Category: Blog

Today I was brought up to date by the health foods and supplements industry. They are awaiting their doom from Brussels.

The Food Supplements Directive proposes maximum dosages for vitamins and similar products. These are likely to be well below the levels used and recommended in the UK. The Nutrition and Health claims regulation will require businesses to submit full and detailed scientific papers as if these were drugs before advertising slogans are permitted. The industry thinks it could result in many closed shops and closed busiensses here in the UK

Meanwhile Uk buyers are likely to take to the internet to find product from outside the EU which does not come under these strictures. It looks like another own goal from Brussels to put the UK at a disadvantage. I will take it up again with Dawn Primarolo, the responsible UK Minister, but don ‘t hold your breath for a happy outcome. I doubt she has the much advertised influence in Brussels to get a good result.

Yesterday I was asked by one blogger if there is a beginner’s article, and by another to set out a Conservative alternative to the current “rescue” policy. So let’s ask today Why aren’t the UK and US initiatives working? In doing so I will answer these points.

There are four main reasons why it’s not working.

The first is the authorities did so much damage, both by stoking up credit and then by tightening too much too quickly, creating a very nasty crash. It was bound to take time to deal with the injuries from the crash. Some readers will remember how I shouted at the authorities to relax their grip earlier to avoid a bad downturn, but they were adamant they would not do so. The results were entirely predictable. It was a crash they created, so why are they so surprised?

The second is that some of the actions now taken to relax, especially lower interest rates, take at least a year in normal conditions to work through. These authorities have been driving by looking in the rear view mirror instead of looking ahead, so no wonder they keep crashing. They now need to be patient and to start looking ahead.

The third is the state of the banks, who have made such huge errors along with their Regulators for the last seven or eight years. The banks need to be mended before economies will work at more normal levels of activity and growth.

The fourth is that confidence is low, and is being driven lower by the foolish responses of the authorities pursuing weekly initiatives that are all going to cost mega bucks for taxpayers. The authorities wrongly think that transferring the bad and doubtful debts and the bad investments from the banks to taxpayers solves the problem. It doesn’t. It creates a new problem – weaker credit status of the governments themselves, and in some cases like Iceland national bankruptcy.

So what should they do?

They were right to cut interest rates, though they did it a year too late. This will have some beneficial impact in due course.They have now cut them more than is sensible.

They should concentrate on getting the banks to change their approach. Banks need to cut their costs substantially. They have staff numbers and pay levels geared to the heady days of the credit bubble. They need fewer people paid at realistic levels to handle personal and business banking. They need to cut back their investment banks massively, closing out positions, selling investments and trying to minimise the losses whilst owning up the them and reducing the risks of their books. The larger weaker banks need to raise money by selling off parts of their businesses to those with cash and more wisdom to run them better.

Governments need to stop shoving cash down bankers throats as a reward for bad conduct. Under the current model the banks that did the worst job get the most cash from taxpayers. No wonder nothing works. The bad banks have to slim down and sober up quickly. Taxpayer cash delays them doing that.

If the authorities continue to follow the present absurd model more countries will have their credit worthiness brought into question. The main country players are already trying the competitive devaluation game to steal a march on others, and trying to find ways round the international rules to limit trade and encourage business at home. It is not a good background to recovery. No wonder markets still find it difficult to be confident about the future.

Trying to print the right amount of extra money to turn the economy without creating inflationary fears is not an easy trick to pull off. It would be more plausible as a strategy if at the same time governments reined in their wilder – bank oriented- spending – and showed they recognised there have to be limits to how much risk taxpayers can run and how much borrowing they can repay. Present actions show that governments have learnt nothing from the Credit Crunch. What was it all about, if it wasn’t designed by the authorities to send a warning to people and companies not to borrow so much? Why is it then a good idea for people and companies to be forced to borrow even more in the name of the state?

The announcement of large losses at AIG and a further US taxpayer injection into the US insurer came alongside HSBC announcing the wish to raise more money from shareholders to buttress its capital position.

