A conumdrum

The Government is understandably trying to encourage banks to lend to business and private individuals. Few people would disagree with this. Indeed, for weeks the Tories have been urging the government to set up a loan guarantee scheme to promote lending and spending.

Lending to small businesses, which provide a very large proportion of employment opportunities, could be the difference between survival and going to the wall.

What of lending on house purchase? We want the housing market to revive, both to keep people in their homes and to provide for mobility of labour - to enable the unemployed to move to work elsewhere, they need to be able to sell and then buy.

Is it so simple? With house prices falling, and people in negative equity, how many of the unemployed could face moving? For first time buyers there is the added problem of losing value after buying a house which suffers a fall in price.

The lenders may be protected against loss in lending on house purchase, but borrowers who lose their jobs will be in trouble, despite schemes to defer mortgage payments for months. The foregone mortgage payments will have to paid at some point, either in cash or in lower selling proceeds.

It could be that would-be house buyers lack the confidence to buy, unless they have large resources and are confident about their employment status. Whatever their situation, with falling house prices, it is not a good time to consider buying.

The argument is that selective advances to business may arrest some of the decline, even saving firms for a year or two until recovery sets in. Lending for medium term then is justified, but only if there is a prospect of eventual recovery.