Month: July 2008

Today I learn that the government is intending to stick to its plans to keep public sector wage increases below the current rate of inflation. This is a necessary if unpleasant task, given the massive over recrutiment into the public sector in the administrative, political, media related and management echelons. At least MPs got that one right, voting ourselves a well below inflation increase in pay.

Now Parliament has to sort out the expenses mess. I am glad David Cameron today is proposing no money to furnish a second home – the true end of the John Lewis list. Labour wants to move from John Lewis list to a National Audit Office judgement – will they need an MFI list or the equivalent? How different would that be from the current John Lewis items and prices?

Gordon Brown needs to put much more discipline into public sector costs. We are awash with too many MPs, MSPs, Assembly members, Regional assembly members, Councillors, spin doctors, private office staff, Ministers, senior officials, management consultants working for the public sector, qunago chiefs, CEOs and deputy CEOs in local government and the rest.

While he is about his pay squeeze, why doesn’t he at the same time introduce natural wastage to start getting the numebrs down. And how about just scrapping all that ghastly English regional government? I have just received another couple of picture brochures from the South east regional assembly which reminded me what a complete waste of money it is.

Swindon Councillors are right to look at how the £400,000 a year spent on speed cameras could be better used in order to make things safer. They could also ask whether they need to spend the whole £400,000.

Speed is a factor in well under 1 in 10 accidents, so a safety policy based on curbing speed is not going to stop most accidents. Bad junction design allied to poor driving causes many accidents. I trust the Swindon Conservatives will look at improving traffic flows and helping segregation at junctions to cut the risk of collisions.

The BBC this morning started to do the government’s bidding again by presenting the tax and spend position in the usual Labour government way. As we have been taught, the government’s spending totals are designed as a trap for the Conservatives. Indeed, that is probably their only purpose now, as they are works of fiction. If Conservatives say they will match the totals then we are told there is no scope for the tax cuts the public and the economy so clearly needs. If the front bench were to say it wanted to spend less than Labour, the government then chooses the most idiotic and inappropriate cuts in spending for the Opposition – ones which they would never adopt – and the BBC dutifully peddles these to the electorate.

The government wants us to believe that all the spending they are incurring is absolutely necessary. Indeed, listening to them you would think that practically all the money goes on the NHS and the schools. We rarely hear these days of the biggest block of spending, the massive benefits bills which Labour used to call the price of “economic failure” when it was in opposition. We are never told how much it costs to run the civil service and all the quangos, following a decade of huge increases in staff numbers to run even the lowliest government department. We will now be told that the current spending total is “eye wateringly” tight – it is after all a mere 2% over and above the rather lively inflation rate the government has generated. What would a housebuilder, an estate agent, a surveyor or a property business give for a guaranteed 2% real growth this year?

None of this guff from the government is true, and I trust most of the public has now seen through it. The only thing we can agree about is that there have been some very large increases in spending in the period 2001-2006, and the rate of increase in medium term plans is now lower. However, it is quite likely this year there will be large overruns, so we are not in practise keeping to the 2% growth targets. Northern Rock was an additional item which has still only partly gone through the central government books (Supplementary estimate £5.3 billion). The compensation package for the Income Tax increase needs to be added in (£2.7 billion so far) and anything from the 42 days and other packages that was not in the original figures. On honest accounting there must be an additional £10 billion or so this year to add on. I expect the governemnt to go on spending and borrowing like there’s no tomorrow, whatever the plans say.

The public is now far more sensible than their government. They know that all too much of the extra spending in the spendthrift years did not go to buy more teachers, nurses and doctors. It went on management consultants, spin doctors, administrators, pensions, pay awards, reorganisations and new quangos. It also went on keeping a large number of people out of work on benefit, whilst inviting in a lot of people from elsewhere to carry out the jobs existing residents were reluctant to do or did not have the skill to do. The public does not think in terms of medium term spending plans and guaranteed rates of growth in spending. They want better public services and lower taxes, and now know that the waste and unnecessary expenditure is so large that is possible.

