Category: Blog

Yesterday the Commons agreed that there should not be a further additional payment from taxpayers to the MPs contributory pension scheme, which like many such schemes is in deficit.

This means that other ways will have to be examined to bring the fund into balance with the liabilities.

The obvious thing to do is to start by closing the scheme to new members, as most private sector schemes have done. This should be announced as soon as possible, so those thinking of standing for Parliament for the first time in the next General Election know the terms and conditions in advance.

We need to begin migrating MPs from the final salary scheme to a defined contribution scheme, where like others their pension depends on how much they have saved rather than a promise from the employer.

Today I wish to praise Mark Francois. The Shadow Europe Minister has worked hard to create an anti federalist grouping in the European Parliament. He has helped David Cameron implement his vision of Conservative MEPs providing an opposition to “ever closer union” and the remorseless march of power to Brussels.

He reminded me yesterday that before the last European elections Nigel Farage asserted that David Cameron would not take his MEPs out of the EPP grouping, and placed a bet on it. It’s time for Mr Farage to admit he was wrong and settle the account.

Poeple need to understand that the Conservative party is a Eurosceptic party that wants trade and friendship but not centralised government from the continent. It is of couse predictable that now the party has set out very clearly its opposition to federalism in the European parliament, to match its long standing opposition to it at Westminster (votes against Nice, Amsterdam and Lisbon), our federalist opponents here at home attack the politicians and parties we are allied with in the European Parliament.

The federalists always tell us we should lead in Europe. That is what we wish to do – to lead Europe forwards to a world of self governing nations unencumbered by too much centralised Euro bureaucracy. They are always telling us we should be more engaged with continental politics, and have more friends on the continent. Now we do, they tell us they are the wrong friends! They are all elected MEPs, so by implication the federalists are now criticising the peoples and nations who elected them.

Meanwhile the UK government continues to accept all the bureaucracy and France and Germany serve up, unable to resist bad laws or to defend the Uk interest.

Yesterday on both sides of the Atlantic there were hints that the current programmes of quantitative easing – printing money – will be the end of it. Both the Fed’s statement and the Governor implied that the existing sums pledged will be enough in their view.

In the UK the Governor also attacked the government’s public spending and tax plans.

“We are confronted with a situation where the scale of the deficits is truly extraordinary. This reflects the scale of the global downturn, but it also reflects the fact that we came into this crisis with fiscal policy on a path which wasn’t sustainable and a correction was needed”, he said.

The Governor is proving to be a shrewder politician than he has been a central banker. He may have misread the cycle badly, allowing too much money in 2003-6 and too little in 2007-8, but he is reading the political cycle well. He understands the forces that now are pushing us to lower public spending after the next Election, and realises that the special measures taken to ensure the sale of enough gilts this year may not be possible again thereafter. He is siding with the Chancellor and the Leader of the Opposition against the Prime Minister, and is even daring to criticise the PM for the size of the defict he built up as Chancellor in the “good times” before the crash.

On Tuesday I asked the PM what plans and timetable he had to reduce the deficit and end quantitative easing. I needed have bothered. I was treated to the usual highly politicised answer about the government doing what ever it takes, and the usual false contrast between the government who wants a recovery and an Opposition which wants cuts. The PM is now a parody of himself.

My question was a perfectly reasonable one. It is the question most economic commentators and market participants are asking. It was neither loaded nor party political. There ought to be an official answer to it, but the PM cannot bring himself to provide one. Instead he falls over his crude party politics, and seeks to underestimate everyone else’s intelligence. I suspect the true answer is that QE will end shortly when they have spent the £125 billion, and the deficit will be cut by a crisis Cabinet meeting immediately after the Election.

Meanwhile, the government moves on without the PM. You can feel power falling away from him. The UK establishment knows the deficit and current public sepnding levels are unsustainable. They realise that any incoming government after an Election will have to control public spending much mroe successfully than this one. The pity is we have another possible eleven months of spend and borrow on a huge scale, making the inevitable correction that much more difficult, and pushing us even further into debt than we need go. We feel the price of his soundbites on our shoulders.

Ten years ago Ministers still claimed that the UK had the best system of occupational pensions in Europe. They could point to the fact that British people had more money saved in pension schemes than all the rest of Europe put together. The creation of the occupational pensions movement, and the establishment of a final salary scheme by most medium sized and larger employers meant many could look forward to a decent income in old age, and retirement at 65.

