Hold off, Mr King

Sir, Mervyn King, whose brief is to control inflation, is probably right to be cautious about cutting interest rates and not, as your leader implies, ‘out of touch’ (Jan 23).

The 1970s experience was that expanding the money supply led to the oil producers and the British unions quite legitimately upping their prices to stay level, while money poured into house prices, which went up 70 per cent in two years at one stage.

Mr King might wait for the system to rid itself of as much house-price inflation as possible before reflating, but then only with political commitment to block cheap money going into housing. Perhaps one could do this with the Schedule A of income tax, which was foolishly abolished in the 1960s, or the Land Value Tax, which has the bonus of bringing hoarded land onto the market, increasing the supply of houses and decreasing their cost.

D. B. C. Reed
Northampton

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