The business - Patrick Hosking hails the truthful businessman

Let's applaud the new head of Abbey National for telling the truth about house prices: they are set

A round of applause, please, for Luqman Arnold, the new chief executive of Abbey National. He took just 36 hours after his appointment at the weekend to blow a raspberry at the housing industry's most cherished unspoken rule. This is that no one - be they banker, estate agent or builder - should ever suggest that house prices can go down.

The approved script is that in the early stages of any housing boom, prices "roar ahead". This encourages any stragglers not yet on the housing ladder to load themselves up with debt and take the plunge before it is too late. In the latter stages, price rises "gently slow" to ensure a soft landing. This reminds anyone in authority that the mortgage industry is highly responsible and wouldn't dream of fuelling an inflationary consumer boom.

Happily, Arnold, a merchant banker with no experience of the home loans industry, omitted to go native and instead told the Observer that there was a growing risk of a slump in property prices: "We look set for a correction," he said. "There are dangers," he went on, "although I don't want to use the word 'crash'." (He might not want to, but the Daily Express did, and promptly splashed the following day with the headline: "House prices set to crash.") House prices aren't about to collapse quite yet. They are currently rising at their fastest for 29 years. But the further they soar, the more likely it is that they will plunge back down again. That is the cyclical nature of asset markets.

Whatever the housing market now does, the authorities are in danger of looking negligent. Either house prices will eventually start to fall, in which case they will be accused of standing idly by while the bubble was being inflated. Or they will not, in which case they will be accused of overseeing an unprecedented and permanent hike in the cost of one of the nation's basic needs: shelter.

Ministers pay lip service to the awkward fact that teachers and nurses can barely afford to live in the south-east any more. But they know that nothing matters more at the ballot box than voters' feelings of prosperity, and nothing warms the financial cockles so much as those reassuring monthly surveys from the Halifax showing prices continuing to climb.

Tony Blair doubtless believed that his priority was "education, education, education" when he came to power. But a little devil within was whispering that what really mattered was "house prices, house prices, house prices".

A flurry of buck-passing looks likely if boom does turn to bust. Responsibility for house prices seems to have fallen into a dark crevice somewhere between the Treasury, the Bank of England and the Financial Services Authority.

Gordon Brown has his hands full plugging a £7bn hole in the national accounts and in any case regards monetary policy (and presumably control of house prices) as a Bank of England responsibility. The Bank won't be distracted from an inflation target that explicitly excludes mortgage interest payments and has been hoping - vainly - for years that the housing market will cool of its own accord. The Financial Services Authority, which supervises the banks, is up to its neck in other problems and anyway wouldn't dream of interfering without Treasury say-so.

With hindsight, they may yet regret not putting credit controls of some sort on mortgage lenders. Mention these relics from the 1970s, and regulators and banks alike throw up their hands in horror. Yet the one thing we can be certain of is that lenders will not show the necessary restraint by themselves.

Meanwhile, every further hike in house prices shortens the odds on a sharp retreat later. A serious slump in house prices would prove more painful to the economy than the bear market in shares.

The £50,000 lavished on Yann Martel was petty cash for Man Group, the new sponsor of the Booker Prize. Five days earlier Man announced that it had persuaded the wealthy of Europe and the Middle East to fork out a record $670m in its latest investment fund.

The new fund from Man - which turns away any investor with less than a $50,000 lump sum - reveals how risk-averse the rich have become.

True, the investors' money is put into hedge funds, which in the past have produced juicy returns. But the key feature of Man's product is the guarantee: investors are promised a 20 per cent minimum return over 11 years, regardless of how the hedge funds perform. That works out at a piddly 1.7 per cent annual return. It all feels like something out of a 19th-century novel, where the heiress's income is based on 2 per cent Consols or other low-yielding government bonds. Man Group may be fostering the modern novel, but its clients are straight out of Jane Austen.

Patrick Hosking is deputy City editor of the London Evening Standard

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