Month: April 2011

              The week-end press had started to wake up to the private sector squeeze which we have been talking about on this website  for the last year, the squeeze which was even heralded by the Bank of England itself. The high rate of inflation coupled with a low rate of wage and salary increases is squeezing spending power.

             At the same time there is a recovery underway, which has been best so far in manufacturing. The Bank which likes to cling to the notion that there must be plenty of spare capacity in the economy because of the depth of the recent recession, should get out more. They would discover that large manufacturing companies rely on a worldwide supply chain. They would learn that there are shortages of raw materials, components and manufactured goods around the world. The Japanese earthquake and tsunami has just made this worse by removing some Japanese capacity. The fast growth in India, China, Brazil and the other emerging markets is keeping things lively.

         Some of the world’s main manufacturers are trying hard to get more components and materials to meet their growing output. Some are even talking of putting customers onto quota and allocation, as they cannot keep pace with demand. In the UK input inflation is running at very high levels. It’s not just oil and energy that has rushed up, but so have metals, foodstuffs and a range of semi manufactures and components. The rapid printing of dollars, the strong money and demand growth in the BRIC and related countries, and the shortages now emerging are inflationary as some of us have been predicting for many months.  In China, India, Brazil, Australia and elsewhere interest rates have been put up to cool things down a bit. The cost of inputs to business shot up by almost 15% in the UK over the last year. Did the Bank forecast that? Is all going to plan?

            In the UK the high costs of motoring appear to be hitting the numbers of people travelling, going to shops and attractions. It is good news that the government now says it wants to do something about that, starting with fewer MOTs. It also needs to do more to ease congestion on the roads at busy times, which is often the result of poor traffic engineering, or the direct result of Council and government spending to cut the flows on the road with expensive new traffic engineering schemes.

           I was also pleased to read that the government plans to ban Councils from taxing and fining people who fall foul of increasingly arcane rules on rubbish. That may not be very localist, but it is very welcome news to people who now fear the bin police along with all the rest of the bureaucratic snooper army.

             On Monday 11th April we will hear or read the preliminary conclusions of the Vickers Report into banking. A lot is riding on a successful outcome to this important Inquiry.

              Politically John Vickers has to say enough to persuade people he understands the anger many feel about the conduct of banks and bank regulators prior to 2008, and the frustration they feel about the large sums of public money used to buy up Northern Rock, RBS and part of Lloyds/HBOS. Technically he has to understand what brought and keeps so many banking jobs in London, and how he can in the future keep income and wealth generation here whilst cutting the risk and size of any future bail out by taxpayers.

             His analysis will be important, as well as his conclusions. I hope he will illustrate how there were two phases to the regulatory disaster – the first one when they allowed too much credit and leverage in the system, and the second when they allowed too little and starved the market of funds. His story will have to include the fact that Northern Rock and Lehmans, the two worst casualties of the Anglo-American crunch, were specialist banks, not large general banks combining investment and retail banking. Forced separation of the two components would not of itself have prevented the 2008-9 rolling collapses.

               I trust he will seek to make changes to address two big issues. The first is the question of “too big to fail”. Early briefing suggests he will propose that the necessary utility UK banking arm of a large bank should have its own balance sheet and its own means of continuing in business whatever may befall the rest of the organisation. Alternatively it should be capable of separation in the event of a crash of the global  bank owner. The latter proposal is probably the easiest answer, and the easiest to sell to the global banks in London.

                   All that matters to UK taxpayers is that any future crisis is not only less likely, but also much cheaper and easier to deal with because it will only relate to the essential utility UK banks. The rest of the banking groups will have to follow market disciplines in the event of a crisis, which could include a controlled move into Administation or temporary protection from creditors whilst it worked out how to sell assets and write off lossses.

                     The second big issue is how we can have a more competitive banking sector in the UK. Individuals and small and medium sized companies are not well served, and could do with more choice, better service and more competitive prices. The EU has made RBS and Lloyds sell off some assets in UK retail banking to provide some competition. Sir John could ask for more to be done from the RBS stable whilst it remains in public ownership.

                      It would be good if another couple of High Street banks could be hived off from the state assets owned by taxpayers. At the time of sale they could raise more private capital so those new banks would have money to help grow their businesses and give them a stronger position in a more competitive UK High Street. We have lurched from far too much credit to too little. The Regulators are now restricting the flow, and the few banks we have left are keen to sort out their balance sheets by squeezing their loan books.  Regulating too tightly brings other problems to regulating too loosely. We are suffering from first one, then  the other.

