All you need is truth

 

          When I last gave a lecture on leadership I chose to highlight Elizabeth I, Nelson, and Terry Leahy of Tesco.  My audience was ready for praise of Elizabeth’s skill   in standing up to Spain, the international bully of the day. They grasped the brilliance of Nelson’s band of brothers in delivering the greatest sea victory of the modern era at Trafalgar. They were more surprised by my choice of a grocer.

            Terry Leahy led a quiet revolution as Marketing Director, then CEO at Tesco. In the mid 1990s, when he first gained some power, Tesco was lagging behind the giants of the British High Street, Sainsburys and M and S. By 2011 when he left Tesco, the Group  had grown to six times the size of both its leading rivals.  It became the world’s third largest retailer, with access to more than half the world’s population through outlets in 14 main countries. It did this mainly by organic growth, building and fitting out stores and buying the right ranges of product.

              I was sent a book a little while ago written  by Terry Leahy to review. I have been too busy with Parliament in session to read it. Today I picked it up, and could not put it down until I had finished it. It says so much so well about how  to lead large organisations. If its simple messages were adopted by public sector leaders, we could have so much better public services at less cost.

                  Terry Leahy’s ten words for success are  truth, loyalty, courage, values, act, balance,simple, lean, compete and trust. If he had to choose just one, it would be “truth”. How right that is, and how well he grasped it to transform Tesco.

                  When he took on the task of making Tesco number one in a highly competitive market when it was well behind Sainsbury, he began with a brutally honest appraisal of Tesco’s stores, service, product and prices by asking customers what they thought. He believed them when they said they did not like the layout of the shops, did not think the prices were good enough, and  did not think Tesco was sufficiently on their side. He set about changing all of that.

                   He discovered that if he asked representative loyal local Tesco shoppers  how the store budget should be spent to improve the shop, they not only gave him good ideas, but ended up spending less because they had the canny householder’s sense of having to live on a realistic budget for improvements. His customers told him they needed special foods for allergies if he wanted to keep that family’s entire shop. They wanted to feel valued.

                     The big break through came when he introduced the Tesco Clubcard. He took the risk with his boss who some years earlier had dropped green shield stamps, and faced a withering comment from his main competitor about it. It worked. People liked getting 1% back from their purchases as vouchers to cut the cost of their next shop. It was a way of saying Thank you. Even more importantly, it was a way of transforming the company’s knowledge of its customers and what they wanted. It took retail merchandising and marketing onto a new level. It meant the business could be customer friendly.

                    The public sector remains so far detached from its forced customers, the taxpayers.  It  does not use these great modern techniques to serve the customer better. Mr Leahy when he ran Tesco pleased millions of customers and showed how to do it. Leadership starts and ends with truthfulness about what you are doing and what the customer wants. Customer wishes  drive good businesses, and are ignored by bad.

                         If only something like our national roads service was run with the drivers’ interests in mind. Just think how much better, and better value it would be.

 

Terry Leahy: Management in ten words (Random House)

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93 Comments

  1. norman
    Posted July 20, 2012 at 5:45 am | Permalink

    I’d be interested in what his philosophy towards his employees was, not the boardroom or executives, but the people who come in before the sun comes up to receive deliveries, mop the floors and ensure that the shelves are stocked for the rest of us.

    Too many people think of big corporations as trying to screw the little guy to maximise their profits. I imagine if we were to peer behind the curtain at somewhere like Tesco’s we may find a different picture. Not to say every manager or shop is perfect or that every employee turns up to work with a smile on their face but thinking more about what the philosophy from the top is and how management make sure that this is implemented across the business.

    As for his most important word ‘truth’ I’ll refrain from making a comment on a particular public sector institution that immediately springs to mind however tempting it is!

    • Deborah
      Posted July 20, 2012 at 10:04 am | Permalink

      You believe there is a problem with truth in a particular public institution? Only one? I’m sorry to say, it is much worse than that.

      Too much box-ticking and concentration on presentational skills rather than underlying competence has resulted in a plethora of ambitious but incompetent people promoted to positions of responsibility in public service. Their careers have been based, not on truth, but on saying the “right” things and managing upwards. Misleading others has been the source of their success. Now, lacking the capability to run things properly, they work together to cover up mistakes and brush things under the carpet. We have a gaping hole in corporate governance in the public sector. Politicians and senior public servants work the system to their own advantage.

      The major parties benefit from this and exacerbate the problem by making false promises which they have no intention of keeping. They wax lyrical about a “new politics” with more honesty and then, when elected, carry on business as usual. They are part of the problem – they have no incentive to seek change.

      We also have a tame press.

      When presentation is allowed, even encouraged, to triumph over content, truth has no value. The forces of supply and demand will do the rest.

      • uanime5
        Posted July 20, 2012 at 7:43 pm | Permalink

        Some of the problems you mentioned all occur in the private sector, such as banks.

      • Bob
        Posted July 21, 2012 at 9:45 am | Permalink

        @Deborah

        That is the truth, the whole truth and nothing but the truth.

        And as uanime5 says, it’s not limited to the public sector.

        I noticed this obsession with presentation creeping in during the late eighties, all style no substance. I was the one who remarked that the emperor wasn’t wearing any clothes, and a fat load of good it did me at the time.

  2. Posted July 20, 2012 at 5:48 am | Permalink

    John,

    As long as public servants ultimately answer to politicians they are never going to be customer facing…

  3. Mike Stallard
    Posted July 20, 2012 at 6:06 am | Permalink

    “They wanted to feel valued.”

    Sorry. That is not how it works.

    What you need is a management structure, so that the public sector is run efficiently. Also you need to prepare carefully for all eventualities by making sure that you are in with the right people. If anything untoward happens, then you are covered.

    Did you see “Bank on Dave” last night? The FSA had it absolutely right. When they were sidetracked by clever lawyers, they did not even bother to see him. Instead they sent Mr Vince instead who soft soaped the danger out of the way. Meanwhile, Lord Turner came out from behind the shadows and proved that in no way was either he or the FSA guilty of having anything, anything, to do with the Barclays debacle.

    The Public Sector is nothing to do with either the taxpayer or the businessman. It is there to make sure that the public (and they) are protected properly.

    • Bob
      Posted July 21, 2012 at 9:54 am | Permalink

      @Mike Stallard

      “make sure that the public are protected properly.”

      The auditors should come under the spotlight.
      Too often they turn a blind eye to keep the client sweet for the sake of future fees.

