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Darling dithers again

As I was preparing to write this column, I suddenly found myself wading through a succession of One Year of the Credit Crunch stories. Some pieces were informative, others entertaining, a few were truly outstanding.

One of the best was a description of the calm before the storm on August 9, the day the European Central Bank and the US Federal Reserve pumped £45bn into the money markets in what turned out to be an unsuccessful attempt to maintain their liquidity.

The impact of that intervention, the significance of which few of us fully understood or appreciated at the time, continues to reverberate.

For me, one of the most symbolic aspects of the credit crunch, which has almost “bookended” the past 12 months or so, has been the behaviour of our current Chancellor, Alistair Darling.

Those who cast their mind back a year or so ago will remember how, within a few weeks of the ECB and the Fed’s joint intervention, Northern Rock hit the buffers on Friday, September 14.

What actually happened was that, within hours of the BBC reporting on the previous evening how the Rock had approached the Bank of England for a “liquidity support facility”, queues of customers wanting to withdraw their money began forming outside its branches up and down the UK. It was estimated that £1bn was withdrawn by customers that Friday, about 5 per cent of the total deposits held by the Northern Rock. The same happened on the Monday, with the amount withdrawn reaching more than £2bn.

But it took Alistair Darling the entire weekend and most of the Monday, by which time panic had truly set in, to announce that the Government and the Bank of England would guarantee all deposits held at Northern Rock.

At the time and subsequently, the Chancellor came under fire for dithering. If he had intervened sooner, his opponents claimed, it would have been easier to put together a rescue package for the Rock or sell it off more easily.

Certainly, even if it had been necessary to nationalise the bank, as subsequently happened in February this year, more of its depositors’ money would have been retained, helping to preserve the bank’s long-term liquidity.

But for most of us, the images of queues outside the Rock on the Friday were almost surreal. This kind of thing was not supposed to happen in our society. Perhaps it was not that surprising that the Chancellor chose to wait until the weekend to make a final decision on what to do next – although he should have had contingency plans in place to make his announcement as soon as it became clear that the queues were forming again on Monday morning.

In fairness to Darling, the shattering impact of the credit crunch in the past year, not just on Northern Rock but most other banks and mortgage lenders, suggests this was, again with hindsight, not a crisis that the Rock could have escaped from. Its entire business strategy meant it would have been forced to drink every last drop of the poisoned chalice before it, regardless of what the Chancellor did or did not do.

So, having given him the benefit of the doubt almost 12 months ago, you would think he would be unlikely to avoid giving any impression in future that he is dithering.

Yet last week, that is exactly what he did. When asked to comment on rumours emanating from the Prime Minister’s holiday dacha in Southwold to the effect that the Government was considering a temporary suspension of stamp duty, the Chancellor blinked, opened his mouth… and neither confirmed nor denied them.

Now, to anyone with half an ounce of common sense, it was apparent that unless he either squashed the story immediately or explained exactly what the Government was proposing and when it would happen, Alistair Darling would effectively be killing what little was left of the property market stone dead.

Somehow, this escaped our Chancellor. The result is that there are a number of leaked versions of what may happen, the most credible of which suggest that only a limited number of buyers may benefit and, even then, it is doubtful that they will gain much, if anything, from the Government’s proposed stamp duty changes.

In effect, prospective homebuyers have been chased from the market and told to come back some time in the next few months – and when they do, they will be offered sod all.

Now, there are a number of arguments both for and against the idea of the Government offering any help to the housing market. My own view is that there is a need for serious reform of stamp duty, not a temporary moratorium that does little to help buyers or sellers in the long term.

But I very much doubt that anyone would have expected Alistair Darling to do something that is guaranteed to halt all housing transactions in their tracks for months.

Maybe he thinks this is a necessary pain barrier that we need to go through before the market recovers and he simply wants to speed up the process for us.

Almost one year after his failure to intervene to help Northern Rock, maybe we should no longer be giving him the benefit of the doubt. What do you think?

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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