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Repossessions and the Housing Market

Volume 474: debated on Wednesday 2 April 2008

I beg to move,

That this House notes with concern the risk of recession in the United Kingdom economy; recognises that although the collapse of the United States mortgage market and the global ‘credit crunch’ are a catalyst to the current downturn in the United Kingdom economy, record levels of personal debt and the extreme bubble in the housing market were already major destabilising factors; further notes that because of inflation and weak public finances there is little scope for stimulating demand; applauds the efforts of central banks to reintroduce stability into the world money markets, but warns against the use of taxpayers’ money in bailouts which cause serious concerns about moral hazard; further notes with dismay rising levels of personal debt, exacerbated by high mortgage interest rates; further notes the rising evidence of a major slowdown in the United Kingdom housing market; registers with concern the increasing number of people requesting help regarding mortgage payments; further notes with concern that repossession orders are now at the same level as in 1990; regrets the Government’s failure both to admit the current problems in the housing market and to act to prevent mass home repossessions; calls upon the Government to consider options being used in the United States, particularly to encourage banks to explore options other than repossession; and further calls upon the Bank of England to include house prices in the measure of inflation.

I am grateful for the opportunity to introduce this debate on a motion in my name and those of my colleagues. Perhaps I will be able to pursue answers to questions that I was not able to ask earlier in our proceedings. The Government’s reputation rests very heavily on their economic credibility and performance, and they have won two elections on that basis. Two propositions are at the heart of their credibility: the first is that they have enjoyed the longest period of economic growth since records began in 1701—I think that that is how the case is put—and the second is the mantra that there is now an end to boom and bust. The first of those two propositions is still true, but looking rather precarious, and the second is beginning to look rather ridiculous.

This is an Opposition day debate, and I know that the convention is to deal with such matters in a rather Punch and Judy way, but I shall try to avoid doing so for several reasons. First, we are at the beginning rather than the end of a difficult period for the economy, and it may be that with good policies and good luck, we shall avoid the worst, such as something similar to what happened under the Tories 15 years ago. Secondly, some of the problems are home-grown and result from failures of Government policy, but some are imported—particularly the credit crunch—and the Government are not responsible for those. We need to acknowledge that there is a mixture of the two.

The other point, which is technical but rather important, is that some of the problems we are now confronting are difficult and perhaps unprecedented. How does one deal with a big debt deflation problem, as it is called? How do we deal with the collapse of a bubble in an asset market such as housing? How do we deal with a drying up of credit in the banking system? Those are relatively new problems to which there are no obvious easy answers. I want to set some ideas for discussion as to how we might approach those questions.

However, I do not want to be too generous. There are clearly criticisms that one can make of Government performance, and the central one is complacency. Many of the problems that we face were anticipated in the past. I recall raising the issue of the housing market and debt with the current Prime Minister in 2003. At that time, I put this to him:

“On the housing market, is not the brutal truth that…the growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level?”—[Official Report, 13 November 2003; Vol. 413, c. 398.]

The then Chancellor’s reply was that I was scaremongering, but the scariest thing about my scaremongering is that my predictions turned out to be largely correct. There are major concerns in that area.

Let me just review the problems. First, we have an acknowledged slowdown in the economy. We are not in a recession, but the slowdown is acknowledged. The Government’s forecasts are significantly more optimistic than the consensus among independent forecasters, who, a few weeks ago, were predicting 1.7 per cent. growth for the next year. Those estimates have been marked down week by week. We have other estimates from companies such as JP Morgan, the bank advised by former Prime Minister Tony Blair, that there is a one third risk of recession. Lehman Brothers have now joined it in making such an assessment.

In addition, we have severe, outstanding problems, many of which relate to problems of personal debt in a range of households—not all of them, but a substantial number. The total amount of personal debt in relation to people’s income is now roughly 160 per cent.—twice what it was when the Government came to office. It is the highest figure in our recorded history, and the highest in the developed world. Now, that is just a figure, and it does not necessarily relate to people’s everyday lives. What does relate to their lives, however, is the amount of income that they have to spend in service of debt. That now stands at about 20 per cent. and comprises mortgage payments, interests on mortgages, unsecured loans and credit card payments. We are now at roughly the level of debt service required as during the great Tory recession of the early 1990s.

I am sure that most people will share the hon. Gentleman’s analysis of the problems. However, the Liberal Democrats are usually very good at telling everybody what the problems are, but very weak on the solutions. Does he agree that at a time when people are struggling to pay their mortgages, energy bills and petrol prices, and when their pay is going up slowly, if at all, one of the best things that the Government could do is reduce the burden of taxation on those hard-working families? It is quite the wrong time for the Government to scrap the 10p basic rate of tax.

We do agree with that, and we argued that case at the time. The hon. Gentleman was probably rehearsing his intervention while I was speaking, because I did say that half of what I wanted to say concerned constructive solutions. However, I agree with his specific point, which we have made many times.

In addition to the problems of debt and the problems of debt service, there is a problem at the heart of the economic difficulties, which is inflation in the housing market, its consequences and the turnaround that may come from it. Since this Government came to office, the relationship between price and earnings has roughly doubled for housing. That has meant that a lot of people are a great deal wealthier and they have been happy to spend that wealth, which raises the question of what happens as the market goes into reverse.

At the core of the Government’s case, which is summarised in their amendment, is a statement made by the Chancellor a few weeks ago:

“Housing market conditions today are very different to those we saw in the early 1990s. Interest rates remain at comparatively low levels—as do mortgage rates. And unemployment is currently at 30-year lows.”

That is true, as far as it goes, but it is deeply misleading and extremely complacent, for several reasons. First, if we look back at what I call the great Tory recession—[Hon. Members: “Which one?”] There were several, but I am talking about the last one, at the beginning of the 1990s—

Order. I do not like to interrupt the hon. Gentleman—I am sure that he is capable of taking care of himself—but we really do not want sedentary exchanges across the Chamber. They spoil the debate.

Thank you, Mr. Deputy Speaker.

At the end of the Lawson boom, interest rates stood at 15 per cent. and inflation at 10 per cent. Those are extreme figures, but the practical reality was that the cost of borrowing was 15 minus 10—the real cost of borrowing was 5 per cent. real interest. Of course, we have different conditions today, as the Chancellor said. Someone borrowing at current rates will probably be paying 7.5 per cent. interest, but official inflation is about 2.5 per cent. The cost of borrowing in real terms is the same.

There is another problem that is a simple point of arithmetic and logic, but I sense that the Chancellor and some of his Ministers do not fully appreciate it. Since the last experience, prices and mortgages have increased enormously in absolute terms. The absolute value of a mortgage has grown from £40,000 in 1999 to about £160,000. In relation to earnings, the level has doubled. In practical terms, that means that somebody trying to buy a house has to pay roughly twice the amount in mortgage servicing as they would have done in 1990. Interest rates may have halved, but the total mortgage outlays are the same because the mortgage is so much bigger. That accounts for the fact that so many households are under enormous stress.

The Chancellor would argue—he is right up to a point—that these days we have a sensible way of managing interest rates with the Bank of England, and the Bank of England can cut interest rates. The context is rather different, however. The interest rates set by the Bank of England rose from 5.5 per cent. in March 2003 to 7.5 per cent. in July 2007—an increase of 2 per cent. Since then, it has been trying to cut rates, but the experience of households is not that of rate reductions. The alarming fact is that many households face increased interest rates because the banks are not passing on the cuts. They are not doing that because there is a credit crunch and credit has become unaffordable. Even those who have to refinance mortgages and can get them, which is unusual, pay increased rather than reduced rates.

Does my hon. Friend share my concern that 60,000 families now take home less than £1,000 a month and spend 75 per cent. of that take-home pay on mortgage repayments? Those people will feel the pressure, and nothing is being done to tackle the problem. The figure for those affected is more than double the total number of repossessions last year.

My hon. Friend is right. She describes an extreme situation, but many others approach that position. If interest rates remain high because of the crisis in the banking system, many people will find current circumstances unsustainable.

