Month: March 2009

The missing Chancellor

March 18, 2009 19 Comments

Last week the Opposition wanted to use one of their days to choose the business of the House to have a debate on the economy. They were told the Chancellor was not available.

They agreed to debate something else, and to debate the economy today instead. The Chancellor I hear still refuses to come.

Meanwhile, today is the chosen day to feed to the media the dreadful news of the Staffordshire NHS.

If the government is really proud of “doing what it takes” to tackle the economic crisis why will it not do what it takes to put the message across in the Commons? And why is it so reluctant for their conduct of economic policy to lead the news today?

I have been sitting by my phone waiting for the BBC invitation to give an interview on the state of the economy, but so far it hasn’t rung!

Wokingham Times

March 17, 2009 2 Comments

The Credit Crunch has brought a rash of moralisers onto the media to condemn the immorality of bankers and capitalism. My advice to all who feel a strong urge to do so is to remember the Christian injunction, let he who is guiltless throw the first stone.

The moralisers think the crisis is an easy story. A small group of very greedy bankers lent too much so they could pay themselves huge bonuses. The answer recommended by these self appointed national preachers is equally easy. Nationalise the banks, and in some magic way lending too much and paying bankers too much will no longer be possible, whilst at the same time the economy will miraculously grow again. As we have seen, the nationalised banks still seem to pay large pensions and salaries to people working for loss making concerns, whilst the government itself decides it and its nationalised banks need to lend and borrow more, not less. Meanwhile the economy goes from bad to worse, with all too many people losing their jobs or their businesses.

If lending too much was greedy and wrong, wasn’t it also wrong for so many people to borrow so much, especially if they cannot now repay it and are going to walk away from their obligations? Who was more guilty – the lender or the borrower?

If the bankers who did the lending were greedy and wrong, weren’t the shareholders in the banks similarly guilty as they were happy to receive the dividends from all that excessive lending? Didn’t that include most people in the country? The Church Commissioners who pay the clergy salaries doubtless owned lots of bank shares, as did practically every pension fund in the country. I don’t remember them speaking out at Bank shareholder meetings asking for the banks to grow less and pay smaller dividends.

If the bankers who did the lending were immoral, surely the governments and Regulators who allowed them to do so by signing off their balance sheets and business plans were also wrong? Weren’t they employed as upholders of public morality, and didn’t they set the tone for the age of irresponsibility?

And if it were morally wrong for us collectively to borrow too much from the private sector, isn’t it even more immoral for us now collectively to borrow staggeringly larger sums through the government, as we are being forced to do?

It it were immoral for the authorities to sanction so much easy credit in the good days, wasn’t it even more immoral for them to bring the whole system crashing down in the bad days, by hiking interest rates too far and by demanding the banks suddenly held more capital? Why is too much private sector credit immoral, whereas too little private sector credit is moral? And why above all is too much public sector credit moral? Is printing money the height of morality and responsibility, a new kind of public duty, as some now have it?

I think it unwise to make this a morality tale. I could take no pleasure in thundering against the immorality of one or two scapegoat groups. We all lived through the age of private sector irresponsibility, and are now all having to live through the age of government financial irresponsibility. It’s a very one sided morality which condemns lending too much but does not condemn borrowing too much. It’s even more bizarre that over lending only matters if it is done by a private sector bank but is encouraged if done by a nationalised one. If lending and borrowing to excess is immoral these moralisers should be on the airwaves condemning the excess of public debt now being built up on a scale which dwarfs the credit boom of 2003-7.

I have expressed my strong concerns about the way in which the government is combining printing more money with borrowing to excess and putting so much of our money into damaged banks. I want them to cut our risks in bad banks, and make those banks sober up and sort themselves out. Giving them too much money too quickly just delays the day of reckoning.

Exchange between John Redwood and Alistair Darling: quantitative easing

March 17, 2009 7 Comments

Mr. John Redwood (Wokingham) (Con): What, if any, should be the limit on the amount that the UK Government print and borrow to avoid a run on the pound, a debt crisis or a trip to the international moneylenders?

Mr. Darling: If the right hon. Gentleman is referring to quantitative easing, he knows that I set out limits in the publicly available exchange of letters between me and the Governor of the Bank of England the week before last.

The budget judgement

March 17, 2009 28 Comments

When I asked the Chancellor yesterday in the House if there is some limit to how much the UK government can prudently borrow and print, he was reluctant to answer.

