Month: January 2008

What price an ethical foreign policy?

Today sees Mr Brown in China trying to act as a super salesman for British business. It is a relatively harmless use of his time, forced upon him by the dire straits of the UK economy under his policies.

Mr Brown has debauched the strong economy he inherited. His first couple of years wisely continued Conservative spending plans and repaid public debt, but elsewhere the long march of this government to a malfunctioning socialist economy had begun. The undermining of the Bank of England proved to be a long fuse to the explosive Northern Rock crisis. The taxation of pension funds began the route march to most people no longer having the benefit of a final salary scheme, whilst burdening too many companies with large deficits to repay.

Worse followed after 2001 when Mr Brown embarked on an irresponsible twin track ?? easy money, and massive spending increases on public services. Because he wrongly saw all public spending as ??investment?? and felt large sums were proof of better service, he failed to ask the obvious question ??What am I buying for all this cash??? The answer turns out to be a whole load of extra civil servants, spin doctors, consultancy contracts, pay awards, quangos and regulators.

Ten years on the UK is one of the world leaders for twin deficits ?? a record balance of payments deficit, and a large government borrowing requirement. Alarmed by the record deficits on the balance of trade figures which he used to pour over to harry the Conservatives when in government, he decided on a trip to China. It is a sign of his desperation that he feels the need to act as pied piper to the British business community to sell more there, and to see the need to ask the Chinese government for more Chinese funds to be invested in the UK. He is right we require the money, to pay for our double deficits.

When the Labour government first came into office its then Foreign Secretary Robin Cook claimed they would run an ethical foreign policy. The phrase was chosen to imply that all previous UK foreign policies had been other than ethical. The Labour knight was to wear the purest white, and would charge into world Councils with morality as the billowing pennant on the lance.

Today that seems a very long time ago. We look back on the invasion of Iraq, the continuing fighting in Afghanistan, the lack of any action over Zimbabwe, the skirting round North Korea, the inconsistent approach to other countries gaining nuclear weapons and the erratic response to human rights abuses and have to ask what ethical or moral stance now lies behind these actions? Arent they all driven by media, by events, by US pressure, by EU argument, by a growing sense in the present Foreign Office that there are many obvious limits to British power?

Worse still, when many want Mr Brown to raise Chinas human rights record as the central issue whilst there is still a window of opportunity before the Olympics, many of us are embarrassed to say this when we look at the deteriorating record of human rights in our own country. Now the UK wants to have the western record for detention without trial or charge, seeks to stifle public opinion by ratting on the promise of a referendum, spends a fortune on clumsy physical ??security?? at so many places and events, treats travellers like suspects or criminals and intensifies the range of thought crimes that preoccupy the elite, we are no longer in a good position to lecture China even if we wanted to.

Mr Browns visit recognises the reality of the new world order. China is emerging as a superpower, with a fast growing economy, a large population, and a wish to project its power. When a country has more than $1 trillion in the bank it is difficult to argue with it, especially when our country has been newly impoverished by Mr Browns policies. He sold our gold holdings for a fraction of its current market value, ransacked our long term savings, failed to stop a run on a British bank and now needs to go cap in hand to China to seek inward investment to the UK. These are sorry times for our country. They have been brought on by incompetent stewardship of our money. It is humiliating to see our Prime Minister ask for sovereign wealth fund money from China to keep us afloat. If he really wanted to improve the UK economy he should have stayed at home, working on how to get more value from his public spending, and how he could curb spending so we do not need to borrow so much.

Yesterday I was invited to lunch in the House of Commons by the Thames Valley Economic Partnership.

It was the kind of invitation I usually decline, as I do not approve of lunches at the public expense for public servants. I went because the rules of the game to get approval and money for important transport projects in my constituency require that I express agreement with other MPs, Councils and quangos over the needs of the ??region?? in order to persuade the Minister to consider our case. The Minister came to the lunch. I did not wish to let the side down, and have to accept the rules of the game as designed by this present government.

The lunch began with a speech telling us
??We have all the stakeholders and all the people that matter in transport in the Thames Valley around this table??. The list comprised 6 local government officials, 1 Councillor, 6 MPs, 4 representing the Thames Valley partnership, 5 from central government and its quangos and 16 others mainly from private sector companies. Local and national government officials were well represented.

I bit my lip ?? surely the most important people are the passengers who use the transport system, and surely there are more than a handful of companies involved in delivering the complex transport services of our large region? Are these not important ??stakeholders??? I restrained myself from shouting out ??Lese-majeste to the voters??, or even ??These lunching emperors have no clothes??.

