Month: March 2011

 

             On this site I last reported  public spending up 11% in cash terms in November 2010 compared with the same month a year earlier. I pointed out that the average increase was a more modest 7% from May 2010.  November was a particularly expensive month.

              It is good news that the figures from April 2010 to January 2011 are only 6% up on the same period the previous year, showing that the rate of increase is now on the way down. It would be better still  if other people in the public spending debate used the actual numbers so people can see the scale of the problem the government is trying to tackle. The worrying figure was debt interest. At £36.7 billion for  April 2010-January 2011, it was 47% higher than the same period in the previous year, showing the impact such high borrowing levels has and will have on public spending and  the public accounts. Debt interest now costs more than the Ministry of Defence.

 

               We need to raise more tax from the rich to help cut the deficit. That much many people agree. The question is, how do you maximise the tax take from the rich.

             In the past when the UK has cut rates of Income Tax and Capital Gains tax the amount paid by the rich has gone up, and the proportion of the total tax paid by the rich has gone up. Today the Adam Smith Institute reinforces this message. They say the 50p rate will lead to lost revenue and slower growth. The expect more rich people to emigrate, and more to find ways of  avoiding tax legally.  Their Report is entitled “The Revenue and Growth effects of Britain’s high personal taxes”.

Mr John Redwood (Wokingham) (Con): I, like my right hon. and hon. Friends, welcome the two aims of this legislation. The first, to hold a referendum on any future transfer of power, is vital to try to secure some democratic legitimacy for what might happen next. The second, to assert that this House and Parliament in general is sovereign, even over European law, is excellent, but I hope that Ministers will take away from this debate the great sense of unease among many colleagues, who feel that the Bill does not deliver what Ministers say it intends to.

As my hon. Friend the Member for South Dorset (Richard Drax) just said, we face a large transfer of powers in all sorts of areas at the moment-in criminal justice, in City and business regulation, in the External Action Service and, soon, in economic governance. Any one of those areas would deserve a referendum, but the whole lot together would make a good package for testing out the Government’s new enthusiasm for democracy and the debating skills of the Opposition, who say that that is exactly what the British public want. What is stopping them, other than fear and the belief that, perhaps, the British public would not vote for such measures after all?

I am also worried about the assertion of the parliamentary sovereignty clause. My hon. Friend the Member for Stone (Mr Cash) has probed and tested it, and there are legal dangers on the route that we are now taking. Sovereignty is something that we have for a period if we are prepared to use it, but it is also possible to let it slip away or to lose it, and we cannot make this Parliament sovereign by a single clause in a piece of legislation. It means nothing. This Parliament will be sovereign again only if it wishes to be; this Parliament will be sovereign again only if it has some political will; this Parliament will be sovereign again only on the day it says to the European Union, “We disagree with you on this. You will not give us what we want by negotiation, so we are going to legislate for ourselves.” Ministers should not pretend that this Bill has resolved the problem.

Let us take the issue of fish. I have heard Ministers, from all parties that have been in government, say to the House that they, like me, thoroughly disagree with the discard policy, think that it is wrong and intend to negotiate a better answer. No better answer has been negotiated. We gave the European Union 20 years’ warning. Why do we not simply legislate now to take ourselves out of the common fisheries policy and show that this Parliament is sovereign and works in the interests of the British people and a great British industry.

Mr Ian Davidson (Glasgow South West) (Lab/Co-op): Will the right hon. Gentleman give way?

Mr Redwood: I do not have time, otherwise I would be very happy to.

Mr Davidson: You have the support of Labour’s Back Benchers!

Mr Redwood: That’s great; I am very glad that I have the support, from a sedentary position, of Labour’s Back Benchers.

If this Parliament is never prepared to legislate against the views and wishes of the European Union, people will rightly conclude that the European Union is now sovereign. I mentioned in earlier debates on this legislation that the Crown remained sovereign for a long time in our country, and that Parliament whittled its powers away. There is no precise date on which people all agree that the Crown ceased to be sovereign and that Parliament replaced it, but the situation illustrates that, if we make too many concessions, make too many mistakes and grant too many powers on lease, one day we will not be able to get those powers back. The Crown discovered that it had given away too many powers and lost too many battles, and perhaps power finally resolved to Parliament on the day when they murdered-or killed-the King. That was a fairly definitive act, but it took place after a long series of battles and struggles when power had been ebbing away from the monarchy-and the monarchy was invited back.

I want no such violence in resolving the issue with the European Union, but I do want some political strength and some political substance. Surely, the European Union now does so many things that rile the British people that we should take matters into our own hands.