The key point in the Chancellor’s comment that I cited, about which he was right, is that unemployment is much lower. That specific problem does not therefore exist. However, I noted from the Red Book a table that describes the assumptions that the National Audit Office audited. The Government are assuming—I do not know whether the Financial Secretary is aware of it—an increase in unemployment this year of approximately a couple of hundred thousand to a million. That may be a small change, but the Government acknowledge in their forecast that unemployment will increase, albeit at a low level. People find their mortgages unaffordable for many other reasons, such as short-time working and lack of bonuses.

The new dimension, which changes the picture, is the fall in the price of homes that is beginning to occur. The obvious reaction is to believe that that is a good thing. If homes are unaffordable, it is surely desirable that their prices decrease to a more sensible level. That is correct, up to a point, but it depends on the extent to which and the speed at which it happens.

According to the Nationwide’s estimate, we have had five months of continually falling average prices. We have a forward market for property, which suggests that prices will fall by 10 per cent. this year and that, in five years, they will not increase at all—in other words, they will fall substantially in real terms. Some forecasters are talking about falls of 25 to 30 per cent. in a couple of years. Although the Government sensibly do not venture into forecasting houses prices, they assume that the market is heading for genuine difficulties. We know that because of the Red Book’s pessimistic forecasts for stamp duty receipts, which are due to fall by £800 million. They therefore assume a big fall in transactions.

The Council of Mortgage Lenders confirms that 3 million families currently have properties with a loan-to-value ratio of more than 90 per cent. If the numbers that I have cited, such as the 10 per cent. fall in a year, materialised, all those families would be in negative equity in a year. That is happening to many people now.

Is there not another new dimension that needs to be taken into account? Does not the hon. Gentleman accept that, back in the Lawson years, most borrowers would lend only up to two and a half times a family’s annual income, whereas nowadays, some borrowers lend up to five times the annual income?

The right hon. Gentleman is a right. A great deal of reckless lending is involved. The Financial Services Authority—the regulator—made that specific point a few weeks ago, when it estimated that 1 million families are at serious risk because of income multiples of around 3.5, as well as high loan-to-value ratios. There is a specific category of 1.4 million families who have taken the two-year, fixed-rate mortgages—teaser mortgages, as they are called—and now have to renegotiate them. Many find that they cannot raise the capital, that high deposits are being demanded of them or that even if they can raise the money, their interest rates are increasing from 4 per cent. to 7.5 per cent. That is only on the mortgage. Many were given unsecured loans, which are increasing to 15 per cent., as a part of the package. The position is therefore unsustainable for many of those 1.4 million families.

We are beginning to see evidence of that in the repossession process. The Government amendment correctly points out that repossessions are much fewer than in the previous major financial crisis that we experienced. There were five years in the early 1990s when 300,000 people lost their homes, and the rate last year was about 27,000. The prediction of the Council of Mortgage Lenders for this year is 45,000. That is somewhat reassuring, but I do not know whether Ministers have spotted that the first stage of the repossession process—the so-called orders, which go to court—now operates at a comparable level to that of the last slump. There are various reasons for that. Banks are no longer friendly, local high street banks. The securitisation of much mortgage debt means that many repossession orders are triggered by computer and no personal relationship is involved. As soon as somebody gets into difficulties, the order goes to court and that person is in the first stage of the repossession process. The problems may well be a great deal worse than in the last housing slump because of such changes.

The biggest employer in my constituency is probably the Bradford and Bingley bank. My experience shows that it does all it can to help people stay in their homes and that repossessing people’s property is a last resort. I hope that the hon. Gentleman will not try to go for an easy hit by attacking banks when many do an awful lot to try to help people stay in their homes.

The hon. Gentleman has a romantic view of contemporary banking, which is not reflected in the reality that most people experience. Perhaps he should have been here late on Monday when we discussed Northern Rock, which is one of the most aggressive banks.

Is not there a growing concern that it is not necessarily the mortgage but the credit card and other debts, about which there is even less tradition of concern for the individual, that trigger repossessions?

My hon. Friend is right. An especially nasty trick is being played at the moment whereby many banks offer “Together mortgages” that are 125 per cent. of the value of the house. The extra is used to buy cars and go on foreign holidays. Anyone who defaults on the extra bit, above the mortgage, can be taken straight to repossession. That is happening.

The current crisis could be much more difficult than the previous one because there are no safety nets. The right hon. Member for Hitchin and Harpenden (Mr. Lilley) made an important policy decision when he was in government. I am not making a personal comment, but referring to his ministerial record. He abolished the system whereby people could go to social security for help with mortgage payments. It now takes nine months before that position is reached. In reaching that decision, the right hon. Gentleman made the calculation, which was probably realistic at the time, that half of all borrowers would take out insurance in future. In practice, that has not happened. Only one fifth of households have taken out insurance. We are now in a different environment from the early 1990s, and there is no safety net. There is no social security assistance and there is no insurance. A comparable degree of pressure on payments therefore results in a much greater likelihood of people being taken to court and losing their homes.

As a former Minister in the same Department as my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), let me tell the hon. Gentleman that the calculation was also made that, in the first instance, building societies would renegotiate and spread their payments for six months, thus relieving a pressure on the taxpayer, but not putting individual householders in a more difficult position, and that was indeed what happened.

That might have happened at the time, but it is not happening now, and I will come to how we might address that failing.

Does my hon. Friend agree that his figure of one fifth for insured households might be too optimistic or an overestimate of the cover available? Many of my constituents have found that those insurance policies do not work at the exact moment they need them to work.

That figure probably is an overestimate, which also reflects the fact that many policies are extraordinarily expensive. Those who now recommend insurance as a way of dealing with the problem fail to take into account the large cost associated with payments protection insurance, so my hon. Friend is right.

The concluding part of my remarks is about what can be done. Again, I want to be constructive and raise questions about ways forward, rather than just criticise how things are being managed now. First, what can be done within the conventional policy framework? Normally when there is an impending recession, the standard answer, which we learnt or taught from economics textbooks, is to cut interest rates and run a budget deficit—they are the standard apparatus of macro-economic policy—and that is indeed happening aggressively in the United States, but not here. We know that that is happening in the United States, because the chairman of the Federal Reserve, Mr. Bernanke, did his PhD thesis on the great depression from 1929 onwards. He is terrified, and says so publicly, that we are in danger of repeating that experience. He is desperate to head it off and is doing whatever he can.

Our problem is that the Government are enormously constrained in what they can do that is similar. They made a good decision 10 years ago to make the Bank of England independent. The Bank now sets interest rates, which are not politically driven, and is making it absolutely clear that its first responsibility is to follow its mandate, which takes account of inflation, which is currently above the level that it should be pursuing. Therefore, the Bank’s scope for cutting interest rates aggressively is limited. In addition, the Government claim that they have stayed within their rules for fiscal policy, but we do not know that, because there is no independent monitoring. In fact, the Government are up against the very limit of their fiscal rules and have absolutely no scope for the kind of expansionary policy that one would hope for in a period of recession.

Even if it were possible to do those things—to cut interest rates aggressively and run a fiscal deficit—there is little evidence to suggest that they would solve the problems that we now face, because interest rate cuts are not being passed on by the banking system, for the reasons that I have described. The conventional policy framework is therefore not adequate. The question is whether we could reform it.

My colleagues and I have argued for several years that the Bank of England should have within its mandate a responsibility to take account of the housing market, not just conventional inflation. If the Bank had done that, it would have raised interest rates sooner, in the boom, and would be able to cut them more aggressively in a slump, now. That is one concrete suggestion that should be considered.

The second policy question is whether the Government should simply be watching the drama of repossession unfold or whether they should intervene to do something about it. The Government’s position is currently entirely passive. They take the view that there is no great problem, and that in any event it is nothing to do with them. However, we should perhaps at least consider what the options are.

