Category: Blog

 

             The country has been briefed against the bankers for many months. There is an almost universal view that the bankers behaved badly, are paid too much, and should by punished in some way. Most politicians forget we are all bankers now, as collectively we own the largest UK banking group, and have various other shareholdings in the sector. The people are the true capitalists now.

              I have argued before that we should immediately exempt most bankers from these allegations and remedies. Most bankers earn modest sums to act as counter clerks, loan executives, mortgage administrators, transaction handlers and the like. They were not responsible for the high level errors of judgement which led to the Credit Crunch, nor do  they   enjoy telephone number remuneration.

              The targets are the directors and senior executives of the large integrated banks and the investment banks. They do earn large base salaries, and are used to substantial bonuses. Once paid as cash year by year, following changes these are now more likely to be paid as shares with a lock in period.

               The prosecution case seeks to cut or limit these  pay levels. The points made include:

1. The pay turns out to be subsidised by the state – directly in the case of state owned banks, and indirectly where a private sector bank enjoys past or potential support from the public sector if it gets things wrong

2.The bankers rewards are inflammatory to others who earn much less

3. Some of these senior bankers have failed to be good role  models, abusing their positions of trust

4. The bonuses are based on taking excessive risks. If the risk works out the banker is rewarded. If the risk goes wrong someone else pays the bill

5. The bankers earn much more than many of the small businesses and homeowners they are lending to.

The case for the bankers is infrequently and feebly put. It probably includes:

1. Banking is an international business. If the UK imposes restrictions on rewards here that are not imposed elsewhere, the business will shift to other centres

2. Banks and bankers pay large  amounts of tax which is crucial to public service provision in the UK

3. Banks were encouraged to lend large sums to mortgage holders and businesses prior to 2007 by governments keen to promote wider ownership and economic growth through excess credit

4. Banks expanded lending so much in direct response to central banks which set low interest rates to facilitate it, and under the watching eyes of regulators who said the risks the banks were running were just fine

5.Banks need to offer large salaries to attract the best international talent, just as football teams do

6.Bankers are at risk, and some do lose their jobs when they fail to generate the revenue they promised

7. High earning bankers pay more than 50% of their money in tax, which can be used to reduce inequalities.

8. Surely the regulators and government are most to blame for the Credit Crunch. The Labour government put in an entirely new system of regulation of its own, and it failed disastrously. Banks as well as the rest of the country relied on the regulation.

            So should the Uk government do more to change the culture and regulate pay in the banks? My answer is both Yes and No.

           I cannot accept public subsidy for large salaries and bonuses. That is why I opposed nationalisation of RBS, and why I still oppose the current pattern of remuneration in that state owned bank. I would be happy for the top management to make large sums if and when they sell the bank back to the private sector at a profit for the UK taxpayers. I am not happy about people who are effectively civil servants in a state bank being paid so much more than other public servants.   As I favour split up and the sell off  differing businesses from within the RBS stable, talent can be retained and incentivised around achieving good selling prices for bits of the business. The talented executives would get their  reward as and when they have transferred assets and activities successfully to the private sector at a good price for taxpayer owners.

              I do not, on the other hand, favour more intervention on levels of pay in private sector banks not in receipt of state subsidy. It is true that all important banks can and should borrow from the lender of last resort, the Central Bank, in times  of trouble. That is not necessarily a subsidy. If it becomes in effect the offer of longer term subsidised capital to the private sector bank, then at that point there needs to be a negotiated conclusion on lower levels of remuneration in the troubled  bank whilst it gets itself back into free standing profitable shape.

             In future should there be another bout of poor regulation and banking excess they have promised to tackle it through a kind of managed adminsitration as I proposed for RBS. This means  there need  not be the same problem over remuneration and state subsidy anyway.

             The curious thing is that the last Labour government nationalised a bank or two, but endorsed high levels of remumeration and bonuses and signed off all the top executive contracts. The incoming Coalition government was advised they had to honour the contracts. That all makes it difficult for Labour to complain about excessive banking pay, as they underwrote and approved it in  several important cases.

 

 

 

             The country has been briefed against the bankers for many months. There is an almost universal view that the bankers behaved badly, are paid too much, and should by punished in some way. Most politicians forget we are all bankers now, as collectively we own the largest UK banking group, and have various other shareholdings in the sector. The people are the true capitalists now.