      • Deborah
        Posted July 21, 2012 at 3:34 pm | Permalink

        That is true.
        Auditing used to involve checking facts and exercising professional judgement. Now, in the public sector (I haven’t seen private sector audit recently), it has degenerated into ticking boxes about compliance and risk assessment. Anything beyond the boxes is “outside scope”. Inconvenient facts are immaterial
        It doesn’t matter what evidence comes up to show internal controls are not actually working. As long as management can point to written rules about what should be happening, and come up with some cock and bull excuse, everything can be ticked. A few gentle audit recommendations will keep everyone happy.
        Management continue to draw their unjustified salaries, the auditor gets his nice chunky audit fee and the taxpayer gets royally ripped off.
        The District Auditor used to be on our side. Not any more.

  4. Mick Anderson
    Posted July 20, 2012 at 6:29 am | Permalink

    If only something like our national roads service was run with the drivers interests in mind. Just think how much better, and better value it would be.

    Also, if the drivers were charged only for maintaining the road network, rather than being treated as a cash-cow for Government waste.

    Government is a monopoly with an awful lot of draconian law and enforcement on its side. When Mr Leahy started to improve Tescos, he was very aware that he had to give people positive reasons to walk through the doors. If only the collected Cabinet had a tenth of his talent….

    • Electro-Kevin
      Posted July 20, 2012 at 8:05 am | Permalink

      A good point.

      Apropos earlier postings on Railway expenditure Vs Road expenditure:

      It isn’t a clear cut case of all the road taxes being syphoned to subsidise railways.

      Most of the road taxes are being used to prop up all sorts of government activity other than roads, some of it happens to be on railways.

  5. Pete the Bike
    Posted July 20, 2012 at 6:34 am | Permalink

    The only way to better services is to eliminate the public sector. Government or council departments do not face the free market, their customers are either forced to use them by threat of imprisonment, by imposed monopoly or by predatory taxation. Any private, non monopoly, business faces the real possibility that it’s customers will either cease buying their product / service or a competitor will do it better and take customers away. No public sector “service” has that possibility hanging over them and therefore will never put customers first. The greatest improvements in human life were made before the state seized monopoly control of education, health and so much else yet people have been brainwashed into believing the state can do things better when there is not a shred of evidence to back that up and mountains of evidence to prove otherwise.

    • wab
      Posted July 20, 2012 at 8:28 am | Permalink

      “The greatest improvements in human life were made before the state seized monopoly control of education, health and so much else.”

      Yes, let’s get back to good old Victorian values, when nobody except the rich had education or health care.

      And the alleged state “monopoly control of education” is a joke, most of the ruling elite still go to private (whoops, “public”) schools.

      Even in health care you can spend your money on BUPA if you really want. But BUPA doesn’t give you better health care, it just gives you fast track health care.

      • Deborah
        Posted July 20, 2012 at 2:36 pm | Permalink

        In health care fast track often means better. Waiting for treatment can be fatal.

      • libertarian
        Posted July 20, 2012 at 8:43 pm | Permalink

        If you really wanted to pick an arbitrary time in history to compare then Victorian England isn’t much use to you. I suggest you go and learn some history about the things that the Victorians did.

        Why you think that these suggestions are a return to anything is exactly the kind of lame thinking that has held back this country for the last 40 years. Ironically the Victorians actually invented or laid the ground for inventions of almost everything that the Japanese and Americans have exploited so well while we sit around listened to “class” nonsense like yours.

    • waramess
      Posted July 20, 2012 at 10:00 am | Permalink

      Seconded with no reservation

    • Bazman
      Posted July 20, 2012 at 5:55 pm | Permalink

      How about a private company milking the state? Your rose coloured view of the private sector did probably exist at one point for some of the British population. A bit like the Daily Mails England that never was and never will be. This vicars on bikes view existed for about a thousand people in the 1930’s I once read. The rest lived as they could and often in squalor. The railways could be run like this at the start, but not in a modern Britain.

    • uanime5
      Posted July 20, 2012 at 7:48 pm | Permalink

      Care to explain why the private sector hasn’t improved water companies or trains. It seems the private sector doesn’t always delivered improved services and often makes the problem worse.

      • Bob
        Posted July 21, 2012 at 10:15 am | Permalink

        @uanime5

        “Care to explain why the private sector hasn’t improved water companies or trains.”

        I think I can explain. It’s because these industries are virtual monopolies. The privatisation procedure was flawed. Another failure of government. In the case of railways, I believe it was rushed through just prior to John Major’s removal from office.

        The telephone network has improved since the days of the GPO, but BT still suffers from a culture that reflects it’s former status as a monopoly.

        On balance, whatever can rationally be left to the private sector, should be. After all would you like to buy a car or a washing machine built by a government factory? Remember the Morris Marina?

        Reply Monopoly is more important in producing bad service and high cost, than ownership details. Rail did very well in the early years of privatisation, changing from long term decline to passengeer and freight growth and cutting subsidies. The main part of the railway is now nationalised again.

  6. oldtimer
    Posted July 20, 2012 at 7:05 am | Permalink

    Tesco has been a remarkable success story in the UK – and for the reasons you outlined. If he was brutally honest about customer perceptions of Tesco`s offering and adapted accordingly, he was also brutally successful in squeezing out his competitors. This has been achieved by a mixture of market saturation, and the acquisition of prime sites denying others the chance to develop them. (See the Tesco/Sainsbury battle in Slough eventually won by Sainsbury after a Monopoly Commission ruling).

    Tesco now deploys huge financial, legal and political power in the UK. So much so that near where I live, they secured approval to a new store despite (a measured) 90% of the local population being against it, together with the opposition of the local authority. After a planning enquiry and all that cost the locals (including money raised by jumble sales and auctions), the decision in favour of Tesco was imposed on the locals by John Prescott when he was deputy PM. (The locals believed it was part of the payback for a £1 million to the Dome fiasco). All but one of the local competitor shops closed. Luckily there is some new competiton in the form of M&S Food and Waitrose. Even so the area has nearly become another example of the retail monoculture that blights so many High Streets.

    So yes, he did a brilliant job; just remember we need competition too.

    • Johnnydub
      Posted July 20, 2012 at 11:44 am | Permalink

      Oldtimer – “despite (a measured) 90% of the local population being against it”

      Well this position could have been brought to bear rather effectively by not shopping there…

      “All but one of the local competitor shops closed” – ah so the 90% made the choice to shop there…

      So you’d rather keep the poor local shops despite the fact that when your neightbours had a choice, they made it to shop at Tesco’s?

      • oldtimer
        Posted July 21, 2012 at 8:30 am | Permalink

        That is precisely the choice made by many residents – this Tesco store is reported to be a money loser. My family does not shop there, even if it means travelling some distance to shop elsewhere – in short we have voted with our feet.

