to view politics from London or this Chamber. I prefer to consider politics through the constituencies. I do not see how anyone can table a motion that suggests that we are nearing a recession and that we are in all sorts of economic gloom. I used to sit on the Opposition Benches, and Members were accused of talking down the economy. I can see now, from the Government’s point of view, where that sort of mood comes from. There is an element of talking ourselves into trouble by talking down the economy.
If the hon. Member for Twickenham wants to suggest that we are near a recession, he should remember that during the recessions that we had before the Labour Government took over, some 3 million people were unemployed. The hon. Gentleman dug around the Red
Book and suggested that unemployment would possibly grow by 200,000, which would take the figure to 1 million, but such a figure is far different from 3 million unemployed, which caused such misery in our communities. We are still trying to dig ourselves out of that misery, even after 10 years of this Labour Government.
Julia Goldsworthy: I have been looking at the motion tabled by my right hon. Friend the Member for Sheffield, Hallam (Mr. Clegg) and my hon. Friend the Member for Twickenham (Dr. Cable), among others. It does not predict a recession as a certainty, but simply notes that there is a “risk of recession”. That risk has been identified by JPMorgan and Lehman Brothers: is the hon. Gentleman disagreeing with them?
Mr. Mudie: The Minister read out fairly and factually the forecasts from a range of sources: the private sector, the Treasury and the CBI. I have seen no forecasts—the Treasury Committee certainly did not hear of one from any of the experts who came to us—that suggest that we will not have growth this year and more growth next year. The argument, of course, is that we will have lower growth than was forecast last year, but it is still growth. I cannot see how anyone can come to the House and say that there will be a recession when the Red Book, the private sector, the private commentators and the private forecasters suggest that there will be growth. They suggest different degrees of growth, but it is still growth. Where does the risk of recession come in? There is always a risk of recession, but we are now talking about the economy rather than housing repossessions.
The hon. Member for Twickenham was in the Labour party at some stage in his career, at a time when every motion had to be scrutinised because we all knew that motions mattered. People would table motions and say, “You don’t want to pay any attention to that.” That is probably why the hon. Gentleman left the Labour party. Some of us, with the Minister, fought on to make it the great party that it is.
Words do matter and it does not help people who have a real problem if, when we have the opportunity to debate that problem, we obscure it by allowing the Opposition off the hook with a long preamble about a mythical state of recession.
Mark Hunter: I have listened carefully to what the hon. Gentleman has had to say. He makes an important point about the tone of the debate, but because he makes that point I, like many Opposition Members, am not clear about what specific point in the motion he does not agree with. Is it the point about rising levels of personal debt? Is it the point about the slowdown in the UK housing market? Is it the point about the number of people requesting help because they are concerned about mortgages and repossessions? What is the exact point in the motion with which he does not agree?
David Wright (Telford) (Lab): They are talking down the economy.
Mr. Mudie:
I am primed by my hon. Friend, who is seated on my left, to say, “Talking down the economy”, but I would not say that. I can tell the hon. Member for Cheadle (Mark Hunter) that I object to the fact that we
have had days of debate on the Budget. He was not with the hon. Member for Twickenham and me last night—perhaps it was the night before—when we debated the economy and Northern Rock for an hour and a half. The hon. Member for Cheadle had gone back to bed by then. The economy has had more airtime over the past few months than we would wish, but people outside are in danger of losing their homes, which is the most traumatic thing that could happen to most people and families in their lifetime. The Liberal Democrats, through careless framing, have allowed the Conservative shadow Minister to spend three quarters of his time running around the economy and only five minutes dealing with repossessions. They have allowed the Minister to spend a fair amount of time, as she has a responsibility to do, rebutting the lazy and careless framing of the motion on the economy. I do not think that that is sensible.
I want to speak quietly and seriously about the emerging worry about a credit crunch—the Opposition can blame Government and the Government can blame this or that—that has come from America, which is affecting and has affected the economy, particularly the financial sector. Like a virus, it is continuing to mutate so that when we think we have the measure of it and will be able to deal with it, it moves on. We are seeing that mutation and those worries. It is not a question of sub-prime mortgages. As we sit here, 2 million people have mortgages that they took out in 2006 which will run out.
I do not know whether hon. Members or the Minister have read the example given in the Library notes. A young couple with two children from Northamptonshire, who are both working, have been caught out by this problem. Their mortgage runs out this year, and it is with Northern Rock. One would think that, with it being nationalised and owned by a Labour Government, there would not be any trouble—something else that we discussed the other night. Northern Rock is operating very fiercely, however, like other building societies, because it does not want the business. The credit crunch has mutated and moved on, and mainstream building societies and banks are finding it difficult to get money to service mortgages. When a mortgage is up, they are encouraging people to move on. They are doing so in a pretty bad way: the offer that pulled people in disappears.
