Lender's boss warns the economy will shrink and urges the BOE to cut base rate
The chief executive of Family Building Society has delivered a withering appraisal of Labour’s first six months in government, suggesting it has failed to reset the country.
In a frank and wide-ranging, exclusive interview with Mortgage Introducer, Mark Bogard (pictured) also criticised the Bank of England for a slow response to rising inflation and a slow response to it coming down again – and predicted that the UK economy would shrink.
Bogard said he was free of the constraints of the lending giants in the mortgage market to speak out about the new government’s performance so far.
“One of the really interesting things that Starmer had as an objective going into the election was for the UK to achieve the fastest growth in the G7, by the end of their first term in government,” Bogard told Mortgage Introducer. “I think that would be a brilliant thing to achieve, but to do that requires structural reform in relation to the way things are done in the UK, to mirror much more the way things are done in other geographies which have much faster growing economies.
“What they've done is effectively more of the same, without taking the opportunity, with a huge majority, to actually do things to lubricate the economy, to get on with stuff, to free people up, which if you want to beat the Americans - which is what being the fastest growing economy in the G7 is - you've got to do.
“I know that they're desperately worried that they will be a one-term government, that the UK electorate is fairly fickle, but they had a huge majority, so they had a chance to really do some things and if you look at what they've done so far, it's very little.”
How has Labour fared on housing?
Labour has failed to deliver on housing too, Bogard suggests – in particular, he views increasing Stamp Duty from April as a backward move.
“All of the evidence from COVID was that one of the two great successes, one was the vaccination programme, and the other was a Stamp Duty holiday,” he said. “The numbers that the LSE (London School of Economics) did for us showed that the Stamp Duty holiday generated more revenue for the Treasury overall because of the economic activity it generated.
“You need lots and lots and lots of these little things to get people going, to get people positive, to get people moving, to make better use of the housing stock, and almost everything we're seeing is heading in the opposite direction, isn't it?”
Furthermore, Bogard noted that the Labour Party pledged in its election manifesto to double the size of the mutual and cooperative sector.
“Running a mutual and having previously chaired the Building Societies Association, that's something that we were very, very strongly supportive of,” he said. “What has happened to achieve that objective? Nothing.”
The chief executive suggested that Starmer’s government had, in effect, squandered the honeymoon period of its arrival in office by neglecting to follow a defined plan.
“The trouble with that first six months is you never get it back,” Bogard observed. “Having worked in the past with private equity firms, one of the things private equity firms do if they acquire a business is have a 100 day plan, and that is very detailed. One of the things that we haven't had is a 100 day plan. If you look at the economic forecasts for 2025, they would not indicate Starmer achieving his objective of being the fastest growing economy in the G7 by the end of his first term.”
Bogard is ‘surprised and disappointed’ by Labour’s performance so far – and believes it may have damaged its reputation.
“I suspect that in the minds of the great British public, they have already materially impacted their own brand,” he reasoned, “and that is something that is hard to change. You see that in corporate life, you see that with individuals. People voted for change, and if you look at the last six months, that’s not what's been delivered.”
Chancellor Rachel Reeves comes in for criticism too – likened unfavourably to the UK’s shortest-serving Prime Minister.
“What Reeves is doing is a slow version of Liz Truss,” Bogard observed, “What Liz Truss did was disastrous quickly, what Rachel Reeves is doing, she looks like a sort of frog being boiled in a pot.”
Reeves’ increase in National Insurance in her much-debated autumn Budget was a tax on jobs, in Bogard’s view, and this would impact Family Building Society’s staff numbers, he said.
“If I look at this society, which employs about 250 people, the cost of National Insurance, the additional National Insurance to us, will be about £300,000,” Bogard explained. “We have to make a sustainable level of profits in order to keep lending people mortgages. We will just employ five or six people less going forward.”
Read more: Revealed – 2024 property market trends and buyer behaviour
How can the Bank of England support the economy?
The Chancellor needs to deliver growth, he urged, and the Bank of England has a part to play in this.
“It would help if the Bank became a bit more aggressive on the state of the economy and reduced interest rates,” Bogard said. “The Bank of England was very slow in spotting inflation and dealing with it as interest rates went up from December 2021, and it seems to be doing the same thing on the other side now. So, although there are aspects of inflation embedded in the system, it looks like the economy is going to shrink. So, we have a shrinking economy and what, by modern standards, are quite high levels of interest rates.
“And if you look at what's happening in the Eurozone, where they've cut interest rates and they're quite significantly below ours at the moment, they are taking action on the back of the same sort of evidence that the Bank of England isn't taking action on, so I think there's a pretty tough cocktail there for a country, essentially living beyond its means - that is quite a tough background to go into 2025 with.”
On a more positive note, Bogard reflected that the housing market has been ‘unbelievably resilient’ and customers have a mortgage market that is ‘incredibly competitive’, with multiple lenders desperate for their business. Rates of arrears also remain low, he said.