Month: March 2008

John Redwood on Tibet and House of Lords reform

March 26, 2008 0 Comments

Yesterday in Parliament, John Redwood asked the Foreign Secretary how he intends to police the protests when the Olympic torch comes to London. The exchange, taken from Hansard, follows.

Mr. John Redwood (Wokingham) (Con): When issuing instructions on the policing for the progress of the Olympic torch in Britain, will the Government take the view that the police should allow placards to appear in any picture of the torch passing—the protestors’ view—or will they take the Chinese view that the event should be policed in such a way that no protest placards and posters will be on display?

David Miliband: If the right hon. Gentleman believes that we control the pictures that people take, he is perhaps giving greater credence than is deserved to stories about the Government’s prowess in controlling the media. Obviously, the operational matters will be taken forward by the policing authorities. I am sure that the spirit of the whole House is summed up in the idea that we want to ensure not only security for the torch and a proper celebration of the Olympic spirit, but that our own history and our own commitments to democratic rights and freedom of protest are properly respected.

Later on, Mr Redwood asked the Justice Secretary and Lord Chancellor how the Government plans to ensure its proposals for reforming the Lords will be anything more than an empty gesture. The exchange, taken from Hansard, follows.

Mr. John Redwood (Wokingham) (Con): Do the proposals for the reform of the House of Lords, which the right hon. Gentleman referred to in his statement, entail the abolition of all or most of the unelected places in that House? If so, how would a Government deal with the likely No vote in the Lords to such changes?

Mr. Straw: The basic terms of reference, so to speak, of the cross-party group are the decisions of this House last March in favour of an 80 per cent. or wholly elected Chamber and against any alternatives, so as faithful servants of the House, that is what we are seeking to deliver. The proposals will, of course, have to go in legislative form to both Houses. We will have to see what happens, but I hope very much that when we present proposals, they will be approved.

We are worse off

March 26, 2008 15 Comments

We feel worse off today, because we are worse off. It’s that time of year when we feel especially harried by our rapacious government. The Council Tax bill comes as a nasty shock, when you discover just how much money they want to take off you for emptying your dustbins. For all those who who do not have Council street lights, who do not have children at school and who never get time to go to the local library to borrow a book, the Council tax is not much of a deal. You just have to accept it as part of the requirement to help pay for the neighbours who use these local services. What is especially annoying is the perpetual wish of many Councils to spend more and more of our money limiting road space and making travel more difficult, and the growing army of Council officials that are needed to deal with the stifling central bureaucracy in Whitehall watching and motitoring their every move.
As a motorist I feel especially punished. If I try to park in parts of London, I need to spend time trying to decipher what the rules are that apply to each few yards of street, as they are often different and complex. The other day one stretch of road was red lined – urban clearway from 8 am to 7 pm Monday to Friday– which seemed to imply you could park free at other times. Nearby in the side road there was pay as you display parking which seemed to require payment from 8.30 am to 10 pm Monday to Friday and for part of Saturday, whilst in the same side road there was residents parking with different times of application. As it was a bank holiday the rules were not specified. Did a bank holiday count as a Sunday – in which case I could apparently park anywhere I liked for free – or did a bank holiday Friday count as a normal Friday, in which case I was snookered? I decided it was all too difficult and waited for a pay and display space to become available so I could send more money to a Council. The last thing I wanted was to fall victim to the predatory clampers or vehicle removers, who hover in parts of London waiting to pounce on anyone who dares leave their vehicle for a few minutes in the “wrong” place and who has not obtained an A level in advanced parking rules.
A couple of weeks ago I needed to go to Ipswich. I decided to go by train. It was an eco disaster. There were only two of us in the carriage I chose, and the other carriages on a long heavy old train were equally empty. We must have caused much more pollution per passenger journey than if we had gone by fuel efficient car. The train was electric powered, meaning energy loss on a big scale at the power station to generate the electricity, as well as substantial energy loss when converting the electrical energy into motive power at the engine. Getting to the station was not easy either in the rush hour, although fortunately my destination at the other end was in walking distance of the station. Coming back there was a half hour delay. Our driver told us it would be a ten minute delay owing to a broken down freight train. It meant it would have been quicker by car after all, as well as cheaper, and greener at least on the outbound. They really do need to raise the railway’s game if it is to be environmentally friendly, and customer friendly as well.

