Month: December 2007

The Chancellor lurches from muddle to mess on his various battle fronts.

Today we read that a rival bid is being warmed up for Northern Rock. I read in some papers that Virgin was given preferred status and allowed to enjoy great publicity for its bid in the hope that its name associated with Northern Rock would reassure depositors and stop the withdrawal of so much more money. Because the withdrawals continue, it appears the government is keen to give airtime to other bids, or will not stand in the way of their promotion.

When will this government realise that instead of playing media games with important issues like this, their job should be to define the taxpayers interest and get on with managing the banking relationship between the company and the public sector, influencing the sale process in the taxpayers interest? The deposits will only be stabilised when there is an agreed deal the public believes in. Today’s revelation of ??1,000,000,000 a year now being spent on spin by central and local government just underlines how far government time and priorities are distorted by trying to influence the media instead of trying to manage efficiently.

It appears that they still think spin is the answer to the Rock’s problems, when some good old fashioned banking discipline to determine how much taxpayers money is available on what terms should be central to an orderly auction and a successful outcome.

We also read of the growing concern in the City about the very tight conditions in money markets. Readers of this blog will remember predictions of monetary tightness over the year end, and my call for lower interest rates now. I am glad to see the heavyweight members of the Shadow MPC out and about in support of this cause – Tim Congdon and Patrick Minford are both calling for cuts in MPC rates. I will be happier when the MPC itself gets the point.

Market interest rates are almost 1% or 100 basis points above MPC rates. The MPC, if it still thinks 5.75% is the right rate, needs to cut its own indicative rate to try to get market rates back down to around 5.75%. They should ignore the short term price pressures on energy and food, and realise that the credit crunch means inflation coming down again next year.

I also suspect all the worries about further large rises in oil and other industrial commodities are overdone. Oil is now falling from near the $100 a barrel level. At an oil seminar yesterday I learned that barring a major disaster in one of the big oil producing areas experts see no great problem with supply and demand next year. Saudi Arabia can decide how tight the market should be as the swing producer, and I suspect Saudi will be reluctant to tighten too much more given the fragility of the international economy and the views of the USA.

The message from previous “oil” crises was that the bigger damage to world growth was perpetrated by central banks raising interest rates to try to offset the energy price increases, leading to less lending and a slowdown or reduction in activity. The Fed looks as if it wishes to avoid this this time. How about the Bank of England?

It is good to know there is more intelligent life on the planet, and chimps can be good at these things without the benefit of going to any of the UK’s much better funded state schools. What’s the excuse of those who could not beat the chimps?

We learn today that the Chancellor favours a bidding war for Northern Rock, and that other bidders are preparing to challenge the Virgin bid.

What a shambles!

We recently learned that Virgin was the preferred bidder. That implied there had been a first round of bids under proper conditions, the bids had been evaluated, and Virgin’s was the best. Normally in such a position there is either a declared second round of bids to seek a better answer or the best bidder is given a period of exclusivity to reach contracts. Instead they invented this half way house of “preferred bidder” status, leading the press to believe Virgin was likely to end up the buyer quite quickly. It encouraged the other bidders to come back with new ideas, as if there is a proper second round.

I have been saying for a long time that as this is an unusual bidding process because the taxpayer has a different interest from the shareholders. The government and the company needed to be careful and to set out the rules in advance. Clearly the taxpayer wants to get as much of the Bank of England loan back as possible on sale of Northern Rock, with as short a time scale as possible for repayment of the rest. Shareholders want the maximum price for their shares, and their shares are worth more, the more money there is available from taxpayers for longer.

There were two ways of handling this. I proposed that the government set out in advance how much money was available for how long so all bidders bid on the same basis. The company could then compare how much each bidder offered to shareholders and make the appropriate decision. Alternatively the government could have said it wanted bidders to bid for how much money they could repay how quickly as well as bidding for shareholder value, and the government as bank manager could have insisted on the bidder offering to repay most most quickly winning. That way always left it more likely shareholder and taxpayer interests would end up warring with each other.

From the leaks and briefings we do hear it appears the governemnt made it no clearer to bidders than they have to Parliament how much money is available for how long, so they allowed the bid process to be complicated by the twin bid issues. Now apparently the Chancellor is having second thoughts about the preferred bidder and likes the idea of other bidders coming back in with revised bids.

