Month: July 2009

There are several different debates going on about the war.

There is the question of whether our troops have the right equipment and numbers. Whatever the government may say, it seems clear that the coalition as a whole needs more troops and we need better equipped troops to do the job. Too many lives have been placed in danger owing to the lack of cover,support, helicopters and properly armoured road transport. The Americans have now reinforced the position with their own personnel. The UK needs to speed up the supply of additional air cover, air lift, and properly armoured vehicles to help UK troops in difficult and dangerous terrain.

This morning I hear the question being debated whether our troops are too young. The front line troops are on average in their early 20s, well trained and fit. They are volunteers for army life and many of them want to be on active service. This is not the issue.

There is no doubting their resolve, skill and bravery. All political parties are united in praising how well they carry out difficult orders in a large and hostile territory.

The issue is not even whether the aims of the campaign are worthwhile. Again, political parties and most people in the UK are united in thinking it would be good to bring peace and greater prosperity to Afghanistan. Most are proud of troops who free a community from terrorism, or who keep open a school that allows young women to be educated, or who provide sufficient security for a democratic government to govern.

The central issue is can we achieve all that we would like? What will the cost be in lives lost and injuries sustained? For how long will the legitimate civilian power in that country want foreign troops to help it? What is the exit strategy?

We have been there for a long time. The fighting is more intense now than at many times in the past. Why can’t the government address these questions? The country needs some reassurance not that the cause is just or our troops are brave, but reassurance that it knows how and when to get out, leaving Afghanistan a better place.

We need an exit strategy and we need it soon.

It has proved to be the post that has prompted most replies. Does anyone have the time to extract a list of all the quangos web goers want to see abolished, and send it in?
Thanks

Today the Monetary Policy Committee met and concluded that it needs to keep the indicative interest rate at 0.5%. Contrary to expectation it did not announce an increase in quantitative easing.

Why?

They have been undertaking substantial quantitative easing because bank lending and money supply are not growing as they wish. What a surprise. Over at the FSA they are instructing the banks to hoard the cash being made available, to shrink their balance sheets and control their lending. No wonder the printed money is not yet hitting the High Street.

The interest rate is silly. We need to encourage more saving in the UK. The economy lived for too long on too much debt. In practise banks offer considerably more than 0.5% to depositors if they want to attract deposits. They certainly charge much more than 0.5% if a company or person is able to get a loan from them.

If the MPC wants to get back into the game, it needs to set an interest rate related to what is going on in the makret.

It looks as if the Bank of England has simply become a vehicle to do the government’s bidding. The government just wants to borrow mega billions to carry on spending. As a result it wishes to keep interest rates down for government debt by setting a very low bank rate and by printing money to buy up government bonds. The Bank has become a branch office of a government determined to go out in a blaze of spending and borrowing on a scale never before attempted. The Bank is helping their scorched earth policy.

And where does all that money go that finds its way into the banks from the printing presses? Into government debt of course. That’s the regulators preferred way for the banks to keep the new higher levels of liquidity needed.

It could all look very worrying once the printing stops. If the yield on government debt then rises the banks will have yet more losses to report as a result. Today’s news on quantitative easing is unclear. The MPC has left open the option of doing more later, whilst carrying on with its current programme.

To go back to the driving analogies, they are still driving by looking in the rear view mirror. The MPC have their foot flat to the floor on the accelerator, but the regulators have their foot on brake as well.

A large number of well paid politicians and their advisers have flown to Italy to spend time talking and eating. Their communique will tell us that they aim to cut carbon emissions by 80% by 2050, and to limit the increase in the world’s temperature to 2 degrees! There’s precision for you.

Why don’t they add they aim to abolish world poverty, end wars, ensure Arabs and Jews love each other and repay all their debts by 2050. None of them are going to be in office by then, so why not?

It is this endless posturing, when by their actions they are doing the opposite, that so annoys people. If they want to cut carbon emissions they should start with their own travel plans. Why not agree a carbon cut through email, internet and video links? If they want to stabilise the world economy, then cutting huge budget deficits by controlling their own costs would show some leadership to the rest of the public sector.

The government’s White Paper on banking regulation will be based on a toxic mixture of misunderstandings and the wish to deflect attention from the mistakes the government and monetary authorities have made.

The main cause of the Credit Crunch was the boom and bust monetary policies followed independently by the UK and US authorities 2003-9. In 2003-6 they kept interest rates too low and sent signals that credit should be easy. In 2007-8 they pushed rates up too far and left markets short of funds. Today there will be no apology and no proposal on how they can start getting it right in the future.

