Broke: Who Killed the Middle Classes?. David Boyle

talking about house prices in those days, in training for a thousand middle-class dinner parties to come, but actually – compared with what came later – the average price of a home in the UK was very low: £18,000 (now worth about £74,500 at today’s values).² Despite that, there had already been a round of major house-price inflation during the so-called Barber Boom of the early 1970s. There was another flurry in 1977–8 when controls on lending mortgages were briefly loosened because of fears about the house builders. It was enough to get the tongues wagging.

      This was not quite the 1930s, the heyday of middle-class house buying, when a new semi-detached cost just over £500, available with a down payment of £50, and when mortgages cost about 10 per cent of a middle-class income and were paid off within sixteen years. But looking back, 1979 was actually the beginning of the extraordinary process which – over the next three decades – has goaded the rise in prices so brutally that it has ended the house-owning dream for many people, and which now, more than anything else, threatens the very existence of the middle classes.

      There is always an argument about why house prices rise, and why those prices accelerate. Politicians like to say that it is a shortage of homes, and there certainly is a shortage and it doesn’t help. But if it was only about housing shortage, you would expect massive price rises in the late 1940s, whereas – after a burst after the war – house prices stayed completely steady from 1949 to 1954. In our own day, planning permission has already been given for 400,000 unbuilt homes in the UK, yet prices still rise, as they do in places like Spain, where there is little or no planning restraint.

      Politicians get muddled about this because building houses sounds like a tangible thing they feel confident about tackling (though they usually don’t), whereas they don’t feel confident about mortgage supply at all. Yet that is the other side of the process: inflation is about too much money chasing too few goods, and the main reason for the extraordinary rise is that there has been too much money in property, both from speculation and from far too much mortgage lending.

      Sometimes this came from people’s rising incomes, which translated into rising home loans. Sometimes, more recently, it was bonuses and buy-to-let investors. But most of the time, it has been a catastrophic failure to control the amount of money available to lend, and which has fed into all the other trends to create a tumbling cascade of money, with its own upward pressure on incomes and debt until the acceleration now seems quite unbreakable. It was a roller coaster that terrified and thrilled the middle classes, as they saw the value of their homes rise so inexorably, but which ended – as we have seen – in undermining the very basis for their continued existence.

      So what happened? As so often, there is no smoking gun, no deliberate policy, but a series of decisions – taken for very good reasons and often in other areas of policy – by a close-knit group of people. Back in 1979, as they prepared for the historic election that swept Margaret Thatcher to power, there was an institution that was designed partly to prevent house-price inflation. It was called the ‘Corset’, which tripped off the tongue a little easier than its other name: the Special Supplementary Deposits Scheme. It worked by penalizing banks when they lent too much, and – although it was not always effective at limiting the money they lent – it did keep bankers out of the mortgage market.

      So travel back with me to the moment of the first clue in this book, the autumn and winter of 1978, as it turned into 1979, when a small group of economists and radical thinkers was meeting regularly at the home of Sir Geoffrey and Elspeth Howe next to Vauxhall Park, in the elegant Georgian terraces of Fentiman Road. Elspeth was then deputy chair of the Equal Opportunities Commission. Sir Geoffrey was a former Solicitor General and had good reason to believe that he would be appointed as Chancellor of the Exchequer in the new Conservative government, if Mrs Thatcher could lead them to victory.

      These were people who had bought into the intellectual argument for free markets, which emerged from divisions inside American liberalism in the 1940s, and was identified with the controversial economist Milton Friedman. In Howe’s sitting room week by week were the economic journalist Nigel Lawson, a future Chancellor himself, and Sir Keith Joseph, the former health minister who had performed a kind of mea culpa for his role in the sins of the last Conservative government under Edward Heath, and was now an agonized intellectual figurehead for the new dispensation. There were also a number of other young advisers and thinkers, prominent among whom was the future banker Adam Ridley.

      It was a heady and exciting time as they met, through the events known to modern history as the ‘Winter of Discontent’, when the trade unions rebelled against their government’s incomes policy and rubbish piled up in the streets. Inflation was running at 10 per cent and rising. But Howe’s group were not just fairly certain they would win, they had the confidence of a big idea behind them – that inflation could be squeezed out of the system by reducing the amount of money in the economy.

      Their other idea was in some ways the very opposite. It was that ending all the detailed controls on banking – most of all the restrictions on money leaving the country which had begun at the outbreak of war in 1939 – would provide a kind of discipline to Britain’s unruly economy. As many as 750 civil servants policed the exchange control system at the Treasury and Bank of England. Everyone’s passport in those days noted the money they were taking out of the UK on holiday on a page at the back. This radical group believed the whole system must go.

      Ridley and the other policymakers were aware that the controls had tightened through the decade, and especially when the government had been forced to borrow money from the IMF in 1976. ‘The essential concern was that a sophisticated financial system finds ways of outflanking most controls within a few years,’ he says now, ‘and from that point on the complications and distortions cause more damage and loss than any of the uncertain benefits which they may have initially brought.’

      The problem was that these were highly uncertain times. John Hoskyn, then the head of the Prime Minister’s policy unit, described running the British economy as ‘fighting for the controls of an aeroplane that can no longer fly’.³ The price of oil was soaring and pushing the economy, yet again, into recession. Nobody on the Conservative side wanted to frighten the markets or the electorate by revealing their plans too publicly. It certainly wasn’t in the Conservative manifesto for the election, which had been ready the previous year when they thought the election would take place. Lawson risked using his column in Financial Weekly during the election campaign to talk about relaxing exchange controls. Howe was ‘apprehensive but fundamentally sympathetic’, at least according to Lawson.⁴

      Looking back at the May 1979 election with the benefit of hindsight, it is extraordinary how united the middle classes were – perhaps it was the last election to be fought strictly on class lines. I remember watching the documentary series about the public school Radley College later that year, and seeing their entire staff room gather to watch the results, united in their assumption that they were all cheering the Conservatives on to victory.

      They did indeed win – by forty-three seats. Margaret Thatcher quoted St Francis of Assisi on the steps of 10 Downing Street. Howe was duly appointed as Chancellor with Lawson as his deputy (Patrick Hutber had already taken over from him as City Editor of the Sunday Telegraph). Ridley became their special adviser. The revolution had begun.

      I bought a house in the early winter at the end of 1986, just over six years after the events I have just described, when interest rates stood at 11 per cent. It was a struggle, even with help from my stepfather, but then I wasn’t earning very much either. I remember the strange, adult excitement of the key going into a front door of my own place, even if was a little damp and dilapidated. I remember the excitement (yes, and the expense) of doing it up myself, and the misery when the flat roof leaked down the staircase and I had no idea how I could afford to mend it.

      The following eighteen months were almost the eye of the house-price storm, as money cascaded into the mortgage market and house prices began to rise, slowly at first and then catastrophically. I benefited from that rise, and there certainly was a feeling of delicious self-congratulation by the middle classes, then and later, that our assets – though we may not have owned them outright – had risen so much in value.

      Pinpointing