Shadow over house boom

IT WOULD be ironic if politicians and regulators who sat back and watched house prices rise 40% and consumer debt soar in the last two years were to jump in with both feet just as the boom is petering out.

House price rises slowed to 1% in November on the Halifax index, and although the annual rate has dropped only from 16.7% to 14.1%, the Halifax believes it is subsiding toward the long-term average rate of 8%.

Chancellor Gordon Brown is putting the housing market under the microscope. Ahead of his Pre-Budget Report next Wednesday will come two preliminary reports on housing, one on supply problems by Kate Barker, a former CBI economist, and one on long-term fixed mortgages by David Miles.

Both reports will be diagnosis only. Recommendations will follow, probably by the spring Budget.

Although commissioned initially as part of the studies for euro convergence, it is worrying that they are developing a life of their own - and talk of new regulation and taxes is beginning to surface.

There is talk that first-time buyers on discounted mortgage rates are being 'subsidised' by those with older loans. True, but these borrowers can switch without heavy-handed government intervention.

Barker is looking at how to speed up supply of new houses. This has already led to talk of a tax on development land and concessions for rented housing.

There is muttering about the 'wealth effects' of big price rises in housing hotspots. Behind such talk, you can sense the taxman's trigger finger itching. We must hope common sense prevails. The deregulated mortgage market allows some excesses, but it has delivered freely available loans and a high level of home ownership.

It is not as if taxes on housing are standing still. Stamp duty, which brought in £675m the year before Labour came to power, soared to £3.6bn last year. Council tax is going through the roof and regulatory costs are rising.

It is hardly surprising that the Council of Mortgage Lenders is urging the government not to kill the golden goose.

Consumer caution

CONSUMERS may be shoving some of their credit cards back in their wallets. Retail sales slowed in November, according to an CBI survey which showed a net 19% reporting higher sales, down sharply from 35% in October.

But the pace of economic growth is picking up all over - even stagnant Euroland managed an 0.4% growth rate in the third quarter. At home, service industries, the largest sector of the economy, are expanding at the fastest pace for 6 1/2 years. RBS economist Ross Walker says: 'Recovery is moving up a gear.'

RBS has raised its UK economic growth forecast to 2.1% for 2003 and 3% next year.

That should give the Chancellor some comfort on his own forecasts, and boost tax revenues. A boost is direly needed - Deutsche Bank sees this year's deficit reaching £37bn.

The pick-up in growth increases the risk of a surprise rate rise to 4% by the Bank of England today. Most City folk expect it to wait until next year, but rate expectations are creeping up.

RBS sees a 4.75% base rate by the end of 2004. That should be enough to cool the housing boom without the state's heavy hand intervening.

Drugs pipeline

THE market has long feared that GlaxoSmithKline's pipeline of new drugs was thin. Its list of 147 new projects should have offered some reassurance. But many will not come to fruition for three to five years.

So the shares soon lost initial gains after Jean-Pierre Garnier set out his research stall.

Do not despair. The shares have risen 31% since March (although trailing rival AstraZeneca's 47% rise and much higher rating). Some of the good news was already in the price.

Glaxo's mergers, first with Wellcome and then with Smith Kline Beecham, have spawned an £80bn giant. It has yet to show that it can crank up its huge research engines to high speed.

It is not alone. The industry had 131 new drugs approved in the peak year 1996. By last year the figure had fallen to 78. Andrew Jones of Datamonitor says: 'The productivity of Big Pharmaceutical firms has dropped.'

Garnier is confident that his revamped research structure can recapture the innovative drive of the boom years. Only time will tell.