Skip to main content

Repossessions and the Housing Market

Volume 474: debated on Wednesday 2 April 2008

Question again proposed.

It is a pleasure to follow the hon. Member for Leeds, East (Mr. Mudie), who is a formidable and knowledgeable member of the Treasury Committee. Unlike him, however, I will need no prompting about when to sit down, as I propose to make a relatively short contribution. The best bit of his speech was when he described the pressures facing an ordinary family: already hit by rising fuel and food costs, such a family could now be forced to come off a fixed-rate mortgage in favour of a more expensive standard rate loan. That simply adds to the problems confronting them and in some cases could lead, sadly, to repossession.

I want to focus my remarks on the second and third legs of the debate title—repossessions and the housing market. We have heard about the impact of the banking crisis on the housing market, and there have been some powerful speeches about those who face repossession and those who cannot afford to make their mortgage payments. I want to focus on some of the less obvious casualties in the housing market, namely those who look to the social housing sector for a solution to their housing difficulties. They are also tied up in this crisis and, paradoxically, their numbers will be swollen by those who find that they are repossessed and those for whom home ownership is no longer a practical possibility.

There has been a fundamental change over the past 25 years in how we fund social housing. If we had had this debate in the early 1980s, the trends that we have been talking about this afternoon would have had no impact at all on social housing, because the Government used to give local authorities powers to borrow, and they built local authority homes. Alternatively, the Government gave grants to housing associations that went on to build housing association properties. So in those days the social housing market was insulated against the broader trends that we have discussed this afternoon; the liquidity problems in the banking sector would have had no resonance in the social housing sector.

That has all changed today, for two principal reasons. First, housing associations now have to borrow significant sums from the banks. Secondly, social housing is now a by-product of market housing. Some 48 per cent, of the Housing Corporation’s programme of affordable homes is being delivered through section 106 of the Town and Country Planning Act 1990, on the back of market-led housing. As a result, it is dependent to some extent on a buoyant housing market.

Let me deal with that point first. On a typical new-build site, where a private developer is building market homes, 25 or 30 per cent. of them have to be affordable. That form of provision has many advantages: it provides mixed developments rather than the polarised ones that we had in the 1960s and 1970s, and it also saves the taxpayer a lot of money because the cost of providing social housing is, in effect, borne by the land owner, who makes slightly less of a windfall gain. Using the planning system to generate affordable homes is an enlightened policy—introduced, by the way, by the previous Conservative Government—that has enabled many people to access decent homes far more quickly than under the old system.

However, that use of the planning system also has a downside. Far from being insulated against the broader housing market, social housing is now, crucially, dependent on it. My concern is that the softening of the broader housing market will mean that the target of 3 million new homes, and the social housing component of that target, will not be achieved. If one looks at the annual reports and the share prices of the country’s major house builders, and at the comments of the Council of Mortgage Lenders, one finds that the outlook for housing is not good. That means that the outlook for social housing is not good either.

That brings me to the second factor: the reliance by housing associations on private finance to top up the Government grants that they get to deliver the housing programme. The National Housing Federation—the housing associations’ trade body—is aware of the considerable challenges faced by housing associations in the current financial climate. Between now and 2011, housing associations will have to borrow £16 billion of private finance to provide 155,000 new affordable homes, on top of the £8 billion of grant. I do not want to be over-dramatic about that, as housing associations are well run, regulated bodies that remain attractive prospects for lenders who want to retreat to quality investment. While there is no sign of lending supply drying up, some lenders are withdrawing from the housing association market and the cost of borrowing is rising.

As a result of the credit crunch there is more competition for finance. Lenders report that they are becoming much more selective, and it is inevitable that individual housing associations—especially those with less attractive risk profiles—will find it difficult to raise the money to sustain the build programme. The Council of Mortgage Lenders has warned the Housing Corporation not to push associations to build “at all costs” amid growing uncertainty in financial markets. Andrew Heywood, deputy head of policy at the CML, has said that, in the short to medium term, there is “no certainty” about the lending capacity of the banks. He added:

“In this situation it would be important for the Housing Corporation to remember its fundamental role as an independent regulator primarily concerned with the viability of housing associations, rather than with attainment of external development targets at all costs.”