        • Bob
          Posted July 21, 2012 at 10:24 am | Permalink

          @oldtimer

          I voted with my feet too.

          I did the same with the TV licence and also with Total petrol because of their support for the Burmese junta.

          Of the two Total stations near me one has changed to shell and the other is now a block of flats.

          Tesco and BBC beware!

    • David John Wilson
      Posted July 20, 2012 at 1:07 pm | Permalink

      Just look at your own constituency. Over the last few months a number of planning submissions have been rejected by local residents and the borough council. In particular the Cricket Field and Warren House Lane. Both of these rejections have been overruled bycentral government who have no concept of what local residents want.

      Before expecting others to follow Tesco the government needs to get its own house in order and listen to what the public wants.

    • Barry
      Posted July 20, 2012 at 3:19 pm | Permalink

      “…they secured approval to a new store despite (a measured) 90% of the local population being against it”

      Must have been a VERY effective poll then.

  7. A.Sedgwick
    Posted July 20, 2012 at 7:22 am | Permalink

    Suggest you pass your copy on to DC.

  8. alan jutson
    Posted July 20, 2012 at 7:23 am | Permalink

    Perhaps he alone could replace all 14 advisors that Nick Clegg employes (to think for him) at huge taxpayer expense.

    Time and time again many of us on this site have made comment that the problem with many politicians, is no proper work experience in the real World.

    Perhaps all of our Mp’s should be given a copy of his book to read, after all, you all now have many weeks off from sitting in Parliament, and its not as if many (our host excluded) think we have a problem at all.

    Did Terry Leahy ever think of printing his own money as a solution ?

    • eddyh
      Posted July 20, 2012 at 6:07 pm | Permalink

      How many of our MP’s would have the attention span to read his book?

  9. Posted July 20, 2012 at 7:26 am | Permalink

    Oh for a few Terry Leahy’s in government – or just anyone who responds to the needed of “customers”.

    Reading Cameron’s interview in the Telegraph yesterday is enough to depress anyone sensible. What is the mad socialist doing in the Tory party let alone leading it. He will never “campaign for an out vote on the EU” he says. So that’s is whatever they do then I assume however insane and undemocratic or evil they become. How can he negotiate anything like that?

    Still nice and sunny here in the South of France away from the Olympics and the Zil lanes. Lots of huge pointless wind turbines hanging in the still air thought. At least the new taxes from the mad Socialist president here will ensure we can get tables in the best restaurants easily. I understand I have to buy some breathaliser to keep in the car. They are about 10 euros so that is perhaps 300 million Euros wasted at the drop of a legislators pen. Just to clutter peoples cars with nonsense that will not be used. Surely better for the Gendarmes to carry one or two instead?

    • alan jutson
      Posted July 20, 2012 at 8:03 am | Permalink

      Lifelogic

      You need at least two blow bags, reason, if you use the one you have, then it is illegal to drive without one.

      There is also a best before date as well, so they will always be a demand.
      Oh and they have to conform to French Standards, not European I believe.

      In addition if you have speed camera awareness data on your sat nav, this is also illegal in France and you can be fined.

      This EU thing where everyone should follow the same rules seems to exclude France, where they always seem to do what is best for them.
      Now in the UK we seem to do whats best for them as well.

      EU Renegotiation.

      Cameron has just given the largest bargaining chip away, by saying we will never leave, or have an in out referendum.

      What an absolute Dummy.

      Proof if any was needed, that he has zero commercial negotiating skills and appears to simply not have the best interests of our Country at heart.

      What is he going to do now, when they say the inevitable “Non”

      • zorro
        Posted July 20, 2012 at 8:53 pm | Permalink

        It’s pathetic, but no-one can say that they weren’t warned. Anyone who believes what this man says on Europe is wasting their life…..He will not negotiate anything, he will repatriate nothing. A pointless waste of time…

        zorro

      • Posted July 21, 2012 at 6:48 am | Permalink

        Indeed the man is clearly either a complete fool or does not like the UK and want a nice job in the EU after he looses the election in 2015 – which clearly seems to be his general direction and aim.

      • Bob
        Posted July 21, 2012 at 10:31 am | Permalink

        @AJ

        “There is also a best before date as well, so they will always be a demand.”

        I expect the companies that manufacture breathalysers will be thrilled with this turn of events. A nice little earner!

    • Michael Lee
      Posted July 20, 2012 at 9:49 pm | Permalink

      “What is this mad socialist doing in the Tory party let alone leading it?” I’d been wondering about that.
      But returning to Mr Redwood’s comments today, I see that it’s Sir Terry Leahy’s day for accolades. Earlier today I was reading Matthew Lynn’s “City View” column in this weeks edition of MoneyWeek. Under the title “My choice for successor at the Bank of England: Sir Terry Leahy” Matthew Lynn presents a convincing argument, since Tesco is now one of the world’s leading retailers. He concludes…If he could work just a fraction of the same magic at the Bank, he would be an inspired appointment – and far better than any tarnished banker. Move over Dr King.

  10. Electro-Kevin
    Posted July 20, 2012 at 7:47 am | Permalink

    The word I think I would have chosen is ‘parking’.

    • Deborah
      Posted July 20, 2012 at 10:34 am | Permalink

      🙂
      But that is just an underlying truth:
      1) People say they want environmentally-friendly transport policies – but actually continue to use their cars because it is more convenient
      2) Politicians say they want to discourage car use – but actually want to fill their coffers so instead of improving public transport they maximise parking charges and fines, thus increasing car use by diverting customers to out of town stores .
      3) Terry Leahy recognises the truth and attracts customers by offering 2-3hrs free parking to shop in Tesco and go to the bank etc.

      Truth wins

      • Posted July 21, 2012 at 6:51 am | Permalink

        Indeed truth wins, not that Tesco sell much I would actually want to eat other than a few raw ingredients perhaps.

  11. Brian Tomkinson
    Posted July 20, 2012 at 7:59 am | Permalink

    JR: “All you need is truth”
    If only politicians followed this advice. But it’s too much to expect them to change the habits of a lifetime.

  12. Acorn
    Posted July 20, 2012 at 8:18 am | Permalink

    That’s fine JR, but how are you going to get the trade union barons to read Leahy’s book? The public sector is run by trade unions not by people with the word “manager” in their job title. These so called managers are scared stiff of changing anything because he/she knows that the unions will bury them. Within hours a command will come down from “national level” to back off. Hence, HR will bring up this “man management” deficiency you have, at every performance interview.

  13. Posted July 20, 2012 at 8:19 am | Permalink

    With respect, it is a pipedream that state employees will ever behave like those in private businesses. However well motivated and hard-working they may be, however kindly and polite they may be personally, they know deep down that their relationship with their “customers” is based on force.

