Month: August 2009

The government used to tell us we were best placed of the major economies to weather the “global storms”. The government suggsted we would be first out thanks to the massive public sector “stimulus” administered. They ignored the UK hurricane they had created by their mad monetary and banking policies of the previous ten years.

The second quarter figures tell a different tale. The UK economy continued to fall, falling faster than the USA, falling faster than the stronger major economies which saw some recovery. It is true government consumption rose, thanks to the spending spree and the massive borrowing, which helped the figures for output. Overseas trade improved but little despite the devaluation of last year. The big reason the UK continued to fall was the continued squeeze on the consumer.

The government as always wants to have it both ways. The authorities brought the consumer boom to an abrupt end by their hikes in interest rates and their scarce money policies of 2008-9. They did so presumably because they thought consumers were borrowing too much and the party had to end. They got into a panic late in the day, and slashed interest rates and printed money to try to offset what they had done over the two preceeding years. Meanwhile consumers are taking the hint they gave them earlier, and are busily repaying debt. That means they spend less. All the time people are highly borrowed – as many are – and all the time many fear unemployment – as they do – they will repay more debt than the government now wants and spend less than the government wishes.

One of the reasons people are likely to stay cautious and repay more debt is the likely pattern of interest rates. few consumers believe 0.5% rates. Firstly, we can’t borrow at those rates. If you can get a loan it will be many times base rate. Secondly, most people expect rates to have to go up again. They have been burned by the past interest rate hikes. They realise that given the huge sums the government needs to borrow, higher rates are likely in the medium term.

The government hopes to keep rates down through quantitative easing to see them through to near the election. Once that is out of the way markets are likely to force rates up on government debt, unless sufficient action is taken to rein in the deficit and the borrowing requirement. Markets might do that earlier of the numbers continue to alarm. Meanwhile canny consuemrs will carry on paying off debt, and worrying how long they may keep their job.

I was most suprised to read the Rothschild “road privatisation” story on the front of the Sunday Times business pages today. I will reverting to this story when I have made some enquiries next week.
In the meantime I wish to make clear that I last worked for Rothschilds in 1989 before becoming a government Minister. They did not invite me back after I resigned from the government.
They did not tell me they had picked up the £100 billion road scheme idea. I also noted that one of their variants uses shadow tolls. I have never favoured shadow tolls, as the schemes I have heard of using them seem to me to be expensive ways of the government borrowing money. What we need is transfer of risk to the private sector, direct collection of revenue from customers by the private sector, and full offsetting tax reducitons so motorists are not worse off.

I have been fascinated to read responses to my proposals on roads from people usually up for a smaller state telling me I am going too far. If you can’t take government out of the main road business, what can you take them out of? It should be one of the easier ones.

The criticisms all boil down to one thing. People see it as another opportunity to fleece the motorist, when I have in mind for the first time in more than ten years offering the motorist a better deal!

Some of the critics misread the scheme, and think the government will be collecting the tolls and benefitting from them. On the contrary. The tolls would be levied and used by the franchise owners. The last thing I want is the government to start charging us tolls on top of everything else they charge us. Nor do I want us to pay twice, which is why the scheme includes the abolition of the VED levy on everyone with a vehicle.

Some critics think the private franchise holders will be monopolists and will milk us all at the toll booths. Again, why on earth would I propose something like that? The scheme includes splitting up the roads into different packages, so whereever possible there would be choice of pay road. In addition, all single carriageway roads and many bigger A roads remain free, so there is always a free route home if you want it. On top of that the franchise sale would include an upper limit on how much per mile they could charge. The franchise holders would be free to charge less,and would doubtless charge less at off peaks to encourage a better spread of use.

What people are missing is the obvious improvements that would come from such a system. As one supporter concluded, the Highways Agency could be wound down, saving money. Private franchise holders would want to improve their roads to improve flows, as they will only get lots of business if there are savings in journey times by using their better roads. The competition would be for the length of the franchise they needed for the government to get the money it wants. We would soon see use of the emergency lane at busy times as already happens on sections of the M42. They would need a suitable duraration so it was worthwhile putting in more capital for improvements. Where they wanted to make a major improvement to the road they chould be able to negotiate a lease extension or a capital repayment from the new franchise holder if it ever changes hands.

Some of you worry about the congestion toll booths can cause. It would be up to the franchise holders to choose the least disruptive technology to get paid. The US system where you can buy a smart card in advance which allows you straight through toll points without stopping is an obvious way to do it. That could also reassure people they were not being logged and monitored where they were gooing, as if you had a valid card the system could be designed not to record your vehicle. Alternatively there could be monitors and you could receive a bill once a month like a mobile phone bill- which also of course can monitor exactly where you are at any time you use it. The Oyster card on the tube already logs whereever we go by underground. Two wrongs don’t make a right but it shows even us freedom lovers will put up with it.

We need to break the state monopoly grip on road provision. We need to get more access to private capital to invest to bust congestion by removing bottlenecks. I look forward to your response to future radical proposals for sorting out our deficit and poor public services. This was meant to be the less contentious one!

On Wednesday I had to give in and pay to drive in central London after 7 am. I had to deliver a heavy package to one place, drop off a print for framing at another, and fit in a haircut at another. I could not do all this on foot or by tube, and I could not do it before 7am when the charge comes in, given the hours of the other people involved

I got to the edge of the Charge zone after the rush hour. As soon as I could see the Congestion Charge zone signs hoving into view, the traffic jams began. The Cromwell Road was seized up. I discovered as I went about my business one lane of the two lane Fulham Road was closed for roadworks at the same time as the Cromwell Road problems. There were all too many places where our money was being spent on making the roads worse, only to delay us all more owing to the restrictions on use of the carriageway. The blockages on Southwark bridge are especially spectacular as they work to restrict the road system around that part of London and take the remaining useful general parking spaces out.

