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Letter to the governor

Robert Peston | 15:22 UK time, Tuesday, 17 June 2008

This is an open letter to the governor of the Bank of England and to the chancellor of the exchequer from Mr Two-Point-Two, a thirty-four-year old school teacher from Anytown, UK.

Dear governor, dear chancellor,

I've read the letters you've sent to each other (pdf links) explaining why inflation is above target and why it's so important that it should be returned to 2% without undue delay. It occurred to me that it might be useful for you to know that I don't recognise the economy you describe, even though I am supposed to live in it.

You could be referring to economic conditions on Mars, not the financial pressures facing our family.

The thrust of your letters appears to be that salaries and wages must, under no circumstances, rise to compensate for the squeeze in living standards precipitated by the recent jumps in fuel, power and food prices.

Mervyn KingThere's a threat from the governor that he will increase interest rates if there are signs that earnings are on the rise. As I understand it, he wants to prevent the increases in fuel, power and food costs feeding through into more generalised price rises, or what economists would call second round inflationary effects.

Mr King is implying that families like mine should grin and bear a fall in our living standards, as a price worth paying for seeing the rate of increase in the consumer price index fall back to its target. The chancellor plainly agrees with him.

But I fear that neither of you can understand quite how much we're being squeezed. If you did, I am sure you would not ask us to make this sacrifice in quite such a matter-of-fact way.

You say that inflation is currently 3.3% and you imply that's a terrible thing. If only you knew! The cost of living has been rising much faster than that in our household.

As a young family with children, our main outgoings are:

1) food - up by 8% over the past year

2) energy - up 10%

3) petrol - up one-fifth

And that's not all. We bought our first house 18 months ago. Our two-year fixed rate mortgage is coming to an end and - from what I can gather - our repayments are likely to rise by more than 25%.

For the past year, we have just about been making ends meet, because my wife works part time in a local shop. But its owners are facing a double squeeze from falling sales and an increase in the cost of credit - and she's been warned that they may not be able to keep her on much longer.

To cut a long story short, we are extremely anxious about the future. And it's not just our spending power that seems to be shrinking before our eyes. All our savings were tied up in our house - and the recent fall in house prices has almost wiped out what little wealth we had.

Also, at the risk of appearing mean-spirited, I can't help but notice that the impact of these economic difficulties seems very unevenly shared.

City workers outside the Bank of EnglandI am not going to repeat the bloomin' obvious about all those millions earned by supposedly brilliant bankers in the City - whom, it turns out, were in part responsible for the credit-crunch part of the mess. Instead I am going to point out that the brunt of the economic storm is being born by those of us trying to make our way in the world, while the older generation seems more sheltered.

Take my parents. Their pensions are protected against inflation, they have paid off their mortgages, they rarely use their car and they have cash on deposit in the bank. So they are feeling pretty content.

I shudder to say it doesn't seem fair or right, but...

Right now I haven't got the time to work out who to blame for what's gone wrong. But before the next election, I intend to find the time.

Yours sincerely,

Peter Two-Point-Two

UPDATE, 04:55PM: I know my parents are thoroughly deserving of financial security in their latter years. But the rapid inflation of the 1970s and 1980s wasn't so terrible for them in one very important way. It meant that the value of their mortgage shrank and shrank and shrank relative to their earnings, which rose and rose and rose. Or to put it another way, inflation massively reduced the burden of their debts. By painful contrast, at a time when the imperative is to kill inflation, I fear that our mortgage will be a millstone around our necks till we peg out.


  • Comment number 1.

    Noble article, but I am not sure I agree about the implication that more of the burden should be shouldered by 'the parents'.

    Many older people are struggling to pay their bills too, especially council tax. Any money they have left they will pass on to their kids anyway, inheritance tax permitting.

    To raise more money the government should first think about targetting the very rich - those bankers and captains of industry who got us into this mess in the first place.

    If they choose to leave the country do what many countries do, and continue to tax them on their worldwide earnings.

    They also need to address public sector pensions. It is simply unreasonable that public employees should continue with final salary schemes paid out of the general tax bill.

    There is no doubt that we will all feel the pain in the forthcoming slump. But failure to distribute the hardship fairly is a recipe for social unrest or even revolution. It will take more than a general election to sort this mess out I fear.

  • Comment number 2.

    A very good point. The fact is, government and the BoE have lost control of inflation so keeping wages down will have no effect. I totally agree with you that the picture these people paint of inflation and how it affects average people is simpy not reflected in reality.

    Why will the government not just tax the rich? The 10p tax issue should never have happened, as those earning the highest salaries should have had a tax rise of at least 5-10%. Those bankers earning 6 and even 7 figures bonuses simply do not need that amount of money and they should be hit hard.

  • Comment number 3.

    Noble article - I think however that the media are really doing some damage by talking this "crisis" up a little bit too much.

    I work in recruitment and most of my clients are retail and FMCG businesses. They are all recruiting in my sector at the moment and there are some good growth plans in place with many of my clients.

    All we hear about in the media is how tough times are and yet, I read a report yesterday talking about how retail sales in London have risen by 8% in the last 12 months. Surely that's a good thing!

    What is dangerous is the media talking us into a recession that we wouldn't otherwise be going into. Recession is growth of less than 0.3% and even the most pessimistic forecasts are talking about 1.7%. We should be focusing on talking about what is positive in the economy and not banging on about the "squeeze" because some of us are just not feeling it at the moment - we're just focusing on doing well and that's what will pull the economy through these stormy waters!

  • Comment number 4.

    Nice Blog Robert:

    You've hit the nail on the head. Inflation is likely to 'do us in', but it'll 'do some of us in' quicker than others. Perhaps we should all write similar letters to our 'political masters.' Will it do any good? Nope, no good at all.

  • Comment number 5.

    Dear Government,

    I have been lied to and shat upon one too many times. With every new financial problem, I am asked to pick up the bill to protect people who have more money with which to "speculate" than I will ever earn.

    You have deliberately set up your measure of inflation to give the figures you want rather than to reflect economic realities. The worst aspect of all this is that you honestly seem to think that I won't notice.

    You have managed to change me from an optimistic liberal who used his first chance to vote to give Labour a landslide victory into a cynical anarchist who thinks that Guy Fawkes probably had the right idea.

    The only way you will receive my vote again will be when I tie it to a brick and throw it at you.


    Angry Pleb.

  • Comment number 6.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 7.

    Had to chuckle, but so much of it is quite true and a fair reflection of Mr Average's view of the situation.

    Mervyn King really needs to get out in the world more and see what is happening to real people, not 'statistical people'.

    As a company director of a small company, I can advise that we have stopped using our vans (no company cars I'm afraid) except for essential trips, we have had to increase our delivery charges to our customers and wages are on hold.

    The directors of this company haven't seen any wage increases for over four years now, but we have managed to keep the few staff we have on an increasing wage in that time.


  • Comment number 8.

    What the Bank seems to be saying is, "Sorry, we know it's not your fault, Mr average guy, but it's you who will have to pay. In order to reduce inflation, we need to reduce demand, so, in the words of Sir Alan Sugar, you're FIRED. This will reduce demand and won't upset those delicate people, the bankers. So be a good chap and make the ultimate job sacrifice so that your betters can continue in their profligate ways. You know it makes sense.
    Did I hear you suggest a rise in tax for those on over £100k as possible solution? Good heavens man, get a grip and do your duty. Go on, over the top with you.