In response, the Housing Corporation said:

“We are keeping the position of individual associations under close review to ensure that services to existing tenants are not put at risk from development activity.”

Several housing associations have been told by lenders, after deals were agreed in broad outline, that the price of the borrowing would go up. Signs that the property market has peaked will make it more difficult for those housing associations that top up their building programme by selling houses to maintain momentum.

This morning, I contacted one of the larger housing associations in my constituency to get a report from the front on how those broader problems are having an impact. I was told that all the funders were being very cautious, with some having stopped lending while others were looking at selling on their mortgage books, or were putting up margins by varying degrees. As a result, the biggest problem would be for housing associations that would be looking to raise more money because their facilities needed reviewing or increasing. The conclusion reached by the housing association that I contacted was that, if the crisis goes on much longer, it will start to impact on the sector’s ability to purchase sites and property from the private sector.

My point is that it is not just the private housing sector that is affected. The social housing sector is also affected. If the Government want to hit their 3 million target, they may have to act to maintain their social housing programme. They do not have much headroom on the public finance side, and we have not yet reached the stage where dramatic action is needed, but it would be prudent for Housing Ministers and the Treasury to have some contingency measures up their sleeves. Such measures may be needed to maintain the momentum in the housing programme and if we are to hit the housing target, which I am sure we all want to happen.

I was very interested in the earlier contribution from the Minister. I like her; she did a good job in Northern Ireland as I guided her towards securing peace there. That is no more of a claim to power than what has been foisted on us from both sides of the House this afternoon, but all the negativity that the right hon. Lady showed makes it clear that she seems to have a real downer in the Liberal Democrats.

The Minister has nothing to fear from the contributions made by me and others this afternoon, as we are trying to offer insights and, I hope, some sage counsel. Any self-respecting Government should take such offerings seriously, regardless of their source. Getting help and support from us is nothing to be embarrassed about, and it should not be shunned. Indeed, the Minister should be proud that we are offering the advice for nothing. If she were to meet Liberal Democrats socially, I am confident that she would quite like us. The crucial point is that the observations made by my hon. Friend the Member for Twickenham (Dr. Cable) are right, regardless of party position, because they are based on the facts of the current economic situation.

The hon. Member for Newcastle upon Tyne, Central (Jim Cousins), who had to go to another event, to some extent underlined the power that we Liberal Democrats have by suggesting that my hon. Friend the Member for Twickenham was single-handedly responsible for the collapse and withdrawal of the Together mortgage scheme. That is power indeed. Perhaps most interesting of all was the way in which the Minister, who sadly is not in the Chamber at the moment, likened my hon. Friend the Member for Twickenham to Private Frazer in “Dad’s Army”. She suggested that he was effectively saying, “We’re all doomed”. To take up that analogy, she surely takes on the role of Corporal Jones by suggesting that we should not panic.

I cannot resist suggesting that the hon. Member for Fareham (Mr. Hoban) has taken on a Vicky Pollard role, as his party’s position this afternoon is “Yeah, but no, but yeah”; I still have not got a clue whether the Conservatives will vote with the Liberal Democrats or support the Labour party. That is a bit of intrigue and excitement to look forward to. On the subject of the Conservative position, I must correct something that he said about my choice of leadership candidate. He is right that I had a bit of a bad run of supporting unsuccessful leadership candidates, but my right hon. Friend the Member for Sheffield, Hallam (Mr. Clegg) is so good that I backed him and he still won. [Interruption.] I am willing to give way the hon. Member for West Chelmsford (Mr. Burns); I did not hear what he said from a sedentary position, but I am sure that it was very entertaining. Perhaps he should quit while he is ahead on that one.

The hon. Member for Fareham went on to claim that my words are so powerful that the very utterance of the phrase “brink of repossession catastrophe” will cause such a catastrophe to happen. If that is the case, I must be more cautious about my predictions that we will be hit by an asteroid. In practice, the prediction is not the same as the event. The purpose of the Liberal Democrats calling for today’s debate was to try to avert a repossession catastrophe by trying to get the Government to take a cross-party attitude, rather than a partisan bunker mentality, towards a problem that is obviously coming our way. Perhaps that was optimistic of us, in light of some of the comments made today.