Don’t blame the FSA

March 26, 2008 7 Comments

This morning the FSA takes the regulatory blame for Northern Rock and admits it made mistakes.
I think it is a case of mistaken identity. It was the Chancellor and the Bank of England that presided over the collapse of Northern Rock, not the FSA.
Remember what happened. In the summer of 2007 money markets dried up in an unprecedented way. Some of us went hoarse telling the Bank of England they needed to make more money available so the money markets could function.
Instead, in September, knowing Northern Rock could not borrow all it needed from the money markets, the Chancellor and the Governor of the Bank made speeches saying banks had lent too much and if they got into trouble it served them right. There would be no bail out.
There was then a run on Northern Rock, as small depositors sought to take their money out. (All this was obvious at the time – see the tab on Northern Rock for my contemporary comments on the Bank’s inaction and the Chancellor’s moral hazard speech).
Fortunately for Northern Rock, after huge damage had been done, the Chancellor and the Bank changed their minds and intervened to protect depositors.

I would not conclude from this that the FSA had got its stress testing wrong – or that the FSA needs more staff. I would conclude that both the Directors of Northern Rock and the FSA did their jobs in the belief that money markets would continue to function, and that the Chancellor would avoid comments that were damaging to regulated banks. These beliefs were not unreasonable. Northern Rock raised money in three main ways – from the money markets, from retail depositors and from securitisation. So do most banks, to differing degrees. As we have seen, other institutions can get into difficulties if money markets seize up, as with Bear Stearns.
What was wrong was that the Bank of England kept the markets so short of funds in August and September, and what was wrong was the speech and interviews of the Chancellor blaming the banks at the very point where a crisis of confidence was about to erupt.

The correct response to this crisis is not to appoint more staff at the FSA and let the FSA take the blame. The correct response is to strengthen the banking arm of the Bank of England, and reconnect the Bank more directly to the full working of the money markets, with a remit to keep the markets reasonably liquid. The Bank has as its main responsibility the setting of interest rates. In recent months the rates it has set have often become academic, as market rates have deviated from them under the pressure of the credit crunch. The Bank needs not only to set rates, but to enforce them.

The questions to be asked today are not about the FSA but about the Chancellor and the Bank.
Does the Chancellor now accept that his no bail out speech was a mistake?
Does the Bank now think it should have made more liquidity available to markets last summer?
What action is the Bank going to take now to ensure that the rates it sets are the rates the market follows?
Will the government restore the powers and duties in banking and money markets to the Bank of England that it took away in 1997?

Wokingham Times

March 25, 2008 0 Comments

The oddest thing about this slowdown and credit crunch is the delayed reaction – or the lack of reaction – of the UK housing market. Shares have slumped. Commercial property prices have fallen substantially. Retailers have complained about the squeeze on their customers. Yet house prices are still slightly up on a year ago, and the last few months have seen only small declines in the national house price figures.

High Stamp duty, Home Information Packs and higher mortgage and transaction costs must be encouraging people to sit tight and not move. The market has been short of homes to sell, just at the point when otherwise it might have gone down. Fortunately unemployment has not been shooting up, and most people have been able to meet their mortgage payments even though their budgets are under more pressure. There has been an uneasy equilibrium created by inertia and the new impediments to selling and buying.

We may still, however, be in a for a slow but painful decline in house prices. There is plenty of evidence that new buyers are finding it more difficult to obtain a mortgage. Gone are the deals offering total borrowings in excess of the house price, and gone are the days when you could get by without much of a deposit. US interest rates may be plunging, but UK general rates are much stickier, and banks and building societies are keen to rebuild margins by charging more for a mortgage relative to the general level of interest rates.