  • Comment number 9.

    3 Theharv:

    Glad someone's optimistic. Oh, and by the way I'm sure Robert and his associates will accept full responsibility for the credit crunch.

  • Comment number 10.

    After reading #wykhamist something occured to me. Not that I'm suggesting anything, simply asking a question..... is the country currently being run by a government with a serious conflict of interests?

    Let me expand, some years ago the Labour Party said that it didn't want to rely on the unions for funding (perhaps due to a perceived conflict of interests) so was going to look for funding elsewhere (perhaps wealthy businessmen and women).

    As the Labour Party is, I believe, currently in debt to the tune of £23 million and on the verge of going bust, surely they are going to have to work very hard to attract funding from the wealthy/business community.

    To follow on from #wykhamist, depending on the answer to my question, there is a possibility that the government is targeting the very rich but with an entirely different proposition??????

  • Comment number 11.

    No 3:

    Oh yeah, and the oil crisis.

  • Comment number 12.

    I couldn't agree more, and couldn't have put it better myself (though I would have phrased it much more strongly).

    I hope the highly educated idiots who govern us are listening when we tell them that we are NOT going to put up with what they appear to be suggesting.
    If they don;t change their minds and attitudes PDQ they will be out on their ears and the BOE heirarchy could well follow them in short order.

    And I was amazed to read of the senior official congratulating himself on how well the interest-rate-driven control system has worked over the last decade and saying that we just need to stick with it. Does he not realise that the game is up? That in the era of stagflation we are entering the interest rate lever is not going to work?

  • Comment number 13.

    Interesting article.

    It is obviously true that those people who have the lowest truly disposal income face the greatest difficulties when times get tight.

    It is also the case that people who believed that very low interest rates were here to stay and took on short-term deals will now be facing significant rises.

    The challenge is what to do about it. Do we protect those who (whether they realised it or not) took a 'bet' that they would benefit from a short term deal?

    Those of us who have had mortgages since interest rates were around 15% still feel that interest rates of 6% are not so bad.

    What does seem grossly unfair is the huge wages and bonuses earned in the past by city 'whiz-kids' doing business which is now shown to have been illusory.

    Perhaps now is the time to make NI payable on all of salaries and bonuses so everyone pays the same percentage on earnings!

  • Comment number 14.

    It is always interesting to see that when times get tough, the usual answer from the masses is to tax the rich more. We did that in the 70s (68% top rate of tax, with a further 30% on investment income - giving a top rate for investment income of 98%). The direct result of which was that every rich person left the country. It took most of the 80s and part of the 90s to correct that brain drain. Already something like 1/2 of tax is paid for by top rate tax payers.

    Of course, these days the situation is worse since migration is far easier with the EU structured as it is. If the UK were to attempt to push up top rates of tax, the finance sector would hop over to Frankfurt faster than you would believe. Remember the financial sector only started pushing london in the last 20-30 years as a result of low taxes. That would have the double wammy of losing both income tax and corporation tax from finance with crippling consequences on the economy. If you think you can follow a US system of taxing citizens who live abroad, think again, with the EU systems, renouncing UK citizenship and taking citizenship of another EU country instead is trivial to do.

    We have a period of great pain coming up, but the reasons for that are not that bankers earn more than other people. The reason is that our current Government has sold the farm. Gordon Brown sold all our gold at a historical low; he stole money from our pensions (and continues to steal more year on year); he borrowed excessively in a boom; fudged unemployment figures by creating quango jobs, despite the knowledge that they would have to be paid for during a downturn; allowed house prices to rise (by excluding them from the inflation figure the BoE are allowed to use), knowing that borrowing against a house would fuel growth, despite it creating a dangerous hole when prices fall. They are just some of his more egregious errors, hopefully the population has woken up to Gordon's grand deception, but I'm not sure everyone has.

  • Comment number 15.

    Peter two-point-two should learn when to use who and whom, and not sound like an idiot when he gets it wrong.

    However, I agree with most of the letter. The underlying causes of inflation have nothing to do with anything that the chancellor nor the BOE can control. Unless they start using some of the power they have to end rife speculation (rife speculation with no downside in some cases).

    The bit about the parents is jarring. Didn't they already pay their taxes all their working life? I know mine did.

  • Comment number 16.

    I'd also be grateful if someone could explain why anti-inflationary measures such as rising interest rates will somehow create more petrol.

    Petrol is expensive because of scarcity of supply. Increasing tax or interest rates or inside leg measurements won't magic up more oil.

    The solution is for the taxpayers to fund a Longitude Prize for the electric car - and for government to pass a law preventing enforcement of electric car patents which have held up the industry for the past thirty years. Oh, and build more nuclear power stations.

  • Comment number 17.

    Now this is a good letter and truly is in tune with the mood out there.

    Margaret Thatcher lost power when she lost touch with reality and attempted to ram the poll tax down our throats. This current chancellor and the BOE also appear to have moved deeply into a delusional mode … they appear to truly believe the fiction that masquerades as the official rate of inflation … ah if only inflation was as low as they claim, how I would love to embrace the reality of such a fantasy.

    Come election day … I have a strong suspicion that I know of a party that many folks will no longer be voting for. God help us if we have to wait until 2010 for that day of reckoning.

  • Comment number 18.

    I think that its interesting that they can boil down the whole economy to a single figure, inflation. Then they have a single instrument that they can deploy to impact that figure, bank base rate.

    Its obvious that the current round of inflation is largely being caused by factors outside the UK economy. That it doesn't really matter what they do with the base rate, inflation is going to rise.

    This is the problem with the mandate of the Bank of England at the moment. Its too simplistic.

  • Comment number 19.

    It's a bit rich to say that his parents, who appear to have worked hard and saved, should take a hit so that he can live on easy street. He conveniently ignores the fact that his parents would have born the brunt of the financial troubles of the seventies and eighties, when interest rates were over 15% and unemployment was rife.
    If I were his parents I'd cut him out of the will and leave it all to the dog's home!

  • Comment number 20.

    Excellent article. I fear that ultimately New Labour's legacy will be to have idly stood by while divisions in society became ever wider. What has happened in the housing market in the last decade without intervention is symptomatic of the government's contempt for the ordinary working man, and his ordinary plans for a nice life.

  • Comment number 21.

    So petrol/diesel makes up a constituent of the Harmonised Consumer Price Index? (RIP RPI)

    And, food costs are up partly because of transport costs?

    Well, it's easy to solve our problem, either:
    1. Change the constituents of the Index, or
    2. Cut tax and excise of Fuel

    Falling that how about changing old Merv's central inflation target? Probably too radical.

    Probably best just to join the Euro and have lower interest rates and a stronger currency to offset the weaker US Dollar and imported inflation.

    Now what's that about Government borrowing?

  • Comment number 22.