              I have argued before that we should immediately exempt most bankers from these allegations and remedies. Most bankers earn modest sums to act as counter clerks, loan executives, mortgage administrators, transaction handlers and the like. They were not responsible for the high level errors of judgement which led to the Credit Crunch, nor do  they   enjoy telephone number remuneration.

              The targets are the directors and senior executives of the large integrated banks and the investment banks. They do earn large base salaries, and are used to substantial bonuses. Once paid as cash year by year, following changes these are now more likely to be paid as shares with a lock in period.

               The prosecution case seeks to cut or limit these  pay levels. The points made include:

1. The pay turns out to be subsidised by the state – directly in the case of state owned banks, and indirectly where a private sector bank enjoys past or potential support from the public sector if it gets things wrong

2.The bankers rewards are inflammatory to others who earn much less

3. Some of these senior bankers have failed to be good role  models, abusing their positions of trust

4. The bonuses are based on taking excessive risks. If the risk works out the banker is rewarded. If the risk goes wrong someone else pays the bill

5. The bankers earn much more than many of the small businesses and homeowners they are lending to.

The case for the bankers is infrequently and feebly put. It probably includes:

1. Banking is an international business. If the UK imposes restrictions on rewards here that are not imposed elsewhere, the business will shift to other centres

2. Banks and bankers pay large  amounts of tax which is crucial to public service provision in the UK

3. Banks were encouraged to lend large sums to mortgage holders and businesses prior to 2007 by governments keen to promote wider ownership and economic growth through excess credit

4. Banks expanded lending so much in direct response to central banks which set low interest rates to facilitate it, and under the watching eyes of regulators who said the risks the banks were running were just fine

5.Banks need to offer large salaries to attract the best international talent, just as football teams do

6.Bankers are at risk, and some do lose their jobs when they fail to generate the revenue they promised

7. High earning bankers pay more than 50% of their money in tax, which can be used to reduce inequalities.

8. Surely the regulators and government are most to blame for the Credit Crunch. The Labour government put in an entirely new system of regulation of its own, and it failed disastrously. Banks as well as the rest of the country relied on the regulation.

            So should the Uk government do more to change the culture and regulate pay in the banks? My answer is both Yes and No.

           I cannot accept public subsidy for large salaries and bonuses. That is why I opposed nationalisation of RBS, and why I still oppose the current pattern of remuneration in that state owned bank. I would be happy for the top management to make large sums if and when they sell the bank back to the private sector at a profit for the UK taxpayers. I am not happy about people who are effectively civil servants in a state bank being paid so much more than other public servants.   As I favour split up and the sell off  differing businesses from within the RBS stable, talent can be retained and incentivised around achieving good selling prices for bits of the business. The talented executives would get their  reward as and when they have transferred assets and activities successfully to the private sector at a good price for taxpayer owners.

              I do not, on the other hand, favour more intervention on levels of pay in private sector banks not in receipt of state subsidy. It is true that all important banks can and should borrow from the lender of last resort, the Central Bank, in times  of trouble. That is not necessarily a subsidy. If it becomes in effect the offer of longer term subsidised capital to the private sector bank, then at that point there needs to be a negotiated conclusion on lower levels of remuneration in the troubled  bank whilst it gets itself back into free standing profitable shape.

             In future should there be another bout of poor regulation and banking excess they have promised to tackle it through a kind of managed adminsitration as I proposed for RBS. This means  there need  not be the same problem over remuneration and state subsidy anyway.

             The curious thing is that the last Labour government nationalised a bank or two, but endorsed high levels of remumeration and bonuses and signed off all the top executive contracts. The incoming Coalition government was advised they had to honour the contracts. That all makes it difficult for Labour to complain about excessive banking pay, as they underwrote and approved it in  several important cases.

 

 

 

           Yesterday was not a good day for taxpayer bankers. Collectively we have now lost £40 billion on our holdings in RBS and Lloyds. The original investment cost £65.5 billion, so that means so far we have lost more than 60%.

           Perhaps the last government  who thought nationalisation was a better idea than controlled administration might like to explain these losses.  UKFI who manage the holding for us needs to tell us how it plans to get us out at a profit, and why so far its plan as the controlling shareholder has performed so badly. They should have ordered a break up and sale of constituent businesses of RBS from the beginning, to limit taxpayer risk and get some of our cash back.

