Mortgage Rates

Oral Answers to Questions — Treasury – in the House of Commons at 10:30 am on 5 June 2008.

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Photo of Karen Buck Karen Buck Labour, Regent's Park and Kensington North 10:30, 5 June 2008

What recent discussions he has had with ministerial colleagues on the impact of mortgage rates on the economy.

Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

I have many discussions with colleagues on a range of matters, including those who are in the market for mortgages.

Photo of Karen Buck Karen Buck Labour, Regent's Park and Kensington North

House prices in my constituency are among the highest in the country, and home owners are experiencing real pain and anxiety. What can my right hon. Friend tell me to assure those who hold fixed-term mortgages that are coming to an end that the Government understand the pain and anxiety that they are going through and will take action to help them with future repayments?

Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

My hon. Friend has raised a matter that concerns many people in this country. We have had discussions with the Council of Mortgage Lenders, which I expect to meet again next week to discuss how we can ensure that when people come off fixed-term mortgages and look at the options, they can receive proper advice and hopefully get on to rates that are as low as possible. I can also tell the House that the CML has told me that it hopes that it can make considerable progress in ensuring that smooth transition, because we want to make sure that people get on to the lowest possible mortgage, especially at this time.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

Would the mortgage market not be working better if the Chancellor had not dithered and delayed for so long about the necessary banking reforms in the light of the Northern Rock crisis? It is nine months since Northern Rock ran into difficulty; when are we going to see some serious proposals for legislation?

Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

The two things are not connected, as the hon. Gentleman well knows. On action that we have taken to help the mortgage market, in addition to the money that the Bank of England and other central banks put into the system last autumn, the Bank of England's special liquidities scheme will help. It will take time to work its way through, but it will underpin the financial system in a way that is absolutely essential.

Yes, the banking reforms are necessary, but we have just finished a period of consultation and spoken extensively to banks and other institutions about the reforms that we need. We want to get the reforms right, and the overwhelming view of the British Bankers Association, which is working co-operatively with us, is that we can see where we want to get to. We need to get the detail right, but I intend to introduce legislation during this parliamentary Session. I hope that that legislation will receive all-party support, because the sooner we get it on to the statute book, the better. Of course, the Banking (Special Provisions) Act 2008 that we put on the statute book following the taking into public ownership of Northern Rock will help, in that it provides powers that the Government and the other authorities simply did not have before then.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

Will my right hon. Friend look at the plight of home owners on low incomes who face particular pressures because of reductions in their working hours? He is giving very generous support to families in rented accommodation, but will he also look at providing some support to families on low incomes who are in their own homes?

Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

Yes. As my hon. Friend knows, we discussed this matter yesterday in the Treasury Committee, and, as she has rightly said, we have been able, through disregarding the child benefit, to help people who receive housing benefit. She rightly raised concern about people on low income, who may be facing reductions in their income because they are working fewer hours and who have to pay their mortgage. As I said to her yesterday, we clearly need to look at that as part of a range of measures to help people. Of course, the increase in the personal allowance will mean that all basic rate taxpayers will be paying less tax this year, and that, too, will make a contribution.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

Discussions with ministerial colleagues, or, indeed, with the Council of Mortgage Lenders, on this matter are all well and good, but what advice would the Chancellor give the Bank of England in respect of alleviating the pain of the many millions of mortgagees who are suffering from high interest and mortgage rates?

Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

As the hon. Gentleman knows, the Bank of England and its Monetary Policy Committee are entirely independent of Government, and neither I, nor my predecessor, have commented on what they do, because it is important that they conduct those things independently. The Bank of England is, of course, making its decision today, but it is doing so against a background of a strong and stable economy over the past 10 years. It has a target, and it has to decide what it ought to do.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

A substantial fall in house prices inevitably brings with it the risk of serious recession. Yesterday's OECD economic forecast was quite pessimistic, so is it not time for my right hon. Friend to urge the Monetary Policy Committee to reduce interest rates?

Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

As I have just said to Mr. Field, the Bank of England's Monetary Policy Committee is independent of Government. That is one of the main reasons why our inflation levels are now at a historically very low level, and I am not going to change Government policy so far as that is concerned.

