Month: September 2008

Today is the day the media have been waiting for, the day Gordon will roll back fuel poverty. The studios have been booked, the front pages of friendly publications have been held. We await the “Warm Front”, the central heating offensive, the arrival of tank lagging and the time controlled on off switch. Elderly millionaires can now join less well off people over 70 in demanding free insulation.

I am amongst the first to agree that it is a nightmare for some people to pay the heating bill at current prices. Similarly they find the Council Tax bill, the rent or mortgage bill and the food bill a nightmare as well. Their problem is not fuel poverty, but poverty. There are still too many people in the UK with low incomes that do not allow them an easy life when it comes to balancing the bills for the necessities of modern living. All sensible politicians want to do more to tackle this.

I am also amongst the first to agree that anything we can do to help people cut their oil, gas and electricity bills the better. I have been leading a lonely campaign in the Commons – on those rare days when it is allowed to meet – to get the government to take its own advice. Where is the lagging, the draught exclusion, the timed controls, the willingness to switch off the lights when leaving the room, the ability to turn off the heating when an area is not in use in all those government offices? The government is the single biggest user of heat and light in the country. That would then save us some tax as well as helping the environment.

Fuel poverty is a strange boomerang designed by this government, probably to hurt the Conservatives, only to discover it has hurt them more. The idea is that anyone paying more than 10% of their income on fuel is fuel poor. Apparently this is independent of how much fuel they use or the price they have to pay. So someone who has a reasonable income can become fuel poor by being a bad manager of their home. Leave the lights on all night and keep the backdoor open with the heating on and you can become part of Gordon’s nightmare statistics quite quickly. Many more have become fuel poor because the oil, gas and electricity prices have shot up. As Labour is pledged to cut fuel poverty, they have to do something when fuel prices rise, only to discover they cannot do enough to prevent fuel poverty increasing.

On the basis that you are something poor if you have to spend more than 10% of your income on it, practically every one in our country is Tax poor, and most are also housing poor. Indeed, this government has taken a delight in plunging more and more people into Tax poverty, by hiking taxes and imposing new ones. It has also plunged more people deep into housing poverty, by allowing huge price rises in the housing market thanks to to its loose monetary policy and low interest rates in recent years.

I wonder if the government has understood the irony that the delay in announcing measures to tackle the rising energy bills faced by householders means the launch now takes place against the backdrop of a large fall in the price of oil? In the last two months the oil price has fallen by a third. It will take time for this to work through the system, but it does take some of the pressure off the related prices of heating oil, gas and coal.

Instead of dealing with “fuel” poverty the governemnt should be tackling poverty. Unfortunately, we are likely to see further rises in unemployment in the months ahead, when the best way of tackling poverty is to encourage more jobs.

At least the government is refusing so far to impose a windfall tax on the energy companies. If they are making excess profits we need to strengthen competition. One off levies would not work – the companies would try to pass them on to the long suffeirng customer. It would also make it more difficult to persuade them to build the new capacity this country so badly needs to keep the lights on.

Yesterday I remarked how negative and defensive Obama sounded in his latest emails from the campaign trail. Then he stumbled badly. The video of him talking about lipstick and the pig does not make good viewing for his supporters. Let us assume he did not mean to attack his new opponent but her policies, it was still a very ill judged remark and was bound to remind the wider audience that the Republicans had put a woman on their ticket. Meanwhile it reminded the Democrats that he had sidelined Hilary, despite her popularity with half their party.

Yes, people want change Mr Obama. The issue is what change? How would it be brought about? If Mrs Palin wins and is “let loose” on Washington it could be just what is needed. If Mr Mc Cain is up for curbing the voracious appetite of big government to tax, spend and regulate, that would be news. The problem for Obama is his money raisers and advisers are telling him to run negative ads and copy on the Republicans. This just means he loses what made him different from the rest. He loses the image of hope and optimism, and looks like other spin age politicians, raising too much money to pander to what the polls say.

Many people say they wish their political parties would work together more often, try to find a consensus, stop arguing so much. Modern political parties are likely to take this at face value, and find more agreements than are desirable. It seems to be happening at the moment in the USA.

Both Presidential candidates agree that the State should bail out Fannie and Freddie. Both agree that the US should run down its troop levels in Iraq as “victory” allows. Both want to increase troop levels in Afghanistan. Now Mr Bush himself is joing the consensus, announcing troop withdrawals from Iraq, ordering more troops in to Afghanistan and bailing out Fannie and Freddie.

Obama calls for change. Mc Cain announces he and Palin are the change. Mc Cain urges tax cuts, so Obama comes up with the need for some tax cuts. Both recommend substantial borrowing by the state.

When the political parties agree it usually means you should look out for your wallet. It is usually agreement based on ever bigger and dearer government. Sometimes the projects – nationalisation, or the more active engagement in a particular war – are destined to have an unhappy end, but any critic is sidelined because the great political machines are behind them.

A lively democracy needs choices. Every major policy by an Administration needs challenge from a vigorous oppositon, to make sure it is tried and tested properly. In the UK the outbreak of consensus has often done huge damage to the public interest. The public is deprived of choice, government is not put on its mettle by having to answer an alternative approach and the public suffers from the smugness and folly of the monopolist down the ages.

Remember the Exchange rate Mechanism? This disastrous economic policy was the only economic policy of the Conservatives that came fully recommended and supported by Labour.
The 1990s in the UK saw the advent of what I call Blajorism – John Major and Tony Blair copied each other to a great extent, and both were fixated by how it appeared in the press rather than by will it work and will it help people?

The US had better be careful. Too much consensus makes the politicians lazy, and may not yield good results for the country.
It is interesting to see how Mrs Palin has changed the race. The latest communications from Mr Obama sound negative and desperate – just like so many other politicians.

