The Bank of England will increase interest rates tomorrow. The only question is by how much. Their relentless plan to raise rates will continue. The markets still seem to think a 4% base rate is possible and we are a long way from there as yet.
As I have long warned, the result will be massive numbers of personal insolvencies. The impact of this increase on mortgage payments - increasing many by maybe £600 a month in a little over a year by the time this process is compere - will be massive, and will dwarf the impact of the energy crisis for many hiusehodls, as journalists are now beginning to realise based on the number of calls I am getting.
So what has Truss decided to do? She's going to have a stamp duty cut, leaked by The Times this morning:
Note my comments. There is not a lot more to add. Except to note that this is another tax giveaway to those already rich at cost to those who are not. How very Liz Truss.
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Stamp Duty is a transaction tax.
Given what we know about optimal tax theory it’s one of the worst taxes the UK has. There are just so many bad angles to it, and the occasional good angles have been rebutted comprehensively in the literature.
It’s a tax on migration, on mobility, on downsizing, on moving to be closer to your relatives, it’s just an awful tax.
I would normally add ‘in my view’ of course, but there is about as much consensus among economists for not having it as rent controls.
Do you want to keep inflating the housing market by unabated growth in the money supply through cheap credit?…by doing so you will be making the property bubble bigger and virtually cementing a bigger crash/ fall in prices further down the line.
You well know that there are better ways to regulate that market
And to make housing more affordable
So your comment makes no sense
It’s really like the Tories know they will lose the next election so they are now at the stage where they are going to have Truss ram through every awful, unpopular policy that will serve the wealthy and impoverish the rest of us while they still can.
I suspect we’re going to see a lot less u-turns and policies driven by pubic campaigns in the next 18 months. The sort of thing we saw a lot in the May and Johnson years. Truss is repeating the mantra that she’s going to take unpopular decisions so I suspect the political calculation will be they’ll lose (but the electoral maths means that even if they lose by 11 or 12 points Labour will only have a slim majority) and hand over a disaster of an economy that Labour won’t be able to solve. (More neoliberalism wont get us out of this mess)
The Tories will do whatever it takes to keep the housing bubble going. Unfortunately, Labour are not much better.
Boris Johnson’s final gift to Tory Britain seems to be 50 year mortgages. Buyers could be offered mortgages for 50 years or more, with the outstanding debt when they die passed to their children. How very Tory. Future children born with a debt around their neck. I think Japan set the stage with 100 year mortgages.
The problem with UK housing is simple. It’s been in a forty year bubble and every action by the Government to “help” people get on the ladder has simply put up prices further. None of those actions have created and addressed the real issue of affordability. I suspect in part because your average Tory voter is a middle England home owner, basking in the glory of 10-15% annual house price inflation in what was a supposedly low inflation economy. In part low because that house price inflation was never part of the inflation index. This house price inflation gives the average Tory voter a feeling that they are rich and have wealth. Instead, the nation is actually a lot poorer because of it.
See this chart by Bloomberg, nicely called “help to boom”.
https://www.bloomberg.com/news/articles/2022-07-01/johnson-weighs-50-year-mortgages-that-children-can-inherit
Forty years of Tory Govt, including Blair and Brown’s Tory lite. Does anyone remember Prescott’s plans? I know a crash will not be allowed to happen. Hell will freeze over first before the Tories allow that! It’s sad that the Tories have used property as a financial weapon of mass destruction. Even worse that the opposition offer no real alternative as usual.
The irony of all of this is that the BoE are now using the traditional approach of raising IR’s to fight inflation when it may well do more harm than good. I honestly believe that one way of controlling house price inflation would be for it to be treated in isolation with it’s own IR set by the BoE. Something like 2 points below house price inflation, if house price inflation was running at 10%, the lowest mortgage offered by banks would be 8%. 15% it would be 13%.
The real problem is simple. A lack of affordable, state housing, made worse by Thatcher’s Tory sell off. Good old council housing is what’s needed – to rent, not buy – and lots of it. Wake up and smell the coffee Labour.
We are were we are I’m afraid. Up the proverbial creek without a paddle. Well done Tories!
The landlords are not reaping it in like everyone thinks the tax increases now are forcing rents up to cover deficits in profits. If we allow the council rents back who will pay for all of that? We of course in other taxes. There is council house 3 bed in our street been left empty for two periods of 2 years now. If we are short of housing where are the tenants? What we should be doing is taxing all overseas investors for all the thousands of empty properties including council taxes then we will have properties for everyone.
I am not sure I follow much of that
I have to say that I don’t think the Truss policies announced so far are about governing or particularly about giving their backers yet more money. I could of course be very wrong.
However I think these policies are to do with campaigning. I think she and her team are trying to create space between themselves and Labour in order to have an election before there needs to be one.