Gordon Brown accused the Conservatives of talking up a housing market crash yesterday, after one of their senior Treasury spokesmen warned Britain was at risk of an "economic shock". Mr Brown seized on the remark as he clashed for the first time with Oliver Letwin, the new shadow Chancellor, at Treasury Questions in the Commons.
In a speech to the Institute for Economic Affairs on Wednesday, Howard Flight, the shadow Chief Secretary to the Treasury, had warned of "growing threats to growth and stability" from Labour's policies. Mr Flight said: "The key risk is an economic shock if there are more than small increases in interest rates and inflation and particularly via the impact on house prices.
"The next two years are likely to see a more difficult environment for the UK economy and for the Labour Government, in which the options for fiscal manoeuvre have been curtailed severely by Labour's massive shift to tax-and-spend.
"In short, the dangers now are of rising inflation and rising interest rates, which could end the remarkable consumption-driven run of the last 11 years in due course."
Until Mr Flight's speech, the Tories had been careful to avoid any predictions of a recession since the time Francis Maude was ridiculed for his claim as Shadow Chancellor that there would be a "downturn made in Downing Street". When Michael Howard, the Tory leader, was Shadow Chancellor, he was scrupulous in avoiding a similar trap. Mr Flight, in contrast, has been keen to get across the message that the Government's policies are placing the economy in danger.
Last year, Mr Flight hindered the Tories with their pledge to slash spending in some Whitehall departments by up to 20 per cent, a pledge exploited by Labour ever since.
Mr Letwin told MPs yesterday household debt was now roughly the same size as the entire GDP "at a time when house prices are rising rather fast".
In heated exchanges, Mr Brown said that Mr Letwin would be unwise to repeat Mr Flight's prediction of a recession hitting Britain in the next two years, and housing in particular.
"If ... he is now going to predict a housing 'shock' and that there is a threat to stability in the economy, I have to remind him that at every point in the last six years the Conservative Party predicted that there was going to be a recession," the Chancellor said.
"Yes, house prices have risen as a percentage of income. If you take house prices as a percentage of wealth, that is not the case because household wealth has risen by 50 per cent in Britain over the last six years."
Mr Brown added that debt-servicing payments for mortgages were an average of 17 per cent of income under Labour since 1997, compared with nearly 30 per cent under the latest Tory administration.
Welcoming Mr Letwin to his new post, Mr Brown referred to his shadow's gaffe in revealing proposed Tory tax cuts during the 2001 election campaign. Labour used their aspiration to reduce spending to 35 per cent of GDP ruthlessly to raise the spectre of swingeing cuts to health and education. Mr Letwin was a shadow Treasury minister at the time and was forced to keep a low profile for the rest of the campaign.
"We were always sorry you mysteriously disappeared during the general election campaign of 2001, so we welcome you back," Mr Brown said. But Mr Letwin was quick to turn the joke back on the Chancellor, taunting him about recent public disagreements with Tony Blair.
"I am sure the House will sympathise with the fact that you have formed the habit of deploying a rather belligerent tone in your dealings with the Prime Minister," he said.
"But I believe our fellow citizens expect us in this chamber to engage in a more serious and more rational discussion of the issues."Reuse content