As my right hon. Friends on the Front Bench will always want to be diplomatic and to negotiate, I give them this final thought in the few minutes that I am allowed. The Germans, for their own reasons, think that they need a treaty change to accommodate the bail-out activities and the huge increase in economic governance powers that they intend to take over the other member states of euroland. They need our signature on that, even though we are not a member state of euroland.

I do not believe for one moment that we will be exempted from many of the requirements for information and common policy formation and negotiated solutions, even if we are opted out for the time being from the power of the fine. We will be dragged into the situation. I wish the Government would not only say, “We have no intention of being dragged into it and seek clearer language,” but to confirm that, say, “As proof of good faith, we want economic powers back.” The latest language from the Government suggests that we are going to keep control over the main elements of our taxation system, not our taxation system as a whole-a red line that the previous Government always said that they had attempted to preserve. We can see the drift in economic powers and economic governance.

The British Government must stand up for British interests. They will have no better chance than the new treaty that is about to be negotiated-so please, Government, use it, don’t lose it.

 

                          When oil prices first soared in 1973-4 they were blamed for the recession and collapse which occurred in western economies. In practice there were other things wrong with the economies then, with banking difficulties and a switch from easy money to tight money at the same time. It is also true that in those days western economies were more dependent on imported oil. The Uk was just developing the North Sea oilfields. Western countries had a bigger manufacturing sector which used more energy than the services which came to replace some of it.

                       Oil price hikes since have done less apparent damage, though they are not helpful to the western importing economies who rely on foreign oil. There is always an inflationary impact. The fuel price is important in its own right, and  fuel prices also tend to push up other prices, as fuel is needed for transport and production of many other goods.There may also be a deflationary effect. As people and businesses have to spend more on oil, they will have less to spend on other things, unless they can push up prices  and  wages enough in an inflationary way.

                 This latest oil price rise is unlikely to lead to successful inflationary pay settlements in the US, the UK or the Eurozone. It will be one more reason why living standards get hit. It will be a deflationary force on the economies later this year, to add to the downwards forces of  slowing demand in the emerging market countries, and tight bank credit in the post bubble retrenchment by the western  regulators. If the loss of oil output is on a  Libyan scale, and is temporary, the price rise might abate as that becomes clear. If the troubles spread into Saudi Arabia and production there is damaged, the markets may well take fright and push the price considerably higher.

             Most forecasters assume there will still be a good supply of oil from the Middle East, and that overall global economic growth will continue at a reasonable rate this year. Now, however, forecasters and policy makers should take note that there could be disappointment later in the year. Money is tight in the west, and getting tighter in the emerging markets economies. If the oil price goes too high on top of this, it will curb the growth and cause particular difficutlies in troubled economies like Greece and Ireland.

 

              As readers of this site will know, I think the worst errors that led to the Credit Crunch were made by the banking regulators, the Central Bank and the government. It was lurching from too easy to too tight money and credit which brought the banks into stress. It was the decision to pump public money into bank shares which was the last straw for a public losing patience with the government and the banks. That was a needless folly, as there were other means of avoiding depositor loss or system collapse whilst ensuring shareholders and junior  bondholders took the hit they deserved.

            The Governor’s criticisms of the banks today claim that the banks do not offer good service to customers, and are all too ready to take advantage of gullible customers with high charges and poor products. I have heard numerous specific criticisms of banks in general, which revolve around the following main points.

1. Regional and national centralised banking for business,with computer and model based analysis of loan prospects, makes it difficult for small and medium sized enterprises in each town to attract finance and the personal support of the Bank Manager.

2. Margins between lending and deposit rates are high. The costs of credit card borrowing in particular are substantial.

3. Large global banks pay their Investment bankers large sums, and seem more interested in that side of the business than the basic commercial banking on the High Street.

4. Banks do not know and understand their customers sufficiently, failing to offer the range of competitively priced savings and loans products that people would like.

             Part of the current large gap between savings and lending rates is the result of the Regulator’s demand that banks make more money to put aside larger reserves. Part of it is owing to the very low official interest rates set. The banks would say that professional credit evaluation is crucial so they do not lose too much money in future. They deny that reasonable lending prospects go without an offer of a loan.

              It is clearly true that Investment banking arms attract the best and most highly paid people, and are usually very profitable. That offends some people who do not like high remuneration, but does not in a well run conglomerate bank make it more difficult for people to get a loan or good service from the local branch business. They are two different types of business, run by different people.

           The quality of service and the prices will be improved for customers if there is enough competition in the market. It is arguable that the past government and Competition authorities allowed too much concentration in UK retail banking, a process encouraged by the last government when it allowed margers in the boom days, and when it encouraged the merger of Lloyds/HBOS in the bad days.