The Partnership explained to the Minister of State, Transport, that the region had three agreed priorities ?? more capacity on the M4, better north-south links and western access to Heathrow by train. All the assembled ??stakeholders?? agreed or kept their silence. Few of us had actually agreed to these ??priorities?? but it would have been pointless as well as churlish to complain again about these things being done in our name by unelected officials after the previous private rows about it all. Some of what they wanted made sense and it was our one chance this year to make the points to the Minister in such a forum.

The Minister told us that usually regions fail to reach an agreement about what they want. They also often fail to get all their Councils to speak from the same script. She had to overcome her surprise and see we were apparently united in seeking stated improvements to the woefully inadequate infrastructure of the Thames valley. Clearly these meetings normally end with the Minister giving the ??region?? a lecture on the need for regional harmony and unity, no doubt all part of the indoctrination programme to get people thinking of themselves as part of an artificial regional set up. Such a happy state of affairs from the Ministers point of view puts off all decisions for an other year or so and gives the government the luxury of blaming everyone else for the transport chaos.

The whole performance summed up admirably what has gone wrong with modern government. A large number of people drawing generous salaries from the state sit round endless discussing a problem which has obvious solutions. We are short of transport capacity so we need to provide more. As a result of this meeting it is unlikely the government will make any decision.

I pressed the Minister to tell us what she would do about the lack of capacity on the M4 . She asked all of us what our ideas were. I pointed out the M4 is a central government road. The Minister on our behalf owns it, regulates it, manages it and has all the power she needs to vote money to improve it and to change the law and regulations affecting it. Her colleague decides planning cases concerning it.

As I explained to her, the private sector will respond with technical solutions and with private money if she wants to make improvements, but it is her job to make some decisions so she can harness the private sector. If she wants new tolled capacity then the private sector can design and create it. If she wants a more traditional public sector scheme there will be plenty of bidders. If she wishes to use new technology to improve traffic flows and management there are plenty of systems to choose from. What she not expect the private sector to so is to waste a lot of their time and money on working out several different schemes and solutions without any guidance from government about what they want and what their time scale for action might be.

My betting is that next year there will need to be another meeting, and the most that will come out of this is more work for consultants to do some more feasibility studies. No wonder we are short of transport capacity, and no wonder public budgets dont go very far. If every time people agree on the need for some extra capacity the private sector is expected to juggle toll lanes, toll roads, design build and operate, private finance and traditional options without any clue from the government on what they want and without a Minister capable of making a decision we are going nowhere fast.

It is pathetic. Government is at a standstill. I proposed a scheme for redeveloping Wokingham Station and creating a transport interchange on the Network Rail land there early in the life of this government. It could have been paid for largely or wholly out of development gain on the public land. We are still waiting, because no Minister is capable of getting things to happen, and Network Rail clearly does not wish to exploit its property assets properly in places like Wokingham. We just have to put up with a slum station and inadequate parking at the site.

<p>Yesterday Parliament debated the great European take away. The rebate of our contributions, so brilliantly negotiated by Margaret Thatcher against the odds in 1984, was thrown into the dustbin of history for extra spending on the enlarged Union. Our partners succeeded in overcoming the UK veto on preserving the full rebate, so the other rich countries of Western Europe could pay less..</p>
<p>The Chief Secretary to the Treasury showed his respect for Parliament by doing the bill himself. It is unusual these days for a Cabinet Minister to get their hands dirty, preferring to leave such matters to their juniors. He also went to great lengths to set out the governments case as well as it could be done. I admire hi pluck, for the case was threadbare, hanging in tatters before the Opposition got to it.</p>
<p>We were told it represented a good deal for the UK because the value of the remaining rebate would continue to rise. Even a Labour MP exploded at that, pointing out that was only true because our gross and net contributions were going up so much.</p>
<p>We were told it was essential for enlargement to go ahead ?? yet it was agreed after enlargement had taken place.</p>
<p>We were told it was essential to give more money to poorer parts of the EU out of a sense of justice. Yet the issue in dispute did not affect the overall amount being spent on the poorer parts of the EU: it related only to the UKs share of the cost compared to the shares paid by all the other member states.</p>
<p>We were told that it represented a good outcome from a tricky negotiation, comparable to Margarets success in gaining the rebate in the first place. As I had to point out, there is all the difference in the world between winning a big rebate from the other member states when anyone of them could have vetoed it ?? as Margaret Thatcher did ?? and giving away some of the rebate when we had a veto over such a move! The first negotiation against the odds won a huge victory for UK taxpayers. The second will cost taxpayers dear, and need not have happened at all.</p>
<p>It beggars belief that a government in this amount of financial trouble, with a massive public deficit and sky high taxes, should choose this moment to give away at least ?1 billion a year to the EU for no good reason. Whenever I ask for lower taxes or say we should spend less, Labour Ministers always tell me that is impossible because every pound of public spending is so essential Last night Labour Mps voted through a totally unnecessary long term spending commitment that we cannot afford. Yet again they showed they do not look after our money, and are craven in their approach to EU negotiations.</p>
<p>Click <a href="http://www.johnredwoodsdiary.com/category/press-releases/">here </a>to read John Redwood’s speech in the House of Commons on this subject.</p>