There are those who say they do not think lower interest rates will make any difference to the Credit Crunch – indeed that seems to be the fashionable position. They link this with fears about inflation in the UK getting out of control if any action is taken to cut rates. This is a strange misunderstanding of the position.

Lowering the general level of interest rates could be crucial to avoiding the slowdown of the housing market becoming something worse – a price crash. As part of the Credit Crunch is the banks’ unwillingness to accept mortgages when lending to each other, anything that makes it more likely more people can pay their interest on the outstanding mortgages would be good news. Surely more people will be able to afford the mortgage if the mortgage rate comes down, than if it stays up or even goes higher? In the USA the authorities have grasped it. They are fighting the battle of the bulge of the sub prime. If too many sub prime mortgage holders give up on the mortgage, then the losses will multiply through the banking system and more credit will be destroyed. The UK may not have had such an extreme version of sub prime lending as the USA, but similar dynamics apply in our housing market.
If the UK house price slide gathers pace, then more people will be in negative equity where the home is worth less than the mortgage. If more people lose their jobs, more will struggle to pay the high mortgage bills they currently face.

Meanwhile, many people are struggling with an inflation rate much higher than the official figures suggest. There is the shock at the petrol pumps, the increase in Council Tax, the surge in electricity and gas bills and the hit on bread and meat. The public sector is at last taking a tougher line on public sector wages. There is no evidence of inflationary pressures building up on private sector pay, as the market for goods and services is still competitive enough to make passing on big cost increases difficult. Private sector bonuses, especially in the financial sector, will be well down, deflating total remuneration. All this makes it uncomfortable for many people to pay the bills and get to the end of the month with something to spare.

It also means the UK authorities should not worry too much about inflation. We are living through the worst of it now. They should worry much more about slowdown and credit squeeze, which will curb price increases in due course but could do lots of other damage if allowed to get out of control. I urged the government to do more to relax the squeeze in my speech during the Budget debate.

Does anyone wish the Treaty of Rome happy birthday?

March 25, 2008 21 Comments

On this day 51 years ago 6 continental countries signed the Treaty establishing the European Economic Community in Rome.
This document has bedevilled UK politics ever since. It was the subject of a referendum in 1975, when a Labour government asked the UK people if they wished to remain within the framework of this Treaty. The government led by Harold Wilson recommended a Yes vote, claiming throughout the debate that it was just about a common market, which would create and guarantee more jobs for the UK. We were told that our sovereignty was not at risk, that our Parliament could continue to make the main decisions for our country.

This very one sided presentation of the case began the long tension between public and politicians on the subject of Europe. The political classes gambled correctly by holding a referendum asking for endorsement of the status quo“ the fact we were already in the EEC “ and assuming most people would not bother to read the Treaty of Rome. Any cursory reading of that Treaty showed it was not just about a common market as UK politicians liked to state.

You only had to read the Preamble to the long Treaty of Rome to see it was about something much grander than just a common market. It stated:

”Determined  to lay the foundations of an ever closer union among the peoples of Europe”

Anxious to strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing between the various regions
Intending to confirm the solidarity which binds Europe

There were some of the overarching themes that were to be given harder form in subsequent Treaties. They always had in mind a Europe of the regions, with regional policy to try to reduce the differences between them. They always had in mind solidarity to the greater good of the greater Community, and always intended to achieve a high level of policy and legislative control over the EEC economies.

The second article pledged the EEC to an accelerated raising of the standard of living and closer relations between the states belonging to it. The crucial Article 3 committed the members to the elimination of trade barriers, the establishment of a common customs tariff and external trade policy, freedom of movement for persons, services and capital, a common agricultural policy, a common transport policy, a common competition policy, the approximation of the laws of the member states to the extent required for the proper functioning of the common market, a social fund, and the association of overseas territories. In addition it promised a system to remedy disequilibria in member states balance of payments.