              The last wave of cost and price reducing competition was the advent early in the last decade of the new web based banks. Since then there has been little to match the impact of Chinese competition on industrial products, or the aggressive price cutting of the food retailers and clothing shops on the High Street. If new banking capacity could  be created or brought on stream we might find new services offered at better prices. New banks might want to allow more decision making at branch level with an improved relationship with the branch manager. They might want to use more analysis of people’s accounts to offer a wider range of cost effective services relevant to each customer’s financial position. They might offer a better deal to depositors and not force them to keep moving accounts to keep up with the best rates.

 

                This week-end I noticed the public sector is still out and about recruiting. The Business Department wants a Chairman and four Board members for a “Technology Strategy Board”. Couldn’t Business  senior officials do whatever work this is meant to require?  Network Rail wants “Business Change Managers”  at up to £90,000 a pop. “It will be our most exciting journey yet” as they tell us, but perhaps not for the taxpayer subsidising all this.  Perhaps more necessary, Crossrail wants a Chief Executive for “the largest construction project in Europe”.

             Transport for London seeks an “Infrastructure benchmarking specialist”.  The NHS needs  a “Health Economics Consultant” and an “Innovations Adviser” under the slogan “from bench to bedside. Fast”.

 

                It was strange timing for the Governor to give an interview attacking the attitude and approach of the commercial banks shortly after the government had declared an end to the war on banks. The Merlin deal was meant to mark an end to the era of hostility. It was to usher in an era of co-operation. The banks are now meant to offer good service, help the economy expand and grow, and behave responsibly on bonuses. In return the government would drop the hostile rhetoric, not impose any extra taxes than the ones already imposed, and ensure proportionate and effective regulation.

The Governor maybe wished to show he is no poodle of the government by carrying on his own public verbal war after hostilities have ceased elsewhere in the Establishment. He aligns himself with Labour in Opposition rhetoric on the banks, whilst confirming his support for deficit reduction by the government. That may well be balanced and sensible politics. It does however, have a drawback for one in his important position.

The Governor happens to be the system regulator for the banks already, and is about to become their day to day all powerful regulator under the changes to the system the government has announced. A Regulator needs to be truly independent. It is normal to avoid colourful prose or one sided remarks as a Regulator, to retain confidence in your role.

We need a detailed banking regulator of the large banks who is fearless and  independent. If customers, political parties, Unions and others bring him complaints about banking conduct, he needs to have their respect as a tough impartial investigator. He needs to call for evidence and promise remedies if they make their case.

He also needs, however, to have the confidence of the banks. They must know he is no pushover and will not suffer unreasonable conduct, but they must also know he is not institutionally biased against them. They too must expect a fair hearing, and know that if they prove their complainants wrong or mischievous they will win their case. They should expect tough action against them if the evidence supports the complainants.

Dr Vince Cable and Mr Jeremy Hunt could tell the Governor a thing or two about the need for regulatory independence and the need to be careful about what you say. Dr Cable’s remarks against Mr Murdoch meant all agreed he could no longer act as regulator in the Sky case. Mr Hunt’s  remarks before taking office praising Mr Murdoch’s contribution to the media in the past led Mr Hunt to rely entirely on the judgement and advice of independent regulators, instead of exercising his right to make his own decision on his own assessment of the merits, as a buttress against legal challenge. Mr Hunt first said the original deal should be referred on the advice of the authorities, and subsequently said the revised deal with an independent Sky News did not need to be referred, again on advice.

Any Regulator must be careful in public speech, and genuinely have an open mind. It is not sufficient just to avoid expressing a prejudice. It is important not to have a prejudice.  They need to get at the truth,even if the truth is sometimes unpopular or contrary to common spin. Exciting interviews make this more difficult. At least the Governor lined up on the popular side of the row about the banks, which will limit the criticism of him.

Tomorrow I will discuss the merits of his individual criticisms of modern banks.

 

               There is a convenient assumption amongst the media and many contributors to political debate that Ministers are all powerful. If a problem needs fixing they can fix it. If they fail to, it is wanton neglect or pig headedness that has meant they have failed  complainants.

               I am pleased to say there were always substantial limitations on Ministerial power. I am less pleased to report that the last decade has seen the erosion of some powers that Ministers do need to do their jobs. The task of reconstruction requires the careful rebuilding of elected power within the body politic, as well as the strengthening of Parliament to hold that power to account.

