Neighbours Lawson And Thatcher Fall Out Over Money Again

LONDON, Thursday: The official residence of the Chancellor of the Exchequer, Mr Nigel Lawson, is 11 Downing Street, next door to the Thatchers at Number 10. The gossip is that the neighbours have fallen out again.

The tension dates back to last May when there was speculation about a rift over exchange rate policy.

Unlike her Chancellor, Mrs Thatcher is determined to leave the sterling rate to market forces and is equally determined to resist joining the European Monetary System, a move strongly favoured by Mr Lawson.

At the time he was said to be irritated enough by her interventionism to contemplate resignation and moving to a more congenial neighbourhood in the City.

Damaging policy differences between Mr Lawson and Mrs Thatcher resurfaced recently, reviving speculation about Mr Lawson's future and his possible replacement with a Chancellor more attuned to Mrs Thatcher's views. The Energy Secretary, Mr Cecil Parkinson, has been suggested.

At issue this time is the question of how to tackle inflation. With the economy continuing to grow, and unemployment continuing to fall, inflation has elbowed its way back to the top of the economic agenda.

The need to rein in an economy running too fast - a comparative luxury after the stagnant seventies and early eighties - prompted Mr Lawson to increase interest rates this week, the sixth increase since the beginning of June.

His action was swiftly followed by strong criticism from Mrs Thatcher's former economic guru Sir Alan Walters, a solid Thatcherite monetarist, who is scheduled to make a comeback as a senior adviser at Number 10 later this year- in itself something of a snub to Mr Lawson.

In a direct challenge to the Chancellor's policies, Sir Alan blamed him for the interest rate rises and said the country was paying the price for the decision to relax interest rates earlier this year, for which it would now have to atone. Sir Alan said Mr Lawson should stand down.

Interest rates on home loans have provided another bone of contention between the neighbours at Numbers 10 and 11, who specifically disagree over the issue of mortgage tax relief.

Mr Lawson has long favoured cutting back a tax benefit which costs the Treasury Pound4.5 billion ($A9.47 billion) a year, to take some of the pressure out of rocketing house prices.

Mrs Thatcher insists that without tax relief on the first Pound30,000 of a mortgage, there would not have been the enormous extension in home ownership to which she is totally committed.

This year's Budget merely ended tax relief on multiple mortgages, where two or more people could claim relief on a property jointly purchased, and on home improvement loans.

The rush to buy property, rapidly rising consumer spending (up 6.5 per cent in the last three months compared with the same period last year) and the impact of budgetary tax cuts on consumer spending, have played their part in Britain's economic recovery.

Mrs Thatcher and her Government rightly talk of economic growth and expansion and new-found confidence, but there is a cost, and it can be high, as is the case with the vastly-overheated property market.

The television program Panorama has exposed another facet of the economic story.

In a program about mortgage fraud, it revealed what the wide-boys can make of a market running away with itself and awash with credit.

The lucrative possibilities being exploited include obtaining multiple mortgages on the same property, then selling the property and repeating the exercise, and, under fictitious names, obtaining several lots of tax relief on a single mortgage.

The frauds are possible because the property boom has submerged many regulatory mechanisms.

The Land Registry has a backlog of one million deeds to register; building societies no longer check bank references from their borrowers for fear that the banks, in a highly competitive market, will poach their customers; the Inland Revenue checks only a tiny proportion of mortgage relief claims for fraud; and newly set-up police mortgage fraud squads are overwhelmed with cases.

These are among the side-effects of the present recovery, part of the fallout from tax cuts, the economic wisdom of which even the Confederation of British Industry queried, and a "loadsamoney" credit philosophy which is funnelling billions into consumer spending and house buying.

As one editorialist put it: "If the present recovery had contained less consumer spending and more expenditure on improving roads, hospitals, houses and schools, the recovery would have been better balanced and less reliant on imports."

The case should be hammered by an effective Opposition. But Labour's performance has been dismal, leaving public debate to centre not on an alternative Government, but on the Nigel/Maggie rift story.