Everyone the Tories are blaming for Britain’s subprime crisis — but themselves — POLITICO

LONDON — The ‘Tory mortgage penalty’, a high-profile banker or Vladimir Putin – take your pick on who is to blame for Britain’s growing economic crisis.

Britain’s ruling Conservative Party is increasingly nervous in the face of persistently high inflation, which on Thursday prompted the Bank of England to raise interest rates for the 13th time in a row, a move that will hit Britain’s mortgage lenders hard.

A rate hike of up to 5 percent – ​​a level not seen in 15 years – would lead to an immediate spike in monthly payments for some mortgage holders and the prospect of higher payments in the near future for others. According to the Institute for Fiscal Studies think tank, about 1.4 million mortgage holders will see their disposable income drop by more than 20 percent.

“People are very concerned about what is being described as a mortgage bomb going off,” senior Tory MP Jake Berry told Chancellor Jeremy Hunt on Tuesday in the House of Commons. A former Tory cabinet minister told POLITICO it was already “clear we’re going to lose the next election.”

Labor is keen to call the crisis a “Tory mortgage penalty” – pointing to both the ruling party’s long tenure and the rapid economic collapse triggered by Liz Truss’s brief tenure in Downing Street.

Conservatives, not surprisingly, are equally keen to point the finger elsewhere.

POLITICO examines the conservative blame game as panic sets in.

Andrew Bailey

No one takes more heat from the Tories than Andrew Bailey, the governor of the Bank of England.

Bailey has been under fire for some time from backbench MPs. But after days of Conservative ministers not-so-subtly hinting that the independent central bank was to blame for the current crisis, Transport Minister Mark Harper went further on Wednesday night.

“Some people make that criticism, yes, and at the beginning a decision had to be made whether inflation was transitory or not,” Harper said Sky Newsasked if the bank had been too slow to raise rates.

A government aide insisted that this was more an observation about how far ahead Sunak was in realizing the threat of inflation than a comment on the bank. Harper added that the government retains full confidence in Bailey. This coded criticism is significant and rare because of the bank’s independent status.

The criticism – which also came from some of the chancellor’s economic advisers – centered around the bank’s inability to accurately gauge the rate of inflation and prepare accordingly. In March of this year, Bailey said this year there will be a “sharp drop” in inflation. This is yet to be clarified.

“It is true that the BoE and much of the world did not have a model to predict the peak or the sustainability of inflation,” said Giles Wilkes, a former No 10 special adviser on economic policy. “But for the government to blame the bank is to say that they somehow wanted a much higher and stricter policy and would have taken it if they only had a good bank there.”

“It’s like a teenager suffering from a hangover after breaking into the parents’ cellar, blaming the parents for not making the door stronger,” he added.

Gordon Brown

The Bank of England has been independent since 1997 – when then Labor chancellor Gordon Brown took the decision to free the bank from government intervention as one of his first acts on entering the Treasury.

Chancellor of the Exchequer Andrew Griffith pointedly reminded MPs of that decision in Parliament on Tuesday, as Tories questioned the timing and level of the Bank’s rate hike.

“The Bank of England sets the prime rate which can have an effect on mortgage pricing and the Bank has been independent since the decision of the then Labor government in 1997,” Griffith said. That claim – and the not-so-subtle hint that Brown, not the current government, should be blamed for any of the bank’s decisions – was met with mild chuckles in the House of Commons.

Former Prime Minister Liz Truss was playing with the idea of ​​revising the bank’s independence. But Sunak and his government have never indicated that they will reverse Brown’s decision to make the Bank independent.

Brown has also come under fire for his decision to scrap tax relief on mortgage interest, a decision he made in 2000. The right-wing Daily Telegraph newspaper wrote this week that the move “added £270 a year to your mortgage payments”.

Liam Byrne

Also on the Tory hit list is the last Labor government as a whole. When asked by Labour’s Pat McFadden to apologize to homeowners, Griffith instead referred to the records of a government that *checks notes* left office more than 13 years ago.

