Enlarge imageBy Sumeet Desai
LONDON (Reuters) - New Chancellor Alistair Darling is worried many who took out two-year fixed-rate mortgages in 2005 will soon be paying higher interest rates, according to a newspaper interview published on Wednesday.
In comments published just a day before the Bank of England is expected to raise interest rates to 5.75 percent, Darling said that housing was a key issue for him and he wanted to see more work to encourage banks to lend money at fixed rates for longer periods.
"What is obviously a concern to me is that when people come off a rate that was maybe fixed two years ago, and I suspect there are a lot of people on two year mortgages, they will now come out of that, and they will then find that the rate has gone up," Darling was quoted by Wednesday’s Financial Times as saying.
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Some Bank policymakers have also expressed concern that many people who took out a two-year fixed rate mortgages in August 2005 when markets were predicting a series of rate cuts might face significantly higher payments now that borrowing costs have already gone up four times in the last year.
Many economists are even predicting interest rates hitting 6 percent by the end of the year, a full 150 basis points higher than they were in August 2005, and potentially causing much for highly indebted Britons.
"We do need to have regard to the fact that people have got increasing levels of debt and that is a concern. I think too is the fact that we need to make sure that people can be encouraged to save and particularly to do so over the long term period and not leave it until it’s too late," Darling, who was appointed last Thursday, told the FT.
Britons already owe nearly 1.5 trillion pounds and data on Friday showed falling disposable incomes had squeezed savings to their smallest bite of income since 1960 in the first quarter of 2007.
"Our economy is far more influenced by the mortgage market than most other economies for historical reasons, and therefore getting this right, both in terms of housing supply and in terms of the financing of house purchase, the information available to people, is all very, very important," the 53-year-old Scot was quoted as saying.
PRIVATE EQUITY
Asked about the campaign to end a particular tax break for private equity firms which allows some buy-out executives to pay as little as 10 percent in tax, Darling ruled out any knee-jerk reaction but kept open the possibility of changes later in the year.
"When or if we make any changes they must be made at the proper time in the context of the Budget or the pre-Budget report and in the context of making tax reform which is beneficial to the country."
Even some private equity executives themselves have been coming round to the notion they may soon have to pay higher taxes following intense media and parliamentary scrutiny of the industry and its tax breaks in the past few weeks.
"I don’t think a rate of 15 or 20 percent would be a material disincentive to entrepreneurs like ourselves to create value over the long term," said Peter Taylor, managing partner at Duke Street Capital to a parliamentary committee on Tuesday.
On Europe, Darling struck as much of a defiant line as his predecessor and ally Gordon Brown, now prime minister, who regularly admonished his EU colleagues via the media for not doing enough to liberalise their economies.
"I think there is an ideological battle in Europe at the moment between those who genuinely believe in the Lisbon process that was signed up to, what, eight, nine years ago, and those that, you know, don’t, to put it bluntly," he was quoted as saying.
"I think Europe has got a huge choice to make, you know, if it doesn’t become more flexible, if its economy doesn’t liberalise, it’s going, big though it may be, sooner or later it is going to lose out."
Darling also decried a rising tide of protectionism in Europe.
"I do not believe in economic patriotism. I think it is nonsense. Economic patriotism is protectionism and there is no other name for it," he was quoted as saying.
