Category: Blog

It has taken years for this government to receive a blistering Report from the Ombudsman making it quite clear there was regulatory failure as well as business error at Equitable Life.

When I was the regulatory Minister for Insurance and much of the City in the days when that post was held in the DTI, I received reports on the failure of Barlow Clowes. As soon as I read them I saw how people had suffered, and did not hesitate to compensate once regulatory failure had been established.

I want this government to do the same in this case. Many MPs have been pressing this cause with the government on behalf of constituents. Now the Ombudsman is so strong and clear, what further excuse could there be for delay?

It also leads one to ask more about the nature and purpose of financial regulation. This government seems to see regulation as a good way of bashing private business. The government is very reluctant to conclude regulation has let people down when things like Equitable Life or Northern Rock happen, yet what is the point of it unless it can prevent such events? And if things do go wrong with regulators, as sometimes they will, why is there so much hesitation or denial, when people want an apology and compensation for the mistakes?

I went to a lunch meeting with the Engineering profession on the Lords terrace this week. They wanted to tell us about how to tackle climate change by cutting carbon output. It seemed a pity that on a very sunny day when the sunlight was streaming through the entire long wall of glass along the side of the Terrace marquee, all 96 light bulbs were burning away. I suggested they turned them off but to no avail.

It was the same yesterday at another government/industry meeting in Parliament where all the lights were on on a sunny day.

The private sector is cutting its fuel use because it has to cut its costs. When will Westminster and Whitehall learn?

Stock markets around the world remain in free fall. It’s not surprising to readers of this blog – there’s plenty to be pessimistic about.

There are two big changes underway. The long term change is the shift in economic power from west to east, from an Atlantic centred world to the economies of the Pacific Basin; from the EU and east coast USA to west coast USA, India and China. In the process 2,500 million poor people gradually come to the consumer party, creating huge extra demand for energy, food and raw materials of all kinds. This argues for long term investment in commodities and commodity producing economies, and in the fast growth economies of the East themselves, but only when the price is right.

The short term change is the collapse of some of the debt structures built up in the US and Europe in the heady days of easy money and rapid expansion between 2001 and 2006, as erratic Central banks shift uneasily from being too loose to be being too tight. Simultaneously the fast growth economies of Asia are catching the inflation bug. So they too are entering a phase of credit tightening and interest rate rises, which will slow them at the same time as the credit crunch slows or stops the western world. This should produce both lower growth and some respite to the vertical climb of commodity prices. It has already produced sharp falls in many Stock markets despite the good growth of many underlying economies.

There is only one major Central Bank clearly fighting recession rather than inflation – the Fed. The rudderless Bank of England lurches from mistake to mistake under the unsure Darling. It first created the inflation with interest rates that were too low, then it created the credit crunch in the UK by starving the money markets of liquidity, next it started to put interest rates down, then it panicked about inflation and decided it had to keep interest rates up. Its performance has been a bit like a drunk trying to walk in straight line along the money motorway, whilst trying to avoid the fast moving vehicles of inflation and recession. The European central bank allowed inflation to get out of hand by adopting too easy a policy. Ever since it found out its mistake it has stubbornly refused to change rates at all. Maybe it understands that Ireland and Iberia need very different rates from Germany, but there is nothing they can do about that.

We are in for more bad news over the summer, as the Asians tighten the screws to curb inflation, and as the West learns more of the damage from its own erratic monetary policies and the resulting credit crunch. It seems likely that the US will be the first major economy to experience any upturn in fortune, given the consistent policies to avoid slump. The tax cuts, liquidity injections, easier money policy and low interest rates all point in the same direction, and at some point will bring the economy round. The balance of payments is improving rapidly, consumers are saving and rebuilding their balance sheets, and the dollar is beginning to strengthen.

The UK remains in the weakest position of the major economies, along with Italy. The UK still has both an overborrowed government sector and overborrowed consumers, a weak currency and a fiscal position deteriorating all too rapidly. Several years of falling competitiveness, rising taxes and little investment in infrastructure has left it in a bad place, made worse by the erratic money and banking policies pursued by the regulators and the Central Bank. The RPI and the CPI soared again this month, and there is worse to come before the inflation subsides. There is plenty of deflation in the clothing and shoe shops, in the estate agents window and in the commercial property market, but plenty of inflation left at the petrol pump and in the food market. Redundancies in building, construction and finance are now coming all too rapidly, and will be followed by other sectors as the consumer squeeze runs its full course.

The falls in the Chinese and Indian Stock markets have already been large, but we are still in the early stages of the tightening in these countries and cannot be sure how far the authorities take it before they, like the US, turn their attention to reflation again.

