Читать книгу Broke: Who Killed the Middle Classes? - David Boyle - Страница 11

‘Every summer we can rent a cottage in the Isle of Wight,

If it’s not too dear.

We shall scrimp and save …’

Paul McCartney, ‘When I’m Sixty-Four’, December 1966

Spring 1979. No Internet. No mobile phones. No cash machines in the wall. No personal computers (or very few). Only three television channels. Orange street lights. Pirate radio stations. Electric fires. Flared trousers (occasionally). The Central Electricity Generating Board, British Rail, the Department of Health and Social Security and other huge bureaucracies running our lives. Grunwick. The National Front and the Anti-Nazi League. Tom Robinson and ‘Glad to be Gay’. Works to rule. Closed shops. Angela Rippon, Morecambe & Wise and Tinker, Tailor, Soldier, Spy on the TV. Brian Redhead and Jimmy Young on the radio. Prince Charles still unmarried. James Callaghan in his last few months, and his last few sessions of beer and sandwiches, at 10 Downing Street. Patrick Hutber’s The Decline and Fall of the Middle Class on the bookstalls.¹

It was my middle year at university, shivering in a room with no central heating. I had long hair and dreamed of student revolts that – as it turned out – had long since disappeared. This was the generation caught between the certainties of the hippies and the certainties of the yuppies which the novelist A. S. Byatt writes about so sensitively (and I appreciate it because I was one of them). I had no idea at the time, nor for many years afterwards, what I wanted to do with my life, and couldn’t imagine anyone ever employing me – let alone paying me enough money to buy a house.

We were already talking about house prices in those days, in training for a thousand middle-class dinner parties to come, but actually – compared with what came later – the average price of a home in the UK was very low: £18,000 (now worth about £74,500 at today’s values).² Despite that, there had already been a round of major house-price inflation during the so-called Barber Boom of the early 1970s. There was another flurry in 1977–8 when controls on lending mortgages were briefly loosened because of fears about the house builders. It was enough to get the tongues wagging.

This was not quite the 1930s, the heyday of middle-class house buying, when a new semi-detached cost just over £500, available with a down payment of £50, and when mortgages cost about 10 per cent of a middle-class income and were paid off within sixteen years. But looking back, 1979 was actually the beginning of the extraordinary process which – over the next three decades – has goaded the rise in prices so brutally that it has ended the house-owning dream for many people, and which now, more than anything else, threatens the very existence of the middle classes.

There is always an argument about why house prices rise, and why those prices accelerate. Politicians like to say that it is a shortage of homes, and there certainly is a shortage and it doesn’t help. But if it was only about housing shortage, you would expect massive price rises in the late 1940s, whereas – after a burst after the war – house prices stayed completely steady from 1949 to 1954. In our own day, planning permission has already been given for 400,000 unbuilt homes in the UK, yet prices still rise, as they do in places like Spain, where there is little or no planning restraint.

Politicians get muddled about this because building houses sounds like a tangible thing they feel confident about tackling (though they usually don’t), whereas they don’t feel confident about mortgage supply at all. Yet that is the other side of the process: inflation is about too much money chasing too few goods, and the main reason for the extraordinary rise is that there has been too much money in property, both from speculation and from far too much mortgage lending.

Sometimes this came from people’s rising incomes, which translated into rising home loans. Sometimes, more recently, it was bonuses and buy-to-let investors. But most of the time, it has been a catastrophic failure to control the amount of money available to lend, and which has fed into all the other trends to create a tumbling cascade of money, with its own upward pressure on incomes and debt until the acceleration now seems quite unbreakable. It was a roller coaster that terrified and thrilled the middle classes, as they saw the value of their homes rise so inexorably, but which ended – as we have seen – in undermining the very basis for their continued existence.

So what happened? As so often, there is no smoking gun, no deliberate policy, but a series of decisions – taken for very good reasons and often in other areas of policy – by a close-knit group of people. Back in 1979, as they prepared for the historic election that swept Margaret Thatcher to power, there was an institution that was designed partly to prevent house-price inflation. It was called the ‘Corset’, which tripped off the tongue a little easier than its other name: the Special Supplementary Deposits Scheme. It worked by penalizing banks when they lent too much, and – although it was not always effective at limiting the money they lent – it did keep bankers out of the mortgage market.