    Nice article. And all true enough - certainly as far as the average person can see. I was wondering myself how we can have 3.3% inflation when the main spending areas for most people (mortgage, fuel, energy, food) all have well-documented inflation well above that figure. Does the CPI treat the inflation of a 2p thing with as much weight as the inflation of a £200 thing, or is there some other weighting here that I'm missing which is countebalancing the rise in living costs that most of us are seeing? 3.3% should not be noticeable in your everyday bills.

    As a non-economist, non-financially minded person at all (who is a little too young to remember a real recession), what are the essential reasons for controlling inflation? I can understand that wage rises could well drive away business, but if basic costs of living rise it seems to make sense to me that wages ought to as well. (Especially if one's government at the time were, let's say, vaguely socialist.)

    It all seems rather incredibly naive to me, this idea that Britain can control an economy which is driven by global commodity prices by just saying 'well, if you can't afford things then their price will drop and everything will go back to normal.' That is simply not true for one little island in a big world, surely? And even if it is, it's going to cause an awful lot of pain to individuals, and those who make these decisions ought never to forget that.

  • Comment number 23.

    # 10 ... given that the labour party is deeply in debt and suffering from bad management ... perhaps we should follow the "Northern Rock" example laid down ... Nationalize the Labour party ... give it a zero valuation, take it away from current management and put in a new chief exec to sort out the mess ... perhaps Robert would be willing to accept such a posting given his previous interest in Northern Rock :-)

  • Comment number 24.

    Twenty years ago we were all so worried about the evils of inflation we had seen that we had no though of its balancing benefits. Now we begin to see the problems that prolonged LOW inflation causes.

    My parents did very well out of the high inflation era of the 1970s, which devalued their mortgage until they could pay it off out of petty cash. I am nowhere near as lucky and have a growing millstone around my neck.

    Inflation is a tax on money. Those who have the most, pay the most. Those of us who are poor, who have mortgages and debts and struggle to make ends meet, pay the least - in fact we get money back by the reduction of our debts, and by the increase in wages we expect.

    Frankly there are many of us who think that this kind of taxation is a great deal better and mroe equal than the VAT, stamp duty, fuel escalator and other taxes the government is wacking us with.

    Inflation? Yes please. I'll vote for anyone who promises it.

  • Comment number 25.

    Its pretty simple really and its the way all government needs to work these days.

    Inflation genuinely is a really bad thing for the western economies. We've been plagued by it in the past and it is very clear to those with long enough memories and good global economic understanding that raging inflation really should be avoided.

    Its not the UK government's fault that we are returning to inflation. Its a direct consequence of a number of global factors rather than specific UK HMG policies.

    Some people will feel poor and others will lose their homes and jobs. Its sad but necessary and whichever political party was leading the country would be facing the same issues.

    Labour inherited government from the Tories at a good position in the economic cycle .. they havent screwed it up at all... despite many peoples' (incl mine) fears and have done a reasonably good job in economic management terms. I doubt the Tories would have done much better or much worse tbh.

    The cycle has turned now and theres not much we can do except grin and bear it.

    You really do not want heavy inflation.. if we get it then an awful lot more people will lose their livelihoods and homes than will if there is some unpleasant belt tightening now.

    Sorry, you just have to lump it .. and enjoy moaning about it if you like!

  • Comment number 26.

    Dear Governor/Government

    At 60 and partly retired but still owning and a director of a family business (removals) I feel letdown by the so called experts.

    The good times cannot go on forever neither can the bad times, however it is always the establishment that rides out the storm better and more protected than those who make the economy work.

    Those in banking who have perpetrated this mess should be brought to account, it is in my eyes a crime just as is robbing a post office, they have deliberately gone out to deceive and take assets from those who can least afford it.

    Also the regulatory bodies who did not undertake their duty should be charged with negligence as would any person in charge of a ship running aground. But I assume they will be released without cost and keeping their pensions.

    Whilst I am protected I feel for my staff who are living through this turmoil and will help in whatever way I can, but most fair minded people must understand the frustration of the average citizen of this country in not being able to bring those who got us here to account.


  • Comment number 27.

    Why on earth did you buy a house at the top of the market? Anyone could see houses are overpriced.
    Interest Rates were lowered because Brown wanted to keep house owners on side but they contribute to the cost of fuel and food. Raise interest rates ASAP. Don't punish the saver, they are the sensible one's who haven't contributed towards this mess.

  • Comment number 28.

    Very well put.

    Your percentages match my personal estimates, with the addition of council tax and water rate increases, which for us were both over 5% this year. No wonder so many of the comments posted on the Have Your Say item express disbelief at the quoted inflation rate.

    The company I work for is in the telecoms industry. Business was surging ahead up until a couple of months ago. Directors are confident we are in good shape to survive even an extended downturn in growth, but nonetheless have taken precautionary steps of freezing posts and salaries for the time being.

    So, while we're cutting back and watching every penny, our glorious MPs are expecting a pay increase of about £40,000 and improved petrol allowances, all for just 30 weeks' work, with a pension that will flourish while ours is shrinking.


  • Comment number 29.

    Come on guys - some of these comments are 20/20 hindsight at its worst.

    Is the government really responsible for global oil and food prices? Hardly.

    Are they responsible for property prices collapsing? Possibly, but only because they let them get out of hand in the first place - basically chosing to ignore a massive asset and credit bubble that most of the population and the media have been only too keen to cheer on for a decade.

    The party is over, some bankers may have made a mint, but it is peanuts compared to the combined indulgence of the UK population at the property roulette table, fuelled by cheap plentiful credit.

    Are you saying that the government should have stopped the party earlier? How? And how popular would that have been?

    I do feel sorry for mr. 2.2 but unfortunately paying ourselves more because things have become more expensive is equivalent to printing more money without creating more value - it doesn't solve the problem, it amplifies it.

  • Comment number 30.

    Perhaps politicians ought to stop fuelling the illusion of ever-rising incomes and honestly explain the facts of life to people, rather than trying to con and bribe them.

    Britain and the west must move towards convergence of incomes with the developing world, so that all of us can enjoy a liveable, sustainable future.

  • Comment number 31.

    Darling and King asking for wage restraint - what planet are they on?

  • Comment number 32.

    I'm always amused by threats from the well heeled capitalists amongst us who say that raising tax on the super rich will frighten them away leaving the rest of us bereft of their charming presence.

    As someone who's seen the economy of London warped out of all shape by the financial sector, someone who's had to deal with spiraling rents caused by the city-boy-buy-to-let-brigade etc, I couldn't give a toss if they all up sticks and left.

    Guess what, wealth doesn't trickle down, it never did, it congregates at the top.

    Raise taxes on the super rich, if you don't like it, then please leave, you won't be missed as much as you think you will.

  • Comment number 33.

    What is it that happens to MP's when they are in Parliament and on their respective committees?.
    Do they forget what good house keeping means?
    All this garbage on prudence!!
    We have suffered at the hands of an incompetant government who have never actually done a real days work.
    Its dirt easy to be rhetorical, debate and spin but its at times like these that experience counts and there is none leading the treasury or in the cabinet.
    Its obvious that belt tightening needs to occur asap but not from the public who have been fleeced through stealth taxes and public spending costs incurred through egotistical schemes by this mad government that will go down in history as madness.
    We need someone in there who will hack government spending to pieces and only use it to defend the realm, protect the old and infirm and offer a good basic health service.
    Let people choose where they spend there money and close up all the QUANGO's that produce sweet nothing but sure as hell spend plently of money badly.
    With the £100 billion saved we would be looking pretty good, and stop slowly imploding.
    Mr.Prudence your time is up, you and your team of incompetants are the weakest link, please leave and never let us set eyes on you again.