The first option, which the Council of Mortgage Lenders and several non-governmental organisations, such as Shelter and the citizens advice bureaux, are pursuing, is for the Government to revive the pre-1994 idea of giving greater social security help to people in mortgage difficulties. It has been suggested that it would help, for example, if the Department for Work and Pensions could secure a second charge on a home as a way of giving extra help. That is not the best way forward, because we would effectively be transferring all the risk from the mortgage lenders who made loans in the first place to the taxpayer. However, if the crisis develops momentum, that kind of idea might have to be considered.

What else could be done? One possibility, which we are keen to promote, is for the lenders to have much greater responsibility, so that if a default is triggered, there should be a process whereby the debtors have access to independent financial advice and the banks are required to offer a range of payment alternatives, which might include shared ownership, for example. The banks will say, “Well, that’s all in our code of conduct,” and indeed it is, but there are plenty of rogue lenders who are not bound by that code and others who do not observe its spirit. My question for the Government is whether they are considering the arguments for and against making the code of conduct binding on mortgage lenders, requiring them to do what is currently regarded as good practice.

The hon. Gentleman has spent the past year denouncing the lending practices of banks in the most dramatic terms, using such expressions as “close to a scam”, “irresponsible lending”, “rubbish mortgages” and “poor assets”—that was his phrase on Monday night. Now that he is staring the consequences of his own policies in the face and does not like them, his solution is to compel the banks to carry the problem, in the middle of a liquidity crisis, on their balance sheets.

I would have thought that the simple logic is that if lenders have behaved irresponsibly, there is an obligation on them to behave more responsibly in future. I will come to the question of how that affects liquidity and the balance sheet—quite rightly, because that is part of the argument—but there certainly should be an obligation on banks that have lent irresponsibly to the people who have borrowed and are now in considerable difficulties.

In looking for solutions, may I say that many families—probably more in the past year than at any time over the past 25 years in which I have been here—are coming to me with multiple debts and pressures in respect not just of their homes, but of credit cards and the like, which my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) mentioned, so could not the Government add one other thing to the list? Could they spend a bit of the money that they spend on publicity on helping people to go to the one-stop-shop advice centres that exist, which can consider their position in the round and give them advice that enables them to manage their way out of the problem, rather than just rely on the banks or one agency to help in their sector, while those people are struggling with the rest of their debts?

That is a constructive suggestion, which builds on a policy that we have been arguing for. An excellent report was published for the Government a few weeks ago by Mr. Thoresen that developed that point. Unfortunately, like so many other good reports prepared for the Government, it is in danger of sinking without trace, because it requires somebody to take responsibility for rolling out a network of advice, which, as my hon. Friend correctly says, is so necessary.

The final option that we need to consider is whether, in current circumstances, the Government, or social landlords on behalf of the Government, should act as a buyer of last resort in housing markets that are falling rapidly. In cities such as Leeds and Manchester, there are large amounts of empty buy-to-let accommodation that cannot find a user, quite apart from the properties that have been auctioned off as a result of repossessions. Social housing has been sold off over the past 10 to 15 years, as a result of the right-to-buy policy, but we now need to ask whether that policy should, in some degree, go into reverse, partly as a way of sustaining the market and partly as a way of providing more social housing where it is badly needed. That would clearly require an investigation of the borrowing powers of social landlords. I wonder whether the Minister could give an indication of whether the Government are thinking about that.

It might help my hon. Friend if I set that point in context: 1 million fewer homes are now available for social rent than at the time of the last housing market fall. In the last 10 years, we have seen social housing waiting lists rise by 60 per cent., so we are already in a position of high demand, which could get a lot worse.

My hon. Friend is absolutely right. That is another reason why the repossession crisis is so severe. It is not just a matter of people not having safety nets; the problem is that there is nowhere for them to go if they are repossessed. They are put into a desperate situation with virtually no social housing. There is an opportunity for the Government to reverse the negative net sale of public housing, which has been so damaging in the past.

Let me move on to a third area where the Government should be thinking of reform and change. I want to respond directly to the intervention of the hon. Member for Newcastle upon Tyne, Central (Jim Cousins), who correctly said that this problem is linked to the wider issue of the crisis within the banking system. I shall not digress widely into why the banks face a credit crunch, but we all know the essence of the problem: through very complicated financial instruments, debts, including bad debts from the sub-prime market, were bundled up and sold on in such a way that those bad debts can no longer be traced, as a result of which trust within the banking system has collapsed so that banks will no longer lend to each other, except at extreme rates, and the normal function of banking has broken down.

The question is what the British Government can do about it. This is partly an international problem, but it is also a very specifically British problem, because the City of London is probably the largest financial centre in the world and we are all affected by how its finances develop. What is happening—it has happened over the last few weeks—is that the banks are launching a major campaign to get the Bank of England to provide them with cash with minimum strings. What they would like is for the Government simply to advance cash in return for their mortgages, particularly their poor-quality mortgages. That is happening on a very large scale in the United States, where the state is effectively nationalising the losses and risks of the banking system. The banks would dearly love our Government and our authorities to do the same here.

The Governor of the Bank of England has been taking quite a hard line on that, rather differently from his opposite numbers in the US, and I have a good deal of sympathy with him. However, he and the rest of us are confronted with a practical problem—if the banks are to continue to function and the financial system is not to seize up, there needs to be liquidity. The question then becomes under what conditions it should be provided.

We may well be getting an answer to that question, but I would like to suggest an approach that I believe the Government should support in working with the Governor. By all means let more liquidity be provided in the banking system, which has to function as a lender to businesses and households, but there should be a condition. The condition is that the banks’ shareholders should accept the losses that come with bad debt. They will have to do that by accepting what are called write-downs. They will have to do that by cutting their dividend payments, by rights issues, by sales, by forgoing acquisitions—all the sort of things that banks like doing. The are going to have to go through a period of austerity in order to get their own accounts in order. That would be the condition for the advance of liquidity. The banks will hate it; they will run campaigns in the financial newspapers, saying how terrible the Governor of the Bank of England is for being so stingy and not giving them what they want, but in those circumstances it is the job of the Government to provide political support for the Bank of England. The basic point is that our banks are too big to fail, but, equally, they are too big for the Government to bail out all their losses and bad debts. They will have to carry this themselves and they will have to be helped to do it.

My final point is about the future of regulation. As a result of this crisis, many of the assumptions that underlay the regulation of the financial system in Britain are having to be re-examined. We had a system of so-called light-touch regulation, which has in practice led to major financial institutions in the City behaving irresponsibly—behaving like casinos rather than lenders in many cases—and that has to be stopped. In the emergency circumstances of the present, we cannot rewrite all the rules, but to prevent this from happening in future, there will have to be a complete rethink of the way in which our financial institutions are regulated.

The central change that needs to be made is to recognise that markets operate in cycles. This is not some unhappy circumstance; capitalist economies always operate cyclically. They may be more efficient and may function better at certain times, but they are very cyclical, so the authorities need to ensure that the reserves that banks hold reflect the cycle; in a boom period, they should be required to hold more, and they should be required to hold less in a downturn. The whole process by which financial institutions are managed needs to be much more proactive and much more aware of the cyclical nature of the industry.

I put forward those ideas in a constructive spirit. I think that if the Government were to address them and come up with positive solutions rather than just waiting for events to happen, they might well avoid the damage that would result if they were simply to relive the experience of the great Tory recession.

I beg to move, To leave out from “House” to the end of the Question end and to add instead thereof:

“acknowledges the resilience of the United Kingdom economy, which grew faster than any other major economy in 2007 and in which employment is at record levels; notes that the record of economic stability since 1997 has laid the foundation for rising home ownership, with the number of owner-occupier households rising by 1.8 million since 1997; further notes that household finances remain strong, with household assets worth over £7.5 trillion, more than five times the level of personal debt; believes that the United Kingdom is well placed to respond to the challenges arising from the continuing international financial turbulence; applauds the Government for managing the public finances within its fiscal rules; recognises that the Bank of England Monetary Policy Committee has cut interest rates twice in recent months; further acknowledges that mortgage interest rates are currently around half the level of those reached in the early 1990s and that the proportion of repossessions is less than one third of the rate in the peak year of 1991; welcomes the Council of Mortgage Lenders’ recent statement, which sets out the steps that the industry is taking to support borrowers facing repossession, including working with debt advisers, pro-actively identifying at-risk borrowers and only repossessing as a last resort; and supports the Government’s initiatives to assist home ownership, including new measures to encourage long term fixed rate borrowing and new forms of shared equity.”

