Month: April 2008

I am pleased the Prime Minister has commented on the surge in food prices, and the impact this is having in the poorest parts of the world.

He is right to ask whether diverting food to fuel is a good idea in such circumstances. Why doesn’t he go further, and tell the EU it should stop its energy from crops programme, as it is another twist of the knife of high food prices in the empty stomachs of the starving world?

As the Asian economies flourish the world needs to put more under the plough. The Prime Minister needs to look at the damage the Common Agricultural Policy is doing to world food markets, and work with others to find a pattern of incentives to bring more land under crops, and a freer pattern of trade to give the poorest countries some hope.

The developing world needs to know the EU will open its markets to the cheaper food they can produce and sell for much needed cash. The starving world needs to know western politicians are working urgently to bring more land into use so there will be more food next year than this.

World hunger and poverty is the biggest international moral challenge that still faces us.

I want a better service when I go to an airport. London airports lack capacity and provide a poor service to the travelling public all too often. They are not assisted by government refusal to put enough border control staff onto the task, and by some of the regulations that contribute to the bad experience of trying to get to the aircraft.

It is wrong in principle that one private sector company owns all three of the main London airports. I think the Competition authorities should tell BAA that if they want to own Heathrow they should not also be able to own its two main competitor airports, or if they want to own Stanstead and Gatwick they should sell Heathrow. We need some competition. Each of these airports need substantial investment:it would be easier for more than one company to raise the money and manage the projects.

It might also produce some innovation. I do want the airlines and airports to offer a greener way of air travel. If we had more runway capacity we would not need to have so many planes flying around in stacks above London waiting for their place in the queues to land.

If we had some vision, planes on the ground could be taken around the airport by surface vehicles pushing or pulling, to spare the main engines until flight.

If we had more airport capacity, airplanes could go straight to a gate and switch off, instead of hanging around on the tarmac with engines running.

If the airport owner streamlined the process of getting to the gates instead of telling people they need to arrive two hours before they can fly anywhere, they could cut the fuel usage and the required capacity of the terminals.

I am a green. I do not want them to build over too many greenfields and green gaps between settlements in England. I like to be able to breathe clean air,swim in a clean sea, and gaze into clear water in streams and rivers. I understand the need to curb our appetite for burning too much energy, and to find cleaner and better ways of travelling, making things and heating and fuelling our homes.

My latest car is 50% more fuel efficient than the one I drove six years ago. I have put in a condenser boiler at home. If we ever get hot days – and we didn’t last summer – I open the windows rather than ordering an air conditioning unit. In the endless cold days of this spring I usually reach for another jumper rather than turn up the heating. I try to do more things on web and phone to cut down the travel. I try to turn the lights off when I am not using the room.

When I work in my public sector office, many of these sensible approaches to energy is possible. The lights stay on all day and night in the corridors, whether people are there or not, whether it is bright outside or not. I cannot open the windows if it is hot or to change the air. I cannot control the heat that flows in winter or the cooler air that circulates in summer. The system carries on burning energy whether I am using the room or not. Across Whitehall lights blaze and heating systems belt out the warmth regardless of use. Control systems are rudimentary or not personalised.

The public debate seems to be dominated by people who hate the car and ascribe a disproportionate part of the problem to people who drive, only surpassed by their hatred of air travel. They favour trains and buses, as if they in some miraculous way produced no dirty emissions and were carbon free. They ignore the role of the domestic heating boiler, the electricity to power domestic appliances and the huge amounts of energy used by government and other office based activities.

It is time we had some sanity in the debate, based on realism about the relative importance of the different ways we use energy.

When I last drove into London I kept a record of my fuel use. I travelled 31.1 miles on the M4 at a good average speed, consuming just half a gallon of diesel – or 61.1 miles per gallon. I then had to travel 8.1 miles on main road within London. These roads have been messed up with lane closures, perverse traffic light programming, artificial narrowing, road works and many other obstacles. My mpg halved to 32.4 so I used a quarter of a gallon to go just 8.1 miles. On a busier day it could have halved again.

