Category: Blog

Far from saving the world, this government’s banking policy has been a disaster. First they bungled their monetary and regulatory policy allowing the uncontrolled boom. Then they helped bankrupt some of the leading players. Now we have too few banks, too little credit and too many losses from nationalised banks they should never have bought. It is difficult to think of an error they did not make.

Today we hear that LLoyds in just six months has had to write off another £13,400,000,000 of bad debts from its loan book. Why didn’t the government insist on proper write offs when they were negotiating purchase of the shares in the first place? As much of this came from HBOS, why on earth did they want to encourage one of the worst mergers in the UK corporate history, and make a relatively good bank, LLoyds, a state pensioner as well? The taxpayer ends up with a huge shareholding in a heavily loss making bank. We have to pay for the losses, and are currently being invited to take over all the worst debts as well!

The Vince Cable/Alastair Darling strategy of owning these mega loss makers was always crazy. It is bad news for taxpayers and bad news for bank customers as well. There was an alternative. They should have blocked the LLoyds/HBOS merger, so LLoyds needed no government help. They should have offered minimum necessary support as loans to HBOS to make them sort themselves out and ensure their shareholders and counterparties took the hit, whilst protecting the smaller retail depositor. That would have been a much much cheaper solution.

Today we have politicians playing politics with banks. The government likes talking about banks, because they have found in some bankers people thought to be greedier and less reliable than politicians, so they make perfect whipping boys. The present policy is based on two public strands. The first is to use the FSA to insist on the banks lending huge sums to the government so it can carry on its crazy over spending with little visiible signs of credit distress. They call this raising the liquidity of banks, liquidity which has to be held in the form of loans to the government. This means there is little money left to lend to anyone else. Then the government can grandstand by blaming the banks for failing to go the aid of small business and first time home buyers, allowing them the moral luxury of taking the popular line.

The private strands behind this absurd policy are even more damaging. The taxpayer is taking the hit for past bank mistakes twice over. First, there are the visible and large losses the naitonalised banks are now revealing. These undermine the share values of what we have bought, and the government needs to act as guarantor that whatever they lose the taxpayer will bail them out. Second, the taxpayer is being asked to take over massive bad debts so that in due course the government can sell what remains back to the private sector claiming some kind of “success”

I am glad that more people are now coming round to my long held view that there is insufficient competition in the UK banking market, partly because there are too few banks. The government has made it worse by flagging through the mega mergers that made RBS and LLoyds the huge creatures they are today. We have been too poorly served for too long. At the time of the Conservative Economic Policy Review I argued that even then before the LLoyds/HBOS merger and disappearance of an independent Bradford and Bingley and Alliance and Leicester we had too little banking choice. We called in the review for new kinds of banks in the UK to offer better service to small business.

It is vital for the future health of the UK economy that the next government is pledged to return these banks to the private sector as quickly as possible, split up so they create more banks. I also hope other new players will come in from the retail and other worlds. We need more and better banks quickly. Current levels of fees, charges and bank imposed interest rates are too high and credit is scarce for reasonable new borrowers. That is the direct result of the manic banking policies followed in recent years.

Some have asked for numbers to back up the argument that trains are often not very green. An overall hypothetical calculation has been made which says that if all freight went by truck instead of train and if all train passengers went by coach carbon emissions would be 13% lower, given current generating methods for electricity. That is the measure of the task the railways face to green themselves to road standards.

The piece in the Times yesterday suggesting that David Cameron was thinking of demanding price reductions for medical treatments performed by hospitals employed by the NHS was presented as a radical departure. It is in fact this government’s policy, as they demanded a 3% cost reduction this year and expect a 3.5% one next year.

Yesterday I was asked to comment on health budgets for the Yorkshire Post and the banks for the Evening Standard. There is some growing awareness out there in the media world of the spending crisis we face.

Northern Rock has weighed in with six month losses of £724 million. £122 million of that is current loss, on top of the £602 million of losses on past poor loans. No-one in government seems to think that is either bad or surprising. Forecasters think the second half should see something similar.