The OECD, along with other independent commentators, has made the point that, across the world, economies are slowing down and, as I said in the Budget, ours is no exception. However, the OECD said that the

"real economy indicators" for this country

"have so far been resilient", and if my hon. Friend Kelvin Hopkins were to look at the routine surveillance report that the International Monetary Fund carried out on this country about three or four weeks ago, he would see that it made the point that we have experienced sustained low inflation and rapid economic growth, and that that was an exceptional achievement and the result of the policy that we have been pursuing for the past 10 years. That policy will ensure that our economy remains resilient, although we cannot be complacent. We are going through a period of unprecedented uncertainty and turbulence in the financial markets, and we are facing the pressures of inflation in relation to fuel and food. We must be mindful of those, but our economy is in a much stronger position than it was 10 or 15 years ago, when 3 million to 4 million people were out of work and there was double-digit inflation. [Interruption.] Opposition Members may want to forget it, but people in this country remember it very well indeed.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

Will the Chancellor accept that with mortgage lending at its lowest level since the early '90s, prices in vertical decline and the extent of arrears and fraud exposed by the Bradford and Bingley's problems, more drastic intervention is required? That drastic intervention could take the form of using the perfectly sensible, but pitifully small, proposal from the Prime Minister, which is to acquire repossessed homes for social renting, and operate it on a much larger scale, using the prudential borrowing powers of local councils and the Housing Corporation?

Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

As the hon. Gentleman has said, taking action on repossessed homes will help. We may want to consider other measures as well. I say to him that house prices have been falling, which is inevitable given what is happening and the constraint of credit and mortgages, but that is happening against a background of house prices having risen by about 45 per cent. over the past five years. We will continue to take whatever action is appropriate to support not only the economy, but the housing market.

Photo of George Osborne George Osborne Shadow Chancellor of the Exchequer

It is remarkably complacent of the Chancellor to describe the British economy as "strong and stable" at the moment, which is not the experience of home owners and people in work. Will he confirm, given that he is fond of his historical comparisons, that the figures announced by the Halifax this morning on house prices showed the fastest fall on record in house prices?

Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

In relation to the hon. Gentleman's first point, our economy is strong and it has been resilient. I was drawing attention not to what I have said, but what the IMF, which is, of course, entirely independent of this and every other Government, has said. House prices are falling, but the Halifax also said today that one of the factors that is important this time—as opposed to my historical comparison with last time—is that employment levels are much higher than they were 10 to 15 years ago. That makes a difference to confidence and the outlook for the future.

Photo of George Osborne George Osborne Shadow Chancellor of the Exchequer

Again, we hear remarkable complacency from the Chancellor. He knows that the most recent figures show a rise in unemployment, and house prices are falling at their fastest rate ever. Inflation is rising, real incomes are falling and the Government stand paralysed, like a rabbit in the headlights, because they saved nothing in the good years to prepare for these difficult years. Therefore, their only answer is to increase taxation on families that already face a rising cost of living. Indeed, the Chancellor's performance is so poor that he is about the only member of the Cabinet not touted about as a future leadership contender.

As the Chancellor wants to quote international organisations, will he confirm that the OECD said yesterday that

"the government's options have been limited by excessively loose fiscal policy in past years when economic growth was strong."?

In other words, they did not fix the roof when the sun was shining. In what could be his last ever Treasury questions, who does he think is to blame for that?

Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

The hon. Gentleman would have more credibility on that point if, at the time in question, he and all his colleagues had called for less expenditure, not more, on education, health, police and defence. You name it, Mr. Speaker, the Conservatives were calling for more and more expenditure on it, without any identifiable means of paying for it.

Over the past 10 years, as the IMF and others have noted, we have built up a strong and resilient economy. It is undoubtedly the case, in this country and every other country, that we are feeling the effects of the problems that started in the financial markets and have spread to the wider economy. We are also facing the twin threats of inflation in food and fuel prices, but I believe that what we have done over the past 10 years will stand us in good stead. We will continue to do whatever is right to support the economy, but above all we will ensure that we continue with policies that build a stable economy, which is so important for the future.