(Regulatory notice- This blog is not offering investment advice)

Welcome to the real world! The government at last admits it cannot switch enough from road to rail because the railways are full, and accepts that congestion is both expensive and environmentally damaging.

As an emergency measure they are suggesting allowing people to use the hard shoulder of the motorways at busy times of day. It seems to help around the M42, so why not? It’s all you can do quickly after ten years of neglect of transport infrastructure expansion for both rail and road.

On Monday after my surgery it took me three hours to drive into London – even longer than walking and using the train – because the M4 east bound was closed at junction 5, the A 40 eastbound was closed at the Polish War Memorial, and the Cromwell Road was closed! I remember sitting on a Bill Committee to legislate so the highway authorities sought to keep the roads open and traffic flowing – clearly we were wasting our time.

Today I learn that the government is intending to stick to its plans to keep public sector wage increases below the current rate of inflation. This is a necessary if unpleasant task, given the massive over recrutiment into the public sector in the administrative, political, media related and management echelons. At least MPs got that one right, voting ourselves a well below inflation increase in pay.

Now Parliament has to sort out the expenses mess. I am glad David Cameron today is proposing no money to furnish a second home – the true end of the John Lewis list. Labour wants to move from John Lewis list to a National Audit Office judgement – will they need an MFI list or the equivalent? How different would that be from the current John Lewis items and prices?

Gordon Brown needs to put much more discipline into public sector costs. We are awash with too many MPs, MSPs, Assembly members, Regional assembly members, Councillors, spin doctors, private office staff, Ministers, senior officials, management consultants working for the public sector, qunago chiefs, CEOs and deputy CEOs in local government and the rest.

While he is about his pay squeeze, why doesn’t he at the same time introduce natural wastage to start getting the numebrs down. And how about just scrapping all that ghastly English regional government? I have just received another couple of picture brochures from the South east regional assembly which reminded me what a complete waste of money it is.

Swindon Councillors are right to look at how the £400,000 a year spent on speed cameras could be better used in order to make things safer. They could also ask whether they need to spend the whole £400,000.

Speed is a factor in well under 1 in 10 accidents, so a safety policy based on curbing speed is not going to stop most accidents. Bad junction design allied to poor driving causes many accidents. I trust the Swindon Conservatives will look at improving traffic flows and helping segregation at junctions to cut the risk of collisions.

The BBC this morning started to do the government’s bidding again by presenting the tax and spend position in the usual Labour government way. As we have been taught, the government’s spending totals are designed as a trap for the Conservatives. Indeed, that is probably their only purpose now, as they are works of fiction. If Conservatives say they will match the totals then we are told there is no scope for the tax cuts the public and the economy so clearly needs. If the front bench were to say it wanted to spend less than Labour, the government then chooses the most idiotic and inappropriate cuts in spending for the Opposition – ones which they would never adopt – and the BBC dutifully peddles these to the electorate.

The government wants us to believe that all the spending they are incurring is absolutely necessary. Indeed, listening to them you would think that practically all the money goes on the NHS and the schools. We rarely hear these days of the biggest block of spending, the massive benefits bills which Labour used to call the price of “economic failure” when it was in opposition. We are never told how much it costs to run the civil service and all the quangos, following a decade of huge increases in staff numbers to run even the lowliest government department. We will now be told that the current spending total is “eye wateringly” tight – it is after all a mere 2% over and above the rather lively inflation rate the government has generated. What would a housebuilder, an estate agent, a surveyor or a property business give for a guaranteed 2% real growth this year?

None of this guff from the government is true, and I trust most of the public has now seen through it. The only thing we can agree about is that there have been some very large increases in spending in the period 2001-2006, and the rate of increase in medium term plans is now lower. However, it is quite likely this year there will be large overruns, so we are not in practise keeping to the 2% growth targets. Northern Rock was an additional item which has still only partly gone through the central government books (Supplementary estimate £5.3 billion). The compensation package for the Income Tax increase needs to be added in (£2.7 billion so far) and anything from the 42 days and other packages that was not in the original figures. On honest accounting there must be an additional £10 billion or so this year to add on. I expect the governemnt to go on spending and borrowing like there’s no tomorrow, whatever the plans say.

The public is now far more sensible than their government. They know that all too much of the extra spending in the spendthrift years did not go to buy more teachers, nurses and doctors. It went on management consultants, spin doctors, administrators, pensions, pay awards, reorganisations and new quangos. It also went on keeping a large number of people out of work on benefit, whilst inviting in a lot of people from elsewhere to carry out the jobs existing residents were reluctant to do or did not have the skill to do. The public does not think in terms of medium term spending plans and guaranteed rates of growth in spending. They want better public services and lower taxes, and now know that the waste and unnecessary expenditure is so large that is possible.

