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The Bank of England today announced a further reduction in interest rates — slashing one per cent off the base rate to two per cent.
The need is clear: this week has brought new signs of the depth of the recession, not least in the stricken housing market. While house prices are tumbling, the Council of Mortgage Lenders predicts that there will be 75,000 repossessions next year. And it is to counter this prospect that the Prime Minister yesterday announced a new mortgage insurance scheme.
Ministers have yet to give details: the announcement was an aside during the debate on the Queen's Speech. As such, its main purpose may yet turn out to have been an attempt to distract attention from the Damian Green affair. But it appears that the Government will extend the present mortgage protection scheme for those on benefits, doubling the limit covered from £200,000 to £400,000, thus including most middle-class mortgage holders, and extending it to cover households who suffer a big loss in income without necessarily going on to benefits. In theory, it would allow borrowers to defer payment of up to 100 per cent of their mortgage.
Yet housing minister Margaret Beckett has already admitted that it is estimated the scheme will help just 9,000 families. The scheme relies on the cooperation of the banks, who have not so far heeded ministers' exhortations to ease up on their customers: eight lenders have signed up to the scheme but mortgage holidays will be arranged between lender and borrower on a case-by-case basis. Meanwhile, many banks will refuse to pass on any today's rate cut to all their borrowers: an estimated 500,000 mortgage holders will lose out in this way.
The mortgage insurance scheme, while useful, is unlikely to do more than blunt the growing wave of repossessions. As this recession's effects come home, homeowners and businesses instead need a substantial rate cut today — passed on by the banks.
Crossrail's tax
The determination of the Mayor and ministers to force businesses to contribute to Crossrail is provoking objections but it is the right strategy for the long term. Today, legislation is published that will enable the Mayor and local authorities to add a levy to business rates to raise £3.5 billion for the rail link; the City of London Corporation today formally signs up to raising £350 million. With the transfer of Crossrail to Transport for London tomorrow, these arrangements will allow the project to gather pace significantly: construction is scheduled to start at Tottenham Court Road in the spring.
A number of business leaders have complained about the increase to their tax bills at a time of recession. Certainly, government should attempt to minimise additional tax burdens on employers at this time. But Crossrail is essential to London's future prosperity. Without it, the city's infrastructure will buckle. Investment in Crossrail is strategically vital, and businesses will ultimately be some of its greatest beneficiaries.
And celebrating...
Greenhouse. This year, the proceeds of the Evening Standard's charity auction will go to a small charity, Greenhouse, which has had a transformative effect on the lives of children in some of London's poorest boroughs. It runs sports and arts programmes in deprived areas, reaching 7,000 young people — many from single-parent families, problem council estates and ethnic minority backgrounds. Its programmes, particularly sport for young men, have an impressive track record. We are proud to be associated with its work; we hope our readers will participate in our auction on its behalf — which goes live on eBay at noon tomorrow — with their customary generosity.
