Politicians, the banks and houses


Navigating the tangled web of politicians, banks and the housing crisis

There was something about the final paragraph of Nick Cohen’s piece in The Spectator that someone tweeted to Puffles that caught my eye.

Rather Miliband and Balls (like Cameron and Osborne) suffer from a fatal case of nostalgia. In the bubble, Labour let the City rip and used the taxes to fund handouts to the poor and social improvements. The tax bonanza they enjoyed was an illusion. Every penny in tax  the City paid between 2003 and 2008 was wiped out in the bailout. But Labour still yearns for the old world of speculative booms and leveraged deals because they see no other way of funding a centre-left government.

I’ll let Labour party members comment on what the party still yearns for, but my guess is that many political watchers and activists are trying to get their heads around the economic crisis that feels like its entering its fifth year. (I.e. if we go from the banking crisis of early 2008). Ministers and senior political figures in the run up to the bubble bursting made statements that were questionable then, let alone now – whether it was Gordon Brown’s promise of abolishing boom and bust to Peter Mandelson’s comment about people getting filthy rich – so long as they paid their taxes.

Perhaps it was a mindset that so long as there was enough coming into the coffers to fund Labour’s social programmes from places such as The City, it did not matter how wealthy the super-rich became. In those days, the only organisation I can recall making an issue of tax avoidance and tax evasion was the PCS Trade Union (of which I was a member) – being one of the representative unions of people working in tax offices. Today, hardly a day goes by when the issue of tax avoidance is not in the papers. Whether this publicity makes a difference to HMRC’s bottom line remains to be seen.

What’s both interesting and depressing from the report on Labour’s plans from the BBC is just how similar its plans seem to be from the Coalition’s. Labour says create new challengers, while the Coalition says it’s already doing this with the Co-op and Virgin. Labour now calls for the break-up of some of the banks – but why were the original mergers and building society-to-bank conversions (that also happened under the Conservatives) allowed to go ahead in the first place? If we look back at the history prior to the 2008 crisis, we see a number of takeovers. Barclays with the Woolwich, Lloyds and the TSB merged in 1995, Halifax (a few years after becoming a bank) merged with the Bank of Scotland, and finally the RBS takeover of Natwest. Yes, we used to have quite a few banks dotted about all over the place once. If politicians are serious about breaking up the banks, will they put anything in place to stop them re-merging together again?

Who pays for your party?

This is one thing that regularly has Labour and non-Labour party activists spilling blood over. As far as unions vs wealthy bankers go, the latter probably have a better record for having safeguarded their interests than the former. Until the issue of party funding is resolved, I can’t see the issue of regulating the banks – or markets in general will be. My argument is as follows.

At the moment, running a political party is an expensive business. Trying to encourage lots of small donations – especially in a time of economic crisis – is a time-consuming business too. Far easier to solicit a smaller number of larger donations than to do the opposite, even though the opposite arguably is far better for democracy. But in order to solicit such large donations, you’ve got to target people with the money in the first place. People with that amount of money I’d assume are less likely to want to support a political party that wants to clobber them financially. Hence why over the years Labour in particular tried to reassure such people that they wouldn’t hit them with the income tax rates of the 1970s – peaking at 93p in the pound at one point. Hence the incentive for all political parties is to develop a set of policies that won’t hit this particular group of people too heavily.

Given that the Conservative Party is particularly dependent on donations from The City, they are caught between a rock and a hard place on how to handle the current situation. What may be in the national interest may not be in the City’s interest. But he who pays the piper…and all that. Or will the Coalition’s pipers be playing to a different tune given the scale of what’s happened?

Is it all about the money?

No. It covers a whole host of other tensions. Housing being a big one. Every so often I’ll spot in the local property papers a house that looks lovely but is out of the price range of pretty much everyone I know and have met. Normally a detached country house in a village just outside of the city, you can imagine the owner of such a property not wanting any new housing to be built around such a place. At the same time you’ve got your ‘buy-to-let investors’ (financed by loans from The City of London amongst other places) that have in part been behind the boom in rabbit-hutch-style housing in several of our cities. In recent years I’ve been to several – Manchester, Leeds, Bristol – where many such developments now lie empty. Despite the number of local and national politicians saying “We need more family housing”, few of the latter have been able to bring in policies to deliver on that need. Such sights (and sites) reminded me of a child asking a politician: “Why can’t we put the homeless people in the empty homes?” Exactly.

