Month: March 2010

One of the big advantages of a first past the post system of government is the electorate can sack an administration they do not like or is failing. The continental systems based on PR make it very difficult if not impossible for electorates to choose a government. The political parties and leaders do that once the result is known, through their negotiations over who will be in the coalition and what the coalition will stand for. In 1964, again in 1970 and again in 1979 the UK electorate voted for important changes in how they were governed, and did change the government.

It is an irony of our system that perhaps the biggest changes of government since 1979 have occurred through internal decisions of the two main parties. For whilst the UK electorate can change the government at elections, the main parties can change the government between elections. The Conservative decision to change from Margaret Thatcher to John Major represented a big change in the style and policy of the Conservative government. The change from Tony Blair to Gordon Brown was a big change in the Labour government. John Major went on to get limited public endorsement for his Premiership, only losing 40 seats compared to Margaret Thatcher. Gordon Brown stands in danger of losing many more seats and not getting that endorsement if the latest opinion polls are sustained.

John Major and Tony Blair shared a lot in common. Both fought difficult wars with NATO allies that the public did not always see the point of doing. Both were famous for their spin, and their fascination with how the media saw government. Both saw themselves as moderates, standing against some of the deeply held beliefs of their own parties. Both damaged themselves through loving Europe too much and the UK too little. John Major was unable to convince his party of the justice of Maastricht even with the excellent opt out from the Euro which he negotiated for the UK, whilst Tony Blair failed over a long period in government to ram the single currency through despite wishing to do so. He gave away huge powers elsewhere instead.

Margaret Thatcher was elected to sort out the mess that was the UK in 1979. She bravely tackled Trade Union reform, giving powers back to Union members. She tackled the huge deficit and unwieldy public sector by privatising large naitonalised industries and making them compete. She cut income tax rates decisively and ended exchange controls, allowing the UK to become a richer and more competitive economy.

Gordon Brown was chosen to put socialism back into the media spun politically ambiguous direction of Tony Blair. He has upped the taxes on success and the rich, nationalised two leading banks, greatly expanded the public payrolls, and greatly increased the benefit dependence of many. He has made the UK decisively less competitive and has brought rising living standards to a grinding halt.

The change from Tony Blair to Gordon Brown was a big change of government. It now has to face its first electoral test. The forthcoming election is about a very simple question – can you afford and do you want a truly socialist government? Do you want the poor living standards and low growth that always goes with high taxes and an overexpanded public sector?

The new Independent Authority has reached ts conclusions on what expenses MPs should be allowed to claim. There are some improvements for the taxpayer – no full fare first class travel, a lower amount for rent of a second home, and fewer extra items for that second home. Mortgage interest is disallowed.

Last night we were voting on the Budget until 11.30pm – later than the usual 10.30 pm finish on a Tuesday. That led to discussion amongst some MPs about the new list of constituencies not eligible for a second home allowance at all, on the grounds that they are within easy train travelling distance with sensible train times into and out of London. In Berkshire the determination is that Bracknell, Wokingham and Newbury are allowed second home costs but Maidenhead, Reading East, Reading West, Slough and Windsor are not. It’s the same pattern in all the Home Counties.

Personally I think IPSA has a very difficult job to do and they have gone about it sensibly. I just hope there is now public support for their scheme, so the MPs settle down to it. Last night in some areas – not the mentioned Berkshire MPs – there were unhappy MPs trying to work out how they could get home to their constituencies if they reached the station at midnight.

Labour want to nationalise care for the elderly. They think it would be their latest big idea, another large spending pledge which they hope will win them votes. Even they have recognised that in this climate people will ask “How is it going to be paid for?” That led them into the trap of the unpopular death tax, a tax on the estates of those who die leaving money to others. As a result last night they started to peddle back from it, and will instead go into the election offering a review of how to pay for this latest expensive nationalisation.

Let me explain the reality of the situation. Against the current bleak background for public spending there is no money to do as Labour wishes.

