Month: June 2008

The hedge fund manager who told the US authorities that the current oil price is twice as high as it need be thanks to speculators, told them what they wanted to hear and made international news. Readers of this blog will know that I think there is speculative money behind the latest rapid rise of the oil price: at some point the speculators will try to take their profits and the price will fall. Readers will also know that here in the UK the government and its taxes accounts for a far bigger part of the petrol and diesel price at the pumps than the oil producers and the speculators put together, which makes Mr Brown’s preaching on this subject rather difficult to accept. As the BBC pointed out today, a barrel of mineral water or a barrel of Coca Cola would still be dearer than a barrel of oil at current prices.

The problem with telling legislators there are speculators in sensitive markets like oil is that they will want to do something about it. They will want to look for ways of banning speculation. This is unwise, because it is technically very difficult to distinguish a pure speculator from anyone else.

People like to think that speculators are a breed apart – often seen as rich foreign traders capable of running a market ever higher, with impeccable senses of timing and access to vast funds so they can get in and out at huge profits to the detriment of everyone else. As a legislator I can see the attraction of trying to identify such people, and trying to stop them or tax them – it would be popular.

In practice, there are two major difficulties. The first is, if we stopped or taxed them more heavily here in London the business would just transfer somewhere else where there were not the same constraints. The second is that in a rapidly rising market as oil has been many people become speculators.

If people fear a price rise they fill their home oil tanks and keep them full. They are speculating on the future price by buying forward more than they would usually do. If people fear a petrol price hike they go out and fill their car and any reserve tank they hold. Businesses relying on road or aviation fuel buy more forward. When you get the annual report of your pension fund you may find it has bought into oil and commodity investments, trying to exploit the speculative trend. Charities, widows and orphans are as likely to be part of this speculative pressure on the oil price as our fabled rich slick foreign trader.

It is best to leave well alone when so many people have directly or indirectly, knowingly or unwittingly become oil speculators. You may be one yourself in a modest way. All such bubbles come to an end. If you want to help the oil price go down, buy less oil based products and find something else to invest in if you have some savings. (Please take appropriate advice – this is not investment advice!)

Today’s front page of the Independent shows this government’s list of major projects that it would now like to push through. The paper are right that some of these will prove highly controversial, and some may be misjudged. The overall impression, however, is how few there are after a long decade of practically no expansions of capacity for rail, road, power generation or water supply. This government has invited in millions of new people, demanded major housebuilding and shop and factory building programmes from the private sector, yet has done nothing to expand the capacity of the main networks where it is the owner or the main instigator and regulator. The Independent’s map shows that the South east will still be very short of road and rail capacity, with nothing major planned.

Having wasted eleven years the government now claims to be in a hurry. That is why we face its horrible Planning Bill again this week, seeking to transfer the responsibility for major planning decisions to an unelected quango away from elected Ministers and Councillors. What we need is a government with foresight and powers of persuasion to allow the development of the new capacity we need on all our major networks – a government prepared to spend on compensation to homeowners where their amenity is adversely affected by new developments. Instead we have a government which wants to fight another battle against our right to a hearing and representation, as they seek to make the planning process even more remote from individuals affected by major projects. Far from speeding up planning decisions on these major projects, this Planning Bill is slowing them down, by taking yet another year out to have a constitutional battle over how to do it instead. Why can’t they just get on with it under the existing system? Why have they left it all so late? Why do we need yet another quango when we are already groaning under the number of planners and the complexity of the system? Why don’t they at least get rid of English regional planning at the same time, so we have a few major national projects decided nationally, and the rest settled by local government?

Gordon Brown today launches another fightback. This time he combines concern about the broken society the Conservatives have highlighted with the new wish to shower taxpayers’ money on groups who might then become better inclined towards the Government. The new big idea is to offer money to encourage those on a low income or on benefits to change their lifestyles. There will be money to buy food of the right kind, money to seek advice and help with children, and money to live life according to the Gordon Brown rulebook.

It is a typically political package designed to spend cash the Government does not have in a bid to show the Government cares and is looking after its heartlands. The prosperous and enterprising people and areas will have to pay more in stealth taxes and deferred taxes when the borrowing has to be repaid. Many Labour MPs will be praying they get a higher political dividend for this new largesse than they received from the £2.7 billion emergency package of benefit increases at the time of the Crewe by-election to offset the increase in income tax.