I was interested in hearing what the Conservative position was, but—I do not mean this in a rude way; it is just an observation—it seems that the Conservatives have a series of bits-and-pieces ideas, but no clear philosophical narrative to their housing and economic policies. That is the case in other policy areas, too. They can tell us what they do not like, but I have no idea what economic policy on repossessions in the housing market would be if the Conservatives were in charge. Perhaps we will hear that narrative in the speech of the hon. Member for Fareham, which will immediately follow mine, but I fear that we have not heard that narrative because there is not one. I shall reserve judgment until we hear what the hon. Gentleman says in about 10 minutes’ time.

The hon. Member for Leeds, East (Mr. Mudie) spoke in an erudite, insightful way, as ever. He berated us for talking about the risk of recession, but what kind of debate will this be if we are censored, and prevented from discussing the real and present danger of a recession in this country? I have some disturbing statistics from my constituency. Between 2006 and 2007, average wages in my constituency went down, for the first time in years, by 4 per cent. That is not even a real-terms decrease; it is an absolute decline. The constituency of Montgomeryshire is therefore already displaying signs of recession. We ignore such statistics at our peril. If we take the mature attitude that my hon. Friend the Member for Twickenham has consistently taken in debates on the economy, we will collectively consider the issues and move forward.

Repossessions are rife and are on the up. They, among other leading indicators that we discussed, are harbingers of the doom that we were accused of spreading. Each of us has specific examples from our constituencies, where repossessions and problems with finding housing are arising all the time.

I have two examples from my constituency that may inform my hon. Friend’s further comments. First, the local citizens advice branch informs me that it is concerned about the number of people who turn up in court for repossession hearings having not sought any advice at all. Does that not underline how important it is that advice is made available when people first experience difficulties? Secondly, it is not just mortgage lenders who are serving repossession notices. Some councils are now serving repossession orders for arrears of council tax. That is of great concern. There are pressures from all sides putting people’s homes under threat.

My hon. Friend illustrates the precise problem. This is not a theoretical debate about what might happen, but a practical debate about what is happening. When councils act in the way that she describes, and when individuals face the desolation of homelessness, we have to take ideas seriously. I ask the Exchequer Secretary to the Treasury to offer us a crumb of hope when she sums up, by saying that the Government will consider the points made by my hon. Friends the Members for Twickenham and for Falmouth and Camborne (Julia Goldsworthy), and by me. I hope that the Government will be willing to work on those ideas on a cross-party basis.

It is implicitly accepted—I shall now say it explicitly—that the problem is not necessarily that loans were given in an inappropriate way in the past. The debt crisis arose because loans were given at a time when the economic circumstances were more stable and promising. Now that we find ourselves in a more precarious position, some loans that previously looked reliable look rather less reliable. The Government cannot be blamed for all the changes in economic circumstances, but they are responsible for responding now, at an early stage, when we can still prevent repossessions—the number of which is relatively small, given the total number of householders—from becoming a big macro-economic problem due to the decelerator effect that a change in fortunes often heralds.

About £7.5 trillion-worth of real estate is in the British public’s possession, but the fact that debt is coming up to £1.4 trillion is a concern, due to the sheer size of the debt and the difficulty in managing it. The British people now pay £1 million of debt interest every nine minutes. That is one reason interest rates are so important, and have such a powerful effect on the general fortunes of our country. So what can we do about it? My hon. Friend the Member for Twickenham—or, as I like to call him, the next Chancellor of the Exchequer—has put forward a cohesive strategic package that we look forward to implementing, but the country cannot afford to wait two years for that. The Minister is perfectly welcome to plagiarise our ideas; what we are talking about is a strategic narrative, to use that word again, that brings us out of the danger of massive numbers of repossessions being made, with the knock-on effect that that would have on recession.

The right hon. Member for North-West Hampshire (Sir George Young) made a very good point about house building and changing circumstances. We can consider other tools in addition to house building, such as shared ownership schemes, modular construction—that can bring down the cost of high-quality housing—restoration and the release of about 1 million homes that are lying vacant for various reasons that include financial or planning restrictions. That would immediately increase supply and deal with fixed demand, which is hard to alter.

