Ticked boxes and triangulation that will take Ed to Number 10

29 09 2013

Party membership these days is a judgement by the heart, not the head. Like an unrequited love, the belief is a drug on which the believer becomes hooked.

We saw this again during the Labour conference last week. Ed Miliband’s list of policy announcements have been hailed as everything from a return to social democracy, to a return to socialism. And whilst there is more substance to chew on than his One Nation guff a year ago, the substance merely confirms that what he is offering will not solve the myriad problems Britain faces.

Labour Party members have this desperate desire to believe. But what Miliband really gave us was the product of advisers and pollsters suggesting which boxes to tick as a means of hiding the triangulation that Labour is engaged in on austerity and welfare. It’s the oldest trick in the Labour book and the suckers are sucking it up.

But whilst it won’t cure Britain’s economic ills, it did just seal a Labour victory in 2015.

How to put lipstick on a pig

Energy price freeze

The big one, not because of its actual ambition or impact – both of which are extremely limited – but simply because it was unexpected. Fleet Street was caught on the hop, the Tories overreacted, and that’s about all you need for a five-day media frenzy.

Labour's policy review (credit - Mick Coulas)

Labour’s policy review (credit – Mick Coulas)

Labour has correctly identified energy prices as a major political issue, and the energy firms as an easy (and deserving) target. Expect the Tories to find a way to keep prices down pre-election, or even cut them – it is, after all, in both the Conservatives’ and the energy firms’ interest to avoid energy bills becoming an election issue that hands victory to Labour. The Tories may ditch their carbon commitments to promise cheaper energy in 2015.

But away from the hyperbole, energy prices are already too high – a freeze self-evidently does not lower them. That such a limited policy can set off pandemonium at Westminster merely reflects the introspection of the political class. That such a policy will likely discourage investment in Britain’s creaking electricity generation, at a time when it is desperately needed, will eventually raise questions about ownership that no party wants to go near.

Housing

There’s plenty of speculation over whether a Labour government could actually deliver 200,000 new homes a year, but the bigger question is how many of these would be low-cost social housing, where the need is most acute. On that, there has been little detail. ‘Affordable’ housing priced at near-market rates won’t cut it. If Labour has reversed 20 years of antipathy towards council housing, you’d have thought they’d have said so by now.

But even a million market-priced homes would raise some interesting questions. Will Labour keep the government’s Help-to-Buy scheme, which might keep house prices up while leaving the Treasury on the hook? And if the increased supply of homes does lead to a fall in house prices, where would this leave bank solvency, which is dependent on maintaining inflated house prices? Where would it leave the Treasury’s exposure on existing Help-to-Buy purchases?

It’s possible that Labour hasn’t thought this one through to its logical conclusions.

Bedroom tax

Labour was always going to commit at some point to scrapping the bedroom tax – it’s the highest profile and least popular of the government’s various benefit cuts. With any luck, Miliband’s pledge will encourage social housing landlords to pass no-eviction policies, reassured that arrears might stop accumulating in 2015.

But from Labour’s perspective, the bedroom tax pledge is pure triangulation. It allows Labour to keep all the other government cuts to the welfare system as part of its commitment to austerity, while the party’s left wing begs us to look the other way. The bedroom tax pledge is the golden chalice that lets Labour serve its poison.

Atos

Sack Atos but don’t scrap the disability benefits assessment system – it’s like changing the driver of a train that’s off the rails. This classic bit of spin was probably designed to keep Liam Byrne in a job – Labour supporters rather conveniently turned him into a bogeyman for all the party’s woes, but this one insubstantial announcement was enough to win them over.

Health and social care

Andy Burnham’s oft-repeated pledge to repeal the sections of the Health and Social Care Act that enforce NHS privatisation was, until last week, about the only thing Labour had given its supporters to cling to. In reality it’s just one element of some off-the-scale triangulation – but Labour’s health and care policies need, and will get, a post all of their own.

Zero hours

Labour’s friendship bracelet for the trade unions to salve the Falkirk splits. Legislating on zero hours contracts will do precious little to rebalance the worker-management relationship that enables such exploitation – and that’s before you even broach the crisis of work. Zero hours contracts could easily be transformed into ‘casual’ contracts that allow workers to opt out, but carry the implied threat that if they do so, they will not be offered work again.

