Month: June 2009

Yesterday I asked Mr Miliband if we could have some democracy in Europe, to mirror the democracy he says he wishes to support or introduce elsewhere in the world. I was wasting my breath. He is a keen supporter of the European project, which proceeds on its meddling centralising way despite the views of European people.

I pointed out that Ireland is given two referenda, because they did like the result of the first one, whilst the UK is not allowed one at all, despite the government’s promise. Lisbon is being forced upon reluctant peoples, with political elites refusing votes, ignoring votes, or changing the words to conceal the truth of the project.

I also said Parliament should send a message to the countries that have shown reluctance to ratify the Treaty, that the UK public is against it. Come a General Election and a widely forecast change of government, the UK will veto the Treaty for them. They should all hang on refusing to ratify so the British people can once again save Europe from its political classes.

We are not short of regulators, nor lacking rules. The last few years have seen a crisis of regulation as well as disastrous central banking and greedy and incompetent banking.

We should expect less of regulators. They cannot guarantee us all against loss from financial transactions. We should also expect more of them. We should expect them to know when banks and other financial institutions are taking wild amounts of risk, and should restrain them. They do not need more powers to do this. They have the powers already.

Yesterday morning financial regulation was raised with me by the Chief Minister and others in Guernsey when I was giving a speech there on the Credit Crunch. Guernsey is worried lest the EU seeks to extend its regulatory reach to the Channel Islands in clumsy ways that will transfer the business to some other offshore centre well away from us. The topic came up in the Commons debate on Europe yeaterday afternoon and evening, when the Conservatives attacked the government for failing to have influence over the current draft of the hedge funds regulation. Today an unrepentant Chancellor says thank you to his boss the Prime Minister for keeping him in post by defending the indefensible tripartite system at the Mansion House this evening.

What should they do?

The UK government should say that the tripartite system failed its first big test. The lack of clarity over responsibility for banking risks between the Bank and the FSA was partly to blame. We need a unified command, with the Bank of England taking responsibility for issuing government debt, supervising banks and the day the day operations of the money market. We need people running the Bank who understand markets and are capable of judging the cycle better.

The regulatory system should aim to avoid violent swings in bank balance sheets and the amount of money in issue. The Bank should call for more cash and capital to be held by banks when things are going too quickly, and for less when things are slowing down. Discussion to get banks to strengthen their positions should always be held in confidence.

The government should tell the EU that as it falls to national taxpayers to bail out failing institutions or to pay compensation to victims of poorly regulated businesses, so it should be the task of national governments to do the regulating. The UK has a much larger and more successful fianncial sector than France or Germany. The government should not let the EU use regulation to threaten London’s business, which clumsy regulation can do. That would drive the business away from the EU altogether.

We did not have too few regulators. The Chancellor who is the chief regulator did not understand the system he presided over and apparently failed to read the balance sheets of the top banks, which were obviously over doing it. We need to change people, not build a new bureaucracy. Keep it simple and do it better should be the slogan. And tell the EU to keep out.

How many more of our young people have to die in Afghanistan? How are the US and UK going to prosecute this war, given the way the Taleban can operate over the Pakistan border, in a country that remains a key US and UK ally? What does winning look like? How many troops will it take to pacify the huge territories concerned?

How does all this marry up with President Obama’s wish to have a different relationship with the Islamic countries of the Middle East from that of his predecessor? How can we think Gordon Brown is different in his approach from Tony Blair, when he supported Mr Blair’s wars throughout,and when he seems to be prosecuting them much as Mr Blair would have done?

It is time for Mr Brown to offer us a proper enquiry into the rights and wrongs, successes and failures of his Iraq war. More importantly, it would be good to hear from him in a measured statement about what he is asking the military to do in Afghanistan, how he thinks they can achieve success, and whether he thinks there are enough people with the right equipment to do this huge job.

Every week Prime Minister’s Questions begins with tragic news of further deaths on duty. MPs of all parties are rightly proud of our military, and admire its courage and persistence as it tries to bring peace to a troubled land. MPs generally do need, however, from time to time to ask the government to explain the strategy,and to explain why so many are at risk. We have a duty to all involved to make sure the mission is correctly framed, the troops are well equipped,and success is a realistic outcome from the balance of the task and the ask with the numbers of troops and the firepower.

It’s good news that the rate of decline is slowing. It makes sense for the government’s spin doctors to be trying to inject some confidence, claiming that we are at the bottom, or near the turn. No-one sensible wants the downturn to go on for a day longer, and none of us want to see unemployment climbing sharply.