               First we are told that providing a new loan to Greece, or Ireland, or Portugal, creates a line in the sand, prevents the contagion spreading. As each sucessive loan demand showed, that did not work. The incoming tide of debt erased the lines. The contagion spread. The mixed metaphors were too weak to face  the facts. 

           Then we are told a loan package for a troubled country will be linked to tax rises and spending cuts which will sort the problems out. In the case of Ireland it emerged that the banks needed another E24 billion to satisfy the incoming government. In the case of Spain they are putting sums into their banks at risk which the market fears will still not be enough.

           A loan package from the EU and IMF achieves two things. It firstly offers the country subsidised credit compared to market rates. That’s why they ask to borrow, as they are finding it too dear and difficult to borrow in the normal way. The subsidy is paid by the lending countries.  Secondly, it claims to offer a policy change which will curb the deficit, mend the banks and put the economy onto the right course.

         Such a policy change, if convincing, would remove the need for the subsidised  loan. If the markets believed that the country concerned was taking sufficient action to curb its deficit or mend its banks, then that country would be able to borrow in the market again at sensible rates. If the market is not persuaded, then we need to ask why the IMF and EU do not insist on deficit reduction measures that carry conviction. The interest rate on Greek and Irish debt did not subside to more normal levels once the policy changes demanded by the lenders were announced.

          It is possible the markets are wrong and the EU is right. As taxpayers contributing to this folly it  would be good if for once they were. The markets are concerned that the policy changes do not allow more rapid growth in the damaged economies. Without decent growth deficit reduction is a far more painful process. Tax rises can result in lower revenues. Business investment and new jobs can be diverted elsewhere. With no devaluation countries locked into the Euro can find it difficult to export their way out of trouble. There are conditions when locked into the Euro when countries can be forced into round after round of tax rises and spending cuts if growth does not come through to ease the pain.

       I would recommend strongly that instead of sitting down and discussing the terms of a bail out loan, the EU should discuss with Euro members the terms of that country’s new economic policy designed to restore market confidence. It is a matter of general Euro area concern, as the European Central Bank stands behind them all. Only if they re-establish market confidence can these countries be sure of a better future.

        Meanwhile, it would be  helpful to have a statement from the European central Bank about how much state debt from Euro members it is prepared to buy, and how much support it can give to Euroland area banks. There is a danger the ECB could build up very large positions in the weaker countries and banks. Then one day they might decide, as they did with Ireland, that they need to cut their positions. That can trigger difficult negotiations at very difficult times for the country concerned. Maybe there should be more transparency and stability in this crucial area of policy.

I am told that there is a new welcome emphasis on the public’s views at Downing Street. They are taking polling more seriously. It was worries by the public about the Health reforms that lies behind the recent decision to consult again and if necessary to change the plans.

I trust they will also follow the polling in other respects. Polling shows that a majority do think the deficit is a big worry, and a majority think the state needs to live within its means. I suspect if the public were asked, they would also say charity begins at home.

The British public are generous to people in a crisis or in great poverty. They like the fact that the UK is a generous donor to try to prevent starvation or to help clean up after natural disasters. They should be asked, however, if they think this country should give £80 billion over the the lifetime of this Parliament by way of EU contributions and overseas aid. I suspect they would say economies could be made in these big programmes, whilst continuing to respond warmly and generously to humanitarian and natural disasters around the world.

The Secretary of State for Overseas aid has himself said that many of the inherited programmes did not do the job intended or did not offer good value for money. As he cancels or streamlines those, couldn’t we save the money for a year or two whilst we get the public finances back into more robust shape? Wouldn’t new programmes that offer better value for money be improved by taking a couple of years to think them through and consult on them before committing the cash?

The Prime Minister fought to limit the increase of the EU budget. With the EU wanting UK support for their new programme of economic governance, wouldn’t it be a good time to ask again for cuts in the EU budgets?  As every Euroland country in trouble is told to slash its own spending, isn’t it time the EU as a whole agreed that cuts could best start at the EU level? Why is the EU unable to show by example how to control public spending, when its main message to all its member states is to get the deficits down? Bail out packages do not seem to solve the problems of Greece or Ireland, so why should we go on contributing to them? Don’t they need pro growth policies? Aren’t the weaker banks of the Euro system the responsibility of the European Central Bank  who can lend them what it takes?

