QE, austerity, trade… has the UK anything left to prop it up?

"No action" is not an option.

You would have to travel a long way to find anyone more safety-conscious than a coal miner. So you might have found it strange that when steel pit props were introduced miners objected with a ferocity that shocked management. Their reasoning was simple; before a wooden pit prop broke it gave out a characteristic creak. Steel props shattered without any warning signal. Your chances of getting away before the cave-in became vanishingly small.

So where’s the creaking pit prop in the UK economy? You wouldn’t have to look much further than the behaviour of the Monetary Policy Committee (MPC) of the Bank of England. The committee seems to have been intent on stealing the thunder of the "Greatest Central Banker of His Generation", otherwise known as Mark Carney, even before he has had time to warm the seat of the out-going Mervyn King. The MPC has been implementing Carney’s favoured ideas (promoting bank lending) whilst laying the ground to stop him increasing the Quantitative Easing (QE) programme by voting Sir Mervyn down on the issue four meetings in a row. At the same time Charles Bean, a voting member of the MPC, has, once again, been waving the spectre of negative interest rates in the face of the markets. As the old leader faded others have jumped into the vacuum before the new one arrived.

But the reality is that the lending policies won’t deliver the impact that some expect. The Funding for Lending Scheme is tiny compared to the size of the overall economy whilst some of the Help To Buy schemes meant to promote the housing market look positively dangerous if interest rates start to rise. Besides, consumers, who are seeing their real incomes decline, are still historically geared-up to their eyeballs and are highly sensitive to even small interest rate movements. They aren’t likely to throw a credit party whilst government expenditure is continually cut in real terms during the next five years, a policy to which both the UK coalition and the opposition parties are committed. In short, as in the past four years, housing approvals are going nowhere – that prop has been taken away.

The spending freeze has reinforced the sense of economic hibernation to the point that there is no obvious domestic engine for growth in the UK. To compound the situation our nearest and arguably most important trading partner, Europe, is still in the grips of a decline. Either Mr Carney will get round the MPC nay-sayers and extend QE to a level unthinkable even to the Japanese or politicians are going to have to start spending again; such a volte face would provide the Labour Party with a purpose and relevance that it has now lost.

"No action" is not an option. The electorate won’t have it, especially when they can organize themselves through social media on a level and with ferocity never seen before. Either way, by design or by accident, the pound would take the strain if more and more stimulus is poured into the economy just to prop it up. The defining moment for Mark Carney may yet be how he handles a sterling crisis that will feel like a mineshaft collapsing in on him. The creak is there if he wants to hear it.

Bank of England Governor, Mark Carney. Photograph: Getty Images

Head of Fixed Income and Macro, Old Mutual Global Investors

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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