It’s important, however, to maintain some sense of reality. In recent months there have been two big changes that have led to the current change of mood. The first is, that on both sides of the Atlantic they have been printing money, which has found its way into markets for riskier assets. This has generated some more favourable comment, and given some investors and speculators some hope. The second is, that the new Administration in the USA has moved from criticising the Bush legacy to talking up the Obama measures. In the UK the Chancellor has shifted from talking things down to a more neutral position.

There are several difficulties ahead. I have commented before on the problems they face when taking the economy off the monetary drip of quantitative easing. Unemployment is likely to go on rising, even if this is the bottom of the output figures, let alone if it is not. Most forecasters in the UK assume unemployment will go up to 3 million. At some point the public sector has to stop expanding its workforce, as part of the measures to cut the deficit. That will on its own make quite an impact on unemployment numbers. The public sector has created many of the extra jobs in recent years. If the public sector attempts to raise its productivity at anything like the rate that is common in industry, then there will be a furher impact on public sector employment numbers.

UK consumption will be affected by the future increases in interest rates which will be necessary to create more normal banking and monetary conditions,and to curb future inflation. A lot of present spending on goods and services by individuals has been made possible by substantial mortgage interest rate cuts. There is still a pressing need for many people and companies to repay debt, against the background of weak banks and the need to calm down after the credit binge of 2003-7.

The reality ahead will be much slower growth. There remains the need to adjust to curb the twin deficits. We have to export more and consume less to curb the balance of payments deficit, still very wide in the UK. We need the public sector to spend less to curb the public deficit. We need both individuals and the public sector to borrow less, as part of the move to live within our means. It is going to feel like recession as the squeeze intensifies, even if output is rising.

On Saturday the predictable calls came from Labour supporting papers. Would I like to confirm that the Tories will cut 10% from budgets? Would I like to send a message to the Conservative leadership that they need to spell out more cuts? They had all the finesse and subtlety of an elephant in a living room. They might have well have asked , would I like to help Gordon Brown smear the Tories with his silly Mr 10% campaign?

It is pathetic that we are still stuck in this idiotic sound bite culture, where Mr Brown seriously believes he can frighten people from voting Conservative by continuing to fib that Tories want to sack teachers and nurses.His main reason for wanting Balls in place of Darling apparently was to have someone as Chancellor who would spend his time rubbishing the Opposition instead of tackling the serious productivity and deficit problems in the public sector.

Mr Lansley was attacked for pointing out the logic of Labour’s own spending plans – cuts of 7% in real terms overall, which would be bigger on other programmes if health and education are protected. We have seen in great detail how much money is wasted in Parliament itself in recent weeks. Now we are beginning to see how this is the tip of a big waste tip throughout the public sector, with too much money spent on needless items or wasteful ways of doing things. As readers of this site will know, the government’s wasteline has expanded, is expanding and needs to be pulled in. Evidence abounds of many things we need not spend money on, without touching a single teacher, nurse, doctor or policeman. Let the real debate begin. I have set out my list of easy targets for less spending. Let others make their contribtion.

In modern manufacturing quality control can mean as few as 100 parts per million going wrong. In the UK public sector error rates of 10,000 per million are commonplace, and in some parts of the benefit administration error rates can be several times this high level. No wonder so much money goes walk about.

I spent the last couple of days in the USA,(not at the public expense) to see how the recession is affecting them, and to see if there is any tangible sign of recovery. I visited the Chicago area, to see if the rust belt is still rusting, and to feel the pulse of the heartlands of automotive country.

There were plenty of cars for sale, signs of job losses and short time working, and downward pressure on house prices. In other ways what was remarkable was how normal, how American everything was. The restaurants were busy and noisy. Huge helpings were sold for modest prices. The roads were busy. The freeways and turnpikes still are well worn by the procession of enormous trucks. Pick ups and large SGVs are still popular.

The great strength and enormous resource of the world’s superpower was still much in evidence. Land is used profligately. There is plenty of waste. Diets and energy use have not suddenly conformed to Mr Obama’s planet watch. Green remains a colour for the political and chattering classes, rather than a way of life for middle America.

Whilst there was some talk of hard times and job losses, some concern about recession, there was a general feeling that what goes down must go up again. There was no great dread of the extent of federal borrowing, no alarm about the size of the twin deficits, no expectation that anything serious would dent the great society. China may be the nation’s bank manager, but the people have yet to feel her wrath on their overdrafts. The US living standards may rest more than ever on the goodwill of the international community, and depend on the attitude of surplus governments and world savers, but there is no sense that people expect crisis any time soon. America will go on doing what it does well – going to the shopping mall and restaurant by car, parking right outside, and enjoying the rest.