The crash was made worse in the UK by the tripartite system of regulation. The authorities did not require enough cash and capital of the banks in the easy money years, though they had the powers to do so. Now they are demanding too much. The Chancellor failed to provide leadership to read the cycyle well and to prevent the banking crisis. The Bank of England, stripped of its powers to regulate the banks, was unable to stop them responding to its easy money policy by lending too much and overstretching balance sheets.

The government encouraged the easy money off balance sheet culture. In the UK it encouraged massive PFI/PPP schemes so it could join in with oiff balance sheet finance. It enjoyed the never never buy now pay later culture. In the US the administration encouraged sub prime lending.

The UK government will be right to say “No” to trying to separate investment and clearing banking. It is right to say in future regulators should dampen rather than intensify the cycle.

It is wrong to trust the tripartite system which has failed. It is wrong to want to keep the mega banks that it now owns. It is wrong to ignore the monetary origins of the crisis. It should split up RBS and LLoyds/HBOS for disposal. It should apologise for its boom and bust monetary policy and explain how in future it might get it right.

Why should we believe new and more regulators will get it any more right than the last lot?

Yesterday was meant to be a big day in the Commons. We were all primed for the possibility that the government might offer some concessions to those on lower incomes, following its decision to snatch away the 10p income tax band and leave those on lower incomes worse off. We even heard rumours there were enough Labour rebels to defeat the government.

There were just 31 of us in the chamber (17 Labour) when Frank Field rose to make his speech to introduce his amendment. A few more came in during his remarks, only to leave shortly afterwards. It did not feel like a great occasion.

He spoke well. He dealt with the argument that apparently the government was putting round. If his amendment were passed the government would be unable to collect its income tax, and there could be a run on the pound. Bizarre! As he rightly said, if the government lost on his amendment, all they had to do was to table a motion to ensure the collection of all the rest of the income tax, and that surely would have been passed by the Labour majority. Last year when there was a big fall in the pound the government seemed keen to allow it to continue.

Being the House of Commons, this important issue had been “grouped” with other amendments which fell to be debated at the same time. As the House restled with that problem, whatever atmosphere there was on the issue of the 10p tax band was diluted. A few Labour rebels struggled to keep up the pressure, but when Sally Keeble rose to announce that as a signatory to Frank’s amendment she would no longer be voting for it, there was confirmation that the rebels had lost.

Outside the thunder and lightening struck in a biblical moment. Inside it was damp squib, as we looked upwards to see if the roof would hold out against the leaks and the rebellion fizzled out. Taxing the many to pay for the follies of the few who intend to spend and spend right up to the end of the Parliament was not how it was meant to be. Yesterday this Parliament could do no other. They may not like the whips, and they may not agree with the government, but most Labour MPs decided loyalty was the better course. They did not want to be in the chamber to hear the arguments. That might have stretched their loyalty too far.

The British Chamber of Commerce survey this morning contains the good news that confidence levels have risen sharply from the lows of recent quarters. It would be unwise to break open champagne, as we still cannot afford the imports.

The survey also shows that “almost all the key balances remain in negative territory, and most balances are still weak by historical standards”. The net balance for home sales for manufacturing did rise by 18 points, but it is still at a heavily negative minus 37%. Worse still, the balance for manufacturers home orders, what matters for future turnover, rose 15 points to rest at an equally heavily negative minus 37%.

Businesses need to generate cash to survive, and to have money to invest in the future. One of the worst figures in the survey was the one for manufactuuring cashflow. At minus 32% it is at “the lowest level since records are available”.

This survey shows that prospects and confidence levels have moved from dire to very worrying. After a long period of sharp downturn figures start to look better by comparison to very weak figures. That is not the same as a strong recovery.

The BCC are saying that unemployment goes on rising, hitting future demand. They report what their members see, which is too few orders and too little cash coming into their businesses. It is good they also report what their members feel, and they are feeling a bit more optimistic. We need that optimism to translate into more orders.

Yesterday I asked Chris Grayling (Shadow Home Secretary) to confirm that he wishes to scrap the new ID data base as well as the cards. He confirmed he did.
The Opposition held a debate yesterday to urge the ggovernment to scrap the whole scheme and save some money instead of blundering on with a part compulsory part voluntary project. We sought assurances there would be no poison pills put in place to prevent us saving large sums if a Conservative government is elected to office. There were no assurances forthcoming.