On BBC1’s The Politics Show last Sunday, he said: “The assets that people have in Britain are far greater than any mortgage or other debts they have. Whilst some people definitely may be overstretched, the vast majority of people…have got assets that are worth a considerable amount of money.”
The claim ignores the fact that “definitely” and “may be” are opposites, although an increasing number will be in the “definitely” camp as the recession bites. The worry is that our Prime Minister believes the “vast majority” of people are so rich. If he believes that, why increase the public sector borrowing requirement to such a huge number to provide a fiscal stimulus that only a tiny proportion of the population needs?
The interview touched on bank lending, with the PM saying: “The question is, can we get the banks back to lending at 2007 levels?” When asked how he will get the banks to increase lending, his response provided a rare moment of joy when he at least partially answered the question he was asked. He said: “It will be a mixture of carrot and stick.” I presume how much stick there is will depend on how appetising the carrots are.
Saying the banks must increase lending to 2007 levels suggests the PM is in a dream world. It is crucial to find a way of increasing funds for banks and building societies to lend but not to as high as 2007 levels at this stage. The Government has not even been able to answer basic questions like whether they were talking about gross or net lending levels.
Gross lending is the key for mortgage brokers but net lending is more relevant to Government policy and I offer a simple solution to increasing net lending next year. Northern Rock’s loan from the Bank of England was £26.9bn at December 31, 2007 and that injection in the last quarter of 2007 propped up the mortgage market until the end of last year. This loan must be repaid by the end of 2010 but Rock has already repaid over 60 per cent. Repayments are so far ahead of schedule that the Government could tell Rock to suspend or significantly reduce repayments for six-12 months, without the 2010 deadline being threatened. Such action could provide around £10bn extra of net lending to the market, representing a 25 per cent rise on the CML’s estimate of £40bn net lending this year and an even bigger percentage rise on the likely net figure for next year.
Ray Boulger is senior technical manager at Charcol