               Before the EU was given so much power, and before the European Courts became so assertive, Ministers had considerable scope. Rightly, Ministers have always been beneath the law like the rest of us. They have to obey and work within the inherited law codes. If they transgress, individually or collectively, they can be sued, charged or judicially reviewed. Their power compared to the rest of us came from two main sources. The first is  they can command the money and the personnel of government to do what the law allows with public sector resources. The second is they can change the law to allow them to do as they wish in the future, or to control the conduct of others in the future. It is true they need to persuade Parliament, but usually a Ministerial decision which automatically commands the majority whips can command a majority in the Commons.

                As we have seen in recent weeks, there are more areas now where European Courts tell Ministers they cannot change the law in the direction they wish, or require Ministers to change the law as the Courts dictate. Increasingly Ministers use their law making powers and the command of a majority in the legislature to enact more and more EU laws and regulations into UK law codes. Many of these are one way tickets to surrendering UK democratic power. Once passed these laws cannot be amended or repealed on the wish of a UK Minister, unless a majority of all EU member states and the Commision agree.

                    There has also been an erosion of power over the Labour years even within areas where UK Ministers remain free to decide. Ministers I am told  now sometimes make senior public appointments to  positions accepting the single preferred candidate of the civil service instead of going through a proper sifting and interviewing process themselves. Transferring many quangos into civil service departments as they are doing will leave Ministers with less potential influence over the senior people and the corporate plan of the organisation than if they had maintained a segregated identity (that’s where they cannot be abolished). The scrutiny of quango corporate plans, challenging their  charge and fine raising, questioning their costs, examining  the business cases for spending, considering the impact assessments of regulations – these are all parts of a junior Minister’s job which often went undone in the Labour years. It is important work, and Ministers need to return to it, and explain to their officials they intend to do so vigorously.

            The junior Minister, working to the general aim of the Cabinet member or government’s overall strategy, can play a vital role in ensuring effective implementation. He or she should be the taxpayer’s representative, asking if the costs are controlled and if the proposal is necessary. He or she is also the consumer or complainant’s representative, asking if the proposed spending or regulation will do what is needed by the groups affected. Some junior  ministers over the last decade concentrated on the media, messages and spin. They revealed their ignorance of the detail of their department’s work and of the policies they were administering. The taxpayer expects Ministers to lift their game and to gain control over how many people they employ, how they are motivated, how they pursue their aims, how well they buy in goods and services, how they raise quality and cut costs. It may not be glamorous work, but it is both interesting and essential. We need to value good management of the puboic sector more, and good tv performances less.

 

                Going into London by car, and finding my way round the centre on foot, I have to run  the gauntlet of large amounts of public spending. I kept a mental note one day last week. On the way out of Crowthorne I had to wait whilst four vehicles with more than  half a dozen men closed the road in the direction I was heading in  order to tidy the verges. Further on, there were more works on the A322. The M3 still has a long section of 50 mph restriction with various roadworks being undertaken. In Richmond there was another missing lane for roadworks. It was not possible to work out what they were doing. Along the Cromwell Road there are restrictions on the carriageway to allow a complete rebuilding of the pavements. Along the Embankment by Millbank they are  putting new wide pavements in to the middle of the road with aggressive kerbs. The roadspace is similarly being reduced along Pall Mall, with a pavement being put in the middle of that road. In  other locations around the West End there are works putting in expensive granite paving where once there was tarmac road.

It does not feel as if there is a spending squeeze on when you see this kind of work proceeding. We have managed without a wide pavement in the centre of the Embankment or Pall Mall for many years. Why is it suddenly urgent to spend money on this right now, in the middle of a spending crisis?

I also noticed a profusion of relatively new signs, freshly coloured paint on the roads and plenty of sets of traffic lights, some of them fairly new. I did not notice many new features which would help keep traffic and pedestrians apart to improve safety, nor junction changes to make them freer flowing and safer. There are still plenty of sets of London traffic lights where they have red in every direction phases for cars. I rarely see someone wanting to cross both ways at the same time taking advantage of this.  I am mainly a pedestrian in London. As such, I can say it does not usually help me to have all red sequences.

 

             The Barnsley by election might have been a good time for the Eurosceptics to come out and show their strength. After all, the Lib Dems  were not very popular, a Labour victory was always likely, but the cause of  the by election was not a helpful one for the defending party. In a by election more people might be persuaded to say what they really think. Apparently they really think federalist Labour is best for Barnsley.

           As always the Eurosceptic splits were on show. This time UKIP edged into the lead amongst the Eurosceptics, but only managed 12.2% of the vote. The total Eurosceptic votes was 22.7%, plus 6% going to the BNP.

          Once again those who say the electorate are ready to take strong action on the EU are wrong. The Eurosceptics could not  even reach one third between them, let alone a winning margin. We get the governments we vote for.