This great continent of a country still sees itself as a world apart. Its economy, even in recession, even debt ridden as it is, shows vitality and breadth that is impressive. Meanwhile the dollar tumbles, the Chinese flex their muscles with the Treasury Secretary, and markets fret about the amount the USA still wants to borrow. The US does not fancy cutting it appetite for spending. It just assumes it can go on borrowing. Someday there has to be path out of public debt, but in the meantime the authorities want to create the impression that it is business as usual. Greenery is still greenwash, not a daily reality.

I have been a pessimist about UK commercial and residential property.

Values of commercial property have been falling for months. Commercial rents are weak. There is a substantial overhang of space. Retailers have gone bankrupt, leaving empty shops. Considerable new space is being completed in the City when tenant demand is weak. Businesses under pressure find it difficult to meet rising rent demands, and are often looking to reduce their floorspace as an economy measure. There are some brighter spots, and there are some buyers about seeking to find bargains now there has been a sharp fall.

Residential prices have also fallen, though less dramatically than commercial prices. Some estate agents now say there is a shortage of supply, and think prices might now stabilise or even rise from here. Normally it takes rising real incomes, stronger mortgage provision and an end to rising unemployment to provide good upward momentum to house prices, but these are unusual times.

There are two arguments the bulls put forward that are worth examining. The first applies mainly to central London. The apparent fall in sterling prices can be doubled for a an investor coming in with one of the stronger foreign currencies. To the overseas buyer London property looks a lot cheaper than it does to sterling based buyers who live here. There are cash buyers around who have always fancied smart London base who think now is a good time to take advantage of the apparently cheap prices in their currencies.

The second consideration applies more widely. The supply of homes onto the market is very limited. Many people do not think they could sell their property for a decent price, expecting the market to be poor. Trading up is being delayed by people worried about their job prospects or expecting lower prices for the bigger home if they leave it for a bit. You might expect more distressed sales. With interest rates very low more people can mange the mortgage. More institutions so far are seeing through customers with temporary difficulties. This could change for the worse as unemployment climbs.

We have probably seen the biggest part of the falls in both commercial and residential property. There will be some who buy at a discount to current prices where there are distressed sellers or properties with potential and take advantage of current lower levels to find longer term value. We need to remember, however, that the existence of some foreign buyers for London property and the existence of some hotter spots within commercial property does not overnight solve the difficult credit conditions, the falling rents and the poor outlook for tenant demand. If the economy grows more slowly this decade as we fear, and if there is less credit around, we have to adjust to a different level of property values overall relative to incomes.

I hear mixed reports about the banks. Some people and businesses report great difficulty in getting a bank loan for a good purpose, high fees and charges, even difficulty in keeping what banking facility they do enjoy. Others tell me things are more normal, and there is money to borrow for those who have a good reason.

I do not detect any better service or especially different credit policy at the banks where the public is a large an forced shareholder, than I do in the remaining private sector banks. It seems to be business as usual, as attenuated by the Credit Crunch.

There is a lack of decisive action at the semi nationalised banks, to cut their losses, cut their costs, sell off their overseas and investment banking arms, and concentrate what resource they do have on the UK domestic and commercial banking activities. Yet that is why I thought the government stepped in, to try to ensure a better flow of credit to families and companies.

I would like to hear from you about how your banks are behaving. Is there credit available? Have your banks been cutting staff and cutting costs? What has been happening to fees and charges?

In current conditions banks ought to be able to make good money on new business they undertake. The gap between their borrowing costs and their lending rates is high. They still have a lot of past business to sort out, with more write offs possible, so they are going to need to improve their service, write better business and reduce their costs if taxpayers arte to be soared big new losses.

The PM’s sudden interest in a different way of voting looks like the action of a man who is worried that Labour cannot carry on winning under the tried and tested system of first past the post.

Proportional systems have many drawbacks. They lead to more extreme parties with more chance of them securing elected representation. They break the link between some or all Members of Parliament and a constituency. They are more likely to produce weak governments, without majorities. They can give parties more power and people less power over who the elected representatives are. List MPs need to be obedient to party, and are less likely to stand up for the interests of those they represent.They can transfer the decision about who governs from electors, to parties negotiating with each other after an inconclusive election.

The alternative vote system which some favour is not a proportional system. It is a system which allows in any given constituency the backers of the least popular parties the effective right to vote twice, whilst supporters of the more popular parties only vote once. What’s fair about that? Why should the backers of the joke or single subject parties have the right to decide who ends up winning, when that may be someone different from the person who got most first votes?

What we need from the government is action to control the deficit, to get some value out of public spending, to scrap ID cards and regional government, to get powers and money back from Brussels and to cut the bossiness and waste that abounds in Labour’s governing machine. There is a rumour they might at last scrap ID cards – bring on the day. If they do want to get into constitutional reform, they should start with a referendum on the Lisbon Treaty as they promised, so we can all tell them what we think about the huge transfers of power they are making to the EU.