It is pleasure to discuss such an important topic. The hon. Member for Twickenham (Dr. Cable) raised a number of points in opening the debate, and I should like to deal with each of them in turn. It is a routine but important courtesy to say what a pleasure it is to follow the opening speech, but it was a sore trial for me to listen quietly and respectfully to the Liberal Democrat party give a lecture on financial probity—no matter how scholarly the hon. Gentleman’s manner. [Interruption.] I will say exactly why.

It is not what the Liberal Democrats say, but what they do in practice and in power that we should examine. Speaking as a Liverpool MP, I know how unfortunate it is for that city and its local economy to be one of the few places under Lib-Dem control and subject to their influence. Despite huge investment from the UK and the European Union, the Lib Dems have virtually bankrupted the city, which is officially classified as the worst council in the country for financial management. The burden of debt is beyond belief and former senior Liberal Democrats have characterised it as doing more damage to Liverpool than Militant. Having got that off my chest, I shall return to the points that the hon. Member for Twickenham made.

I am glad to hear that the right hon. Lady will be addressing my hon. Friend’s comments, because I am extremely concerned when the Government receive what I think is pretty sage advice, delivered in a non-partisan way, and they respond with lectures about Liberal Democrat policy, which is the last thing that the country needs to hear given that, collectively, we are on the brink of a repossession catastrophe. I hope that the Minister will confirm that she will work on a cross-party basis to try to ensure that the general public whom we serve—not the parties to which we belong—are given the support that they deserve.

I knew it was a good idea to give way to the hon. Gentleman. I always like listening to his interventions and hearing him urge us to engage in a non-partisan way in an important debate. He is right to make that point. However, it is very difficult to do that in a constructive way with a party that is preaching such doom and gloom, talking up the prospects of a recession.

Let me begin my comments in response to the Liberal Democrat motion and then I will happily give way to hon. Members. I do not want to spend as long on my feet as did the hon. Member for Twickenham.

Let me start with the condition of the economy, before I move on to the housing market more specifically. The world economy is clearly facing its most uncertain period for some time, which is having an effect across the world—and the UK is no exception. However, Britain is in a strong position to cope with the challenges ahead, and it is in a far stronger position than it was at the start of the last decade. Our economy is stable and it has been growing uninterruptedly for more than 15 years. It is true that growth is forecast to be slower this year than last, and slower than we had expected at the time of the pre-Budget report, but Britain’s economy is forecast to keep growing. That is not complacency. That is the forecast of not just the Treasury, but the International Monetary Fund, the OECD and the CBI. In fact, independent forecasters expect Britain to be the joint fastest growing economy in the G7 this year.

The right hon. Lady is entering a phase that concentrates on the good things that the Government have done—and there have been good things—following her petulant beginning that ignored any of the good things that my colleagues have done in Liverpool over 10 years. However, I know how anti-Liberal she is, so we understand that coming from her. Does she accept, however, that the burden of the case made by my hon. Friend the Member for Twickenham (Dr. Cable) is that whatever the history and the macro-economics, the over-commitment of British people—the over-expenditure with money that they do not have—is now at a crisis? I hope that she will give practical answers so that people outside the Chamber can see that politicians together are helping them to get out of the huge and terrifying financial holes that millions of families are in.

The Liberal Democrats hate it when the spotlight is shone on what they do when they are in power. I never lose any opportunity to shine that spotlight. However, I can assure the hon. Gentleman that I will shortly come to the practical steps that we are taking in government, if he will allow me to get there. I disagree with him; in the context of the debate, we cannot set aside the macro-economic situation in which we are working. That is of central importance and why we can say with confidence that we believe that the economy in the UK is strong enough and stable enough to sustain British home owners and those who want to be home owners through the coming months.

Is the right hon. Lady aware that the housing market has been the source of macro-economic disturbances for successive Chancellors of the Exchequer for certainly 30 years? Merely to brush the problems in the housing market aside as if they do not have macro-economic consequences, which is what I understand her to be doing, would be, frankly, irresponsible. My hon. Friend the Member for Twickenham (Dr. Cable) made some extremely constructive suggestions—they were not gloom-mongering, as she said—about underpinning the housing market at a point where it may do serious damage to the Government’s macro-economic strategy. I hope that we have a response from her to that point, and not silly tittle-tattle about Liverpool.

The hon. Member for Twickenham was either running around going, “We’re doomed, we’re doomed”, or he was saying, “Don’t panic, don’t panic.” I cannot quite establish which of the two characters he was casting himself in.

We have also had relatively low and stable inflation. At 2.5 per cent., consumer prices index inflation is currently lower than in both the euro area and the USA. It is forecast to pick up in the short term, but to return to target from next year onwards. There are also more people in work in Britain than ever before.

I felt somewhat patronised by the suggestion that Ministers might not know that there was a prediction that unemployment would rise. I was Minister with responsibility for work and remember that the unemployment figures grew slightly when I was at the Department for Work and Pensions. That increase was largely due to moving people in receipt of incapacity benefit on to jobseeker’s allowance to help them into work. In case the hon. Gentleman does not know, let me advise him that we have plans to move lone parents on to jobseeker’s allowance as a precursor to helping them to find work. It is those active, labour market policies which we have implemented in government that have transformed the experience of families in the UK. It is the labour market’s continuing strength that gives us cause for encouragement going forward. He, too, should take comfort from that.

Our economy is strong and stable. We have seen increasing resilience over the past decade in the face of a number of shocks. Britain used to be the first into recessions and the last out, but at the start of this decade we proved more resilient than any other major economy after, first, the bursting of the dotcom bubble and then the 9/11 attacks on the World Trade Centre. Britain was the only G7 country not to experience at least one quarter of negative growth in the years that followed.

I think that Britain is in a stronger position to deal with the challenges presented by the recent disruption to the world economy than the hon. Gentleman suggested. We are in a far stronger position than we were in the early 1990s. Back then, unemployment topped 10 per cent., inflation hit nearly 11 per cent., and interest rates rose to almost 15 per cent. That was a hugely different position from the one that we see today after nearly 11 years of continuous growth under this Government and the largest rise in income per head of any G7 country. The differences between today and the early ’90s are just as clear when we consider average mortgage rates. Today, the average rate on mortgages is 5.9 per cent. In 1990, it peaked at over 15 per cent.

Britain is in a far better economic position today than it was in the early ’90s, and that is the main reason why I do not agree with the suggestion that the housing market is about to repeat the pattern that it followed then.

I am listening carefully to the Minister. Does she therefore discount the evidence from Citizens Advice that the number of people coming to it expressing concerns about their ability to repay their mortgage is up a third on this time last year?

Not at all. It is precisely because we acknowledge that anxiety that we are putting in place the steps that I shall come to shortly.

I have already given way to the hon. Gentleman. Perhaps he will allow me to make a little progress on the housing market and repossessions, because he urged me to describe what the Government are doing.

After increasing by more than 10 per cent. in the year to August 2007, the signs are that house price inflation is declining relatively gradually, and prices are still higher than they were a year ago. We should remember that because of the economic stability over the past 11 years there are 1.8 million more home owners in the UK today than there were in 1997. Household wealth is also far higher than it was 10 years ago and total household assets are now worth more than £7.5 trillion—more than five times higher than the level of personal debt, which is growing at its lowest rate for around seven years.

Is the right hon. Lady not, however, concerned that the key indicator for an asset market such as housing is debt service? Is she not concerned that the personal debt service of households in this country—not merely capital repayments, but capital payments plus interest payments—is now at the same level that it was at the beginning of the 1990 to 1992 downturn? When she says that so far the fall in prices has been relatively modest, that was also the case at that point then. Will she confirm that fact?