So travel back with me to the moment of the first clue in this book, the autumn and winter of 1978, as it turned into 1979, when a small group of economists and radical thinkers was meeting regularly at the home of Sir Geoffrey and Elspeth Howe next to Vauxhall Park, in the elegant Georgian terraces of Fentiman Road. Elspeth was then deputy chair of the Equal Opportunities Commission. Sir Geoffrey was a former Solicitor General and had good reason to believe that he would be appointed as Chancellor of the Exchequer in the new Conservative government, if Mrs Thatcher could lead them to victory.

These were people who had bought into the intellectual argument for free markets, which emerged from divisions inside American liberalism in the 1940s, and was identified with the controversial economist Milton Friedman. In Howe’s sitting room week by week were the economic journalist Nigel Lawson, a future Chancellor himself, and Sir Keith Joseph, the former health minister who had performed a kind of mea culpa for his role in the sins of the last Conservative government under Edward Heath, and was now an agonized intellectual figurehead for the new dispensation. There were also a number of other young advisers and thinkers, prominent among whom was the future banker Adam Ridley.

It was a heady and exciting time as they met, through the events known to modern history as the ‘Winter of Discontent’, when the trade unions rebelled against their government’s incomes policy and rubbish piled up in the streets. Inflation was running at 10 per cent and rising. But Howe’s group were not just fairly certain they would win, they had the confidence of a big idea behind them – that inflation could be squeezed out of the system by reducing the amount of money in the economy.

Their other idea was in some ways the very opposite. It was that ending all the detailed controls on banking – most of all the restrictions on money leaving the country which had begun at the outbreak of war in 1939 – would provide a kind of discipline to Britain’s unruly economy. As many as 750 civil servants policed the exchange control system at the Treasury and Bank of England. Everyone’s passport in those days noted the money they were taking out of the UK on holiday on a page at the back. This radical group believed the whole system must go.

Ridley and the other policymakers were aware that the controls had tightened through the decade, and especially when the government had been forced to borrow money from the IMF in 1976. ‘The essential concern was that a sophisticated financial system finds ways of outflanking most controls within a few years,’ he says now, ‘and from that point on the complications and distortions cause more damage and loss than any of the uncertain benefits which they may have initially brought.’

The problem was that these were highly uncertain times. John Hoskyn, then the head of the Prime Minister’s policy unit, described running the British economy as ‘fighting for the controls of an aeroplane that can no longer fly’.³ The price of oil was soaring and pushing the economy, yet again, into recession. Nobody on the Conservative side wanted to frighten the markets or the electorate by revealing their plans too publicly. It certainly wasn’t in the Conservative manifesto for the election, which had been ready the previous year when they thought the election would take place. Lawson risked using his column in Financial Weekly during the election campaign to talk about relaxing exchange controls. Howe was ‘apprehensive but fundamentally sympathetic’, at least according to Lawson.⁴

Looking back at the May 1979 election with the benefit of hindsight, it is extraordinary how united the middle classes were – perhaps it was the last election to be fought strictly on class lines. I remember watching the documentary series about the public school Radley College later that year, and seeing their entire staff room gather to watch the results, united in their assumption that they were all cheering the Conservatives on to victory.

They did indeed win – by forty-three seats. Margaret Thatcher quoted St Francis of Assisi on the steps of 10 Downing Street. Howe was duly appointed as Chancellor with Lawson as his deputy (Patrick Hutber had already taken over from him as City Editor of the Sunday Telegraph). Ridley became their special adviser. The revolution had begun.

I bought a house in the early winter at the end of 1986, just over six years after the events I have just described, when interest rates stood at 11 per cent. It was a struggle, even with help from my stepfather, but then I wasn’t earning very much either. I remember the strange, adult excitement of the key going into a front door of my own place, even if was a little damp and dilapidated. I remember the excitement (yes, and the expense) of doing it up myself, and the misery when the flat roof leaked down the staircase and I had no idea how I could afford to mend it.

The following eighteen months were almost the eye of the house-price storm, as money cascaded into the mortgage market and house prices began to rise, slowly at first and then catastrophically. I benefited from that rise, and there certainly was a feeling of delicious self-congratulation by the middle classes, then and later, that our assets – though we may not have owned them outright – had risen so much in value.

Pinpointing the abolition of the Corset is not straightforward, but its demise was a direct result of the revolution wrought by Howe, Lawson and their colleagues. Of course house prices rise for many reasons, and it is hard to believe that the Corset would have prevented the flood of foreign financial institutions, mainly American, that poured their money into the UK housing market. The fact that fewer homes were built in 2009 than in any year since 1924 doesn’t help. Often prices rose because the middle classes compulsively wanted them to do so. They loved it. It made them feel rich, right up to the point where it ruined them. The Corset may have been impossible to sustain, but its demise marked the end of mortgage rationing. Mortgage debt didn’t rise at all in the Corset years of the 1970s. From 1979 to 1987 it grew at 10 per cent a year. The real problem was not so much the demise of the Corset. It was the failure to replace it with any policy that could possibly hold down house prices as the Niagara of mortgage money roared through the national economy.