What is the alleged problem with current policy? The issue is that prudent pensioners who need to move into a care home for their final months have to use up their savings or sell their home to pay the bills of the care home. Their children often complain, believing that it should be part of the NHS service to provide the care home place free. They would like the money and the property to survive in the pensioner’s ownership, so it can be passed on to the children on death. For many years I have had to explain politely but firmly to constituents under Labour and Conservative governments that is not our system.

Our system does provide free care home provision for any pensioner who needs a place and has no savings or property of their own. It provides a free care home place for an elderly person with a home, if their husband or wife is also still alive and needs their own home to live in. The only elderly person that has to sell their former home is the one who was living on their own and has moved into the care home.

Our system also provides free health care for all who need it, including residents of care homes. The issue is who pays for the meals and the accommodaiton. Anyone continuing to live in their own home, whatever their age, has to pay for their meals and housing. The same regime applies to those living in care homes, if they have some money.

When the country is nearly bankrupt it is foolish to suggest that taxpayers need to take responsibility for paying for all care home bills, however much money the elderly person in the care home may have. The person in the care home does not need their former house, as they now live in the care home.

Children of elderly parents who have money themselves can always pay the bills for their elderly relative in order to inherit the property, if they do not wish it to be sold prior to the relative’s death. It is possible to take out insurance against the need to be in a care home. The good news is most people do not need to end their life in such a home, so insurance is affordable.

Listening to the Chancellor tonight on Channel 4 I wondered which economy he was talking about. It couldn’t have been the UK one which the Labour government has done so much to damage.

He told us they had “made the right judgement calls”. Does that include the decision to tax pension funds, or to sell gold at a low price, or to allow a huge build up of debt and credit, or to encourage banks to overexpand by failing to regulate cash and capital, or driving banks into grave difficulties by suddenly shifting to ultra tight money, or expanding public borrowing way beyond an affordable amount or to putting loads of borrowing off balance sheet in the public sector, or to waste so much public money or to fight two wars in the Middle east or to set up so much extra bureaucracy and quangocracy?

He did not seem to grasp the difference between debt and the deficit. The deficit is too large and that is the amount by which the debt is growing. He said he had a choice on how much of the savings in spending he had recently found he could use “to pay down debt”. He is years away from paying down debt. All his forecasts assume colossal increases in debt for years to come.

He conceded that he did not want a death tax to pay for elderly care after all, having spent weeks defending that option.

He said size did not matter on banks, seemingly unaware of the dangers created at RBS and Lloyds by the mega mergers the government allowed or encouraged.

He claimed Northern Rock had enough capital in 2007, apparently unaware that the Banking regulator in the last two years has required all banks to raise much more capital, implying they allowed Northern Rock to trade with too little.

Mr Darling’s positions either revealed a worrying ignorance of banking and the public accounts, or were constrained by the need to do as Mr Brown wishes. No wonder we are in such a mess.

It is good fortune that no less a person than Mr Blair himself will shortly tell us in a speech that Mr Cameron is not his heir. In typical Blair style he has of course already told us by leaking his own remarks in advance of bothering to tell his chosen audience.

The phrase “heir to Blair” was always two edged. To its supporters it meant another popular charismatic leader capable of making his party voter friendly enough to win after a long period in opposition – nothing wrong with that. To its critics it threatened to lumber the new Conservative Leader with Blair’s spin, his wars and his sofa style of politics.

The more reminders we can have of the deceits and the wars of the Blair era the better from the Conservative point of view. Mr Blair’s attempt to create pure red water between himself and Mr C is most helpful. Long may he intervene.

The banks are unpopular with the public for a variety of good reasons. They are the whipping boys of the politicians for less good reasons. The government has every wish to blame the whole economic crisis on greedy bankers, to suppress the role of incompetent government, regulators and central bankers. The public hates the banks, because it sees it has had to put huge sums of money into them, only to watch as their senior personnel continue to take large sums out by way of pay and bonus.

It is high time we had a proper debate about what went wrong and what should be done to have a better banking system in the future. I despair of getting such a debate in the Commons with my Labour and Lib Dem colleagues. They simply refuse to engage with the many points I make about the history of the crisis and the sensible way forward. They find it an inconvenient truth that the regulators were heavily involved and maybe they made mistakes.

