In today's climate of recession meltdown it is difficult not to scaremonger or upset anyone when analysing the world around us, the consequences to each of us and the impact of the debt our children might one day inherit. Are the changes that have been implemented by the government and the Bank of England really working?
The government's optimism
The government's optimism of being able to kick-start mortgage lending and the money markets by reducing the Bank of England's base rate and the assortment of other funding schemes does not seemed to have worked. Evidence suggests that existing mortgage borrowers are benefiting from the falling interest rates. Borrowers with tracker rate mortgages and those who have moved onto the standard variable interest rate are currently doing well as they have seen the biggest drop in their monthly mortgage payments.
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More First-time buyers needed
First-time buyers on whom our housing market relies upon have found it progressively harder to find a mortgage; this is mainly due to the sizeable deposit they now require in order to purchase a first home. This seems absurd as house prices have dropped on average £30,000 from there high in February 2007 and interest rates have fallen to their lowest level ever. The average house in early 2007 was £180,000 and today it is around the £150,000 mark and shows little sign of bottoming out.
The Savings Issue
It is perverse that British savers, who are and have always been the foundation and the bedrock for the funding of mortgages and lending through the finance institutes. Savers are now being punished in order to help correct the fundamental imbalances in our economy. Savers now find the interest rate they receive from the banks and Building Societies is less than one percent. Pensioners have lost their incomes, pension funds have lost their growth and we are all told by the Prime Minister Gordon Brown to keep spending.
Support for small business urgently required
Today small business are going to the wall at around one hundred and twenty per day, the federation of small businesses believe that small business failures could peak at 32,400 this year and this would leave a further 150,000 people claiming unemployed. It is little wonder that these businesses are failing when the banks are trying to manage their risks by increasing their interest rates on loans and overdrafts and withdrawing and reducing overdraft. In some cases small businesses have seen their interest rates on loans rise from around 5% to 12%, whilst other sound businesses have been refused funding for running their businesses.
As Minister for Britain's revival I would recommend the following:
The Governments Bank bailout has not worked yet. We need the bank of England to increase the interest rates to around the 4% level and for the savers to receive around 3% on money saved. The banks can then start lending money to businesses at about 3% above the base rate set by the Bank of England. At these kinds of levels it gives everybody a reason to live and prosper. The government should continue to support the banking institutes through their share acquisition as the money invested in the banks can be recouped when the share value rises at some time in the future. This continued support by the government will continue to provide the confidence in our banking system; although stricter banking regulations will need to be instigated in the future.
The more the Government spends the shorter the recession!
We need our government to start spending large sums of money on the infrastructure projects like repairing the roads, improving the railways, hospital, schools and assistance for car manufacturing and our manufacturing and service industry in order to keep our workforce employed. It was reported this week that income tax receipts received by the government were down by over £4 billion, this has the potential to damage our economy and also increase how long this recession will last. We need to keep the UK working we cannot allow unemployment to climb. Quantitative easing is a last resort but if this government are serious about helping our economy then they should start today. This will need to be managed properly to prevent inflation running away.
Let's have clarity of purpose and vision!
Finally all the governments' new initiatives that were hastily released should now be properly implement like the funding offered to small businesses looking for assistance with borrowing up to £1 million and the Homeowner mortgage Support Scheme. People need to know where to go for this help and assistance and the banks need to know what's happening and they need to be100% behind this initiative. It is also time to reverse the temporary 2½% Vat reduction announced late last year as this could save us £10billion which would not increase further our national debt. If we all get behind these initiatives and play our part then collectively we can all prosper. After all one man pushing a hundred ton boulder up a hill is impossible, but everybody pushing the boulder up the hill is easy.
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