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Mortgage Interest Payments

Part of Orders of the Day — Finance Bill – in the House of Commons at 7:45 pm on 15th July 1997.

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In many ways, I am arguing is that this is a totally false debate. The reality is that everyone knew that something was going to happen, and now the Opposition lecture us that somehow it is all our fault, when they know that we are dealing only with reality. We are dealing with the inevitable consequences of the underlying weak economy that we inherited.
I believe that the reason why we have to raise interest rates in this country, and why we have the problem with the exchange rate, is because this country is economically weak. Over the past 17 years, we have seen the economy's industrial base shattered. As a result, we cannot withstand the pressure of increased consumption without forcing up interest rates to block it off, for fear of provoking inflation.
If proof is needed, just look across the world. How can the Japanese have such low interest rates? How can Japan allow its consumption to rise without provoking heavy increases in interest rates? Why do we in the United Kingdom generally have a higher interest rate regime? It is because the British economy is fundamentally weak and was immeasurably damaged over those 17 years
I am prepared to concede that many parts of the British economy are now leaner, more efficient and more effective in the way in which they use resources, and that their management is better. Some policies introduced during the years of Thatcherism had that effect, but I am complaining that, in securing those objectives, a major part of the British economy was destroyed and, in the process, an interminable number of people were placed on the unemployment queue. That is the problem. How are we to strengthen the underlying economy of the United Kingdom, particularly the manufacturing sector, without provoking massive inflation in the United Kingdom? In many ways that will be the test for my right hon. Friend the Chancellor.
I shall move on to a comment that was made about the impact of the tax change on the property market. The impact on the top end of the market will be zero. There will be no impact at all. It will have no effect on properties costing hundreds of thousands of pounds, which in effect means most of the property in the London stock. Indeed, the inexorable trend towards higher and higher prices will continue in London, it being the part of the country that is leading the nation.
Because, historically, prices in the regions follow prices in London—whatever happens to the national economy—we await greater rises in the provinces than we are currently seeing, because of the delayed effect. That delayed effect will, to some extent, mitigate any damage that might arise from lower-priced properties. I believe that, at the last general election, in deciding what property to buy, people discounted the fact that they would have to pay more taxes. Therefore, on lower-priced properties, these measures will have little effect.
I come finally to some interesting statistics that I am having trouble understanding. Every week I follow a sample of building society lending rates, published by the Sunday Times—in particular the variable fixed and capped rate mortgages. They provide some interesting reading. I am unable to understand—hon. Members may be able to explain it to my simple soul and perhaps simpler mind—why it is that, in times of rising interest rates, capped rates are now lower than they have ever been, and fixed rates are now as low as they have ever been.
It is interesting to note that the Skipton building society's capped rate is now 7.49 per cent. Some six to nine months ago it was 0.5 per cent. higher. With regard to the five-year fixed rates—anything less than a five-year term is not a particularly meaningful statistic—a number of building societies offer between 7.5 per cent. and 7.95 per cent., which is less than the variable rate, certainly for the privatised mutuals, but the equivalent of many mutual variable rates.
There must be a message in all that. Perhaps it is that the markets believe that interest rates will fall and that at the moment we are simply experiencing an interest rate blip.