Howe wrote in his memoirs that he was only ever lobbied once by his government driver, and then it was about house prices – during the cabinet battle over mortgage-interest tax relief (set at £25,000). That amount ‘would have bought me a small country estate when I first joined the car service’, said the driver.⁵ House prices had begin to thrill, and the decisions to loosen lending after the 1987 Stock Market Crash accelerated the process. So did the housing-boom years under Tony Blair and Gordon Brown.

Now, you need double the average national income to buy a two-bedroom flat in Tower Hamlets in the poverty-stricken East End of London. As I write, average house prices in London are around £408,000, over fifteen times the average income. Anyone buying a house in the capital for the first time will need to cobble together a deposit of £100,000 and still have a salary of over £87,500 to get the mortgage.⁶ No wonder there are 800,000 people in London waiting for affordable or social housing.

I am acutely aware now that my 1986 purchase (£45,500, which I eventually sold for £225,000 two decades later) was also a kind of lifeline. If I had bought ten years later, certainly twenty years later, I would now be paying ruinous monthly mortgage interest payments which would seriously restrict my choice of what I want to do in my mid-fifties. I would be forced to concentrate on the handful of jobs that would allow me to earn enough to service my mortgage, assuming I could find one.

Of course, there is a range of experimental shared ownership schemes on the market – part rent, part mortgage. These make buying a home just a little easier, though they are few and far between. Ironically, these are very similar to the Homebuy schemes of the early 1970s, which were used as evidence back then that the domestic mortgage market was too restricted. Now it isn’t restricted at all – if you have a deposit – and we are back to square one.

The Conservatives having won the election in 1979, Howe moved into a second-floor office of the Treasury, which was carpeted throughout, under the Treasury’s exemplary and parsimonious regime, in red lino. There was a plaque above his desk explaining that the Air Council had met there throughout the war. There is some irony in knowing that Howe’s decisions were taken in the very room where they had planned the carpet bombing of German industrial cities four decades before.

Howe was a peculiar mixture too. His bank-manager spectacles and quiet speaking style gave him the appearance of caution. His long-term Labour opponent Denis Healey nearly ruined Howe’s career, during a Commons spat, by describing himself as having been ‘savaged by a dead sheep’. This belied the reality. In fact, Howe was a serious radical, according to the political columnist Edward Pearce. ‘If you listened to Sir Geoffrey for his oratory, you would hang yourself,’ he wrote. ‘The man is absinthe masquerading as barley water. Like the good lawyer he is, Sir Geoffrey uses tedium like cuttlefish ink to obscure the news.’⁷ Lawson, the new Chief Secretary to the Treasury, was rotund and frighteningly confident. Together, they made hay of the old guard at the Treasury. The permanent secretary Sir Douglas Wass was sidelined and new advisers were brought in.

The key problem, as the Bank of England governor Gordon Richardson explained within days of the election, was how to bring down the value of the pound. The unspoken assumption was that doing so in the wrong way threatened a disastrous run on the currency, but Richardson’s remarks seemed to the revolutionaries like the green light to lift exchange controls. Howe, Lawson and Ridley met at the Conservative Party conference in October and decided there was no middle way. They would go ahead and stop controlling who could take money out of the country.

All they had to do was persuade Margaret Thatcher. Again, later reputations are not a very good guide for understanding the time. These were the days before ‘Thatcherism’. The trio of revolutionaries were still not quite certain of her support for economic deregulation. They knew that, when Edward Heath was leader, she had opposed the sale of council houses and anything else which risked raising mortgage rates. What they did know for sure was that, whatever happened, she was on the side of the middle class. The Conservative manifesto had promised ‘to support family life, by helping people to become homeowners’. There had certainly been nothing about deregulating the mortgage market. Only weeks after the election, she was writing notes to Howe: ‘I am very worried about the reports in today’s press that mortgage rates may have to go up within days. This must NOT happen. If necessary, there must be a temporary subsidy.’⁸

The very last thing Howe and Lawson wanted was a subsidy, temporary or otherwise. They had set their faces against any such thing. There was a gap between the Prime Minister’s absolute commitment to middle-class homeowners, and their convictions about economic change, which is directly relevant to house prices today. Political mythology suggests that it was Lawson who persuaded Thatcher that a ‘property-owning democracy’ required people to go into debt – which definitely meant changes to the mortgage market. Maybe that conversation happened at the same party conference. No one is saying.⁹ What we do know is that she was persuaded.