The sad fact is that Gordon just does not get it. In the current climate he cannot buy enough votes by spending more of people’s money. He can lose more votes by debauching the public accounts further. He should grasp that ever since he divorced Prudence the economy has performed poorly. Years of spending too much and managing the public sector badly are now catching up with him. He needs to cut public spending and seek much better value for money. He needs to tackle the broken society by spending the huge sums of money they are already committed to spending in a more efficient way.

Central to this crucial task is education. Too many young people in deprived areas pass through the school system without learning how to read, write and add up to an acceptable standard. Too many are left without enthusiasm, special knowledge and a confident sense of purpose. Tampering with A-levels, dumbing down standards, or showing pupils more films is not going to solve this. Freeing the schools, offering parents and pupils more choice, encouraging the pursuit of excellence in many fields would help.

Mending our broken society requires many changes. Many of these are chronicled in Iain Duncan Smith’s report on this subject. Simply showering more public money on deprived areas, as we have been doing, will not work. Today’s speech is more spin about a broken strategy of spend, spend, spend, than about the problems of a broken society.

The Poll in the Observer shows how much more sensible the public are about climate change than many of the governments. On a weekend when our Prime Minister jets off to the Middle East to ask them to pump more oil out of the ground to lower the price the public are right to be cynical about their government’s commitment to curbing their own emissions. When the UK government imposes far more tax on petrol than the oil companies and producing countries charge for their product the public understand that the government is using green taxes as a convenient way of raising revenue. It is merely posturing about the price because people are now finding it hard to pay for life’s necessities.

Whilst some people think the pro climate change scientists have had too large an impact on the debate and are not the whole story, the majority still think there is a problem. They are right, however, to be sceptical of the government’s intention to do something about its own insatiable appetite for travel, heating, air-conditioning and other energy uses. I have been tabling questions to try to find out just how much progress is being made in each Whitehall department. The information does not come out readily or in similar format department by department, as their experiences are very varied. It is most important that the government leads by example and shows the rest of us how to curb our energy bills, at a time when the price of energy is causing public-spending stresses, let alone the carbon argument.

Gordon Brown has not explained why he wants to drive energy prices up through taxation and regulation, and at the same time try to bring them back down a little by persuading oil producers elsewhere to produce more. There is a contradiction at the heart of government policy which can only be explained by understanding that this is a Spend Spend government crazy to get your money, which needs ever more green taxes to take the cash from you. Horrified at the polls showing how people are hurting thanks to high energy prices and taxes, the government then poses for the cameras saying it wants others to take the price pressure off.

I support practical greenery. To me it makes sense to waste less, insulate more, reuse where possible, develop carbon and fuel reducing technologies for space heating and personal travel, and invest in alternatives to carbon based energy because of the rising price and growing scarcity. What we want from our government are commonsense proposals and action in all these fields, rather than more carbon burning stunts travelling the world in search of a foreigner to blame for our woes.

Today is great red herring day. The Energy Minister tells us the PM feels our pain when we face daylight robbery at the petrol pumps. The PM is valiantly battling for us and for lower prices in Saudi Arabia.

Is this, I ask myself, the same Prime Minister who governs one of the world’s oil-producing countries, who has put up taxes on North Sea production instead of offering tax reductions to encourage new exploration and development? Is this the same PM who as Chancellor presided over large rises in petrol tax, and who as Prime Minister is delighted to haul in so much more revenue from the extra VAT on the higher prices? Does this Prime Minister understand that UK tax is one a half times the amount of the underlying price of the product?

If the PM really felt our pain and wanted to do something about it he could stay at home and save the cost of air travel. He could announce a cut in the duty on petrol to offset the increases in oil taxes he is now enjoying. He could offer tax incentives to North Sea producers to produce and develop more oil production at home. He could make decisions on nuclear and renewables to increase our output of non carbon based electricity.

Instead we are treated to more expensive spin. Let’s hope the Saudis do decide to pump a bit more oil, and let’s hope that shakes some speculators out of the market. It will not, however, change the rip-off at the pumps that comes not from foreign oil producers but from our own UK government. Why won’t he meet the North Sea producers again and say this time that he is sorry for the extra taxes he has landed us with, and will do what it takes to speed extraction in our own oil and gas fields? Instead of blaming foreigners he should see that the UK energy crisis has been made at home. This government has failed to make the capacity decisions needed over the last ten years, and has seen the green argument as a good excuse to put taxes up on many kinds of energy.

