Good old assumptions. They’re an economist’s best-friend. If the world seems too hectic or complicated — simply assume that it isn’t. Then everything will be fine.

But if we’re going to make assumptions, we must also be willing to test them.

One common assumption we often see goes like this: if house prices fall, economic disaster will surely follow.

But a BBC survey suggests that things are not so clear-cut. Granted, this survey was part of the BBC’s attempt to plug one of its programmes. But nevertheless, its findings are interesting. While 22% of respondents said they want house prices to go up, 28% would actually prefer them to fall.

And these aren’t just prospective first-time-buyers hoping to get a foot in a door. Those already on the property ladder could benefit from lower prices too. Because while the value of their home will fall, so too will that of the bigger home they want to move to — and by a larger amount.

Also interesting is what the survey tells us about consumer confidence. When asked how they would respond to seeing house prices fall by more than a tenth, only 38% said they would cut back spending. Meanwhile, 60% said their spending would either be unchanged or would actually go up.

This makes intuitive sense. Many would-be home-buyers, be they first-time-buyers or those looking to climb the ladder, are obliged to save for long periods before they can afford to move. But if prices fall, the amount they need to save also comes down. Hence some people may feel inclined to spend a bit more.

It goes without saying that the BBC survey is very limited, commissioned as it was to promote a television show. But it provides food for thought. It reminds us that in matters economic, things are not always what they seem. The world is complex; causality can be messy and two-way.

It’s for these reasons that markets should be left to find their own level. House prices have risen in part due to a supply of cheap and easy credit. But this was unsustainable, and that supply has been curtailed.

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Today we read that the British Chambers of Commerce are calling for the Bank of England to cut interest rates. They fear that without a rate cut, Britain will face a severe and prolonged downturn. Presumably it is hoped that a rate cut will prop up house prices.This is market-meddling. House prices are falling for a reason. As noted above, they got this high via unsustainable means. And as food and energy prices rise, we simply cannot afford to put as much of society’s wealth into housing. Other necessities are making bigger claims on resources.

The BBC’s survey shows us that some members of the public already seem to realise this. If nothing else, some of us are content to let the price mechanism do its job.

Those in charge of our economic policy would be well-advised to take heed.

Taxed!

Labour has traditionally been dogged by allegations of being a ‘tax and spend’ party. Tony Blair worked hard to dispel that image, moving the party to the right and adopting a more Middle England-friendly stance.

But a report by the Taxpayer’s Alliance (TPA) suggests that Labour in government is still more than happy to dip its hand in our pockets.

The TPA report states that the current tax burden — the amount of tax taken out of the economy — is £517 billion a year. When Labour came to power it was £294 billion a year. Adjusted for inflation, this means the tax burden has gone up 51% in real terms since 1997.

The culprits, according to the TPA, are not only higher rates of up front taxes (such as stamp duty, revenues from which have gone up more than 300%), but also stealth taxes and fiscal drag (which occurs when rising salaries move more of people’s incomes above the tax threshold).

Of course, these figures only tell half the story. As the economy grows, it’s only natural that the amount of tax, even in real terms, should rise.

“Tax as a percentage of GDP is around the same level as it was in 1997 and is well below the peak of the 1980s,” says the Treasury.

But I doubt many voters will listen. Today we have yet more bad news which demonstrates just how under the cosh Britons are. Factory-gate inflation is at a 22 year high. British Gas owner Centrica says it will be hiking prices again. Health secretary Alan Johnson reckons we’ll need to find another £6 billion in the next 20 years to provide adequate care to older people (i.e. many of today’s taxpayers).

Britain is getting poorer. All the stories mentioned above this paragraph are symptoms of that fact. And, rightly or wrongly, it’s the governing politicians who will take the blame.

Small wonder, then, that Labour über rebel Frank Field predicts Gordon Brown won’t be around by the time of the next election. I’ve lost count of how many “another nails” there’ve been for Brown’s political coffin. Brown’s stubborn, so expect him to cling on as long as possible.

Meanwhile, that coffin will just keep on collecting nails…

Marks tries to regain its spark

“Marks & Spencer’s is turning its back on an 85-year-old business model,” says our business researcher Theo Casey. “For the first time they could start stocking branded goods alongside their own.”

It’s quite a radical move for M&S. But is it the right one?

In today’s edition of Fleet Street Research, Theo explains that while there’s plenty to be excited about in the M&S story, you should also be aware of some flies in the ointment…

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