A particularly appropriate point was just thrown away by the hon. Member for Twickenham. It is outrageous that the very same building society or bank that brought someone in with a low mortgage has often encouraged them to take a further loan that is not secured. The hon. Gentleman indicated that such loans are now not just a couple of per cent. on top of what people were paying for their mortgage, but can shoot up to about 15 or 16 per cent. The young couple that I mentioned were hit with a double whammy. Their mortgage is going up by £200 a month, which is about £40 to £50 a week. To a young couple with a young family, every penny matters, and that bill comes on top of something that is outside the control of anyone in central Government—energy and food costs. They have to pay the extra £40 to £50 a week on that part of their mortgage, and 15 to 16 per cent. on the capital sum that the institution giving the loan was so anxious for them to take. When the deal runs out, people
discover that that institution does not want them, and that there is a heavy penalty for staying with it.
I think—no, I do not think, I know—that that is happening. The word on the street is that two months ago, there were 100 main mortgage lenders. There are now 20. Nobody is anxious to pick up mortgages, so they are being shuffled around. Just yesterday, as we have heard, First Direct stopped giving mortgages because it was overwhelmed by the number of people coming to it. It just put a block on them. That takes us back to times that elderly Members on the Opposition Front Bench will remember— [Interruption.] I mean the Conservative Front Bench. They will remember when people used to have to get in a queue for a mortgage, and had to save with the institution for a period of time to prove that they were good customers. Even the young fellow on the Opposition Back Benches, the right hon. Member for North-West Hampshire (Sir George Young), remembers those days. We are getting to that stage now, and it is very worrying.
Advice is a good idea, but although it is easy to give and relatively non-costly, I always worry about whether it gives a solution to a young couple such as I have mentioned. How will they get through the coming months and keep their family intact? That is the problem that we have.
A lack of liquidity is affecting the banks and building societies. The Governor of the Bank of England has referred to it. A month ago or so, he thought that the financial economy had a problem but that it would not move into the real economy. It is now in the first stages of moving on into the real economy, and it is doing so in housing. Youngsters and families are having difficulties, and I say to the Minister that those difficulties will grow. At the moment, we can be calm and think that the situation is under control, but we should look a few months ahead. If the situation continues, repossessions will move at a rate. We should be considering and discussing measures to take to nip that in the bud, so that we can get through this temporary period of credit crunch and liquidity crisis, and keep people intact in their own homes.
The hon. Member for Twickenham mentioned the business of social security. One thing that the Conservative Government did was to ensure that, if someone lost their job, they could move on to income support. As part of that, the interest payment on their mortgage was met. That Government ruled that for a person to be eligible, they had to be unemployed for nine months. The trouble with that in relation to mortgages is that most building societies or banks make a move after three months of non-payment. The hon. Gentleman seemed to suggest that the Government should restore the nine-month provision, but that might not be appropriate in the current financial crisis. What would be appropriate would be for building societies to agree not to take action against an individual for nine months, unless a lack of equity in that person’s home made the problem impossible to get around.
I ask the Minister to imagine a situation whereby the young couple mentioned in the Library notes
continued to pay their mortgage and then got hit with this problem, perhaps because one of them lost their job. They would not be helped for nine months. I have a history on this matter: I raised it with the Governor of the Bank of England when he first came before the Treasury Committee to talk about the credit crunch, last September. He makes a shop steward in a shipyard look weak in terms of demarcation, and he told me, “This is not my responsibility.” I still pleaded with him to say whether something could be done in financial circles, because the way the market was going was obvious. We have obviously had no luck.
The Government have set up a working party—a review, I suppose we would call it. The trouble is that it is not— [Interruption.] I am not sure whether the signal that I have just received was to keep going or to sit down. I shall sit down. One never knows with the usual channels. [Interruption.] Thank you. If my hon. Friend the Member for Motherwell and Wishaw (Mr. Roy) had given me that message some time ago, he would have saved me a lot of work.
The working party has two faults: it is not reporting for the purposes of the pre-Budget report in the autumn, and it seems to me that it is preoccupied by the Government’s preoccupation, which is long-term mortgages. That might be good, but let us park it up somewhere for the moment, because it is not too useful in the present circumstances. I rather fear that the working party’s main preoccupation is how to get such mortgages accepted and deliver them. If we are to have a working party of all the financial people, I plead with the Minister to get it to shove that work aside and do some quick work on the looming crisis. That would allow us to do things without necessarily baling out or calling on Government expenditure.
One criticism made by both Labour and Conservative Members was that the Bank of England and its Governor did not act when the credit crunch started and we had the Northern Rock crisis. Unlike Bernanke and the Fed, and even unlike US Treasury Secretary Paulson, there was no sign in this country that anyone thought it worth getting the interested parties together for the sort of beer-and-sandwiches meeting that happened under Harold Wilson. At those meetings, heads were knocked together and people were told that they could not leave until a solution had been found. We did not do that with Northern Rock, and we have regretted that. I think that, in the interim, the working party should be reconstituted, and that its members should kick around possible solutions to a crisis that I hope the Minister realises is very serious.
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