Category: Blog

Yesterday on BBC TV I was confronted by a statement that Alan Duncan (Shadow Leader of the House)had called for the Housing allowance to be abolished and replaced by a large pay rise for MPs. Did I agree?

Of course I didn’t. I subsequently asked Alan Duncan if he had said that, and he assured me he had not proposed any pay rise in the current climate. He isn’t deaf to the public mood either.

So what should be done? Parliament is just the outward and visible manifestation of Labour’s unproductive, costly and badly run public sector generally. Reform of the public sector to serve the public better at less cost needs to start there, to provide a lead to the rest.

Here are some commonsense proposals to raise productivity, cut costs and improve efficiency:

1. Have fewer MPs. My productivity was slashed by around one quarter in the last boundary review for no good reason, when they took a large number of electors away from the seat. It is quite possible for MPs to represent 80,000 or 90,000 people instead of the 70,000 average at the moment.

2. Cut the MP staffing allowance to cover the costs of two rather than three full time well paid assistants and secretaries. That should be enough to do the job to a decent standard, and might remove some of the spin doctors and hangers on who manage to creep within the rules.

3. Reduce the large police presence in the Palace, so more police can be policing our constituents home areas where they would be welcome

4. Introduce a September session to hold the governent to account – not for more legislating, with Question times, debates on topical topics and opportunities to cross examine Ministers on their conduct.

5. Tell all candidates to Parliament before the next General Election that the MPs pension scheme will be closed to new members from the date of that election, to be replaced by a money purchase scheme along private sector lines.

6. Cut the budget for building works at the Palace, to try to stop all the clumsy new security and Visitor constructions that increasingly disfigure the place

7. Make Parliament sit until 10 pm on a Wednesday as well as on Monday and Tuesday, to give more time to examine important issues

8. Buy a block of flats in Westminster around the time of the next General Election when the market may be offering better value. Make these available to MPs who need overnight accommodation in London. They would not then be eligible for a housing allowance. Allow existing MPs a sensible phase out period for their current arrangements, as selling London properties in the current market will not prove easy.

When Mr Clarke yesterday called a manifesto promise and a firm policy pledge an “aspiration” the BBC and Labour went into overdrive. Here they hoped was manna from heaven. Here they drooled was a major Tory tax war, here they salivated was proof that Clarke was taking over as Shadow Chancellor, here was an opportunity to portray the Tory party badly. My phone kept ringing as programmes promised me cameras wherever I was if only I would denounce either Clarke or George Osborne, or would say something to turn a wrongly chosen word into a major row.

I explained to them with growing irritation that nothing had changed in Conservative policy. Mr Osborne is Shadow Chancellor and he had made the position quite clear in 2007. Mr Clarke should have said it was a promise, not just an aspiration, and would say so shortly.

The fact that the BBC thought this single misplaced word to describe a well established policy was a leading news item tells us a great deal about how the BBC runs its news services. In the meantime they cancelled the offer of an outing on the Today programnme for me to explain a better way of tackling broken banks this morning, despite the Sunday Express article setting it all out again and other media interest. I was offered a slot and probably a radio car to make it easy if I would build their non story about Tory tax wars. That was an easy one to call!

The problem with seeing politics as just a media strategy is you have to keep appearing on more and more shows, and finding different things to say to keep the audiences interested. It can also lead to media blunders, as it did with the unfortunate remarks about disability. Such “events” come to have more significance for some in this media age than the realities of bad government and failed policies which affect millions of lives. That’s an argument for not doing so many of these media fests, and for spending more time behind closed doors trying to work out what to do.

Yesterday the President seemed to announce a vital change of approach to Afghanistan in an interview. Wouldn’t it have been better to have worked out with his team how and when they can get out of Afghanistan first? What has happened to the strategy on which he fought the election of reinforcing the positions and intensifying the fighting? And why did he say Iraq was easier, when I thought he had been against Iraq?

As somone who has always wanted to see the UK get out of Afghanistan, I have never called for us to reinforce the position or implied that more fighting will suddenly transform the position. The President is the crucial man who will determine the tempo, purpose and success of this long and worrying war. His statements can put lives at risk. They need to be thought through, and are often best uttered after he has taken the necessary actions.