If you own a busienss losing money on that scale you should be changing the top management and demanding better performance. You should be cutting costs and concentrating on finding new profitable business. You should not just plough on as if it did not matter.

Now we hear there is an even sillier idea, of splitting a bad bank off from a good bank and selling the good bank. Poor old taxpayers. We end up with all the bad and doubtful debts, and let some management team take away the better assets to make more money for themselves on the back of assets they have chosen for the task. Why on earth would we want to do that?

I want Northern Rock sold back in to the private sector as soon as possible. We need to sell the bad bets along with the good bets, after suitable provisioning and assessment. How much more bad news is there to write off? Why haven’t they done it yet? Why can’t they get into profit on the rest of the business? Why aren’t they making any progress in creating some value for taxpayers?

It is the predicatable disaster you would expect from a nationalised bank run by these Ministers and their apppointees. They changed the rules for NorthernhRock from wind down to beef up. The answer will just be huge taxpayer losses.

The release of the interview last night with David Cameron on Radio 4 was an important development. In it David quite clearly stated that the Health department, like all others, will need to make economies. Health is not exempt form the necessary pressure which needs to be introduced into every department to do more for less, and to raise quality.

Today, Labour’s spin doctors are no doubt in overdrive to try to tempt the unwary or the few remaining Labour loyalist journalists into writing stories of horrendous cuts in health services. Why do they bother to lie so? No-one sensible believes it any more. Most people know we need to rein in public borrowing, and most know huge sums are being wasted in parts of the public sector. Are we , the taxpayers, paying for any of this spin?

David made it crystal clear that he did does not want cuts in front line services. There is no question of seeking closures of wards or hospitals, or mass sackings of nurses. That is all Labour’s wild and wicked imaginings. He also realistically said that as health care is getting dearer and there will be more demand, the budget would go up.

It is high time we moved on from the idiot soundbite of “Labour investment, Tory cuts” to a grown up discuission of why public sector productivity has done so much worse than private sector productivity. The soundbites we need include “Let’s make every pound of public money to stretch further” and “Conservative efficiency versus Labour’s waste”. People cannot afford more tax hikes. There’s been enough of those in the last few years. They just want to know that what they do pay goes on the core public services they value. They are fed up with all the spending on the spin society, the surveillance society, the regulated out of existence sociaety and the political correctness society.

I was pleased to read today the Conservatives announce two policies for the BBC – disclosure of all remuneration for stars and executives earning six figure salaries, and the sale of Radio 1. That’s a start. As the Sunday Times rightly points out the BBC now also offers effectively a free on line newspaper as well on the licence fee, with implications for the private sector competition who do not enjoy the subsidy.

I was less pleased to see RBS taking full page ads to tell us it really does want to lend some money.The way to get that message across is through its daily actions with its customers, and by telling the journalists who could write it up as a story. Why waste taxpayers money on such ads?

And how true it it? What rates and charges come attached to the cash? We are in the ludicrous position where on the one hand the government orders the banks to lend more, yet with the other hand through its regulator tells them to lend less and to hold more liquidity to have a stronger balance sheet. Which is it to be? And why pay for ads when what people want is sensible loans at realistic fees and charges?

This has become the new and interesting question this summer. A long summer break has been traditional, and used to pass without much comment. Maybe then people accepted that MPs worked crazy hours for the rest of the year when Parliament was in session, regulary going on to midnight or beyond, that they thought the hours evened out with the summer break. Maybe they thought Parliament was doing a better job then, or just did not think about it.

This year is different. The summer break is very long, but follows hard on the heels of a Parliamentary year when the gullotine has been used to curtail debates, with many debates on the economy and other crucial matters delayed or ducked on a regular basis. It occurs after Labour has introduced the half term breaks as well. There is a general sense of lack of value for money throughout the public sector, and a growing understanding of the public spending crisis, so it is no wonder more good questions are being asked about what MPs are up to.

