British Politics’s Blog

The ravings of an individual, UK voter frustrated with our politicians

Archive for December 2008

UK Economy, can the future be so bright?

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It doesn’t really matter who you listen to, everyone seems to believe that we will come out of the recession leaner and stronger, with most arguments centering on how deep and how long the recession will be. There are also varying estimates as to the level of debt UK Plc will have and also how long it will take to reduce this debt mountain via increased tax revenues. Maybe I am cynical, naive or just plain stupid, but I can’t for the life of me see what we are going to be left with when the recession does actually end.

We know that after the last recession, our manufacturing industry was virtually decimated, not only did many people lose their jobs, but an industry dating back to the Victorian times disappeared virtually over night. Therefore, even if the pound is weak, surely we cannot rely on manufacturing to provide jobs and tax revenues.

So what of the financial services and banking industries? As we all know, this particular recession has been brought about, for the most part, by poor lending decisions of the banks. In addition, much of the profit derived from The City was via ‘manufactured’ trades of bundled mortgages, securities and so on. The financial services and banking sector have now had their fingers burned. In addition, one of the main attractions of the UK was light regulation, and there is every indication that the UK authorities will now start to tighten the rules. Taking all these things together, it is most unlikely that the UK banking and financial services sector will ever look the same again, nor will it offer the same levels of GDP contribution, jobs or tax revenues. Added to which, with many financial institutions and banks harbouring massive losses, it is quite likely that they will not have to pay any corporation tax for a good few years to come.

As our manufacturing base declined, our GDP was propped by the banking and financial services sector, given the above, do we really have any hope of a strong recovery from any of these sectors? I think not. On top of everything else, before the recession, the government were steadily increasing corporation tax as well as red tape. As a direct consequence, the UK was no longer the land of milk and honey from a tax perspective. So in recent years we have seen more and more companies registering their businesses abroad for tax purposes. Southern Ireland is a case in point, where their tax regime is considerable more attractive than our own. This will lead to a further loss of jobs and more importantly in the current debt climate, a loss of tax revenues.

Then their is our carbon emissions targets. Our government has committed to a reduction of 80%, this is not empty rhetoric, they intend to make it legally binding. Similarly, a reduction in carbon emissions is not incentive driven, instead is uses a stick rather than carrot approach, meaning higher ‘green taxes’. These taxes will hit not just business, but individuals as well and of course the price will have to be paid both at the tills and in the way of fewer jobs. What this means is that is that any UK business will be subject to higher direct taxes and higher indirect taxes via ‘green’ initiatives. Now, because the UK is one of the few countries taking carbon reductions seriously, it means that companies operating in the UK will be subjected to a competitive disadvantage when compared to other countries.

Then look at what has been driving sales over the past 10 years, the so called “credit bubble”. The economy has grown as a direct result of easier credit, low interest rates and rising house prices. The latter has made people feel more wealthy, leading to a release of equity through remortgages or secured loans, the ‘easy’ money has than been spent in th High Street, on consumables, cars and nice holidays. In a harsher climate, with less money available to consumers, a stagnant housing market, higher taxes and fewer people in work, it is difficult to see how or when we can expect a return to ‘business as usual’.

So, whilst I know the politicians hate to paint a picture that is considered too negative or gloomy, I would like to witness them share their thoughts on just how everything is going to be fixed and over what timescale. Becuase, in all honesty, unless I am missing something, the future does not look too bright.

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Mortgage assistance for struggling homeowners

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Although the government has yet to provide the ‘small print’ for their help for struggling homeowners, some details have emerged. According to the government, the following mortgage providers have agreed to support their plan, HBOS, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays, RBS and HSBC. These companies account for some 70% of the domestic mortgage market.

Currently, people who are on a Job Seekers Allowance, or income support, can apply for taxpayers money to help repay the interest on their mortgages. Previously, the government stated that the maximum value of the mortgage where interest would be paid was going up from £100k, to £175k, this will now be £200k. Those claiming JSA will see this support limited to two years and borrowers that have a working spouse or partner, or savings of over £16,000 will not qualify for this support.