  • Comment number 34.

    As a Canadian living here, let me tell some straight facts. Britain is not (and never was) a rich country. To see a rich country, go to the US or Canada, or parts of Europe etc.

    Britain is a poor country because Britons are graspers, basically. When Britons cease to be graspers and learn to cooperate as a group, they'll all be able to move up in the world, as a group. Until then, only hardship and misery are in store for people here.

    It's no use grumbling to Merv and the Chan. Britons have to help themselves by sharing and trusting each other more. Best of luck,


  • Comment number 35.

    A good letter; but I am a bit miffed by the reference to"the parents" bit. We lived through a period of 18% inflation; negative equity; the Poll Tax; 17% VAT on fuel, and high levels of Income Tax. Difficult. We do not ask for a bunch of flowers; just that our children do not go away with the false impression that we had a "comfortable" time. Parents always hope that their children will have a better life and standard of living than they had and do their best in their lifetime, to make that happen. They do this well knowing that politicians and BOE pundits have no idea of what living in the real world means. They try to overcome this using the Ballot Box; but in reality know that this will not make the slightest difference. Hence the disillusionment with Politics. and Politicians.

  • Comment number 36.

    #24 Cassandretta - I think your comments are disingenuous - in general, lenders are not stupid and they charge for the expected erosion of a loan that inflation leads to, through the interest rate. Unless you have fixed rates for the lifetime of the loan, you will pretty much see nominal rates go up in line with inflation, percentage point by percentage point. This doesn't make the loan more expensive in real terms, but it does make monthly payments today much higher, and the payments towards the end of the loan much lower. Unfortunately, if we are struggling with payments as they are, having to pay a high inflation premium on top is not what you want to wish for. The difference for your parents was that this inflation premium meant they took up much smaller loans to start with.

  • Comment number 37.

    While I agree with the bulk of this letter,there are points that I feel are typical of the younger "me,me,me"generation.
    As a pensioner I to feel the pinch,if this writer thinks that the measle increases in pension any way compensate for all the price rises then he to is on Mars.
    I and others like me did not force him to purchase a house which it seems he cannot really afford,had he and many like him refused to pay silly prices then the property market would have stayed rather saner than it is now.

  • Comment number 38.

    Whilst I agree with 90% of your article I have to wonder where ectly you are shopping for food to have risen 8%?

    Most supermarkets now offer more and more foods at a reduced price via value/basic/right price brands. Staples such as beans, vegetables, fish and pasta can be bought for probably cheaper now than ever before in real terms.

    As for housing, thank yourself lucky that you were able to afford a house 2 years ago. A lot of us could not and have seen the idea of home ownership dissapear further over the horizon ever since.

    Mr. 2.2 children at least gets tax credits for his kids, plus other benefits not available to us single persons who have to manage to get by without those or a second income.

    Add to that the added burden of a student loan for us yougsters who did not have a set of parents who could support them through university to get a half decent job in the first place and I would swap with Mr 2.2 right now.

  • Comment number 39.

    On the whole I agree. The only thing I would take issue with is the bit about his parents. I have recently retired, my sister more recently still and life is not comfy at all. Those figures hit us too and some, especially council tax asnd utility bills very hard as our usage has increased and the bills are rocketing! Incidentally the RPI is very selective and does not tuly reflect the cost of living although it is better than the CPI.

  • Comment number 40.

    Maybe MK and GB (no expenses, please) should try living off minimum wage for a while - that may bring them down to earth rather heavily...

  • Comment number 41.

    I wrote to Gordon Brown 4 weeks ago when he said inflation is 2.5%, and wanted to know what planet he is living on.

    In my view inflation is running at 15% MPs are not living in the real world they claim expenses for everything. It doesn't bother them that a gallon of diesel is over £6 they don't pay for it.

    Most things are transported by road at some stage and the cost has to be passed on. Just remember who not to vote for come the general election.

    Peter Wilks

  • Comment number 42.

    If only inflation was 3.3%. When I renew my mortgage at the end of the year my personal inflation rate will be more like 25%. I'd love to see exactly how the CPI/RPI is calculated, I know it's based on a basket of goods but can an LCD TV (falling in price) really be given the same weighting as petrol or bread (both essentials)?

  • Comment number 43.

    Yes, I agree with the Governor that interests should go up, to stop inflation. Interest rates up is a signal that means: No more stupid debt and housing bubbles. Let this one burst, make everybody pay a fair price for what they've done and make sure it never happens again. Interest rates down means: Let's have more of the same.

    If there is one group that deserves to be protected from inflation, it's the savers. If inflation is allowed to get out of control to sort-of bail-out all those once debt-thirsty mortgage takers that are responsible for the mess they are in, then it will be the decent people who will be punished.

  • Comment number 44.

    3 Theharv:

    Glad someone's optimistic. Oh, and by the way I'm sure Robert and his associates will accept full responsibility for the credit crunch.

    I'm sorry, but there is a problem.

    The only debt I have is a very reasonable mortgage, very affordable. I don't smoke or drink. I'm married with 2 kids with an "average" wage.

    Our food bill has rocketed - and we don't buy anything fancy. Our energy prices have rocketed, although I have installed a new combi boiler which should help. I've insulated my loft, fitted low energy light bulbs and switch off appliances at night. My council tax is higher (taking into account water) than in SE England, where a similar property to mine is four times the value.

    What the Government need to realise is that as people have less disposable income, then they don't buy non-essential items, and even reduce the essentials they require. Therefore the retailers have less sales and eventually lay off staff.

    You need a balance with taxation, but every time Labour get into power tax goes up without any tangible benefit.

    The Chancellor could control the oil speculators and investment bankers to a certain degree - bu he won't do that.

    I disagree that the media is firing up the issue. Speak to real people in the real world - everyone is now having to spend more to survive.

  • Comment number 45.

    I think #26 and #29 have got it about right, albeit from different viewpoints.

    The house price bubble was always going to burst. Indeed it should have started to deflate back in 2005 (except the BOE sent out the wrong message by reducing interest rates). Those of us who can remember 10% plus interest rates as the norm could see that prices would not be sustainable if interest rates started to rise (as they would be bound to sometime over 25 year mortgage term). The short term, cheap mortgage deals that the banks/building societies were offering were just the icing on the cake to this "perfect storm".

    Increases in oil/gas prices were always going to come as we reach peak oil and the demand continues to rise. Can’t see it going down significantly any time soon and when we actually hit peak oil then the price really will be demand lead. Remember the problem with peak oil is we won’t realise we’ve hit it till we are on the other side of the supply curve.

    Production of biofuels using grain should have rung alarm bells regarding food prices. All subsidises supporting turning food grade (human or animal) crops into fuel should be withdrawn.

    All-in-all the BOE Governor has probably got it right - the NICE decade is over. Not sure any government could have done much about it. Except, perhaps, reigning in house prices sooner and saving more public money for the rainy days.

