Why Major's call for 5% interest rates is economic madness

A significant rise in rates by 2017 would leave more than a million households spending more than half of their income on debt repayment.

While it's John Major's comments on social mobility that have made headlines today (read my critique of them here), his remarks on interest rates are equally striking. After years of loose monetary policy, with the base rate held at a record low of 0.5% since March 2009, Major called for rates to return sooner rather than later to "normal levels, say three to five per cent" to create a society that treats "the saver as fairly as it treats the debtor".

It's advice as bad as one would expect from the man who presided over rates of 15% in the early 1990s. As research by the Resolution Foundation shows, even under an optimistic scenario of strong and sustained earnings growth, a rise in the base rate to 3.9% by 2017 would leave 1.08 million families in "debt peril", defined as spending more than half of their income on debt repayment. Under a negative scenario of weak and uneven earnings growth, the number at risk would rise to 1.25 million. A more modest rise in rates to 2.9% would leave between 880,000 (positive scenario) and 1.04 million (negative scenario) in debt peril.

No one believes in low rates as a point of principle (and Major is right to highlight how savers, most notably the elderly, have suffered) but after the longest sustained fall in living standards since 1870, the only sensible option remains to keep monetary policy loose. As Matthew Whittaker, senior economist at the Resolution Foundation, has noted: "Even if interest rates stay in line with expectations, we are likely to see a rise in the number of families struggling with heavy levels of repayment over the coming years. But if the squeeze on household incomes continues, Britain could be left in a fragile position, with even moderate additional increases in interest rates leading to a major surge in families with dangerous debt levels – especially among worse-off households."

The coalition's decision to rely so heavily on cuts to public spending and benefits, rather than progressive tax rises, to reduce the deficit means that low-income families are even less well-placed to cope with a rise in rates. The OBR forecasts that average household debt will rise to £58,000 in 2010 to £77,309 by 2015, or from 160% of total income to 175%.

While fixated with reducing government borrowing, Cameron and Osborne appear intensely relaxed about ever-greater levels of household indebtedness. If Major wants someone to blame for the punishingly low rates endured by savers, he should turn his ire on the austerians in Downing Street.

John Major called for interest rates to return to "normal levels, say three to five per cent". Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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All the Premiership teams are competing to see who’s got the biggest stadium

It’s not just a financial, but a macho thing – the big clubs want to show off that they have a whopper.

Here in NW5, where we live noisily and fashionably, we are roughly equidistant from Arsenal and Spurs. We bought the house in 1963 for £5,000, which I mention constantly, to make everyone in the street pig sick. Back in 1963, we lived quietly and unfashionably; in fact, we could easily have been living in Loughton, Essex. Now it’s all changed. As have White Hart Lane and Highbury.

Both grounds are a few metres further away from us than they once were, or they will be when White Hart Lane is finished. The new stadium is a few metres to the north, while the Emirates is a few metres to the east.

Why am I saying metres? Like all football fans, I say a near-miss on goal was inches wide, a slow striker is a yard off his pace, and a ball player can turn on a sixpence. That’s more like it.

White Hart Lane, when finished, will hold 61,000 – a thousand more than the Emirates, har har. Meanwhile, Man City is still expanding, and will also hold about 60,000 by the time Pep Guardiola is into his stride. Chelsea will be next, when they get themselves sorted. So will Liverpool.

Man United’s Old Trafford can now hold over 75,000. Fair makes you proud to be alive at this time and enjoying the wonders of the Prem.

Then, of course, we have the New Wembley, architecturally wonderful, striking and stunning, a beacon of beauty for miles around. As they all are, these brave new stadiums. (No one says “stadia” in real life.)

The old stadiums, built between the wars, many of them by the Scottish architect Archibald Leitch (1865-1939), were also seen as wonders of the time, and all of them held far more than their modern counterparts. The record crowd at White Hart Lane was in 1938, when 75,038 came to see Spurs play Sunderland. Arsenal’s record at Highbury was also against Sunderland – in 1935, with 73,295. Wembley, which today can hold 90,000, had an official figure of 126,000 for the first Cup Final in 1923, but the true figure was at least 150,000, because so many broke in.

Back in 1901, when the Cup Final was held at Crystal Palace between Spurs and Sheffield United, there was a crowd of 110,820. Looking at old photos of the Crystal Palace finals, a lot of the ground seems to have been a grassy mound. Hard to believe fans could see.

Between the wars, thanks to Leitch, big clubs did have proper covered stands. Most fans stood on huge open concrete terraces, which remained till the 1990s. There were metal barriers, which were supposed to hold back sudden surges, but rarely did, so if you were caught in a surge, you were swept away or you fell over. Kids were hoisted over the adults’ heads and plonked at the front.

Getting refreshments was almost impossible, unless you caught the eye of a peanut seller who’d lob you a paper bag of Percy Dalton’s. Getting out for a pee was just as hard. You often came home with the back of your trousers soaked.

I used to be an expert on crowds as a lad. Rubbish on identifying a Spitfire from a Hurricane, but shit hot on match gates at Hampden Park and Ibrox. Answer: well over 100,000. Today’s new stadiums will never hold as many, but will cost trillions more. The money is coming from the £8bn that the Prem is getting from TV for three years.

You’d imagine that, with all this money flooding in, the clubs would be kinder to their fans, but no, they’re lashing out, and not just on new stadiums, but players and wages, directors and agents. Hence, so they say, they are having to put up ticket prices, causing protest campaigns at Arsenal and Liverpool. Arsène at Arsenal has admitted that he couldn’t afford to buy while the Emirates was being built. Pochettino is saying much the same at Spurs.

It’s not just a financial, but a macho thing – the big clubs want to show off that they have a whopper. In the end, only rich fans will be able to attend these supergrounds. Chelsea plans to have a private swimming pool under each new box, plus a wine cellar. Just like our street, really . . . 

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle