Category: Blog

I have always said the civil service would work better if it was slimmed down. I have favoured natural wastage, to reduce it by around one fifth in a full Parliament, with no compulsory redundancies and no redundancy payments for the poor old taxpayer to meet. My experience as a Minister was we had more staff than we needed, and since then there has been a huge increase under this government.

Digby Jones makes me look quite moderate or feeble. He has just said:

“Frankly the job (civil service) could be done with half as many, it could be more productive, more efficient, it could deliver a lot more value for the taxpayer”

Anyone coming into government from senior business roles as Digby did and as I did knows this is true.

So what’s stopping them?

I still meet Conservatives who say they would like Ken Clarke to replace George Osborne as Shadow Chancellor. How foolish they are. Peter Mandelson would like nothing better. The Labour spin machine is trying to sow discord in Tory ranks.

Let me give Conseravtives two solid reasons why we should not replace George with Ken. It was George who rallied Conservatives behind his proposals for capital tax reduction in the Autumn of 2007 and put Gordon off holding an early election when he was higher in the polls. In recent weeks George rightly led the Conservatives in Parliament to oppose the expensive and stupid VAT reduction, at a time when Ken said he thought it was a good idea. We need an Opposition which opposes the errors of this government’s economic policy, and shows the right judgement when the government does something as dangerous as the VAT reduction, boosting its borrowing too high, without stimulating the economy.

Labour are living in the 1990s if they think the united Eurosceptical Conservative party can be divided on European issues again. Conservatives represent the 75% of the UK electorate who think the EU has too much power and is too bureaucratic, leaving the federalist Lib Dems and Labour to fight over the other 25%.

It was good to hear William Hague reminding us that the Conservatives are against the extensive powers the EU has or is seeking in matters of defence, foreign affairs, immigration and criminal justice. I would also advise him to drop the line about the advantages of membership. We want him to negotiate a much better deal for us, so there is no need to suggest we like the present one at all. I want to hear him say “Conservatives accept the judgement of the British people in a referendum that they wish to trade with the EU and help shape a genuinely free market. In other matters we wish to have our own democratic right to decide for ourselves whether to reach agreement with our EU partners or not. We want a vibrant democracy in these islands, friendly trading relationships with the continent and common laws or regulations only where it makes sense for us as well. Overall we need much less tax, bureaucracy and regulation from Brusssels”.

The Opposition will continue to remind people of the insensitive remarks of Baroness Vadera, claiming to see the green shoots of recovery on the worst day of the recession so far, when more than 5000 jobs were lost.

Words are cheap, and on this occasion make no difference to the underlying reality. Her offence is a grave one in the world of spin, and her attitude will upset people struggling to keep their companies going, or queueing to collect their P45s. The bigger damage the Baroness is doing lies in her behind the scenes work to nationalise great chunks of the UK private sector.

Normally Investment bankers aim to offer advice to convert loss making or underperforming businesses into more profitable and successful outfits, by recommending and overseeing mergers, takeovers, private equity injections, demergers and other methods of challenging and changing management to get a better result. This former Investment banker seems to specialise in advice which takes private sector businesses with a profitable past and a present actual or alleged problem and turning them into heavily loss making pensioners of the state through the dead hand of nationalisation and government intervention.

Her hand was on the disaster that is nationalised Northern Rock. This business, once very successful, is now in the advanced stages of run off, unable to lend new mortgage money, and under pressure to secure repayment of mortgages on its book and to slash its staff numbers and other costs. In the meantime taxpayers rack up large losses and have to put capital in to keep the thing going and to pay the billls. The Baroness has a reverse Midas touch. Her alchemy turns gold into base metal. Why on earth didn’t she suggest short term Bank of England loans against security to replace the money market funds, coupled with whatever guarantee was needed to keep the depositors happy with their bank? It would have been much cheaper and easier, and Northern Rock would still be making mortgage loans today if she had recommended that.

Just as bad was her involvement with the government bankrupting Railtrack. Following nationalisation the costs of providing track and running the railway shot up whilst train speeds fell and dislocation to carry out works worsened. The Baroness allowed the railways to operate over bank holiday periods badly or not at all, and the huge taxpayer bill we have to pick up to gurantee and subsidise this taxpayer owned company.

The condemnation of the Baroness today is understandable, but it should include the real legacy – a massive expansion of taxpayer debt, and a huge increase in the loss making public sector. When we see the large losses RBS will probably report soon we should see this as part of the bill. We cannot afford the Baroness. Her infelicitous remarks on green shoots are a minor matter compared with the serial and serious damage being done to the public accounts by the government’s nationalised industry policy.

There are two Britains – the public sector and the private sector. Today the Times tries to make out that Councils are about to experience the same bleak prospect for jobs and sackings as private industry and the retail sector, but so far there is no evidence that the public sector faces the same dreadful pressures, or is under any kind of imperative to work more efficiently and effectively.

I do not wish to see sackings in the public sector to match the ghastly situation in the private sector, but I do want to see natural wastage and other means used to manage the public sector to greater efficiency. Parliament continues to set a poor example under this government. We are only just back from three and a half weeks holiday over Christmas and the New Year. On Monday business collapsed just after 8 o clock from a 2.30pm start, and last night Parliament only managed to keep going until just after 6 pm from a 2.30pm start. Officially we were meant to work until 10pm.

We were not allowed to debate the big issues of the day. I wanted to make a speech about how to start to sort out the banking crisis. I wanted to cross examine the Chancellor about the state of the economy. Instead we were told we had to discuss placing a new local business rate or tax on the private sector to pay for more Council spending on Monday, and yesterday the whole day’s debate was given over to a scheme to encourage people on benefit to save by offering them more public money which all parties in the House supported. With such a crashing lack of leadership and with such insensitivity to the plight of the nation, it is no wonder people think poorly of the present Parliament.

I had to listen to the radio and read the papers to hear of the new class war the government wishes to fight. We were not treated to a statement or debate on that important subject. Presumably Labour decided it would not play well if it had to withstand criticism and questions from MPs with a range of differing views on the problem. The government apparently thinks the professions and the military are refusing to appoint people to jobs from modest backgrounds out of some misplaced middle class solidarity. If they turn this into a full blown war against those who have worked hard and who are well educated it will coarsen life in the UK, not strengthen the fabric of our society. As someone who wants to see wealth and opportunity spread more widely I am quite sure attacking what works is not the answer. If the government is too unpleasant to those who do a good job it will just strengthen the exodus of talent from these islands.

I felt so strongly about all this that I sent a letter to Alan Milburn this week urging him to remedy the obvious barriers to success for brighter children from poorer backgrounds that we can see in our state schools and our family policies. As Czar of social mobility he has an important job, but not one which reports to the Commons, allows him to make Ministerial statements or more importantly allows us to cross examine him on what he is saying and doing. His appointment is all part of the post Parliamentary spin world which this government finds is its natural comfort zone, where ideas can be lodged for the news cycle and denied a day later. They live in a virtual world where soundbites and press releases create the good life effortlessly, often without bothering to implement the underlying policy properly.

The sorry progress of the private sector can be seen in announcement after announcement of closures and job losses. Demand has fallen disastrously for many companies. The public sector lives in a different world, where each year budgets go up automatically and Council Tax and Income Tax payers are told they just have to pay up. People who only work in the public sector find it difficult to grasp what it is like to work for an organisation where the annual income can fall, let alone for one where the income may reduce by a quarter or more when a savage downturn like the present one hits. If the best Parliament can do in such circumstances is to discuss putting an extra tax on business and then go home early, no wonder there is a feeling of injustice between the two Britains.

(Recent job losses include Woolworths 27,000
ITV 1000
GKN 1400
Rolls Royce 1500
Wolseley 7300
Marks and Spencer 1200
Nissan 1200
MFI 1200)

The British Chambers of Commerce report today that orders, investment and demand for labour all fell heavily in the last quarter of 2008. This will be no surprise to people reading this site. These declines are continuing in the first quarter of 2009. It is the inevitable result of the monetary policy mistakes of a year or so ago, and the weakness of the banking system.

The government is now rolling out a couple of schemes that borrow from ideas put forward by the Opposition – a loan guarantee scheme, and a subsidy scheme for employers taking on new workers. Both schemes can be helpful, but both need careful work on the small print. If you are offering a subsidy for a new hiring you need to make sure you are not encouraging an old firing at the same time. If you are offering a guarantee to banks for offering credit, you need to leave the banks sufficiently on risk if the loan goes wrong so the banks do not lose interest in assessing risk properly.

As the Chambers of Commerce survey should remind us, these two subsidy schemes are not of themselves going to turn round the plunging economy. Companies need orders. They will not be hiring extra people if their order books continue to fall by anything between 5 and 75%. We heard this morning that JCB are currently producing just 25% of the volume they were making a year ago. No wonder they had to sack another 684 people this week. Companies do need overdrafts and short term loans to be able to pay the wages and pay their suppliers, but they cannot go on doing this on borrowed money if the demand is not there to justify the employee numbers and the material and component stocks.

I had a small example of what is wrong yesterday. The keyboard of my House of Commons supplied computer needed repair or replacement. The House authorities IT department told me they wanted it replaced. The new one turned up in a cardboard box marked firmly “Made in China”. This little transaction summed up so many transactions that have got us into our present plight. We no longer have enough repairers or component suppliers in the UK, and have got used to relatively cheap product from China which procurement departments find is cheaper to buy outright. The UK public sector will simply borrow a little bit more to buy the Chinese product.

The keyboard was produced by workers probably earning around one fifth of workers in the UK. Some of them are probably being sacked as we speak, as there is a sharp contraction of global demand for Chinese manufactures. They will enjoy little of the benefits and safety net that workers fortunately enjoy in the UK. These hard working and successful exporters are now experiencing more grief than we are, as they shed jobs more quickly in their manufacturing heartlands and leave people without a western style welfare fall back. The Chinese as a whole continue to save massively, and kindly invest some of their savings in UK and US government bonds enabling those governments to buy their products by lending them the money.

Recently the pound has nosedived. An importer told me the other day that he could go on offering low prices for imports for a bit longer, as he still had some stock bought at better prcies, and had some currency cover in place. However, in a few months time this will have run out. Then the UK economy is open to the full shock of a 25% increase in import prices from the collapse of the pound. The government hopes that this will not just choke off demand for imports, but will kick start home output at better prices to replace the lost imports. The issue is will it?

Normally such a big price movement would change things dramatically. I hope there will be some positive change this time as well. However, we need to factor in the possibility that China(and other low price producers) will actually cut their wages and do whatever it takes to lower their prices again. UK producers will find it difficult to obtain the money, the permits and the facilities to start producing the keyboards and all the other many products we have got used to relying on China to deliver. Prices and currency point to big scale import substitution, but UK companies are badly weakened by low or no profits, poor access to finance, and regulatory complications to expand capacity to drive out the imports.

There are no easy solutions to any of this. We do need a drive to substitute home made product for overseas, and need to get used to mending and improving using local labour rather than automatically reaching for the order form for a complete new overseas product. The currency move will push people in this direction. The danger is our companies are too weakened to respond as vigorously as we would like. In that case we will simply end up buying less and having fewer modern and working items, and will have missed another opportunity to strengthen manufacturing in the UK.

Shareholders of the Rock are battling it out in the courts. They say their bank was taken from them by the government, without proper compensation for their interests. The government says their bank was in a very bad way, and has to be valued without the support the government was offering it. I leave that to the well paid and well qualified lawyers to fight out. Some will say a central Bank’s duty is to lend money to banks that need it – had they carried on doing that for Northern Rock, shareholders would have retained an asset with decent future value. Others will say the Rock was in deep trouble, and that it had run out of normal commercial options.

What should be clear by now is the government did the taxpayers and future mortgage holders no favours by its nationalisation. As I feared at the time, we have been left with the worst of all possible worlds. We own a heavily loss making bank, which is not allowed to write new business and to grow its activities to try to trade itself into profit again. Taxpayers can look forward to more shrinking of their assets, as staff are sacked and the loan book is run down.

Why on earth did the government do that? Why didn’t they assist a refinancing of the Rock that would have allowed it to carry on trading, and to make a further contribution to the market for new mortgages? Do they yet regret their haste in rushing for the Vince Cable “solution” of nationalisation which is turning out to be a kind of lingering death of the business?

Alan Milburn has been made the Czar of the greasy pole. It is time more was done to promote social mobility in Britain.

My advice to Alan is simple. Do not think the great Universities or the Armed Services want to recruit preponderantly former public school pupils, or that the answer is imposing targets or other demands on the recruitment services of the professions. I know from experience that an institution like Oxford Univeristy tries very hard to recruit from state schools and from the more deprived parts of the country.

The answer to that problem lies in the achievements and aspirations of the state schools. Alan needs to ensure that the poorer performing state schools have not just money, but esprit de corps, good leadership, and a sense that pupils from all backgrounds can make it if they put in the effort. He also needs to tell them that it does require a lot of hard work to excel at something. People are not given educational advantage by their father’s income alone. They also have to work hard at their better schools if they wish to reach the peaks of academic and professional life.

As someone who made it from a Council house as a young child to a Conservative Cabinet, I was grateful for the ladder of opportunity provided by a free place at a Direct Grant school and a scholarship to Oxford. The 1970s were much more class riven than the noughties. The Oxford place was a solvent of the worst of the clsss barriers. I am glad some of the obvious class divisions have been broken by the changes of the last 30 years, but am conscious that new obstacles have risen that make the journey more difficult for many today. My school did not have all the facilities of an Eton or a Westminster, but it did allow me the freedom to go to other local libraries to find the books I needed to read. Today young people have the amazing world of the web, which is a great leveller.

I am struck by the gap between the average state school and the best of the public schools when I go to speak to 6th formers. There is more intellectual curiosity, academic determination and confidence in the best public schools. It is that which Alan needs to replicate for the brighter pupils in the comprehensives. It is that that has been lost for some of them by the abolition of grammar schools.

My other piece of advcie is to see that educational success is not the only ladder of opportunity. He should turn to consider where entrepreneurs come from. Some of the most successful people I know have achieved a great deal despite or because they had little or no formal education after 16 or 18. They did it by setting up their own business and being successful at that. I suspect that a bigger proportion of the children of entrepreneurs set up in business for themselves than the proportion of the population as a whole. For many in state schools running your own business is not an option, and no-one suggests to them it might be. Schooling is a whirlwind of targets and exam grades, all so often failing to generate that spark of enthusiasm, ignite the passion or release the wild optimism that a good entrepreneur needs.

When you listen to the backgrounds of those who have achieved a great deal in their chosen fields, you often find they followed their chosen area as an interest or a way of life from a very early age. For them, their jobs are not just jobs, a but an integral part of who they are, and what they want to do. The famous antiques presenter on TV usually started collecting and reading about antiques as a boy or girl. The successful sportsman or woman was playing their sport from an early age. The successful academic was usually reading many books in their field well before they went to university. It is those many passions and interests that state schools need to encourage. The best already do, but there is work for Alan to initiaite to get more doing the same.

The Prime Minister has to show that his jobs programmes are more than just good spin. He would be helped in this aim if he was more accurate with his history.

He asserts that previous Conservative governments that went through downturns did nothing. He should remember that, on the contrary, the Conservative government of the 1980s tried many things to get more people into work, as it was well aware of the need to do so and was most concerned by the numbers out of work. Instead of bad mouthing the intentions he would be well advised to study what worked and what didn’t from past periods of recession. In the 1980s there were many programmes to promote employment supported by public money, as well as many so called supply side measures to try to get markets working better again to generate the demand for goods, services and employment.

The sad truth is that whilst these measures can help some people and can be palliatives, the only thing that really works is getting the overall economic policy right. Mr Brown talks about helping create 100,000 jobs with public money. Even if he does this, unfortunately the 100,000 will be swamped by the large number of job losses occuring this winter as the rest of the economy continues to deteriorate at an alarming rate.

The message of business to his Jobs summit appears to be that he needs to fix the banks so they can lend again in order to stem the tide of job losses. It is a necessary condition for economic recovery that he helps mend the banks, but it may not prove a sufficient one. Businesses are not just short of loans for working capital. They are also chronically short of orders. Without enough demand for goods and services they will not wish to borrow huge sums of working capital to make things no-one wants to buy or to employ service sector staff with no-one to serve. In that sense the PM was right to try to reflate demand at the same time as offering help to the banks. It was just that the VAT cut was the least likely way of doing this, as experience has proved.

So what should he do at the summit? He should ask the business community what measures they need so they can export more and substitute home goods and services for former imports. The violent devaluation of the pound preents a unique opportunity to correct the balance of payments in a way which generates many more jobs at home. There is demand there for imports that we need to satisfy from home production. Probably business will need changes to regulation and tax structures to make such a favourable response more likely. That would be something useful for the government to do, in addition to trying to sort out its banking mess. The UK is overtaxed and over regulated, which lies behind the shift of a lot of activity abroad. Detailed measures to alleviate this would be helpful.