For once I agree entirely with the scientists. You will still be able to read this after 8.30 this morning. The world will not have fallen down a human made black hole – as if mankind had such power!
The more interesting question is what benefit in our understanding of the universe will we be getting for the huge outlays of money and time on the particle railway under the Alps? It looks like a train set from an earlier age, which just took a long time to build. Let’s hope it lives up to the billing.

Last night the FT teamed up with the London Stock Exchange to discuss whether we need more, less or different regulation for financial markets. John Kay and Martin Wolf led the evening with their talks. Both were suprisingly cautious about what you can expect regulators to achieve in the fast moving global world of finance. Both were pessimistic, expecting we will end up with more regulation of a kind which will not make us safer in future.

John Kay reminded us that 236 people were employed in the USA to regulate Fannie Mae and Freddie Mac. Were their jobs really necessary? They were slow to realise the seriousness of the predicament these two large companies got into, and were unable to do anything against the lobbying power of the mortgage companies when they did think there was room for improvement. Despite the Regulators the companies got into financial trouble which required a huge Federal bail out.

Northern Rock was a heavily regulated business in the UK. Its business plan and accounts were permitted by the FSA. It took its regulatory duties very seriously. No-one suggests it bent the rules or tried to misinform the Regulator. Indeed, in the last Accounts before the crash the Dirctors were busily planning how to reduce the amount of capital they held for a given level of business in response to the relaxation of capital standards being pushed through by the world Regulators in Basel II! I was told by the Chancellor I was wrong to propose getting rid of the mortgage regulations the present UK government brought in, as that would be dangerous! In all the years when we did not have such specific mortgage regulation we had no run on a mortgage bank. Its enactment and enforcement did not save Northern, or prevent Northern and others lending money to people against high house prices on high multiples of earnings. So what was it for?

The Northern Rock saga should remind us that sometimes regulations preversely make things worse rather than better. If there had been no capital adequacy requirements laid down, Northern’s Directors may have been more cautious. Because standards are laid down, Directors are tempted to say “Let’s deliver the required standard” assuming that will be prudent.

John Kay gave us a more modest list of things regulators could do. They could concentrate on policing activities to try to prevent or intercept criminal activity within financial businesses – attempts to steal client money in one way or another. They could ensure a comprehensive deposit protection scheme. The Central Bank should concentrate on providing cash to the system – where it has a monopoly – against reasonable security from the banks. The rest should be left to the market.

I found his approach convincing. I liked its modesty of aim, and the practicality of the individual recommendations. If Northern depositors had known they would get their money back under a protection scheme there might not have been such a run on the bank. If Northern had been able to get more cash from the Bank of England against proper security to protect taxpayers, the bank would have found it easier to pay off those depositors who did want to get out.

Those who want more aggressive regulation have to answer some difficult questions. Let us take this area of mortgage regulation. What would the government have done if their new mortgage regulator had had real teeth in the boom phase? Would they have watched whilst person after person was told they could not borrow money because they were not rich enough? Would they have been happy to see a queue of disappointed mortgage applicants told they could not get a mortgage against the stated price of the house, but only against say 80% of the stated value? Yet that is the type of action the Mortgage Regulators would have to have taken a couple of years ago to prevent the negative equity and the repossessions of today. The regulator would have to be both wiser about the state of the cycle and more powerful than the banks making the loans. He or she would also need protection against judicial review and legal challenge, as they would effectively be running the mortgage banks for them.They would be preventing banks from lending money when they wanted to on the terms they wished to offer.

It simply is not practical in a fast moving global market to find regulators who are that good and to allow them to make all those calls. The 236 regulators of Fannie and Freddie and the Regulators of Northern could not have prevented the respective collapses. Employing more of them, or tightening the rules, will not prevent a future problem. All the time we have boom and bust Central banking and boom and bust government spending and deficits, there will cycles that are beyond the powers of the regulators to fix. So let’s this time stop the humbug about how we “have learned the lessons” and will put in “regulation to fix it”. As the two commentators implied last night, the authorities are unlikely to have learned the lessons. Indeed, they are sending exactly the opposite signal. The message going out on both sides of the Atlantic is that private sector banks can make money in good times by lending lots, and can let the public sector pick up the bills when things go wrong in the bad times.

I heard Giscard give a clever speech this morning to the GlobalVision/Telegraph conference. Apparently offering the UK special status, the true intent was to get rid of the UK’s veto on Treaty changes and to drive ahead with integration of defence and foreign policy before the Conservatives get into office.

When you have a veto you do not have to put up with anything you do not like. If you depend on opt outs you depend on the goodwill of other states to let you have them. I am just glad to hear EU professionals posturing ahead of a possible change of government in the UK – they seem to realise the easy times of pushing the Uk into any federal scheme they like will be over.

Today the Guardian runs a most important interview with George Osborne. In it it he makes some crucial points.

1. The government has borrowed far too much off balance sheet through Private Finance Initiatives, Public/private Partnerships and similar deals. These need to be evaluated, and their true liabilities and costs put into the public accounts.

2. Green taxes have been given a bad name by Labour, and are now seen as Stealth taxes by the public. The public does not want more of them.

3. The current large deficit will cast a long shadow over a future government. It will place such a government in a straitjacket.

These important statements imply that a future Conservative government cannot promise to match any spending plans for the next decade that Labour likes to dream up. Whilst no Conservative government would want to sack teachers, nurses or doctors, it will have to rein in the wasteful and undesirable spending which now abounds.
It also implies that tax cuts will not be funded from unpopular tax rises, but from the proceeds of growth as the economy starts to recover. Recovery will be strengthened and speeded if government gets a proper grip on spending.