It shows just how important having uncongested roads are for curbing wasteful use of fuel and limiting emissions. I was , however, probably using less energy in the car than if I had stayed at home with my heating full on – I turned the heating off whilst I was away.

It is the second half of April, yet many people still have their heating systems blasting out the heat because it has been so cold outside, with frosts at night, even snow and hail. We need a programme of adjusting our heating and ventilation systems to the new reality of dear and scarce energy. It is high time the public sector showed some leadership by seeking to improve its own control over and use of energy. At the moment its use is wanton. We feel it in our tax bills.

Today we will hear a statement from the Chancellor announcing a much heralded statement offering up to £50 billion of near cash to the banks in return for some of their mortgages.

How is this done?
The government itself will borrow the money, by issuing bonds – IOUs – on the taxpayer.It will lend this money to the banks. It will secure these loans with banks’ mortgages. It will require a discount on the mortgages – in other words it will accept the mortgages for say 90 pence for every pound of mortgage. This discount will give us, the taxpayers, some protection against mortgages within the packages of loans that go wrong and are not repaid, and against failure to pay the interest on some of them. After the transactions the banks have £50 billion more of government bonds which can easily be sold in the market for cash, whilst the government has security of around £55billion of mortgages. The interest received on the mortgages should exceed the interest on the loans. The government/Bank will ask for top up of security if the values of mortgages continue to fall.
The taxpayer will not be out of pocket if the government judge it correctly, but the taxpayer will be at some small risk until the transactions are unwound once the crisis has gone away. At some point the government and taxpayer have to get rid of the mortgages again and repay the borrowings with which they have paid for the loans based on them.The exact arrangement is more akin to loans to the commercial banks, which gives the taxpayer more protection than buying the mortgages.

Good news or bad news? Will it sort out the mortgage market?
This transaction will of itself help in alleviating the shortage of cash in markets, and on its own should lead to new lending by the mortgage banks. As the mortgage banks acquire more cash/short term government bonds so they can lend more money to people seeking mortgages. It was a shortage of cash to meet depositors requirements and the lack of confidence in Northern Rock that led to the run on the Rock. If money and government bonds had been available like this in September 2007 there would not have been a run on the Rock.

However, it has to be seen in context. There are at least three other considerations which will limit the impact this helpful proposal will have:

1. At the same time the authorities are tightening regulation of the banks, demanding that they keep more cash on deposit at the Bank of England for any given amount of lending. Every pound of additional cash they have to keep cuts the value of this package, as it becomes a circular process. The authorities demand more cash for security from the banks. The banks do not have such cash. The authorities then give them the cash to meet the tougher requirements. No-one can borrow an extra penny, as the new cash is frozen.
2. The larger banks are international. Whilst the money will be offered to the UK subsidiary and intended for the UK mortgage market, in practise international banks look at the balance of their global business. Not all of the extra money, after allowing for bigger reserve requirements, will necessarily find its way into the UK mortgage market.
3. The UK market still has the problem of Northern Rock, which remains a negative influence on reviving the mortgage market because the government nationalised it. If instead of nationalising Northern had been offered this kind of support, it could now be offering new loans on a significant scale. Because it is under strict controls to repay the £24 billion taxpayer debt, and under strict surveillance not to be too competitive as a subsidised bank, it cannot play an important role in reviving the mortgage market in the UK.

So will it work?
It is a helpful package. Whether it is enough depends on how much further the authorities go in tightening reserve and cash requirements, and how quickly they want the Northern Rock money back.

Mr Miliband today has allowed himself to be used. He has argued a contradiction. He both tells Labour to start seeing things the way electors do, and told Labour MPs to knuckle down and support the abolition of the 10p band. They cannot do both successfully! Electors are fed up with paying so much tax for so little in return, and most electors think taxing those on lower incomes more is wrong.