I shall come to individual financial capability, but first I want to address one point in the Liberal Democrat motion. It reads like a “Focus” leaflet—or, rather, like a Victorian penny thriller. It is full of hyperbole with few facts. It maximises the fear factor and does not let the truth get in the way of a good story. I shall give an example. The motion

“notes with concern that repossession orders are now at the same level as in 1990”.

If we look at the number of repossessions that are actually taking place, we see that that is not true.

No, I have given way to the hon. Gentleman a number of times and I want to make some progress. Many other hon. Members want to speak in the debate.

The number of repossessions in Britain remains relatively small. There were just over 27,000 repossessions in 2007 compared with 75,000 in 1991, despite there being almost 2 million more mortgages today than there were then. Last year, the number of properties taken into possession was just 0.23 per cent. of all mortgages, which is about a third of the rate in the early ’90s.

I can see that the hon. Member for North Southwark and Bermondsey (Simon Hughes) does not agree. I shall give way one last time and then make significant progress.

The key point is that we are talking about a leading indicator. Orders are a leading indicator of what will happen. The Minister insists on talking about actual repossessions, which are merely a backward indicator. I hope that Ministers can distinguish between leading and lagging indicators when they are attempting to manage the economy; it would be very worrying if they could not.

What the hon. Gentleman has said about orders returns me to the point made by the hon. Member for North-East Bedfordshire (Alistair Burt), who rightly spoke of the impact of a change in the way in which the state supported people who faced mortgage and repayment problems. It meant that mortgage lenders had to be far more interactive in their dealings with people. That is exactly what happens. A court order does not necessarily mean that individuals lose their homes, and banks and building societies now try much harder to use repossessions as a last resort when dealing with people in financial difficulties. Indeed, the regulatory regime requires them to do so.

As I have said, both interest rates and mortgage rates are far lower today than they were at the start of the last decade, and have increased more gradually than they did then. I do not think it reasonable to compare the present position of the United Kingdom housing market with the position in the early 1990s. I also do not agree with the comparisons drawn by the hon. Member for Twickenham with the United States, where house prices are experiencing significant falls. In fact, there are three reasons to believe that the UK market is better placed than that in the United States.

First, the falls in US housing prices are being driven by a very large overhang of unsold houses. Here in the UK, by contrast, housing supply is not currently meeting demand. That is why we have a target of more than 240,000 net additional homes a year by 2016. We intend to deliver 2 million new homes by 2016, and 3 million by 2020. Secondly, mortgage lending regulation is stricter in the UK than it is in the US. Many of the regulatory changes suggested in response to the problems in the US market have already been made in Britain. Thirdly, although it is generally accepted that the UK also has a sub-prime mortgage sector, it is much smaller than that in America, where it was seen as the trigger of the current difficulties.

The Government have taken a number of steps to help ensure that lenders lend responsibly and borrowers can make informed choices, including the statutory regulation introduced in 2004. The FSA’s regime places specific requirements on firms to take account of the affordability of loans, and to treat customers fairly. Like the hon. Member for Twickenham, we welcome the recent statement from the Council of Mortgage Lenders setting out the steps that the industry is taking to support borrowers who are experiencing difficulties. They include working with debt advisers, proactive identification of at-risk borrowers, and considering repossession only as a last resort.

More generally, the Government have been focusing increasingly on improving people’s financial capability so that they can make better decisions about how to handle their money. For the long term, we have put aside £11.5 million for personal finance education in schools over the next three years. That will include developing ways of helping primary school pupils to start thinking about money, using their child trust funds to make it relevant to them. From September this year, financial education will also be part of the secondary school curriculum.

We must think about today’s adults as well. Otto Thoresen has been considering the best way in which to ensure that everyone in the country can obtain free, impartial, high-quality advice on money when they need such information. His final report, published earlier this month, recommended a pathfinder project to test the best ways of offering that, and, with the FSA, we have agreed to provide up to £12 million to run it over the next year.

I meant to give way to the hon. Gentleman earlier, but his hon. Friend the. Member for Eastleigh (Chris Huhne) jumped in. I will ensure that I give way to him on this occasion.

I am grateful to the Minister. As she will have heard, I intervened on my hon. Friend the Member for Twickenham on exactly that point: the need to ensure that “one-stop shops” are available throughout the country, so that people can go to a single location to obtain advice on a range of debt issues. Can she assure me that the response to the report to which she has referred will not be so extended and protracted that it will be of no benefit other than as a pilot scheme? Will she and her colleagues give serious consideration to an early advertising campaign with maximum reach, providing the addresses of the places to which people will be able to go? Millions of people are in need of free, independent, impartial, sound advice.

The hon. Gentleman has made a sensible suggestion, and we will consider it. The pilot that we propose is a significant piece of work that will make a real difference to people.

I am grateful to my right hon. Friend for allowing me to intervene before those set in authority over us send me off to discuss the draft Land Registration (Network Access) Rules 2008.

The hon. Member for Twickenham (Dr. Cable) has been consistently and relentlessly snobbish about what he calls Together mortgages. As a result of both his remarks and what is happening in the markets, such mortgages are now being withdrawn. That is leaving a large number—[Interruption.] It is a great pity that the Liberal Democrats are so snobbish about low-income owner occupation. Low-income home ownership ought to be precious to us, but now that Together mortgages are being withdrawn, a large number of low-income home owners are in real difficulties. What has my right hon. Friend to say to that?

My hon. Friend has made a valid point. I acknowledge the strength of what he has said and the passion with which he has said it. I know that he may have to leave soon, so let me simply say that we are doing a great deal to help people in those circumstances.

As I have said, free debt advice is hugely important to those who do experience difficulties. For the next three years the financial inclusion fund will be increased to £130 million, and £76 million will be spent on providing free, face-to-face money advice. There is also targeted support for vulnerable people through support for mortgage interest, which provides a backstop for some people who have fallen out of work. It helps about 200,000 people each year to cope until they can return to employment.

I want to make three main points. First and most important, Britain’s economy is in a strong position. It is stable, it is continuing to grow, a record number of people are in work—for which I give thanks—and we have seen over the last decade that it is more resilient than it has been in the past. The present position is very different from the position in the early 1990s.

Secondly—because of that different economic position—I do not agree with the hon. Member for Twickenham’s predictions of a house price crash and a huge increase in the number of repossessions. House price inflation is declining, but it is doing so relatively gradually, and house prices remain higher than they were a year ago. Although the number of repossessions is expected to rise a little in the year ahead, they remain far below their levels at the start of the last decade.

Finally, the Government are continuing to take action to ensure that people are able to make better financial decisions, and to ensure that support and advice are available to those who do get into difficulty.

I urge Members to oppose the Liberal Democrat motion, and I commend the Government’s amendment to the House.

The hon. Member for Twickenham (Dr. Cable) managed to paint a very bleak and gloomy picture of the economy and the housing market, and he was helped to paint that picture of doom and gloom by his hon. Friends. The hon. Member for North Southwark and Bermondsey (Simon Hughes) spoke of a “huge and terrifying” financial hole facing millions of families, while the hon. Member for Montgomeryshire (Lembit Öpik) said that people were on the brink of “a repossession catastrophe”. Language like that does little to help home owners. We do not want to be seen to be talking down the housing market. People’s hopes and aspirations rest on it, and it is irresponsible and opportunistic to whip up an air of crisis and panic.

The hon. Gentleman makes great play of Liberal Democrat Members’ concern about the increasing number of repossessions. Is he aware that in my area—to give just one example—the repossession rate is currently running at 10 per cent., which is twice the national average? Does he not think that a repossession rate of 10 per cent. is something to be concerned about?

I think that every Member of this House is concerned about repossessions and the fact that people across the country are at risk of losing their homes. However, we should address this issue reasonably and rationally, instead of seeking to talk down the housing market and create an air of panic.

