Malcolm Blair Robinson

The BoE has declared that the Funding For Lending scheme will no longer be usable by banks to fund mortgages and will only be available for business lending. This is the single most important change in lending policy for three decades. The Bank has also indicated that it will set minimum deposit levels at a higher level should the housing market continue to heat up. In other words we are returning to the form of economic management which recognised that a mixed modern economy with many built in tensions has to be subject to coherent credit management, and this cannot be achieved by interest rates alone.

As this Blog has repeatedly said, the entire economy will be put at risk if  recovery is built on a housing and credit boom. Not only does such a path lead direct to a crash, but it profoundly weakens the economy overall, by starving small businesses of capital, so that demand is met by imports. Make no mistake, this is a game changer. Essentially it means that house prices will not in future be allowed to significantly diverge from inflation and that they will be handled independently of business. The effect will be to induce a separate rate structure for  property, to that for commerce and industry. This is exactly what the author of this blog has consistently argued for, both here and in my book 2010 A Blueprint for Change, still available on Amazon and published in 2009.

What is now needed is a major building drive for social housing and large scale development of affordable rental properties owned by pension funds and investment institutions, as well as a coherent and timely infrastructure renewal programme. That will give an economic recovery which will set the whole of society on a road to a better future.

There is an interesting footnote. Vince Cable is delighted with the announcement today. George Osborne pretends to be a party to it and in favour. Few are fooled. It is clear that the time honoured Tory election strategy of building a boom to entice voters on the back of surging house prices has lost a wheel.

Every day some new atrocity is reported from one or all of these countries. At the moment the worst by far is Syria. All three countries share a common profile in that they were created suddenly by drawing lines on a map and not by a natural process over time and all have different religious and tribal pressures pulling in different directions at their social fabric. For such countries to offer a stable way of life which includes education, healthcare and civil order as well as religious freedom and protection of ethnic minorities, demands decisive and strong leadership. Such leaders tend to be dictators rather than democrats, but that is the price you pay for inventing countries which do not really exist.

Dictatorships vary but Assad, Gaddafi and Saddam had quite a bit in common. All ran political systems which locked up opponents, but their countries provided a stable way of life to those who conformed to the rules as well as a good deal of secularism in the way society was organised. They were also quite prosperous, while being led by one dominant element of the tribal and ethnic mix. Members of the ruling group did better than the others.

Western politicians saw much they did not like and post 9/11 felt licensed to take a more interventionist stance in global affairs. One way and another, we all know the stories, Gaddafi and Saddam came to a bad end and Assad is fighting for his life as his country is destroyed around him. Meanwhile Iraq and Libya have ineffective and dysfunctional governments, civil chaos and dangerous security. There is one final common factor to record. All three dictators were opposed to Al Qaeda and since their passing, or in the case of Assad his loss of control of large tracts of his country, Al Qaeda has established itself as a major force in all three.

Al Qaeda is the sworn enemy of the West, yet the West created the conditions in which this enemy could establish itself in countries from which it had formerly been barred. This Blog has asked repeated questions about the direction of travel for western diplomacy.  At least there is one good outcome. The interim agreement with Iran is a very positive step, but only achieved because Russia and China were party to the deal. Following on Russia’s decisive intervention in the  Syrian chemical weapon’s crisis, there is surely now enough evidence to suggest a re-working of foreign policy verities by the western powers,  in particular Britain and the United States.