I pointed out that if we flex the state credit card too much, we could face another run on the pound, or a buyers strike on public debt, or need a trip to the IMF or some other international money lender.

I was giving him an opportuntiy to reassure us all that he was in control of the build up in public debt, and that he had worked out the maximum limit that was safe. I would have welcomed a number in his answer as well as some reassuring words.

Instead he decided to answer only half the question, the bit about how much he could safely print, and ignored the other half about how much he could safely borrow. He confirmed that the current printing programme was reasonable, without specifying if that was just the first ÂŁ75 billion or the whole ÂŁ150 billion. Treasury sources, I am told , don’t have a clue how much it will take.

I suspect, along with many other commentators and the markets, that debt is running well above the levels set out in the Autumn Statement. We should also remember that the Chancellor on that occasion persuaded most people that he was just borrowing ÂŁ78 billion this year, when the figure hidden at the back of the FBR was twice that. Come the budget he will have to give us more plausible updated figures, revealing the true horrors of the position.

The Prime Minister we read is keen on yet another fiscal stimulus for the economy at Budget time. That’s code for printing and borrowing more. Yet even he has chosen some more careful words for his Guardian interview. Maybe the Chancellor is at last showing some independence and is trying to warn the PM that there do have to be limits to how much they can borrow.

It is mystifying to see people roundly condemn too much borrowing by the private sector in the past, only to do the same on an even larger scale in the public sector and think there is no price to pay.

Click here to read the exchange between John Redwood and Alistair Darling from Hansard.

The PM regrets his regulatory role

March 17, 2009 11 Comments

I have always been more interested in how we get out of the present mess than in how long it will take to wring an apology from the saviour of the world.
The Guardian interview is, we are told, a kind of apology. The PM accepts he was responsible – well that’s progress. He regrets that he did not “mount a popular campaign ten years ago to demand more responsible regulation of the world’s financial markets”.

There’s a clever wriggle. In one bound the apology becomes part of the spin to tell everyone that this is a global problem, with the implications that the problems lay elsewhere and to underline that the PM himself was right all along in his thinking.

It’s too clever by half. It won’t wash. It shows he still does not understand.

Let’s try once again to explain it.

Northern Rock, RBS and HBOS were all British banks, controlled by British Regulators.

The British regulators had the power to require those banks to hold more capital and cash if they thought that necessary. They did not do so. The British Regulator signed off on the Northern Rock business plan.

The damaged Bank of England, undermined by the Brown reforms, the very same bank that is now printing fivers in desperation at the shortage of money, was lecturing the banks that it was their fault the money markets had no money in August and September 2007, when they helped bring on the crash. The British competition authorities could have stopped the mergers which created mega banks. The size of RBS made it an especially difficult case to handle, and the merger of LLoyds with HBOS damaged LLoyds needlessly and badly.

This crisis was brought on by bad regulatory calls as well as by greedy senior bankers. The supervision of banks, as the Chancellor reminded us yesterday in the House, is primarily a matter for the host country of the headquarters of a global bank. In the cases of RBS and LLoyds/HBOS that was and is the UK.

Nuclear power – but only for Iran

March 17, 2009 23 Comments

The Prime Minister today is proposing to help Iran build civil nuclear power stations to tackle global warming.

I wonder how he will find the money to do that, given the tightness of budgets? I also wonder why he thinks the the way to tackle global warming is to build nuclear power stations in the Middle East, when he could build them here at home instead.

He has told us – just as his predecessor did – that he wants a big debate on nuclear power before we have any more of it. Is that debate now over, as I must have missed it? When will we see them building new ones here, if he is so keen on them?

Wokingham message on flooding

March 16, 2009 0 Comments

I met Chris Smith, the CEO and the Thames area Manager of the Environment Agency today to chase progress on the Winnersh and Wokingham Emm schemes, the need for a wider Loddon plan and projects, and to chase issues where there are still disputes over which agency is responsible. I will keep you all posted of their written responses which they have promised.

Reading Evening Post

March 16, 2009 4 Comments

The government is taking too much financial risk. Taxpayers are being dragged further and further into massive debt.

A couple of years ago the government claimed that national debt was around ÂŁ500 billion, or under ÂŁ10,000 a head. This was understated. You really needed to add in the pension liabilities of the state, and the money borrowed under the so called Private Finance Initiative. Even a cautious accountant would have concluded the total was around the level of the national income, or say ÂŁ30,000 a head.