Mr Milliband is an intelligent man, but he has allowed his own intelligence to be replaced by Labour stupidity. He retails the endless Labour lie that divided parties do not get elected. The Conservative party under Thatcher was deeply split between dries and wets, yet it won three General Elections in a row. The NULab party under Blair was deeply split between PM and Chancellor, between modernisers and Old Labour, between Blairites and Brownies, yet it too won three election victories in a row. The electorate will accept some public debate within the ruling party, some signs of democratic life within. In some ways it is a sign of health and thought. What they will not accept is poor performance or weak leadership. The Major government plunged in the polls thanks to the ERM and the impact this had on house prices and jobs.It did not plunge because some of us wanted to rule out the Euro and said so in public. This government is going down thanks to its chronic inability to deliver good public services at an affordable price. The public do not want ever higher taxes, charges, and public borrowing. They realise that the endless IOUs will have to be paid by us, as well as realising how much they are being mugged by the government every time they fill up at a petrol station or pay a Council Tax bill.

Mr Miliband’s remarks sum up all that is wrong with this cynical politics of spin which still disfigures the UK under its latest Prime Minister. The government’s own polls tell it both that it is unpopular, and that electors want it to feel the public’s pain. That is why we are now hearing from Ministers that they understand why people are upset about price rises and the financial squeeze. What they still do not grasp is the public not only wants a government to understand how it feels, but to make things better where they need fixing. In Labour’s rambling and costly public sector that is a huge task which this government shows no signs of grasping.

On Friday evening I attended a Thames Valley drinks party where I met a number of Chief Executives of parts of the public sector. They effectively implement Labour’s policies and retail the government’s opinions (guidance and advice) in our more Conservative area. It reminded me of what a dreadful system it is. CEOs from all round the country in Labour’s Britain usually display a “want more” rather than a “can do attitude”. I have written recently on the big differences between CEOs in successful private sector companies, and CEOs in the British public sector. The typical UK public sector CEO now thinks their job is to demand more resources from government to carry out any given task, and to protect their organisation from criticism by saying they do not have enough resource. Labour is reaping what it sowed. Throughout its long years in Opposition it had only one song – give us more money. It backed most lobby groups and public sector organisations who wanted more public cash, inventing the strange notion of “new money” (not money that has yet to be spent, but extra money that has not yet been announced for the future), and saying in most cases that the service was “underfunded”. They not only said that all would be well if more money was forthcoming, but actually believed it. It was just a question of turning on the money tap until enough cash had been flooded into any given area. Then everything would miraculously work well.

Gordon Brown continued this idea in government. Once he had divorced Prudence and cast off Conservative spending plans (borrowed to get them through the first election without frightening the voters) he went on an unparalleled spending binge. They had rows over whether to reform as well as spend, which Brown won in favour of little reform and maximum spend. They decided to push the spending well beyond what the country could afford, by massive off balance and on balance sheet borrowings. That is just deferred taxation which we will all have to pay. After all the spending there were still obvious problems with hospital infections, with access to care, with access to good state schools, with proper policing of our borders and much else. They had failed to concentrate on raising quality and efficiency, the two main drivers of success in business. The private sector has to do things better, faster, cheaper to survive. The public sector can do things slower, worse and dearer, and demands more money.

Now the money has run out. They are hoist by their own rhetorical petard. Their public sector will keep repeating the mantra that it can only get better and do more if they find massive extra amounts of cash. The so-called CEOs are already sharpening their biros to write the memos demanding more. They will be bombarding Opposition MPs to play the game, demanding more cash for good causes, just as Labour did in Opposition. They will dig in and claim they cannot do things better, faster, cheaper without more government cash, because Labour has created the CEO world in its own image.

Worse still for Labour, they have taught many of these quango boards and CEOs from local government how to play the media game. Some members of quangos and some Councillors have been told it is vital that CEOs themselves handle the media with their highly paid official PR staff. This gives these CEOs the opportunity to brief and lobby. The unscrupulous ones will use off the record briefings to report on the imperfections of their own services with a view to demanding more cash to put right the deficiencies. You do not hear the CEOs of major companies telling journalists off the record that their products are poor or their service needs substantial improvement.

