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UK banks hit by downgraded credit ratings

12 banks and building societies less likely to recieve support from the government during financial

Moody's has downgraded the credit rating of 12 UK financial firms, including Lloyds TSB, RBS, Nationwide and Santander UK. Shares in both RBS and Lloyds were down by about 3.5% in morning trading.

Moody's said that the government are now less likely to support some of the firms if they got in to financial trouble, including the complete removal of "systemic supoort for seven smaller institutions."

The Chancellor, George Osborne, said one reason for the downgrades was that the government was seen to be "trying to deal with the too-big-to-fail problem".

"One of the reasons they're doing this is because they think the British government is actually moving in the direction of trying to get away from guaranteeing all the largest banks in Britain" said the chancellor.

But Osborne said that he still had confidence in British banks. "They are not experiencing the kinds of problems that some of the banks in the eurozone are experiencing at the moment."

However, the firm emphasised that the downgrades did not "reflect a deterioration in the financial strength of the banking system".

Moody's applied three catorgaries of downgrade to the financial firms.

Those banks with a "high likelihood" of support from the government, inlcuding RBS and Llyods; those banks or building societies with a "moderate" likelihood of support, such as Nationwide; and institutions with a "low or no" likelihood of support. This category included several building societies, such as Norwich & Peterborough, Nottingham, Principality, Skipton and Yorkshire.

The Building Societies Association called the downgrade a "normalisation" that had "been expected for some time. It does not represent any change in financial strength and it is business as usual across the sector."

RBS said it was "disappointed" that Moody's announcement did not reflect the "significant progress" the bank had made to restructure it finances.

"We do, however, see the removal of implicit government support for the UK banking sector as being a necessary and important step forward as the sector returns to standalone strength," RBS said in a statement.

Nationwide said that Moody's announcement was part of an industry-wide review, and "not a reflection of Nationwide's business model. Nationwide remains one of the strongest and best capitalised financial organisations in the UK".

But analysts have said that we shouldn't over-react to the downgrades, and that people are getting paranoid about UK banking.

"It doesn't have the same exposure to sovereign default and devaluation risk as the rest of Europe. It does have exposure to Ireland, but that is a eurozone country which appears to be doing best in the crisis," said Max King, a portfolio manager at Investec Assest Management.


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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.