For months, the stockbroker Gordon Pepper had been saying so. The new ministers set great store by Pepper and copied his speeches to each other. Peer into the cabinet papers of the day, now they are publicly available, and you find Pepper’s speeches everywhere.
The pressure was also on from the Labour opposition. Denis Healey rose in the House of Commons, only three weeks since exchange controls were lifted, taunting Howe about giving people the ‘unhappiest Christmas ever’.16
‘How long will he and his colleagues allow the nation’s eco-nomic prospects to be ruined by a bunch of bumbling doctrinaires?’ Healey went on. The Labour benches roared their approval behind him. Then the killer blow.
‘Why on earth has he kept the Corset still in place when it is well known throughout the banking community its worth is useless now that he has abolished exchange control?’
Even the Wilson Committee, Harold Wilson’s final act in frontline politics, and packed with trade unionists, recommended that it should go. So did Lord Young of Dartington, the author of the 1945 Labour manifesto, who urged its abolition in a letter to The Times.
But there was another consideration. The new cabinet was determined to expand the homeowning classes by selling council houses to their tenants. It was a bold and populist move, designed also to tackle the patronizing record of the big cities in designing and managing council housing – but implemented disastrously (the money earned from the sale just sat there, and wasn’t used to build new low-cost housing). For tenants to buy their own homes, even at discount rates, the means to borrow the money had to be available to them.
There was really no contest, and Howe gave the Corset six months and confirmed the deadline in his budget speech in March 1980, an event that was threatened by the loss of the famous battered red budget box at the Treasury. The box turned up at the last minute and Howe rose to deliver what the Labour leader Michael Foot called a ‘no hope budget’.
‘The Governor and I have agreed …’ he said. The Labour MPs opposite roared with laughter. For a moment, it sounded as if this was a peculiar and deferential way of referring to Margaret Thatcher.
Howe kept his cool. ‘I am referring not to any foreign or outlandish figure but to the Governor of the Bank of England. We have agreed that the supplementary special deposit scheme – generally known as the Corset – should not be extended beyond mid-June, when the present guideline ends. One of the effects of the Corset has been to encourage the development of credit channels just outside the banking system …’
This is certainly true. Once exchange controls had gone, there really was no way under the system as it was then to prevent money from abroad flooding into the UK property market. It certainly did, which is some explanation why 900,000 more households are renting in the UK than they were in 2005.17 It also explains why Britain now lies behind Romania and Bulgaria for its percentage of homeowners, and why only half of London’s homes are now owner-occupied.18 It explains a little why London is rapidly shifting from property-owning democracy to a city of supplicants to the whims of landlords and rental agents.
There are many people who might welcome that kind of shift, towards a society less obsessed with owning our own homes. But renting is really no escape from high house prices, because they feed straight into high rents, and a third of all mortgages in 2006 were for buy-to-let homes. The cost of servicing a mortgage provides a kind of basic floor for rents too, which is why so many people in successful jobs remain trapped in flatshares, sharing the bathroom, well into their thirties and probably beyond. The newspaper columnist Owen Jones complained on Twitter about London rents (£1,000 a month for a two-bedroom house in inner London). Hundreds of people responded with their own horror stories – a 35 per cent rent hike imposed after Christmas, a couple who had to abandon their ‘tiny flat’ in Zone 3 after their monthly rent went up from £720 to £950.
A recent report by the National Housing Federation predicts that average London rents will rise by 50 per cent, to over £2,000 a month, within ten years, that the average London home will rise to £688,000 by then too.19 Nobody believes that average wages will match that rate.
It is easy to blame the landlords for this, and there is certainly greed and opportunism involved, but the real difficulty is that the level of rents depends on the level of mortgage repayments. That is what landlords need to charge to pay the mortgage. It isn’t enough to condemn our ‘addiction’ to property ownership (actually, I don’t have a problem with people owning the place where they live), but the costs of private renting are actually driven by high house prices in just the same way that mortgages are.
So when it comes to imagining how our children will house themselves, it isn’t enough just to abandon home ownership. Private renting will make them just as dependent on high house prices, without the independence that ownership brings – miserably dependent on the whims of landlords, forced to move constantly, without the local roots that their own children – anyone’s children – need. If independence is the new hallmark ideal of the middle classes, it is hard to see how it can continue except for the few – the only children who inherit, the children of those in financial services, the heirs and successors of the One Per Cent.
Were we dreaming when we allowed our hearts to leap at the signs in the estate agent’s window? When we cashed in the rise in house values with loans to fuel the consumer boom? When we got so into the habit of using loans to fund holidays and buy cars that outstanding household loans have tripled in the last decade (or worse, when we used the extra money as collateral to become Lloyd’s Names)? How did we get sucked into the phenomenon of the Emperor’s New House Prices, when we dared not criticize their inexorable rise for fear they might fall again?
Certainly the whole phenomenon took the Treasury by surprise. None of their econometric models showed how rising housing wealth fed into consumer loans and debt. Nor did house prices behave in the same way uniformly across Europe (in Germany, they have barely moved for a generation). We knew all that, but we still cheered. It took an intelligent commentator like Martin Wolf of the Financial Times to break the log-jam. ‘It is mad to applaud ever rising prices,’ he wrote in 2008.20 And so it is.
It is also easy to blame the revolutionaries in the Thatcher government in 1979 and 1980. The decision to end exchange controls made the demise of the Corset and Cartel inevitable too, and you might argue that the cosy world of the building societies in those days – refusing to lend in some neighbourhoods or to single women – sealed their fate. But the real blame has to go to the middle-class cheerleaders of rising house prices. It was their nest egg, their early retirement guarantee, as unprecedented wealth flowed from their parents through to them. They did not stop to wonder – and I was the same – whether it might stop flowing, and what it would do to their children’s lives if it did.
The debate was complicated right from the start by a rapid rewriting of history. Some months after these fateful decisions, Lawson was boasting to Swiss bankers about the huge success of the end of exchange controls (‘highly successful in every material respect’) and getting rid of the Corset too:
With the wisdom of hindsight a strong case can be made for the proposition that we should have followed our original instinct and announced its abolition immediately on taking office, a year previously: a thermometer which gives a false reading, however flattering, is no use to anyone.21
History was already being rewritten to make the decision an obvious one, whereas it had actually been far more difficult than that. As we have seen, once the Corset had gone, there was nothing to prevent the banks dashing into the mortgage market and pushing up house prices as a result. Horribly burned by the Latin America debt crisis, they were desperate to lend money somewhere. The UK housing market looked like a good bet, especially for American lenders