Article 235 was a catch all which allowed member states to vote to do anything else under the framework of the EEC if they wished by unanimity to do so. So was born the idea of an institution which would grow its own powers as time passed.

In 1975 I read this document prior to deciding how to vote in the referendum. The gap between what the Treaty envisaged and what the government was telling us about the intent was so huge I felt I had to vote No. The irony of the Treaty was that some of its most detailed provisions were not going to be enforced. I remember writing to the Commission to complain that the UK was running a very large balance of payments deficit with the rest of the EEC, and should surely benefit from the Treaty provisions that allowed or required action to bring the balance of payments into better balance. I was told in a delphic reply that not all the Treaty provisions could be enforced when it came to the UK’s balance of payments deficit!

One of the reasons the UK is still so unhappy with its relationship with the EU is that many who voted Yes  in 1975 did so on the advice of politicians without reading the Treaty. They feel they were misled. Many others are too young to have had the chance of a vote, and understand that the EU is now much changed from the EEC that people voted on in 1975.If the government wants to improve our feelings about the EU it should give us a vote now, so all these issues can be properly aired and the public given a choice.

Moral maze 2 What would you do?

March 24, 2008 36 Comments

Two weeks ago I faced another one of those moments MPs and public figures should worry about.
I was unable to park in the free space behind the Wokingham Conservative office, so I went to the Town Centre Borough Car Park. As I was about to get out to pay my parking fee, a friendly constituent I did not know offered me one hour of unexpired time on his parking ticket. He meant it kindly.
I had just a few seconds to respond. Should I accept gratefully and save my money? (No, I was not going to reclaim it!). Should I offer the white lie that I needed longer than one hour to avoid the dilemma? Or should I explain that as an MP I had to pay the local Council their dues?
It was clearly not a set up, as my parking there on a Monday morning was a freak event. There were no Borough officials watching my every move. There is no car registration system on the ticket. It is clearly against the rules of the car park to transfer tickets. The constituent was being very friendly and thought it the most natural thing to share it with someone and thwart the ever grabbing Council. Only the constituent and I would know, and he was not going to tell anyone.Maybe he knew I had opposed the increases in car park charges when they had last gone up.
I decided I had to follow the third route, refuse kindly and explain I had to obey the rules.

I would be interested in your honest responses to the following:
Would you have accepted the offer of the free parking?
If you became an MP do you agree you could no longer accept such an offer?
What would you think of your local MP if he were caught fiddling the local car park charges?

The Credit Crunch – reappraisal?

March 24, 2008 4 Comments

There has been a lot of comment on the state of the economy, the Credit crunch and the banking problems over the week-end. It is time to re-examine the views of this blog, and the responses from many of you.

I have argued:

1. The US and the UK will avoid recession but will experience a slow down, sharp in some areas and sectors. Some are trying to talk us into recession, by claiming the US is already in one, but the numbers tell us otherwise. It is quite clear that the Fed, the Treasury Secretary and the President will do everything they can to avoid recession in the US.
2. Inflation will remain unpleasant for the first part of 2007, but in a year or so will have reduced. Most of you disagree strongly, believing the current inflation will persist, and if the authorities do too much by way of cutting rates and making money available will trigger a faster one. I see no evidence that inflation is passing from energy and commodities into wages. We instead seem to be entering a period when real wages will be squeezed, limiting the second round inflationary effects.
3. The authorities need to do more to make the markets more liquid to ease the banking problems. So far the Fed has been very active, doing all it can. The Bank of England seems to be reluctantly coming round to the same conclusion. The ECB is half way there, making cash available but not cutting interest rates. Many of you dislike the advice I am giving, but the authorities seem to be moving in the direction I think is right.
4. The banks will gradually be recapitalised by rights issues, new share issues, and money from the cash rich parts of the world – Asia and the commodity producers. This is gradually happening.
5. UK house prices will fall, along with commercial UK property prices and US house prices. Some think UK residential property price falls unlikely because we are building so few new houses whilst new household formation is greater. I still stick to this view, because the mortgage market is tightening substantially. I accept there is no need for Florida style falls as we do not have the same over building problem and did not have the same degree of excess in sub prime mortgages.

