Month: June 2008

At the Mansion House tonight the government will doubtless tell us the economic problems of Britain come from a global crisis – they are more the result of sub prime USA, not a sub Prime Minister. Our attention will be turned by attentive spin doctors and gullible media to wicked oil producers overcharging for petrol and diesel, and to greedy speculators chasing up the price of food and other commodities. We will doubtless be given huge reassurances that the UK is being managed well in the circumstances, that the UK economy will keep on growing despite it all, and the inflation will be temporary.

If that is the message, it won’t wash. It will reinforce most people’s impressions that the government either does not know what is going on, or is so steeped in the business of disinformation that they cannot help themselves. It is probably a combination of the two. They have spun their line so many times, many of them now do probably believe it. They may once have understood the need for Prudence, for proper management of the public sector, for avoiding nationalisation and going with the grain of markets, but they have forgotten much of that in their crude political rush to spend money wherever they wrongly think it might buy them votes.

What the government should say tonight if it wished to re-establish some economic authority would be very different. They could of course point out that the Credit Crunch is an international phenomenon, but they should tell people part of it is made in Britain. They should admit that the handling of Northern Rock was unique British bungling, and set about repairing the Bank of England before the crisis gets much older. They need to restart the sale process for Northern Rock and get it back into the private sector as quickly as possible, to limit the amount of damage they have to do to the business by running it down, exacerbating the shortage of housing finance.

They should accept that past errors of monetary control have helped fire the inflation we are now experiencing. They should say that now there is a cruel dilemma – should they mainly fight inflation with high interest rates, or fight slowdown and possible recession with lower rates? If they would take some of the pressure off the economy by moving to reduce wasteful public spending and lower the government’s borrowing requirement, they could then risk lower interest rates, and start to give a little hope to the collapsing housing market.

Proposing some self discipline on public spending, instead of the sorry rake’s progress which passes for a public spending policy, could make a lot of difference. The large transport schemes they favour should be privately financed. Regional government, ID cards, central computerisation schemes, extra civil servants, more laws and regulations – these are all luxuries we cannot afford and many of us think we do not need. Let’s have a few billion off public spending by axing these and similar costs. Let’s have a staff freeze on the public sector, exempting teachers, medical staff, police, armed services personnel and other key front line professionals.

That would send a message to markets that the government would take some of the pain of adjustment, as excess demand is removed and borrowing reduced. At the moment an honest Chancellor would have to say that all the adjustment is planned for individuals and families, which means a year or more of greatly reduced mortgage finance, of rising prices going up faster than wages, falling house prices and a cut in real incomes. This will be especially savage on the lower paid.

I would like to thank the Wokingham Choral Society for a great evening on Saturday. They performed a number of sacred and profane pieces around the theme of love, interspersed by readings.

It was a pleasure to be able to read Shakepeare’s Sonnet, “True Love”. It made a welcome break from credit crunch and the trench warfare over the EU. Well done to all the singers.

Let me not to the marriage of true minds
Admit impediments. Love is not love
Which alters when it alteration finds,
Or bends with the remover to remove:
O, no! it is an ever-fixed mark,
That looks on tempests and is never shaken;
It is the star to every wandering bark,
Whose worth’s unknown, although his height be taken.
Love’s not Time’s fool, though rosy lips and cheeks
Within his bending sickle’s compass come;
Love alters not with his brief hours and weeks,
But bears it out even to the edge of doom.
If this be error and upon me proved,
I never writ, nor no man ever loved.

The Governor may soon have to write a letter to the Chancellor apologising for the high rate of inflation and saying what if anything he needs to do about it. In a way it should be the Chancellor writing to the Governor, as the Treasury has been at the bottom of the economic mistakes that have led us to higher inflation, and the Treasury has had more power than the Bank in many of the important matters which guide our economy.

The Governor, in an honest letter, would say:

“Dear Chancellor,

I am writing to report that inflation is now above 3%. This has come about because we held interest rates too low in the period 2004-6, allowing a credit bubble to emerge. The government’s decision to switch target from RPI to CPI made our task more difficult, as the CPI at the time was lower than the RPI, and has since proved to be a very poor indicator of the overall inflation people are experiencing in their daily budgets. Indeed the gap between RPI and CPI has got larger, meaning our failure on inflation as measured by the old target is worse. We felt we had to respond to a lower, easier target once set.