I suspect this would all poll rather well. Let’s hope for some action. People would like this deficit reduction business over more quickly.

The British public debate is schizophrenic when it comes to excellence, and its ally, selection. Most socialists want the most stringent tests and selection to ensure the leading football and athletics teams in the country only contain the best sports people. They encourage vigorous selection, promotion on merit, tough training regimes, access to elite facilities, and differential treatment for the successful. No-one argues that the rest of us should be able to use the England training ground for our leisure sports, or be eligible to play for our national team based on a sense of justice and equality. We want the best and try to create and nurture the best.

When it comes to academic excellence many take a different view. If the many cannot go to the elite institutions,they demand changes by the elite institutions to accommodate more representatives of the many. If the standards of the elite top performers are too high, they criticise them for being stuck up and demand a different approach.

Creating a cadre of top scientists, lawyers, medics or other academically based professions requires the same approach to nurture, training and excellence as creating an elite sporting team. You want people who are motivated to be the best, and who know they are competing globally with the best in the world. You need elite libraries, laboratories and other facilities. You need the best teachers, just as the soccer stars need the best trainers.

Just as the future Wayne Rooney needs to practise his place kicks when his mates want the night off, so the future Nobel prize winner or leading lawyer needs to read another book and attend another seminar to reach top form. There is a price to success, and a prize for success. That is why some attempt it and others do not. If we want a more socially mobile country we have to acept the pursuit of excellence in the academic world as well as in the sporting world.

The British are more divided over business excellence. Some entrepreneurs capture the public imagination, and are forgiven for making themselves very rich at the same time as serving the public well. Others are pilloried for the trappings of their success. There is not the same uniform enthusiasm for the self made business person that you encounter in the USA. The successful business builder needs to be a careful politician as well, to avoid public disopprobrium of his success.

The government wants to do more to promote social mobility. It wants more children to enter higher paid employment from home backgrounds that brought them up on benefits or low incomes.

There are many ways for young people to aspire to much higher incomes than their parents. They all entail lots of hard work. Being a star footballer, a leading singer, a great dancer or a well known actor all require plenty of discipline and training. The social reformers have in mind more people from the inner cities becoming High court judges, leading barristers, senior medical consultants, leading accountants and writers. These professions can offer attractive levels of financial reward, but all require substantial academic achievement on the part of their recruits.

The single most important thing the government can do to bring this about is to reform the state schools so that more of them enthuse, encourage and promote academic excellence. A disproportionate number of independent school pupils go to the elite universities, because a disproportionate number of the academically successful emerge from fee paying schools. This is not the fee paying schools fault. It is a problem we need to sort out in the state sector.

The government does not want to create grammar schools in every town in the way John Major once promised. It has bought into the socialist view that elite academic schools should only be available for the children of the rich, and not for the rest. That means finding ways to encourage sets or groups within comprehensives that can pursue academic excellence without interruption and with teacher support within the comprehensive framework. It means stamping out bullying, seeking to contain or rid the school of the idea that  reading isn’t cool and swots need to be exposed. It means promoting excellence in academic life as well as in sport,and art and the other items on the curriculum.

At sixth form level it means providing good pupils with access to libraries full of challenging books and computer programmes that can can stretch the student. It means moving away from teaching for the marks in the exam to teaching the subject in the round for part of the time. It probably means taking fewer exams, but taking harder ones.

                  I visited a public library recently. It was not in my constituency. It was housed in a great new building, in a large and well appointed room. I was told it was not about to close. It was run by friendly Council staff. Money had been found to set it up and keep it going.

                  During the half hour I was in or near it I did not see anyone borrow a book. I was the only visitor in the visiting party to go and look at what was on the shelves.  There were not that many books on offer. It was predominantly a fiction library. The crime section seemed to be the single biggest themed area.

                I lingered over the non fiction shelves. The books seemed oriented to middle class hobbies like antiques and foreign travel. I guess the book buying had been well judged to cater for the demand of a fairly affluent local community that said it  wanted a public library.

                 Some  defenders of every public library imply that they are for a different clientele. They conjure images of children from homes living on low incomes developing a passion for reading serious books borrowed from the local library. The library is seen as a force for self improvement and the pursuit of knowledge. I fear that in many cases this  is no longer true, if it ever was.