Today Anatole Kaletsky has written one of his thoughtful pieces. He states that the banking crisis is a liquidity crisis, not a solvency crisis. A liquidity crisis is when banks need more cash to pay out depositors and other creditors than they have readily available, and find it difficult to sell their other assets quickly enough to raise the cash. A solvency crisis is when banks do not have enough total assets to meet all their liabilities, so they need to raise substantial new capital.

I agree with him that Northern Rock and Bear Stearns both were liquidity crises – depositors and creditors lost confidence in the institutions and demanded more cash than the institutions could immediately lay their hands on without official help.
The one thing we have to remember, however, that is not in his article, is that a liquidity crisis if badly handled by the banks and the authorities can become a solvency crisis. If Institution A is experiencing a run on its cash, it needs to sell assets quickly to raise more money. This, in poor markets, can drive the price of these assets down to unusually low levels. All banks then have to mark down the value of their assets on their balance sheets, as even high quality assets can no longer be sold for good prices in such conditions. This can lead to some institutions no longer having sufficient assets to cover all their liabilities, so they need to raise more capital or they get into trouble.

This is why some of us recommend that the authorities should help the markets by intervening to keep the price of high quality financial assets up to realistic levels. If the Central Banks stand by and watch as well run institutions are forced to sell high quality assets for well below their normal value, they are allowing more serious problems to emerge in the banking system as a whole. It is in everyone’s interest that high quality mortgage debt, high quality bonds and corporate debt should sell at realistic prices, related to the current structure of interest rates. In a liquidity crisis the price of good quality assets can be driven down too far, putting pressure on well run financial institutions.

The Easter message – cakes, bunnies and eggs

March 23, 2008 13 Comments

Today Christians unite to celebrate the resurrection of Christ. The Good Friday story was a bleak one. Worshippers hear of the betrayal of Jesus by Judas, the denial of Christ three times by Peter before the cock crowed, and the Gospel story of how the Jews demanded the crucifixion of Christ from Pilate. The sorry discovery of Christ in Gethsemane, the denial in the Temple and the endless trials by the Jewish and Roman authorities make grisly reading. Easter Sunday replaces all this sombre news with the joy of the knowledge that Christ is risen. The Sunday story tells of the three women preparing to go to the tomb – Mary Magdalene, Mary the Mother of Jesus and Salome, only to find the entrance stone rolled away. They hear the news that Jesus has risen.

Today Easter takes place in Britain in a largely secular country, where a majority do not believe Jesus was the Son of God, and do not think he rose from the dead. Easter has been overwhelmed instead by commercial interests celebrating the new life of spring through Easter bunnies and Easter eggs in chocolate.

It is a testament to the power of the Christian message and the enduring nature of the Christian story that so much of our secular debate 2000 years on from those events in Palestine should still be about the values of love and justice that Jesus stood for, recorded by his disciples through the Gospels and the Acts of the Apostles. It is a testament to the deep rooted Christian values that we still have an established Church of England, and see the growth of the Catholic and non conformist Churches alongside the official religion. Whilst a majority do not believe, a majority will sit through the occasional Church service at times of need or for the bigger events in their lives, and most will have some understanding of the Easter story.

Indeed, more will have a view on the events that befell Jesus than will understand what their Easter egg is about. There are arguments over the origins of the Easter egg. Some think it was always Christian – a blood red painted egg to celebrate the new life inside, purified by the blood of Christ. Some think the egg was allowed as part of the diet again only after the end of Lent, so Easter Sunday was the day to celebrate the change of menu. Some trace the eggs back to a pagan goddess, Eostre. In several places there are ancient ceremonies of egg rolling hard boiled varieties with or without painted shells. Faberge took the art of the egg to new heights with their amazing jewelled precious metal eggs given to lucky recipients as Easter gifts.