There is no easy way out of this mess. The banks and insurers need to work their way through their problems, cuttting risks and costs as quickly as possible. Too many state bail outs delays the adjustment and wrecks the public credit. The markets are beginning to worry about state borrowing plans because they are so huge.

The Monetary Policy Committee when it meets this week should not cut interest rates again. It will doubtless announce “quantitative easing.” All eyes should be on how much and how it intends to do it.

It is high time the government announced how it plans to get public finances back onto a sensible path. Watching this government is like watching a man with a bonfire. He had a big blaze.(easy cash and capital rules, low interest rates) In panic he doused and doused it with water (high rates and tougher rules) until it appeared to have gone out. Now he is busily tipping ever more petrol onto it in the hope that there is still some heat which will ignite the petrol. One way or another it is not going to have happy ending.

Last week I attended a dinner organised by German hosts, who had gathered an impressive group of the economic and political establishments of the two countries to discuss the history and future of the Euro. I am grateful to them for their hospitality.

I am sure they were aiming to be friendly, but the exchanges I experienced reminded me why the UK can never become part of Euroland, viewed as a kind of Greater Germany by some of those present.

The conversations did not begin well. I was asked by a friendly German where I came from. I explained I came from Wokingham. Asked again, I said England. He wanted me to give him the name of a region, and went into a long explanation of his regional identity before asking me again.

I explained patiently that I fully understood regional identity and lander power in Germany, and was happy for him that he liked his land so much. I had no wish to change that for Germany to bring them into line with our system. If he wanted to understand my country he should know that we hate enforced regionalism in England, and have voted it down when given the opportunity. I am not and never will be a Rest of the South easterner. We dislike attempts to balkanise England and hate the EU’s refusal to recognise England as part of our history and identity.

The conversations got worse. I was asked pleasantly when we would want to join the Euro. They explained that they knew we did not want to join it now, and agreed with that judgement. The more I explained we never wish to join it, the more argumentative they became.

I was then told very firmly that if we carried on behaving like that – refusing to have regions and refusing to join the Euro, – we would “not have any influence”. They seemed amazed when I said I do not seek any influence. I have no wish to try to govern Germany, and wish her every success. I am certainly not going to volunteer further large sacrifices of power to govern ourselves in the vain hope that it will bring us influence over the government of the continent. To date it has not brought us any such influence. The EU project has continued on a pre-ordained course of more centralised power whether the UK has stood aside or has given away her rights to self determination.

The mood of the gathering generally was sombre. For the first time Euro enthusiasts realise there are threats to the Euro’s future. They are grappling with the problem of bailing out Eastern Europe, with the Euro fanatics keenest for Germany to pay the bills. There was a shock to discover that Germany’s successful export based economic model has been harder hit so far than the US’s debt based consumption model, as orders have dried up for German cars and capital goods.

My suggestion is that Germany should be less insistent on countries joining her union. She should concentrate on completing the union with the inner core who are willing and ready. She needs to understand us better so we might buy more of her goods. The single market was not a favour granted to the UK in a moment of weakness, but legal underwriting of Germany’s export superiority at a time of tariffs and other barriers worldwide. This has been largely supplanted by the world trade framework anyway since then.

So who should we be special friends with? I have always found the Commonwealth a better gathering, where the strong ties of language, history and culture create more of a family atmosphere. Let’s be friendly with as many as possible, but not strain to be more friendly than common interest allows.

Reading the briefing from the US side on Mr Brown’s desperate visit to the new President, he would be better off not going.

The President is born of the struggle to free the slaves and to free America from British colonialism. He does not automatically see the UK as his best friend. We hear that he wants to base the relationship on a realistic appraisal of what the UK can do for the US. Fine. He will probably change his mind over time, as his predecessors have done. I see no need to force the pace of that change, or to demean the UK by seeking special favours or special language to describe the relationship at this stage. Sometimes it is better to show some British reserve and dignity instead of trying to force a special friendliness which is not yet there.

Mr Obama at the moment wants something. He wants the UK to send more troops to help US ones in Afghanistan. Let him work out how best to ask us and how to persuade us that it is worth doing. Personally I think we should tell him he is wrong, and plan a withdrawal from Afghanistan. I don’t see why our PM has to pay the airfare to cross the Atlantic for a short meeting, and not even be offered lunch for his pains.