    Inflation is probably the last thing we need in this country. On the world economy we are already very expensive. We need the developing countries to catch up to us a bit, then we can start to compete to retain more non-service sector jobs.

    Now we are moving into interesting times!

  • Comment number 46.

    Lots of people keep saying that higher interest rates wont dampen petrol prices etc., but they are wrong. Higher interest rates would strengthen the pound, which would bring down the price of petrol, food, and just about everything else we import.

    If the pound hadn't depreciated so much (and it largely did this because the world recognised that the monetary policy committee - as it kept cutting interest rates - had just lost its backbone) then inflation would still be in range.

  • Comment number 47.

    The ironic thing is that if Brown hadn't spent so much he could've reduced duty on fuel - allowing the UK to absorb the oil price increases, thus increasing our competitiveness at a time where other nations are being hit by the oil cost increase.

    Instead we've seen a ridiculous increase in state employees, a labyrinthal and expensive tax credit system that fair defines the art of biting your nose to spite your face and over a decade of stealth taxation.

    My sympathy for the people in trouble is also tempered by the fact they chose their problems. Which bit of "5 year fixed rate" was unclear? Which part of a 100%+ mortgage didn't seem suicidal? Busts always follow booms, and the longer the boom the bigger the bust - I've spent the last few years renting and saving up for a house. In another 18 months I'll have a 6 figure deposit and I've been waiting for this moment. Stagflations been on the horizon for at least 18 months.

    Gordon, that noise you hear are the chickens coming home to roost. Enjoy.

    As for those suggestions "tax the rich!" - grow up. The rich don't exist to bail out people, and if they depart these shores they'll be a tad difficult to tax.

  • Comment number 48.

    Sorry Robert - you have only hit half of the mail on the head. The other half is government spending. Teachers (your choice) and all other government employees enjoy benefits that the country surely can't afford - index linked pensions, job security etc...maybe pick an employee of one of our medium sized enterprises - they are more likely to earn less, and feel the pinch earlier when they lose their jobs. At that point, 2point2 may feel squeezed, but at least he'll keep his home.

  • Comment number 49.

    The scurrilous suggestion of taxing the rich more (eg M. King and G.Brown to name but two) simply cannot be serious! Turkey's, Christmas and remember - when you get voted out of office or sacked, how on earth would you get those cushy non-jobs in the City if you've increased the piper's taxation.

  • Comment number 50.

    It's getting to the stage that we are no longer able to afford a welfare state. It's ok supporting this huge financial millstone while the hard working, tax paying familly can afford living costs. But now that the backbone of our society are being squeezed to financial oblivion, it's time to take the scroungers out of the tax payers pocket and slash taxes.
    But then the Labour party will lose it's vote generating machine.

  • Comment number 51.

    Spot on but...

    Were they ever really in control of inflation?

    Over the past decade the competition caused by globalisation has enabled prices to fall and stay level, but now globalisation is causing competition for resources, food etc. leadning to higher prices.

    Brown was quick to claim credit for the good years, but I notice how in the bad years he says it's due to things outside his control.

  • Comment number 52.

    As someone who has one of these nice offset mortgages where savings effectively earn interest at mortgage rates tax free, I'm less affected by the changes in rate than others. However, the cost of everything else is going way up, the chancellor takes ever more of my money in stealth taxes and gives back poor value for money in terms of improved services, so I'm definitely worse off than I was.

    I would definitely take issue with the bit about parents, my father is retired, on a fairly fixed income that goes up by no more than inflation each year, but his bills (fuel and council tax being the main ones) are rising by much more than that.

    Has anyone else noticed that there's more than one version of the inflation figures, and that the government frequently uses the low one for setting pay and pension increases and the high one for other things?

  • Comment number 53.

    When your statistics are a sham for political purposes, surely the cures to the problems that even your statistics cannot hide are woefully insufficient and poorly targetted?

    Have we now finally seen the true cost of judging government against targets set by government using criteria for success divined solely by government, with no reference to what is actually 'good'?

  • Comment number 54.

    Reply from the Chancellor and Governor:

    Dear Mr Two-Point-Two,

    We're very sorry to hear of your plight, but frankly there's naff all we can do about it. The long and the short of it is that this country can no longer justify consuming so much of the world's wealth when its productivity is relatively small, and all the people in other countries who have been actually making things, growing things and digging things out of the ground have decided it's time they got their share.

    You're just going to have to get used to living somewhere nearer to (but still way, way above) mankind's average standard of living. We suggest you cancel your mobile phone, Sky+ subscription, and anything else you lived perfectly happily without 20 years ago. Try own-brand goods instead of "name" labels. And be grateful that you had the privilege of being part of the richest generation ever to inhabit this land, past or future.

    Yes, it's going to be horrible. People are going to go bankrupt, house values will plummet, there will be depressiona nd suicide. We played outr part in the consumer boom, and for that we're sorry - but so did you. You borrowed and you spent beyond anything we imagined - and beyond our ability to make the aftermath less painful.

    And anyone who tells you different is soft-soaping you.

  • Comment number 55.

    In this financial turmoil can we distinguish between inflation and the rise in the cost of living. I don't think that the two are the same thing, though they seem to be treated as such in currentr analysis.

  • Comment number 56.

    I would agree with Mr 2.2 regarding inflation. I would guess the true figure is over 10% I think he correct in his assumptions of who caused the whole mess and Brown and the bankers must take full blame.

    However, it is shameful that Mr Me Me Me 2.2 even questions the "easy time" his parents have. He asks why he should make sacrifices ! That’s probably what his parents did all their life, many of those sacrifices made to bring up their ungrateful excuse of a son who cries about his parents paying off their mortgage and he cannot ! He has had his mortgage two years, they probably had theirs for twenty-five years! That’s sacrifice.
    I hope they now spend every penny they have instead of leaving any of it to such an ungrateful self-centred spoiled b**t.

    Beggars belief, and from a teacher! Insulated from reality, assured pension, holidays that most workers only dream about. And considering the lack of basic skills school leavers’ show, probably all for not doing the job too well.

    Me Me Me Me Now Now Now Now aaagghhhhhhhhh Speechless

    Grumpy BoB Bolton

  • Comment number 57.

    One theme running through this blog (Up to #53) is that real inflation that we experience is much higher that the cpi or the rpi.

    The problem has always been that those who define the index judge themselves and ask us the judge them, by the same index, and I suppose this is inevitable.

    In truth they have juggled far too much with the make up of the index. I remember a time when the Balance of Trade was trade in goods (imports and exports of things). The slippery slope started when 'invisibles' was included - suddenly making things and 'honest' labour became subservient to financial manipulation and number juggling (the financial services - so called - "industry").

    I recall my (now dead) aunt, who was a senior, or possibly chief, statistician at the Bord of Trade, refused to let invisibles be included - she retired and invisibles were included.

    My aunt was first in her year in statistics at Cambridge in a time before women were awarded degrees - she had higher marks than the man who was made senior wrangler in her year. She unfortunately died just before being awarded her degree nearly 70 years after she left.

    How many others would like to see real trade and real money again? A word or two of warning - the shock would be terrible and sterling would collapse. We are where we are and we need to work with what we have and look forward.