The issue of housing

The big tension on housing and finance is this:

House prices are far out of sync with wages and salaries. Either house prices need to fall dramatically or wages and salaries need to rise. House price crash or cost-push inflation? Those contributing the greater individual donations to political parties will want neither. One will devalue your investments and the other will make your life more expensive.

We’ve also moved from a world where local authorities built housing to one where arms-length housing associations joint-fund developments with the private sector. The problem with this model is that if there is a recession in the housing industry, developments that would otherwise provide social housing just don’t get built. National politicians over the years have taken away the funding and powers away from local councils to build homes that meet the needs of local people.

There are other examples too. Even though only 7% of children are educated privately, if a government announced it was going to compulsorily nationalise all private schools (as Finland did), would the uproar caused be a reflection of that statistic or would it be far greater than a similar policy that only affected that percentage of the population? Ditto with where new transport infrastructure is due to be built. Why is it that predominantly affluent constituencies have been at the forefront of opposition even though a number of more economically deprived constituencies that have the line going through (but not stopping at it) are en route with High Speed 2?

Are there alternatives to the crude tax and spend model?

This is something that I’ve been pondering over, because the choice presented to us all too often is one side taxing and spending while the other side cuts taxes and public services. Thus we swing from the stereotypes of one party ruining public services during its time in office while the other ruins the economy.

The furore around housing benefits provides us with an insight – something I blogged about recently. One of the points those on the left often make about housing benefit is that the majority of the recipients are already in work – they are just not paid enough to make ends meet. The automatic stabilisers in the benefits system increased payments on housing benefit to compensate for the high costs of housing. This symptom should have told ministers that something was seriously wrong with the state of housing in the UK. Yet the Coalition has decided to pull the lever that it thinks it has strongest control over: The housing benefit budget – announcing its cap.

Costs of living

I’ve moaned on about this in several previous blogposts, and it surprises me that few politicians have identified costs of living as being an issue that helps drive up the benefits bill. A few – such as Robert Halfon MP (C – Harlow) have identified individual components such as fuel and the impact it has on constituents, but politicians in general I feel have not grasped how tackling high costs of living could help reduce the amount of money people need to spend on just getting by. Food, transport and housing for me are the big three. The parents amongst you may well want to add childcare as another. Get the costs of those down and spending on benefits to compensate for such high living costs may not need to be so great. Is it possible to tackle the causes of high costs of living without having to rely on cash handouts to deal with the effects – such as high rents or high childcare costs?



5 thoughts on “Politicians, the banks and houses

  1. “If politicians are serious about breaking up the banks, will they put anything in place to stop them re-merging together again?”

    There already is a regime in place to prevent mergers where they lead to a significant lessening of competition (in the Enterprise Act 2002). So, if a government wanted to prevent future mergers of broken up banks for reasons other than competitive impact it might need to tear up the current merger control regime either generally or at least in respect of banks.

    There are a couple of precedents. First would be to repeal the 2002 Act and go back to the test in its predecessor, the Fair Trading Act 1973, which allowed mergers to be blocked if they were contrary to the public interest and to revert to having a broad interpretation of what the public interest meant. The Fair Trading Act put the decision-making power for merger control ultimately in the hands of the Secretary of State in all cases (something we might want to ponder the wisdom of in the light of News International/BskyB…) as judging what was in the public interest was considered to be at heart a political rather than administrative decision. If a future government wished to be generally much more interventionist in corporate deals this would be a good mechanism (and would add to my general thesis of Miliband’s rhetoric seeking a return to the time of Wilson and Heath…).