What went wrong?

1. The Monetary Policy Committee followed boom and bust policies, bloating money and keeping rates too low for too long, then squeezing too hard and keeping rates too high.

2. The government followed boom and bust policies – expanding its own balance sheet too much, spending and borrowing too much in the boom, and then forcing the private sector to take all the hit when we lurched to bust.

3. Between August 2007 and the end of 2008 the authorities kept the markets starved of money when over borrowed banks needed access to funds. That is when the Central Bank should have made more cash available in the usual way – by way of short term loans against good security – to avoid the crash. There was no need for any major UK bank to go down.

4. The regulators led by the government blamed the banks for the crash from September 2007 onwards, and decided to make it worse by lecturing the banks in public on how weak they were instead of working behind the scenes to make them become stronger. Usually transparency is right, but in this area the regulator needs to work in private to avoid triggering a run on a bank. Having made the errors in the boom, the Regulators should have given the over borrowed banks time to adjust, allowing them to raise new capital, sell assets, split off businesses, run down their loan books, cut costs or however they chose to do it.

None of this is jobbing backwards – this is what this site said throughout the gathering crisis.

What should they do now?

The approach of the government should be different for RBS from the rest. RBS is state owned. It has received large sums of subsidy. It cannot go offshore or hit back against the UK authorities. It should be broken up, into a series of competing banks. These should be sold to maximise the returns for taxpayers.

Other banks should be placed under a prudent regime controlling their cash and capital. There is no need for a future banking crisis if we have competent regulators who understand the mistakes made in 2007-8. Today the regulator should relax the cash and capital controls, because they are too tight for the conditions.

Will taxpayers get their money back?

The government wants to ease taxpayer grief by claiming close to the election that we are poised to get our money back from Lloyds and RBS. They are adjusting the figures to try to create this happy outcome. They are knocking all the fees, charges and special revenues off the purchase price of the shares. Yet these receipts were connected to the whole package of financial support, not just the share purchases. This flatters the position.

It is unlikely taxpayers will make a profit the way the government is going about it. It would be possible to get all the money back we invested in the shares if the proposals above were adopted. One of the reasons is the pound has fallen so much, making the overseas banks owned by RBS worth more in devalued sterling.

There was a good cartoon in the Telegraph yesterday – the main party leaders not wishing to pull the Excalibur of spending cuts out of the stone.

Public budgets are well defended by lobby groups, BBC journalists, underemployed senior public sector executives and even by many MPs who seem to think it their job to recommend record spending levels rather than striving to do more for less like the rest of the economy.As a result in the public debate you are only thought to be serious about reducing spending if you identify important public servcies you would cut or damage. The irony is that the public sector has so much more scope to do much more for less, because it has not been any good at raising productivity or finding “efficiency savings” over the last decade. It has been the lost ten years for productivity gains and for cost control.

Let me defend the government on one thing. They have at last decided they need to reduce the rate of sickness absence in the NHS. They must have the figures and should be able to analyse them to know where the sickness is genuine and where, if at all, it is a reflection of poor morale and sloppy practise. Their figures imply they think there is a big problem in the NHS. I have been probing and recommending that they take on this challenge in the wider public sector for years, and have asked questions in the past about relative levels of absence in different areas.

I did have to encourage the sickness rate down at a private sector company I helped turn round years ago. You can do it, if the high sickness rate reflects poor morale and a culture of offering sick notes or just ringing in to say you feel ill when others would get on with the job. If the sickness peaks around Fridays and Monday, if it is higher near to public holidays, or if staff are heard talking about when they might fit their sick leave in, an employer should know he has to do something. Usually it is sufficient to make it clear you want it to go down, and then to have words with the most glaring offenders. Other employees can then be heard to say “About time too, we have been carrying him or her for years”. So my challenge to the government is not over their new intent, but to ask why haven’t they done anything about it over the last 13 years. Why should we believe this close to an election that they have suddenly discovered how to do it, and now have the will to take on the task?

