22 September 2023 – today’s press release

Families in Blue Wall hit with £3,000 “Truss tax” in year since mini-budget

New research reveals homeowners in London and the South East have seen their mortgage payments rise by £3,000 in year since mini budget

The two ‘Blue Wall’ regions are the hardest hit, compared to an average hit of £2,000 across the country

Those on a 2-year deal who remortgaged in the wake of the mini budget saw their mortgage rate jump by average of 1.69% to 5.17%

Homeowners in London and the South East have seen their mortgage payments rise by a staggering £3,000 in the year since Liz Truss’ shambolic mini budget, new research commissioned by the Liberal Democrats has revealed.

The party said it showed that homeowners are still paying a “Truss tax” on their mortgages and suffering the consequences of years of Conservative chaos.

According to figures provided by the House of Commons Library, typical homeowners coming out of a two-year deal in the week after the mini budget last September would have seen their rate shoot up from 1.69% to 5.17%.

This has led to a typical hit of £3,066 over the past year for homeowners in London, where the average outstanding mortgage is £150,000. Families in the South East, where the average outstanding mortgage is £144,000, will have seen a typical hit of £2,944 over the last twelve months. This compares to an annual hit of £2,003 – or £167 a month – for the typical mortgage-holder across Great Britain.

Those who locked in for a five-year deal after the mini-budget will have benefited from a slightly lower interest rate of 5.1%, but will still fork out a whopping £12,893 extra in London and £12,377 in the South East over the course of their deal.

The Liberal Democrats have called on the Government to support struggling households at risk of losing their home by launching an emergency Mortgage Protection Fund, fully paid for by reversing tax cuts handed by the Conservatives to the big banks. The party is also calling for new protections for renters, including an immediate ban on no-fault evictions and extending the default tenancy period to three years to give renters certainty.

Liberal Democrat Treasury Spokesperson Sarah Olney MP said:

One year on since the disastrous mini budget, families are still facing a crippling Truss tax on their mortgages.

Rishi Sunak has shown he is totally out of touch with families having to cut back because their mortgage payments have gone through the roof.

He could choose to help struggling homeowners at risk of losing their home, instead he is handing billions of pounds of tax cuts to the banks.

People will never forgive this Conservative government for taking a wrecking ball to the economy and then forcing families to pick up the tab.

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25 Comments

  • David Symonds 22nd Sep '23 - 10:50pm

    Quite concerning that the Labour Party in Mid Beds is wanting to have a spat with the Lib Dems by claiming “false representation”. Indeed the history of Labour’s long standing attitude towards Liberals, the Alliance and then Lib Dems is a very bad and negative one as Labour sees itself as the only centre left challenger to the Conservatives. There is a progressive majority in Britain and it remains divided as Labour steadfastly has a distaste for working nationally with Lib Dems, though there is more co-operation at local levels. I think Labour would prefer the Conservatives to win Mid Beds and vice versa, rather than Lib Dems. The old enemy is in fact their friend when it comes to it. Co-operation and consensus is often better than adversarial politics.

  • Peter Martin 23rd Sep '23 - 3:04pm

    @ Mark,

    “typical homeowners coming out of a two-year deal in the week after the mini budget last September would have seen their rate shoot up from 1.69% to 5.17%.”

    It may be tempting to heap all the blame on to Liz Truss we do need to look at what is happening elsewhere in the world to get an accurate assessment. The problems of monetarist economics go far deeper than Ms Truss’s miscalculation.

    Typical Mortgage rates in Australia are over 7%

    In the USA it’s the same story with the link below saying

    “The average long-term US mortgage rate edged up to 7.19% this week, slightly below its 2023 high”

    https://apnews.com/article/mortgage-rates-interest-housing-real-estate-78b88dbcb0aae9a4de3405df934d8d13

  • Martin Gray 24th Sep '23 - 7:30am

    @Mark …..When I took a mortgage out many moons ago , 5% was a fairly attractive & competitive rate..Truss was probably still a lib member wanting the monarchy abolished ..

  • Nonconformistradical 24th Sep '23 - 8:16am

    “There is a progressive majority in Britain”
    Is the Labour Party progressive?

