Lending Controls

Lord Turner has signalled that there will have to be a return to income based lending which ensures that the borrower has both sufficient income to pay the loan and also have  enough money left over to live. The era of ignoring income, or having no formal controls, relying on house price inflation to take care of the mortgage, is over. This reliance on house price inflation to drive the economy is now  recognised as a major structural flaw and is traced back to the bonfire of credit regulations in 1971 by the Heath government. This theme was strongly argued in my book months ago, so I am pleased to see this major shift in thinking.

It is an interesting moment to reflect upon the record of both  Tory and Labour on the road to our present parlous state. Between 1970 and 2010 the Tories were in government for 22 years and Labour for 18. The Tory failure was to suppose that entirely free markets would be self regulating and find a natural safe level. Heath’s bonfire and Big Bang created the conditions which allowed the economic model to run out of control.

Labour’s failure was to allow public employment (and therefore expenditure) to run out of control as well, creating not just unsustainable cost, but also terrible bureaucratic inefficiency with multiple management layers and futile jobs; an advertisement for a Street Naming Executive to join and lead the Street Naming Team is one of countless disturbing examples. The stack of regulators and quangos is now not only too high to stand, but it is unfundable. Not only is the country nearly bust, but worthwhile projects such as building new schools become casualties. 

Of course there must be regulation, well directed, to control the framework in which free markets function and the economy cannot be allowed to run riot. There must be able public employees to provide services and run the country but working to a clear need and on affordable pay. The purpose of good government is to balance all this as well as the budget. There is good evidence that the coalition knows that. Cameron and Clegg may be seen by history as much bigger figures than voters who elected them imagined.

Labour has to go through a re-think. Presently engaged in choosing a leader and washing dirty linen in public, the latter to continue with the Blair book and maybe one from Brown, the time will come when a political agenda is required for presentation to voters. Nothing very exciting is yet flowing from the lips of the many candidates other than excuses and obscure wisdoms. What will be needed is a  clear Labour philosophy which will define a left of centre approach which is both radical and cost effective.

Meanwhile the Coalition has the initiative and sets the agenda. As it does so both of its constituent parts, the Tories and the Lib Dems, are undergoing a transformation driven by reality and arithmetic which neither saw coming. Never before have we had an election campaign when so little of substance was said as a prelude to so much of substance happening.