I appreciate Mr Brown wants to go and chance the spin game for different reasons. He wants to “sell” the President his plan for world economic policy. This salesmanship will take the form of picking up all the ingredients of the two massive Obama state spending packages, and presenting them as part of the Brown approach to economic intervention. You can write the communiqué and press release now without bothering to go.

The absurdity of it all is underlined by the UK briefing, telling us Mr Brown wants some of the Obama star dust to rub off on his bent and unpopular shoulders. Why tell us that, to confirm our worst fears about this unnecessary journey. If they have something to fix for the G20, fix it on the phone.

On Saturday I went to Stratford to see the Tempest. I went thinking it was not my favourite play by a long way. I was amazed at the stunning performance, which brought the magic to life and made some sense of Prospero’s ramblings. The Director used African magic on the enchanted island, vibrant with colour, dance and music. It was an astonishing spectacle. Prospero’s use of the spirits to straighten out his corrupted and broken world was masterful. The act of forgiveness as they put legitimate authority back in charge at the end seemed appropriate rather than naïve. If only Ariel were still for hire!

Before the play I visited the Shakespeare properties, which I had last been inside in my youth. How different they are. It reminded me just how interpretations of the past change to reflect modern preoccupations and understandings.

The Birthplace has been bedecked with wall hangings. An older cot is lined with cloth to avoid splinters we are told, and the bed displays a child’s bed extension where before there was an orderly scene of a made up adult bed and a child’s cot without lining beneath the white walls. We are now advised that people slept upright, so the old pillows have been replaced.

Bigger changes have occurred at Mary Arden’s House. The House I visited before has been downgraded to John Palmer’s house. Mary Arden’s house is now a red brick house (concealing an older house beneath ) set out with Victorian range and laundry. The house proud domesticity of the Great Hall to the old Mary Arden’s House has been banished. That house has been converted into an untidy centre for displaying a range of different Tudor crafts.

I wondered about conjuring and con tricks. The misrepresentation of Mary Arden’s house was a genuine mistake. The different treatment of the Birthplace was their best guess at the time. Who knows how these properties will be presented in fifty years time, and who knows what more may be discovered about how they once were?

At Dr Hall’s house the interesting question was his medical approach. The few case notes on display reminded us that he was like all Tudor and Stuart Doctors a herbalist. Doubtless many modern Doctors would say he got some of his diagnoses wrong, and woudl argue that many of his remedies would have had little if any effect. They often seem to treat herbalist predecessors as unwitting charlatans. Dr Hall did praise Harvey for his assertion of the circulation of the blood, at a time when most Doctors condemned the radical idea that the heart is a large pump to push blood around in circles. What was clear from the property was that Dr Hall was shrewd businessman, who knew his medical market well and made a good living from his practise. I wonder how modern medicine will be viewed in some future century?

I have always favoured an employee and management buy out of the postal service. Much of the Post Office is already privatised, as it takes the form of a string of small businesses operating the Post Office franchise through a big network of shops. Much of the transport is contracted out.

I am not keenon foreign interests buying a minority stake on the back of the weak pound. Why not enter negotiations with the staff to see what could be organised? The government deal looks like another bad one for the taxpayer, leaving us with the massive pension liabilities so the foreign buyer can buy a clean interest.
It may be better than keeping the whole thing in public ownership, where we have to pay both the losses on the business and the losses on the pension fund, but why are they the onlytwo options? Can’t we have an option where staff and taxpayers are both better off?

Shortly after the expensive and clumsy nationalisation of Northern Rock I made a speech to a large dinner in London that we needed to move on from talking in billions about public finance. I suggested we needed a new larger unit. I proposed the “Rock” or £100 billion as the sensible unit for account, management and discussion.We were clearly moving into an era of big government, where the odd billion was not worth discussing. It was just small change. A “rock” would buy you the NHS for almost a year , or a mortgage bank. Strangely the government thought they could afford both.

