Month: August 2008

Oil wars and the way to respond to Russia

August 13, 2008 13 Comments

When the history of the last few years comes to be written it will be likely that historians see the last decade as a decade of wars about oil. The US and UK interventions in Iraq and Afghanistan were not just a response to terrorism. They were also about creating democratic regimes governing or close to the oil fields that would be sympathetic to western needs. The West has been less keen to undertake military adventures for regime change in tyrannies without proximity to oil. The US sees the Middle East as a crucial area to influence because it is now a heavy importer of energy.

Putin’s latest assertions of Russian power has only been possible thanks to oil and gas. The giddy rises in the oil price in recent years has filled the Russian coffers and helped pay for the renewed military machine he used in Georgia. His whole political strategy geared to increasing Russian influence and exerting control over territories of the former Soviet Union clustered around Russia is based on the control and exploitation of oil and gas reserves. One of Georgia’s offences is the pipeline that runs across its soil which Russia does not directly control.

The Western response to Putin’s rise has been slow and contradictory. On the one hand the West has decided to continue to treat Russia as a normal democratic state, trying to keep it in the framework of diplomacy through the UN, the G8 and other international fora. On the other hand the West understandably excludes it from NATO, occasionally uses tougher language to condemn Russian actions and speeches, and offers friendship and military support to several of the countries Russia would like within its sphere of influence.

This ambiguity is all too clear once faced with the challenge of the Russian military action within the independent state of Georgia. Russia used the argument familiar to students of 1930s Germany that it needed to intervene to assist the Russian minority within another state. The West rejects this argument on the grounds that one state should not violate the territory and kill the citizens of another state. This case would be stronger if the West had not invaded Iraq and used as one of its arguments to need to help the oppressed minorities under Sadam’s regime. This is not an issue which is going to be resolved by the current welcome truce, nor by further debate about the rights of minorities within states and the basis on which international forces can intervene if ever. This is about the raw balance of power between Russia and the West.

The West needs to play this long as Russia is playing it long. The adventure in Georgia was just to test how far the strengthened Russia can now go. It is not the end of the process of Russia building her strength and expanding her influence and territory. The West needs to take much more action to tackle the cause of its own weakness, its dependence on oil and gas imported from volatile parts of the world or from Russia herself.

The US. the UK and the other major European states need to be more energetic in encouraging the exploitation of more gas, oil and coal from within their own boundaries. They need to be install more hydro power, sensible renewables, nuclear – whatever it takes – to cut dependence on imported oil and gas. World markets may give us a breathing space from ever upwardsprpice movements, and may dent Russian revenues for a bit, but price rises can and will resume after the slowdown unless the West does something much more positive to cut its needs for imports. I have set out before what the UK government could do – why the delay, when Georgia has made the point again that there is a strategic need to do this as well as an economic one.

The Bank has lost the last battle – it needs to concentrate on the next one

August 13, 2008 5 Comments

Yesterday’s inflation figures make grim reading – even grimmer than many forecasters were expecting. We may have a few months more of dreadful inflation figures.

Readers of this blog will not be surprised. They will also know that I want the Bank and the government to start tackling slowdown and property crash, recognising that next year inflation will tumble anyway. They need to accept that they lost the battle against inflation for this year during the heayd days of their mistakes in 2005-6, apologise and try and get the next move right.

Fortunately, as predicted, commodity prices and energy prices have started to fall. We are already seeing sharp declines from the unacceptably high peaks on the forecourts for petrol and diesel. Price competition is intense, as supermarkets and large petrol retailers compete for the diminishing spending power of the customers. There could be further declines as the world economy slows and weakens under the impact of the Credit Crunch.

The masochists at the Bank of England want to make the crash worse by keeping rates high and even threatening higher rates. The government is making the crunch worse by its own profilgacy, pre-empting cash needed elsewhere and spending some of it on propping up a nationalised mortgage bank that is then not allowed to make new advances! Maybe the Bank does need to threaten higher interest artes to try to discipline the government. After all, the government has powered some of the borrowing excess with its off balance sheet adventures, its PFIs, PPPs and nationalised companies.