Today, the picture is very different. Large numbers of schemes are closed to new members. Many are also closed to existing members, who are no longer allowed to save more to add to their final salary scheme. We are currently hearing of very large and well financed companies deciding they too can no longer afford to go on with generous pension schemes, and are about to close theirs. Some schemes have collapsed, along with their sponsor companies.

How did we get into this mess?

Many schemes are in substantial deficit because

1. The tax on their investment income, introduced in 1997, reduced the investment return and damaged prices of shares the funds owned over the ensuing 12 years.
2. The last ten years (to March 2009) have seen no positive returns on UK and US shares. The Credit crunch and recession have wiped out all the gains of the decade, leaving pension funds considerably worse off than if they had remained in cash.
3. Those valuing funds make assumptions about how much future inflation there will be. The higher inflation is, the more money the pension fund needs to pay out the higher pension payments. Most valuers these days insist on an inflation rate higher than the 2% target rate the Bank says it will keep to – at a time when RPI inflation is negative. Government reliance on low inflation figures is not reflected in pension fund valuation.
4. The good news that people are living longer is bad news for pension funds. They are having to provide more money to pay pensions for longer.
5. Pension funds now have to pay a tax or levy to the Pension Fund Protection scheme. In other words,successful funds are now taxed to pay the losses on less prudent funds. This additional cost makes employers even keener to keep down the contributions on their own fund.
6. Regulation has greatly increased, requiring employers to spend more and more money on legal, actuarial and other advice and compliance. Trustees find it very difficult to make sensible decisions, as they are so hedged around by the rules. The main conclusion of most of the advice is that funds should now own more and more government debt, despite this only producing an income of around 3 to 4%. People fear this will not enable them to pay all the pensions in the future at an acceptable level of contributions.

The result of all these pressures is that many companies say they cannot afford the large contributions now required, and cannot afford the risk of the open ended commitment to employees. Some companies are in the position where the pension fund is worth much more than the company, and where the future pension risks and costs are higher than the main risks and costs of running the business. Western companies facing these costs have to compete with Asian companies that often carry no such requirement.Pension costs can help bring an entire company down in a competitive global market.

It is a sad example of where the combination of higher taxes and more regulation leads to the end of a good idea, instead of being its salvation. Never have pension funds been so regulated. Never have so many been closing down or cutting back. Government has contributed it make it both too dear and too dangerous for many to run a final salary pension scheme. Paradoxically, having achieved that for the private sector, the government continues with such schemes – many completely unfunded – in the public sector. This is becoming a matter of controversy, generating a big sense of unfairness. I will look at what could be done to rebuild pension savings and to establish more fairness in a later blog.

Early in 2008 when interest rates were too high for comfort and likely to help bring more banks down, I called for much lower rates. At the time I said inflation would tumble anyway, as the inevitable recession bit.

As expected the recession came, and inflation has fallen sharply on the RPI measure, less so on the CPI measure. It is time to reassess the inflationary outlook, as interest rates have now be held well below normal recession levels for some months , and quantitative easing is well underway.

UK inflation has proved to be more obstinate on the CPI measure than the deep recession would suggest, for three main reasons. The first is the collapse of the pound in 2008. As I warned at the time, a money policy which lurched to being too easy would drive the pound down, which would leave us very exposed to imported inflation. We are now living with the consequences. Forward currency cover is running out for importers. Stocks of cheaper imports are running out. New product is costing more.

The second reason is the commodity price revival, brought on by Chinese restocking and probably by speculative activity on the back of quantitative easing, Oil has more than doubled from its bottom levels earlier this year. Although sterling in recent weeks has been getting stronger, abating the import price issues, commodity prices have been going up more quickly than the currency, leaving more price pressures in the system.

The third reason is the behaviour of some industrial companies. Usually in recession as volumes fall away companies offer price cuts to try to induce more spending on their goods, or at least to encourage gains of market share. This time round the volume reductions have been so enormous – a halving of demand is typical in the automotive areas for example – that some companies are taking a different view on price. They are saying to their customers our overheads per unit of output have risen sharply, thanks to the big drop in your orders. As a result we cannot afford to offer you any price cuts. In some cases they may even propose price increases, to try to reduce the losses on the limited output they can sell.

In both the US and the UK industrial work forces are on the whole co-operating with management to combat the huge falls in demand. In many cases employees have volunteered for more short time working, extended factory holidays and the like to cut both output and their pay in the hope that will enable them to keep their jobs for the upturn. In other cases Unions and employees have reluctantly accepted the need for substantial redundancies and factory closures, as companies desperately try to cut their costs and output as demand plunges.

