Keep Calm And Carry On
Last night I watched the third and final Prime Ministerial Debate on television between Gordon Brown, Nick Clegg and David Cameron. And I was far from impressed.
The debate was supposedly on the economy, jobs, debt and the recession, but once again the men who want to lead this country treated the British public like children, failing yet again to own up to the huge problems that face the UK in the coming decade. As the SNP’s Alex Salmond pointed out on Question Time following the debate, it suits all three leaders to argue about the tip of an iceberg while hiding the reality of what lies below the water from the electorate.
The national debt is threatening to overwhelm our country in a tidal wave of austerity, and yet none of the main parties are willing to spell out exactly what they are going to do to tackle the problem. According to the Institute Of Fiscal Studies, Labour have failed to detail where 87% of their proposed cuts will come, the Conservatives 82% and the Liberal Democrats 74%. They are basically pretending that a few cuts here and a few savings there are all that is needed for us all to live happily ever after.
And the reason for this? They are frightened that if they tell us the truth, they will lose the election, That and the fact that they haven’t got the balls to take the radical steps necessary to solve any of the major problems facing the UK.
Take the economy. I studied Economics at University. I read dozens of books and papers on the subject each and every year. I’m not claiming to be an expert on the subject, but I’m no mug either, and what I do know is this. None of the three main parties are going to be waving a magic wand that will end our economic woes any time soon. Both Alistair Darling and George Osborne come across as economically illiterate. Vince Cable stands head and shoulders above them. His analysis of what ails the economy is often streets ahead of his rivals, although I can’t say I agree with all of his solutions.
The one economic policy that really stands out for me is the proposal by the Lib Dems to scrap income tax for everyone on the first £10,000 they earn. It’s a fantastic idea, but it doesn’t go far enough. I would like to see it as just the first step along a road that sees income tax disappear altogether. The pledge should be to increase that threshold to £15,000, then to £20,000 and so on. By doing so you would end the benefits culture overnight. You would get rid of much of the black economy overnight. And you would encourage enterprise in this country like never before. Wouldn’t it also result in less tax revenue for the Government? Not by as much as you might be told, but generally speaking I would certainly hope so.
Take immigration. There is never an honest debate on the subject. Take the Tories for example. Their proposal to cap immigration won’t be able to stop the free movement of people within the European Union. Even their proposed transitional controls on the right of people from new EU member states to come to the UK are simply that. Transitional. Something that will only postpone the inevitable. Labour and Liberal Democrat plans to limit immigration are equally flawed when neither can control how many people come here from other European Union countries. The reality is that as things stand we cannot control the number of people coming to the UK. Why don’t the main parties hold their hands up and admit this rather than pretending otherwise?
Take house prices. The politicians continually trot out soundbites about affordable housing, removing stamp duty for first time buyers and shared equity schemes. Not one of the three leaders in yesterday’s debate was willing to state the obvious however. House prices are simply too high. That’s because they know only too well that during the decade long borrowing binge, far too many people borrowed far too much money to pay far too much money for property. We still live in that property bubble and they want to keep on pretending that ridiculously high house prices are not only justified, but need to be supported by artificially low interest rates, more bank lending and related sticking plasters. My view? Forget what you’ve been told about falling house prices in recent years and the supposed recovery in recent months. The real bubble is yet to burst and I believe we will end this decade with house prices substantially lower than where they are now.
Whoever gets elected, the one thing we can all be sure of is that the coming decade is going to be a difficult one financially for large numbers of people. The politicians might tell you this themselves, but quite how bad it could get they would rather not say.
The good news is that in even the darkest of times, there are always opportunities for entrepreneurs to thrive and prosper. So no matter what lies ahead, do what a coalition Government advised us to do during the crisis that was World War Two.
Keep calm and carry on.