As readers of this blog will know, I am working on a review of public spending both by central and local government. I am publishing bits of it here as I make progress, and will be sending proposals to the Shadow Chancellor. One of the main issues is public sector productivity, which has failed to keep pace with the private sector, or in some cases has gone backwards.

If we just take the case of MPs the decline in productivity coupled with substantial increases in the public sector costs of doing the job is at once obvious. In 1997 my productivity was cut by around one quarter by the Boundary Commission who took a large number of electors away from my seat instead of proposing fewer MPs. They could have made larger seats out of the ones that were below average in size, but instead decided to lower productivity by creating more seats. Since then there has been a steady reduction in the hours that Parliament sits and the hours available to debate the important big national issues. Whilst I can still ask questions, the chances of any sensible answer have been reduced substantially by spin oriented Ministers wishing to avoid answering. Since 1997 there has been a big expansion of the public sector payroll with more staff helping MPs to do their jobs.,

The truth about the job is that it is more than full time when Parliament does meet, as we need to cram a lot into relatively few days. Anyone diligent ends up working very long hours on those days. The rest of the time more than half the job is prevented by the lock out from Parliament. It’s a crazy way to run anything. It is symptomatic of Labour’s public sector – overmanned, inefficient and very expensive. This summer once again Parliament is a building site, as some necessary maintenance work is mixed up with “improvements” and “security” measures. Pity the poor taxpayer, as the people’s Palace is turned into an fortified camp, and as their representatives are driven away by the absence of debate and by the need for the builders to have some space.

We know that running train services is a very expensive way of travel for taxpayers to support, and we know that fourteen times as many journeys are made by car as by train. Rail has a small market share despite all the subsidy and encouragement.

The case for trains has increasingly relied on the assertion that they are good for the environment. It is time to examine this proposition again.

The first thing people should understand is that all forms of motorised trransport entail burning fuel. Much of that process is still done by burning fuel which produces exhaust gases and carbon dioxide. The aim should be to minimise the polluting exhausts, and to maximise fuel efficiency for cost and conservation reasons.

The second thing to understand is that we neeed to look at the total carbon impact of any mode of travel. That means looking at the carbon expended to complete the whole journey, as users of the train often use cars and taxis at both ends of their train journey. It also means looking at the carbon costs the mode of travel imposes on other modes of travel. So often people have to expend a lot of energy and exhaust emissions to get into very congested town centres by car, as most stations are in town centres which are increasingly difficult to reach thanks to anti car policies.

Train travel can be very fuel efficient at peak times when a modern train carries a full load of passengers into a busy town or city, or takes a full load of people long distances with few stops . It may even be fuel efficient for each person on that train, depending on how far from the station they live, how far from the destination station they wish to go and how they travel the first and last leg of the journey.

At other times of day heavy and often old fashioned and fuel inefficient trains lumber around the country with few passengers. This is the opposite of efficient and environmentally friendly. It is greener to go by car than by a old train which is half empty. Some say that if all trains were electrified this would change. Not given the way we generate our power in this country. There is all the extra carbon from the coal and gas power stations that you have to attribute to the electric train using that fuel.

More importantly, train tracks are one of the primary causes of congestion for the large majority of people travelling by car or bus. Many towns and cities are bisected by railway lines. There are too few bridging points, so there is much increased congestion on the few routes that go to a railway bridge. In some cases delays and congestion are compounded by the use of a level crossing rather than a railway bridge.

One of the greenest policies we could pursue would be a big programme of increasing the number of bridges over railways to allow the easier passage of cars and buses around our towns and cities. It would also be safer if we replaced more of the level crossings with bridges or underpasses. It could also lead to more use of the train for the commuter and longer distance journies if more of us could get to the station and park easily. That would be a greener way to spend any money we have on railways, rather than on electrification.

We do need to look at how efficiency on the trains can be improved and fuel use reduced, as losses and subsidies are very large.

The surveys so far of departmental budgets all reveal the same characeteristics. Far too much is spent on overhead. The error rates are too high, quality is too low. Too much time is spent on spin, PR, advertising, recruiting people to do non jobs, needless regulation, and endless bogus consultation.