Employees seem to understand that the banks are not prepared to pay for ballooning stock and work in progress that cannot be sold, and not prepared to pay for large losses in industrial customer companies. They have their own losses to finance instead. Companies have to run down their stocks of raw materials and finished goods, and have to cut employee costs. Most companies embarking on such reductions are also cutting out management jobs as well. Where the cuts are made by short time working, managers may also have to go onto shorter weeks for less pay.

UK inflation will be higher than it should be owing to monetary and fiscal looseness, the commodity surge and the weakness of the pound last year. The authorities must not ignore inflation. It is down for the moment, but not necessarily out.

Some contributors to this site and other Conservatives I spoke to over the week-end have spoken out strongly against John Bercow. BBC journalists are using vivid language to describe Conservative attitudes to John in their commentaries on the Speakership from their sources.

I respect John’s skills as a Parliamentarian. He has the best memory of any MP, which he can use to recall the exact words of quotes, dates and other facts that can be important to the debate. He has been on an unusual political journey, from Monday Club to acting as an adviser to the Labour government. I have sympathy for his views on children with speech difficulties and think he has done good work on that matter. His own personal family story should evoke sympathy, not dislike.

The new Speaker should heed the wise words of advice from David Cameron. The House needs to see not merely that he has put behind him the views and loyalties he held some years ago, but now he is Speaker he has to also discard his more recent views and friendships to demonstrate impartiality.

He needs to show that his message of change is change for a purpose. The purpose should be to rebuild Parliament as the leader of national debate, the means to hold government to account, and the way to ensure proper representation of minority opinion. His decisions need to show he wants a stronger Parliament, able to hold truth to power, and capable of requiring accountable Ministers to take the place seriously and to tell us first.

It should have been no surprise that he got the job. It is , as I keep reminding my readers, a House with a large Labour majority. Labour decided to remove the old Speaker, and Labour were always in a position to choose the new one. Yesterday Labour decided to behave tribally and to elect the candidate many Conservatives did not want.

Conservatives now have to accept the result, and show respect to our new Speaker. We all need this to work. The Opposition should not prejudge this Speaker. He should be judged on how well he does at allowing Parliament to have more teeth and to hold a more central role in public debate.

Last week there was an apparent disagreement betweent he Governor and the Chancellor over the dangers of mega banks. The Governor rightly warned that some banks are too big to fail, implying something should be done to stop this. The Chancellor seemed to be more accepting of very large banks, and was more in favour of demanding more capital and more liquidity – a happy request for him at a time when he needs banks to buy more government debt!

I am with the Governor to this extent. I do think some UK banks are too big for comfort, and there is too little competition on the High Street to lift service standards and foster innovation. The answer to this lies not with a new Glass Steagall or some other regulations, but with competition law, and with the government as owner of two of the large banks.

In future the Competition Authorities should be allowed to block mega mergers of banks, and encouraged to do so by a clear banking competition policy. I was against both the LLoyds/HBOs merer and the RBS/ABN Amro merger. These mergers damaged the markets and the shareholders. They should have been stopped by the authorities.

The UK government can fashion a more competitive banking sector by splitting up RBS and LLoyds before returning them to full private sector ownership. This will the topic of a future blog.

I heard this morning that there is a Whips’ stitch up to ensure Margaret Beckett becomes Speaker. I have no idea what the Labour whips are doing, but as it is a secret ballot they will not succeed in making their MPs vote for someone they don’t want. I do know what the Conservative whips are doing.

No whip has aproached me to recommend a candidate or urge me to vote for X. There has been no ring round. I have asked several Conservative whips how they will be voting, as I am trying to understand the election so I can tell you more about it. Each has even refused to tell me how they personally will vote, under orders from their office not to be seen to be influencing the election in any way.

Last week I told you why I would not be voting for three of the candidates. This morning I have decided that Michael Lord and Patrick Cormack are unlikely to receive my support, because I have to start eliminating more. I will attend the session to learn more of the other 5.

I find the endless public comment that one candidiate should be chosen because she is “clean” on expenses quite bizarre. All MPs went along with an expenses scheme which was too generous and too laxly administered. All made claims under it. No Speaker candidate stands out by virtue of being a campaigner for expenses reform, or for being in the fortunate financial position where they did not claim expenses. We need to judge them on what contribution they will make to putting in a new system of expenses which the public will accept, and which is affordable in the new parlous financial circumstances of the public sector.

This morning on the radio Ms Harman, Leader of the House of Commons, has sought to remove the expenses issue from all the candidates, by saying that the government will legislate to put all expense issues outside the control of the House. It will use its majority to set up an independent body which settles the terms of the scheme and administers it, so that means a new Speaker will have no role if the government has its way.