  • Peter Martin 24th Sep '23 - 8:25am

    @ Mark,

    “When I took a mortgage out many moons ago , 5% was a fairly attractive & competitive rate……..”

    Yes it would have been. However, you don’t mention the ratio of house prices to average incomes at the time. You don’t mention whether you could claim income tax relief on the interest on the loan.

    If present day house buyers could have similar terms and conditions they’d be happy with 5% interest too!

  • Peter Martin 24th Sep '23 - 8:28am

    Sorry. My previous comment should have been addressed to Martin Gray not Mark!

  • @Peter …Your right Peter . You’d need 12 times the average salary to purchase the same house . As opposed to just over three when I got it … Obviously not the homeowners fault – interest rates back gen were averaging between 5-7 …Apart from Black Wednesday..

  • Peter Martin 24th Sep '23 - 11:17am

    “The party said it showed that homeowners are still paying a “Truss tax” on their mortgages”

    It wouldn’t be quite so bad if the extra money that homeowners were paying out was actually being collected by Government. If it were, it would really be a tax and could truly be said to helping reduce the money supply and so inflation. This is the stated purpose of raising interest rates.

    As it is, it is money that is transferred from hard pressed borrowers to far less hard pressed bankers who are reporting bumper profits as their coffers swell with the proceeds.

    It is economic nonsense! A transfer of money in the private sector is not a reduction of the ‘money supply’.

  • New lending falls as interest rates rise. Money supply contracts when loan repayments exceed new loan creation. A rapid reduction in credit creation can lead to economic contraction or recession which itself puts downward pressure on inflation and interest rates.
    The Joseph Rowntree Foundation report on the housing market Worst of all World’snotes:
    “that measures used for previous housing crashes won’t work because of the particular economic conditions today.” The report includes a number of budgetary ans structural recommendations in their report. I would add that we need to apply a land value tax to banks profits from mortgage lending – residential and commercial.

  • Peter Martin 24th Sep '23 - 2:36pm

    @ Joe,

    ” Money supply contracts when loan repayments exceed new loan creation.”

    If I lend you £10 it’s obviously a transfer of money from me to you. I have £10 fewer of someone else’s IOUs (whether this is the BoE or a commercial bank is immaterial) but I’ve gained an IOU from you so in accountancy terms I’m all square. You have more of someone else’s IOUs which you can spend but you’ve got a liability of £10 to me. You’re all square too.

    When you repay, as I’m sure you would 🙂 , it’s a reversal of the process. It may not be that obvious to many just how the money supply rises and falls by £10 during the lending and repaying process. I accept that if you try hard enough you can come up with a fairly abstruse definition of what money supply might be to explain it but I doubt that many would properly understand it.

    I’m sure you can find some reference to support the official fiction of how what is termed “New Keynesianism” , I’d say monetarism, is supposed to work but I doubt if you can explain it in your own words in a way we can all understand.

    That’s ‘cos it’s all BS!

  • It’s pretty simple really (as Henry Ford noted), Peter. If you lend me £10 no new money is created. You are transferring money within the existing money supply from you to me and vice versa when I repay you.
    When a bank makes a loan it is creating new money not transferring existing funds. When the bank loan is repaid that money creation is reversed.
    From a banking law standpoint, when you sign a loan agreement with a bank you are creating a financial security in the form of a promissory note. The bank buys that promissory note from you and credits a deposit account in your name with its accounts payable to you. Until you withdraw that deposit you have lent the newly created money to the bank. When you withdraw the deposit the bank records a transfer of its account payable due to you to a new liability to the bank/customer that receives the deposit. If the payee uses the same bank it stays within the bank. If it is another bank it is settled via debit/credits to inter-bank reserve accounts. If bank reserves drop below an optimal level then funding is sourced in the inter-bank lending market.
    No new wealth is created when a bank makes a loan. The bank has a new asset (the loan) and liability (the bank deposit) of the same amount and so does the borrower (cash in the bank and a loan liability). However, new money in the form of a bank deposit is created and hence purchasing power is created i.e. a money claim on real resources.
    Bank can create new money/expand the supply of bank deposits (money) you cannot. You can only transact with existing money in the form of currency or bank deposits for the simple reason that your promise to pay is not accepted as money, the banks promise to pay is accepted as money. All money is debt but not all debt is money.

