LEADING ARTICLE:Ken and Eddie's tasteless joke

The Chancellor of the Exchequer and the Governor of the Bank of England seemed to find it all rather amusing. Minutes after raising interest rates again, Ken and Eddie were on television sharing a joke. But to many homeowners the prospect of anoth er rise in mortgage repayments was about as amusing as a blocked sewer. To them the self-congratulatory tone coming from the Treasury echoed Norman Lamont's insensitive refrain, "if it isn't hurting, it isn't working".

It is all very well for Mr Clarke to speak of the need to control inflation and so prevent the economic recovery from overheating. But these inescapable aims mean little to the million or so homeowners stuck in properties worth less than their mortgages.Nor does the Chancellor's action bring cheer to those living in depreciated houses and who, as a result, feel poorer.

Lower interest rates in the past couple of years had given the most hard-pressed homeowners some hope of a reprieve: the cost of servicing their debt fell and talk of price increases promised to reduce negative equity. Those hopes have now been dashed. Rising interest rates and evaporating confidence among first-time buyers means that many homeowners are now growing desperate about ever being in the black.

Many members of a generation, mainly middle-class and aged between 30 and 45, feel robbed. They saw their parents profit from housing booms. Now, just when they need cash for young families, events seem to conspire against them. Their costs are rising; their wealth is negative or slight; their jobs are insecure. And we know about their woes, because this generation is articulate, rides high in the media and can soon expect to run the country. In contrast, we hear little about those who gain from higher interest and low inflation - those people, particularly pensioners, who have savings and are on fixed incomes.

Their improved fortune is overshadowed by a younger generation that fell victim to the widely spread fantasy that house prices inevitably rise. These individuals joined a pyramid-selling enterprise that collapsed just after they had made their payments but before they had reaped any gain. Older homeowners profited at their expense. Likewise future entrants into the housing market will benefit from more affordable housing. This new stability, however painfully achieved, has many virtues.

Inflation has scarred many victims in the past. Those who took out occupational pensions in the 1930s were just as angry, finding that their prudence went unrewarded because inflation in the 1970s eroded the real value of their pensions. Until Margaret Thatcher gave them the right to buy at a discount, post-war council house tenants also lost out in the inflation lottery. Because they had no investment in the housing market, they could only watch as homeowners reaped windfall gains in the value of property during the inflationary Sixties and Seventies.

So what is to be done for the latest victims of inflation? "Nothing" is the harsh answer, familiar to those who lost out to earlier, unanticipated price changes. The state subsidies that the housing market already enjoys, in terms of tax relief and social security for unemployed homeowners, are inequitable. They are rightly being cut away.

We cannot afford the consequences of stoking up the housing market with cheap money. Kenneth Clarke was right to increase interest rates this week. The economy is already growing at 4 per cent a year, a rate that would produce an inevitable and painful crash if it were not controlled. Given that American rates rose again on Wednesday, the financial markets would have forced the Chancellor to announce a British increase within a short period had he not acted. In short, homeowners who feel they have been robbed have little choice other than to nurse their wounds. Some will be able to pay off their negative equity over many years. They might also gain a vicarious pleasure and in time benefit from estate agents, surveyors and solicitors being forced to price themselves more competitively. Buyers are no longer prepared to accept profit margins that were tolerated in periods of high inflation.

But such cold comfort does not amount to much. So, when interest rates rise again, as they must, our well-housed Chancellor might be wise to share his jokes more privately with the even better-paid Governor of the Bank of England.