The government’s love of PFI/PPP off balance sheet liabilities and its rapid expansion of public spending and borrowing made conditions far looser in credit markets than was desirable, but we did not feel we could take full action to offset the government’s own wish to expand borrowing so rapidly. We felt the Treasury clearly had good policy reasons for wanting to increase public sector costs and the size of the public sector as much as it did. It was not for us to try to throttle the economy with very high interest rates to offset this huge public sector expansion. I accept that this was wrong in retrospect.

We were also wrong to keep the markets so illiquid in August and September last year leading to the run on Northern Rock. Our options have now been narrowed by the decision to nationalise Northern Rock. This has proved expensive to the taxpayer, boosting public spending still more, and has meant thanks to EU competition law that we are having to run down a leading mortgage bank at a time of mortgage famine and credit squeeze.

What should we now do? The Bank’s options are very limited. If we chase the historic inflation with higher interest rates we will make the credit crunch worse, and cause a sharper slowdown or a recession which seems a bad idea. If we take no action commentators may well say we are neglecting the high and persistent inflationary problem. This is mainly the result now of excess liquidity elsewhere in the world creating strong upward pressure on commodity prices. There is little sign of this spilling over into wage increases at home which would give another twist to the inflationary spiral. In due course it is quite possible the speculative froth in commodities will be corrected and ease the inflationary impact.

However, it is unfair that all the pressure of adjustment to harder times is currently falling on the private sector, with housing and property at the eye of the storm. I am very conscious of the government’s ambitions and high targets for new housebuilding, which are currently unrealistic. If the government wishes to rebalance the economy and ease some of the unreasonable pressure on property and finance it needs to reduce its own claims on the economy. I suggest the government redoubles its efforts, begun with the Gershon Report, to eliminate waste and less desirable spending from the large public sector, to help the adjustment . I would be happy to assist with this process, and can see many easy targets.

Yours etc”

An honest Chancellor would write back:

“Dear Governor,

Thank you for your letter. I agree we have made mistakes together, and we need to reform our system for inflation control. I wish to discuss with you strengthening the role of the Bank in managing the money markets by restoring powers to you to monitor the clearing banks day by day and to run the government debt. Like you, I now realise the Northern Rock decisions were not well made, and we need to be careful how quickly we run the business off.

The government is concerned about the state of the housing market. We see now that getting prices down to make housing more affordable does not allow more people to buy if the mortgage market has dried up. Nor does it help if people generally decide to sit tight rather than change their houses, as it limits choice and increases the number of families living in less suitable accommodation.

It will not be easy with colleagues, but I do see the force of your argument that too much of the adjustment is being taken by the private sector in general, and by the property and mortgage sector in particular. I think there is scope to reduce public spending without in any way damaging services. You are right in hinting that public sector efficiency and productivity can and should be raised. I will take your letter to Cabinet along with spending suggestions the Chief Secretary has been preparing on a contingent basis and see what we can achieve.

I agree with you that putting up interest rates now would be an inappropriate knee jerk response. I just hope you are right and that commodity prices start to subside. It will be uncomfortable to live through much more of this commodity boom, but I see no alternative that is less damaging to UK jobs and output.

Yours etc”

It is not surprising that when China and India come to the party they need a lot more oil and the price goes up. Striking delivery drivers here do not help the situation either.

I can still buy a litre of petrol for around 45 pence, pre tax. That is good value compared with bottled water or soft drinks sold by the same measure. What I can’t afford so easily is the 70 pence of tax the UK authorities stick on top. (Based on the last price I checked out of 115p a litre – and I know it’s still going up at the pumps)

The Saudis have shown some political wisdom by offering to produce some more oil, as western politicians demand, if the West will, at the same time, cut its heavy consumption taxes on the products. As the UK government takes more than 60 pence in every pound charged for petrol, they should provide more than 60% of the price cut they are now claiming to want.

If Mr Brown really feels my pain at the pumps, he can ease it more quickly than the Saudis. I am ready to vote Yes to a government proposal to cut petrol duty any time he likes to make one.

Mr Miliband is presiding over a dreadful period for the UK’s reputation abroad. Our foreign policy bears the imprint of the last foreign visitor or international institution we have dealings with. We retreat and change positions as overseas visitors and meetings demand. The US delivered the insult to the French at the time of the Iraq war that they were “surrender monkeys”. Who are the surrender monkeys now?