           Mr Brown of course switched out of gold, going later into bank shares. To date we have lost  more than £15 billion from gains forgone on the gold he sold. So the switch costs so far are north of £55 billion.

 

              As leftwards inclined commentators want to discuss equality, let’s post today the difficult case. If excessive pay is to be condemned,  taxed penally , or  banned, as they say we need to do, what should we do about footballers’ wages?

              The Premier league is a UK success. It earns millions in tv fees from  around the world. It grows side businesses making and selling shirts, socks, dvds and other merchandise. According to newspaper reports, the top players are paid £5 million or more, the odd one  even more than £10 million a year. Surely the left will condemn anyone on £250,000 a week? Isn’t that part of the problem of inequality they complain about?

            You can make a case against excessive footballer pay. It is used to tempt foreign players into the UK premier league, limiting the chances of native talent to play at the highest level and to get better from the pressure of top matches.

               It requires clubs to charge high prices for fans to buy the merchandise and go the games. On a leading club site today the team shirts are advertised at £54.99, the DVDs at £14.99, the childrens’ shirts at £34.99 and socks at £9.99. These are hardly competitive prices for the textiles involved.  A ticket to see a match costs £30-£50 for each game, and a VIP package for a single game is £200-£500. If you are on the minimum wage trying to follow your club, going to the games is way beyond your means.

                 Leading footballers are said to be a role model for many young people. Yet so often these role models are dragged through the media for their imperfections – too much alcohol, a whiff of illegal drugs, too many lovers, breaking their marriage vows and the like. Some say top footballers cannot handle all the cash they are given, and seek to abuse the power money can buy.

                Some of the players find ways of arranging their tax affairs to limit how much the UK Treasury takes from their pay.

                  So why is there no continuous cry to stop all this? The left recognises how popular football is. They understand that UK fans like having some of  the best talent in the world playing regularly in the Uk league and cup. They turn a blind eye to the pricing and the tax arrangements, in order to keep the competition and the people here.

                There could be a rule that a UK side could only have one or two foreign players in it, as County cricket sides used to do. That would lower average player wages, and give local talent more of a chance to shine. There could be tougher enforcement of  a rule that if you play here and are paid here you should pay tax on every penny here. There could be a requirement that clubs make more seats available for people on low incomes at cheaper prices.

                   None of these happen, because the left seems to think different rules apply to top footballers than they want to apply to top bankers. Tomorrow we will look at the case of excessive bankers’ pay. When it comes to football, more commentators on the left seem to like the global market and the show and flashiness it brings, turning a blind eye to its imperfections.  Would the UK be a fairer and better place if we regulated and limited  footballers’ wages? How would the left propose it be carried out?

 

 

    One of the least enjoyable  characteristics of some left wing commentators and politicians is their willingness to personalise and misrepresent people of different views from their own in an unpleasant way.

        On Tuesday I was sent a copy of a piece written by John Harris in the Guardian. I do not recall having a heart to heart with Mr Harris. He certainly did not ring me up recently before writing about me. He clearly has not read any of my comments on the topic of inequality. He simply asserted ” There is no point in people like me having a pop at, say, John Redwood, for his failure to recognise the importance of inequality”.

         Had he taken the elementary precaution to talk to me, or to read some of what I have written, he would know that I do think inequality is a vital  topic in political discussion, in talking about  helping create the conditions for a good society, and in discussing economic, tax and spending policies. I have spent much of my life in politics working with colleagues, writing and thinking about how more people in our country can get good jobs, receive good educations, enjoy a better quality of life and a higher standard of living. Like all members of the main political parties I support taxing the rich more to help pay for  the lifestyles of the worse off. I am a softy when it comes to more public  money and facilities  for the disabled.

           It is irritating beyond measure that some on the left automatically assume many of us that they brand as right wing have no wish to see the poor prosper or to see equality narrow by raising the living standards of those worst off. They should recognise that in many cases in UK mainstream political debate we do not disagree about the aim – we disagree about the means.

        I know of no MP who likes poverty or thinks poverty does not matter. I know of no MP who thinks government should stand idly by and do nothing about poverty. I know of many who after years of pushing public money at the problem are asking how can we spend it better? What else do we need to do? Why are most of the new jobs going to recent arrivals in our country and not those already here who are unemployed? Why do so many young people in well financed inner city state schools fail to achieve much by way of qualifications? Why do so many families break down, or some never get started with both father and mother engaged? Why do so many end up on drugs, or confine their entrepreneurial skills to trades that are illegal?