The same is true of his economic strategy. We learn that this week he is going to spend another half trillion or was it a trillion on bailing out bad banks and other financial institutions. Is there no limit to the amounts he will commit to this? Is there no sense of any danger, or that taxpayers might reach the end of their credit worthiness?

The President talks well and understands the mood of the country. That is fine, but he needs to govern well, otherwise his talk will not be believed. Spin is just spin, unless it accurately reflects what is going on.

Today I would like you to spare a thought and a few billion for the public sector fat cats. They have been going through a miserable time lately.

Fred Goodwin has been pilloried for his noble action in creating the largest loss making bank in UK financial history and for delivering it safely into the public sector.

Chief Executives the length and breadth of local government and quango land have been subject to abusive intrusions in to the privacy of their rewards by the Taxpayers Alliance, the Redwood website and others. They should be supported for increasing the costs of public services year after year, for keeping productivity down, and for tirelessly recruiting so many extra administrators, spin doctors, regulators and management consultants to help them. We need all the jobs we can get in a recession. One man’s productivity gain can be another man’s job loss.

Senior Regulators have been criticised for failing to stop abuses like sub prime mortgages, food poisoning and hospital infections. We need to stop these unrealistic expectations of these dedicated workers who have done so much to spread the box ticking passport carrying culture into every business and home.

All the public sector fat cats have been subject to criticism by the Leader of the Parliamentary Opposition.

Never a day goes by without some further assault on the rewards and further questioning of the work and performance of these important people. Worse still, Ministers who struggle to stay on the public fat cat list because their pay is so low, are assaulted for daring to fill in expense claims to keep them up there with the people they appoint and fail to supervise.

So today, I ask you to be generous. The fat cats need your tax contributions, and they need your sympathy. Never have so few been attacked so much by so many. So spare a few more billion. Your public sector banks need your help. Your public sector Chief Executives need their mega packages and their ample support staffs. Your Ministers need their housing allowances.

In between their bouts of overspending and money printing, the PM and Chancellor have set out their latest political wheeze to upset the Tories.

They propose a 45p tax on earnings over £150,000 a year. Their left wing is delighted. If the Tories oppose it they can say the Tories are the party of the rich, tone deaf to the mood music of a recession hit nation. If the Tories accept it they can claim the Tories too are tax raisers. They imply the tax can fill the massive hole in the nation’s finances, with no pain for everyone else. If only.

I thought George Osborne was wise to duck this simple bouncer today. He should settle his income and other tax levels once he has taken office and has worked out the full mess he has inherited. The Conservatives have no need to make this silly stunt a big issue. They should make the stunts the issue instead.

Let’s point out that it is Labour incompetence with the public finances that has left them needing higher taxes. Let’s point out that if you confiscated all income above £150,000 you would hardly notice the dent in their whopping deficit in the first year , but you would notice the further erosion of the wider tax base as successful companies and entrepreneurs fled the country in subsequent years.

All the Tories need say is they are the party of lower taxes on effort and savings, as we will need more of both to turn this economy round. There is no need to walk right into Brown’s silly trap. We should carry on pointing out the magnitude of the debts and deficits, and the need to control public spending to start to turn it round.

I should point out that Labour’s tax trap soon brought me a phone call from the BBC. Would I like to go on to condemn the 45p? If I said yes, that would make the story “Tory tax wars”, which they would love. Meanwhile yesterday an offer to appear on Newsnight to discuss the debt petered out without any explanation before I had the details of time and place, and an accepted offer to do the Today programme this morning on the same subject was cancelled. Was it something I said, or something I would not say?

How much more will the government have to borrow next year?
Lots

Does it matter?
Yes it does.