There has been some excellent journalism on the back of Tom Harris’ rose-tinted blog about the economic joys of modern Britain. I marvel at how much he does not understand – his political sense was as lacking as his economic knowledge.

The trouble is, we have a generation of politicians brought up in the soundbite-ridden, spin-doctor-controlled, pager-message-driven world of Blairite vacuity. It says on the Labour pager we’ve never had it so good, so he writes it on his blog. Does he not read the emails and letters from his constituents, telling him how the shoe is pinching? Doesn’t he go out knocking on doors and hear how frightened people are of the Council Tax Bill, the home energy bill and the visit to the filling station? Has he no idea how difficult it is to manage, when the prices of basics are shooting up 1970s-style, whilst most people’s incomes are heavily constrained and even more heavily taxed?

Worse still, the spin doctors and allied message makers clearly know little economics. They ignore the way the UK has been falling further and further behind the fast growing lower tax countries. They forget the 5.5million people of working age without a job. They watch helplessly as the twin deficits, government and balance of payments, balloon. They assume the UK government can carry on living on credit at exactly the same time as the private sector is being strongly squeezed to curb excess borrowing.

It’s not just a minor figure like hapless Tom – he speaks for the whole government. They all talk in sound-bites, crafted by marketing people and based on extensive polling. Tom’s mistake was to flesh out the approved sound-bite that the “government has presided over continuous growth and created economic stability” a little too much so the gulf between what the government wants us to believe and the reality of daily life in modern Britain becomes so huge.

It’s a rum kind of stability, if you saw the way the authorities lurched from feast to famine in the money markets last year. It’s not that stable out there if you are an estate agent, in commercial property, or a housebuilder. It doesn’t feel like growth if you are running a small shop or other service business at a time when people’s disposable incomes are being squeezed. The soundbite rolls on. The more they say it, the more people disbelieve them. When one of them tries to unpack it and give it some more life, you see how ridiculous the whole thing is.

Labour have created an edifice of warm words which have grown further and further away from the reality of the country they are governing. That has increased people’s impatience and cynicism about politics. Now we learn that the Prime Minister does not want a full Parliament next time in the unlikely event that he wins. Has he learnt nothing from the Blair resignation debacle? Does the UK really deserve another PM who invites challengers for his crown because he says he wants to quit but wont name the day? Is there anyone in Labour capable of responding to the challenge?

What a surprise – the EU has no immediate answer to the “Irish problem”. They should begin by realising they do not have an Irish problem – they have an EU problem. When we cross examined Mr Miliband this week on the subject he both told us they respect the verdict of the Irish people, and that they intend to carry on ratifying as if nothing had happened. As far as he is concerned, it is Ireland’s government that has to get itself out of the “slow lane” and rejoin the main Euro convoy.

I asked Mr Miliband what things the UK wished to get through the EU that they could not do under the existing arrangements. He is for ever telling us we could make more progress on the things that matter if we signed up for the further transfer of powers under the Constitution. He could not name a single item where the Constitutional treaty would make a positive difference. He is eloquent in telling us voters are not interested in institutional change, yet at the very same time insists he must press on with these institutional changes that have bitten the dust at the hands of voters in France, Holland and Ireland. He tell us there will be ten years of no further institutional change if we sign up to these proposals – why can’t the ten years begin without signing up to these? Whose leg does he think he’s pulling in asserting there will be no more changes? We know the EU is always busy thinking up new powers it can transfer, and ways it can advance its ever more ambitious federalist and centralising agenda.

The Miliband formula simply does not wash. We do not believe this will be the end of the power grab. We do not believe this power grab is needed to make common progress with our European neighbours in items that matter to us. We do not think there is a prayer of CAP reform with or without the new Constitution. There is no chance of getting our fish back, with or without this Treaty. There is no chance of cutting costs and cutting the amount of tax we have to send to Brussels, with or without the Constitution. There is no chance of Brussels calming down, and stopping interfering in our daily lives on the scale it now does.

The truth is the people do not want all the Brussels government they are currently getting, do not want to have to pay so much for it, an certainly do not want more of it. Until Brussels realises this and starts cutting back on its demands, it will go on losing referenda when people are allowed one.