What the revolutionaries didn’t do was talk to the cabinet. ‘Do you know,’ Howe told a dinner party a few weeks later, ‘there hasn’t been a single economic discussion in the cabinet since this government came in.’¹⁰

That wasn’t strictly true, but it was quite right that the cabinet was never consulted about the end of exchange controls. They were informed. The critical moment came about mid-morning on 25 October 1979, when Howe explained to the cabinet what he was about to announce. Mrs Thatcher was apologetic, recognizing that ‘some other members of the cabinet might have liked to have an opportunity of expressing their views before a decision was taken’.

Only one voice was raised against. The then Environment Secretary Michael Heseltine warned that people might respond by taking their money out of the country to buy villas in France. But, again, we only have Lawson’s word for this.¹¹

Howe and Lawson had calculated that, despite the worst fears of their critics, there would be no catastrophic outflow of funds, nor a collapse in the value of the pound – for the same reason that the economy was in crisis. Because of North Sea Oil, the pound was now a petro-currency. So they took a deep breath and hoped for the best. The announcement was made and, to their surprise, the pound kept on rising. It carried on doing so until Britain’s exports were unaffordable abroad and UK manufacturing industry staggered, and – hopelessly outdated, under-invested and beset by insane labour relations – all but gave up the ghost. But that, as Kipling might say, is another story.

The decision to abolish exchange controls was a defining moment for the rest of the planet, which rapidly followed suit. It cleared the way for the modern world, where national spending decisions are kept in check by the vigilance of global money markets which can, and do, bankrupt nations overnight. The huge bureaucracies of exchange control were certainly hard to justify, but then so are some of the results of their disappearance. As much as $4 trillion a day now churns through the world financial system, most of it foreign-exchange speculation. It is a terrifying, uncontrollable and largely unpredicted force in modern affairs.

But Howe had also made a brave and imaginative decision. He and Lawson wanted financial discipline and some encouragement for British companies to invest abroad, and they got it. Those involved in the decision to end exchange controls made a special tie to commemorate it, which said ‘EC 1939/1979’. Lawson wore the tie later to deliver his budget speeches when he was Chancellor himself. ‘It was the only economic decision of my life that caused me to lose a night’s sleep,’ wrote Howe later, ‘but it was right.’¹²

What makes the exchange-controls decision important here is that it made the controls on bank lending impossible to sustain. Sooner or later, overseas banks or offshore branches of UK banks would start bypassing the Corset. Sooner or later, the Bank of England feared, they would start lending money for mortgages and push up the price of houses.¹³

So it proved. Fast-forward nearly three decades, and there was Sebastian Cresswell-Turner writing sadly in The Times about the discovery that he could no longer afford the life his parents had. ‘The poor aren’t the only ones who are getting poorer,’ he wrote, describing the effects of twenty-seven years of accelerating house prices. ‘Whole swathes of the professional classes are too’:

An unmarried and badly paid knowledge worker, I live in a rented room in Hammersmith and have no hope of ever buying a home anywhere. Indeed, when I return to the agreeable parts of central London that I know so well from earlier periods of my life, I realise that I am looking at the attractive stucco houses in just the same way that a tramp looks through the restaurant window at a group of people enjoying a carefree meal. I am effectively an exile in the city where I was born.¹⁴

When Howe became Chancellor, and despite the two blips during the 1970s, house prices were being kept low by another strange institution that the Corset made possible. This was the building societies’ ‘Cartel’. Because the banks were kept out of lending people mortgages, the building societies were allowed to get together and keep interest rates much lower than they were in the mainstream lending market. They were only allowed to lend out money that people had deposited with them. Because of this, mortgages often had to be rationed. There was a waiting list, sometimes for months. It was inconvenient, and it is hard to imagine mortgages being rationed these days, but to some extent it worked.

The Cartel was presided over by a joint committee of building societies, regulators and ministers, whose task was to set an interest rate low enough to keep the house builders building, but high enough to stop house prices rising. The first step in its demise was when Lawson, as Chief Secretary to the Treasury, refused to provide new guidelines for an interest rate. He said afterwards that he didn’t realize he had to. Without the interest-rate guidelines, there was no point in a Joint Advisory Committee.