    A less radical alternative might be to rely on the existing public interest ground of “securing the integrity of the banking system” which has existed under the Enterprise Act since the Lloyds/HBOS merger was cleared under it. It would be somewhat ironic that a public interest ground designed to enable Mandelson/Hutton to clear a merger which the OFT recommended ought to be investigated on competition grounds by the Competition Commission would thereby end up being used to enable future ministers to block future banking mergers. However, I suspect that whoever decides to go down this path will want to introduce brand new legislation to show that they were “doing something” rather than to admit that the tools are already there (eg banking break up could be ordered or secured following a market investigation by the Competition Commission or a collective abuse of dominance finding by the OFT – this is why BT has separated out into a retail and wholesale business without the need for primary legislation).

  2. No politicians are serious about breaking up banks. The Vickers committee stopped short of recommending breakup – ring-fencing is not breakup, and it did not suggest demerging RBS/Natwest or HBOS/Lloyds, which is where I would have thought any serious breakup proposals would have started. Miliband is talking about forced sales of branches to existing smaller banks, but that isn’t breaking up large banks – it’s simply tinkering with their size. So given that politicians have no real intention of breaking up banks, it’s pointless discussing how to prevent them merging together again.

  3. It is also probably worth noting that branch sales by both RBS/Natwest and HBOS/Lloyds were at least implicit parts of the European Commission’s approvals of the State Aid granted to both when bailed out by HMG (hence sale by RBS of many English branches to Santander and Lloyds Banking Group sales to Co-Op).

  4. I sent your blog to someone who knows a lot more about housing issues than I. His response below:

    Suppose he thinks he’s making sense mate.

    Basically what I’ve just read and re-read appears to be a constrained view (probably blinkered because he has little wider knowledge or political understanding ..he regurgitates much of what I regularly read on other political blogs ..they are all nearly exactly the same views) .

    “Housing ” isn’t an either or policy field…people with little or no real involvment in the profession (higher strategic levels) never seem to understand that there is no single “Housing Market” ..every area is made up of multiple “housing markets” , most of which impinge on other areas and each other…mostly used by policy makers wrongly to enthuse about inward investment opportunities …desperation to get enough affordable housing units built to put the poor somewhere. Simply can’t afford the developers to continue making large profits on the backs of the least well off anymore. Cessation of social housing grant has seen this (profit)off.

    There isn’t a right/wrong policy anymore.

    Much too complex to lay at the door of politics for things getting worse RE: housing .

    Old models are now obsolete –Austerity prevails ..we simply can no longer afford to build housing for the poorest ….at least that’s the Coalition Government’s message these days.

    Global=Private market driven= unaccountability = profit driven=eventual total corruption = suffering of the poorest .

    Inequality will continue to grow until the banksters are wiped out ..Gvernments need to urgently take back the monetary control powers from central banks.

    Cancel the debt …remove any need for future inflation …no more fractional reserve banking (usury) …and caps on salary levels, rents and profits/surplus etc.

  5. This is why the Blair issue has blown up, fund raising. The event at the Arsenal stadium was a glorified fundraiser. It matters when people happily vote Tory and Liberal to destroy the NHS which is being handed over to people who funded those parties, because Labour have to turn up with all the necessary parts in place for next general election. Somehow this is to be done by magic, the polling, candidate training, printing, agents in place, deposits paid for when the party are again laying staff off. The problem is not to pander to the old ground, the old centre ground at that which moved has moved even further to the right since the last general election. People think we in the party are still predominantly led by Blairites given the massive over reaction to his Tonyness reappearing. This is often the same people who say of parties “they’re all the same”, it is that peasant mindset, just disengage and shout from the sidelines.. We have to get over that, even if it is often a case of ignorance on the part of the voter or indeed anger. There are more figures coming from Democratic Audit showing people want political education and transparency yet don’t bother engaging. We need to square this circle but the party can’t do this alone, without popular support and not in a multi party put a cross in a box illiterate voting system. The information on the voting system was out there, a whole variety of Labour supporting groups and societies are out there, and for other parties too. Your vote matters more than one person who hasn’t been Prime Minister or even been in elected office in 5 years soliciting money so we can stand candidates as her Majesties Opposition.

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