No doubt this one Warwick-lite bone tossed from the table will sate Labour’s union lapdogs – allowing them to collectively ignore the public sector pay freeze, insecure working arrangements, continued local government austerity, the anti-union laws…

Business rates

Labour’s pledge to forego a proposed increase in business rates due in April 2015 and freeze them the following year will have minimal real impact – an average £450 saving for small businesses over the course of two years. These businesses are already being badly squeezed by rising rates, and £225 a year is unlikely to make the difference between… well, anything.

But again, this is about minimising action and maximising message. Even assuming the Tories don’t delay the rates rise themselves, most small business owners will do the maths and draw their own underwhelmed conclusions. But Labour isn’t trying to help small businesses here – it’s looking to tell the public at large that it is interested in small businesses, understands their needs, and will put them at the heart of economic growth. Like the Tories’ ‘jobs tax’ twaddle in 2010, Labour is trying to build a mountain out of a molehill.

What to expect when you’re electing

We have already seen what we will see right through to the election. The same Labourites who cheered Ed Miliband’s ‘One Nation’ speech a year ago, just hours after Liam Byrne had promised more welfare cuts, are now hailing the arrival of the New Jerusalem.

“The gap between the parties is far too narrow – but a lot of people live in that gap. It’s the people I grew up with who will pay the price if you pretend there is no difference at all.”

That John Lennon quote will be the gaslight anthem for Labour tribalists in 2015. That Labour’s promises will be delivered is to be accepted without question. To demand, expect or require more, is to indulge in a Commie wonderland that will Let The Tories In.

Labour's chief spin doctor for 2015

Labour’s chief spin doctor for 2015

If you let slip that a loved one relies on care services that will be hit by continued austerity, you will be sidelined. If you explain that welfare cuts have hit you even though you aren’t under-occupying your house, you will be silenced. If you point out that you can’t cope with energy bills as it is, you will be savaged for being unrealistic, inflexible, and everything up to Helping the Hun.

The party that still claims to represent the working classes will have a message for those working classes – eat what you’re given and get the fuck in line.

Swings and roundabouts

All of this will work, of course. When it comes to British politics, the binary rules all, the binary is king. The 2015 election will once again present voters with a choice between a Tory government and a Labour one, with the Lib Dems reduced to the role of mercenaries to get either party over the line. And it will not be pretty.

Voters are not idiots, but Britain’s political system (and I don’t just mean the voting system) forces voters to act idiotically, knowingly voting against their interests because there is no other offer on the table. Nobody votes with hope or enthusiasm, fewer still with trust.

Labour’s message will be simple – and it will not be the branded ‘socialism’ used to whip up their activists last week. Instead it will be to go through a list of issues – energy, housing, welfare, pay, growth – and tell voters that they’ll be better off with Labour on each one.

Which they might be. Marginally. If that.

But that’s all it takes. The binary rules all, the binary is king. Faced with a choice between a Conservative government and a Labour one, Labour’s natural supporters in the swing seats across the Midlands and the North will put a cross by the red rosette, without hope, enthusiasm or trust. At an election where the Tories will struggle to get their vote out, Ed Miliband’s ticked boxes and triangulations – together with stagnating incomes – will be enough to secure him a small overall majority.

Of course, that’s where the trouble begins. An unstable Labour government – with suspicious voters, party members duping themselves into thinking socialism is nigh, and trade union members opting out of funding the party – trying to deliver continued austerity and public service fragmentation against the expectations of their support base is doomed to fracture and fail and split apart right down the middle.

The binary will lose the left half of its kingdom.

Vote Pandora

But that’s just party politics. The failure of Labour’s programme to solve the problems it targets will raise far bigger questions that Westminster would like to avoid. How can we build £100bn worth of new power stations whilst relying on private firms to deliver them? How can we make housing affordable if doing so wipes out our banks?

And which way will we jump when we can no longer put off answering them?

Labour to win the 2015 general election with an overall majority of between 4 and 20 seats.

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Squeezing the zombies until the pips squeak?