‘It was the first step in what was to become a far-reaching programme of financial deregulation, with consequences – some of them wholly unforeseen – which were to have a major impact on the course of the economy and the conduct of policy,’ said Lawson later.¹⁵

The joint committee limped on until 1984. Once again, it all depended on the Corset and – now that exchange controls had gone – the Corset could not stand. For months, the stockbroker Gordon Pepper had been saying so. The new ministers set great store by Pepper and copied his speeches to each other. Peer into the cabinet papers of the day, now they are publicly available, and you find Pepper’s speeches everywhere.

The pressure was also on from the Labour opposition. Denis Healey rose in the House of Commons, only three weeks since exchange controls were lifted, taunting Howe about giving people the ‘unhappiest Christmas ever’.¹⁶

‘How long will he and his colleagues allow the nation’s eco-nomic prospects to be ruined by a bunch of bumbling doctrinaires?’ Healey went on. The Labour benches roared their approval behind him. Then the killer blow.

‘Why on earth has he kept the Corset still in place when it is well known throughout the banking community its worth is useless now that he has abolished exchange control?’

Even the Wilson Committee, Harold Wilson’s final act in frontline politics, and packed with trade unionists, recommended that it should go. So did Lord Young of Dartington, the author of the 1945 Labour manifesto, who urged its abolition in a letter to The Times.

But there was another consideration. The new cabinet was determined to expand the homeowning classes by selling council houses to their tenants. It was a bold and populist move, designed also to tackle the patronizing record of the big cities in designing and managing council housing – but implemented disastrously (the money earned from the sale just sat there, and wasn’t used to build new low-cost housing). For tenants to buy their own homes, even at discount rates, the means to borrow the money had to be available to them.

There was really no contest, and Howe gave the Corset six months and confirmed the deadline in his budget speech in March 1980, an event that was threatened by the loss of the famous battered red budget box at the Treasury. The box turned up at the last minute and Howe rose to deliver what the Labour leader Michael Foot called a ‘no hope budget’.

‘The Governor and I have agreed …’ he said. The Labour MPs opposite roared with laughter. For a moment, it sounded as if this was a peculiar and deferential way of referring to Margaret Thatcher.

Howe kept his cool. ‘I am referring not to any foreign or outlandish figure but to the Governor of the Bank of England. We have agreed that the supplementary special deposit scheme – generally known as the Corset – should not be extended beyond mid-June, when the present guideline ends. One of the effects of the Corset has been to encourage the development of credit channels just outside the banking system …’

This is certainly true. Once exchange controls had gone, there really was no way under the system as it was then to prevent money from abroad flooding into the UK property market. It certainly did, which is some explanation why 900,000 more households are renting in the UK than they were in 2005.¹⁷ It also explains why Britain now lies behind Romania and Bulgaria for its percentage of homeowners, and why only half of London’s homes are now owner-occupied.¹⁸ It explains a little why London is rapidly shifting from property-owning democracy to a city of supplicants to the whims of landlords and rental agents.

There are many people who might welcome that kind of shift, towards a society less obsessed with owning our own homes. But renting is really no escape from high house prices, because they feed straight into high rents, and a third of all mortgages in 2006 were for buy-to-let homes. The cost of servicing a mortgage provides a kind of basic floor for rents too, which is why so many people in successful jobs remain trapped in flatshares, sharing the bathroom, well into their thirties and probably beyond. The newspaper columnist Owen Jones complained on Twitter about London rents (£1,000 a month for a two-bedroom house in inner London). Hundreds of people responded with their own horror stories – a 35 per cent rent hike imposed after Christmas, a couple who had to abandon their ‘tiny flat’ in Zone 3 after their monthly rent went up from £720 to £950.

A recent report by the National Housing Federation predicts that average London rents will rise by 50 per cent, to over £2,000 a month, within ten years, that the average London home will rise to £688,000 by then too.¹⁹ Nobody believes that average wages will match that rate.

It is easy to blame the landlords for this, and there is certainly greed and opportunism involved, but the real difficulty is that the level of rents depends on the level of mortgage repayments. That is what landlords need to charge to pay the mortgage. It isn’t enough to condemn our ‘addiction’ to property ownership (actually, I don’t have a problem with people owning the place where they live), but the costs of private renting are actually driven by high house prices in just the same way that mortgages are.

So when it comes to imagining how our children will house themselves, it isn’t enough just to abandon home ownership. Private renting will make them just as dependent on high house prices, without the independence that ownership brings – miserably dependent on the whims of landlords, forced to move constantly, without the local roots that their own children – anyone’s children – need. If independence is the new hallmark ideal of the middle classes, it is hard to see how it can continue except for the few – the only children who inherit, the children of those in financial services, the heirs and successors of the One Per Cent.

