Wednesday 14th December 2011

It’s well known that Labour’s Plan B would result in an extra £326bn of borrowing over the course of this Parliament, but new figures show it could also result in a loss of £89m a year to the local Stratford economy.

On the day the Coalition Government was formed, UK Gilt yields (interest rates) were similar to those of Spain and Italy, yet today they are 4.8 percentage points lower than Spain’s and 4.7 points lower than Italy’s.

Spain and Italy have both been punished by the markets for their lack of a credible deficit reduction strategy, whilst the UK is being seen as a safe haven with record low rates as a result. Labour’s plan to borrow £326bn more and as a result only quarter rather than eliminate the deficit, would undoubtably see our interest rates rise to those of Spain and Italy, hitting every day people hard.

Why, because, rather than being based on the Bank of England Base rates, fixed rate mortgage rates are based on 10 year gilt yields or market interest rates. This means an increase in the cost of government borrowing will result in an increase in mortgage costs.

The average UK mortgage is £109,643 so a 1% increase in mortgage interest rates would see an average family paying a £1,096 a year in interest. If rates increase to those of Italy the average household would see their annual mortgage bill rise by over £5,000.

Here in Stratford there are 17,870 households with a mortgage, who if they each had to find an extra £5,000 a year would collectively be paying an extra £89.35m. That’s £89.35m less that they can spend in our local economy.