  • Peter Martin 24th Sep '23 - 6:23pm

    @ Joe,

    It really makes no difference if the lending is from a bank or is on a person to person (P2P) level. Both the bank and person acquire an asset in the form of the loan and hand over one an IOU which is in their possession or for which they are responsible. The bank won’t care if you take your loan in £ notes (BoE IOUs) or what might be termed bank IOUs because those have to be redeemed on demand against BoE £s in any case.

    They’ll only care if they consider you might default.

    In both P2P and bank lending, a borrower is more likely to spend than a lender at the start of the loan (reflationary) but consequently they will spend less (deflationary) over the remaining period of the loan. The effect therefore is only macroeconomically reflationary in the short run. It’s neutral or even possibly even slightly deflationary in the longer run depending on other factors such as the lesser amount of money the government pays out into the economy due to its falling interest rate bill.

    This is why interest rates ended up at pretty close to zero prior to the Pandemic. The BoE was always looking to stimulate the economy by encouraging the creation of more credit, and therefore more lending and private debt, to compensate for the deflationary effect of the too much private sector debt they’d created previously.

    .

  • Peter Martin 24th Sep '23 - 7:00pm

    @ Joe,

    It’s not just me who’s saying that the mainstream have it the wrong way around. I’m not sure if we’ve reached the same conclusion by the same reasoning but we are both saying that an increase in interest rates in inflationary in the longer run. Anyone who’s paying a lot more in rent or mortgage payments than they were a couple of years ago will be unlikely to disagree with this!

  • Peter Martin,

    it makes all the difference in the world if the lending is from a bank rather than a non-bank. Only banks can create new liabilities in the form of bank deposits that serve as 97% of the money circulating in the economy. Bank deposits do not have to be redeemed against BoE £s. Commercial banks will finance withdrawals from their accounts in the inter-bank lending market and by competing for savings accounts with other banks. Banks will very rarely look to the BofE for liquidity outside of financial crisis when inter-bank lending freezes up.That is why The BofE is referred to as the lender of last resort.

  • Interest rates follow increases/decreases in nominal gdp upwards or downwards. They are a reaction rather than a cause of inflation. Increased interest rates are deflationary to the extent they contract credit creation and inflationary to the extent they contribute to increased government spending into the economy. This inflationary effect becomes more significant the higher the levels of government debt to gdp and hence the level of interest payments on the public debt become.
    Increases in mortgage rates affect housing costs in the CPIH inflation measure. They are not accounted for in headline CPI measures or core inflation. Neither are they the driver of higher rents. Landlords will point to higher interest costs and/or other factors as the reason for higher rents, but the fundamental reason is shortage of supply relevant to demand driven by nominal incomes.
    Nominal incomes increase as a result of wage increases, but these wage increases themselves are a reaction to inflation generated by excess credit creation. Employers will cite wage pressure as the reason for increasing prices, but similarly these nominal wage and price increases are a reaction to inflation generated by excess credit creation or government spending relative to supply. The problems start with excess credit creation in the banking system. Other issues follow-on from this initial cause.
    Restricting bank credit creation principally to investment business capital and new housing construction while utilising personal savings and pension funds for personal loans and sources of lending for purchases of existing housing could mitigate much of this boom/bust cycle in housing markets and private debt. That is how Japan grew its post-war economy until the mid 1980s when it changed course and decided to let credit creation rip, resulting in a housing and stock market crash in 1989 that it is still trying to recover from.

  • Bank lending is neither neutral or even slightly deflationary in the longer run. It is the principle cause of house price inflation and the reason house prices grew by 173% in real terms from 1995 to 2007 when mortgage rates wereabout 8% Real UK House Prices since 1975
    House prices declined for five years from 2008 when interest rates were near zero and only began increasing again when banks increased their volume of lending into the mortgage market.
    The reason the JRF writes “that measures used for previous housing crashes won’t work because of the particular economic conditions today.” is that debt has reached unsustainable levels. House price to income multiples of 8 times earnings cannot be sustained at mortgage rates of 6-8%. Nor can banks reflate the housing market at these rates of interest. The BofE cannot reduce interest rates in the face of continuing CPI inflation more than 3 times over the 2% target. Consequently, the housing correction that is underway will continue until house prices have fallen to more sustainable levels.
    That does not mean that rents will fall. Rents are determined by the level of nominal incomes relative to supply of rental accommodation. Neither lower interest rates or falling house prices will see rents reduce. Only falls in nominal incomes (i.e. significant increases in unemployment) as happened in the wake of the financial crisis or massive increases in council house building will bring down rents