The UK economy performs best when public spending grows more slowly than the economy as a whole. This method also gives the best long term rate of public spending growth, as it achieves better overall levels of growth. In the 1970s Labour tested to destruction the idea that the government could improve things by boosting public spending well above the growth rate generally. A trip to the IMF for a bail out, followed by a winter of discontent when the many public sector workers turned on the Trade Union government left us very weakened.

The first year and a half of Margaret Thatcher saw the spending growth continue, mainly owing to large public sector pay awards. The inherited inflation persisted, the private sector was squeezed, and the Conservatives plunged to third in the opinion polls, with many in the governing party wanting to change Leader. In 1981 the Prime Minister set a new course for public spending, keeping its growth below that of the economy as a whole. She ushered in a decade of good expansion with low inflation. Only the establishment’s stupid wish to join the Exchange rate Mechanism brought this to an end, when all three political parties united to get it comprehensively wrong. The ERM destroyed the growth path by forcing boom and bust money management on the authorities. When the pound was strong they were forced to print pounds to try to get its value down.When that caused an inflation they were forced to throttle the economy and to destroy pounds to try to get its value back up! The establishment was deaf to the few of us who pointed this out before we had to live through it.

After the ERM Conservative Chancellors again ushered in an era of low inflation and good growth by controlling public spending growth. Gordon Brown wisely took over these Conservative spending plans, and had a successful first three years on the back of them (apart from the tax grab on pension funds and his partial destruction of the Bank of England). Between them Lamont, Clarke and Brown Mark One built a strong position, with debt repayments and lower spending growth. It meant it took Brown five years to undo it all once he unleashed the forces of indiscriminate spending.

At the same time as he wasted too much public money, he started to reap the bitter harvest from his reforms of the Bank of England. They decided to follow boom/bust monetary growth as if we were still in the ERM. So we enjoyed a period of false prosperity based on too much credit, and are now experiencing a very nasty credit crunch.

The economic history of the last 30 years shows us that the main requirement from government to create the conditions for prosperity is to set a target for public spending growth lower than the forecast for economic growth overall, and to keep to it. I don’t mind how they sort out the politics of tax and spend to do so, but the need for such a change of policy is clear. Brown and Darling have said they are going to do that, but with falling growth and overspending, they are still a country mile away from achieving it.

The US authorities once again made the right decision to bail out Fannie and Freddie, their two crucial mortgage companies. They did need to offer more liquidity to prevent a further credit contraction and loss of confidence. In offering to put more money in by buying shares they also reassured investors that capital was available. If they have to do so they will reduce the proportion of the companies owned by existing shareholders, who will therefore be worse off when the markets and shares recover. Such an operation would make existing shareholders pay if the companies do need that extra equity, limiting the so called moral hazard of the bail out.

It is another contrast between the bodged, late and far more expensive bail out of Northern Rock conducted here, with the speedy and more effective reply of the US authorities. The purpose of this bail out is very simply to keep some new mortgage finance flowing to a hard pressed and illiquid housing market. In the UK the much dearer rescue of the Rock has led to a further substantial contraction in mortgage finance as the government runs down the mortgage portfolio of its own bank! The US housing market is already in very bad shape thanks to the general reduction in new credit, as US banks rein back in response to the squeeze following past excesses. The US authorities understand this and have come up with a package which makes more money available for people to buy homes.

The UK new housing market is also now shot to pieces by the squeeze, also following past excesses. So what do the UK authorities do? They spend far too much taxpayers money – and put too much at risk – by nationalising the most aggressive mortgage lender in the market, and then have to prevent it lending, achieving the opposite of what is needed. For this they are praised to the skies by Vince Cable and the Lib Dems. The power of their spin is such that usually sensible commentators think they “had to do it”. All other better options, put forward before the event, are ignored.

When the US economy recovers before the UK I do hope all the gulled will revisit this question of whether the Northern Rock model or the Fanny and Freddie/Bear Stearns model worked better when rescuing distressed institutions. I hope some will come to see that the Rock disaster combined all the worst features of regulatory mismanagement and government bungling – the inability to see the disaster coming, a failure to regulate excess credit beforehand, the wrong strategy before the run began when the authorities switched from too easy to too tough, the U turn on moral hazard and the offer of bail out, the dithering over a private sector solution, and then the final idiocy of nationalisation, business reduction and sackings.