The UK economy performs best when public spending grows more slowly than the economy as a whole. This method also gives the best long term rate of public spending growth, as it achieves better overall levels of growth. In the 1970s Labour tested to destruction the idea that the government could improve things by boosting public spending well above the growth rate generally. A trip to the IMF for a bail out, followed by a winter of discontent when the many public sector workers turned on the Trade Union government left us very weakened.

The first year and a half of Margaret Thatcher saw the spending growth continue, mainly owing to large public sector pay awards. The inherited inflation persisted, the private sector was squeezed, and the Conservatives plunged to third in the opinion polls, with many in the governing party wanting to change Leader. In 1981 the Prime Minister set a new course for public spending, keeping its growth below that of the economy as a whole. She ushered in a decade of good expansion with low inflation. Only the establishment’s stupid wish to join the Exchange rate Mechanism brought this to an end, when all three political parties united to get it comprehensively wrong. The ERM destroyed the growth path by forcing boom and bust money management on the authorities. When the pound was strong they were forced to print pounds to try to get its value down.When that caused an inflation they were forced to throttle the economy and to destroy pounds to try to get its value back up! The establishment was deaf to the few of us who pointed this out before we had to live through it.

After the ERM Conservative Chancellors again ushered in an era of low inflation and good growth by controlling public spending growth. Gordon Brown wisely took over these Conservative spending plans, and had a successful first three years on the back of them (apart from the tax grab on pension funds and his partial destruction of the Bank of England). Between them Lamont, Clarke and Brown Mark One built a strong position, with debt repayments and lower spending growth. It meant it took Brown five years to undo it all once he unleashed the forces of indiscriminate spending.

At the same time as he wasted too much public money, he started to reap the bitter harvest from his reforms of the Bank of England. They decided to follow boom/bust monetary growth as if we were still in the ERM. So we enjoyed a period of false prosperity based on too much credit, and are now experiencing a very nasty credit crunch.

The economic history of the last 30 years shows us that the main requirement from government to create the conditions for prosperity is to set a target for public spending growth lower than the forecast for economic growth overall, and to keep to it. I don’t mind how they sort out the politics of tax and spend to do so, but the need for such a change of policy is clear. Brown and Darling have said they are going to do that, but with falling growth and overspending, they are still a country mile away from achieving it.

The US authorities once again made the right decision to bail out Fannie and Freddie, their two crucial mortgage companies. They did need to offer more liquidity to prevent a further credit contraction and loss of confidence. In offering to put more money in by buying shares they also reassured investors that capital was available. If they have to do so they will reduce the proportion of the companies owned by existing shareholders, who will therefore be worse off when the markets and shares recover. Such an operation would make existing shareholders pay if the companies do need that extra equity, limiting the so called moral hazard of the bail out.

It is another contrast between the bodged, late and far more expensive bail out of Northern Rock conducted here, with the speedy and more effective reply of the US authorities. The purpose of this bail out is very simply to keep some new mortgage finance flowing to a hard pressed and illiquid housing market. In the UK the much dearer rescue of the Rock has led to a further substantial contraction in mortgage finance as the government runs down the mortgage portfolio of its own bank! The US housing market is already in very bad shape thanks to the general reduction in new credit, as US banks rein back in response to the squeeze following past excesses. The US authorities understand this and have come up with a package which makes more money available for people to buy homes.

The UK new housing market is also now shot to pieces by the squeeze, also following past excesses. So what do the UK authorities do? They spend far too much taxpayers money – and put too much at risk – by nationalising the most aggressive mortgage lender in the market, and then have to prevent it lending, achieving the opposite of what is needed. For this they are praised to the skies by Vince Cable and the Lib Dems. The power of their spin is such that usually sensible commentators think they “had to do it”. All other better options, put forward before the event, are ignored.

When the US economy recovers before the UK I do hope all the gulled will revisit this question of whether the Northern Rock model or the Fanny and Freddie/Bear Stearns model worked better when rescuing distressed institutions. I hope some will come to see that the Rock disaster combined all the worst features of regulatory mismanagement and government bungling – the inability to see the disaster coming, a failure to regulate excess credit beforehand, the wrong strategy before the run began when the authorities switched from too easy to too tough, the U turn on moral hazard and the offer of bail out, the dithering over a private sector solution, and then the final idiocy of nationalisation, business reduction and sackings.