It is pathetic to receive confirmation from today’s government spin that this government is more afraid of appearing to be the awkward member of the EU Council of Ministers than it is afraid of being out of sympathy with British electors.

Throughout this government’s time in office they have been humiliatingly compliant with Brussels wishes. They have failed to develop and promote a distinctive UK agenda for a freer more open less intrusive and less expensive Europe. They have waited to see what measures Brussels wants, and have then said that is what they want so they can appear to be in mainstream. They have the audacity then to argue they have influence, when most of the time they accept what they are given. They have, it is true, occasionally said they want CAP reform, only to fail to deliver.

Today we are told they are pleased to go as the latest country to ratify the much hated Constitutional Treaty. They will use the fact that the Lords wrongly voted for it so soon after the Irish people vetoed it, to show they are “good Europeans”. It is all part of the unsubtle pressure being placed on the hapless Irish government, who stay drifting in office after their main policy proposal to the Irish electors has been soundly rejected! People of honour in such a government would have resigned, as they clearly do not agree with the people they claim to represent.

Britain should be ashamed of its government for behaving in this way. Surely now is the time for at least one major government in the EU to seize the agenda, and explain in simple terms to this collection of politicians and grand officials just why their centralising out of date power grabbing project is so unpopular with so many people across the Union? Instead of trying to cobble together new ways to steal the Constitution through against so many people’s wishes, they should announce its death. They should say they will work instead at restoring democratic powers to member states in more areas of life, hold a bonfire of EU regulations, and usher in the winds of freedom to the musty and secretive corridors of the Charlemagne building.

Why is there no Pitt or Wellington or Nelson building? They did much in their day to save the freedoms of many peoples and nations. Why are all the heroes and models ones of people who tried to unify a Europe which is happier as a series of individual nations with their own governments? Will no government speak for the peoples of Europe rather than for themselves? Why isn’t Mr Brown more afraid of the British people, and less afraid of EU bureaucrats who are meant to be there to serve us?

Does he really believe his own spin that the Tories were brought down by being too Eurosceptic in 1997? I seem to remember it was being too pro European which brought the Tories down, thanks to the common agreement with Labour that joining the ERM would be good for our economy!

The Governor’s speech at the Mansion House last night showed more realism about the situation, stressing the way individuals and families were going to be squeezed by the current economic policy. He did not, of course, venture a criticism of the government for refusing to squeeze the waste in the public sector to take some of the strain, did not make a case for a stronger Bank, and decided to threaten higher interest rates if people did not behave as if the Credit Crunch had never occurred. Apparently the government has now realised it got the changes to the Bank fo England wrong and wants to strengthen the Bank’s role in money markets and bank supervision.

I know many of my readers think UK inflation is a much more serious problem than I do, and think the Governor is right to menace us with further tightening if necessary. My case has been throughout that we will have a difficult time with inflation for much of this year, as the high commodity prices work their way through the system. That will simply cut real incomes by more, and lead to further reductions in output and a greater slowdown in the economy as a whole. Inflation will then subside, as it will not follow through into higher wages. There will be no 1970s style inflationary spiral. The collapse of inflation could even happen more quickly if it turns out there is a lot of speculative money in commodities which suddenly departs – as we saw when the gold price hit $1000 an ounce.

Readers could point out this morning that the tanker driver wage settlement, at 15% over two years, has broken out from the low single figure settlements we are used to. If this were to become a new benchmark for aggressive negotiators, and if other employers are about to concede such settlements, you would be right, and inflation will be out of control. Clearly Chancellor and Governor are worried sick about the prospect of wages taking off, as it would cause that foolish chase of differentials and money around the system which simply undermines the spending power of the pounds you seek to earn.

I am sticking with my original view despite the tanker drivers, as I think for the moment they are a special case. Any group of workers tied into the bonanza of energy and commodity prices have a chance to raise their relative position in the wages pecking order thanks to the boom conditions in their markets. Conversely, if you are in property, finance, building and construction you will be relieved merely to keep a job and will not have similar power to raise your wages. My theory can accommodate a few outrider settlements in hot areas of a rapidly cooling economy, but would be wrong if this turns out to be a more general problem. So far there is every sign the government is holding the line on public sector pay, where cost overruns in previous years have been so large. There is still discipline in most of the internationally traded activities despite the take off in Asian inflation.