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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Calm down, everyone – of course Nigel Farage is in the running for TIME Person of the Year

The former Ukip leader has been shortlisted for the iconic magazine list.

While your mole is no fan of former Ukip leader and triumphalist frog Nigel Farage, it has to scurry to his defence in this instance. There's been a big brouhaha (ie. some people on Twitter have posted a few half-hearted opinions and crap jokes) about the bonvivant Brexiteer being shortlisted for TIME's iconic Person of the Year.

He is one of 11 contenders for the position listed by the magazine, alongside the likes of Donald Trump, Mark Zuckerberg and Beyoncé. (What a dinner party that would be. We hope Zuck puts the photos up on Facebook.)

Why are people surprised by this? Farage is the reason the UK is leaving the European Union, and by doing so has made a big impact on national and global politics. Adolf Hitler and Joseph Stalin famously won the award, so we know it's not an endorsement, simply a measure of impact. And others on this year's list suggest this too: Recep Tayyip Erdoğan, Narendra Modi, Vladimir Putin, Donald Trump – all dubious political figures who have caused controversy.

So why the big deal about Farage?

Read more about TIME's shortlist here. The winner is announced tomorrow.

I'm a mole, innit.