So we have a basket of opportunities before us, which we can implement; not all of them cost a great deal of money, and some require only creativity, but it is important that we do that now, because we will not alter the demand for housing. We can alter the supply and therefore take some heat and pressure out of the system, reducing the risk of a crash as the market readjusts.

I would say in parenthesis—this is not directly related to what we are discussing today—that I hope that the Government revisit their home information pack policy. The HIP scheme does not seem to be delivering anything particularly useful to householders and, in the words of my hon. Friend the Member for Taunton (Mr. Browne), it is time for a HIP replacement. I hope we get that sometime soon. The evidence that we have seen from the Government’s own surveys shows little faith in the HIP process among purchasers and, indeed, vendors of houses.

Does my hon. Friend agree that the Government should be a little more open-minded on the success of some of their other schemes, which are aimed at helping first-time buyers into the market? We see from the figures that uptake of the first-time buyers initiative has been very low. Just last week, I received an e-mail from a constituent who has been trying to take part in the home-to-own programme for more than three years. It concludes:

“For a company and scheme that is supposed to be designed for young working couples or first time buyers, they are not giving us a chance. I also think 3 years to be on a waiting list is ridiculous. It’s not as if we are waiting for council accommodation”.

Do not the Government need to accept the failings of their own schemes?

Individuals such as the one my hon. Friend quotes are not politicians; they are real people who are looking for real solutions. To that extent, I hope that the Government accept the circumstantial and anecdotal evidence, which adds up to clear mood music that this country is experiencing frustrations with some of the laudable proposals made by the Government. I understand that, so far, only 700 individuals have been assisted by the £100 million first-time buyers scheme, so while some of those schemes have potential, they are not realising it yet.

I thank my hon. Friend the Member for Taunton for his HIP replacement joke, which I shall not use again, and conclude with these thoughts. Liberal Democrats, like members of any party, like to compete with the Government and spar for advantage. It is perfectly legitimate for us to make party political points. Indeed, I was quite impressed with the Minister when I saw that normally mild mannered and gentle lady turn into a ferocious tiger at the merest scent of a Liberal Democrat “Focus” deliverer. But this issue is too important for that. If we get it wrong, we all lose.

Whatever the Minister says here in the Chamber, I hope that the Government are listening privately to the sage and considered advice from my hon. Friend the Member for Twickenham and others on the Liberal Democrat Benches who are more concerned with averting a housing catastrophe than they are with winning short-term points off the Government. The Minister, if she is listening, will accept that we raise those issues with good intentions and in good faith, and we hope that the dialogue can proceed in that way on a cross-party basis.

Ignoring the warnings is the psychology of denial. The path thereof can spell disaster. Accepting the dangers rationally and working together to do something about them may yet avert a repossession catastrophe and prevent some social damage that goes beyond words but which it is in our power to prevent.

I am grateful for the opportunity to speak at the conclusion of this important and timely debate. The context of our discussion is a Government who have lost a degree of control and ability to self-analyse with regard to economic policy and who are, as my hon. Friend the Member for Montgomeryshire (Lembit Öpik) has just said, in a state of denial. It was truly bizarre to hear the Financial Secretary to the Treasury—at a time of global credit crunch and when the country is on heightened economic alert—talking about the good old days when Derek Hatton ran Liverpool city council. Surely even Labour Members must regard that as a truly incredible reaction to the circumstances that we face.

It is worth going through in turn the bald statistics on the current state of the British economy. Personal debt stands at £1.4 trillion. House prices are more than nine times average earnings, compared with five times at the start of the last housing crash back in 1990. As my hon. Friend the Member for Twickenham (Dr. Cable) said, house prices have fallen for five consecutive months. Real inflation for real people is far in excess of the official Government figure.

It is also worth pausing to consider the tale of the two Opposition parties and two very different approaches to a state of national alert. One tale is that of the Conservative party, whose future policies are as embarrassing as its past failures. Furthermore, it is worth looking back to the grim statistics—the record of the Conservative party in government—in case we forget quite how catastrophic its stewardship was of the British economy.

Between 1990 and 1997, 420,000 families had their homes repossessed. Between 1990 and 1995, house prices fell by 14.5 per cent., on average. Average interest rates when the Conservatives were last in office were around 11 per cent. and at one point reached 15 per cent. The average rate of inflation when the Conservatives were in power was 5.8 per cent. That is a truly embarrassing and appalling record and I am not surprised that they do not wish to dwell on it.

What about the Conservative party today? Its position, as I understand it, was summarised by the leader of the party, the right hon. Member for Witney (Mr. Cameron), in his Budget response on 12 March, when he said that

“in the years of plenty, Labour Governments put nothing aside. They did not fix the roof when the sun was shining. . . in good years you put aside money for the bad years”.—[Official Report, 12 March 2008; Vol. 473, c. 300-301.]

That point was made by the hon. Member for Fareham (Mr. Hoban) but it is not what the Conservative party was saying during those so-called good years, seven or eight years ago.

When he was the shadow Chancellor, Michael Portillo, speaking at a Conservative conference on 3 October 2000, argued for more funding and tax cuts. This is what he told the conference in the good years:

“We will cut taxes on business, so that they can compete and create prosperity and jobs. We will reform Labour’s taxes on entrepreneurs and on inward investment. . .We will help pensioners and hard-working families. We will restore a married couple’s allowance. We will cut the duty on fuel. That gives you a flavour of my budgets”.

That fiscal incontinence was not a one-off. At a repeat event, Michael Portillo as shadow Chancellor speaking at the next Conservative conference on 1 March 2001—again, in the good years that we hear so much about from the Conservative Front-Bench team—said:

“Analysts believe the Chancellor has about £5 billion more than he thought. It is perfectly possible to cut the fuel tax this year without any impact on government spending or public services. Everyone knows that Gordon Brown has a war chest.”

In other words, he wanted lower taxes and higher spending.

The truth is that the Conservatives now have just two economic policies. The first policy is to criticise the Labour party for taxing and spending too much. The second policy is to tax and spend exactly the same as the Labour party is suggesting. The Conservative shadow Chancellor told “BBC Breakfast” news on 3 September 2007:

“The Conservatives will spend the same as Labour—if there is a Conservative government there will be real increases in spending.”

I urge the House not to believe too readily the Conservative analysis and their changing tale about the economic circumstances in this country.

The Conservative shadow Chancellor started his time in office back in 2005 by making a trip to Estonia to see how he could introduce a flat-rate tax in Britain. He is now instructing his shadow Chief Secretary not to bring forward any proposals for Conservative tax cuts until 2015. It is no wonder that on 15 February the online version of The Spectator, a journal generally sympathetic to the Conservative party, commented:

“The Conservative leadership attacks Gordon Brown for being a ditherer and ordering endless reviews to put off making decisions. But the Tories are not averse to such delaying tactics themselves. The Conservatives’ policy on taxation in recent years feels like one colossal dither”.

I agree with that assessment. The shadow Chancellor and the Conservative party have no policies on the credit crunch, Northern Rock or tax.

The other Opposition party, the Liberal Democrats, by contrast, have led the debate. My hon. Friend the Member for Twickenham is too modest to say so himself, so I will quote on his behalf what he told the House on 13 November 2003—almost five years ago, before I was elected. It is worth Members listening to this. My hon. Friend said:

“On the housing market, is not the brutal truth that with investment, exports and manufacturing output stagnating or falling, 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?”

It is amazing that someone could have made that speech in the House five years ago and that the Government paid so little heed to it. In response to my hon. Friend, the then Chancellor, now Prime Minister, said:

“The hon. Gentleman has been writing articles in the newspapers, as reflected in his contribution, that spread alarm, without substance, about the state of the British economy.”—[Official Report, 13 November 2003; Vol. 413, c. 398.]

No wonder the Prime Minister has acquired a reputation for complacency and dithering.

In an interview in The Independent on Monday this week, the right hon. Member for Norwich, South (Mr. Clarke), the former Home Secretary, was asked:

“What has been Gordon Brown’s biggest mistake since taking over as Prime Minister?”

The right hon. Gentleman’s answer was:

“Allowing a sense of indecision to develop”.

For understatement, that almost matches the first line of the recent annual report from our most high-profile financial institution:

“2007 was a difficult and challenging year for Northern Rock”.