The government only has one policy to get out of this mess – spending more. They will spend and spend, to the limits of their ability to borrow and print it.
There is one huge problem with this. We have to pay the money back with interest. It’s just one enormous delayed tax bill.
I am all in favour of paying some tax to make sure we have enough good teachers, nurses and doctors, and to make sure the disabled are looked after and the unemployed have some help
I am not in favour of paying more tax to make sure the bankers have their bonuses, the spin doctors can lie some more to us, the quangos can carry on regulating the wrong things in the wrong way. I am not in favour of unelected regional government, a lot of quango government, and the growing army of officials intruding into our daily lives. That does not make us richer, it makes us poorer. If we have to borrow to pay for it, it is even worse. The government should get a grip on it now, before we drown in a sea of debt.
The Chancellor wrongly told us that he would only borrow £78 billion this year, and many in the media have obligingly reported that, seeing next year as the difficult high borrowing year. The actual figures the government published said they would borrow £157 billion THIS year, or well over 10% of our National Income. It now looks as if next year could be even dearer. All of these numbers of course are dwarfed by the huge liabilities now heaped on the taxpayer by the government’s irresponsible approach to supporting the banks.
Taxpayers are standing behind more than £500 billion of casino bank. How much more will that lose before they call time on it? Taxpayers are standing behind mountains of corporate and mortgage debt. How much more are we going to lose on that?
The authorities refusal to cut interest rates and ease money in the summer and autumn of 2007 will cost us dearly. This site called strongly for a different policy at the time. As the authorities persevered with driving by looking in the rear view mirror, it was bound to be a big crash.Recent news on the state of the real economy shows how big it is. That in turn means a further nose dive in tax revenues.
Still the BBC said this morning the Chancellor is “doing his best”. I don’t recall them saying that about Conservatives. The question they should have asked, if that is their view, is “Is his best good enough?” And “Can we afford it”.

Mr Mandelson said tonight that the government is not a bail out fund.

He was talking of the car industry.

Meanwhile down the road at the Treasury that is exactly what the government is – a bail out fund for mega banks which have lost mega bucks, still wanting to pay their top employees mega pay.

The contrast in treatment between the car makers and the banks is exteme.

When will they stop being such a soft touch for the banks, to put some fairness into the situation, and to put some discipline into those banks?

The Fed has now joined in the fun of printing money and buying up its own government bonds, to try to reassure investors that all is well with the world. Monetarists assure us that this will create more deposits in banks, which in turn might be spent and start to lift the recessions. That would be good news indeed. If you hurl enough money at a problem, someday some of it might start to do something useful depite the broken banks and the falling property prices. The monetarists are right to say people and companies are short of money. It’s deposits they need more than bank loans, turnover businesses require more than working capital bank facilities.

My worry is that on both sides of the Atlantic the governments are trying this at the same time as running collosal government deficits, and issuing huge quantities of bonds to pay for them. Markets are being told that buying different government bonds is a “flight to quality” which can never be criticised. Those who think this have not read their history books.

History tells us that many countries have in the past defaulted on their public debts when the burden becomes too great. It’s not just the well known South American villains who have let the international money lenders down. Countries like Spain, Japan and Germany have also been serial offenders if you go back far enough. The UK and the US have not in the past cancelled obligations or refused to pay interest, but they have often inflated their way out of the full rigour of the repayments, paying the lenders back in depreciated dollars or pounds.

Even if this time round they do prevent a return of high inflation and meet all the repayments, it is still possible to lose money fron a “flight to quality” if you buy a long bond on too low a rate of interest. There can be bubbles in gilt edged securities, as well as in properties and private sector shares. One of the problems the Japanese encountered when trying money printing in the 1990s was deciding how quickly to withdraw the cash once it seemed to be working, to avoid triggering a great inflation. They also discovered that if you did not first mend the banks, it was difficult for anything else to work.

It is worrying how quickly the Obama administration has been bogged down by the Credit Crunch. They try initiative after initiative, just like the UK, allowing nothing to work through. At the base of all this trouble is the obstinate refusal of the authorities on both sides of the Ataltnic to take a tough approach to the broken banks and financial institutions where the public sector now has a significant investment. It is causing political pressures for the politicians, who seem incapable of finding the people to sort out these broken and badly run organisations. The financial sector living on public sector subsidy is living well beyond its means and failing to sort out its businesses quickly enough. The result will be more losses, more bad news for taxpayers, and more anger about the remuneration of the executives responsible.

The proposed migrant tax on immigrants from non EU countries is a typical response of this government. It tackles a problem of the government’s making in the wrong way.

Why has it come forward now? Because the polling shows them that people are very worried by immigration on Labour’s watch. Many people think the government should have controlled our borders better, keeping out people who might be a threat to the state, and controlling the overall numbers. Labour has to face the European and Council elections, which gives voters a chance to express their dismay with the current situation. They are spinning a new initiative to give some cover to “British jobs for British workers” which they famously and misleadingly offered recently.

