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View from Westminster - May 3, 2012
3:30pm Wednesday 2nd May 2012 in MP's View - Mark Garnier
THERE was a lot of news coming out last week, but the one that affects us all the most is the economic figures.
Britain has now officially fallen back into recession – a so-called “double dip recession”. But the truth is we have only, at best, seen just the most tentative signs of any recovery since 2008 when the economy tipped into recession at the end of the asset-fuelled credit bubble that was brought about by the banking crises. The fact is, we have barely seen any sustained growth since then.
The blame for the long-term stagnation is attributed to “deleveraging of the consumer,” and business uncertainty due to the Euro crises. But what does that mean in practical terms?
The British consumer – you and I – is hugely in debt. We have more debt here than the rest of Europe combined. This is the money you and I owe on our mortgages, our credit cards, our HP agreements and all the rest of it. It stands at a whopping £1.46 trillion and it was built up prior to the crash in 2007-08.
This was when we were all getting letters congratulating us on being ‘pre-approved’ for a £10,000 loan, and banks were happily lending us over 100 per cent of the value of our property, all reinforced by the message that the government had brought an end to boom and bust. That was, as we all now know to our cost, complete and utter nonsense.
So to understand what is happening to the economy, we simply need to look at our own circumstances. As we open our post and read our bank, credit card or mortgage statements, do we feel inclined to blow a few more quid on a new TV?
No, we feel nervous about the future and are more inclined to repay where we can. And if we don’t buy stuff in the high street, then the economy stumbles along at the bottom.
Governments can help. Governments can invest into the economy to stimulate growth. But they can only do that if, at the height of the boom, they reduced expenditure to put money aside for the inevitable recession. But if you are convinced that your government has re-written the laws of economics and has ended boom and bust, then the government will behave differently and continue to spend more than it earns in taxes. And it is because of that reason that there is no money to invest into the economy by the government.
Government finances are in tatters and the downward spiral is not helping. But if the government starts spending more, it runs the very real risk of interest rates rising.
If that happens, imagine what it would mean to you and me when we open our statements in the future. Instead of paying three or four per cent on a loan, we will be paying six or 10 per cent. The cost of borrowing will double. That will happen to the most indebted consumer in the world and if that happens, it will be a disaster.
CONTACT YOUR MP
Email: mark.garnier.mp@ parliament.uk.
Telephone: 020 7219 7198 or 01562 746771.
Write: 9a Lower Mill Street, Kiddermin-ster, DY11 6UU, or House of Commons, Westminster, London SW1A 0AA.