  14. Caterpillar
    Posted July 20, 2012 at 8:32 am | Permalink

    “The public sector remains so far detached from its forced customers, the taxpayers”

    I believe the leader of the opposition suggested that the govt should no longer have G4S deliver services as it failed on one contract. Perhaps the Govt should take the opposition leader’s advise and apply it to all public sector bodies e.g one failure from the NHS and no more services should be provided by it, leaving it to be privatised.

    Take a tip from the opposition leader and apply his remedy widely.

  15. Posted July 20, 2012 at 8:35 am | Permalink

    Unfortunately, it is precisely because we are forced customers of the public sector that generally, our public services are such poor value. We have to continue funding them regardless of whether or not we use them, so the market force of consumer choice doesn’t apply.

  16. Lindsay McDougall
    Posted July 20, 2012 at 8:44 am | Permalink

    Spot on. And if you wanted to coin a phrase for the political equivalent, you could do a lot worse than:
    – A Nation Not Afraid
    – Freedom and Reality

  17. Dave
    Posted July 20, 2012 at 9:15 am | Permalink

    Appreciate that this is not entirely the point of your post, but why on earth would you highlight Elizabeth I in respect of leadership?

    In medieval and renaissance times, the sovereign’s first duty was to protect the identity and existence of the state by providing a secure succession. Elizabeth signally failed to do this. It’s easy (and lazy) in hindsight to get all Whiggish about the inevitability of Scotland and England coming together, but it wasn’t inevitable in the slightest. In the 16th century they were independent and antagonistic state. Yes there may have been plenty of cross-border trade, marriage and travel etc. but this would have been the case for any two neighbours – and was true of England and plenty of other states in Europe. The simple fact is that the people considered themselves of different stock, with different interests.

    For all Henry VIII’s faults, and the self-serving reasons he came up with for abandoning his various wives, his aim in all this was to secure the succession. Elizabeth’s failure to secure her succession – either through marriage or coming to some accommodation with a family like the Poles who had a legitimate claim to the throne – directly led to the disintegration of the English state. She handed her crown to a foreign Prince. Today, there is no such country as England – we have no national assembly (uniquely in the UK/EU), our flag has no sovereign status. At the 2010 General Election the Conservatives offered in their Manifesto to bring a proposal to allow only English MPs to vote on matters which were devolved to the national assemblies of the other countries of the EU. While I would have preferred a proposal for an English Parliament, at least this was some attempt to address the scandal of the West Lothian Question. Out of 533 constituencies in England the Conservatives won 297 seats – a clear majority which should have been taken as a vote for self-determination. The voters of foreign countries denied the English their clearly expressed democratic will. For a brief and bizarre time, there was even talk of a “Rainbow coalition” of Labour, Liberal Democrats and the nationalist parties of the other states of the UK governing – in effect they would have been ruling England with absolutely no democratic mandate or accountability to the people of England. None of this would have been possible but for the selfish failures of Elizabeth I to secure her succession and protect her State.

    So I ask you, in all sincerity why on earth would you highlight Elizabeth I in respect of leadership?

    Reply: Because she did create Protestant England and protected it from the Spanish Catholic wish to submerge us in the Habsburg empire. She presided over a great flourishing of English culture and economic progress.

    • uanime5
      Posted July 20, 2012 at 8:00 pm | Permalink

      Elizabeth didn’t hand her crown over to a foreign prince. King James the VI was king of Scotland when he became the king James I of England. Also England and Scotland were ruled as two separate countries that were in a personal union until the Act of Union in 1707.

      Parliament represents the UK, not England. To deny the people of Wales, Scotland, and Northern Ireland the Government they voted for because it wasn’t the Government most of England voted for would be immoral.

      • Lindsay McDougall
        Posted July 27, 2012 at 5:57 pm | Permalink

        Good. In that case Scotland, Wales and Northern Ireland don’t need devolved parliaments, do they? It’s immoral to want to have equal influence in England AND your own devolved parliament.

    • zorro
      Posted July 20, 2012 at 9:01 pm | Permalink

      Reply to reply – True….some tactical successes but overall strategy of Tudor succession failed….We have been successively ruled by Scots, Dutch, Hanoverians, and Germans.

      zorro

    • Richard1
      Posted July 22, 2012 at 4:23 pm | Permalink

      Wales had been united with England by the time of Elizabeth I’s reign for over 250 years. Besides, go back another 500 years and England wasn’t a united country either.

  18. Dave
    Posted July 20, 2012 at 9:18 am | Permalink

    “At the 2010 General Election the Conservatives offered in their Manifesto to bring a proposal to allow only English MPs to vote on matters which were devolved to the national assemblies of the other countries of the EU”

    Should of course say “other countries of the UK”. My apologies.

  19. Simon
    Posted July 20, 2012 at 9:27 am | Permalink

    Terry Leahy’s turnaround of Tesco is certainly a brilliant example of corporate leadership.

    It’s interesting to compare with the downfall of Sainsbury’s – The (bloodless) takeover by David Sainsbury led to the group being run by someone who didn’t understand his customers. His appointed successors, Dino Adriano and then Peter Davis, were even worse understanding neither the business, nor the customers – who can forget the terrible John Cleese “Prices To Shout About” campaign?

    Both Adriano and Davis tried to cut costs by firing staff and taking stock control out of store managers hands. As a result Sainsbury’s income shrank; customers do not like empty shelves, long queues, or goods chosen by postcode.

    As their income shrank, they had to build less stores. At the same time, Leahy was building more, better targeted, better staffed, stores, and introducing innovative ideas into retail.

    All the time (by this point) Davis was taking bigger salary & bonuses. Eventually Davis was forced out by shareholders, and King took over. King hired staff, built stores, rebuilt the brand, and saved the company.

    Terry Leahy grew Tesco by spending money on the right things.

    Sir Peter Davis came close to destroying Sainsbury’s by trying to cut costs, at any cost. I understand his time at the Pru was similar, but I wasn’t there.

  20. Simon
    Posted July 20, 2012 at 9:34 am | Permalink

    Incidentally, if we build roads with the car user in mind, what would all the other users (pedestrians and cyclists, for example) do? Do car users want lots of pedestrian crossings with long cross times for the elderly? Do they want valuable road space taken up by cycle lanes?

    Wokingham’s cycling infrastructure is already awful, I hate to think what it would be like if the roads were designed at the behest of just motorists.

    Does anyone remember the ‘driver friendly’ changes made to the pedestrian crossing next to the station? It had some sort of sensor on it to detect when someone had pressed the button to cross, but then crossed before the lights changed.