Members who are in government at the moment are equally critical. The Under-Secretary of State for Health, the hon. Member for Bury, South (Mr. Lewis), quoted in Progress, described the attitude of the British public. He said:

“at a time of growing insecurity their anger”—

that is, the British public’s anger—

“is ignited when they feel the government is losing touch with what fairness means to the mainstream majority who work hard, play by the rules and are feeling squeezed by rising utility bills, the cost of petrol and rising council tax.”

According to The Mail on Sunday, the solution to that problem has been identified at No. 10: the Prime Minister is to try a new speechwriter. The newspaper ran an article in which an insider at No. 10 is quoted at length, saying that the Prime Minister’s

“ ‘cluttered’ way of delivering the Government's messages, the lack of ‘personality’ in his speeches and the ‘stilted language that he tends to use’ ”

were among the problems stopping the Government getting over their apparently entirely positive record. The helpful, loyal source went on to say that what was needed were a “few good jokes”. We have been listening to Labour Members this afternoon and when it comes to a few good jokes, they were pretty good—although not in the way they meant to be.

Indeed, the Financial Secretary came up with this solution to the current problems in the housing market: better primary school education so that people can do their sums. As the average first-time buyer buys a house in their mid-30s, that sounds an excellent way of starting to address housing problems 30 years from now. However, it may not be an immediate solution.

The hon. Member for Newcastle upon Tyne, Central (Jim Cousins) appeared to blame all the country’s economic woes on the speeches of my hon. Friend the Member for Twickenham. If it is that simple to stop the Government’s economic problems, I am sure that, as an act of charity, my hon. Friend will make fewer speeches.

He did mention it. Although I can imagine the Secretary of State for Children, Schools and Families in his school playground aged seven discussing the rise and fall of the value of his trust fund, does my hon. Friend agree that the funds are not likely to have such an effect on the vast majority of primary school children?

I agree with that excellent intervention. I regret that Members of the Labour and Conservative parties do not recognise its importance. The salient point is surely this: it is woeful for a Minister to say that the Government are putting in place measures to deal with today’s housing problem and, when asked what they are, to reply, “We have a programme for better education in primary schools so that the children can add up better when they take out a mortgage in future.” Can the Government do no better than that? It is no wonder the Blairite spin doctor Phil Collins, whom No. 10 begged to rescue its drifting ship of state, is reported to have said:

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

The Prime Minister certainly needs the hard-headed, practical policies that address the current malaise and were outlined and proposed by my hon. Friend the Member for Twickenham at the start of this debate. I will dwell on three key points that he made.

First, we must stop mass repossessions and fire sales of property. Before repossessions, banks must have offered free financial advice and explored all other alternatives, such as renegotiating the terms of the loan and offering shared-equity schemes. Secondly, we must change the Monetary Policy Committee’s mandate so that house prices are taken into account when setting interest rates, which would be more flexible and responsive and enable the Bank to damp down housing booms. Thirdly, we must have better regulation. We need to come to terms with the fact that the Financial Services Authority has been found wanting and that banking regulation should include active, counter-cyclical management of bank reserves to prevent future cycles of excessive lending and contraction. Those are positive and responsible suggestions.

Instead, we have a Government with their head in the sand. The disaster at Heathrow airport provides a perfect metaphor for this Administration—huge budgets, inflated expectations, management incompetence, communications ineptitude, public anger and a state of total denial. This is a terminal 5 Government who are in terminal decline.

The Liberal Democrat motion has been much commented on, possibly because it reads like the storyboard for “Apocalypse Now”, or perhaps even “Bleak House”. According to the motion, we are facing an

“extreme bubble in the housing market”

and the “risk of recession”, and we must

“act to prevent mass home repossessions”.

Presumably that is why the hon. Member for Taunton (Mr. Browne) got through his entire speech without mentioning any of those things until the last minute—they obviously keep him up late at night.