“I ask him if he has learned the lesson of what we saw with the last Labor government, which plowed its way through the nation’s finances and whose most lasting contribution to the economy was a note we inherited from the then chief secretary to the exchequer saying there were no left money,” Griffith said, referring to the Conservatives’ favorite electoral mainstay – handwritten note by Liam Byrne when Labor left the government joking that there was “no money” in the Treasury.

After playing a major role in the Conservatives’ successful 2015 election campaign, the letter has recently resurfaced – largely thanks to an enthusiastic new Tory leader, Greg Hands, who he chirped the letter 42 times and on and on.

“Just kidding” is the key word though. Byrne followed him an old tradition of finance ministers leaving light-hearted letters to their successors.

Vladimir Putin… and a bat in Wuhan

Russia’s full-scale invasion of Ukraine sent the world economy into a tailspin — at a time when it was still struggling to recover from the coronavirus pandemic.

“We are all dealing with the fallout from Putin’s invasion of Ukraine and the fallout from the pandemic,” Hunt said in the Commons on Tuesday.

The war in Ukraine contributed to a huge increase in energy prices as well as causing overall supply chain and economic damage, while the multi-billion pound COVID support schemes drawn up by Sunak fueled inflation.

But despite the global circumstances, the fact remains that the UK economy has the highest inflation and second slowest growth in the G7, according to to the OECD.

The general public

One of Jeremy Hunt’s economic advisers has also turned his fire on the rest of you.

Speaking on the BBC’s Today program on Wednesday, Karen Ward – a JP Morgan strategist and member of Hunt’s economic council – suggested the Bank of England had failed to dissuade workers from demanding a pay rise.

“(The Bank of England) has to create uncertainty and weakness because it’s only when companies are feeling nervous about the future that they’re going to think ‘well, maybe I’m not going to live through this price rise’, or workers when they’re a little bit less confident in their work, think, ‘oh, I’m not going to push my boss for that higher pay,'” Ward said.

Ward added that the bank needed to trigger a recession to discourage Britons from – in her view – further inflationary spending and demands for pay rises. Considering UK wages they haven’t grown up at the same rate as inflation, this may not prove to be a popular call.

“It’s perfectly understandable that workers will want a pay rise and want to maintain their standard of living,” said Institute for Fiscal Studies economist Tom Wernham. “But overall, the fact is that efforts to reduce inflation will be economically painful.”

… and the things they definitely don’t blame

Famous former chancellors: Britain’s mortgage woes are likely to have been further exacerbated by government support packages introduced over the past decade to support an already overheated housing market, such as former chancellor George Osborne’s infamous Help-to-Buy scheme and Sunak’s own holiday-era of COVID , which critics say has lured people into buying property with the illusion of affordability.

Liz Truss: The short-lived former UK prime minister did more than many others to tarnish the Conservatives’ reputation for economic competence. Miata Fanboule, Labor candidate and left-wing economist, summarized the opposition’s argument when it claims the Truss mini-budget puts an “incompetence premium” on the mortgage market.

Austerity: The merits of deep government cuts under former prime minister David Cameron in 2010, following the global financial crash, are still much debated. Advocates say it has got the UK economy back on track and ready to weather subsequent global crises, while opponents argue it has stifled economic growth through a lack of investment. “You underinvest in things and they end up deteriorating,” said Wilkes, who advised Cameron’s successor, Theresa May.

Brexit: The disruption of Britain’s exit from the European Union was the third major shock to the UK economy in as many years, along with the pandemic and the war in Ukraine. Most economists believe that Brexit has had a significant and largely negative impact on the UK economy, while the government’s economic watchdog, the Office for Budget Responsibility, has remained from his March 2020 prediction that Brexit would ultimately reduce UK productivity and GDP by 4 percent. It is in this context that Nigel Farage, the architect of Brexit, told the BBC that “Brexit has failed”. Tory MPs are mostly silent.