In a few short months my proposal was blown out of the water by the terminal fascination this government has with RBS. Now we all talk in trillions, if we wish to discuss the true and dreadful sate of the public finances.

I had come to the conclusion that the true liabilities of the state – including pension deficits, Northern Rock, PFI, PPP and Network Rail as well as the public debt the government recognises, reached about £2 trillion before the RBS adventure. On top of this today we should add the £2 trillion of the RBS balance sheet, now that we own or about to own practically all the shares and clearly stand behind every last bad debt and foolish investment this wretched bank has ever made. Or if you prefer not to consolidate this errant and overghty subsidiary, you need to account for the £0.5 trillion banking package last autumn which failed to work as intended, and the guaratees now being crafted for banks that will exceed another £0.5 trillion.

If you were being kind you would conclude the taxpayer in on the line for at least £3 trillion, or twice the National Income. On private sector accounting rules it would be at least £4 trillion.

The public accounts are being shot to pieces. Usual debate about whether to increase spending by a few billion or to cut taxes by a few billion have become futile against this huge move to mega buck spending on banks. The government has developed a dangerous and expensive habit of propping banks in the dearest way imaginable. I have not been blogging on the issue of Goodwin’s pension pot, because it is a small diversion from the collosal waste of public money going on in subsidising and backing toxic debt

Where has the Today programme been for the last year? This morning I awoke to hear them asking someone if the UK government was borrowing too much and if it could find it difficult to raise all the money, as if this were a new question. The interviewer then rushed to retail the government’s misleading figures, reassuring us that the UK is lightly borrowed. That was scarcely true even before the government bought one of the largest banks in the world. You needed to add PFI, PPP, Northern Rock and Network Rail into the figures for starters. Since buying RBS the opposite is true. The UK is now a large bank with a medium sized government attached. Did they not hear me warn in Parliament that RBS was too big for the state to handle easily? Do they not follow the arguments about how much of the £2 trillion we need to add to the stock of UK government borrowing annd liability?

When they started buying RBS shares I offered a cheaper and better way of keeping it going and forcing it to cut risk and slim down. I urged them to protect the taxpayer and not buy shares with taxpayers money. I pointed out that it could lose them a year’s defence budget quite easily. So far RBS has lost £24 billion since the government bought shares. We now learn that it could lose much of the next £19.5 billion taxpayers are being asked to tip in. In other words the official view is that RBS is now likely to lose us a year’s defence budget, and could go on to do worse than that.

It would not be not responsible of the BBC to raise the issue of national financial overstretch in a sensational way. They do, however, have a duty to report what people in the debt markets think, as they control our futures. They should do a better job balancing the voices from Parliament, where some of us have been warning for months that the government is taking too much financial risk and overcommitting the taxpayer. That was why I voted both against the VAT reduction, and against the banking support Money Resolution. We cannot afford either easily. Neither provide taxpayers with value for money.There are better and much cheaper ways of getting us out of this hole.

This is blind folly. No-one sensible predicts national bankruptcy, but any sensible analyst would conclude the UK is trying to borrow too much. You cannot cure a crisis of overborrwing by borrowing more. You cannot solve the bad debt problem by simply transferring it to the long suffering taxpayer.

The BBC this morning heralded the “success” of keeping average Council Tax rises down to 3%, and gave a Labour Councillor a free ride to praise the government and local government, with no critic of the rises and no Conservative allowed anywhere near the item.

Shouldn’t someone have asked if good Councils can cut the Council Tax, as they have, why aren’t others doing the same? Shouldn’t someone have pointed out that with RPI inflation down at zero, this is a large 3% real increase in spending, at a time when the national economy is in real decline.

If local government takes 3% more real income, at a time when real national income is falling by say 2% (or more), then individuals and families have considerably less to spend on the things they think are important, and on the necessities of family life. Why is this good news? Why doesn’t the public sector have to rein in, to leave a bit more for everyone to spend, rather than a bit less? Why do we never have news items on the big cuts having to be made in private budgets to accommodate public sector excess, as they recruit more PR staff and send out more glossy brochures?

And can these “Keynsian” gurus of the BBC explain how cutting private incomes by higher taxes in “reflationary”?