I am not surprised to hear that Ann Widdecombe is popular in the country for the job of Speaker. It just goes to show how large a role media image plays these days in people’s assessment. Ann has been on the media more than most of the candidates and is therefore “better known”. People have unrealistic expectations of what someone could achieve in say ten months in the job, when any change has to meet with the approval of a majority of the Commons, and to be tested in debate and with a vote.

The Commons needs a new system for expenses – new tighter rules on what can be claimed, and a better run administration and audit of the payments. All Speaker candidates propose waiting for the Kelly Report. A new Speaker will then have to decide whether to use what influence they have to persuade the main parties to accept Kelly and implement it, or decide that Kelly has got some of it wrong and seek to change and amend it. Whoever is Speaker, this issue is largely out of their hands, and is unlikely to be settled before the end of this year. The Prime Minister and governing party will have most say over this, as they control most votes. If they are sensible they will seek consensus with the other two main parties.

The Commons needs to assert itself against the executive. I doubt that any new Speaker this Parliament will be able to end the guillotines to give us more time to debate the important issues on Bills, nor will he or she be able to persuade this government to table motions in government time on the most important or embarrassing issues. The majority party largely controls the agenda of the House. The Speaker has little power to make the Executive table and debate things they do not want to debate. The best way the Speaker could flex the power of the office to improve accountability would be to grant more requests for urgent debates on topics which the government refuses to table. This is in the Speaker’s power, and the government has to field a Minister if the Speaker says Yes to an Opposition or backbench request for an urgent debate. None of the candidates have proposed using this power more as far as I am aware.

The Speaker for the next Parliament is highly likely to be a member of the present Parliament. Delaying the decision until the first day of the new Parliament by appointing an interim this time does not guarantee a better result. There may be many new MPs elected at the next Election. They are unlikely to know much about the merits and characters of the candidates on their first day. I still think it best that we appoint someone with authority this time round. An interim Speaker will always face the retort if wanting to make a change that she would not be around to have to live with the consequences or to supervise its full successful implementation.

The Commons needs to insist on Ministers making statements to the House first. A strong Speaker would make this a number one issue. Once again, however, the tyranny of the majority means that unless the Speaker can mobilise backbench Labour MPs as well as the rest of us, this can only be achieved by persuading the government.

Some have said I ought to stand. I have not done so for a variety of reasons. The most important is I do not wish to exclude myself from the debate on the big economic, constitutional and European issues. A Speaker must not have views, and must certainly not seek to express them.

An interim Speaker would in effect have just seven months of active service. The House will start too long a summer recess in July, not returning until October. This Parliament will end in April assuming a May election. Even a strong Speaker would be unable to impose a September session to hold the government to account, as the recess dates are decided by the government.

I am a traditionalist who thinks that the 5 day Test match is a great game. Like all cricket fans I can be engrossed by the struggle of ball against bat, when to the non cricket lover “nothing happens”. A long period of no or low scoring balls can be a fascinating contest. I can go home after a Saturday at the Test not knowing who will win, well satsified if I have seen great bowling and skillful batting. I like to see the game played in whites on a lovely English ground like Lords.

I am also someone who thinks change and the future can be exciting. I do not wish to live in the past. I find 20/20 cricket is simply the most exciting, adventurous, brilliant team game the world has so far designed. In just three hours you will probably see more than 300 runs scored, around 15 wickets taken, and drama on each ball. There are frequent dashed singles, attempted run outs, big hits, and aggressive bowling. There is an ad break in the middle, different coloured clothes, and modern crowd participation. I love it too.

20/20 is a different game. We may need specialists in the two different types of cricket. Knowing how to play the long game with solid defence and classic strokes may still be a good grounding for 20/20, but the cricketer will need to develop and adapt from that if he is to succceed. 20/20 needs a very different approach to stroke play, bowling line and length and to risk taking. 20/20 is unlikely to be a good training for Test cricket, where patience and temperament are so crucial.

There is a place for both games. Many more people will enjoy the thrills and spills of 20/20. Many 20/20 lovers will never grasp why some of us can go and see a whole day’s cricket, see not many runs or wickets, come away still without a winner and think we have had a good time. Those of us who do love the long game should understand the immediacy and pleasure of 20/20. It will involve many more in a type of cricket. There is room for both. 20/20 could become the type of cricket that the US wants to play, and could become a cult global sport if the cricket promoters get behind it. It certainly has plenty of commercial potential.