In the last few days we have seen the humiliating spectacle of the UK government rushing to reassure France and Germany that the UK will speedily complete its ratification of the Constitutional treaty without asking the people, as if Ireland had not voted against. The UK government surrendered to the common Franco-German position. Simultaneously we have seen the government plant a story on the front page of the Sunday Times that the same Treaty is dead, just before inviting sensibly Eurosceptic Mr Murdoch to dinner at Number 10 with the US President. Clearly the government was unwilling to stand up to Mr Murdoch in defence of its view that the Constitutional treaty has to be railroaded through the UK Parliament, ignoring the wishes of the British people. The President announced in advance of his visit that he wished to stiffen the UK’s resolve not to pull out of Iraq to any prearranged timetable. The government went on radio and TV and dutifully said they had no pre-arranged timetable to leave, yet we have seen suggestions in the media that they do intend to get our troops out within the next year.

No wonder people hold our government in low esteem, and no wonder people do not believe much of what they say. Mr Miliband should have stood proud for the UK. He should have said to France and Germany:

“The Irish vote changes everything. The Treaty cannot now be ratified by all 27 states. If we held a referendum in the UK as we should it would be voted down here as well. Let us use the next summit to discuss ways of reducing the unpopularity of the Union with many of the people who live within it. By all means cut the numbers of senior officials and streamline its procedures, but with a view to it doing less and better, not with a view to it grabbing more power away from elected governments. We could cut officials, reduce regulation and do less without the need for a big new Treaty. The EU has to say to the people of Ireland that their views are respected, and mean it. It is quite unacceptable for the Union to be threatening or sidelining any member because they have the wrong views or are a small country.”

He should have said to Mr Bush:

“The UK Parliament and people are unhappy at the way our joint military interventions in Iraq and Afghanistan have worked out. We admire all that our troops have done, and are concerned by the continuing high casualty levels. We would like to agree a private timetable with you for joint withdrawal, but if that is not possible we do intend to get our troops home from Iraq soon. It was never our intention to become a permanent army of occupation or a police force for Iraq. We believe in self-determination of peoples.”

This morning we learn that, privately, Gordon Brown thinks the Constitutional Treaty is dead, in a carefully crafted piece briefed to the Eurosceptic Sunday Times. How can this be a private thought when it has been so thoughfully shared with the nation through a major newspaper’s front page? How can it be anything other than covering Eurosceptic fire from the top, when in practice we learn that the government intends to grind on with Lords ratification next week. It is false fire, cynical manipulation, when by their every action the government demonstrates it does not trust the British people to decided this and does not intend to be railroaded out of the project by the Irish people either. I could only be persuaded to a different view if there were an on-the-record statement by the government that the Treaty is dead, followed by cancellation of the legislation currently before the Lords to ratify.

I believe the on-the-record statements of the Euro Minister, who implies dollops of Brussels fudge to sort out the Irish once the other 26 countries have ratified whilst wisely avoiding all contact with their electors which might derail the project. Meanwhile, plucky, democratic Ireland is to be treated like some pariah who must not be allowed to “hold up” the others, and who will have to live in limbo or the dog-house for a bit whilst the Irish public cools off and is softened up for the next move towards the Euro centralising state.

It is a predictable disgrace that the Euro elite see the Irish vote as cause for annoyance, condescension and sidelining of the one country in the Union that has asked the public for a view. No wonder so many people mistrust European politicians, and so many are cynical about politics. What is it about these public servants that they arrogate the right to do the opposite of what the electors, their paymasters want? Why do they think they should be able to draw salaries and expenses of a generous nature in order to take more power away from us, and order us about in new ways, when we want the opposite?

If anyone in the European bureaucracy is listening, understand the mood of many people living in the EU. The economic performance is not good enough, taxes are too high for the amount of public service we get, and there are too many laws and regulations. Why, in such a context, do you think we want more of the same? We want change – we want more freedom.

The UK Europe Minister this morning gave us more of the tired old rubbish from the Euro elite following the stunning victory of the Irish people against their politicians in this week’s referendum.