    This lead to Parent with children / Pensioner / Wheelchair user pressing the button, some youth running across the road, and then the crossing deciding that it didn’t need to change the lights any more.

    Thankfully that was switched off after a month or so. It was almost as good as the one in Reading (near Palmer Park) that looked for gaps in the traffic….

    • David John Wilson
      Posted July 20, 2012 at 10:37 pm | Permalink

      On the other hand we have the crossing by the post office. Today it was letting four cars through before turning red again if someone pressed the button.

  21. Posted July 20, 2012 at 9:43 am | Permalink

    Clearly a number of Cabinet Members from the Prime Minister downwards need to read this book.
    Looking at the qualities in terms of the present cabinet, I’ve concluded:
    truth – rarely
    loyalty – to themselves, but not the electorate
    courage – Definitely not (except for Michael Gove)
    values – Certainly not Conservative ones (ditto)
    act – A good act, but that’s all it is
    balance – None, the idle and scroungers are considered more important than the middle class workers. Who are better off now than a few years ago?
    simple – life is becoming more complicated
    lean – Certainly not as far as Quangos & similar bodies are concerned
    compete – Prefers to follow rather than lead
    trust – You’re Joking!

  22. Posted July 20, 2012 at 9:55 am | Permalink

    Now aged 56.
    I’d have him as PM tomorrow but he wouldn’t even have become a”high flyer” in the civil service.

    • zorro
      Posted July 20, 2012 at 9:05 pm | Permalink

      That certainly is true, he appears to be genuine, decisive, tactically sound and knows how to invest money – he doesn’t appear to have the oleaginous nature required to manoeuvre around ministers – he would probably tell them where to go!

      zorro

  23. forthurst
    Posted July 20, 2012 at 10:27 am | Permalink

    How well do other organisations measure up to Terry’s ten? Unlike its competitors, Tesco has never suffered from either outstandingly bad strategic decisions or complacently resting on its laurels.

    Unlike in the banking industry where some customers are ‘deemed’ to be ‘professional’ and therefore can be sold toxic products with impunity, the food buyer is protected by general laws on food safety and merchantable quality. When a food chain gets into financial difficulties, it is not bailed out by the taxpayer on the grounds that farmers will go out of business and shoppers will starve and there will be public disorder as a consequence.

    How does the public sector including government measure up to Terry’s ten? “Truth, loyalty, courage, values, act, balance,simple, lean, compete and trust.” One only has to read the list to realise how most functions of the state are failing badly and why they are failing badly by both manifestly exhibiting entirely opposed ‘values’ to Terry’s and adopting others which are either irrelevant or manifestly counterproductive.
    Unlike the in public sector, Tesco does not believe its customers are its employees and its suppliers are the taxpayers.

    • zorro
      Posted July 20, 2012 at 9:17 pm | Permalink

      Civil Service matching up to the values…..

      truth – speak truth to power? fat chance
      loyalty – self seeking mainly
      courage – if only, often least line of resistance
      values – talk is cheap
      act – inertia
      balance – equality, diversity first – action way down the line
      simple – anything but – complicate and obscure things
      lean – hahahahaha
      compete – oh please
      trust – on delivery, you’re joking

      zorro

  24. Alan Hill
    Posted July 20, 2012 at 10:30 am | Permalink

    Maybe HMRC should launch a taxpayer card where you get 1% off your next tax bill for paying promptly.

  25. DiscoveredJoys
    Posted July 20, 2012 at 10:50 am | Permalink

    The biggest problem in applying ‘Truth’ to local and national government is that they are monopolies. Even when some functions are privatised only those that encourage competition achieve some benefit. So fuel and telecoms benefitted the customer, water (local monopolies) and rail (infrastructure monopoly) didn’t. Don’t start me on the NHS. The ‘truth’ of monopolies is that they end up working for their own benefit.

    If you really want to bring competition into government you have to give people choices. Can they choose between two overlapping local authorities? Or two overlapping services? Can you choose weekly or fortnightly refuse collection? Is choice of school completely free? Previously unworkable, this becomes more feasible with modern computing. I acknowledge that there would probably be some infrastructure function which were fixed – the minimum government services perhaps? You might even end up with personalised taxation depending on your choice of services, but it would put control back in the hands of consumers in a way that elections every few years don’t.

  26. boffin
    Posted July 20, 2012 at 10:55 am | Permalink

    Thank you, Sir, for your inspired juxtaposition of public-serving business with our self-serving public sector.

    Thank you also for mentioning the book, which I much look forward to reading. I hope that it may match my longstanding favourite, Up the Organization (reprinted as Further Up the Organization) by Robert Townsend (the man who led Avis to ‘try harder’) which so brilliantly and entertainingly exposed those so-avoidable shortcomings in organisations, private and public, from which we all continue to suffer.

  27. Richard1
    Posted July 20, 2012 at 10:59 am | Permalink

    Sir Terry is rewarded for his great success with vilification from the Left – Tesco being accused of everything from ruining town centres to putting local shops out of business. In fact the Company its provided a great service enabling many more people to benefit from good quality food and other goods at cheaper prices.

    The big difference of course is Tesco is in competition. Contrary to popular belief the retail sector is highly competitive in the UK. The public sector has no such pressures, so even if it does employ people of the quality of Sir Terry, they would either not rise to the top or if they did wouldn’t be able to act as he did. Imagine if Tesco’s staff had gone on strike eg for the pre-Christmas period as the immigration workers propose to do next week!

    Choice and competition are the key.

  28. fkc
    Posted July 20, 2012 at 11:22 am | Permalink

    How I agree with you. Our government seems to us the electorate so detached from us. We just pay the bills! I sometimes wonder what the consequences would be if we just stopped paying, gaol probably. Mr Leahy didn’t stock his shops with things he thought we ought to have, why does the goverrnment?

  29. Posted July 20, 2012 at 12:19 pm | Permalink

    What would have happened to Tesco if instead of listening to the people on the front line Sir Terry had chosen to set up systems to sack people instantly and had labelled anyone who raised any concern about anything as being self-interested and an ideologue and had encourage management to use the system to get rid of such people rapidly?

    Why does this government think this it the correct approach to improving state education?

    • Antisthenes
      Posted July 20, 2012 at 2:41 pm | Permalink

      Over the decades there has been a lot of listening to teachers and very little sacking. Perhaps if it had been the other way around then our state education would not now be so dysfunctional.

      • uanime5
        Posted July 20, 2012 at 8:13 pm | Permalink

        I doubt that teachers wanted the education system to be reorganised every few years and don’t forget that teachers are constantly calling for league tables to be scrapped.

        Though the Government may have listened to teachers it hasn’t given much weight to their opinions.