The dollar is now strengthening as the US current account improves and as US companies become more competitive. The European Central Bank will continue to keep rates too high for too long because it also made inflation mistakes in the miiddle of this decade and is sore about the current consequences.At some point they will have to cut rates to ease the pressures, and the Euro will cease to be so strong.

Governments and Central Banks have made a right mess of the last few years. They were too relaxed in the good times, misunderstanding just how much credit they had released and how long it took for that to cause inflaiton. Now they are too relaxed abnout the bad times, and seem unable to understand how deflationary the Credit Crunch will prove to be.

An inflammatory letter reissued from June

August 13, 2008 1 Comment

In June I wrote about inflation. Today the same is true, but we now know that commodity prices are falling as suggested in the draft letter below:

“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”

Kennet Valley Park development proposals

August 12, 2008 7 Comments

Many of my constituents have written to me expressing their opposition to the inclusion of Kennet Valley Park as a Strategic Development Area in the Government’s South East Plan. I have today written to the Government Office of the South East setting out my opposition to any proposals to build an estimated 7,500 homes in this area, and have highlighted my unease over the potential flood risk from building on a functional floodplain based on the Environment Agency’s interpretation of Planning Policy 25. I have also outlined my concerns about the serious problems such development would create for the road and rail network, along with other types of infrastructure. I have told them that this Wildlife Heritage Site, which contains designated wildlife areas of locally and internationally recognised importance, should be protected and an investigation carried out to determine whether there has been any contamination of the land, as was recently reported in the Newbury Weekly News.

I would urge all constituents concerned about the inclusion of Kennet Valley in the South East Plan to lobby the Government Office of the South East by writing to: The R. S. S. Team, GOSE, 1 Wilnut Tree Close, Guildford, Surrey GU1 4GA. The reference numbers H1B Greater Reading and H1B West Berkshire should be included in any correspondence.

Half empty stadia at the Olympics

August 12, 2008 10 Comments

It seems a tragedy that after all the hard work and effort many athletes have put in around the world we receive reports today that a country of 1200 million people cannot fill the seats for the opening rounds of competition between elite performers who are established as the best in the world. The authorities are bussing in staff from the games to make it look better, but it does lead one to ask what has gone wrong if there are insufficient people to attend on a normal basis. You would have thought that if it were your country hosting the event, and you had the chance to see the greatest and fastest in person at a stadium near you, you would clamouring for tickets.

I must confess in the last few days I have wanted to watch a bit of the Test Match with England’s new Captain, had to get another couple of blog pieces written, needed to pursue a difficult planning matter in the constituency including site visits, decided to catch up on some doorstep conversations, and felt a pressing need to start cleaning my garage out. I ask myself why haven’t I been glued to the TV screen to watch for the latest from Beijing? As I have talked to friends and constituents I have been surprised to find that some of them too have found other pressing engagements, even in this bleak cold and wet summer. I think our reservations at such a distance from Beijing are subliminal and more understandable. I do not think we are getting a fair picture of China from the huge team of BBCcheer leaders for the country, and many of us remain wary of the political use of the games to promote the host nation.

The other day when I was driving to an appointment I heard a BBC journalist offer us a radio essay on what restrictions the media are encountering in modern China. He told us he had been there – at our expense – for 23 days prior to the games. His radio portrait was littered with happy children in the streets, tree lined avenues adffording shade from the sun, the safety of their local communities, and the freer atmosphere toward criticism and alternative views. There was a not a line of criticism, no penetrating comment on the ostensible subject matter of the talk, no detail of what he could and could not say and do as a journalist from the West, and no comment on the censorship and human rights issues that are still so important. It makes me feel uneasy.

The UK government and the BBC have made the games an entertainment for the army of the elite that we are paying to send there. They are in danger of driving a wedge between China, the games and the rest of us. Let us hope some British stars emerge that we all support and want to watch. Well done to our competitors so far. I admire what they are doing, and wish them every success. I would like to see them succeed, but found the opening ceremony with its symbolism of powerful China too much to take. It is just such a pity that so much politics intrudes into the modern Olympics.

