Certainly it looks that way.
The PM described the Labour parties dismal showing at the recent local elections as a Bad Night and he wasn’t wrong! The party lost 310 ccouncillors with the Conservatives gaining 252 Labours worst defeat in over 30 years.
Yes although these were elections for local councils the public see them as an opportunity to voice their opinions on National politics and had this been a general election then certainly Labour would no longer be in government and the Conservatives would return to power.
Tory leader David Cameron said I think this is a very big moment for the Conservative Party, but I don’t want anyone to think that we would deserve to win an election just on the back of a failing government.
A poll for The Independent newspaper showed the Conservatives had stretched their lead over Labour nationally to 14 points from seven following a row over Brown’s decision to abolish the lowest rate of income tax, a move which left millions of the poorest households worse off.
Mr Brown blamed the testing economic conditions for the Labour’s poor performance which drew comparisons with the thrashing John Major’s Tories suffered in 1995, two years before their landslide General Election defeat.
It looks very much to us as if Mr Browns’ assessment of the result being due to testing economic conditions is spot on. The scrapping of the 10p tax rate has caused a huge row inside the Labour party and perhaps came as the last straw for many voters with other concerns about the economy.
The banking crisis which is not over yet it seems has cost the Government and therefore us a huge amount . Estimates for the take-over and Nationalisation of the Northern Rock are 150billion plus the Bank of England injection of a further 50 billion to encourage the banks to start offering more mortgages again. Unfortunately so far it seems they’re sitting on the money!
That was very difficult for Mr Brown and his Chancellor but in our opinion it was right to act as they did before confidence in the wider banking sector dissolved.
Inflation is causing problems too. Officially the figure is 2.5% but that has always excluded both fuel and house prices. The Retail Price Index which does include mortgage interest payments but not house prices rose to 4.1% as at the end of Feb 2008. If you were to factor in the cost of buying a home by comparison with 1998 the figure in some areas of the UK would be more like 15%! So unless you’re income has risen by at least 100% or more these past 10 years you are worse off. If you have been retired during this time and been living out of a fixed income you will for sure be finding life more expensive now, although chances are you’ll have at least paid for your home.
Oil price $116 a barrel. OK that’s the price today as I write this entry with forecasters saying $120 a barrel very soon. Whislt demand continues to rise and supplies struggle to keep up we must expect the price to continue to rise. What nobody knows of course is for how long?
The government in the UK has argued that together with the credit crunch these are matters over which it has no control, so don’t blame us! However inflation is their problem, and as fuel goes up so does the cost of bringing goods to our shops and supermarkets. If Tesco, Sainsburys and Morrisons all have to pay more for the diesel in their trucks sooner or later they have to pass the increases on to their customers and they are.
Could the government help ease this situation? Here are the stats, what do you think? According to petrolprices.com whose latest figures are based on petrol being sold at £107.9p (Out of date info now I know) Here’s the deal: Petrol 32.6p, VAT 16.07p, Fuel Duty 50.35p, Retailer 8.8p. More info available on their website www.petrolprices.com it’s really worth a visit. Because fuel has risen in price so sharply so has the amount of tax the government collects, from 39.4p per litre in 1996 to 63.7p per litre by 2007.
It would be nice to think that the UK government would consider a cut in fuel taxation but it seems highly unlikely given the revenue they are receiving from it. They of course argue that the price must remain high to discourage us from using our cars on environmental grounds.
This is not meant in anyway to be a political thread, we wish it to be neutral and for you to comment, but can this level of taxation really about the environment or raising money? No doubt if Mr Brown were to announce a reduction in fuel duty now, he’d be accused of an environmental U turn and trying to buy voters back!
House prices also have started to turn in a downward direction, a difficult one for the government this. Not a vote winner for Mr Brown with those who’ve purchased recently and have mortgages of 95% or more. Of course if you purchased 5, 10 or 15 years ago your property may have doubled or even trebled in value so you’re unlikely to be complaining should there be a reduction in prices, unless you’ve borrowed heavily on your increased equity. Borrowers are finding it tougher to obtain mortgages now and those coming off fixed rate deals are being faced with higher payments due to the rate increases.
Experts have been saying that house prices have been too high in Britain for sometime, illustrated recently by a work colleague who was told by a chirpy lady on the desk in Barclays, Did you know we can offer you a mortgage of up to 6 times your salary? Colleague smiles and says That’s great but unfortunately the average house round here costs 10 times my salary! That’s London for you! The point is that whether a home costs 7, 8 or 10 times a reasonable salary the price must be too high and lenders just are not going to look at income multiples like that in the current climate. So a slowdown looks likely as does a reduction in the cost of properties.
Mr Brown and the government are not going to like this. The housing market is seen as a key economic indicator in Britain. If prices start to slide we tend to think that possibly the whole economy is in trouble even if as I’ve mentioned there is likely to be a correction in values whilst incomes play catch up. A slowing housing market isn’t likely to be much of a vote winner. The other problem for the government is reduced stamp duty revenue. Take a look at these figures produced by the Halifax Bank last year:
Tripling in revenues from higher stamp duty bands in past five years
Stamp duty revenue raised from sales of properties valued at more than £250,000 rose by 208% in the past five years from £1.6bn in 2001/02 to £5.1bn in 2006/07. More than nine-tenths (92%) of the rise in the total annual residential stamp duty take over the five years has been due to an increase in the amount raised at the higher stamp duty bands.
South of England generates most stamp duty revenue
The South of England* contributed 73% of all residential stamp duty revenues in 2006/07 at £4.7bn, led by £1.7bn of stamp duty revenue from London (27% of the UK total). Two other regions generated stamp duty revenue of at least £1bn - the South East (£1.4bn) and the South West (£1.0bn).
It’s easy to see how a slowing housing market with fewer properties being sold would result in a fall in stamp duty revenue. Bad news for a government with so many existing financial commitments. Following the row within their own party Chancellor Alistair Darling announced changes to the personal tax system to help low-income customers affected by the abolition of the 10% starting rate of income tax. Personal allowance for the 2008-09 tax year will be increased by £600 from £5,435 to £6,035, and the threshold at which someone starts to pay higher rate tax will be reduced by £600.It looks as though the government listened to its critics and to the public following the local elections by giving us this concession, but whether it will be enough to turn around their fortunes is unknown. Given the result in the Crewe and Nantwich by-election last week it looks like Mr Brown has his work cut out to persuade the Country he’s got it right.
As always we welcome your comments, The Loans2you team. www.loans2you.net
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