He tells us that all other 26 states should carry on ratifying, as if nothing had happened, avoiding any further referenda which may show that this Treaty remains unpopular with a majority in many countries. The scorn for democracy is now doubly apparent – no referendum for us when one was promised, because they think we will vote the wrong way, and no agreement to scrap the Treaty, now that the one country that is allowed a say has said No. Exactly what part of “No” do they not understand?

Worse still, the EU Minister thinks all 26 other governments will ratify – over the heads, and despite the views, of their electors. Then presumably, the arm-twisting starts on Ireland, with a view to offering an odd opt-out or a transitional arrangement, and the odd, meaningless clarification of the Treaty, to “deal” with the Irish problem.

It is a disgrace that the UK government behaves in this cavalier way towards the clearly expressed views of the people of Ireland, and fails to understand the even larger majority here in the UK who oppose this Treaty according to Opinion Poll evidence. There is no mandate for this Treaty. The people do not think it either desirable or necessary. They should bin it.

They should come back with proposals to restore power and rights to the democracies of Europe, removing power from unelected officials in Brussels. They should come up with positive proposals to reduce both the cost and burden of Brussels, so we can have a tax cut and some deregulation instead of the endless diet of more spending, more taxes and more rules. When they say they need to streamline the decision processes in a larger community, it means they want to pass more laws. Why can’t they get it? WE WANT FEWER LAWS. TRY ABOLISHING SOMETHING. We do not need another bunch of expensive wannabe politicians and officials in Brussels bossing us around in ever more detail and more areas of our lives. The voters say “Get off our backs”. Instead they ignore us and make us even angrier.

Thank heavens the Irish were allowed a vote – the only country where they dared test their unwanted Treaty. Thank heavens they have voted No, showing that wherever the Constitution has been put to the people it has been defeated.

Instead of talking about the “crisis for the EU”, and saying the voters have made a mistake, the EU elite really must this time listen and change its mind. They should

1. Say sorry for pressing ahead this far, at our expense, against the wishes of so many people in the EU
2. Say they will now look at how to strengthen people and Parliaments and cut the powers the EU holds over us all as that is the clear message from a majority of voters who are consulted
3. Agree that no elements of this constitutional Treaty which strengthen the powers of the EU will go ahead. Lisbon should now be dead.
4. Accept that this is not the voters who have “plunged Europe” into more constitutional wranglings, but the elite of the EU who have plunged themselves into this by their obstinate refusal to listen

The UK should press ahead with its own referendum to reinforce the message to the elite. Given that these unrealistic bureaucrats are still talking about defying the wishes of the voters, they need to be taught another lesson in democracy.

Meanwhile our government should abandon all attempts to ratify the Treaty by Parliamentary process.

A recent blogger on this site kindly praised me for backing David Davis immediately he resigned, rather than waiting to see which way the wind was blowing. Of course – I make up my own mind on these things, and wanted to influence what happened next by being quick to judgement.

I am pleased that David Cameron has appointed Dominic Grieve as Shadow Home Secretary. We do need someone in that post in the next few weeks to carry on the campaign in Parliament. Dominic is talented and entirely in agreement with the stance we have been taking in defence of liberty. I look forward to his contributions as the government gets embroiled in battles in the Lords for its grubby legislation. It is also good news that David Cameron has supported David Davis’s view on the issue, to give the lie to any idea that there was a split on it. It is more welcome than the sniping we have got used to at the top on the Labour side.

To those who ask, why did David Davis do it, can’t they for once think that maybe he did it for the reasons he set out? He is a clever enough politician to know that David Cameron’s position is rightly strong in the Conservative party, and there is no question over the leadership. Sometimes commentators can be too clever or cynical. There is no split in Conservative ranks over 42 day detention (save for Miss Widdecombe who is retiring at the next election).

The EU should stop grabbing power from democracies, stop pretending it is a bastion of liberty and modern purpose, and understand just how hated its bureacratic and self serving ways have become.

It should issue a simple statement:

“The EU is grateful to the Irish people, and to the French and Dutch people before them, for voting No to this Treaty. It understands that if the British people and others had been allowed a vote they too would have voted it down. The Constitution will be abandoned, the EU will make no further demands for the transfer of pwoers, and it wil look at ways to make itself less intrusive and less annoying to the people it wants to serve and who pay its wages”

That was a pig you saw flying past the window.