Fortunately for all of us, however, that colourful and lurid fiction has no real bearing on the macro-economic reality. In difficult economic times—here I find myself in agreement with the hon. Member for Fareham (Mr. Hoban)—[Interruption.]at least in part; I do not want to get him into trouble. In difficult economic times, it generally pays to remain calm and to apply a cool, analytical mind to the situation. Hysterical over-reaction, as this motion demonstrates, might attract a few cheap headlines and some doom-laden Lib Dem press releases, and it might even frighten a few voters ahead of local elections, but it is not mature or responsible, as my hon. Friend the Member for Leeds, East (Mr. Mudie) took some time to point out.

Now that we have had “Apocalypse Now” and “Bleak House”, I am going to talk about “An Inconvenient Truth”, which is that the economy is strong and stable. That underpins our whole response to the Liberal Democrat motion.

If the Minister is telling us that the economy is in good shape, what message does she have for the people of Powys and Monmouthshire, whose average income fell by 4 per cent. in absolute terms between 2006 and 2007? Is that not a clear indication that the concerns raised by my hon. Friend the Member for Twickenham (Dr. Cable), myself and others are not theoretical but practical, as they are affecting my constituents now?

We are not complacent about the situation that we face, but we do nobody any good by being hysterical about it and talking down the prospects. When there are difficult times, economic or otherwise, it pays to remain calm, cool and analytical; it does not pay to scaremonger and run around talking about housing bubbles and, in the hon. Gentleman’s phrase, repossession catastrophes. I would caution him on his use of language.

Lib Dem Members tried to suggest that Britain’s economy is in a similar position to the early 1990s, but that simply is not the case. The truth is that the macro-economic position is much healthier than it was in the early 1990s. Britain’s economy is strong and stable. We have had over 15 years of growth, according to Treasury and independent forecasts and, as my right hon. Friend the Financial Secretary pointed out, Britain is forecast to be the joint fastest growing economy in the G7 this year having achieved the fastest growth in the G7 economies last year. We have seen the highest rise in income per head of any G7 economy since 1997. That does not mean that we are complacent about the issues that face us, or about the financial turbulence happening around us at the moment. We are, however, in a better position to get through the turbulence that we see ahead than many other economies.

Inflation in the UK is lower than it is in the euro area or in the United States, interest rates remain relatively low, and there are more people in work than ever before. That is an important aspect of our resilience; we have to ensure that we do our best to keep the economy growing, albeit at a slower rate, during the current situation, so that we can bounce back to better levels of growth faster. Instead of being the first in and last out of any recession, which always used to be the UK’s fate, the changes that we have made to the way in which the economy is run have demonstrated that we can be more resilient and recover quickly.

In the early 1990s, unemployment topped 10 per cent. Liberal Democrat Members are attempting to persuade us in their motion, and in some of their contributions, that we have somehow returned to that period. In fact, the hon. Member for Twickenham (Dr. Cable) said that we are in a worse position now than we were in the 1990s. Potentially, we are always in a worse position, just as, potentially, we are always in a better position. Tomorrow may come, and it probably will. We can forecast that that might happen. In the early 1990s, unemployment topped 10 per cent., inflation hit nearly 11 per cent. and interest rates rose to nearly 15 per cent. In comparison, unemployment is now at 5.2 per cent., inflation is at 2.5 per cent. and interest rates are at 5.2 per cent.

For the benefit of those of us who struggle with sums and things, I wonder whether the Exchequer Secretary would be kind enough to couch what she is saying in the language of the motion that we have been subjected to by the hyperbolic Liberals—perhaps she could do so in terms of bubble size. It is alarming me to discover that people as esteemed as the Liberals think that we are in the grip of an “extreme bubble”. If we are in an “extreme bubble” now, could she tell us what sort of bubble we were in during the early 1990s when people’s homes really were being repossessed by the hundreds of thousands?

With respect to bubbles, I am not sure whether size matters or not. How large is the bubble? How long is a piece of string? It is difficult to know. The important part of coming out of a housing bubble, or the unwinding of any economic situation, is whether it is done chaotically or with stability. Because our economic fundamentals are right, we can look forward with reasonable expectation to getting out of this situation. The housing situation will be unwound in a relatively calm and orderly way, which is what people need to know.

If chaotic unwinding happens, we will be in a 1990s-style situation. If we had mass unemployment, the situation would be a lot more fragile than it is now. It does not do the Liberal Democrats any good to hope that tabling a hysterical motion, upsetting people and scaremongering will help them in the local elections. That is not mature or responsible, as my hon. Friend the Member for Leeds, East pointed out. Britain is in a far better position today than it was in the 1990s.