Yesterday, speaking to a sixth form in a school in my constituency, I tried a new approach to combat negative feelings about politics.

I reminded my audience that they were all volunteers. Whilst it was true that at 9 am on a wet Monday morning they were told they had to be in an hour long class with their local MP, they were all of an age where they could decide to leave school and do something else. In the light of their choice to stay and accept the discipline of their courses, surely I argued it was sensible to get something out of the hour with me – and the hours that would follow with representatives of the other main political parties. The challenge was more theirs to use my time productively for their purposes, than for me to lecture them that politics is important.

I put to them my thoughts on compulsion for 16-18 year olds from yesterday’s blog, and invited discussion. I am pleased to say there was a good flow of questions and points, on a wide range of subjects. I told them that as they apply to leading universities they are in competition with people from the leading independent schools, where there are strong traditions of taking an interest in public affairs and in grilling external speakers. I want to help in a small way to balance the competition at the university gates and urge other adults in the community to offer their encouragement to do the same.

The debate about Northern Rock on Newsnight yesterday failed to produce a thought through alternative to nationalisation, to protect the taxpayers interest and avoid more damage to markets.

As readers of this blog will know, there is such an alternative. Maybe I have to spell it out again.

The government and the Bank should set Northern Rock targets to

1. repay debt
2. generate cash and profit
3. sell assets

These targets should be tough but achievable. The rate of asset sales should be geared to what the mortgage market can absorb, so the assets can be sold for a reasonable price, leaving the taxpayer with sufficient cover to get our money back.

Putting Northern Rock into administration could lead to a fire sale of assets, and might result in taxpayers not getting all our money back.

Nationalising Northern Rock could lead to huge losses for taxpayers, as taxpayers became responsible for all the rest of Northern Rocks assets and liabilities, including paying the staff, any redundancies, and the pensions shortfall.

Northern Rock has started to follow this managed run off strategy, selling ?2 billion of mortgages recently and using this to repay some of the taxpayer debt.

The meeting today at Northern Rock has been called to try to limit the managements scope to make decisions. This could be used to limit the Companys ability to reduce its debt to taxpayers, so it is not a helpful development from the governments or managements point of view.

The meeting is also a reminder to those who think nationalisation is an easy option, that it could be bitterly fought by existing shareholders. Taxpayers would not take kindly to existing shareholders being offered a good price for their shares, whilst existing shareholders are likely to contest nationalisation for a nominal or low price. I cant understand how anyone sensible can think this would be a good route to follow.

The Education Bill we will debate today in the Commons contains the worse kind of gesture politics. Frustrated at the lack of progress in raising standards in schools, and worried by the continuing difficulties of getting 16-18 year olds into work where they are not studying A levels, the government has come up with the proposal to require 16-18 year olds to study and train, whether they wish to or not.

The government protests when we say we oppose raising the school leaving age form 16 to 18. They point out that the compulsory education for this age range could include day release courses and properly structured apprenticeships, as well as staying on at school.

None of this apologia overcomes our main objection to the scheme. If you compel young people to study at school or College, you recruit unwilling learners into the midst of academic institutions, sixth forms and Colleges ?? that have ben used to working with volunteers.

There is no evidence that you can compel people over 16 years of age to learn if they do not want to. Indeed, if you are to succeed at adult learning you will only do so if you really really want to yourself. Another party, TV programme, drinks with friends, or even hanging around on street corners will always seem a better option than reading the extra book, revising the coursework or struggling with something you do not readily understand. Those who do make the academic effort do so because they want to succeed, and believe that they will be able to do so.