           The true debate lies not over the need to conquer poverty or to narrow extremes of income by a mixture of lifting people out of poverty and progressive taxation. The true debate lies over a couple of important propositions. I do not believe you can make the poor rich by making the rich poor. The problem is the rich do not have to hang around if you seek to make them too poor. They have the best lawyers and accountants. They can go on strike when it comes  to investing and developing businesses. They can go offshore. Some on the left would say let them go.

                Which brings us to the second source of disagreement, the trickle down theory. I do believe that having and keeping more rich people and successful companies here in the UK does allow some of the income and wealth to circulate to the rest of us. We succeed in taking some tax off them, which helps with the public service bill. The rich do employ armies of professional advisers, they do set up businesses and create jobs, they frequent the restaurants and patronise the hotels, they keep the luxury goods makers and distributors in employment.

                      Of course it is right to say there are still many poor people who draw no direct benefit from the presence of rich nearby. Not everyone can work for a rich person or wants to. It is false to say there is no trickle down, or that the UK would be better off if more left to spend their cash in Zurich or Singapore, Hong Kong of Shanghai.

                             No, Mr Harris, do not peddle untruths. I do care very much about poverty and about what life chances people enjoy in our country. I want them to be much better. That is why I like grammar schools, Academies and other means of lifting educational standards. That is why I want to lower tax rates on effort and work, as I want more people to find working worthwhile. And that is why I urge people not to be jealous of the premier league  footballer, the pop star or the media personality who hit the big time and earn mega bucks. It gives others something to aim for, as well as filling  the newspapers with  celebrity lives.

 

I have sent a copy of this to Guardian, who intend to publish an edited version in their paper shortly.

 

    One of the least enjoyable  characteristics of some left wing commentators and politicians is their willingness to personalise and misrepresent people of different views from their own in an unpleasant way.

        On Tuesday I was sent a copy of a piece written by John Harris in the Guardian. I do not recall having a heart to heart with Mr Harris. He certainly did not ring me up recently before writing about me. He clearly has not read any of my comments on the topic of inequality. He simply asserted ” There is no point in people like me having a pop at, say, John Redwood, for his failure to recognise the importance of inequality”.

         Had he taken the elementary precaution to talk to me, or to read some of what I have written, he would know that I do think inequality is a vital  topic in political discussion, in talking about  helping create the conditions for a good society, and in discussing economic, tax and spending policies. I have spent much of my life in politics working with colleagues, writing and thinking about how more people in our country can get good jobs, receive good educations, enjoy a better quality of life and a higher standard of living. Like all members of the main political parties I support taxing the rich more to help pay for  the lifestyles of the worse off. I am a softy when it comes to more public  money and facilities  for the disabled.

           It is irritating beyond measure that some on the left automatically assume many of us that they brand as right wing have no wish to see the poor prosper or to see equality narrow by raising the living standards of those worst off. They should recognise that in many cases in UK mainstream political debate we do not disagree about the aim – we disagree about the means.

        I know of no MP who likes poverty or thinks poverty does not matter. I know of no MP who thinks government should stand idly by and do nothing about poverty. I know of many who after years of pushing public money at the problem are asking how can we spend it better? What else do we need to do? Why are most of the new jobs going to recent arrivals in our country and not those already here who are unemployed? Why do so many young people in well financed inner city state schools fail to achieve much by way of qualifications? Why do so many families break down, or some never get started with both father and mother engaged? Why do so many end up on drugs, or confine their entrepreneurial skills to trades that are illegal?

           The true debate lies not over the need to conquer poverty or to narrow extremes of income by a mixture of lifting people out of poverty and progressive taxation. The true debate lies over a couple of important propositions. I do not believe you can make the poor rich by making the rich poor. The problem is the rich do not have to hang around if you seek to make them too poor. They have the best lawyers and accountants. They can go on strike when it comes  to investing and developing businesses. They can go offshore. Some on the left would say let them go.