The new plan sees many of the major mortgage companies agreeing to extend the minimum period before they action repossession proceedings from around 3 months to 6 months. This is fairly significant, but I will come back to this point later. Another part of the plan, which currently lacks any detail is support for people that have suffered a significant loss of income, perhaps a loss of overtime, one partner having been made redundant, or the borrower having to accept a lower paid job. Here, borrowers with mortgages of £400,000 or less, will be able to defer interest payments, which will then be added to the capital. The Treasury will then underwrite the additonal ‘risk’ normally borne by the lenders. This programme is designed to complement the existing mortgage support provided to those on income support or a Job Seekers Allowance.

However laudable the scheme, there is a very limited benefit to those that have taken out some type of ‘secured’ loan and subsequently default. This is because, not surprisingly, the government are not prepared to underwrite secured loans. The problem here is where a borrower has defaulted on a loan that is secured against their property, the lender can apply to the court to have the property sold, in order that they can recover their money. Now, many people have taken out these types of loans, rather than re-mortgaging their properties, to fund lifestyle purchases, extensions, cars and so on. Therefore, irrespective of the good intent of the mortgage companies or the government, their plans are at risk by the actions of any third party with a second charge. But there is something else that I believe is far more scandalous and that is the way lenders who have provided unsecured loans can seek to get a charge on a borrowers property, let me explain.

The borrower takes out an unsecured loan from a credit card company and subsequently default. If the card company believes that it will cost more to service or collect the debt than it is worth, they will often sell on the debt to a specialist company than collects debts. These organisations often pay only 10-15% of the face value and may purchase hundreds of millions of pounds worth of bad debt. They then employ very aggressive tactics to collect the money. If these don’t work and the debtor is a homeowner, the debt collectors invariably apply to the court to have the debt secured against the property and in most cases, this application is granted. Now the debtor will have the loan and any associated collection, legal and court costs added to the original debt.

The courts are complicit in this whole process, given some debt companies literally ‘book’ a court for half a day to process these applications. What must be particularly galling for the borrowers, is that the costs associated with this application can add substantially to the original debt, in addition to which, the courts take no account of the fact that the original debt was unsecured and therefore, the interest rate that was charged at the outset would have reflected the lenders additional risk. Having successfully managed to secure the debt, these debt companies will now typically ratchet up the pressure on the debtor, often getting them to agree amounts that they simply cannot afford, which is, arguably what the debt company wants. Because once there is a default, the debt company can apply to the court to have the property sold and that is invariably what they do.

Now the government cannot deny knowledge of this common practice, nor the fact that an obscure 1925 law is being used to achieve the objective of the debt management companies. Gordon Brown was asked about this very issue during his monthly meeting with the press and chose to ignore it, by repeating what the government were doing to help mortgage holders rather tha the legitimate issue that was raised. Yet, for a man that likes to legislate for anything and everything, he did not grasp the nettle and suggest that the government will look to repeal the legislation being exploited by these debt companies.

Now don’t get me wrong. Everyone must be responsible for their own actions and I do not believe in government intervention with taxpayers money, other than what is strictly necessary. But there is a need to distinguish between those that can’t and those that won’t pay. I have no sympathy for the latter. However, those that can’t pay should be treated sympathetically, they should not for example, have to endure the massive hike in the debt as a direct consequence of these debt companies taking completely unecessary legal action to gain security for the loan and/or a forced sale. The courts must be far more sympathetic to the borrower, for example, asking these companies what they expect to achieve by gaining security for what was originally an unsecured debt. Lets face it, unless the debt company intends to force a sale, or use the security as additional leverage, there is no point. No court should allow companies that have purchased unsecured debt, at 10-15% of its face value, to rack up the charges and costs and then secure the debt. Similarly, the government must urgently repeal the law that allows them to make this application, particularly in light of the assistance they are claiming to offer borrowers to minimise the risk of them losing their homes.

The bottom line, is that unless the government deals with this issue, then it can be reasonable argued that they are not serious about trying to keep people in their homes. Because someone that has taken out, for example, a credit card on an unsecured loan basis, could very quickly and quite easily find that they could be losing their home at the instigation of a debt purchasing company that has managed to secure the loan and by default, prevent the borrower from gaining any government support or assistance. These debt purchasing companies are making massive returns on their original investment and they are very effectively exploiting legal loopholes to put people out of their homes in order that they can get a quick return, in what is supposed to be contrary to the government stated goals. The debt purchasing companies are not acting responsibly and need to be tackled. Why, therefore is this government doing nothing to put a stop to it?