All agree that the egg is a symbol of new life and hope. The Easter hare, who transposed into the Easter bunny, is a symbol of fecundity and spring activity. Many celebrate with a meal of Spring lamb; some remember the Simnel cake with its characteristic chicken and egg decorations over marzipan. Simnel cakes probably date from medieval times, when they would have eleven marzipan balls around their top to represent the eleven true disciples of Jesus. It is a delightful story that Lambert Simnel, the pretender to Henry VII’s throne, devised them when he was given work in the royal kitchens as his punishment for rebellion.

A happy Easter to all my readers.

Which of these is sleazy?

March 21, 2008 27 Comments

I would like your thoughts on what is reasonable and unreasonable conduct for an MP. In a series of Moral mazes I am going to pose some everyday dilemmas that could face an MP. I do not have any particular MP in mind for any particular scenario, but these are all possible scenarios that could arise.

The first series of issues arise with the MP’s ability to offer refreshments to guests in the pleasant Commons dining rooms looking out over the Thames in the historic Palace of Westminster. Which(if any) of the following should be a) permitted b) against the Commons rules c) against the Criminal Law?

1. The MP decides it is too dangerous to invite friends and relatives, preferring to be sure by not using the facility.
2. The MP invites a rich acquaintance from the constituency to dinner. They do not discuss party funding, the guest turns out not to be a donor, and the MP pays for the meal himself.
3. As 2 above, but the guest says at the end of the meal he has enjoyed it so much as he earns so much more than the MP he will pay the bill. The MP allows him to do so.
4. As 2 above, but two weeks after the dinner the guest is approached independently by the MP’s party, and willingly gives a donation to the party. The MP is unaware this has happened.
5. The MP invites a rich acquaintance from the constituency to dinner and does mention during the course of the dinner the poor state of his party’s finances.
The guest makes an independent donation without telling the MP after the dinner.
6. The MP invites a rich guest to dinner who has already given to his party, to say thank you to him.
7. The MP invites a rich person to dinner, tells him of the poor state of party finances during the course of the meal, and follows up 2 weeks later to ask for a donation.
8. The MP’s party organisation offers a meal with the MP at the Commons as a raffle prize in an expensive raffle to raise money at a fund raising event. The MP hosts the dinner for the prize winner.
9. The MP offers a meal for two at the House with him as host to a local charity. They sell the offer as a prize to raise money.
10. The MP allows his family to come to dinner at the Commons to celebrate a private family event, and pays the bill himself.
11. The MP allows members of his family to come to an event at the Commons, and allows another family member to pay the bill and act as the effective host.
12. The MP acts as a host for a company from his constituency who want to lay on a dinner for themselves and leading customers in the Commons. The company pays the bill. The MP attends as official host and receives a free dinner for his trouble.
13. The MP acts as host for a private sector body or lobby group to hold a drinks reception in the Commons to put their point of view to other MPs and Ministers.
14. The MP acts as host to a public sector quango to present its case to MPs over a meal in the Commons.

Moral hazard or good banking?

March 21, 2008 8 Comments

There is much debate about moral hazard. If the Bank of England offers more money to the clearing banks when they need cash, isn’t that bailing out banks who have lent too much to the wrong people? Won’t they just do it again and again?
No, that is not the case. The money markets have frozen. The banking system cannot sell good quality debt on to others at times in current conditions. If the Bank of England steps in if needed and buys some of the highly rated corporate paper and the better mortgages, it is not underwriting poor loans to people who cannot repay. It is keeping the system going when the markets generally have failed, owing to the fear that dominates and the flight to quality by the banks themselves.
I don’t want the Bank of England taking onto its own books poor quality loans that may turn out to be worth less than the deal price. I do want it to make cash available to good banks if and when it is needed, in return for good quality assets that would in normal times be easy to sell in the market close to their face value.
That seems to be what is emerging from the Bank. That will be most welcome, and will reflect what the Fed has been doing for the US banks for sometime.