Let me bring it down to an intelligible level. I have just completed a two year improvement in what I deliver for how much I cost the state as an MP. Starting from 17th cheapest MP in 2007-8, I decided to cut my office costs, staff, travel and expenses budgets by an overall 10% in each of the two years 2008-9 and 2009-2010. I began this programme before expenses became a lively topic of media debate. I have managed to do that, whilst still providing the same level of service. The only “cut” was to replace a printed regular report to constituents with an electronic one, which provides more information more regularly. None of this required redundancies.

Over the next two months if re-elected I have an opportunity to use natural wastage to make a further reduction in costs. The Head of my Parliamentary office has decided to move on to a new opportunity in the private sector, and my part time case worker and organiser in Wokingham is retiring. I currently run my combined Parliamentary office with two full time equivalents, or three people. I am naturally asking myself if we can streamline and improve more. That will require thought and discussion with those involved.

Every part of the public sector should use every retitrement and every departure for other reasons to question how they can run things better and cheaper. Parts of the pbulic sector would work better with fewer people. In some places the bureaucracy is stifling.

The Labour machine is in overdrive to get out the message that things are getting better, and can only get better with more of the same. In practise, things are being arranged for May.

Interest rates have been kept artificially low by printing money. That has to stop for good sometime after the election. Interest rates will rise.

Tax revenues have been artificially boosted by the threat of higher taxes on incomes, leading to a surge of bonus and other payments whilst the rate remains at 40%. The banker bonus tax has also brought in extra revenue which is unlikely to be repeated. Companies and individuals are hurrying to book things to pay tax before the rates soar. Then tax revenue will fall again.

Unemployment has not risen as far and as fast as many forecast, thanks to continuing strong recruitment of extra people into the public sector. This will come to an abrupt halt after the election, whoever wins.

The growth rate was boosted by depressing the output for the third quarter of 2009 in the revisions, not by increasing the output for the fourth quarter. January was a difficult month given the snow and transport problems. The government has been bringing forward various spending commitments to try to boost output for the rest of the first quarter. The cuts come later.

Today Labour launches its latest five point pledge card. I still enjoy reading the 1997 version, which promised to “set tough rules for government spending and borrowing: ensure low inflaiton; strengthen the economy” and wonder when they might get round to doing those?

This year’s version apparently repeats the 2005 promise to raise living standards. This used to be automatic in any 4-5 year Parliament, given the usual growth of the economy. Over the last 5 years the economy has not grown. This morning on the radio Labour’s spokesman avoided offering confirmaiton that they had raised living standards as conventionally measured, knowing how thin the ice was around this pledge. The Bank of England recently warned that we should expect a further fall in living standards on current policies, which I fear is all too likely. What price this pledge? Can the government tell us how much living standards have fallen by since 2007, and by how much more they expect them to fall?

The EU got it right the first time. All those member states in the Euro do need a single economic government. They are limping towards it, crab like and dishonestly. Countries like the UK that have stayed out of the Euro need to stay out of the many moves to economic government, and should use these negotiations to loosen Brussel’s grip on them at the same time as Brussels has to tighten it over Euro members. It should be done by Treaty change so we can have a referendum on the proposals and all that is related to them.

As I explained repeatedly during the big arguments over the Uk joining the Euro at the start of the era of UK federalist government in 1997, joining a single currency is like sharing a bank account with the neighbours. It’s not something most rational poeople would ever do, in the interests of staying friends with the neighbours.

If you must, you need to control the neighbour’s spending and borrowing, to make sure there is enough money in the joint bank account when you need it, and to make sure the neighbour does not draw out too much of what you have earned and put his feet up. That is what the argument with Greece is all about. Germany goes out to work in world markets and earns a surplus. Some now think Greece, which has run up a large overdraft, should be able to draw on the German earnings to repay some of the debt.

That is, of course, what has to happen if you wish to keep the joint bank account and keep the bank manager happy – that is what they are now reluctantly recognising they have to do to keep the single currency going. If I were a German I would strongly want to have much more Brussels authority over Greek spending and borrowing, so their drawings on the common bank account do not get out of hand. That is what yesterday was all about.