The housing measures announced yesterday as part of the Government's intended autumn fightback were classically Brownite – a repackaging of already announced or pre-leaked initiatives collectively adding up to not very much at all.
The one action of any significance was raising the stamp duty threshold from £125,000 to £175,000, though even this is being widely dismissed as too little too late. When Norman Lamont announced a similar tax holiday on house purchases back in the early 1990s, it had virtually no effect on the bombed-out housing market, which didn't begin properly to recover until some years later.
A saving of just 1 per cent on purchases up to £175,000 might be regarded as similarly ineffective. Even so, it shouldn't be altogether ridiculed. It's better than nothing, and, if applied to house purchases over the last year, would have taken approximately 230,000 out of paying any stamp duty at all at a cost to the Government of some £600m. Approximately a half of all house purchases will now escape tax.
On the whole, however, the measures are too limited and complex to have any meaningful impact, for which we should by and large be grateful. Beyond providing a social safety net for those who run into genuine difficulties with their housing needs, the Government shouldn't be interfering with the housing market at all. The adjustment now under way must be left to run its course, however painful, if things are to get back on an even keel.
In any case, yesterday's measures should be regarded as just the hors d'oeuvre before the bigger debate on whether more root-and-branch action is required of the Government to save the housing market from lasting nemesis. The Government's special liquidity scheme (SLS), designed to ease the funding difficulties of banks by allowing them to swap mortgage assets for more liquid government bonds, comes to an end next month, and it is not yet settled what, if anything, should replace it.
The collapse in housing market confidence has caused wholesale funding of the mortgage market to virtually dry up, leaving banks struggling to refinance their loans as they fall due. This, in turn, has led to a mortgage famine, which is instructing the fall in house prices and transactions.
Alistair Darling, the Chancellor, says he'll await the recommendations of Sir James Crosby, the former HBOS chief instructed with finding solutions to the present crisis in mortgage markets, before deciding what to do with the SLS. The Government has been at pains to keep the extent of the scheme's utilisation thus far under wraps, though an estimate from UBS yesterday that it could already be as high as £200bn was being widely dismissed as fanciful.
Nevertheless, the original £50bn earmarked for the scheme has already been breached, with the headline number perhaps approaching some £80bn to £100bn. Banks have stepped up their securitisation efforts in the last month so as to take advantage of the scheme while it still remains open.
Within the Bank of England and some parts of the Treasury, the taxpayer exposure is already thought dangerously high. There are worries about the political acceptability of such high levels of lending to private sector banks. Questions are also being raised about how these loans are to be refinanced at maturity in three years' time if by then wholesale markets remain closed to housing debt.
The Bank of England always regarded the scheme as "temporary" but is working on reforms to the "red book", set to be announced in the next month, that would replace it with something more permanent. But what? Would the new arrangements only be open to distressed banks? This might recreate the problem of stigmatisation which helped sink Northern Rock under the old "lender-of-last-resort" arrangements.
And will No 10 get its way in opening up the scheme or its successor arrangements to new mortgage finance, in the hope that this will help slow or even reverse the housing market slump in time for the next election? Again, this would be vehemently opposed by the Bank of England, and even the Treasury would have to swallow hard to accept such blatant market intervention.
At the European Central Bank, reform is moving in the opposite direction. The ECB is attempting to tighten up similar liquidity arrangements which have allowed newly created mortgage assets to be lodged as security after being scammed by a number of banks trying to use the facility as a money-making device. Whatever replaces the SLS, the Bank is determined to restrict access to legacy assets.
Regrettably for the Government, whatever action is taken, it is probably too late to save its electoral prospects anyway. According to HBOS, a peak-to- trough fall of around 20 per cent in house prices by the end of next year will return them to their long- run price-to-earnings ratio of around four, at which point houses will again look reasonable value, and lenders ought to start returning to the market. Yet experience of the last housing downturn is that it takes many years for confidence to be fully restored. The awful truth for the Prime Minister is that whatever he does to kick-start mortgage- funding mechanisms, he'll be going to the country at the very bottom of the housing market. There's little he can do to save himself.
Verwaayen rides to the rescue at Alcatel-Lucent
Can Ben Verwaayen repeat the turnaround he achieved at BT with his new charge, the Franco-American telecoms equipment company Alcatel-Lucent? Despite some superficial similarities, the challenges are in truth a great deal bigger.
The Alcatel-Lucent combine has been losing money almost ever since the two companies were merged in 2006, the clash of corporate and national cultures remains profound, the low-cost producers of China and the Far East are beginning to leapfrog the behemoths of the developed world on technological innovation, and until they sacked the chairman and chief executive a couple of months back, the share price had lost 90 per cent of its value. Even today, it remains 60 per cent below pre-merger levels.
BT might have been up to its neck in debt and all adrift at sea at the time Mr Verwaayen took over, but at least it had the advantage of a captive customer base to keep paying the wages. Alcatel-Lucent must compete on the global stage against some of the most innovative, low-cost and fast moving companies in the world.
Still, you can see the attraction to Mr Verwaayen. He's been kicking his heels in the three months since he left BT, wondering what to do with the rest of his life. Refreshing though it has been, there's only so much lying by the pool side an operator as energetic as Mr Verwaayen can take.
Disappointment in the City with a recent trading update has slightly tarnished the once universally glowing assessments of his record at BT, but on the whole he left the company in considerably better shape than he found it. During his time there, he also built up its fast growing business services division virtually from scratch, finally giving the company the global footprint it had for so long sought.
In Alcatel-Lucent, Mr Verwaayen sees similar opportunity for revival and transformation. In the new chairman, Philippe Camus, he also sees parallels with his relationship with Sir Christopher Bland, the industrialist who brought Mr Verwaayen into BT with a similar turnaround brief as he has been given now. As it happens, Mr Verwaayen once worked for Lucent, though he says that the company he's charged with today is unrecognisable from the one he remembers from back then.
Mr Verwaayen's first task is to get the French and the Americans to work together as one. If he manages it, it will be something of a first. Yet it would be unwise to underestimate him, as many in the City did when he first arrived at BT. One analyst famously dismissed him as a "jumped-up little Dutchman". He was soon forced to eat his words.Reuse content