Let me begin today by reassuring the politically correct monitors that I am not in the “Do nothing” camp when it comes to the economic crisis. Indeed, anyone who has looked at this site for the last eighteen months will know I was in the do something camp – cut interest rates, make more liquidity available, change the way of helping the banks – long before the government.

However, there is one thing worse than doing nothing, and that is doing more wrong things. Some of the action the government has taken has made matters worse. I think in particular of the VAT cut, which was never going to stimullate spending; the nationalisation of two mortgage banks which meant effectively withdrawing them from the new mortgage market and sacking lots of their staff; and buying shares in 3 other banks without revaluing their assets or putting in a plan to make them more successful.

The government needs to review its current range of measures, dropping some, carrying on with some, and introducing some new ones. Today it is too hectic. It expects instant results when problems are deep seated and are going to take some time to work through. It has forgotten that it always takes a long time for lower interest rates to stimulate activity and eventually to raise inflation, just as it took a long time for higher rates to bring everything to a grinding halt and then to curb price rises. The same is true of their move from easy regulation to tougher regulation of the banks.

So what is my short list of policies to drop or reverse?

1. Cancel the VAT reduction
2. Sell Northern Rock and Bradford and the Bingley mortgage business for whatever they can get for them, so they can start to work again.
3. Give the banks more time to raise their capital ratios and agree a faster timetable for repayment of the government Pref shares
4. Announce no more interest rate cuts for the next six months, to give money and savings markets some chance to settle down
5. Announce some tax cuts that put money back into people’s pockets.
6. Announce lower public borrowing figures based on 1,2 and 3 above being considerably larger than 5.
7. Announce that the government is concerned to keep overall public borrowing under some kind of control, adjusted for the cyclical effects.

My worry about present policies is the government is expecting the state to do too much. It wants the state to be lender of last resort, borrower of last resort and spender of last resort – indeed, to be lender of first resort, borrower of first resort and spender of first resort as well. I have no confidence that this is going to work economically. More importantly, how compatible is this with a free society, and with a free enterprise economy? The more the state did in Eastern Europe, the further living standards fell behind the West in the second half of the last century. The government needs to be wary of being dragged in to making too many financial and commercial decisions it is not equipped to make.

(I have written at greater length about the origins of the crisis and the government’s handling of it today in the Sunday Telegraph.)

You couldn’t make it up. After a decade of lecturing us about the evils of using personal transport, and the need to go by bus train or cycle, we now have government Ministers wanting to find ways for us to buy more cars. Furthermore, they want us to do this on borrowed money.

I had some sympathy for Peter Mandelson, the newly appointed Business Secretary, coming into the economic mess we have been placed in. (That should wind up a few of my regulars!) In a recent radio interview he was asked about government support for the motor industry. As Industry Secretary he had to appear sympathetic and understanding of their present plight. As a former EU Commissioner, probably freshly briefed by Competition officials in his own department, he had to be very careful not to imply the state would start giving the motor trade anti competitive subsidies.

He picked himself intelligently through these competing pitfalls. He stressed that the motor industry was not seeking subsidy. It was, he said seeking loans on commercial terms to tide it over. He also stressed that its big problem was a sharp reduction in demand, so the best kind of help might prove to be financial assistance to those offering loans to car buyers. He was lucky that the interviewer did not ask him if the industry wanted commercial loans why did it need to talk to the state about it? Nor did they ask him if this meant helping finance companies with state money so they could offer large loans to well paid people to buy large cars.

I am sure the irony was not lost on him. The Labour government spent its first ten years in power trying to make motoring ever more expensive and difficult, with congestion charges, higher parking charges, big increases in VED and increases in petrol tax. Suddenly realisation dawns that UK motor manufacturing is an important part of total UK manufacturing. The dreadful figures for industrial and manufacturing output in the closing months of 2008, taking the annual figure to a fall of over 7%, owes quite a lot to weakness in the motor trades. Makers of prestige high performance cars have been badly hit. Clearly today in government the Business department has more clout than the Environmental one.

I am happier with the government’s latest stance, that cars are an important part of modern life, and successful manufacturing of ever more fuel efficient and environmentally friendly personal transport is part of what we should be doing as a nation. It is not going to be easy from here leading the revival of this sector, as it is one of the least painful personal and company budget decisions to make to defer the replacement of your old car or to forgo the pruchase of an extra one.