I am grateful to the hon. Gentleman for giving way, not least because he is my neighbouring MP and as a result we share the same county courts in respect of repossessions. Is he aware that repossessions in southern Hampshire and the county courts of Southampton and Winchester are up by more than 20 per cent. over the past year? Does he not regard that as a matter of considerable concern, as I do? I hope he will not be complacent about the considerable personal suffering involved in those horrifying figures.

No, I will not be complacent about that, but I think we need to look at this matter objectively and carefully, instead of being irresponsible and seeking to create an atmosphere of panic and chaos, which is what the Liberal Democrats have done. The Financial Secretary has gone in the other direction: she sought to paint a much more rosy picture of the economy than the reality warrants and overstated the case, but she has minimised some of the legitimate concerns people have about the current state of the economy.

Too often over recent months, all that we have heard from the Government is that all our problems have been caused by the global credit crunch. It is typical of this Government that they take the credit when times are good, but shift the blame when times are harder or more uncertain. The challenge in any crisis is how to handle it. It is a hallmark of good government to be prepared for a crisis and take control, rather than be buffeted by events.

We saw yesterday at the Prime Minister’s weekly press conference that he has no room for manoeuvre. He was looking to others to bail him out of a situation he has created for himself. He was encouraging the Bank of England to cut rates to boost growth—the Bank of England that he made independent. He has set an inflation target for the Bank, but he was looking for it to put that target to one side. He also called for the European Investment Bank to offer loans to businesses.

The reality is that the Prime Minister, having mishandled public finances for the past 10 years, has no room for manoeuvre. Unlike Governments elsewhere in the developed world, he cannot offer tax cuts to help hard-pressed families or to lift the burden on businesses, because this month we are seeing increased taxes on families, small companies and wealth creators. So at a time when families are facing economic uncertainty, they cannot expect the Government to help them. There is no denying the fact that families are facing economic uncertainty; I accept that. People need to use more measured language, however. Interestingly, the hon. Member for Eastleigh used far more measured language than his colleagues on this issue. Perhaps he is auditioning for another part in the future.

I shall give way to the hon. Gentleman, as I named him earlier as someone who was creating and then stoking up that atmosphere in the housing market.

I am grateful to the hon. Gentleman for flattering me by saying I have such awesome power over the British economy. Perhaps my party does not need to be in government, and instead we can just run the country from the Opposition Benches.

Given that the hon. Gentleman seems to be striking a middle way between our position and the Government’s, I am at a loss to know whether he will vote for the Government amendment or have the courage—of our convictions, certainly—to stick up for the people who are suffering in the housing market and vote for the Liberal Democrat motion.

I am not sure I would ever look to the hon. Gentleman for guidance, and certainly not on how to vote, as I think that so far he has not backed a single successful candidate for leader of the Liberal party. [Interruption.] He refers from a sedentary position to the right hon. Member for Sheffield, Hallam (Mr. Clegg). I read part of the GQ interview this week. I do not know whether the hon. Member for Montgomeryshire wants to share his experiences of running for office. I shall move on, however, Mr. Deputy Speaker, as I suspect you would like me to do so.

Despite cuts in the Bank of England’s base rate, many families’ mortgage repayments will increase when more than 1 million fixed rate or discounted deals come to an end this year. The widening gap between the base rate and the LIBOR is a sign of continued uncertainty about and a current lack of trust in the financial markets. That means that home owners will not necessarily receive the full benefit of recent base rate reductions.

In addition, the restriction on the availability of credit means that lenders are tightening their conditions. For example, the Co-op has cut its maximum loan-to-value ratio from 95 to 90 per cent.; and the Nationwide’s subsidiary The Mortgage Works has withdrawn its offer of 100 per cent. mortgages, as has Scottish Widows which yesterday withdrew its 100 per cent. mortgage aimed at young professionals, who will now have to find a deposit. First Direct closed its mortgage business to new customers because it could not process the volume of applications it received. The problems in the global credit market therefore mean not only that customers will face higher rates when existing deals come to an end, but that credit itself is being rationed through tougher rules and conditions. Those with equity in their homes or with substantial deposits may well be able to meet tighter conditions imposed by lenders. For those without either, existing mortgage customers will be forced to stay on relatively high standard variable rates, and those aspiring to get on the property ladder will have to save for longer.

In times of economic uncertainty, people naturally turn to the Government for help and they hope that the Government will do something to lift the tax burden from them or will understand that costs are rising. However, because this Government failed to prepare for difficult times, no relief is on offer. Last month’s Budget saw taxes increase on alcohol and new cars—tax increases that are in place to plug the hole opening up in the Chancellor’s numbers, and that will raise the cost of living as well as take money out of families’ pockets. Also, this month we will see tax increases such as the scrapping of the 10p band.

The hon. Member for Llanelli (Nia Griffith) certainly understands what is happening, judging by an article in The Guardian today. She said:

“We have always wanted to support those on lower incomes, we have done an enormous amount with things like the minimum wage to raise people out of poverty”


“I think therefore anything that hits people on lower incomes is perhaps something we are particularly sensitive to in the Labour party.”

I think the hon. Lady had a point.

Apparently, the Prime Minister claimed that no one would be worse off as a consequence of scrapping the 10p rate, but that is certainly not the evidence that was given to the Treasury Committee in its inquiry into the 2007 Budget. The Exchequer Secretary to the Treasury was a member of that Committee, and I think signed off the report that was published. Robert Chote of the Institute for Fiscal Studies said in an evidence session that 5.3 million families would lose out as a consequence of the scrapping of the 10p rate, and Mark Neale, managing director of the budget, tax and welfare directorate at the Treasury, said that

“the figures that Robert Chote gave you are in the right ball-park”.

Therefore, many people will be worse off as a consequence of the scrapping of the 10p rate—older pensioners, and many couples and single earners without children. No Labour Member should be fooled by the Prime Minister’s reassurances of earlier this week. The change will hit their constituents, and mine, hard.

I do not know whether the hon. Gentleman has spoken to Robert Chote since, but at a presentation in Parliament on this year’s pre-Budget report he put the figure much lower. He has seriously reduced the number of those who would lose because of the scrapping of the 10p rate. Will the hon. Gentleman make arrangements to meet Robert Chote?

I am always happy to meet Robert Chote, who came up with some important figures. Interestingly, when the then Chancellor was quizzed last year, he was unable to refute them. Last year, when the Treasury put the policy forward and it was announced in the Budget, it also regarded those figures as being in the right ball park. The figures may have changed, but last year’s decision was made on the basis of 5.3 million families losing out as a consequence of scrapping the 10p rate.

Does the hon. Gentleman agree that although there may be some variation in the number of people thought to be affected, the income profile is most likely to be those who work part time, those on low incomes, and single people under 25 without children who are not eligible to benefit from the changes to the tax credits?

The hon. Lady has produced a reasonable and helpful analysis of the people who will lose. Female pensioners in their early 60s are the group in my constituency who are particularly concerned and vocal about this matter. A number of groups will be affected, so for the Prime Minister to brush aside the impact, as he appeared to do at Monday night’s parliamentary Labour party meeting, is to seek to minimise an important and growing concern for our constituents.

Not only is the 10p rate being scrapped, but taxes are increasing on wealth generators, small companies’ tax rates will be increased again and entrepreneurs will be hit by an 80 per cent. increase in the capital gains tax they pay on selling their businesses. That is hardly a move designed to encourage new business investment and formation at a time of economic uncertainty.

While our competitors used 15 years’ global economic growth to prepare for difficult times, the Prime Minister, who was the then Chancellor, taxed, spent and borrowed his way to a position in which our deficit exceeds that of our EU counterparts. Even Italy has a lower budget deficit than UK. It seems that prudence, which was a feature of his first Budgets, has left the UK and is happily living in Tuscany—a place that seems to be one of relative fiscal rectitude compared with the UK. While our competitors can use their reserves to pay for tax cuts, Britain has no such luck.