                     I remember as a sixth former running out of books to read on my chosen subjects in the school library. I gave the local public library a try. It had more  books than the one I visited recently. The truth was, however, that even with a larger non fiction section, it was not designed to help the serious student. The school managed to help me sort out a reader’s ticket to go to the local University library, and to the Cathedral library, which saw me through the last year of school.  When I got to university I then confronted the opposite problem. There were so many books in the university library on my chosen subjects I was intimidated by the weight and range of learning available. There lay several  lifetime’s reading, not just three years.

                It is important that those who wish to read to improve their minds or provide them with new skills should have access to books to do so. They also need access to computers, as so much good material is now available on the net.  Many libraries and educational institutions do now offer this facility. We have a range of different libraries in many communities, largely provided at the taxpayer’s expense.

Most cities and large towns have secondary school libraries, public libraries and university libraries.  Maybe at a time of tighter spending controls we need to think again about how many libraries we need in each community, where they are best placed, and how the educational libraries can be used by those who do not go to those institutions. A system of book transfer, holiday loans and the like might ease any book shortage, cater for those who wish to read well.

When it comes to general fiction libraries we need to see how many we need and where they best be located to maximise use whilst keeping down cost. Mobile libraries that bring the books from the big libraries to the public might be one way through, to improve the service at realistic cost.

                  This week-end has seen numerous briefings against the Health Secretary. I have found him to be one of  the best informed, and  most accessible of Cabinet Ministers. He knows his brief well, is aware of the problems of piloting through change to the NHS, and has already secured the support of the overwhelming majority of GPs to his new proposals for commissioning.

            The first criticism made of him  is he has come up with radical reform proposals that were not explained to the public before the election. I have quoted liberally before on this site from the Conservative Manifesto to show this is wrong. The Manifesto on pages 44-49 went into considerable detail explaining the changes. It said administrative costs would be cut by a third by taking out layers of bureaucracy. It said GPs would be put in charge of local commissioning and would help patients by purchasing their care from a variety of providers. It said “We will give every patient the power to choose any health care provider that meets NHS standards, within NHS prices. This includes independent, voluntary and community sector providers”.

               The second criticism is that these changes are somehow against the spirit of the NHS, and different from the kind of reforms Blair initiated. Again, this is wrong. All three main political parties and a large majority of the UK electorate strongly support the central idea of the NHS, that care should be made available free at the point of use on the basis of need. The care should be paid for by all taxpayers through their contributions to general tax revenues.

             All three parties have long accepted the role of the private sector to help supply the free care for patients. The NHS presided over by Labour, Lib/Labour and Conservative governments have in the past relied heavily on for profit companies to supply all the drugs and other medical supplies  used in the NHS. They have employed contract cleaners, caterers, management consultants, legal advisers, advertising agencies, recruitment consultants, property experts and the rest from the private sector to assist in managing the large service. The NHS has offered contracts to many doctors whom also run private clinics, or charge for additional services provided to NHS patients. The doctors were not nationalised when the NHS was set up. Much elderly care has long been provided in private sector nursing and care homes.

                   Labour also strengthened the idea that parts of the medical and clinical workload could be contracted out to private clinics and hospitals. They reasoned that if a private clinic could perform cataract removals or knee joint repairs to a high quality standard and the same or lower price than the NHS, they should increase NHS capacity by letting such contracts. Labour also used private finance extensively and often very expensively to build and rebuild hospitals and other facilities.

                     Like so many public services in the UK, the NHS is not entirely nationalised, though often misunderstood by its employees and some patients. It has never been the case that all the NHS assets are state owned, all the employees are on the state payroll, and all the supplies and services are provided by public sector suppliers. Some of Mr Lansley critics are trying to make out that there was some kind of golden age when the NHS worked well because everything was done in house by public sector staff. History tells us otherwise.

               Some critics cry foul at the thought that the private sector might do what it can do best and at lower cost. Taken to extremes, that judgement would end all private contractors currently working within the NHS.  Some argue that the Lansley reforms are back door privatisation, whereas the PFI/PPP/private sector contract regime of Labour was somehow not privatisation.  These criticisms are not thought through.  Healthcare in the UK is under the umbrella of free care at the point of use and will remain so. Beneath that umbrella there has always been a lot of mixed working between public and private sectors. Instead of being ideological about it, why  not let patients decide where and how they want to be treated with the advice of their GPs. Haven’t we got beyond the yah boo of public/private, in a service which has many interactions and hybrids between the two?