Were we dreaming when we allowed our hearts to leap at the signs in the estate agent’s window? When we cashed in the rise in house values with loans to fuel the consumer boom? When we got so into the habit of using loans to fund holidays and buy cars that outstanding household loans have tripled in the last decade (or worse, when we used the extra money as collateral to become Lloyd’s Names)? How did we get sucked into the phenomenon of the Emperor’s New House Prices, when we dared not criticize their inexorable rise for fear they might fall again?

Certainly the whole phenomenon took the Treasury by surprise. None of their econometric models showed how rising housing wealth fed into consumer loans and debt. Nor did house prices behave in the same way uniformly across Europe (in Germany, they have barely moved for a generation). We knew all that, but we still cheered. It took an intelligent commentator like Martin Wolf of the Financial Times to break the log-jam. ‘It is mad to applaud ever rising prices,’ he wrote in 2008.²⁰ And so it is.

It is also easy to blame the revolutionaries in the Thatcher government in 1979 and 1980. The decision to end exchange controls made the demise of the Corset and Cartel inevitable too, and you might argue that the cosy world of the building societies in those days – refusing to lend in some neighbourhoods or to single women – sealed their fate. But the real blame has to go to the middle-class cheerleaders of rising house prices. It was their nest egg, their early retirement guarantee, as unprecedented wealth flowed from their parents through to them. They did not stop to wonder – and I was the same – whether it might stop flowing, and what it would do to their children’s lives if it did.

The debate was complicated right from the start by a rapid rewriting of history. Some months after these fateful decisions, Lawson was boasting to Swiss bankers about the huge success of the end of exchange controls (‘highly successful in every material respect’) and getting rid of the Corset too:

With the wisdom of hindsight a strong case can be made for the proposition that we should have followed our original instinct and announced its abolition immediately on taking office, a year previously: a thermometer which gives a false reading, however flattering, is no use to anyone.²¹

History was already being rewritten to make the decision an obvious one, whereas it had actually been far more difficult than that. As we have seen, once the Corset had gone, there was nothing to prevent the banks dashing into the mortgage market and pushing up house prices as a result. Horribly burned by the Latin America debt crisis, they were desperate to lend money somewhere. The UK housing market looked like a good bet, especially for American lenders borrowing money on the wholesale markets. All that now held them back was the building societies’ Cartel.

The first sign of trouble for the Cartel came within days of the 1980 Budget speech. It became clear that NatWest was setting up a home loans unit to start as soon as the Corset was dead. Lloyds Bank was also dipping its toe in the mortgage market with the intention of ‘picking up the top end of the market’, according to their domestic banking manager.²²

Lawson laid into the building society chiefs in an address to their conference at the Bournemouth Winter Gardens, but they were not keen to struggle against the world’s most powerful financial institutions. ‘I don’t think a return to the jungle is in the national interest,’ said Building Societies Association chairman Leonard Williams.²³ For two years, he led the building societies into battle with the banks – aware, to start with, that the banks were tending to pick up custom initially from the people the building societies turned down as bad risks. But in the long run, it was an unequal battle. The days of mortgage rationing were over.

The crunch came in October 1983. All the senior managers of the building societies were in Melbourne at a big international conference when the Abbey National took the opportunity to break the arrangement to limit interest rates. ‘The Cartel is an arrangement to stifle competition,’ chief executive Clive Thornton told the press. ‘We want none of it.’²⁴

When building society interest rates started to rise up to market levels, wholesale funds were available to the banks on the wholesale markets – but not to the building societies. They had to wait for new legislation in 1986 (see the next chapter) that allowed them to bypass their own depositors and raise money in that way – eventually the cause of disaster for Northern Rock and HBOS a quarter of a century later.

The year 1986 was also the year that the former Times editor Simon Jenkins said he heard a director of Halifax Building Society, as it was then, say: ‘God help us if the bankers get their hands on our mortgages or if our brokers get their hands on their deposits.’²⁵ Both events did take place in the fullness of time, as we shall see.

Lawson talked about the end of the Cartel, but feared the short-term consequences of killing it. ‘I accept my prominent part in this though I was by no means alone,’ he wrote in 1992.²⁶ In his autobiography, which he was writing the previous year, he described the explosion of mortgage lending that followed as ‘unprecedented and unforeseen’, saying that the late 1980s – with the huge explosion in house prices which he presided over as Chancellor – were a ‘once and for all occurrence’.²⁷ As we have found to our cost more recently, that wasn’t so.