The main result of the mismanagement of the UK mortgage market – where the handling of Northern Rock was the most important manifestation of a general incompetence – is the destruction of the new housebuilding industry. The run of lay offs, the cessation of work on many sites, and the plunging figures for new starts can be directly traced back to the way the authorities presided over boom to bust credit in the mortgage market. This was a problem made in Britain, not in the USA where they had their own version. The UK problems are more poignant for a government that was so out of touch it was urging the new homes industry to increase its build rate, unable to understand its own actions meant the build rate would halve or worse!

Some have blogged in to past pieces on my site urging some expansion of mortgage credit on both sides of the Atlantic to argue that the correction is what is needed, the losses serve the bankers and property people right, and a good recession in these areas will purge the excesses. My answer is simple – you are getting that anyway. The authorities have done quite enough on both sides of the Atlantic to so tighten credit that property prices are falling and will fall further. Mortgages are much scarcer than before, builders are losing their jobs – for the masochists among you who want more pain you will see plenty of it.

My advice to loosen conditions is based on wanting to limit the time of the downturn and to give people some hope of improvement in due course. For every “greedy” financier my critics may be cheering to see under pressure there will be several builders out of work. This sharp correction of prices and sharp reduction in the availability of new credit will not just hurt a few well paid people in the City that always have their critics. It is hurting many others, and will hurt many more, as the effects ripple out through estate agency, surveying, building, DIY, home furnishing and all the other trades dependent on a strong housing market.

Even the puritans thought there came a point where the punishment had purged the sin. Those who want the authorities to let more mortgage businesses go to wall are the advocates of deep recession. I want to start looking forward to recovery. There will be job losses and price falls enough for all save those who think all lending is an original sin that requires perpetual suffering.

The Church of England is making heavy weather of women bishops. Of course they had to approve women bishops. They made the crucial decision when they voted for women priests. It makes no sense to say that women can hold any pastoral position up to bishop, but to prevent them from being bishops.

Those who disagree with women bishops do so for two main reasons . They claim the Bible shows the apostolic succession was an all male affair, based on the fact that all twelve apostles were men. They go on to argue that it is reasonable that some male priests insist on not working for women bosses in view of this.

It is true all 12 apostles were men, at a time when most of the jobs outside the house were handled by men as part of the then social practise. To many earlier societies a more active role for women outside the home would have seemed strange. The world for women has changed dramatically in recent decades in a way which makes this all seem very dated. It is also true that in the Bible women were very involved in the creation of the new movement and in the formation of the early Church. Mary the mother of Jesus plays a central role, as do the women followers who are a feature of the gospels. Jesus never taught that women had to be left out of the great movement he initiated.

It is strange for Anglican clergymen to say they will not work for women bishops, when the Church voted for women priests, and when already many male clergy do work for female bosses in senior roles below the rank of bishop. In practise all current Anglican priests have accepted the presence of women in the priesthood – preventing them from getting the top jobs is a backward looking hangover from their defeat on the central issue.

In my view it would be quite wrong for the Church to carry on living in the nineteenth century as if the emancipation of women from the home had not taken place. The Anglican Church needs all the support and talent it can muster. Cutting itself off from half the human race in its search for suitable people for its ministry would be odd indeed.

Will this split the Church? It’s one of many issues which could lead to further rows and some departing. The Reformation is not yet over – there are still important differences between the Anglican settlement and the Roman one. A minority of the dissenters may prefer the authority of the “Bishop of Rome”. Catholics will I am sure will welcome them.

The English Democrats almost lost lost their deposit in a b y election with the two main federalist parties not fielding candidates.You would have thought if their campaign was popular they would have done better here in these unusual conditions than they did.The argument remains true, that trying to make Eurosceptic points by splitting the Eurosceptic vote in other situations is self defeating.
It is also interesting that in a by election where the outcome would not change the government and where two of the three main parties withdrew, the cause of an English Parliament was so unpopular.
It illustrates that people do not have an appetite for more politicians and more bureaucrats at their expense, when taxes are so high and when English votes for English issues, the Conservative position, can deal with the worst of injustices in the current lop sided devolution.
I suggest to the English Democrats that they learn from this bad rejection in a by election they could have done well in if their cause did resonate more, and decide not to run candidates against Conservatives likely to win in a General Election, especially in very marginal seats. Other wise they just help Labour more, the architects of unfair devolution and the betrayers of the UK through Nice, Amsterdam, Lisbon, and the cancelled referendum.
It is silly when we want so many of the same things there are so many scraps. The Eurosceptics will win when enough of us are united behind a strategy for getting powers back from Brussels, and having a different relationship with the EU that allows us to trade, be friends and have shared rules where it suits the UK and the other members.