  30. Antisthenes
    Posted July 20, 2012 at 12:25 pm | Permalink

    The public sector will always be detached from their customers until their jobs depend upon them satisfying those customers. A Terry Leahy in a public sector environment that lacks incentives to perform efficiently and has little accountability can make improvements but not much. The only way for the public sector to perform in a comparable manner to the private sector is to privatise as much of it as possible.

  31. Dennis
    Posted July 20, 2012 at 12:28 pm | Permalink

    Isn’t it Tesco, among others, which is squeezing dairy farmers? Just as governments squeeze? No difference there.

    • Simon
      Posted July 20, 2012 at 6:56 pm | Permalink

      Tesco (and Sainsbury’s) have signed up to the fair price for milk thing, IIRC they pay cost of production+2p to the farmers.

      It’s Asda, Morrisons & the Co-op who are the prime cheap milk supermarkets.

      • Bob
        Posted July 21, 2012 at 11:35 am | Permalink

        @Simon

        Is it just the cheapo milk that is causing the farmers a problem?

        How about Cravendale milk?

        • Bob
          Posted July 21, 2012 at 12:11 pm | Permalink

          I heard on the radio just now that it’s nothing to do with the milk we put in our tea, but the wholesale price of cream that is falling.

          This is probably due to government health warnings.

    • forthurst
      Posted July 20, 2012 at 8:16 pm | Permalink

      Do you think we should be in the CAP? Do you think Defra should mind its own business or simply go away?

  32. boffin
    Posted July 20, 2012 at 12:31 pm | Permalink

    Whilst warmly applauding the main thrust of Mr. Redwood’s argument, I would add my voice in support of all those here who have pointed to the need for true and fair competition.

    I am dismayed by an apparent naïvety in the appraisal of ‘loyalty cards’. That which is seen by the gullible as a ‘thankyou’ is recognised, by those better aware, as a pernicious intrusion upon privacy, on a scale and with an efficiency which would have had the Stazi slavering.

    (Don’t buy something for the weekend if proffering a Terrycard, unless you’re happy to have your purchases on your file for good … or ill … ).

    (Still complacent? ‘Nothing to hide, nothing to fear’? Hmm, a number of my neighbours were ‘targeted’ by a group who – seeking to run their burgling business more efficently – succeeded in gaining access to a consumer electronics retailer’s database …. address, nature of good stuff to be lifted … even ‘phone number to make sure the mark is out for the ‘appointment’. Privacy is precious, when you lose it).

  33. David Langley
    Posted July 20, 2012 at 12:37 pm | Permalink

    Terry’s best idea was the hire of a marketing and risk company to analyse his customer base on what they bought. His demographic model showed what a particular area indicated as its population spend potential.
    Stack it up cheaply and price it under the competition, theres your model which built the company. Now its power over the retail sector is well understood.

    • Simon
      Posted July 20, 2012 at 7:13 pm | Permalink

      That’s precisely the model they didn’t follow at Tesco. They offered some goods at a mark-up that was below total cost (bread, cereals, etc.) to make it look cheap, and then they offered a range goods with varying base costs to tempt both the somewhat price concious, and the less so to actually make them a profit.

      Nowadays, all the supermarkets do that.

      The big mistake that Sainsbury’s made was thinking that _everyone_ cared about price, when in reality, despite what they may think*, most people don’t. The people that really do care about price (those that used to hang around the meat dept. on a Saturday evening waiting for the price reductions to go on, back when the shops didn’t open on a Sunday) make you very little money.

      *For example, if you buy branded goods – Heinz, Kellogg’s, Nestle – you don’t care much about price.

  34. Gewyne
    Posted July 20, 2012 at 12:38 pm | Permalink

    Taking out political activism from the public sector would save a lot of money alone.

    Our local Oncology department needs a new radio therapy machine for treating cancer patients. They do not have the money so are asking charities to help raise £2 million for it. The same health trust gave Smoking South West £450,000 towards a advertising campaign for cigarette plain packaging. So taxpayers money given to the trust to treat patients was used to lobby the Government. Government money spent to lobby itself ?

    Get the departments to do there own jobs, make them precise and narrow remits – cut out all the non-sense. NHS for example do not need travel focus groups, media departments, branding, public relations departments, Estates departments – they should be all about detecting and treating the ill/injured. All NHS money should go to that aim and not on senior managements pet side projects/charities/activism.

    My local council do not need to paint all their vans/vehicles a simple transfer logo on the bonnet should suffice. They do not need to repackage themselves and their logs every few years “to meet new challenges and show our commitment to blah, blah, blah”.

    Make the heads responsible for budgets as the private sector, and if they over spend or use money not for the core purpose of the department remove them/sack them.

    • Bob
      Posted July 21, 2012 at 5:43 pm | Permalink

      @Gewyne

      I understand that £4 million has been spent to temporarily remove bus shelters around the Olympic village as they look untidy.

      They will be refitted after the games.

  35. Posted July 20, 2012 at 1:09 pm | Permalink

    We have a number of Tesco establishments. What a pity it is now impossible to find locally grown food produce or meat not only in the town centre but in the other areas. The small retailers, the specialists, the infrastructure of local wholesale etc. has been wiped out. But they were not subsidised indirectly, given advantageous financing or had council provided facilities to welcome them. They were expected to pay far higher pro rata business rates, rents and other charges.

  36. BobE
    Posted July 20, 2012 at 1:16 pm | Permalink

    So you close down Remply and destroy hundreds of jobs, putting more people on benifits and then spend 60 mill getting teenagers out of bed to go looking for nonexistant jobs. The lunacy is staggering. Why not get Remploy to employ teenagers as well. Then start putting Gov contracts through the factories.
    Why didn’t remploy print the Limpics tickets or make the £25 Tea shirts.
    (Do you know the new ploy by students? Get the degree and then work abroad for 5 years to get the debt written off!!) Now you loose the skills as well as the money!
    Who are the fools who make these choices?
    BobE

    • zorro
      Posted July 20, 2012 at 9:28 pm | Permalink

      I think that they are called ‘the Government’…….the same fools pander to the healthy feckless while turning on variously disabled, crippled people or the war wounded who would be disadvantaged in the open economy. How brave of them!….and then expect these same people to compete on the same terms as others.

      zorro

  37. lowflyingseagull
    Posted July 20, 2012 at 2:04 pm | Permalink

    The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome become bankrupt.” People must again learn to work instead of living on public assistance.”

    – Cicero , 55 BC

    So, evidently we’ve learned nothing in the past 2,067 years.