Today the numbers have gone crazy. RBS has a balance sheet larger than the National Income. We the taxpayers now own most of it. That more than doubles the national debt if you add it to the state’s balance sheet. Meanwhile the government aims to borrow another £157 billion this year and almost as much next year on its current probably understated forecasts. The national debt and the state’s liabilities now add up to more than £4000 billion , or nearly £70,000 each.

The government defends this rapid run up in debts and guarantees on the grounds that there is no alternative. They say they need to underwrite all the big banks, and offer them as much as it takes. They also think they need to spend more than they collect in taxes on an ever bigger scale to “reflate” the economy. The banks after all have assets as well as liabilities.

So far there is no sign of either of these very expensive policies working. What should they do instead to get us out of this ever bugger economic hole we are in?

They need to offer the banks tough love. They should not rush to put so much money in. It just delays cutting the costs, writing off the bad business and sorting out the casino banks that the majors all added to their balance sheets for no obviously good reason. I do not want to see a major bank go under, but I do want to see government tell them to clean up their acts for themselves, with as little recourse to taxpayer loans as possible and no recourse to taxpayer share capital.

They should remember that spending more to “reflate” means the private sector spending less. The private sector either has to save more and lend them the money, or pay more in tax so they can spend more in the public sector. Neither way of paying for it is necessarily reflationary. It just intensifies the squeeze on the poor private sector.

The private sector needs more demand, more orders, more money coming in from customers,. It does not want more bank loans if there is going to be no improvement in demand, for that just delays bankruptcy a little and means the business ends up losing even more. If the public sector keeps on squeezing, that will make matters worse.

We need the government to understand there is no quick fix or magic formula. You cannot borrow your way out of a crisis caused by over borrowing. There needs to be intelligent and painstaking work to right the banks and right the economy. The government is borrowing too much to support the banks, and needs to stop.

Bogus charities?

March 16, 2009 43 Comments

There used to be a welcome consensus on charities in the UK. We all knew a charity when we saw one. If you were doing something to further education, or the welfare of animals, or looking after children, you were running a charity and you could claim tax exemptions.

Like much else which was traditional, lightly regulated and worked, this was not good enough for Nulab. Under them they pushed the envelope in two directions. Educational charities were challenged for being elitist, and had to jump through new hoops to keep their tax status. New charities sprang up, which some of you are calling bogus. Some of these new “charities” spend considerable sums on what looks like political campaigning, some through detached political wings and some in other ways.

Clearly there needs to be a new charity settlement which is fair and which works. I would like to hear from you about what types of things should and should not be qualifying activities for charitable status. Please don’t make the editing job too difficult by too many libels against existing institutions, however tempting it may be!

EDMs are now the day’s work

March 16, 2009 13 Comments

One of the most wasteful features of the modern life of an MP are the endless standard postcards and standard emails sent by well meaning constituents to get you to sign an EDM. On some EDMs you may receive dozens of exactly the same form of words, each one needing a reply. Constituents often do not realise how many of the same card you may be getting, and how futile the EDM game can be.

This has become an industry all of its own. Well paid lobbyists or charities design an EDM on their pet subject. They find a tame MP to table it for them. They then persuade as many people as possible to send exactly the same form of words to their own MPs, demanding they sign the lobbyist’s EDM. They imply to the constituents that if enough MPs sign all will be well, as if signing the EDM will resolve the problem or is in it itself an answer.

They never explain that there are thousands of EDMs in any Parliament. They are a kind of Parliamentary graffitti. They never explain that EDMs languish undebated, and are never voted on. Unless an MP sends the form of words to a Minister, no Minister need even read it , let alone respond.

A sensible MP takes the concerns of constituents seriously. That concern is is best expressed in the constituent’s own words, and best pursued in the MP’s own way. The EDM merry go round is all part of the spin world, where big money is raised to pay lobbyists salaries, who then play the EDM game to show they are busy.

If you want something changed you need to persaude the government to change it, as they control the business of the House and have the votes to decide the answers. MPs can help influence governments to do the right thing, but it takes more than an EDM to do it.

MPs and even Opposition parties do use EDMs from time to time – sometimes out of frustration that there isn’t a better way of raising the issue and getting some action, sometimes to congratulate the local football team.