The blog will be down for most of the day tomorrow (Saturday) the 12th July due to essential maintenance. Regular service should be back to normal by the beginning of the week.

Today’s comments will be moderated shortly.

What is it about the English Democrats that they revel in almost losing their deposit(amended text) in a by election where the two main federalist parties withdrew? Why on earth did they stand against a Eurosceptic Conservative, David Davis, in the by-election, only to be hammered again?

Don’t they see that it gives our joint enemies, the Eurofederalists, more ammunition when the English Democrats stand on a staunchly Eurosceptic ticket and get so little support? The BBC were predictably gleeful about telling us of their defeat, singled out from all the other losers in the by election.

Maybe they want to damage the Eurosceptic cause. They cannot seriously believe that David Davis is a fan of overweaning Brussels government, any more than of overweaning Whitehall government. He, like the Conservative Party, voted No to Nice, No to Amsterdam and No to Lisbon. Assuming they are intelligent people one has to conclude they like losing and harming the cause they claim to support. It’s just a good job the by election was not a close race, where diverting votes from a Euroscpetic Conservative could once again have given a seat to the Federalists.

I went to visit the University of Reading yesterday to see and hear their presentation on the development plans for new student facilities for the years ahead. It made me ask myself: what is a university for? How can we improve the student experience, to broaden it into a deeper educational experience?

In 1994 I asked these questions of the universities in Wales when meeting their Vice Chancellors. I concluded my speech by saying:

“I want the university to coruscate enlightenment, to put into the intellectual firmament a constellation of talents, ideas and educated people. I do not want the universities to be the supplicants, the tatterdemalions of the educational world, wearing themselves out by arguments over money and purpose. Universities are not just part of the process of modernising (the UK) and raising the standards of the workforce. They are not just cogs in a productive machine, required to turn a little faster and for more people. They should keep many flames alive to the spirit of enquiry, the tradition of tolerance and the pursuit of excellence.

” Let serendipity thrive. Let the universities turn their minds to the big issues of our generation. Let them rebuild their doors and widen their horizons. It would be good to welcome them back to a central place in our nation’s story”.

Today I still hold such a view. A university should, as Disraeli said, be a place of light, of liberty, of learning.

At Reading I was confronted by the mundane but central issue of how do and how should students live? Should they be offered campus residences rather than having to go out to rented accommodation in the town? If they stay on campus, could there be lively debate and cultural enterprise in the evenings, so the university stays alive long after the classes have ended and the lecturers have returned to their suburban villas? Does a modern student really want to be spending time slaving in a kitchen over a hot microwave with a tin opener? Is the limit of the student horizon a few pints of beer or an evening watching soaps on the TV?

I strongly support the Reading wish to have more students living on campus. The University is also going to provide more restaurants, cafes and “grazing places” so students can take advantage of prepared food and meals, and enjoy each other’s company. Part of the “university experience” should be the exposure to the different views and approaches of fellow students – something which an approximation to dining in hall with random seating based on the time you turn up achieves naturally.

A big part of student life is what young people do when they are not studying, when away from home for the first time in their lives. In good universities there is a student hunger to try out the worlds of drama, music, debate, learning, sport and so many others through the work of clubs, societies and evening events. In a dull university students return to digs or flats away from the actron after compulsory classes have ended in the afternoon, to be locked into conventional domesticity alone or with contact with just a few student friends.

I welcome Reading’s wish to enrich and enlarge the student experience by providing the architectural backdrop to a particpating campus that can extend and stretch students in the evenings, as well as during the day.

My specific local comments in response to the consultation are twofold. Firstly, there must be a rule that there should be enough car parking places on campus for all students and faculty allowed to bring cars, as the local roads cannot take displaced university vehicles for long term parking.