                Which brings us to the second source of disagreement, the trickle down theory. I do believe that having and keeping more rich people and successful companies here in the UK does allow some of the income and wealth to circulate to the rest of us. We succeed in taking some tax off them, which helps with the public service bill. The rich do employ armies of professional advisers, they do set up businesses and create jobs, they frequent the restaurants and patronise the hotels, they keep the luxury goods makers and distributors in employment.

                      Of course it is right to say there are still many poor people who draw no direct benefit from the presence of rich nearby. Not everyone can work for a rich person or wants to. It is false to say there is no trickle down, or that the UK would be better off if more left to spend their cash in Zurich or Singapore, Hong Kong of Shanghai.

                             No, Mr Harris, do not peddle untruths. I do care very much about poverty and about what life chances people enjoy in our country. I want them to be much better. That is why I like grammar schools, Academies and other means of lifting educational standards. That is why I want to lower tax rates on effort and work, as I want more people to find working worthwhile. And that is why I urge people not to be jealous of the premier league  footballer, the pop star or the media personality who hit the big time and earn mega bucks. It gives others something to aim for, as well as filling  the newspapers with  celebrity lives.

 

I have sent a copy of this to Guardian, who intend to publish an edited version in their paper shortly.

 

                 So the leaders of France and Germany met. They ruled out in advance giving the markets what they said they wanted. There is to be no borrowing by Greece or Portugal, Italy or Spain, on a common credit card with Germany standing in as guarantor. I can understand the German reluctance.

              Meanwhile, behind the scenes, the officials have to move closer to such an outcome. The failure of governments to implement the July package before they all went on holiday left the markets unappeased. Bond traders took it out on Spanish and Italian bonds. The European Central Bank stepped into the breach, and bought up £20 billion of Euro sovereign bonds last week. They managed to get the borrowing costs of Spain and Italy down by 1%, from 6% to 5%.

             This is a backdoor way of harnessing German credit worthiness to help the others. Germany is the largest shareholder in the European Central Bank, which is now flexing its version of the joint Euro credit card to buy in these bonds. This subsidises the borrowing costs of the weaker countries. The European Central Bank has promised not to print the money to do the buying – we will see. If it does not print the money then it has to borrow it.

               The average credit rating of the zone is stronger than the credit rating of the individual weak countries whose bonds the Bank is buying. This route can only lead to success and happiness if the weak countries are transformed and get their own credit rating back up to the average of the zone or better. If this does not happen, then the ECB is prone to incur  losses and the credit status of the whole zone is likely to reduce.

              The President and the Chancellor mainly discussed how they can exert more control over the budgets of the wayward sovereigns. The problem is finding politicians and officials in any of these countries willing and able to cut deficits. France and Italy have now announced additional deficit reduction programmes to march alongside the programmes for Portugal, Greece and Ireland put in by the IMF and EU.  Spain also has one in place.

              The announcement that German growth slowed to 0.1% in the second quarter, hard on the heels of the news that France did not grow at all in that three months,is a further strong headwind against deficit reduction. Euroland remains unable to make up its mind whether to press on with the type of fiscal union and single country government that could rescue the currency, or whether to expel the members that are the farthest away from meeting the requirements and average standards of the zone as a whole. The middle way they are trying remains the muddled way which just leads them from one crisis to another.

            Mrs Merkel had to refuse to allow the issue of open above board Euro area bonds, each stamped with a German guarantee, giving the weaker members access to cheaper credit. Instead it will have to be done by the back doors of the EFSF and the ECB. The results of the talks was no answer. There are three possible answers.

1. The miracle occurs, and the weak countries convince markets they have got on top of their debts and deficits so they don’t need any more subsidised loans.

2. The weaker members leave the Euro

3. The stronger states allow the weaker ones to borrow more at a subsidised rate, whether this is done through a beefed up fund to transfer cash, or through hugely expanded government bond buying by the ECB, or by the issue of Euro bonds.

 

Meanwhile, slower growth for the whole area is bad news. It means the stronger members don’t have so much financial or political leeway anymore to help the weaker ones. What a mess.

What the UK government needs to do immediately is to rule out imposing a Tobin tax on the City. As the UK wants nothing to do with the Eurozone, it should not be expected to raise a tax to pay for its failings. If the Eurozone needs extra taxes to pay for all the excess public spending, then the obvious  choice would be a tax on motor car and wine production, something Germany and France do a lot of, not on financial services, something the Uk does more of.