  38. Simon
    Posted July 20, 2012 at 2:19 pm | Permalink

    Ah, here it is, a road built purely to service the needs of the motorist and not the community it runs through, the M32 in Bristol:

    http://farm7.staticflickr.com/6095/6366580539_c40cb25195_b.jpg

    If anyone has walked anywhere in the eastern end of Slough where the A4 becomes a multi-lane tarmac impediment to movement, or has tried to go on foot from Basingstoke town centre to any of the housing estates outside of it, you’ll have some idea why roads cannot be build with only the interests of cars and their drivers in mind.

    The traffic may be bad in Wokingham, but at least I can walk from Woosehill to the town centre without crossing a duel carriage way.

    • alan jutson
      Posted July 20, 2012 at 5:24 pm | Permalink

      Simon

      That is because there is no dual carriagway in, near, or around Wokingham save for the A329 M.

      Having said that given the awful traffic jams, especially from the Finchampstead area at rush hour, we could do with a ring road route of some sort, to aviod traffic having to go through the Town, although probably too many houses now exist for this to be contemplated.

      Shame the original proposals of some 30 years ago, when 100 properties were compulsary purchased to build one did not proceed.

      Now with thousands of new houses having been built, the need is greater, but the solution further away.

    • David John Wilson
      Posted July 20, 2012 at 10:39 pm | Permalink

      That will of course change when the latest road improvements are implemented.

  39. Remington Norman
    Posted July 20, 2012 at 4:51 pm | Permalink

    Correct. Why don’t the Tories look at what the public (i.e. voters) consistently say they want: action to rein back the EU so that 70% of our laws, which we have no option but to implement, are no longer made in Brussels and action on immigration. If they bothered to listen and act on both these, they would win an election with a landslide. Problem is Cameron is gutless, he talks but does not act, and Osborne is worse than useless.

  40. Barry
    Posted July 20, 2012 at 5:54 pm | Permalink

    JR raises examples of leadership from the top that get the right results. Where is the leadership from the top of our current Government to get the right results from the public sector and why are they failing? Perhaps the measure of great leaders are that they get results and our current Government (along with the past lot) are severely lacking in that department.

  41. Alan Wheatley
    Posted July 21, 2012 at 7:10 am | Permalink

    As for the national roads service, what would the “Tesco shoppers” be telling the management about one of the items on “sale”; say the motorway overhead matrix signs.

    The first complaint is that on the majority of occasions they do not tell the truth. They do not warn about hazards ahead and they do warn about hazards that turn out not to be there.

    The second complaint is that their timing is poor. Typically the first warning of congestion is close to a junction where you have the option of leaving the motorway and taking an alternative route. But there is no time to analyse the impact of the congestion on your journey and to run through alternatives before you have to make decisions about speed and lane for leaving or remaining. This is in stark contrast to other occasions when the congestion signs apply to a different road a long way away.

    The third complaint is of inconsistency. A warning seen is not repeated at a subsequent sign, which implies the hazard has cleared, only for the warning to be repeated at a following sign.

    The fourth complaint is a failure to distinguish between a hazard and information. Hazards should be accompanied by flashing lights, information should not have flashing lights; and this should be consistent across the whole network ALL of the time.

    The fifth complain is that the sign should not be used to display pointless or stupid information. My “favourite” pointless and stupid sign is one that encourages drivers to take EXTRA care because of some temporary situation perceived to represent an additional hazard. Should you wonder why I consider such signs to be pointless and stupid then think of the number of times you have seen a sign that tells you it is now OK to take LESS care as the temporary situation is over.

    Overhead matrix signs are a very good idea in principle but are appallingly badly used in practice. They represent very bad value for money. Such a thing would not be allowed in Tesco!

  42. peter davies
    Posted July 21, 2012 at 7:58 am | Permalink

    I think I’ll get that book myself, Ive seen him on TV and he’s impressive.

    Quick Question – has the govt approached him yet to offer him a job? Its these sort of people you need in govt, not career politicos that have never had a job outside govt

    Reply: Not to my knowledge

  43. Bazman
    Posted July 21, 2012 at 9:02 am | Permalink

    It’s a fair point that if a Tesco is built that people will use it, but its like saying a motorway is good because a large number of vehicles use it. Tesco is in fact an oligopoly and it’s strange that despite the rise in commodity prices the supermarkets like the energy companies continue to make large profits. If you were to try to build a Tesco from scratch I would find it impossible. In the town where I live Tesco is the only main supermarket and this is reflected in the prices of Tesco and the other shops. Cheapest petrol in your area they claim. You are laughably going to tell me there is no price fixing?
    The quality of much of the supermarket food could be better. If you take a look at some of the local farmers markets and farm shops you can see how synthetic the supermarket food often is. The farmers markets are however eye wateringly expensive. Elite shops in fact. One day there will be a Lidl or Aldi selling these products at reasonable prices and there is a lot to be said for using your local shops. My house is furnished and supplied with eletrical goods from town centre shops. They are not charities and neither am I. People need to be more savy. I bought the carpets from my house from a posh high street shop. Cheaper than the discount carpet ones. They ain’t been there for more than a 100 years for nothing.

    Reply: No, there is no price fixing of petrol- it would be illegal, and has been thoroughly inspected and investigated.

  44. Credible
    Posted July 21, 2012 at 9:15 am | Permalink

    Repeat after me:
    private sector good, public sector bad
    private sector good, public sector bad
    private sector good, public sector bad
    private sector good, public sector bad
    private sector good, public sector bad

    Nobody in the public sector does a good job, nobody in the private sector does anything wrong.

    Now repeat above again and again, over and over … don’t ever think for yourself.

  45. Posted July 21, 2012 at 1:58 pm | Permalink

    How about the NHS? Is there such a word as Truth in their lexicon? Or in yours, Mr. Redwood, as a politician approaching the ultimate sacred cow. All those lovely words have been so thoroughly debased in this Realm. Cast Iron has cemented Newspeak unless a real leader, like Govenor Scott Walker of the USA, stands up and severs the hydra heads of SamCam, Labour, & LibDem.

  46. Conrad Jones (Cheam)
    Posted July 21, 2012 at 11:12 pm | Permalink

    “The public sector remains so far detached from its forced customers, the taxpayers.”

    We are not “Customers” of the Government because that would indicate that the Government is some privately controlled Corporation whos main motive is profit.

    Perhaps it is no coincidence that “Commuters” on British Rail were changed to “Customers” as it was intended to privatise the Rail Network.

    “Leadership starts and ends with truthfulness about what you are doing and what the customer wants. Customer wishes drive good businesses, and are ignored by bad.”

    Yes – well perhaps you can lead by example by explaining to people how Banks create most of the Nation’s Money Supply and that is the Reason why the economy is floundering and why Small Businesses are being Hammered by Large Corporations on the High Street. Perhaps you can start by telling the truth yourself.