  • Peter Martin 24th Sep '23 - 9:06pm

    @ Joe,

    Only banks can create new liabilities in the form of bank deposits that serve as 97% of the money circulating in the economy.

    Of course any organisation that is capable of creating its own bank deposit must be a bank. So this sentence doesn’t tell us much! As Minsky said anyone is capable of creating money. The difficulty is in getting it accepted.

    “Bank deposits do not have to be redeemed against BoE £s”

    No-one would have confidence in the Bank’s credit if they were denied access to £ notes when they asked for them. Similarly if other banks refused to clear transactions which they will only do if they know that the bank was solvent. They too will want to know that a particular banks IOUs are redeemable. If not, we’d see a run on the bank similar to what we saw with Northern Rock in 2007. The BoE / Govt may choose to step in for a rescue but this would be an entirely political decision.

    You continue to repeat the mainstream line which I think we’re all familiar with. Did you follow what Warren Mosler was saying? It’s necessary to be able to do that even if you end up disagreeing. Then you can explain where he’s going wrong in his own critique! This would be a much more valid approach.

  • Joseph Gerald Bourke 24th Sep '23 - 9:48pm

    Peter Martin,

    Commercial banks pay for the notes and coins their customers need by debiting their BofE accounts with new issues and crediting their accounts with notes returned to the BofE for withdrawal from circulation. Confidence in the security of bank deposits is maintained by the Deposit Guarantee Scheme that covers up to £85k of deposits per bank.
    When it comes to theory, there are three prevalent theories of banking and money creation that have been promulgated by economists (not accountants or bankers) over the past century.
    The oldest as endorsed by the Classical economists is the credit creation theory which was prevalent until about the 1920s and has been confirmed by the BofE and other central banks as the reality of banking practice in the 21st Century.
    The second is fractional reserve banking which assumes a money multiplier. This theory was prevalent from about the 1930s to 1960s and still appears in some economic textbooks.
    The third is the financial intermediary theory that has been prevalent since the 1970s (at least until the 2008 financial crisis) and posits that banks act as intermediaries accepting deposits and lending then out or borrowing short and lending long i.e. maturity transformation.
    Money is simply debt that is accepted as a medium of exchange. Both governments(via central banks) and commercial banks can create debt based money and do not need existing deposits or money multipliers to do so.
    “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” ― Henry Ford

  • Joseph Gerald Bourke 24th Sep '23 - 10:05pm

    Peter Martin,

    there are several critiques of Warren Mosler’s axioms. This is one MMT – the differences there are many more.

  • Peter Martin 25th Sep '23 - 8:05am

    @ Joe,

    The point about bank money is really nothing to do with any government guarantee. This is an optional extra and was first introduced in 1982. Banks don’t create ££ as such. We can consider that the £ is an IOU of government and of course the BoE is to all intents and purposes part of government. They create IOUs which are *denominated* in ££. We don’t have to be concerned about this normally but there is a difference.

    Richard Murphy claims to support MMT but has so many differences with it that he may as well not bother. But at least he does try to explain why he has differences in his own words rather than resorting to phrases like ” there are three prevalent theories of banking and money creation” which is merely pointing to what someone else thinks. Your link to RM is doing just that too! Even though he doesn’t address the WM’s point about rises in interest rates being potentially inflationary!

    If anyone can’t explain their argument in their own way and in their own words they probably don’t understand it fully in the first place. Trying to have an intelligent conversation is, therefore, a waste of time.