If they are not careful they will lose the Virgin bid without finding a better one they can get to completion quickly. In the context of more depositors taking their money out, and the Bank of England having to lend more and more money to Northern Rock, time is of the essence. If Mr Darling helps delay an outcome to the bidding process by complicating or changing it he is doing damage to taxpayers, as it means more public money going into the mortgage bank.

It is difficult to rescue the auction because they did not set out in public in advance what people could expect from the government when buying Northern Rock. This obvious error has made this auction a mess, and has delayed a result. They may now have reached the point where however they handle it from here there will be aggrieved losers.

Mr Darling is not up to the job, and taxpayers will all end up paying more as a result.

The Labour party line is clear – as Ruth told us they are profoundly "shocked" and "saddened" by the dodgy donations row. They speak about it as if about the death of some respected colleague, in sad tones. They then move on quickly, say this is a crisis for all political parties and tell us they will solve the whole problem by changing the rules for party funding in future.

How absurd. This is a crisis for Labour, because their own senior figures claim not to have understood the law their government put in place. It is being made worse by the refusal of most of the top people to answer any questions about it, or for one or two to provide incomplete answers which turn out to contradict other testimony or evidence. Ruth Kelly notably did not defend the Leader in Scotland, Wendy Alexander, saying she did not know about that case. Surely she was briefed before going on air to discuss this very subject?

Ruth Kelly was unable to answer the question how are they sure that Mr Abrahams (the main donor) is wrong in saying 10 senior Labour figures knew about all this? She retreated into Labspeak about helping the police and awaiting the enquiry.

Why can’t all these figures just make short and accurate personal statements, having checked their diaries and files? Surely by now they have all recollected what they did know and who they did talk or write to?

They should not behave as if they are the solution, not the problem, or they are at a funeral where they had nothing to do with the bad news. If this is a funeral, it is for the straightforwardness of this government. Their words and actions now will define whether its reputation can be revived.

Each of the three public crises hitting the government – lost data ,dodgy donations and Northern Rock- is getting worse.

Today we learn of more data that was sent out on a disc with no encryption or password protection. That ended up with a newspaper who returned it. It proves the Revenue and Customs loss was no one off by a junior official, but part of a careless culture in this government. Ministers clearly did not think the protection of our data was a priority and have allowed their offices to be casual in their approach.

We hear from the Labour donor that as many as 10 senior Labour figures knew that his money was going to be declared in other names, although he has not told the press the names of the gang of 10. Some may be officials, some may be politicians, some may have left their jobs but some may still be in post. If Gordon Brown wishes to stop this story sapping the reputation of this government further he needs to order everyone who knew and may have inadvertently or intentionally broken the rules to come clean before the police find out for themselves. How can we believe this government wants higher standards if members or advisers to it keep quiet until they are outed? If the government’s line remains that their donor is wrong, they had better make sure everyone the donor thinks he told is telling the truth and there is no evidence to the contrary. Denials like the Scottish one do more harm than good when letters reveal a different story.

We also learn that the Bank of England does not seem to have imposed effective controls over cash management and costs at Northern Rock. Now we the taxpayers may have as much as ??30 billion at risk I would expect the authorities led by the Chancellor to be taking a very detailed interest in how the money is spent by the company and look forward to them getting a grip and telling us more about when they think they will get the money back and how they are monitoring progress. Of course a commercial bank keeps these details confidential for its customers, but this loan is massive, it is already public, and proper accounting for public money requires the authorities to put into public view how they are protecting the taxpayer interest. The Competition authorities also need reassuring that this loan is being run commercially.

All those ultra greens who are busy telling my constituents they should not take the car to get to work or to bring the weekly shopping home might like to campaign against an easier target to cut our carbon emissions.

Have they noticed how many shops, offices, homes, trees and streets are being adorned with numerous lights? Do they realise these lights are going to be kept on for all of December? We know we do not need these lights for anything other than adornment, as we get on fine without them all the rest of the year. Wouldn’t it be a modest proposal to ban them as unnecessary planet wreckers? They are kept going by electricity from the national grid, mainly generated from hydrocarbons.