Wokingham needs a Home Information Pack holiday says John Redwood

August 11, 2008 3 Comments

As damaging uncertainty continues over whether or not the Government will introduce a stamp duty suspension or deferment scheme, John Redwood today called on Gordon Brown to use government powers to suspend Home Information Packs (HIPs) to help boost the beleaguered housing market.

Twelve months on from their introduction, there is growing evidence that HIPs deter speculative sellers, increase transaction costs, discourage sellers from changing estate agent and reduce the number of housing transactions – all compounding the economic downturn.

Ministers have powers to introduce a HIPs holiday now. When the Government pushed the Home Information Pack laws through Parliament in 2004, it slipped in a last minute concession to allow a government to suspend any or all of the HIP laws. Parliament does not need to be sitting for such a power to be used.

Five ways HIPs are harming the housing market:

1. HIPs discourage speculative sellers from putting their homes on the market and act as a barrier to entry; this restricts housing supply and so reduces the number of net housing transactions.

2. By duplicating the need for searches and not providing reliable information, HIPs increase transaction costs, increasing the net cost of moving home.

3. HIPs reduce market responsiveness, by discouraging people from changing estate agent if their house does not sell – as they may be asked to buy a new HIP.

4. The searches in HIPs go ‘stale’ if a house is left unsold for too long, increasing transaction costs in a slow market, and acting as a further deterrent to would-be sellers.

5. If the seller has opted for a so-called ‘free HIP’ – a deferred payment option – they will be hit with a fee if they want to change estate agent, on top of the cost of any new HIP with their new agent.

The Government has ignored warnings of harm to the economy from HIPS. Research by independent experts, Oxford Economic Forecasting, warned back in 2006 that HIPs would deter sellers and curtail the number of housing transactions by between 10% – 25%. In turn, this would cut consumer spending, reduce labour mobility and increase the medium term level of unemployment. Ministers ignored these warnings.

The Government claims that HIPs are necessary to meet an EU Directive which requires Energy Performance Certificates (EPCs). Yet in Northern Ireland since the start of July 2008, such Certificates have quietly been introduced for home sales without HIPs. Whitehall’s own Better Regulation Commission has slammed the UK Government for “gold plating” the EU Directive on EPCs, and imposing “additional administrative burdens [of HIPs] without adequate justification”.

Speaking about the need for a HIPs holiday, John Redwood said: “I believe that urgent action is needed to kick start the housing market in Wokingham. The Labour Government is dithering – and their spin and speculation over stamp duty is further undermining the market by making buyers wait and see.

“Before Home Information Packs were introduced, Labour Ministers ignored warnings from experts and industry that this new red tape would harm the housing market and the economy. These warnings are coming true, but Ministers are more interesting in saving face than saving homebuyers money.

“Gordon Brown only wants to talk about housing to create a distraction from Labour leadership speculation. If he genuinely wanted to help, he would use his powers to suspend Home Information Packs straight away. A future Conservative Government will scrap this unnecessary red tape completely, but a suspension now will deliver those benefits sooner rather than later.”

Recovering the EU economies – a modest proposal

August 11, 2008 14 Comments

All the main EU economies are slowing down, and some are already well into property collapses and Credit crunch. Whilst the UK is the worst placed of the majors thanks to heavy government indebtedness as well as private sector borrowing levels, they all need some relief from rising costs and falling demand.

The EU could help. I offer this challenge to it. It should, for the next two years, agree to no more legislation of any kind which imposes more costs and burdens on us. It should give the committees and officials drafting it all a couple of years off, and not replace them as and when they retire or leave for other reasons.

The businesses of Europe would be mightily relieved if they no longer had to keep up with the torrent of legislation coming from Brussels, and could concentrate on more important things to combat the Credit Crunch.

Water prices – a way to get them down

August 11, 2008 8 Comments

Listening to the water industry proposals for 3% price increases each year above inflation (that would mean a 7% water price increase this year) made me think we were living in the Soviet Union circa 1960 under a system of state planning.

The rate of price increase is unacceptable and not necessary. Water is a very abundant resource, especially in a summer like the present cold wet one.If we introduced full competition, including the right to use the existing pipes as a common carriage system, the alleged shortage of supply and the ever rising prices would vanish.

