Broke: Who Killed the Middle Classes?

The crunch came in October 1983. All the senior managers of the building societies were in Melbourne at a big international conference when the Abbey National took the opportunity to break the arrangement to limit interest rates. ‘The Cartel is an arrangement to stifle competition,’ chief executive Clive Thornton told the press. ‘We want none of it.’

When building society interest rates started to rise up to market levels, wholesale funds were available to the banks on the wholesale markets – but not to the building societies. They had to wait for new legislation in 1986 (see the next chapter) that allowed them to bypass their own depositors and raise money in that way – eventually the cause of disaster for Northern Rock and HBOS a quarter of a century later.

The year 1986 was also the year that the former Times editor Simon Jenkins said he heard a director of Halifax Building Society, as it was then, say: ‘God help us if the bankers get their hands on our mortgages or if our brokers get their hands on their deposits.’

Both events did take place in the fullness of time, as we shall see.

Lawson talked about the end of the Cartel, but feared the short-term consequences of killing it. ‘I accept my prominent part in this though I was by no means alone,’ he wrote in 1992.

In his autobiography, which he was writing the previous year, he described the explosion of mortgage lending that followed as ‘unprecedented and unforeseen’, saying that the late 1980s – with the huge explosion in house prices which he presided over as Chancellor – were a ‘once and for all occurrence’.

As we have found to our cost more recently, that wasn’t so.

But by then, the world had changed. Within months of the decision to end the Corset, the whole tenor of the debate had shifted. We know now that the idea that somehow all prices reflected something real was a fundamental mistake which still infects many – especially in banks, where they still bolster their balance sheets with property values, only to have those values slip through their fingers. We might know that now, but by then it flew in the face of the new spirit of the times to point it out.

Hidden in the archives of the Bank of England is a revealing note. It is a memo from the governor (still Richardson) in May 1980, weeks before the Corset was finally loosened, and describes meeting a City grandee who asked him why nothing had been put in place to replace it.

The deputy governor has added his own note on the file describing the hapless grandee. ‘Were he a Tory MP he would I fear rightly qualify for a certain adjective in rather wide current use.’

The adjective he referred to was ‘wet’, Mrs Thatcher’s new designation for her opponents in the cabinet. ‘Rather sad, I think,’ said the governor.

Nothing has replaced the Corset, and Thatcherism – heralded by the new and vigorously enforced consensus implied by this note – would countenance no such defences. House prices would find their proper level, whatever they happened to be, and the acceleration upwards had barely begun. The consequences have been profound.

If Surbiton holds a special place in the affections of the British middle classes – and I’m far from certain about that – it is because it was the fictional home of Tom and Barbara Good, the quintessentially middle-class downshifting couple who hit the TV screens in 1975 in The Good Life, the blueprint for a new middle-class craving for independence.

The Good Life was actually filmed in middle-class, semi-detached Northwood rather than semi-detached Surbiton, but a quick walk from the art deco railway station in Surbiton still makes it a kind of middle-class Ground Zero. There are the leafy suburban streets, the little slices of middle-class life, divided by wooden fences as far as the eye can see, the lawnmowers and electric drills getting dusty in their huts through underuse, and their silver cars in the garage, or on a concreted-over front garden (I can’t see the Goods concreting over their front garden, but let’s not go there).

It is also clear that things have changed since The Good Life. The curtains don’t twitch. There is hardly anyone at home behind the reclaimed front doors with their stickers for the National Childbirth Trust in the windows. The people who get off the train from Clapham Junction with me still carry shopping bags from Peter Jones, as they always did. Yes, the slightly faded advertisements for the Surrey Comet still grace the newsagent stands. Yes, I am nearly run over by a delivery van from Ocado. But there are also men on the platform bawling into their mobile phones in Polish, and there is one man dignified and resplendent in the white robes of an imam. What would Margot Leadbetter have said?

Things are different for lunch too. I’m not at all sure that the menu in the Surbiton Brasserie (if it existed in 1975) would have offered ‘lemon chicken with pine nuts’. Still less my jacket potato with Mediterranean vegetables and mozzarella. But what really strike me are the conversations among the mainly women clientele around me.

‘What is his role exactly?’ asks the lady on my right. ‘Is he one of the finance guys?’

‘It doesn’t make sense,’ says the lady on my left. ‘It’s just something HR came up with. Just to get brand-holders in the same room.’

They may be eating, but these are emphatically not ‘ladies who lunch’, and once again I realize the pressure of the mortgage market. This isn’t like it was when Margot spent her days with the local amateur dramatic groups, or battling with Mrs Dooms-Paterson and Dollie Mountshaft in the Music Society. These are working women, either because they choose to be or because they must work because their mortgage depends on joint salaries. The average house price in Surbiton, judging by the nearby estate agent, is around £600,000 for a three-bedroom semi.

There is even an argument that the mass appearance of middle-class women on the jobs market is one of the factors pushing up house prices over the last three decades. They earned money, which meant that bigger loans were available, so the house prices rose to meet them. That is how it works. Inflation is too much money chasing too few goods, and what we have seen since the deregulation of the mortgage markets is ever more reasons to lend more, so that the house prices rise to take account of it, and so the cycle goes on – in retrospect a terrifying rack for the middle classes.