    I would suggest one change is that we do need independent supervision of statistics where perhaps the independent person is elected and can be recalled by the electorate as it is quite obvious that the people do not trust the statistics.

  • Comment number 58.

    How about Gordon Brown just being a bit more careful with the taxes that he has raised and stop squandering our hard earned money?

    This government raises more than enough from hard working families, how about spending it a bit more carefully? That would concentrate the minds of our politicians; they then just might have a good story to tell.
    They could start with MP's expenses then go onto some other issues where money is spent with gay abandon and little check it made of value for money.

    Enough is enough.

  • Comment number 59.

    It is the fashion to knock public service final salary pensions just now but the critics should remember what we had to go through to get it. I worked for a broadcasting corporation not to far from here and we suffered wages way below those of our commercial competitors. Those who remained loyal, despite many of our colleagues being lured away by money and having had their training for free, were promised that for our restraint we would at least receive a decent pension when we retired. I am certain that the same went for other public bodies.

  • Comment number 60.

    Sounds to me a case of "Crisis, what crisis?"

  • Comment number 61.

    Rather disingenious article, states the problem and doesn't suggest any solutions.

    Mr Preston, what are you suggesting the Government does, and what are the benefits and downsides of doing it?

    Paul_42 makes the points 'not sure what the government could have done' - except the obvious, stop spending like a drunken sailor and stop everybody borrrowing like tomorrow will never come.

    Does Brown know what 'Prudence' means?

  • Comment number 62.

    Hmm! You are being mean spirited towards 'your' retired parents. An argument loses impact when resorting to misplaced envy. They have survived despite the economy not because of it. In the mid 80's Nigella's Dad gave them a massive burden when interest rates rocketed from about 8% to 13% in a matter of months, a £100 a month increase which would be significant now let alone then. You should be impressed that they still own a property, though I doubt it will come your way now. What was in their favour was the restriction of only being allowed to borrow up to 3 times the main breadwinners salary, unlike the frightening amounts required for today's first time buyers.

  • Comment number 63.

    Is this situation for real or is it an outtake of Yes Minister?

    Let's get things clear here. The Bank's sole responsibility is to control inflation. Indeed, if it was so concerned, as it now appears to be, about the state of the economy, then why wasn't it raising interest rates during the boom to contain the situation and thereby prevent the possibility of a bust?

    No, the answer is simple. In spite of Brown's high and mighty claim that he gave the BoE political independence he has continually bullied them to follow his directives and they were effectively prevented from taking firm action when it was possible over the last 5 years to prevent this mess.

    Brown wanted to bathe in the falsehood that he had conquered boom/bust, when all he had done was ensured that he had exacerbated the eventual bust.

    Mervyn King, if he has any sense, will tell Brown to mind his own business and do his job, i.e. control inflation. Raise interest rates and leave Brown to wallow in the unavoidable, but impending depression that his incompetence has caused.

    In fact, since I am feeling charitable, I will give Brown and his puppet chancellor some sound advice. Since they have accepted that the oil crisis is with us for sometime and that it is impacting on everything else, simply cut the fuel duty by 50p, which will help us all and help cut food prices and instead put it on higher income tax bands for those earning over £100k (45%), £500k (55%) and £1m (65%). Simple isn't it? Perhaps I should put in for the top job?!

  • Comment number 64.

    Well Robert I think you could have written another 3 pages. The reality goes on on..

    Council tax up by a whollop.

    - but now our bins are emptied every two weeks, local roads not repaired and lets grant planning permission to to anyone who can cram 3 houses into the space of one but now can't afford to finish them ( skips everywhere)

    - schools that can't cope with the infux of pupils and can you spot the qualified teachers amonst the temp staff. Oh was it reported that primary schools are going to retrain staff so at least one of then can add up!

    - lets spot the policeman and whilst we're at it spot the ambulance. 5 ambulances covered south yorkshire on one afternoon whilst my 88 year old father lay ill on the floor for over 1 hour. (PS he's fine the hospital rang to see if we had any of his medication because they had run out, in fact they forgot to give him any for 5..... yes 5 days)

    Remember the integrated transport policy that Prescott was booming on about 10 years ago. Well let him travel on the M1 between Nottingham and Loughborough every day.

    Not to worry I'll get the train from Sheffield to London. Oh slight problem 1 annual ticket costs over £12,000. Oh I'll get the bus but that's standing still at East Midlands.

    Not feeling well after reading this then pop down to the doctors on Saturday oh no its closed - didn't use to be.

    What about the dentist - no NHS dentists any more. Mine went private because the targets they were expected to achieve meant reduced patient care. So I have no choice but to pay beacuse there are no others.

    As we know fuel is up in price but I don't see Brown or Darling rushing to give us back any fuel tax from their unplanned for windfall - why?

    Anyway the quote Alistair Draling from the ITV satire 'Headcases':

    'We're doomed..' 'We're doomed'

    Well, maybe he's not as he has a nice well funded pension scheme to look forward to

    I cannot believe the sheer arrongance of politicians.

    They will have to listen but sadly its getting very late i in the day.

  • Comment number 65.

    Come on in liteman63 (#59) - your time is up. The UK government has to stop spending our money - hard earned overseas in the case of my small private company - and cut back on its costs. My company is reducing costs and shipping jobs overseas....we are simply living beyond our means in the UK. Time to cut back on profilgate spending - no alternative in the face of fierce competition. Time for a return to small government and better housekeeping and I am not sorry if cozy public service gets upset....

  • Comment number 66.

    The people who perpetrated and profited from this destruction of our financial system must be hunted down, and the gains they made must be taken back. If they've hidden their money, we'll take payment in flesh.

  • Comment number 67.

    This might sound a little harsh, but I'm tired of hearing from the whinging masses recently.

    For years, you have known that your excessive lifestyles have been destroying the environment, yet you are all too selfish to limit your excesses and save the planet.

    For years you have known that the fossils fuels will run out one day - and now you've used up all the cheap energy your grandchildren could have used.

    You import your clothes and your toys and your gadgets from China - and act shocked when their fossil fuel usage and emissions soar - in order to make all of your luxuries.

    Now all of this has lead to depletion of oil and high prices to match - which have a knock on effect on the cost of food. And where are the magic hydrogen cars that were going to save us?

    Then start using crops to make more fuel for your precious cars instead of food and you have even higher food costs.

    (And don't forget how much worse it is in poorer countries as we cause the oil and food prices to soar globally.)

    Please don't give me the stock reply "You don't understand, I NEED my car" - Get a bike, drive less, stop living so excessively, eat less meat and processed food. Insulate your house and use a wooly jumper instead of the heating. Maybe even grow some veg.

    Get a grip - it's going to get worse. Much worse. Sorry, the party is over.

  • Comment number 68.

    I am a pensioner and take umbridge and Mr. "2.4" Peston's comments about how comparatively well off I am. Mortgage? Yes I have paid mine off, but thanks to Messrs Major and Lamont in the 90's I had negative equity for 4 -5 years, only overcome but selling at a loss and working 60 hours a week for 3 years (in my late 50's) to get out of the mess. My pension is not indexed linked and Mr Brown managed to steal some of that long before it matured.