  • Peter Martin,

    the argument is made in the article. The Truss proposed mini-budget set-off a meltdown in financial and pension fund markets and an immediate spike in government borrowing rates that was the catalyst for what was to follow in the ensuing months. Those are the facts whether they contradict MMT theory or not.
    Excess credit creation in the banking system has created a housing bubble. Increased interest rates will deflate that bubble and bear down on lending but with serious consequences for highly leveraged borrowers. It would have been far better not to create the bubble in the first place and not spike borrowing costs with the Truss budget.
    The impact of higher interest rates in reducing inflation will be less effective than in past years as a consequence of the high levels of public debt to gdp and increased deficits arising from higher levels of interest payments on that debt. This has been warned off by many economists as the danger of historically high deficits and debt levels for several years. However, CPI inflation is visibly reducing and as a consequence the BofE has paused rate hikes this month.
    Libdem policy is based on empirical data based evidence including peer reviewed research and publications on money creation and public finances prepared by well-informed bodies like the Bank of England, OBR and IFS, as it should be.

  • Peter Martin 25th Sep '23 - 3:04pm

    @ Joe,

    I’m not a pro-Truss small government person so I’ll leave the defending of that to others. She chose the worst possible time to attempt to do anything economically radical. That was politically inept. I know its very tempting and politically convenient to blame LT for high interest rates but they are lower in the UK than they are in the USA and Australia.
    The level of interest rates is chosen by the Monetary Committee of the BoE. In the short term they’ve chosen to keep the base rate at 5.25%. They also chose to sell £100 bn of gilts to push up longer term interest rates. So the idea that the government is a market follower on interest rates is incorrect. The BoE, which is a part of government, sets them to be what it likes them to be.

    Nearly everyone was predicting that there would be a recession later this year. Hopefully this will be proven wrong but we’ll have to see. A loose fiscal policy which allowed us to get through the Pandemic may turn out to be the reason for the economy being more buoyant than expected. When inflation is relatively high it makes sense to spend rather than save. It’s when inflation falls to lower levels that this will change and there could well be a stall leading to a crash.

    It will come out of the USA like it did last time. We won’t be able to blame LT although some might try!

  • Peter,

    the rate in Australia is 4.1% and in the USA in a range of 5.25 to 5.5%. The UK looks comparable to the US and significantly higher than Australia.
    The Bank rate largely determines short-term interest rates in the UK. Longer term interest rates, however, are more market driven i.e, impacted by the medium term outlook for inflation and prospects for economic growth. When longer term interest rates offered are lower than short-term interest rates (the so called inverted curve) it signals that market participants are expecting a economic downturn that will drive down both inflation and interest rates http://www.worldgovernmentbonds.com/country/united-kingdom/
    The sale of £100bn of gilts is more about reducing interest payments on reserve accounts and replacing those deposits with currently lower cost long-term debt vs short-term debt.
    I agree the UK will not be able to avoid recession if the US economy starts to decline, but we are perfectly capable of creating our own recession while other economies are steadily ploughing along.
    The Liberal Democrats have called on the Government to support struggling households at risk of losing their home by launching an emergency Mortgage Protection Fund, fully paid for by reversing tax cuts handed by the Conservatives to the big banks. To the extent they exceed mortgage support, these tax increases on bank profits can do much to offset any inflationary impact of higher interest rates/deficits on the economy.

  • Peter Martin 25th Sep '23 - 8:28pm

    @ Joe,

    Sorry I should have made it clear that I was talking about mortgage rates which are around 6.5% in Australia and over 7% in the USA.

    I’m sceptical of the spin that is put onto QT and which often includes an avoidance of the term. Just as QE, the central bank buying of bonds/gilts, is primarily about forcing down longer term interest rates by bidding up their prices so QT, the central bank selling of bonds has to be just the opposite.

    This is how wiki describes it:

    “Quantitative tightening (QT) is a contractionary monetary policy tool applied by central banks to decrease the amount of liquidity or money supply in the economy. A central bank implements quantitative tightening by reducing the financial assets it holds on its balance sheet by selling them into the financial markets, which decreases asset prices and raises interest rates.”

  • The BofE in its announcement BoE may reverse 100 billion pounds of QE over a year stated “The BoE does not expect the sales to put much upward pressure on British government bond yields. Interest rates will remain its main tool to control inflation, which hit a 40-year high of 9.1% in May.” IF QT has had any impact on long term rates it is not noticeable.

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