There are several general reasons why too many young people do not wish to stay on at school and do not sign on purposefully for further training.
The first is that too many 16 year olds do not read, write and use figures with anything like the amount of skill needed to be able to undertake a proper course of further study. The remedy is not to compel them to work at their schoolbooks when they have already failed, but to get them to master the basics at a much younger age when adults do have more sway over them and when we all agree they should be required to be at school.
The second is that too many have been told by the system that they are not expected to succeed. Their background and social circumstances are used as excuses for low performance in earlier years. Unwittingly teachers and other adults in the community set low expectations and discover even these are not met. We should not expect less of a child from a low income household, whilst recognising that they might need more support and encouragement to rival the child from the self confident household.
The third is that some of these young people do not believe the school work or skills training will lead them to a job they want to do and could do. There have been too many disappointing government schemes getting young people through courses that have little economic value. There is too much of a temptation to design a course that people can pass instead of designing one that it good and useful to employers and then discovering how to teach so people can pass.

Professor Wolf, writing for Policy exchange, debunks the governments claim that this measure will increase National income by ?`1.6 billion a year, getting many more young people into productive work at 18. She believes it will reduce output by ?1.7 billion a year, as she fears many small businesses will decide they can no longer afford to employ 16-18 year olds and have to work around the compulsory education and training that will punctuate their working lives. She also fears that the governments qualifications from this scheme will have little value. Her fears needs careful examination by the government. She will be right if this is just a cynical exercise in massaging the unemployment figures, and if the government concentrates on numbers and not on the quality of what is being done.

The best guarantee that quality will matter and courses will be designed with employer needs in mind would be to allow choice and not impose compulsion. The other day a businessman came to service my gas boiler. In the past he told me he has not expanded his successful business as much as he would like because he could not find the high quality young gas engineers he needed to keep up the quality of his work. This year he told me he had taken on two. They both had things in common. They both had really really wanted to be gas engineers, they both had undertaken a serious course of study to achieve their aim, and both had paid their own money for the course. That level of commitment persuaded a reluctant employer that they can make a contribution.

The government needs to study ideas to make it less easy for young people who want to live on benefits and who do not have that determination to do something with their lives. That would be a better contribution than trying to think up exams people can pass that they claim represent good training which may not be so seen by employers.Insisting on better achievement when young with remdial classes and extra work for those primary school children not managing to read and write would also be a better and cheaper solution.

It appears that the government is flirting with nationalisation because it is having trouble persuading the shareholders of Northern Rock to see things its way. It is a very cumbersome and potentially very expensive device to try to get shareholders to do as the government wishes, when the government has a much easier way of doing it.

The government still does seem to have grasped how powerful its position is as Northern Rocks bank manager. It stepped into this role, and is now committed massively to it. As of today it is clearly the only bank manager Northern Rock has that is prepared to extend the huge sums needed for the bank to be able to carry on trading.

As bank manager the government needs to assert itself in the following ways:

1. Set out how much asset cover it wants for any additional lending ?? and make sure it has taken enough asset cover for the loans so far.
2. Set out how much money it expects Northern Rock to repay on specified repayment days.
3. Establish targets for cash generation and profit in the underlying business with management, and make them report variances with explanations of action to be taken to get back on target.
4. Establish the usual banking covenants that Northern Rock has to hit to keep its facility

I read that the shareholders are not happy about selling assets. There should be no argument about this. The government/Bank of England should tell them what repayments they expect. Northern Rock then has four ways of making those repayments:

1. Sale of whole business to an owner that can meet the repayments
2. Refinancing of Northern Rock in the private market to repay the state borrowings
3. Cash generation from the business
4. Sale of assets

The government should just insist on the repayments. It is up to the shareholders and management of Northern Rock to do the hard work and decide how they can meet the need for such repayments. If selling assets is the only option ?? as it appears to be at the moment ?? then they must do that. The government does not need to dictate how Northern Rock refinances itself ?? just has to insist on the taxpayers getting their money back in sensible tranches over a realistic time scale.

As I stated on this blog before, the taxpayer should also be rewarded for making these huge loans that no commercial business would make in the event of Northern Rock recovering well. That can be done by the government taking options to buy shares at the current price at any time over, say, the next five years. This should also be a condition of continuing the lending to the company. Should it then do well the government can buy the taxpayer shares at a favourable price and sell them on to make a profit as a reward for carrying so much risk for so long. I read that this idea is now being taken seriously by the advisers.