    I manage on an income of £10800 (despite having saved for a private pension for 30 years) augmented by a seasonal job for 10 hours a week at £6 hour gross.

    My gas and electricity takes up £1500 of that, water another £360 and council tax a further £1200+, telephone is about £300. I do have a car which costs £700 to have sitting in the road but and there you are right, I hardly use it - I simply can't afford the petrol costs.

    The remaining £130 a week I squander on food, clothes, TV licence, gardening, house maintenance, an occasional pint of bitter and about £5 worth of petrol etc. I manage a short holiday (in England) from my meagre seasonal earnings.

    Yes families have it hard, but so do we all. You WILL have time to recover once this debacle is past (as it will) by earning. My OAP income will only increase at the lowest rate of inflation; my occupational one is fixed. My future outlook would be bleak without the house to downsize ultimately. As it is I order no bowls of cherries.


  • Comment number 69.

    Re-54 (infuriated) above. Correct, up to a point. Yes, we have created an unsustainable way of life in the so-called developed world, which is now going to unravel more quickly and with more pain than most people realise, with no obvious end to it as the earth's natural resources disappear before our eyes. However, Gordon Brown has much to answer for in terms of his gross economic incompetence resulting in us been in a hopeless position to cope with this downturn. As an unreconstructed socialist Brown has spent a decade fleecing hard-working people like you and me and dumping his spoils (our money) unconditionally on the public sector which he has allowed to grow into the most bloated, wasteful and monstrously ineffective administration in our country's history. Small wonder he's now being chalked up as probably the worst (unelected) prime minister we've ever seen. So, Mr Peston's letter correctly reflects the underlying issue which is the extent to which our government is now next-to-useless when it comes to helping shape a national economic environment that will assist you and me cope with what lies ahead. As ever, socialism fails dismally once again. Thankfully, the British people have twigged this - albeit rather too late - and will be ditching the Brown Terror at the first opportunity. Good riddance to him.

  • Comment number 70.


    Indeed, you've hit the nail on the head. Some people get preferred treatment.

    I'm 23, living with my 23 year old fiancé. We're both working, pulling in about £10k a year each before tax in fulltime retail jobs.

    No kids, and we're under 25, so no tax credits.

    We're struggling to pay the rent, heating, and food bills already.

  • Comment number 71.

    Agreed, they have to wake up and smell the coffe, like the rest of us

  • Comment number 72.

    Robert, you're a brilliant journalist, but Mr Joe Average would never use the line "or what economists would call second round inflationary effects."

    Truly comical :)

  • Comment number 73.


    You mention "retail sales in London have risen by 8% in the last 12 months"; how much of that is down to tourism or simply people living beyond their means on the good ol' plastic?

    Sorry son but those of us on low incomes are indeed feeling the squeeze

  • Comment number 74.

    Slightly entertaining but mostly condescending.

  • Comment number 75.

    Hi Robert

    I share your frustrations and angst - but is this really the fault of your parents?

    Just maybe there is a mis-management of the economy that has caused:

    -shortages of houses despite there being no shortage of land (planning laws)

    -encouragement of larger and larger borrowings without any control (monetary policy, or more specifically the decision to leave house price inflation costs out of the CPI)

    -encouragement of wild speculation using other people's savings (banking regulations)

    Sure my parents appeared to live well - but in reallity they bought yesterday's bread to save pennies. It is not their fault that my children cannot afford anything near a decent house despite our investment in their education.

    and why, when the economy was booming, did the chancellor keep spending and spending? Surely economic theory says he should have been indeed cutting spending and saving so that on rainy days, as now, he could safely loosen policy. Instead we have a deflationary spiral that increases our costs of food.
    How to undo this?
    -well it means spending cuts, cutting the gold plated pensions of the public services, economy measures in public spending
    -it means relaxed planning laws
    -and sadly - higher interest rates and control over wage inflation - or I fear our currency will spiral out of control

  • Comment number 76.

    "TheHarv" contributor is very lucky as he also seems to be living in a world that most people would not recognise.

    However, he should acknowledge that the vast majority of ordinary people are not in such a fortunate position and ARE paying the price for excesses in the past, probably largely down to people like himself.

    This article of Robert Preston's certainly strikes a chord with me and just about everyone in my office. Inflation headlines of 3.3pc are a joke. The reality is that it is the falling price of "luxury" goods such as electronics and the like from the Far East which are skewing the figures. Inflation in the basics such as food, heating,lighting, fuel etc is far higher and far more important for most ordinary people. I have my own barometer for the state of the nation. We have some wealthy friends and when they "remark" on the higher cost of living (it doesn't affect their lifestyle you understand but it has come to their attention), then I KNOW things are bad!

  • Comment number 77.

    I worked in a fairly well paid job for four years before returning to education. I'm a post graduate student and I genuinely don't spend my money on anything apart from the essentials. Food, petrol, accommodation (and very occasionally beer) and I have been self funding from savings. I am much, much worse off than when I was studying my undergraduate degree five years ago.

    This period has opened my eyes, I have had a meagre existence purchasing only essential items and trying to be as thrifty as possible, spiralling prices has really, really hurt, the inflation I’m feeling is double digit.

    The Graduate job market is a mess also, but that is another issue…

  • Comment number 78.

    Robert. With regard to your comment:

    "But the rapid inflation of the 1970s and 1980s wasn't so terrible for them in one very important way. It meant that the value of their mortgage shrank and shrank and shrank relative to their earnings, which rose and rose and rose. Or to put it another way, inflation massively reduced the burden of their debts."

    Spot on! Although we know that inflation is obviously eroding the buying power of our savings, it does allow mortgage debt to be eroded in a reasonably controlled fashion...and gives a feeling (albeit false) of financial well being. Boy could we do with some of that!

    And no I'm not advocating runaway inflation. However a nice 5-10% would be extremely welcome and plays nicely into the psyche of the UK homeowner.

    With low inflation, you have to take on a different mindset, which is basically that you will only pay off your loan if you save the funds to do it. This is alien to the UK homeowning mentality. It also means that a 'starter' home is not going to be getting the first rung of the housing ladder - it'll be the only step you ever take! The housing market as we know it will then stagnate and disintegrate, Continental-style low inflation must be consigned to the dustbin along with the party that is mindlessly promoting it.

  • Comment number 79.

    But for the parents' pensions its possible that the RPI will fall sharply as a consequence of the falling value of house prices which is included in the measure. Perversely, one expert said by the critical window, September, this may be below the CPI measure. So no smugness from Mr and Mrs 2.2's parents just yet, and of course with only meagre savings they are denied any access to top-up allowance/benefits .

  • Comment number 80.

    So the economy should be run on the basis of Peter's financial situation:

    1. Taking out a short term low rate mortgage when a five year old knows that after the fixed rate ends you pay much more than normal repayment debt

    2. Tying all his savings up in property despite every indication that house prices were going through a bubble period

    3. Jealous of people who have had the sense to invest in a pension being better off than he is

    4. An erroneous view that inflation was good for his parents but makes him suffer (they went through high interest rates and negative equity as well, but that was DIFFERENT)

    The comments re bankers and the calculation of real inflation are right, but his insistence that we run the economy to make life easy for those who have lived a little too thoughtlessly is not. Economic cycles are not new. Plan for them in the good times (rather than buying the third TV) and life will be smoother all round. Pity governments don't follow this prudent advice as well.