 

 

              In a democracy the police need to be independent in important respects. We all want the police to investigate people connected with the government fearlessly if they have good reason to suspect they have committed crimes. We wish them to resist any temptation by those in power to have their political enemies investigated on trumped up charges. We expect our police to bring a neutral independence to consideration of crime and suspects, where the results of their labours are driven by the evidence rather than by any wish to please those in power , or through any sense of revenge.

              This much is usually common ground between the political parties and within Parliament. So too is the agreement that day to day running of the police is a matter for their leaders and does not normally warrant or require intervention by politicians. The Home Secretary and the Chairmen and women who run the Police Committees do not expect to help make daily decisions about what the police are doing, how many officers are working or where they are patrolling.

          It is also common ground that when it comes to deciding how much money to spend on the police, that is the job of the politicians. The money has to be voted by Parliament and by Councils. When a police force needs a new Chief Constable it is the politicians who are involved in making the decison. The police accept that they have to report on how they have spent the money and how effective their policing has been through the politicians. The police can seek changes to the law where they think that would help, but it is the politicans who decide on any such changes.

            So far so good. However, there are areas of overlap between these distinctive roles that require collaborative working and understanding. There are times when the police wish to influence the decision on how much money and how many people they need, by taking their case public to influence the politicians. The police may have views on who should be the next Chief Constable in a given area and may let that be known. The politicians may have views on what overall police priorities should be , or on how the money should be spent, so they may use public debate to influence the style or thrust of policing.

                  Both sides accept there are areas where there has to be joint working and compromise or negotiated agreement. That is why Ministers set up a Cabinet Committee to consider the recent outbreak of looting, and why senior poplice officers attended. The senior police figures saw nothing unconstitutional or unusual in the Ministerial interest in what was happening. There did need to be  a forum for the police to explain their tactics and their intentions to the politicians who in turn had to explain them to the press and public. There needed to be a forum in which the police could ask the government if they needed extra resources or changes to the law. The detailed discussion of the extent of the problem and the best response was best conducted in private. The politicians could help explain the public mood and expectation to the police, and the police could bring their proessional expertise to bear on what was feasible.

                  It is a pity there have been sharp exchanges over who did what and who is to blame. The truth in a democracy is the government has to take responsibility both for the failure to contain the looting at the beginning, and for the success in controlling it later. They in turn have to hold the police to account for their successes and their failures, though that is best done in private exchanges. When doing so Ministers need to have realistic expectations of what can be done within the agreed laws and budgets, but also to expect high standards. Ministers can review progress through review meetings, annual reports, annual budget discussions and when they come to appoint new leaders. When there is a serious problem or crisis Ministers have always been more active.

            In recent days I have posted on five occasions about the looting and violence. These five posts have prompted 807 moderated comments  – and still a few others I am working on – including one post that is the first I have written to bring in more than 200 replies. I think it shows many of you want reform in this country and think the events of the last few days might start to bring it about.

 

          Many governments have run out of road to borrow more money. Ireland, Greece, Portugal, and now Spain and Italy are having to rein in their deficits owing to the reluctance of the markets to lend  to them. France is undertaking pre-emptive cuts to avoid a run against her bonds. The USA is now into cuts and deficit reductions owing to political disagreements about how much more the US can safely borrow, against a backdrop of the downgrade of the US credit rating by one agency so far. The Uk is one quarter of the way through a five year programme of raising tax revenues to cut its deficit.

          All these governments have overspent substantially, or have inherited a situation where past governments have overspent massively. All seem to find it very difficult to control spending, to discipline their want list, to raise public sector productivity, to buy well and to motivate their workforces. None of them embark on their financial turnrounds in the energetic way a company determined to survive would do.

           In the UK there has been much talk of cuts. There have been some unpopular cuts, especially at local level, and some unpopular cuts are pencilled in for future years. Meanwhile total current spending continues overall to rise strongly, up 5.3% in cash terms and up in real terms in the first year of the turnround strategy. There are some curious features of the progress so far:

1. The civil service and quangos have continued recruiting to replace some of the people leaving. I am still trying to get up to date figures from departments, but it is clear they are not getting anything like full benefit from natural wastage and  from the redundancies they are making rather expensively.

2.The government still presses ahead with expensive new programmes like the payroll computerisation scheme. It is wedded to increases in spending in areas like the EU budget and overseas aid which means less to spend elsewhere. It is still fighting two wars in the Middle East, at some cost.