    Good Businesses that were operating successfully before the Bank Bailouts are now struggling to survive. In an Economy based on debt and lack of stable money, cheap foreign imported goods are favoured due to lack of purchasing power as mortgage debts – naturally; take precidence over quality goods. Those cheap goods do not last long so they have to be re-made and sold again – who benefits from that?

    At the same time we deny our Elderly NHS Continuing Health Care and hand out Housing Benefits to cheats who drive around in late model Cars and also work. Think about that for a second – we say to people who have worked hard all their lives and now hope to live out their remaining days that they are not worthy of NHS support while giving money to fraudsters. Our economy is based on Fraud with the most dishonest people in society are rewarded while honest hardworking people are punished. How’s that for “Truth”.

    “The big break through came when he introduced the Tesco Clubcard.” – really – so when we shop, our Customer profiles can be mapped onto a database so that marketting gurus can target us with endless junk mail and we can be force fed more marketing for poor quality items that we don’t really need.

    We become just “Consumers” – a source of profit for big inpersonal Tax Avoiding Supermarkets like Tesco, who suck profits and Taxes away from the Economy, while hammering smaller Family run businesses. Central Control – I might remind you; seeing as you seem to have forgotten it; is Communism. The Patriot Act – for instance is based on a Communist piece of legislation, which allows the Government to wire tap and monitor it’s populous as a hostile enemy.

    My final comment would be – if you think that the Public Sector is so bad why is it that the Private Sector cannot manage our money supply and continues to direct it at Asset Bubbles, like Housing; which destroys Familys? Having both Parents forced – through having to meet Mortgage payments, to go out to work, does not help the Economy or Family Health? When money is directed at safe investments instead of Productive ones, Employment eventually falls, bringing less money into the System. Private Banks are not the best means of managing the money supply (or Commercial Bank Money) as their motive is personal short term Profit. If you want to talk about the Truth, talk about that.

    Talking about our Roads perhaps you’d like to explain why only about a fifth of Road Tax is actually spent on the Roads? Why call it Road Tax? Yes – let’s talk about the Truth.

    Reply: Banks are not financing a decent recovery now that two major ones have state shareholdings and all are now strongly controlled by state regulators who tell them to lend less to improve their balance sheets. I have endless explained the problems of the banks. When they were less strongly controlled by state regulators and all in the private sector they made too much money and credit available.

    • Conrad Jones (Cheam)
      Posted July 22, 2012 at 6:08 pm | Permalink

      It is fair to say that you have discussed the subject of Banks and Regulators but you have not discussed the Monetary System with enough clarity.

      Forgive me for asking for more clarity, but can you please State whether you believe that Private Banks should control our Money Supply?
      Our money supply being “Commerical Bank Money” – Bank Sanctioned I.O.U.s.

      The Bank of England can only create Central Bank Money, which can only be
      used by Private Banks who hold an Account with the Central Bank.

      The proposals being put forward are for the Bank of England to create Deposit Account Money for public circulation.

      My argument – as you should very well know by now – is that Private Banks should NOT control the Money Supply, Government Policy should.

      I would be interested to know if you believe that Private Banks should continue to control the money supply given the Financial Crisis and continued Bank Bailouts and Asset Bubbles followed by Recessions that we have experienced over the last forty years.

      I am interested in your opinion on the Form of Money that we should use – that is all.

      Reply: The Central Bank can control the money supply – the problem is they have made such a cyclical mess of doing that 2005-12.

      • Conrad Jones (Cheam)
        Posted July 23, 2012 at 10:07 pm | Permalink

        Thank you for your reply.

        Mr Redwood, with respect – the Central Bank Can control the Money Supply in the Private Banks Reserve Accounts held at the Bank of England but they cannot control the “Commercial Bank Money” M4 supply – which we all use. Private Banks create the vast majority of Nation’s money (97.4%). It is a falacy to suggest that the Bank of England can Control the money supply. It’s like trying to control a Tiger by holding onto it’s tail.

        Base Money M0, is very stable and is Controlled by the Nationalised Bank of England – but they have virtually no control over how much “money” (I.O.Us) Private Banks can create. I’m sure you have seen a graph of M4, it has gone exponential over the last few decades since de-regulation.

        I hope John Maynard Keyes is right when he said:

        “The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems – the problems of life and of human relations, of creation and behavior and religion.”

        Let Investment Companies invest in Tulips if they want to, but please can we stop encouraging them by bailing them out? Let Government Policy control and create our money supply – it cannot be any worse than the system we have now.

        Reply: The Bank can now control the size of bank balance sheets as the FSA could before.

        • Conrad Jones (Cheam)
          Posted July 24, 2012 at 2:00 pm | Permalink

          With CRD or Liquidity Ratio perhaps ?

          CRD – Cash Reserve Ratios

          “Under the cash ratio deposit (CRD) scheme, certain institutions authorised under the Financial Services and Markets Act 2000 to accept deposits, place non interest bearing deposits at the Bank of England. The Bank of England invests these deposits and the income earned is used to fund the costs of its monetary policy and financial stability functions, it does not use the deposits as a monetary policy tool. Here is a link to the Bank’s website concerning CRDs: http://www.bankofengland.co.uk/statistics/Pages/faq/faq_crds.aspx.”

          This does not control the size of a Private Bank’s balance sheet.

          FSA – Sterling Stock Liquidity Ratio:

          “The cash reserves/ liquidity ratio is set by the FSA and is there to ensure banks maintain adequate liquidity, appropriate to the nature and scale of their business’s. Here is a link to the FSA’s website: http://www.fsa.gov.uk/pubs/hb-releases/rel37/rel37iprubank.pdf

          The failings of the SSLR are:

          • did not protect against longer liquidity stresses due to it only capturing wholesale flows out to a five day period;
          • did not capture non-sterling flows;
          • excluded off balance sheet contingent liabilities; and
          • assumed only 5% of retail deposits would be withdrawn over the five day period. (The experience of Northern Rock indicated that this may not be a true reflection of possible retail behaviour over a five day period).

          The FSA did not restrict a private Bank (such as RBS) from expanding it’s Balance Sheets as you claim.

          Perhaps I’m missing something, how does the Bank of England now control the balance sheet of a Private Bank ?
          With Liquidity Ratios !

          I hope you don’t mean Fractional Reserve Banking – which is now regarded as a Myth. The Money Multiplier Model is a figment of the imagination and bares no resemblence to reality.
          Banks do not need deposits before they lend, they can increase their Reserves later. The Bank of England, or FSA or FCA do not have the ability to control the money supply.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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