Tomorrow I am going to attend the ceremony to turn the lights on in Wokingham, as I love them. I do so wondering for how much longer we will be allowed this indulgence by the greens’ carbon police? I look forward to a debate on this on the BBC, as one of their many daily climate change items.

All those Labour MPs who have howled for and insisted on ever more regulators, compliance reports, box ticking and the divulging of information must regret the day they ever made it apply to themselves.

Labour set up the Electoral Commission and required, on penalty of committing a criminal offence, that certain donations should be registered, and the true identities of the donors revealed. As always with Labour, it began as a poltiical response to a problem, and clearly some of them did n ot take it seriously when it came to applying it to themselves,or thought they could be casual about following the rules and get away with it. Some in senior compliance positions claim not to have know the rules, though they were the rules Labour invented.

The rules were very proscriptive, but they were invented for a reason. I presume Labour wanted this amount of transparency, so all could see who had given money, and all could then be sure that those donors had bought no influence and changed no policy with their cash.

What is surpising about the Prime Minister’s handling of this is:

1. He immediately said they had broken the law before undertaking a full enquiry.
2. He told us the General Secretary was the only one who knew the truth about the donations, yet others appear to have known more as well according to some versions of events.
3. He did not go to the support of his Deputy wholeheartedly, leading to a feeling in Labour ranks that each person with issues to explain has to defend themselves as best they can, even if that means dragging others into the enquiry.
4. He has not told us why a donation from Mrs Kidd was unacceptable to his campaign managers but was suggested by them for Miss Harman’s (Mrs Dromey’s)campaign.

There is a Labour spin abroad which says all this is rather technical Westminster Village type chatter. They say there is nothing that is serious here and the PM will clear it all up.That is difficult to accept in Labour’s own terms, as it was Labour who said the correct reporting of donations was so important that they set up a quango to receive the reports, and legislated to require everyone to do it.

I could accept that individual honest mistakes can be made – in the heat of an internal or external election campaign it is possible for a team to forget to register a donation and for the candidate to be unaware or to overlook it or forget it amidst the myriad things they have to do. This is, however, much more than that. In certain important cases the teams did not forget to register – they registered in the wrong name. If it was clear they were all deceived by the donor they might have a defence, but if some in Labour knew the identity of the true donor that defence becomes more difficult to susttain. In the Scottish case it is unfortunate that the politician denied personal knowledge of the donor, only for the donor to reveal a thank you letter that suggests otherwise.

Labour are making all this worse by offering expalnations for events which fall over or are questioned shortly afterwards as more evidence comes to light or more people make statements to justify their own positions. If they want to start to win back public confiddence, the PM or his representative should come to the House of Commons on Monday and make a full statement of what they have found out so far, and what remaining issues they intend to to get to the bottom of in their internal enquiry. The PM told us that Parliament will be given a more central role, and this surely is central to the current state of politics.

The House of Commons would be a better forum than spin through the popular press to test out how serious this all is, allowing Ministers to answer the many obvious questions or to tell us how they are going to be cleared up. To end this crisis the government needs to tell us 1) how many mistakes were made 2) who knew what 3) how press and public can be sure there was no motive for registering these donations in the wrong name other than the stated reason of wishing to preserve the donor’s anonymity 4) why senior Labour officials did not apparently know their own rules or understand them correctly and how that will change. All this now has to be done whilst being careful not to hinder the police enquiry.

For the sake of politics this needs sorting out quickly. It would be a good idea to have a new deal on donations, imposing a ??50,000 limit on gifts from any single source. That is a different matter, as the donations currently causing problems are doing so owing to Labour’s own 2000 legislation, which the government implies it wishes to keep on the Statute book. Labour should not be allowed to divert media attention away from explaining what has happened, and why the PM thinks the law was broken, into a more general discussion about the future of political funding. We need all party talks on that with some give and take by Labour on Union funds, and then a seperate statement to the House when the government has some proposals likely to win general support.

Meanwhile, I hope Labour MPs will use this moment to understand how many people feel about their compliance regime in so many other activiites of life, and will savour for a bit the daily pressure on most people in business to comply with ever more intrusive disclosure rules.