7 09 2013

Amid all the hype over our new housing bubble, this report in the Telegraph is very interesting:

Banks squeeze interest-only mortgage borrowers

A few choice excerpts:

“Millions of borrowers are being forced to pay more or sell their home by banks’ hardline attitude to interest-only mortgages.

“Half of the property market is buzzing, with cut-price mortgage rates and huge amounts of debt handed to first-time buyers. But the boom has not filtered through to the four million customers with interest-only mortgages, many of whom are over the age of 50.

“Instead, lenders are pushing these borrowers on to higher rates when fixed deals end. For example, one lender charges interest-only customers nearly 5pc, while offering nearer 2pc to others. Many are forced to accept these expensive rates because other banks refuse to take on the loan.

“If interest rates rise, thousands may be forced to sell their home to cover the debt. In other cases, interest-only customers are forced to start repaying the debt immediately – if they move house, for example.”

Interest-only mortgages were a big part of the pre-2008 housing bubble. Borrowers only had to pay interest for many years, with no repayments of the main chunk of the loan – the ‘principal’ – until a big repayment at the end of the term, perhaps after 25 years. What could possibly go wrong?

“In the pre-crash boom, customers were able to borrow on an interest-only basis without showing how the debt would be repaid. Then the credit crunch struck. It quickly emerged that hundreds of thousands of interest-only customers would struggle to service their debts.

“Estimates suggest there are between 2.5 million and four million interest-only mortgages, with around 150,000 maturing annually. Half of these face a shortfall of about £71,000, while one in 10 of all interest-only borrowers had no repayment plan in place.”

Well colour me shocked. So now lenders are jacking up interest rates on existing interest-only mortgages as fast as they can.

“The clampdown has proved disastrous for interest-only customers who reach the end of a fixed-rate period, move home or come to the end of their mortgage term.

“Millions are trapped with their existing lender – and if interest-only is no longer offered, customers must move to a repayment basis. Because those over the age of 60 are unable to extend the term, repayments can increase 10 times over.”

I’m not a banker, but my guess (and it’s only a guess) is that there’s two things going on here.

First, jacking up rates on interest-only mortgages that have long been signed enables banks to replenish a bit of their capital whilst they lend into the mortgage boom at the other end. In other words, they’re squeezing those who can’t get out so they can suck in those who still could.

Second, there’s the small matter of ‘zombie’ loans. These are loans – both to homeowners and businesses – that were unlikely to ever be repaid because of the borrowers’ parlous finances. Whilst zombie borrowers are able to pay the interest on these loans (as long as interest rates stay low), they have little chance of actually repaying the principal. They’re neither alive nor dead, but ‘undead’ – like zombies.

Now, there have been suggestions that banks should cut these zombie loans loose – essentially forcing these borrowers into default so that some of the capital can be recouped and used to underpin fresh loans to supposedly ‘productive’ new sectors of the economy.

The trouble is, banks driving homeowners and small businesses into default en masse does not look good politically.

But if the banks can drive interest-only mortgage holders to sell their homes, they can get these riskier loans – many of which will be in ‘zombie’ territory – off their books on the quiet, drowning it out beneath the noise of the new Help to Buy property bubble (which is apparently what passes for a ‘productive new sector of the economy’ these days), thus minimising the political blowback (NB – see Update below). And because house prices are rising, they can get back all the money they lent under the mortgages before negative equity hits.

As I say, I’m not a banking expert, so if any of the above is wrong I will stand corrected. But I’m on more solid ground with politics, and politically this is not good news for the government. If a few million interest-only mortgage holders – most of them members of the homeowning middle classes – find themselves hit by rising interest rates, that will ensure their finances remain squeezed until the election. And given that the Tories’ electoral fortunes depend not merely on headline GDP growth but rising real incomes – especially middle incomes – then this is a big problem for them.

Of course, this kind of personal finance story only reaches the Westminster bubble several months (if not years) down the line, so don’t expect them to realise until it’s too late.

Update: Frances Coppola, who knows this stuff better than most, tells me on Twitter that it’s “not on the sly. They are under regulatory pressure to reduce or end interest only mortgages because of their riskiness”. So the bankers aren’t pulling a fast one as I implied, but the effect is still the same – cut loose the zombies, don’t make too much noise. It’s just the regulators calling the shots rather than the lenders.