Secondly, the “work in progress” of the architects has left the new outlines of the accomodation blocks with too great a mass and the wrong surface treatments. The proposals are halfway between modern building and traditional facades to match the local vernacular. The half way house will suit few. As the campus buildings look inwards and are well screened from the local housing by tree belts. The architect could use modern finishes. If the aim is to mirror the brick and tile local surroundings, then it has to look as if they are brick and tile structures. Do they need to be concrete pile driven, with all the extra weight that entails?

I was pleased to hear the new buildings will be more eco friendly, capturing energy from the sun. It is a good opportunity to be innovative in water handling, waste management, insulation and power generation.

The university’s plans are to allow every first year student a residential place on campus. That seems to me to be a good first step. The campus would include a number of different cafes and restaurants, so the student could be spared the visit to the communal kitchen close to his or her room.

I wish the university well, and was delighted to hear it can raise the necessary mortgage even in current conditions.

The Housing Minister struggled on the radio this morning. Asked if it had been wrong to insist on high density development of flats in City centres, now so many are empty or experiencing large price falls, she ducked. Asked if she wanted house prices to fall further to make them more affordable, she said she wanted stability but had no idea on how to achieve it. Asked if she would revise the 3 million new homes target and the 240,000 annual build rate in the light of a halving in housing activity, she implied she would not. There is an air of unreality about a government setting a target double the likely rate and repeating they would like to live in a world where such a large number was produced!

She remained wedded to the first foolish version of the Barker’s analysis, that house prices are the result of supply and demand for accommodation based on a crude analysis of the number of new households formed versus the number of new houses built. On this basis she should now be saying we are producing far too many homes, which is why the price is falling. She should be welcoming the massive cutbacks in the housebuilding industry to get it into balance. It wasn’t true on the way up that prices were rising primarily because too few homes were being built, and it’s not true on the way down that prices are falling mainly because too many houses are being built.

The government’s failure to understand the role of mortgage finance and the importance of the market in second hand homes in the overall housing market has led to a list of idiotic policies which are trashing the housing market in the UK. They need to revisit their analysis and understand that when credit dries up property values fall. People are unable to form as many new households as they would like, children stay living at home for longer. Relatives find temporary accommodation with relatives. More people live in rented accommodation awaiting better financial times. The policy mistakes include:

1. Ordering high density flats to be built when these are not popular with many buyers, and are the first type of property for mortgage companies to drop when times get tougher.
2. Believing that a modest increase in the supply of homes will counteract a raging credit bubble, brought about by following a lax monetary policy and through misdirected banking regulation.
3. Allowing a run to develop on the most aggressive mortgage lender, and then nationalising it in a way which prevents it making new advances.
4. Continuing during the building slump to demand more high density developments.
5. Presiding over a Bank of England policy which thinks it needs to fight an inflation which is historic and will subside, when they should be fighting the slowdown and recession now hitting lead sectors.
6. Failing to keep money markets liquid enough to allow a sensible supply of mortgage credit.
7. Persevering with ludicrous targets for the next couple of years instead of admitting there will be far fewer homes produced.
8. Continuing to press more planning approvals through on appeal, further depressing the price of building land at a time when building companies are in difficult negotiations with bank managers and shareholders over the state of their balance sheets and the extent of the damage to value of the land they bought at higher prices in different times.

In sum, Ms Flint showed an ignorance of how the housing market works, reiterating a failed interpretation of how house prices are formed. She failed to offer any meaningful reassurance to builders, had nothing to say to the thousands now being laid off in the building industry, and implied that persevering with targets miles above reality was the most comfortable position she could think of adopting.

Today the Monetary Policy Committee of the Bank of England meets. It is widely predicted they will do nothing – other than draw their salaries and have an interesting discussion. Aren’t they aware that the building industry is in meltdown? Do they realise housebuilders are having to discuss with their banks how to finance and refinance their land banks in the new circumstances they find themselves against a very gloomy background for cashflow and profit. How much more damage does the Bank want to do to the economy before it offers some relief in the form of lower rates? And how much longer before the monetary authorities led by the Chancellor put enough money into markets to provide some hope of a more sensible level of business, before major capacity is lost from the building industry and many more are on the dole?