  • Comment number 81.

    He forgot to mention the tax burden Gordon has placed on us during his time as chancellor...

  • Comment number 82.

    Clearly poor Mr Two-Point-Two is neither a history nor an economics graduate. So what do they teach them in the schools these days?

    As a graduate of 1970 vintage I sympathise with Two-Point-Two as he describes a situation not dissimilar to mine after the oil crisis in 1973. His advantage as a teacher is that his job is safe. By 1976 mine was not.

    The assumption that the world owes you a living underpins this sad whinge. It doesn't.

    So what do they teach them in the schools these days?

  • Comment number 83.

    While it is unfortunate that the writer has put all of his savings into buying a house, an elementary part of financial planning is to diversify. If you can't afford to buy a house without leaving a significant part of your net worth in other assets, then wait until you can. You get a whole lot more for your money renting these days, and don't have the stress of having all your eggs in one basket.

  • Comment number 84.

    I feel for Peter 2-p.2
    as I was in the last big downturn. One can and must adjust one's expectations. For example how about letting the house and moving in with the parents?? In 'the old days' famillies did live together because of tough economic circumstances!

  • Comment number 85.

    Those complaining about the asset price/housing bubble now being rectified should remember that the government that let the genie out of the bottle was the first Thatcher govt which deregulated the Financial Services industry with the FSA Act of 1981. This consolidated the boom in the construction industry initiated by the "Barber" boom of 1972. We have been subsidising the construction industry and the banking/mortgage industry ever since.

  • Comment number 86.

    The comments made in your open letter raises some interesting points.

    Firstly I must confess that I do find it difficult to understand how the government's and the BOE measure of inflation can be a true reflection of the rises in the cost of living that we are now seeing and why. the BOE believes that raising interest rates is the best answer to control rising inflation. As far as I can tell raising interest rates will only exacerbate or compound the the problem of rising inflation.

    Secondly to suggest that the rapid inflation of the 1970's and 1980's wasn't so terrible because the burden of peoples debts was massively reduced by the fact that wages were allowed to rise even faster than inflation might be a true statement but, in reality that cost the country and the people living and working here dearly. It also part of the reason why the country and many of it's citizens are now in a finacial mess. The country appears to be heading towards bankruptcy and with a people culture to match. As a nation our integrity and work ethic has all but disappeared and too many people in this country still believe they can carry on living beyond their means.

    It would be wrong for anyone to just blame the present government for this mess because both our leading political parties have failed to reach any broad consensus on what constitutes a suitable planned economy that would be suitable for UK Plc and it's people. Both parties have squandered the the bonanza of North sea oil when pursuing their own political ideals or political dogma. The Tory's used this money to keep millions of people on the dole and Labour used the used the money to create millions of jobs in the public sector, that the country and it's citizens could not really afford.

    Finally although I don't agree with all of the comments made by subscriber 34 (if things are as bad as he says why, is he living and working here) he none the less does express the views that many other people from around the world have of this country and the people living here.

  • Comment number 87.

    I think I've worked out how the ONS have inflation so low when in reality its a lot higher. In the 1990's I bought a 32" state of the art Sony TV, it was so big it arrived on a pallet. Obviously this is in the basket of goods, its purchase price was over £900, now you can pick em up for £50 on eBay. No doubt this will compensate for the rise in the price of baked beans, which around the same time were subject to a price war and could be purchased for 3p a tin, try even getting them for 10 times the price now!

    Government (note how I don't mention which one) has borrowed and borrowed, taxed the electorate to the hilt, and not had to worry about the consequences, due to the illusion of rising incomes and wealth since the last recession.

    The time is up, just don't forget to use your vote appropriately when they eventually have the bottle to call an election (or more likely, run out of time).

  • Comment number 88.

    Good stuff, Robert.
    You have to wonder how much the people at the Bank of England, the Treasury and the FSA earn to create this whopping great mess.
    One of the fundamentals of good economics is the necessity for "Alarm Bells" in the head in periods like we've just had.
    It seems no-one in government or the City has any.

  • Comment number 89.

    Mervyn King and Gordon Brown have learnt a bitter lesson about lack of control.
    They should have been wearing their "L" plates for the last 7 years.

  • Comment number 90.

    I fail to see how adding to the financial pressure we are all under by increasing interest rates will help. How is this supposed to stop us asking for pay rises - it will simply make us need bigger pay rises to manage. Secondly it will allow the lenders to increase their rates again to add to the economic pressure. Finally why is the chancellor not accepting resposibility and reducing the taxation burden we have been saddled with by his boss when he was chancellor.

  • Comment number 91.

    My comment is to the grateful you have a mortgage! (and if you weren't cautious enough to think things might go up and your property was overpriced, more fool you). There are many who can't afford, let only aspire to afford to buy. House prices have been ridiculous for many years now, especially in the south making them unaffordable to most 'ordinary folk'.

    Things have been hard for those on low wages, state pensions and benefits for a considerable time now. of course they will only get harder, but we are going to be joined by others, so, suddenly its newsworthy.

    As far as I'm concerned if house prices crashed that would be good news for many.
    All these people so serious faced about it, because, at last it affects them and their precious profits from property.

    Sorry to sound angry, but its been simmering for years, whilst people lap up \property shows and want to become developers, and want to make their little bit of profit out of something which is a basic need..whilst social housing dwindled.

    I feel for those who may have to tighten their belts and drop their gym membership or delicatessent shopping. Welcome to the real world. Enjoy.

  • Comment number 92.

    You made your bed now lie in it.

    Others have pointed out how foolish it was to buy at the top of the market and bottom of interest rates.

    Your biggest mistake was believing all the rubbish we have been fed since 1979. The economy is very complex and is not easily controlled with simplisic measures. Human nature, mostly greed and self interest, drives the economy - you just have to try and insulate yourself in the good times

    Of course they understand your predicament, if they actually had to admit that they don't know what they are doing where would they be.

    Only believe something when it is officially denied

  • Comment number 93.

    Its a given that the two biggest problems are dramatic rise in fuel prices and the credit crunch, both of which are beyond monetary control here till they feed through our system.

    The two are contradictory as they pressure in oposite directions.

    Interest rates must be cut steeply now.

    Yes, that is inflationary, but not as inflationary as the fuel cost rises.

    The country need the employment and a way out of the credit crunch by increasing demand.

    The answer:

    First, temporarily raise the target inflation to 3.5% and allow a 2% variance, correct this back down slowly after 2 years. Yes that does mean accepting a little more inflation for a while, though it is below the EU rate at the moment.

    Second, cut rates aggressively, at least two half point cuts in the next 3 months, and be prepared to do more.

    Third, abolish stamp duty, it was there to dampen the housen market, in the current disastrous market it is doing the reverse.

    Fourth, slash fuel duty by 20p a litre and commit to no rises for the next 3 years.

    Fifth, pay for this by increasing borrowing a little in the short term and by raising VAT to 20% and committing that the rate of VAT and the standard rate of income tax will be the same in future, preventing either being raised too high or played with in future.

    Too much drift will lead to a meltdown, radical solutions are required.


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