I am happy to give way to the hon. Gentleman. I would have been even happier to do so if he had had the courtesy to stay for the whole debate.

Given that circumstance, I am especially delighted that the Exchequer Secretary is giving way. Can she name previous occasions on which the house price to earnings ratio has been as high as it is today—there have been four in the past 30 years—when the position has unwound in a stable and orderly manner?

The answer is to ensure that supply matches demand more carefully. There have been increases in house formation and a need, as the Government announced and for which they provided finance, to build more houses. That will assist the ratio.

I do not accept the Liberal Democrats’ comparison of today’s economy with the 1990s. They can talk our economy down as much as they like—they have been at it today—but it is forecast to grow this year, next year and in future. That is an inconvenient truth, but we should put it on the record.

The second main charge is that personal debt is too high. It is true that it has risen, but so have total household assets, against which the debt is secured. They stand at £7.5 trillion. Household balances remain strong and net household wealth has increased by 72 per cent. in real terms since 1997.

Of course, consumers need to be able to make the right financial decisions when they take out debt, be it in mortgages or in other forms. The Government are helping with that through our work on financial capability. With the Financial Services Authority, we have agreed to provide £12 million to run a pathfinder project in the next two years, following Otto Thoresen’s recommendations on financial capability. That will test the best ways in which to ensure that everyone in the country can get free, impartial and high-quality advice on their money when they need it. Advice is also available for people who get into difficulty, and our financial inclusion fund is helping to ensure that that is available to those who need it.

Let me deal with the Liberal Democrats’ third point on the housing market and repossessions. It is hard to take Liberal Democrat forecasts on the housing market seriously since they have been predicting a crash for most of the past 10 years. Regardless of the objective conditions in the economy, they trade on gloom and fear and predict a collapse. They were at it again today. I suppose they think that, if they keep saying it for long enough, one of these days it might turn out to be true, a little like the stopped clock, which tends to be right twice a day.

What do the facts tell us? The Liberal Democrats drew comparisons with the 1990s, but they are easily dismissed. House price inflation is declining relatively gradually and house prices are still higher than they were a year ago. Our expectation, as set out in the Budget, is for sluggish or flat house price growth this year. The Liberal Democrats do no one favours by scaremongering about 25 per cent. falls.

There were high numbers of repossessions in the early 1990s, but the picture is different today. Last year, despite 2 million extra mortgages and 1.8 million more home owners, there were less than half as many repossessions as in 1991 or 1992. The Liberal Democrats were at it again on the Treasury Committee, when they questioned Bank of England chief economist, Charlie Bean, about the so-called housing crash. He told the Committee last Wednesday that repossessions are still at low levels and that special measures were simply not called for at this juncture. The Government would be ready to consider special measures if, objectively, they were required. Currently, they are not.

The hon. Member for Taunton said that the Conservative party did not have any policies. He was being a bit cruel; they have a couple of policies and I want to spend a little time on mortgage regulation. The Conservatives issued a document not long ago called, “Freeing Britain to Compete: Equipping the UK for Globalisation”. The right hon. Member for Wokingham (Mr. Redwood) was in charge of the document, which I shall quote. He said:

“We see no need to continue to regulate the provision of mortgage finance, as it is the lending institutions rather than the client taking the risk.”

Tory party policy only a couple of months ago was to deregulate mortgage finance provision to prepare us for globalisation. I cannot think of a more ridiculous, pathetic and dangerous policy than the one that the Conservatives developed and were trumpeting, until the beginning of the credit crunch taught them that perhaps regulation of mortgages is a good thing.

Britain’s economy is in a far stronger position than it was. Personal debt is far lower than the amount of household assets and support is in place for those who get into difficulty. The signs are that house price inflation is declining relatively gradually and the number of repossessions is small. That does not mean that we are complacent. We will be keeping a close eye on how things go and will stand ready to act if the situation should deteriorate.

Question put, That the original words stand part of the Question:—

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments):—

Mr Speaker forthwith declared the main Question, as amended, to be agreed to.


That this House 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.