Why is it a tax? Because they need the extra money, and here is another group of people they think they can tax without existing voters getting angry about it. It is always another tax or another regulation with this government, usually with an extra quango thrown in.

Why don’t they control the numbers coming in more effectively, which is what many people have wanted them to do? Because then they would not be able to tax them on the way in, and would not be able to recruit them in to the ever expanding public service workforce. They have found this easier to do than to train and incentivise more people already living here to do these jobs.

Why doesn’t it apply to people coming in from the EU? Aren’t there queues of people trying to get here from Calais, and isn’t Calais in the EU? Because the government stupidly gave away control over our borders with the rest of the EU against Conservative advice and votes, and now cannot control these borders without getting the approval of our partners. Clearly Labour does not think they have enough influence with the rest of the EU to deliver the changes we need. The obvious thing to do is to take the power back to control our own borders in the way we wish, but don’t expect them to do that.

Why doesn’t belonging to the Commonwealth mean anything any more? Many people in the UK deeply resent the idea that people from Australia and New Zealand, from the West Indies and Canada, are treated less well than people from the EU. Why isn’t India treated better, as she becomes one of the new great powers of the world? We have special cultural, historical and kinship ties with many people in Commonwealth countries. And why didn’t Mr Brown tell Americans when he addressing both Houses of Congress that the special relationship did not extend as far as to exempt Americans from a new “you are not welcome” tax for migrants?

Lord Turner is an intelligent and hard working man. He is untainted by the failures of the bankers and their regulators over the last giddy decade of excess credit. Let us hope he shows some wisdom in responding to the present crisis, and let us hope he understands that Regulators have to look ahead. The issue today is not how we stop the last crisis, but how we stop the next one. It is likely to be different from the last one.

Leaks imply the authorities now think banks should be made to hold more in cash and government securities. They should ask themselves why they want to feed the bad habits of the last heavyweight debt junky left on the bloc – the UK government.

Shouldn’t the Regulators be warning that the next problem could be a government debt problem? Shouldn’t they say to banks that lending to the UK government at very low interest rates has in the past been a very unrewarding pastime. It is true the government may print enough money to buy enough of its own bonds to drive the prices higher in the short term. But won’t there be a day of reckoning? Doesn’t the turbo buying have to stop at some point? What happens then? Couldn’t the banks all lose money if they hold too much government stock bought at high prices? How does that strengthen them?

Leaks also suggest they want to impose a limit on lending to people buying homes of three times income. They are right to think that interest rates are going to have to go up again. It would be wrong to calculate how much mortgage people can afford based on current low rates of interest.
A three times limit is well below the limits banks and Building Societies have been applying in recent years. It implies the authorities want to see a further substantial fall in house prices.

There is a case for driving prices lower again. Some of my correspondents have made it, saying it is high time homes became more affordable. A young person or couple starting out today still faces a house price mountain to climb to get their first owner occupied home.

Such a policy also means further distress for the banks, as lower house prices will leave many more mortgage loans they have made higher than the value of the property which is their security. It means weaker banks for longer, as the adjustments take place. That in turn means fewer mortgages, driving the price of homes down further. It means fewer jobs – fewer jobs building homes, and fewer jobs elsewhere, as lower house prices means lower consumer confidence.

One thing we can do without is yet another regulator, the Euro regulator, coming in to the game on top of everything else. We need simplicity and clarity, not more expense and more complexity. One of the worst features of the banking world in recent years in the UK has been the lack of choice and competition on the High Street for our banking business. More levels of regulation will mean more barriers to entry, and even less banking choice.

Would counter cyclical regulation of banking cash and capital be a good idea? Asking banks to have more capital in the good times, to protect them in the bad times? Yes it would. Will the Regulator be able to judge the cycle? Time will tell. The Regulator will be more likely to get that right if he is not trying to do too many other things as well. The problem with counter cyclical regulation is you need to be able to read the cycle. That was clearly beyond both the banks and their regulators in recent years.

By definition the regulators will not stop the next crisis. By seeking so many ways to stop the last one happening again, they will doubtless be looking the wrong way for the next one.