What has the government to lose? Why doesn’t it do this? To those who say it is a natural monopoly I say then remvoing the legal and regulatory parts of the monopoly will make no difference and could not possibly do any damage. I also say they are wrong. Water is no more a monopoly than the supply of oil, and has the advantage that you find it everywhere, unlike hydrocarbons.

If we allowed others to help collect it and clean it we would have lower prices and more of it. Let’s just do it.

Open Europe understates the true numbers involved in EU legislation.

August 11, 2008 5 Comments

Today we learn from Open Europe of the 175,000 people involved in forming and enforcing EU legislation – far more than the EU normally puts out in its propoganda. The BBC did its best to discredit this low figure on the Today programme by refusing to understand how it was arrived at and trying to sugest wrongly it includes all the private sector lobbyists and business people who have to waste their time responding. BBC Journalists should try reading the document and not have to spend the whole interview establishing simple facts. They should have debated the wisdom and suitability of so many people involved in all this rule making.

The facts are that 175,000 people are wholly or partially empoyed on EU bodies involved in developing and enforcing EU rules. We pay as taxpayers for their salaries and expenses. To give the full picture of the costs of this huge bureaucracy we should add to that

a) The costs of all the officials in Member States governments working in their own countries on forming positons, negotiaiting and enforcing – that would be a mutliple of the 175,000 and is yet another direct cost to the taxpayer

b) the costs on all the businesses who then have to respond to and conform with the rules – a further multiple of the 175,000 which we pay for in the prices of goods and services

c) the private sectors costs of lobbyists, lawyers, consultants to try to see off inappropriate rules and to respond to the ones that are passed.

New Bill of Rights or Statute of Repeals?

August 10, 2008 21 Comments

Today the BBC kite flies a new “Bill of Rights” to reassure us that we are still a free country. The government’s spin masters must be desperate if this idea comes from them. Maybe at last they have realised that people are fed up with the myriad petty ways our liberty has been eroded by this government in the name of fighting terrorism or reinforcing the forces of law and order.

There is a much easier way to reassert our liberties than drafting a new “Bill of Rights”. Enforcing the old one would be a good start. Getting powers back from Brussels would help, as so many of the unhelpful interventions in our life from Home Information Packs to rubbish bin surveillance have a strong European component which this government has allowed to creep up on us. Abolishing unelected and unloved English regional government would get a lot of meddlers off our backs. Giving us back habeas corpus and more jury trials would be good. Reversing some of the idiocy perpetrated in the name of health and safety would make life easier and no less safe.

I flew into Southampton airport on Friday from a distant part of our lovely country. There were 14 of us on the small plane. We had to sit and wait on the tarmac whilst one young man came out to place a couple of desultory cones near the wing of the aircraft, and for a young woman to bring a chain on a cart and solemnly extend some of this chain underneath the trailing edge of the wing before we could leave the plane. The pilot told me this safety precaution was not needed at any of the other airports where he landed. None of us were likely to want to walk into the propeller which was clearly visible above us, and the pilot could have mentioned it if the authorities thought planes these days are full of people absent minded or perverse enough to walk into hard metal parts of an aircraft they have just flown on.

This is one tiny example of how over the top some of the things have become. People in many jobs are scared of the system. It makes them behave collectively in a way they would not dream of behaving at home. I doubt the person who demanded the chain near the aircraft insists in extending a chain around his car when parking at home to make sure people do not walk into the wing mirrors, which would be a more likely occurrence than someone hitting the propellers.

I am all for high standards of health and safety at work. I do think a safety culture, especially in companies handling dangerous equipment, chemicals and materials, is crucial. Going over the top and inventing too many petty rules and requirements can annoy people, and it can also distract people from more serious safety threats that may not have been captured by the Safety boffins.

I think we need a Statute of repeals more than a new Bill of Rights. We need to repeal many of the silly rules and regulations that do not make us safe but make us cross. I would welcome your suggestions for the silliest rules we need to abolish in the first Statute of Repeals. We need to make them an annual event to get to grips with the stultifying bureaucracy we now experience daily.