and radical thinkers was meeting regularly at the home of Sir Geoffrey and Elspeth Howe next to Vauxhall Park, in the elegant Georgian terraces of Fentiman Road. Elspeth was then deputy chair of the Equal Opportunities Commission. Sir Geoffrey was a former Solicitor General and had good reason to believe that he would be appointed as Chancellor of the Exchequer in the new Conservative government, if Mrs Thatcher could lead them to victory.
These were people who had bought into the intellectual argument for free markets, which emerged from divisions inside American liberalism in the 1940s, and was identified with the controversial economist Milton Friedman. In Howe’s sitting room week by week were the economic journalist Nigel Lawson, a future Chancellor himself, and Sir Keith Joseph, the former health minister who had performed a kind of mea culpa for his role in the sins of the last Conservative government under Edward Heath, and was now an agonized intellectual figurehead for the new dispensation. There were also a number of other young advisers and thinkers, prominent among whom was the future banker Adam Ridley.
It was a heady and exciting time as they met, through the events known to modern history as the ‘Winter of Discontent’, when the trade unions rebelled against their government’s incomes policy and rubbish piled up in the streets. Inflation was running at 10 per cent and rising. But Howe’s group were not just fairly certain they would win, they had the confidence of a big idea behind them – that inflation could be squeezed out of the system by reducing the amount of money in the economy.
Their other idea was in some ways the very opposite. It was that ending all the detailed controls on banking – most of all the restrictions on money leaving the country which had begun at the outbreak of war in 1939 – would provide a kind of discipline to Britain’s unruly economy. As many as 750 civil servants policed the exchange control system at the Treasury and Bank of England. Everyone’s passport in those days noted the money they were taking out of the UK on holiday on a page at the back. This radical group believed the whole system must go.
Ridley and the other policymakers were aware that the controls had tightened through the decade, and especially when the government had been forced to borrow money from the IMF in 1976. ‘The essential concern was that a sophisticated financial system finds ways of outflanking most controls within a few years,’ he says now, ‘and from that point on the complications and distortions cause more damage and loss than any of the uncertain benefits which they may have initially brought.’
The problem was that these were highly uncertain times. John Hoskyn, then the head of the Prime Minister’s policy unit, described running the British economy as ‘fighting for the controls of an aeroplane that can no longer fly’.3 The price of oil was soaring and pushing the economy, yet again, into recession. Nobody on the Conservative side wanted to frighten the markets or the electorate by revealing their plans too publicly. It certainly wasn’t in the Conservative manifesto for the election, which had been ready the previous year when they thought the election would take place. Lawson risked using his column in Financial Weekly during the election campaign to talk about relaxing exchange controls. Howe was ‘apprehensive but fundamentally sympathetic’, at least according to Lawson.4
Looking back at the May 1979 election with the benefit of hindsight, it is extraordinary how united the middle classes were – perhaps it was the last election to be fought strictly on class lines. I remember watching the documentary series about the public school Radley College later that year, and seeing their entire staff room gather to watch the results, united in their assumption that they were all cheering the Conservatives on to victory.
They did indeed win – by forty-three seats. Margaret Thatcher quoted St Francis of Assisi on the steps of 10 Downing Street. Howe was duly appointed as Chancellor with Lawson as his deputy (Patrick Hutber had already taken over from him as City Editor of the Sunday Telegraph). Ridley became their special adviser. The revolution had begun.
I bought a house in the early winter at the end of 1986, just over six years after the events I have just described, when interest rates stood at 11 per cent. It was a struggle, even with help from my stepfather, but then I wasn’t earning very much either. I remember the strange, adult excitement of the key going into a front door of my own place, even if was a little damp and dilapidated. I remember the excitement (yes, and the expense) of doing it up myself, and the misery when the flat roof leaked down the staircase and I had no idea how I could afford to mend it.
The following eighteen months were almost the eye of the house-price storm, as money cascaded into the mortgage market and house prices began to rise, slowly at first and then catastrophically. I benefited from that rise, and there certainly was a feeling of delicious self-congratulation by the middle classes, then and later, that our assets – though we may not have owned them outright – had risen so much in value.
Pinpointing the abolition of the Corset is not straightforward, but its demise was a direct result of the revolution wrought by Howe, Lawson and their colleagues. Of course house prices rise for many reasons, and it is hard to believe that the Corset would have prevented the flood of foreign financial institutions, mainly American, that poured their money into the UK housing market. The fact that fewer homes were built in 2009 than in any year since 1924 doesn’t help. Often prices rose because the middle classes compulsively wanted them to do so. They loved it. It made them feel rich, right up to the point where it ruined them. The Corset may have been impossible to sustain, but its demise marked the end of mortgage rationing. Mortgage debt didn’t rise at all in the Corset years of the 1970s. From 1979 to 1987 it grew at 10 per cent a year. The real problem was not so much the demise of the Corset. It was the failure to replace it with any policy that could possibly hold down house prices as the Niagara of mortgage money roared through the national economy.
Howe wrote in his memoirs that he was only ever lobbied once by his government driver, and then it was about house prices – during the cabinet battle over mortgage-interest tax relief (set at £25,000). That amount ‘would have bought me a small country estate when I first joined the car service’, said the driver.5 House prices had begin to thrill, and the decisions to loosen lending after the 1987 Stock Market Crash accelerated the process. So did the housing-boom years under Tony Blair and Gordon Brown.
Now, you need double the average national income to buy a two-bedroom flat in Tower Hamlets in the poverty-stricken East End of London. As I write, average house prices in London are around £408,000, over fifteen times the average income. Anyone buying a house in the capital for the first time will need to cobble together a deposit of £100,000 and still have a salary of over £87,500 to get the mortgage.6 No wonder there are 800,000 people in London waiting for affordable or social housing.
I am acutely aware now that my 1986 purchase (£45,500, which I eventually sold for £225,000 two decades later) was also a kind of lifeline. If I had bought ten years later, certainly twenty years later, I would now be paying ruinous monthly mortgage interest payments which would seriously restrict my choice of what I want to do in my mid-fifties. I would be forced to concentrate on the handful of jobs that would allow me to earn enough to service my mortgage, assuming I could find one.
Of course, there is a range of experimental shared ownership schemes on the market – part rent, part mortgage. These make buying a home just a little easier, though they are few and far between. Ironically, these are very similar to the Homebuy schemes of the early 1970s, which were used as evidence back then that the domestic mortgage market was too restricted. Now it isn’t restricted at all – if you have a deposit – and we are back to square one.
The Conservatives having won the election in 1979, Howe moved into a second-floor office of the Treasury, which was carpeted throughout, under the Treasury’s exemplary and parsimonious regime, in red lino. There was a plaque above his desk explaining that the Air Council had met there throughout the war. There is some irony in knowing that Howe’s decisions were taken in the very room where they had planned the