Given the imperative to curb spending to cure the deficit, any incoming government should take the following actions in its first week to start to get on top of the problem.

1. Impose a freeze on all external recruitment, excluding front line posts in teaching, medical, and security forces.
2. Set out slimmed down senior management structures which departments should work towards as people leave.
3. Halve the advertising budget.
4. Ban all new consultancy contracts, unless a Minister agrees to one based on a good case which shows how the work canot be done in house, and why it offers value for money.
5. Make a substantial reduction in the numbers of Special Advisers.
6. Abolish unelected regional government, including the Regional Assemblies, Development Agencies, housing and planning quangos.
7. Abolish the superstructure of targets, advice and guidance and cross cutting programmes that Whitehall visits on Councils, allowing them to cut their overhead of box tickers and form fillers at the same time as cutting the departmental costs.
8. End expensive centralised computer programmes. Cancel the ID computer.
9. Start renegotiating the pension plans, and close them to new members.
10. Publish a bill abolishing and amalgamating quangos.
11. Publish the first deregulatory bill.

In 2009-10 the education budget runs to £66,700,000,000. £10,000,000,000 of that goes on teachers pensions. £6,500,000,000 is spending on new and improved buildings.

The Education department itself spends £182,000,000 on administration, with 2,842 staff. All this in what is meant to be a decentralised service, run by Local Education Authorities, Boards of Governors and Headteachers. 20 staff members are paid more than £95,000 a year.

As if the central team were not enough, there are numerous national quangos. There is the British Educational Communications and Technology Agency, the National College for School leadership, the Qualifications and Curriculum Authority, the Training and Development Agency for Schools, Ofsted and the Sector Skills Development Agency amongst others.

There is substantial overlap between central staff, regional staff in Offices of the regions, and the LEAS. There is also scope for amalgamation and reduction of the national quangos. We should move to a more decentralised service, where the demand for central highly paid staff is much reduced.

The government has managed to combine large increases in centralised bureaucracy, circulars, regulations and requirements with overlapping layers of government and intrusive national quangos. The aim should be to free state schools of much of this burden, leaving them freer to make their own decisions,and to attract pupils by their excellence. Healthy competition between schools, giving parents and pupils more choice, is the best way to drive standards up. We could then save much of the money spent on Labour’s top heavy top down bureaucracy. I have always favoured ending the apartheid in English education. All schools should be independent, with free places for all in independent schools that offer a good standard and good value for money. There should be more effective choice for parents. The rich could still choose to spend more of their own money on schools of their choice.

As we will see as we go through the accounts fo the main departments, certain themes are common to all. They have too many quangos, they have too many expensive top staff, they bloat their advertising and spin budgets, and too much is done in the centre. A purge at the top would be a good start for any cost cutting exercise.

The government we hear thinks it wrong that elite universities should discriminate in favour of students who achieve the best results. They point out there are others who might be able to achieve whose backgrounds have prevented them. Some of us think it would be a better idea to sort out the worst performing state schools to deal with this problem.

I inivite the government to consider another bad example of discrimination of a similar kind. All my life people like me who love cricket but who cannot play to a high enough standard have been ignored by the England Test Selectors, on the very reasonable grounds that we would not be competitive. I wouldn’t pay good money to see people like me play cricket. Yet isn’t this a bad case of discrimination?

There is age discrimination, as I note they always pick people in their 20s or low 30s, never anyone older. Isn ‘t this discriminating in favour of people who have had privileged sporting backgrounds, as they have been to elite academies which clearly helps them play better than the rest of us? And isn’t it financial discrimination, as most selected have been paid to play cricket, so they get in much more practise than the rest of us who have to earn a living doing something else? Who knows how good the rest of us might be if we practised much of the time and had good coaches.

Isn’t the truth of life this? If you want your country to be good at something you need to discriminate in favour of those who are best trained , most suited and most committed to doing well at their chosen area? Doesn’t that apply to academic as well as sporting life? Isn’t the issue the results of some state schools, not the insistence by top universities on taking the best and the most highly motivated people?