So it’s back to the drawing board, Mr Miliband. Mr Brown has played a blinder getting Mr Mililband to do his dirty work for him by arguing for the 10p band removal. It is good internal politics, associating one of his alleged rivals with one of his most unpopular policies. What Mr Miliband and Mr Brown ought to be doing is spending some time together to discuss the crisis of tax, spend and waste that now engulfs the government. Both their futures are at stake, because the public now knows they are getting a rotten deal for all the tax they have to pay.

THE £50 BILLION PACKAGE FOR THE BANKS WOULD HAVE SAVED NORTHERN ROCK IF INTRODUCED LAST AUTUMN.

If the government and Bank of England can make £50 billion available to the banks today to get the mortgage market going again, why couldn’t they have done that last September to prevent the Northern Rock crisis?

This latest move completes their extraordinary U turn from wrongly saying there would be no bail-outs or help for the banks last September, to now adding a £50billion money market package to the £100 billion nationalisation of Northern Rock. British taxpayers uniquely in the world have double trouble – we are paying for the credit crunch twice, just as we seem to pay twice for everything else this government attempts. We are likely to lose money on the nationalisation, and have very overstretched public accounts thanks to this double borrowing whammy. The irony of the UK position is the government is seeking to sort out overlending by the mortgage banks by overborrowing itself!

If £50 billion had been made available last September there would have been no run on Northern Rock. That unhappy institution would not now be owned by taxpayers, responsible for shedding at least one third of the staff and fighting a legal argument over competition law with the EU. It would not now be running its business down and struggling to repay a massive £25billion loan from the taxpayer. Instead confidence could have been restored with this kind of package last autumn.

The latest scheme – £50 billion of government debt to swap for mortgages – is a better way of helping than clumsy and expensive nationalisation. The reported timings are clever – one year bonds to avoid proper balance sheet accounting for the government, three year duration for the mortgage banks to get the government through the next election before the reckoning. The £50 billion scheme, if properly designed, will be better value for taxpayers than the nationalisation, and will help all banks in the UK, not just one. It is not without its dangers, but at least it does not make the taxpayer responsible for all the staff, loans and liabilities of all the other banks in the way we are for Northern Rock.

The history of the Northern Rock crisis can be followed on www.johnredwod.com, under the Northern Rock tab. Items are in chronological order.

It beggars belief that an intelligent man should lash out against the media for daring to run the story that many people are against the abolition of the 10p tax band. Why on earth in a free society should the media ignore such a story? It makes Gordon Brown, like his post Thatcher predecessors, appear to be the poodle of the headlines rather than in charge of the government.

Let me explain to the PM why this 10p issue is a story. It is story because a large number of Labour MPs are saying they disagree with the policy and might vote with the Opposition parties, who also disagree with the policy. If enough of these Labour MPs keep their word, the government could be defeated on a central plank of Gordon Brown’s last budget. That would be big political news.

It is a story because prices of food, heating and travel are shooting up, in a way which hits the budgets of those on low incomes especially hard. Gordon Brown’s decision to remove the 10p band hits several million people on low incomes, taking more tax off them, at exactly the same time as they face these surges in their bills. The political world has to understand that it cannot fix such a real problem for the voters, by better spinning or media control. Real problems need real solutions, not more expenditure on better spin doctors.

It is a story because removing the 10p tax band puts up the taxes of all of us at a time when most feel under pressure in our daily budgets thanks to rising taxes and rising prices.

If Gordon Brown cannot understand why this is a story he does not have much of a future as PM. What he should do is respond. He can do things to make it better for people – the rest of us can merely complain about what he is or is not doing.

There are two ways out. My preferred way would be for him to admit it was wrong, announce the restoration of the 10p band, and make proportionate reductions in government waste and overheads to pay for the change.

The other way is to explain to his hapless backbenchers why it is right to increase taxes in this way, so he can be sure he can win his vote. Then between them, they have the other task of persuading the rest of us that a tax increase is good for us!