The main result of the mismanagement of the UK mortgage market – where the handling of Northern Rock was the most important manifestation of a general incompetence – is the destruction of the new housebuilding industry. The run of lay offs, the cessation of work on many sites, and the plunging figures for new starts can be directly traced back to the way the authorities presided over boom to bust credit in the mortgage market. This was a problem made in Britain, not in the USA where they had their own version. The UK problems are more poignant for a government that was so out of touch it was urging the new homes industry to increase its build rate, unable to understand its own actions meant the build rate would halve or worse!

Some have blogged in to past pieces on my site urging some expansion of mortgage credit on both sides of the Atlantic to argue that the correction is what is needed, the losses serve the bankers and property people right, and a good recession in these areas will purge the excesses. My answer is simple – you are getting that anyway. The authorities have done quite enough on both sides of the Atlantic to so tighten credit that property prices are falling and will fall further. Mortgages are much scarcer than before, builders are losing their jobs – for the masochists among you who want more pain you will see plenty of it.

My advice to loosen conditions is based on wanting to limit the time of the downturn and to give people some hope of improvement in due course. For every “greedy” financier my critics may be cheering to see under pressure there will be several builders out of work. This sharp correction of prices and sharp reduction in the availability of new credit will not just hurt a few well paid people in the City that always have their critics. It is hurting many others, and will hurt many more, as the effects ripple out through estate agency, surveying, building, DIY, home furnishing and all the other trades dependent on a strong housing market.

Even the puritans thought there came a point where the punishment had purged the sin. Those who want the authorities to let more mortgage businesses go to wall are the advocates of deep recession. I want to start looking forward to recovery. There will be job losses and price falls enough for all save those who think all lending is an original sin that requires perpetual suffering.

The Church of England is making heavy weather of women bishops. Of course they had to approve women bishops. They made the crucial decision when they voted for women priests. It makes no sense to say that women can hold any pastoral position up to bishop, but to prevent them from being bishops.

Those who disagree with women bishops do so for two main reasons . They claim the Bible shows the apostolic succession was an all male affair, based on the fact that all twelve apostles were men. They go on to argue that it is reasonable that some male priests insist on not working for women bosses in view of this.

It is true all 12 apostles were men, at a time when most of the jobs outside the house were handled by men as part of the then social practise. To many earlier societies a more active role for women outside the home would have seemed strange. The world for women has changed dramatically in recent decades in a way which makes this all seem very dated. It is also true that in the Bible women were very involved in the creation of the new movement and in the formation of the early Church. Mary the mother of Jesus plays a central role, as do the women followers who are a feature of the gospels. Jesus never taught that women had to be left out of the great movement he initiated.

It is strange for Anglican clergymen to say they will not work for women bishops, when the Church voted for women priests, and when already many male clergy do work for female bosses in senior roles below the rank of bishop. In practise all current Anglican priests have accepted the presence of women in the priesthood – preventing them from getting the top jobs is a backward looking hangover from their defeat on the central issue.

In my view it would be quite wrong for the Church to carry on living in the nineteenth century as if the emancipation of women from the home had not taken place. The Anglican Church needs all the support and talent it can muster. Cutting itself off from half the human race in its search for suitable people for its ministry would be odd indeed.

Will this split the Church? It’s one of many issues which could lead to further rows and some departing. The Reformation is not yet over – there are still important differences between the Anglican settlement and the Roman one. A minority of the dissenters may prefer the authority of the “Bishop of Rome”. Catholics will I am sure will welcome them.

The English Democrats almost lost lost their deposit in a b y election with the two main federalist parties not fielding candidates.You would have thought if their campaign was popular they would have done better here in these unusual conditions than they did.The argument remains true, that trying to make Eurosceptic points by splitting the Eurosceptic vote in other situations is self defeating.
It is also interesting that in a by election where the outcome would not change the government and where two of the three main parties withdrew, the cause of an English Parliament was so unpopular.
It illustrates that people do not have an appetite for more politicians and more bureaucrats at their expense, when taxes are so high and when English votes for English issues, the Conservative position, can deal with the worst of injustices in the current lop sided devolution.
I suggest to the English Democrats that they learn from this bad rejection in a by election they could have done well in if their cause did resonate more, and decide not to run candidates against Conservatives likely to win in a General Election, especially in very marginal seats. Other wise they just help Labour more, the architects of unfair devolution and the betrayers of the UK through Nice, Amsterdam, Lisbon, and the cancelled referendum.
It is silly when we want so many of the same things there are so many scraps. The Eurosceptics will win when enough of us are united behind a strategy for getting powers back from Brussels, and having a different relationship with the EU that allows us to trade, be friends and have shared rules where it suits the UK and the other members.