Get Real

I caught a bit of a Radio 5 discussion programme the other day which focused on how different people have fared during the recession the country has faced over the last six years since the economy took the biggest nosedive in living memory.

Now it was a mixed bag of contributions, as you would expect, with some folks pointing to a fall in real wages while others were keen to point out that the tax take on citizens has fallen, so to some extent it comes down to swings and roundabouts.

But one chap rang in and was honest enough to admit that his family was actually much better off because his housing costs had fallen by £600 a month as a result of the artificially low interest rates the UK has experienced since 2008.

And unless you factor this issue into a debate on the cost of living, then people are kidding themselves on because there's no point in saying that everyone should be treated equally or fairly in terms of pay rises or tax policy if in practice, mortgage payers get a much better deal than everyone else.   

Cost of Living (2 October 2014)

Here's an extract from a report by the ONS (Office of National Statistics) that explains how the Consumer Price Index (CPI) is calculated and as the note at the bottom of the Table says mortgage interest payments are not part of the calculation.

As I've said many times before on the blog site, how can you have a rational debate about the 'cost of living crisis' which Ed Miliband bangs on about all the time when you don't include the biggest single cost facing a huge number of home owners and, of course, 'buy-to-let' property developers. 

And as everyone knows the costs of mortgages has fallen significantly over the past six years because of the artificially low interest rates that have been in place in the UK since 2008, while during the same period rents have gone up. 

So talking about the effect of inflation as if everyone has been affected equally is ridiculous, as is the notion that there is a 'cost of living crisis' facing mortgage payers because many of them have enjoyed a huge financial windfall since the recession struck.  

I rest my case.

How inflation data are calculated

The ONS assigns a weighting to each spending category when calculating inflation. Food has an 11pc weighting, while housing (CPI includes rents, but not mortgage interest payments) and utility bills have a weighting of 13pc, according to the CPI gauge. Using RPI weightings, housing accounts for 25pc of the index (Source: ONS)

Cost of Living (4 December 2013)

In recent weeks the Labour Party has shifted the focus of its political attacks on the Coalition Government. 

No longer does Ed Miliband argue that the economy is stalling or flatlining - instead he says that the benefits of the economic recovery that appears to be slowly gathering pace are not being passed on to hard working families - and that the UK is experiencing a cost of living crisis. 

Now clearly this is not true for everyone and while there may be people who struggle to pay their bills and/or put enough food on the table - lots of others are actually much better off because of the artificially low interest rates the country has been experiencing since 2008.

For example, anyone with a large mortgage may be thousands of pounds a year better off - even if they are in a job where the pay has increased very little, if at all, over the past few years.

So it stands to reason that the people facing a big hit to their standard of living has to be someone without a mortgage - someone who pays rent - because their housing costs will have gone up rather than down since the UK economy went from boom to bust. 

All of which means that all this talk of a general cost of living crisis is untrue - and that a much fairer policy would be one which targeted help on citizens paying rent because they have not been fortunate enough to have been handed a big financial windfall - courtesy of nothing more than a sudden and fortuitous collapse in interest rates.

Free Money (8 January 2013)

I heard someone on the radio yesterday complaining that he would be losing out to the tune of £240 per month - as a result of the government's planned changes to child benefit payments. 

Now my heart almost bled as I listened to the chap claim (convincingly) that as a result of the unexpected drop in his income - that he might not be able to keep up his monthly mortgage payments.

Next my glass eye almost shed a tear as the poor man explained the terrible burden of having his company car taxed and treated - as an expensive benefit in kind.

'What kind of world do we live in?', I thought to myself - before quickly coming to my senses and dismissing his ridiculous claims as so much baloney and hot air.

Because as I've said before on the blog site anyone who has been paying a mortgage in recent years has very little to complain about - compared to lots of other fellow citizens at least.

For example workers in low paid jobs, people who rent instead of owning a property (via a mortgage) - or folks on a fixed income, such as pensioners.

The reason being, of course, that most people in these groups have little - if anything - to show for the artifically low interest rates which have greatly benefited UK mortgage payers in recent years - as can be seen from the previous posts below.

So my advice is simple - don't shed any tears for people losing out on child benefits because they earn more than £50,000 or £60,000 a year - because they don't need or deserve a hand-out of free money from the state.

Windfall Tax On Mortgages (March 4th 2011)

I read a remarkable statistic the other day - which made me stop and think.

The Financial Services Authority (FSA) has apparently calculated that the UK's artifically low interest rates in recent years - have meant an unexpected windfall of £20 billion to the nation's mortgage payers.

Yet another example of the old saying - 'It's an ill wind that blows nobody any good'.

In this case £20 billion to the good - and the bigger the mortgage - the bigger the killing people have made - without any effort or risk.

While those who can't afford or no longer need a mortgage (e.g. low paid workers and pensioners) - have lost out big time, comparatively speaking.

So I have a suggestion for the government and our policy makers.

Bring in a special windfall tax on mortgages which claws back some of this £20 billion - and use the money to reintroduce the 10p tax rate to help the low paid.

Low paid workers will spend the money - because they don't have a lot to start with - and that will help to boost the economy.

Readers will remember that the 10p tax rate was abolished by the 'man with a moral compass' - Gordon Brown - in one of his worst decisions as Prime Minister.

But here's a chance to right a great wrong - help the lower paid - boost our flagging economy - and with money that has simply fallen into people's laps by sheer luck - nothing else.