Of course, it is not just bad decisions on tax and borrowing that have created some of the problems in the housing market. It is a pity that the Chief Secretary to the Treasury is not in the Chamber this afternoon, because in her former role as a Minister of State with responsibility for housing she was the mastermind behind one of the biggest cock-ups in the housing market for many generations—home information packs. They have had an impact on the housing market. Their early introduction has led to concerns about the number of properties coming on to the market and the additional costs that they will impose on home owners. They are part of the problem in the housing market, and people are rightly expressing concern about them.

Before my hon. Friend leaves the topic of the Chief Secretary, perhaps he will persuade one of the Ministers present to give us a statement that the Government have so far not given us. Why was the chief executive of the Thames Gateway project sacked barely a year after her appointment by the Chief Secretary, whereas she received a promotion following a series of reports on the Government’s poor handling of that project?

My hon. Friend makes an important point. I have yet to work out how competence and promotion work in this Government. It is a mystery to us all, but perhaps the Exchequer Secretary to the Treasury will be able to explain it in her winding-up speech.

The Exchequer Secretary says that it was way above her pay grade, but of course it was not way above her pay grade at the time to recognise that 5.3 million households were going to lose out as a consequence of scrapping the 10p rate of income tax.

Before we got slightly distracted, we were discussing the impact that the introduction of home information packs has had on the housing market. It is not surprising that Which? has said:

“The new ‘half-HIP’ will be a useless but a very expensive waste of time...This half-baked compromise will result in something that is of little value but of real expense to consumers and Which? cannot therefore continue to provide support”.

One can always rely on Which? to come up with a pithy judgment: one of its former directors, who is now a No. 10 employee, said:

“Gordon Brown doesn’t need a new speechwriter. He needs a magician”.

As one can see, Which? is very good at identifying the issues in consumer problems; it does not always identify the solution, but it identifies the cause of the problem.

The Government’s interference in the housing market has not helped the situation. The poor state of the housing market, a squeeze on the cost of living, and higher taxes and higher borrowing costs make it more difficult for families to make ends meet, and could therefore lead to higher levels of repossessions. The rise in stamp duty revenues, which has been such a godsend for the Government’s tax take, has become a problem for first-time buyers, who now pay an average of just under £1,700.

When lenders were more relaxed about multiples and were happy to combine secured and unsecured loans, such as with the Together loan, which has been the topic of debate over recent months, first-time buyers could roll stamp duty up into their mortgage but now, with tighter rules and lower loan-to-value ratios, they will need to fund stamp duty up front. That will add both a further barrier to their buying their first home and another brake on the housing market. That is why we announced last October that we would abolish stamp duty for first-time buyers on properties costing less than £250,000, which would mean that nine out of 10 first-time buyers would no longer have to stump up for stamp duty. That would offer practical help for first-time buyers.

As I said, we need to be wary about talking down the housing market, but we must recognise that conditions are tough and we must strike the right balance in this debate. The combination of higher taxes, lower real earnings, a tighter housing market, higher mortgage interest rates and tougher conditions on home loans creates uncertainty and difficulty. People whose fixed-rate mortgages are coming to an end particularly need to look at the options available to them. They need to find the best deal available and secure it before they flip on to the default option of the higher standard variable rate.

The pressure of higher mortgage rates and rising living costs will mean that more families will find it harder to make ends meet, but given the relative ready availability of consumer credit, people must avoid the temptation to pay for everyday essentials using their credit cards, as that could lead to further problems. People facing financial hardship should seek advice sooner rather than later so that they can take control of their financial affairs, rather than allow someone else to do so at a later stage when their situation has deteriorated. Services such as Citizens Advice, the Money Advice Trust and the Consumer Credit Counselling Service all offer advice to people struggling with their bills.

The scale of any problems will depend in part on the overall economic circumstances. Four key factors have driven economic growth in recent years: finance, housing, public spending and immigration. Finance has grown four times as fast as the economy as a whole; housing has grown twice as fast as the economy as a whole; and the size of government has grown a third more than the economy itself. So the credit crunch will have a growing impact on the fast-growing financial services sector. That factor was borne out by yesterday’s CBI survey of employers in that area: future job losses in the sector were predicted, as was the impact on housing of the tighter availability of credit. Both those factors will impact on tax revenues in the year ahead.

Problems are potentially on the horizon, which is why we need to broaden the base of economic growth and encourage a series of reforms to get the economy back on track again so that we have broader base of growth in future. Because the Government failed to prepare for a rainy day, they have been forced through necessity to rein in the growth of public spending below the rate of growth of the economy as a whole. We have that policy by conviction; it is the sort of policy that allows a Government to prepare for a rainy day.

We are heading towards difficult and uncertain times, but the hon. Member for Twickenham has done hard-working families no favours by talking up the problems in the market. Having said that, we cannot afford to be complacent either. The Government have failed to prepare the economy for these times and they have let the public finances get out of control. While our competitors can cut taxes to support families and businesses, this Government have had to raise them. Householders see the rising cost of living and increased mortgage payments, but they cannot expect the Government to help, as this year’s Budget showed. It included tax increases on alcohol and cars, and the scrapping of the 10p rate. This Government have let our families down at a time of uncertainty by failing to prepare. They will pay a price for that.

I think I understood why the Minister was upset with the Liberal Democrats about the motion. They have done the serious subject of repossessions no service through the motion. For example, the Conservative shadow Minister spoke for 20 minutes, 15 minutes of which concerned the economy, but because of the careless, lazy ritual and the Punch and Judy system that we have—

It is all right for the hon. Gentleman to shake his head, but it is lazy and it has played into the hands of the Minister and the Conservative shadow Minister. It has taken valuable debating time and taken the Conservatives, in particular, away from discussing the problem and putting suggestions forward, which was what the hon. Member for Twickenham (Dr. Cable) did. That is outrageous. The title given in the Order Paper for the debate is “The economy, repossessions and the housing market”. If the object of the exercise is to deal with the emerging problem of repossession, which hon. Members in their constituencies know to be a real problem as they sniff the wind, speak to people and attend surgeries, the hon. Gentleman and his party—or whoever wrote the motion—are not doing us any service by lumping it in with the economy. The motion allows us all to have a ritual run around the economy. I think that the Minister was right about the motion.

I do not tend to view politics from London or this Chamber. I prefer to consider politics through the constituencies. I do not see how anyone can table a motion that suggests that we are nearing a recession and that we are in all sorts of economic gloom. I used to sit on the Opposition Benches, and Members were accused of talking down the economy. I can see now, from the Government’s point of view, where that sort of mood comes from. There is an element of talking ourselves into trouble by talking down the economy.

If the hon. Member for Twickenham wants to suggest that we are near a recession, he should remember that during the recessions that we had before the Labour Government took over, some 3 million people were unemployed. The hon. Gentleman dug around the Red Book and suggested that unemployment would possibly grow by 200,000, which would take the figure to 1 million, but such a figure is far different from 3 million unemployed, which caused such misery in our communities. We are still trying to dig ourselves out of that misery, even after 10 years of this Labour Government.

I have been looking at the motion tabled by my right hon. Friend the Member for Sheffield, Hallam (Mr. Clegg) and my hon. Friend the Member for Twickenham (Dr. Cable), among others. It does not predict a recession as a certainty, but simply notes that there is a “risk of recession”. That risk has been identified by JPMorgan and Lehman Brothers: is the hon. Gentleman disagreeing with them?

The Minister read out fairly and factually the forecasts from a range of sources: the private sector, the Treasury and the CBI. I have seen no forecasts—the Treasury Committee certainly did not hear of one from any of the experts who came to us—that suggest that we will not have growth this year and more growth next year. The argument, of course, is that we will have lower growth than was forecast last year, but it is still growth. I cannot see how anyone can come to the House and say that there will be a recession when the Red Book, the private sector, the private commentators and the private forecasters suggest that there will be growth. They suggest different degrees of growth, but it is still growth. Where does the risk of recession come in? There is always a risk of recession, but we are now talking about the economy rather than housing repossessions.

The hon. Member for Twickenham was in the Labour party at some stage in his career, at a time when every motion had to be scrutinised because we all knew that motions mattered. People would table motions and say, “You don’t want to pay any attention to that.” That is probably why the hon. Gentleman left the Labour party. Some of us, with the Minister, fought on to make it the great party that it is.

Words do matter and it does not help people who have a real problem if, when we have the opportunity to debate that problem, we obscure it by allowing the Opposition off the hook with a long preamble about a mythical state of recession.

I have listened carefully to what the hon. Gentleman has had to say. He makes an important point about the tone of the debate, but because he makes that point I, like many Opposition Members, am not clear about what specific point in the motion he does not agree with. Is it the point about rising levels of personal debt? Is it the point about the slowdown in the UK housing market? Is it the point about the number of people requesting help because they are concerned about mortgages and repossessions? What is the exact point in the motion with which he does not agree?

I am primed by my hon. Friend, who is seated on my left, to say, “Talking down the economy”, but I would not say that. I can tell the hon. Member for Cheadle (Mark Hunter) that I object to the fact that we have had days of debate on the Budget. He was not with the hon. Member for Twickenham and me last night—perhaps it was the night before—when we debated the economy and Northern Rock for an hour and a half. The hon. Member for Cheadle had gone back to bed by then. The economy has had more airtime over the past few months than we would wish, but people outside are in danger of losing their homes, which is the most traumatic thing that could happen to most people and families in their lifetime. The Liberal Democrats, through careless framing, have allowed the Conservative shadow Minister to spend three quarters of his time running around the economy and only five minutes dealing with repossessions. They have allowed the Minister to spend a fair amount of time, as she has a responsibility to do, rebutting the lazy and careless framing of the motion on the economy. I do not think that that is sensible.

I want to speak quietly and seriously about the emerging worry about a credit crunch—the Opposition can blame Government and the Government can blame this or that—that has come from America, which is affecting and has affected the economy, particularly the financial sector. Like a virus, it is continuing to mutate so that when we think we have the measure of it and will be able to deal with it, it moves on. We are seeing that mutation and those worries. It is not a question of sub-prime mortgages. As we sit here, 2 million people have mortgages that they took out in 2006 which will run out.

I do not know whether hon. Members or the Minister have read the example given in the Library notes. A young couple with two children from Northamptonshire, who are both working, have been caught out by this problem. Their mortgage runs out this year, and it is with Northern Rock. One would think that, with it being nationalised and owned by a Labour Government, there would not be any trouble—something else that we discussed the other night. Northern Rock is operating very fiercely, however, like other building societies, because it does not want the business. The credit crunch has mutated and moved on, and mainstream building societies and banks are finding it difficult to get money to service mortgages. When a mortgage is up, they are encouraging people to move on. They are doing so in a pretty bad way: the offer that pulled people in disappears.

A particularly appropriate point was just thrown away by the hon. Member for Twickenham. It is outrageous that the very same building society or bank that brought someone in with a low mortgage has often encouraged them to take a further loan that is not secured. The hon. Gentleman indicated that such loans are now not just a couple of per cent. on top of what people were paying for their mortgage, but can shoot up to about 15 or 16 per cent. The young couple that I mentioned were hit with a double whammy. Their mortgage is going up by £200 a month, which is about £40 to £50 a week. To a young couple with a young family, every penny matters, and that bill comes on top of something that is outside the control of anyone in central Government—energy and food costs. They have to pay the extra £40 to £50 a week on that part of their mortgage, and 15 to 16 per cent. on the capital sum that the institution giving the loan was so anxious for them to take. When the deal runs out, people discover that that institution does not want them, and that there is a heavy penalty for staying with it.

I think—no, I do not think, I know—that that is happening. The word on the street is that two months ago, there were 100 main mortgage lenders. There are now 20. Nobody is anxious to pick up mortgages, so they are being shuffled around. Just yesterday, as we have heard, First Direct stopped giving mortgages because it was overwhelmed by the number of people coming to it. It just put a block on them. That takes us back to times that elderly Members on the Opposition Front Bench will remember—[Interruption.] I mean the Conservative Front Bench. They will remember when people used to have to get in a queue for a mortgage, and had to save with the institution for a period of time to prove that they were good customers. Even the young fellow on the Opposition Back Benches, the right hon. Member for North-West Hampshire (Sir George Young), remembers those days. We are getting to that stage now, and it is very worrying.

Advice is a good idea, but although it is easy to give and relatively non-costly, I always worry about whether it gives a solution to a young couple such as I have mentioned. How will they get through the coming months and keep their family intact? That is the problem that we have.

A lack of liquidity is affecting the banks and building societies. The Governor of the Bank of England has referred to it. A month ago or so, he thought that the financial economy had a problem but that it would not move into the real economy. It is now in the first stages of moving on into the real economy, and it is doing so in housing. Youngsters and families are having difficulties, and I say to the Minister that those difficulties will grow. At the moment, we can be calm and think that the situation is under control, but we should look a few months ahead. If the situation continues, repossessions will move at a rate. We should be considering and discussing measures to take to nip that in the bud, so that we can get through this temporary period of credit crunch and liquidity crisis, and keep people intact in their own homes.

The hon. Member for Twickenham mentioned the business of social security. One thing that the Conservative Government did was to ensure that, if someone lost their job, they could move on to income support. As part of that, the interest payment on their mortgage was met. That Government ruled that for a person to be eligible, they had to be unemployed for nine months. The trouble with that in relation to mortgages is that most building societies or banks make a move after three months of non-payment. The hon. Gentleman seemed to suggest that the Government should restore the nine-month provision, but that might not be appropriate in the current financial crisis. What would be appropriate would be for building societies to agree not to take action against an individual for nine months, unless a lack of equity in that person’s home made the problem impossible to get around.

I ask the Minister to imagine a situation whereby the young couple mentioned in the Library notes continued to pay their mortgage and then got hit with this problem, perhaps because one of them lost their job. They would not be helped for nine months. I have a history on this matter: I raised it with the Governor of the Bank of England when he first came before the Treasury Committee to talk about the credit crunch, last September. He makes a shop steward in a shipyard look weak in terms of demarcation, and he told me, “This is not my responsibility.” I still pleaded with him to say whether something could be done in financial circles, because the way the market was going was obvious. We have obviously had no luck.

The Government have set up a working party—a review, I suppose we would call it. The trouble is that it is not—[Interruption.] I am not sure whether the signal that I have just received was to keep going or to sit down. I shall sit down. One never knows with the usual channels. [Interruption.] Thank you. If my hon. Friend the Member for Motherwell and Wishaw (Mr. Roy) had given me that message some time ago, he would have saved me a lot of work.

The working party has two faults: it is not reporting for the purposes of the pre-Budget report in the autumn, and it seems to me that it is preoccupied by the Government’s preoccupation, which is long-term mortgages. That might be good, but let us park it up somewhere for the moment, because it is not too useful in the present circumstances. I rather fear that the working party’s main preoccupation is how to get such mortgages accepted and deliver them. If we are to have a working party of all the financial people, I plead with the Minister to get it to shove that work aside and do some quick work on the looming crisis. That would allow us to do things without necessarily baling out or calling on Government expenditure.

One criticism made by both Labour and Conservative Members was that the Bank of England and its Governor did not act when the credit crunch started and we had the Northern Rock crisis. Unlike Bernanke and the Fed, and even unlike US Treasury Secretary Paulson, there was no sign in this country that anyone thought it worth getting the interested parties together for the sort of beer-and-sandwiches meeting that happened under Harold Wilson. At those meetings, heads were knocked together and people were told that they could not leave until a solution had been found. We did not do that with Northern Rock, and we have regretted that. I think that, in the interim, the working party should be reconstituted, and that its members should kick around possible solutions to a crisis that I hope the Minister realises is very serious.


I have now to announce the result of a Division deferred on the motion relating to banking.

The Ayes were 124, the Noes were 322, so the motion was disagreed to.

[The Division List is published at the end of today’s debates.]