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really nice article, think you’re totally right about the issues with all parties STILL trying to pull the wool over our eyes. i guess the truth is too terrifying to ‘average’ households to deal with, at least for those of us on more than £20k we can still get by.
i’m totally with you about property prices as well, they are dis-functionally high to the extent that unless you are a banker London property is out of reach to first time buyers.
effectively the reset button needs to be pushed but that implies some really tough times and i don’t think any of the parties or even the population are willing to give up their credit fueled lifestyle .
you mention that “The real bubble is yet to burst and I believe we will end this decade with house prices substantially lower than where they are now.” – could you give us more information on why this might be? my old man said the same thing but i’ve not heard an explanation/theory for why.
You’re right, both the government and far too many people have become dependent on debt to fuel their lives. Unfortunately that particular party is well and truly over. We can pretend otherwise, but the day always comes when that debt has to be repaid. You can max out on your credit card to create an illusion of wealth, but inside we know only too well that we are not any richer, we just owe more money.
The economic recovery is largely illusional too. Take unemployment for example. The only reason the official figures haven’t matched those in the likes of Spain is because of the millions of “economically inactive” people, the millions who are underemployed, the millions forced into education to get increasingly worthless pieces of paper and so on. Hiding the reality doesn’t make things any better.
High house prices are just another symptom of an economy built on debt. Like all asset bubbles, it isn’t the value of property that has increased over recent years so much as the price.
And those prices have increased to the point where property is no longer affordable to the vast majority of people – unless they are able to borrow large multiples of their income at artificially low interest rates as was the case until recently. That or wages have to rise rapidly over the next decade to close the price to earnings ratio and that is unlikely to happen.
Interest rates can only go up and those that have borrowed heavily will quickly realise that it won’t take much of a rise to see their debt burden spiral out of control. Equally, it’s unlikely that we’ll return to the lax lending practices of recent years. If people cannot borrow as much and the cost of that borrowing increases, the pressure on house prices will be down.
Given that I believe we are in for a decade of austerity, I believe we will end the decade with house prices lower than they are today. And quite possibly a lot lower.
so, would you say, being overly simplistic, that the catalyst that’ll drop us back into hot water will be BofE base rate going up…meaning all those people who’ve been getting a break on their mortgages will suddenly feel the pinch again, this would then lead to banks not lending again, and therefore no one having enough to buy property, forcing value down…this would then have a knock on effect on other areas of the economy, primarily because 1. its more expensive to borrow 2. its more difficult to borrow (banks being more picky) 3. both businesses and people are in a sticky situation because the cards are maxed out and there’s no alternative source of funds. 4. businesses and ppl. who can’t borrow end up leaning on the government = more state support = more tax and cost to the rest of us = more borrowing to compensate = less ppl able to borrow = more ppl leaning on the government to aid.
would that kind of sum it up?
Interest rates may well be one of the catalysts.
At the moment to be able to afford a house you basically need two wage packets, the ability to borrow large sums from lenders and historically low interest rates to allow repayments to be affordable. That’s all housebuyers are bothered about. How much will they lend me and how much will it cost me every month. If you are told you can borrow 200k, you look at 200k houses.
Any changes to those three factors will affect not only the ability of people to borrow to buy, but also the ability of those to repay borrowing if they have already bought.
A decade of economic austerity ahead of us doesn’t bode well for wages, employment, lending or interest rates.
We are also fed the lie that house prices only ever go up – and this encourages us to spend more on a property in the belief that there will always be a “greater fool” to pay even more when we come to sell. House prices don’t always go up. Indeed the price rises of recent times are completely unprecedented.
Unfortunately house prices are only a small part of the problem because as a society we are going to have to face up to even bigger challenges – the pension crisis, an ageing baby boomer population, peak oil, a changing climate (whether man made or otherwise, there’s no doubt the climate is changing), the high risk of future financial instability and so on. We haven’t even begun to deal with any of those problems despite knowing that they were coming years ago, and to be honest,.house prices are a mere sideshow in the circus that awaits us.
Ironically, although I’m pessimistic about the UK’s general economic outlook for the decade ahead, I think there has never been a better time for enterprise to thrive in what is now the information age as opposed to the industrial age that we are leaving behind.