3. The government has not managed to get its two main banks where it owns subsatntial shareholdings into overall profit, and is subject to delay on much of its asset sales programme which could otherwise raise cash and cut future interest payments.

4. It has delayed raising the retirement age and altering the terms of a wide range of generous public sector pension schemes, delaying the time when these will all be more affordable for taxpayers.

5. Mr Cable’s student fee plan entails higher public borrowing in the early years to advance to the students.

6. The UK has borrowed extra money to advance to the IMF , and certain Euroland countries directly or via the EU.

           As revenues are likely to disappoint as a result of lower growth, the government needs to do all it can to control spending whilst not damaging core services and front line personnel, to keep downwards pressure on borrowing levels. Avoidable or nice to have items should be deferred.

 

            I was against the state bailing out RBS lock, stock and derivative. I wanted the last government to preside over putting it into an orderly administration, where depositors and other  essential interests were protected. The rest should have suffered  losses to sort the mess out quickly. A managed administration could have avoided worse systemic damage than we experienced going the government’s way.

            I wanted them to sell off the overseas banks, the Investment bank, the insurance company and the rest, and let the shareholders and the bondholders take the losses they deserved. Instead the Labour government decided to subsidise and prop the whole range of businesses trading under the RBS Group. The incoming government largely continued the previous government’s strategy.  The idea is to let the management sort the Group out, with only modest disposals, with a view to selling the state’s shareholdings at a profit in due course.

                So how are they getting on at RBS? Last week the shares slumped to a new low of 24 pence, meaning we taxpayer enforced  shareholders at today’s prices  have lost more than half the money we  were made  to invest in the Group’s shares. Anyone who knows the history of UK nationalisation will not be surprised.

                   The Group produced its half yearly results recently.  These showed that the bank has done a good job complying with regulatory requirements to have much more cash and capital relative to its business activities, and to get its loans below the level of the deposits. I would say it needs to do no more to strengthen its balance sheet according to regulatory measurements. It has gone from a  Tier One Core Capital ratio of a too small 4% to an impressive 11.1%, and has moved from leverage of a mind blowing 28.7 times to a more conservative 17.8 times. Job done.

                 What is altogether more disturbing are the losses still being incurred, and some of the investment decisions being made.  In the first half the Group lost £678 million before tax. Those losses are largely down to the taxpayer to pay. No-one raises issues about them in the Commons apart from myself, and no-one seems to think they are avoidable. Yet those losses represent the excess of RBS spending and cost over its revenues. If it cannot get its revenues up it has to get its costs down.

            In Quarter Two 2010 income was £396 million lower than Quarter Two 2010. Costs were only £211 million lower. That is not the way to bring a company into profit.  Core total income for the half year fell by £1177 million, whilst costs rose by £36 million.  The half year saw losses of £850 million on Payment Protection Insurance recognised, and £733 million losses on Greek sovereign debts. The management calls these “issues of the past”.

           I can sympathise with them about the PPI. That is largely  down to previous managements. I hold the present management to account for the Greek sovereign debts. Why would anyone have held Greek debt over the last couple of years? Have they not been reading the warnings and hearing the alarms sounded like the rest of us? What part of Euro crisis and Greek bankruptcy – the Greek state’s inability to borrow in the normal way in the markets to pay its bills – did they not understand?  Why was a state bank still in Greek debt?

           For that matter why did RBS increase its holdings of Italian debt to £955 million in time for the crisis in their bonds? And why was it adding a little to its Spanish debt position? Total debt securities are up by £12 billion on the quarter, and £26 billion over the half year.

            Its portfolio of sovereign and financial bonds rose by 12% or £26 billion whilst its portfolio of loans and advances to customers fell 2% or £9.5 billion. It did meet its UK business lending target. It still holds £394 billion in derivatives and £95 billion in loans to other banks, compared to £545 billion of customer loans. It has a substantial US and European business on top of its UK business, and  a large investment bank.

              I see no reason for UK taxpayers to be subsidising the losses of such a Group. The bank should be told to make more rapid progress with selling off its different businesses to cut risk and bring in cash. UK taxpayers should not be punting in Euro sovereign debts in the middle of such a crisis. It would be easy to cut the size of the RBS balance sheet, cut  the risks and get some cash back.