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Iceland wins compensation case

Iceland does not owe money over Icesave collapse.

The EFTA (European Free Trade Association) court on Monday ruled that the government of Iceland had not breached the deposit guarantee directive for savers in the collapsed Icesave bank.

Reykjavik had been charged with  failing to guarantee minimum levels of compensation to UK and Dutch savers, who were bailed out by their own governments.

Icesave, an online savings bank, was a victim of the 2008 collapse of Iceland’s banking system.

"Iceland has from the start maintained that there is legal uncertainty as to whether a state is responsible for ensuring payments of minimum guarantees to depositors using its own funds and has stressed the importance of having this issue clarified in court," the Icelandic government told the BBC.

When Iceland’s banks were in crisis, UK Chancellor Alistair Darling bailed out 230,000 UK savers in Icesave to the full extent of their savings - about £3.5bn. This was more than the maximum   decreed by European rules for deposit compensation schemes.

The EFTA judgment said, "the Court holds that the Directive does not envisage that the defendant itself must ensure payments to depositors in the Icesave branches in the Netherlands and the United Kingdom, in accordance with Articles 7 and 10 of the Directive, in a systemic crisis of the magnitude experienced in Iceland."

The Icelandic government originally agreed to re compensate its European neighbours in 2009 but the move was very unpopular. Icelandic people complained that the payouts would bankrupt them and that the UK and Dutch governments had compensated their citizens a much greater amount than required by European legislation.

The president of Iceland refused the deal and a referendum was held in March 2010,  in which the Icelandic population strongly rejected the move.

A second referendum on a new deal on repayments also resulted in a “no” voter in April 2011, though by the much narrower margin of 59 per cent to 41 per cent.

Nonetheless, Iceland has in fact re payed the British and Dutch governments more than 90 percent of the minimum deposit guarantee the two governments were obliged to pay.

There are concerns that this ruling could undermine cross-border banking in the European Union. Some governments worry retail depositors could be left unprotected in the case of another banking collapse.

This risk appears to have been mitigated by a change in the law since the collapse of the Icelandic banks. Whereas before there was no minimum requirement for EU banks to protect deposits of their savers, at the moment each EU member state must insure they have coverage of up to €100,000 for every depositor.

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.