But by then, the world had changed. Within months of the decision to end the Corset, the whole tenor of the debate had shifted. We know now that the idea that somehow all prices reflected something real was a fundamental mistake which still infects many – especially in banks, where they still bolster their balance sheets with property values, only to have those values slip through their fingers. We might know that now, but by then it flew in the face of the new spirit of the times to point it out.

Hidden in the archives of the Bank of England is a revealing note. It is a memo from the governor (still Richardson) in May 1980, weeks before the Corset was finally loosened, and describes meeting a City grandee who asked him why nothing had been put in place to replace it.²⁸ The deputy governor has added his own note on the file describing the hapless grandee. ‘Were he a Tory MP he would I fear rightly qualify for a certain adjective in rather wide current use.’

The adjective he referred to was ‘wet’, Mrs Thatcher’s new designation for her opponents in the cabinet. ‘Rather sad, I think,’ said the governor.

Nothing has replaced the Corset, and Thatcherism – heralded by the new and vigorously enforced consensus implied by this note – would countenance no such defences. House prices would find their proper level, whatever they happened to be, and the acceleration upwards had barely begun. The consequences have been profound.

If Surbiton holds a special place in the affections of the British middle classes – and I’m far from certain about that – it is because it was the fictional home of Tom and Barbara Good, the quintessentially middle-class downshifting couple who hit the TV screens in 1975 in The Good Life, the blueprint for a new middle-class craving for independence.

The Good Life was actually filmed in middle-class, semi-detached Northwood rather than semi-detached Surbiton, but a quick walk from the art deco railway station in Surbiton still makes it a kind of middle-class Ground Zero. There are the leafy suburban streets, the little slices of middle-class life, divided by wooden fences as far as the eye can see, the lawnmowers and electric drills getting dusty in their huts through underuse, and their silver cars in the garage, or on a concreted-over front garden (I can’t see the Goods concreting over their front garden, but let’s not go there).

It is also clear that things have changed since The Good Life. The curtains don’t twitch. There is hardly anyone at home behind the reclaimed front doors with their stickers for the National Childbirth Trust in the windows. The people who get off the train from Clapham Junction with me still carry shopping bags from Peter Jones, as they always did. Yes, the slightly faded advertisements for the Surrey Comet still grace the newsagent stands. Yes, I am nearly run over by a delivery van from Ocado. But there are also men on the platform bawling into their mobile phones in Polish, and there is one man dignified and resplendent in the white robes of an imam. What would Margot Leadbetter have said?

Things are different for lunch too. I’m not at all sure that the menu in the Surbiton Brasserie (if it existed in 1975) would have offered ‘lemon chicken with pine nuts’. Still less my jacket potato with Mediterranean vegetables and mozzarella. But what really strike me are the conversations among the mainly women clientele around me.

‘What is his role exactly?’ asks the lady on my right. ‘Is he one of the finance guys?’

‘It doesn’t make sense,’ says the lady on my left. ‘It’s just something HR came up with. Just to get brand-holders in the same room.’

They may be eating, but these are emphatically not ‘ladies who lunch’, and once again I realize the pressure of the mortgage market. This isn’t like it was when Margot spent her days with the local amateur dramatic groups, or battling with Mrs Dooms-Paterson and Dollie Mountshaft in the Music Society. These are working women, either because they choose to be or because they must work because their mortgage depends on joint salaries. The average house price in Surbiton, judging by the nearby estate agent, is around £600,000 for a three-bedroom semi.

There is even an argument that the mass appearance of middle-class women on the jobs market is one of the factors pushing up house prices over the last three decades. They earned money, which meant that bigger loans were available, so the house prices rose to meet them. That is how it works. Inflation is too much money chasing too few goods, and what we have seen since the deregulation of the mortgage markets is ever more reasons to lend more, so that the house prices rise to take account of it, and so the cycle goes on – in retrospect a terrifying rack for the middle classes.

Terrifying especially if women didn’t want to work, because that freedom is now beyond them. Once lenders had began to calculate the upper limit in multiples of joint salaries, there was another escalation of house prices. It is part of the far bigger vicious circle that is caused by people desperately stretching to afford the home they want, and which is outpacing their income as they watch – a spiral that keeps on spinning: smaller houses, bigger loans, more salaries, higher prices, smaller houses and so on.

One twist to this cycle we have so far managed to escape in the UK is lengthening the repayment terms. We have not yet been given the pleasure of Japanese-style Grandparent Mortgages, which extend the mortgage period so that the next two generations have to pay it off. It was no coincidence that, after Grandparent Mortgages emerged in Japan, Tokyo property prices rose to be the most expensive in the world. The losers got to buy small tubes they could live in. As yet, we have been spared all that.