Terrifying especially if women didn’t want to work, because that freedom is now beyond them. Once lenders had began to calculate the upper limit in multiples of joint salaries, there was another escalation of house prices. It is part of the far bigger vicious circle that is caused by people desperately stretching to afford the home they want, and which is outpacing their income as they watch – a spiral that keeps on spinning: smaller houses, bigger loans, more salaries, higher prices, smaller houses and so on.

One twist to this cycle we have so far managed to escape in the UK is lengthening the repayment terms. We have not yet been given the pleasure of Japanese-style Grandparent Mortgages, which extend the mortgage period so that the next two generations have to pay it off. It was no coincidence that, after Grandparent Mortgages emerged in Japan, Tokyo property prices rose to be the most expensive in the world. The losers got to buy small tubes they could live in. As yet, we have been spared all that.

Nor have we had subprime lending on quite the same scale as the USA’s, with loans packaged to their lower-paid ‘middle classes’ in such a way that they could never be paid off. But we have some elements of that. Interest-only mortgages – a hefty segment of the UK market – are also mortgages which will never be paid off without a change in financial circumstances. Given that the last few years have seen interest rates at a historic low, this is bound to mean trouble in the future when they rise again, as they almost certainly will.

The British version of the vicious spiral has been lending against ever-greater multiples of salaries, which also feed into the cycle of higher prices. Until 1988, the limit was usually twice the salaries of the people buying. Loans of four times joint salaries were unheard of, but over the past decade loans for four times joint salaries came to outnumber those of twice joint salaries.

Here is the strange reverse alchemy of the house-price spiral. Victorian economists calculated that the average English peasant in 1495 needed to work for fifteen weeks to earn the money they needed to survive for the year, supported as they were by access to the common land. In 1564, it was forty weeks.

Now, when GDP tells us we are incomparably richer, it is extremely difficult to buy a house in southern England and live a reasonable life without both partners working flat-out all year long. Even when both partners work, it is often simply not possible (certainly for twenty-first-century peasants, of course).

This aspect of the spiral has had some peculiar effects. When the 2001 census unexpectedly revealed that half the UK population now lives within half an hour of where they were born – not exactly globalization – it did cause some scratching of heads among policymakers. The real reason was that only working couples can now afford to buy homes. That means they need to live near their parents or in-laws to provide childcare during the day. Those who can’t rely on parents for whatever reason are thrown on the mercies of an expensive, understaffed childcare sector that often eats away most of the second household salary.

Hence the sad sight of exhausted mothers wheeling home exhausted toddlers in the dark at the end of a long day at the nursery, long after bedtime, finally picked up after another long day at the office.

The Blair government helped in 1998 by introducing Sure Start centres (124 of which have since closed down). But what they gave with one hand, they took away with the other, all but outlawing informal childcare – you can look after children for neighbours but they are not allowed pay you, even in biscuits – and by regulating the co-operative nurseries out of existence. This was important. Mutual nurseries are how the middle classes afford childcare in North America and Scandinavia, keeping costs right down in return for helping to run the nursery once or twice a month.

There are certainly some brilliant nurseries out there. There are also many less than brilliant ones. The columnist Lucy Mangan described herself as ‘aghast at apathetic children – one group in a nursery in a basement flat with no garden and virtually no natural light – or at childminders who reach for the paperwork to sign the child up without ever reaching for or engaging with the child’.

The other aspect of the spiral which stands out in the UK is the phenomenon of the Incredible Shrinking Homes. This isn’t rocket science. You only have to look at the generous gardens of the semi-detached houses of the 1930s to see that something has gone wrong – all that space for hens and vegetable patches if need be, compared with the pinched and mean pocket handkerchiefs of turf and concrete in modern estates.

The famous Parker Morris space standards of the 1960s are now long gone, though the UK is the only European country not to set a minimum floor space, apparently unaware that the house-price spiral was almost bound them to make them smaller. New homes in Denmark are 80 per cent bigger than their equivalents in the UK. The design agency CABE lays the blame on the idea that houses are an investment – a financial commodity rather than homes. This ‘works against quality standards in house building’, they say.

The Royal Institute of British Architects (RIBA) have tried to translate that lost space into more human terms. If the average new home in England is only 92 per cent of the recommended minimum size, as they say it is, this amounts to eight square metres missing for a three-bedroom house.

That is the size of a single bedroom, the space for a new arrival to the family, the space for children to have a room of their own, or for a spare room for a guest to stay overnight. It is the space that could take the kitchen out of the sitting room and the sounds and smells that go with it.

The RIBA dubbed these new homes ‘shoebox houses’, and the BBC interviewed two sisters who had just moved into a new three-bedroom house in Devon.

The largest double bedroom was 11 foot 2 inches by 8 foot 2 inches, just enough space for a double bed as long as nobody tries to squeeze into it. They had to give their book collection away to the local charity shops: ‘We are just on top of each other the whole time. We find we are arguing much more than we used to – simply because there’s not the space to get away from one another.’ Nearly half of those who replied to the RIBA survey of new home buyers in 2009 said that they had so little space that they were unable to entertain visitors.