How right Ken Livingstone was to call it a Congestion Charge. He not only imposed the tax, but made sure with the changes to traffic light phasings, lane narrowings, chicanes and closures that you would be permanently in congestion if you still dared to use the zone. Under Ken only the rich could travel by car – as you would need to be very well off to afford £8 every day out of taxed income. It took me around 3 hours to get to all three places, have a hair cut and reach my Westminster office. To have to pay £8 on top was the last straw. I look forward to Boris carrying out his promise to scrap the charge in the west, and to rephase the lights so we can have less congestion in London. Maybe then he could rename the residual charge the Free flowing charge, and make sure we get something for the odd occasion when we have to pay it and need the roads to work. Shouldn’t it be refunded on days when they close too many streets,plunging us all into chaos?

First, the magazine industry lobbied MPs hard about the way the BBC moved into their business, using its own free ads for its own products to gain entry to their market. Next, the local and regional papers lobbied MPs about the impact the free BBC web and media service was having on their sales. Now James Murdoch points out the obvious main concern – the stronger the BBC brand and web offer is, the less private sector competitors can charge for news and views and the less plurality and choice there will be. THe BBC web offer is paid for by a poll tax which others cannot share or levy.

There needs to be a new settlement, to promote a vigorous and diverse media. We want the digital revolution to open up and sustain more choice and diversity of opinion, not to reinforce an old statist centralising system.

The war in Afghanistan is the defining action of Mr Brown’s administration, just as the war in Iraq defined Mr Blair’s. Now the first round of the election is over, it is time to ask what is the purpose of our mission, how long will our troops need to be there, and when will the Afghan security forces be in a position to police their own streets successfully? We need some answers.

If the government is determined to fight such a big war as intensively as in the recent past, it needs to make more men and equipment available. It needs to tackle the high level of casualties as a priority. It also needs to be more forthcoming in its explanations to the British people of what it is doing, why it matters, and what support it is offering to our armed forces. I would rather the UK government talked seriously to the new Afghan government once formed to set out a timetable for Afghan troops to take over the front line roles from ours, moving us to a support and training role.

Meanwhile, it could be significant that the Sun has taken such a tough line. Maybe they are picking up a shift in mood in their readership. Most of the people I talk to are at best in two minds about what we are doing in Afghanistan, and are united in wanting our troops to be given more support and back up for their arduous and dangerous mission.

The Bank’s last official Statement, and the Deputy Governor Mr Bean’s recent remarks, tell us that the Bank has little idea how much quantitative easing to do, or how to assess its impact.

The Bank’s main economic view is based on the economic theory that if there is excess capacity in an economy then you will not get price rises. Businesses will bring more capacity into use as people’s income and spending rises. In competitive businesses the presence of spare capacity elsewhere should prevent any one comapny raising its prices. Because there has been such a sharp drop in output, the Bank reaons there must be plenty of spare capacity. As money is injected so more goods will be produced without inflation.

Like many economic theories, the answer to that is it all depends. The Bank should take more seriously these points:

One, if the pound starts to fall again as it did last year, we will experience substantial price rises on the many goods we import. The authorities should not be so lax that they jeopardise the currency.

Two, this severe recession will remove capacity, as well as temporarily reducing it. Today we hear that the last TV manufacturing plant in England is closing for good. Many factories are being shut down, not to re-open.

Three, quantitative easing on both sides of the Atlantic, and the huge monetary stimulus in China, is boosting commodity prices. This will exert some upward price pressure on finished goods.

Four, because many companies cannot get more bank credit they are taking a tough line on price levels despite falling output. Some may continue to do so in the upturn.

There is a bigger worry. Both the Bank of England and the Fed ignored price bubbles in assets in the long boom prior to the 2007-8 collapse. The Bank of England seemed to take the view that high and rising house, property and share prices were not in themselves inflationary or a worry, yet they were fuelling the boom which in due course led to faster overall price increases. It seems that both the Bank and the Fed want to create another asset price bubble,and are beginning to do so. They should learn from the past. Asset bubbles in the end have to be deflated. They can also be inflationary.

At least the Bank now accepts that printing more money will not necessarily create more credit, the original aim of the policy. They need to persuade the FSA to change its bank regulations if they want more credit. It would also help if the government didn’t want to pre-empt all the money for its own borrowing.

The idea that we should now tax bank transactions to stop them paying mega bonuses is absurd.

The government says it wants the banks to lend more money to business. The Regulator says the banks need to have more cash, capital and reserves before they can lend more to business. The best way for them to get more cash, capital and reserves is to make more profit. Now if they make more profit it is proposed they should pay more tax, removing the extra profit from contributing to the cash and capital. They should make up their minds what they are trying to achieve.

I have no time for mega bonuses to the highly paid in state aided banks. Why doesn’t the government just ban them? They are either the owners, or set the terms for the government assistance, so they can just do it.

Given that the Regulators allowed too much excess risk taking in the good times and now want to allow too little in the bad times, wouldn’t it be better to change the Regulators? And can we have an assurance that in the meantime no highly paid Regulator is enjoying one of these bonuses they now condemn?