Nor have we had subprime lending on quite the same scale as the USA’s, with loans packaged to their lower-paid ‘middle classes’ in such a way that they could never be paid off. But we have some elements of that. Interest-only mortgages – a hefty segment of the UK market – are also mortgages which will never be paid off without a change in financial circumstances. Given that the last few years have seen interest rates at a historic low, this is bound to mean trouble in the future when they rise again, as they almost certainly will.

The British version of the vicious spiral has been lending against ever-greater multiples of salaries, which also feed into the cycle of higher prices. Until 1988, the limit was usually twice the salaries of the people buying. Loans of four times joint salaries were unheard of, but over the past decade loans for four times joint salaries came to outnumber those of twice joint salaries.

Here is the strange reverse alchemy of the house-price spiral. Victorian economists calculated that the average English peasant in 1495 needed to work for fifteen weeks to earn the money they needed to survive for the year, supported as they were by access to the common land. In 1564, it was forty weeks.²⁹ Now, when GDP tells us we are incomparably richer, it is extremely difficult to buy a house in southern England and live a reasonable life without both partners working flat-out all year long. Even when both partners work, it is often simply not possible (certainly for twenty-first-century peasants, of course).

This aspect of the spiral has had some peculiar effects. When the 2001 census unexpectedly revealed that half the UK population now lives within half an hour of where they were born – not exactly globalization – it did cause some scratching of heads among policymakers. The real reason was that only working couples can now afford to buy homes. That means they need to live near their parents or in-laws to provide childcare during the day. Those who can’t rely on parents for whatever reason are thrown on the mercies of an expensive, understaffed childcare sector that often eats away most of the second household salary.

Hence the sad sight of exhausted mothers wheeling home exhausted toddlers in the dark at the end of a long day at the nursery, long after bedtime, finally picked up after another long day at the office.

The Blair government helped in 1998 by introducing Sure Start centres (124 of which have since closed down). But what they gave with one hand, they took away with the other, all but outlawing informal childcare – you can look after children for neighbours but they are not allowed pay you, even in biscuits – and by regulating the co-operative nurseries out of existence. This was important. Mutual nurseries are how the middle classes afford childcare in North America and Scandinavia, keeping costs right down in return for helping to run the nursery once or twice a month.

There are certainly some brilliant nurseries out there. There are also many less than brilliant ones. The columnist Lucy Mangan described herself as ‘aghast at apathetic children – one group in a nursery in a basement flat with no garden and virtually no natural light – or at childminders who reach for the paperwork to sign the child up without ever reaching for or engaging with the child’.³⁰

The other aspect of the spiral which stands out in the UK is the phenomenon of the Incredible Shrinking Homes. This isn’t rocket science. You only have to look at the generous gardens of the semi-detached houses of the 1930s to see that something has gone wrong – all that space for hens and vegetable patches if need be, compared with the pinched and mean pocket handkerchiefs of turf and concrete in modern estates.

The famous Parker Morris space standards of the 1960s are now long gone, though the UK is the only European country not to set a minimum floor space, apparently unaware that the house-price spiral was almost bound them to make them smaller. New homes in Denmark are 80 per cent bigger than their equivalents in the UK. The design agency CABE lays the blame on the idea that houses are an investment – a financial commodity rather than homes. This ‘works against quality standards in house building’, they say.³¹

The Royal Institute of British Architects (RIBA) have tried to translate that lost space into more human terms. If the average new home in England is only 92 per cent of the recommended minimum size, as they say it is, this amounts to eight square metres missing for a three-bedroom house.³² That is the size of a single bedroom, the space for a new arrival to the family, the space for children to have a room of their own, or for a spare room for a guest to stay overnight. It is the space that could take the kitchen out of the sitting room and the sounds and smells that go with it.

The RIBA dubbed these new homes ‘shoebox houses’, and the BBC interviewed two sisters who had just moved into a new three-bedroom house in Devon.³³ The largest double bedroom was 11 foot 2 inches by 8 foot 2 inches, just enough space for a double bed as long as nobody tries to squeeze into it. They had to give their book collection away to the local charity shops: ‘We are just on top of each other the whole time. We find we are arguing much more than we used to – simply because there’s not the space to get away from one another.’ Nearly half of those who replied to the RIBA survey of new home buyers in 2009 said that they had so little space that they were unable to entertain visitors.