Democracy has already disappeared

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Much has been said over the weekend regarding the Damian Green affair, with most commentators suggesting that our democracy is damaged, at stake or in peril. I would not argue with any of these descriptives other than to say our democracy was under threat a good deal earlier than this high profile incident.

Whether it is detention without charge, law officers being able to store telephone call details, text messages, email content and web browsing habits, or the ability of the police to take DNA off a subject even if they haven’t been charged. All of these new laws have been brought in, ostensibly to aid the fight against crime and terrorism, but as we have already witnessed, neither the police nor the government are shy of using anti-terror laws in completely inappropriate circumstances. As each new piece of legislation has been passed, so we have had to wave a fond farewell to some of the fundamental rights that we have lost in the process. Rights that we have enjoyed for hundreds of years. Yet crime is not falling and terrorism remains the same threat as it was before.

The government has become the ‘bitch’ of the police service, giving them have whatever they want, whether it be detention without charge, 30,000 taser guns or the ability to monitor telephone calls on the say so of a senior officer rather than a judge. Opposition parties, by contrast, have acted like the governments lapdogs, providing a less than spirited defence of the rights of the individual. In an effort to preen themselves in front of the TV cameras, or gain a few column inches from a compliant newspaper, members of parliament have forgotten that they are responsible for upholding the rights and liberties of the citizens of this country. They have failed miserably….look at how many departments that have been labeled “not fit for purpose”, now consider how this label could be identified with most of the government and a large number of other MP’s!

As a consequence of this governments preoccupation with gaining more and more state control, we as a people have become all the poorer. Not in economic terms (that was for different reasons), but in terms of freedom. Our right to privacy has gone forever, because this government has allowed nearly every aspect of our lives to be monitored and/or recorded and then allowed upwards of 800 agencies, both public and private, access to that information. It is an outrage. Worst of all, every MP that failed to speak up for the people of this country on this issue have been complicit in our demise, further, every newspaper editor that has failed to raise these issues for fear of losing scoops from a minister have failed their readership.

Of course you can’t get the genie back into the bottle, but members of parliament on all sides should seek to use the Damian Green affair as a signal that a complete review is now needed of all legislation passed that has provided government and the police service with unprecedented powers over the people of this country. British citizens are supposed to be the masters, not the servants, New Labour policies have dispensed with this long held tradition. Purists may say I am wrong, but it is my contention that when so much power has been passed to government and the tools or agents of government, such as the police service, security services and so on, the people of this country become the servants of state, not the other way around.

We may retain the vote, but little else and if we allow further removal of our rights, we could end up being a basket case like Zimbabwe, with question marks over our entire electoral system. Melodramatic maybe, possible most certainly, after all, Hazel Blears has already indicated that she wants the legal power to prevent publication of certain stories in the mainstream media and has pointed out that she is not in favour of bloggers. Who 20 years ago would have guessed that we could lock people up for a month with no charge, seize the assets of another country using anti-terror laws, monitor and store every telephone call, text message and email, force identity cards on a reluctant public? The list goes on, but you get the picture, it isn’t just possible, we are already well on our way.

If ever there was a justification for a public enquiry, something I do not normally advocate, it is now. It should be wide ranging and concentrate on the legislation that has been drafted by this government which as a consequence of its introduction, has removed, reduced or eroded the civil liberties and rights of the people of this country. Further, they must look at what the original intention was and find out how these laws have been used, abused or mis-used. This enquiry must then have the power to order that government introduce legislation to allow either an amendment to, or the repeal of any legislation that is not as intended or has simply gone too far.

David Cameron could lead this charge and I suspect he will have a great deal of support, certainly from the public and most likely from the LibDems and a few Labour backbenchers. Or, he could let the opportunity pass by and be picked up by Nick Clegg. For as sure as night follows day, there will be a massive public backlash when it starts to sink in just how many of our rights have been sacrificed in a fight against terrorism, something, incidentally that this country has faced for most of its existence.

If as a consequence of the Damian Green affair members of parliament only seek an exemption for MP’s, then I think the public will have a very good idea who our elected members look out for and it would most certainly not be us. They could be reminded of this at the ballot box assuming we manage to retain that right. Don’t laugh, it could happen, just look at our ruling elite!