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Institute of Fiscal Studies Annual Lecture 2008

Institute of Fiscal Studies Annual Lecture 2008

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Institute of Fiscal Studies Annual Lecture 2008

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  1. Institute of Fiscal StudiesAnnual Lecture 2008 Vincent Cable MP

  2. 31st May 2007

  3. “Britain is today experiencing the longest period of sustained economic growth since records began in the year 1701” Gordon Brown – Budget 2005 ‘No more boom and bust’ Gordon Brown – Election 1997

  4. Savings and Debt Source: ONS Source: Bank of England

  5. Debt service costs as a % of household income Source: Bank of England and PWC

  6. Real House Prices Source: FT

  7. House Prices: Average Disposable Income ratio 2008 Q1 Source: DCLG and ONS

  8. House Prices: Average Earnings Source: DCLG and ONS

  9. Fallout from the housing crash Necessary to restore affordability: BUT • no state safety net for arrears (post-Lilley) • very poor payments protection • scams (leaseback) • distress selling exaggerates crash • dearth of social housing for homeless • collapse of residential house building industry: loss of capacity • impact on bank balance sheets

  10. Two theories about the housing market Gordon Brown/Barker Demand exceeds supply; shortage of homes; demographics; build lots more; planning problems; UK special. Alternative view Easy credit; financial ‘bubble’; buy to let; speculation (investment clubs); second homes; panic buying/selling; global issue Hence forecasts, Northern Rock, current crash/correction seen in a different way.

  11. The housing crash: where are we? • 8 months of continuous falls in house prices (Nationwide) • 50% fall in house sales (Land Registry) • City forecasts (15-35% house price fall) • ‘Credit Crunch’: mortgage interest up 0.5% in 1 year (BoE) • Mortgage approvals at 15 year low (BoE) • Payment problems (growing – end of low fixed rates on loans) • Repossession orders – 96,000 in 2007 (a 15 year high), 40,000 mortgage claims issued Q1 2008 (DCLG) • 1 in 8 new homeowners (since Jan 07) in negative equity (CACI) • Look at the USA

  12. Inflation measurements Source: ONS

  13. Repossessions Source: DCLG

  14. Policy after the housing crash • Bank of England to focus on house price inflation/deflation when aiming for inflation target • Curb boom/bust cycles – capital adequacy to reflect cycle • Stem repossessions – rescue plan to keep families in homes (part rent, part buy? Regulated leaseback?) • Large scale acquisitions of unsold property for social housing

  15. Oil Prices Per Barrel Source: BP (2006 prices)

  16. Oil Prices 1861 - 2006 Source: BP

  17. Crude Oil Price Polls

  18. Oil Prices per barrel projections

  19. Sterling effective exchange rate Source: Bank of England

  20. Tax Revenues

  21. Meet the investment rule (not including Northern Rock) Source: HM Treasury; IFS

  22. Institute of Fiscal StudiesAnnual General Meeting Vincent Cable