Category: Blog

There has been some excellent journalism on the back of Tom Harris’ rose-tinted blog about the economic joys of modern Britain. I marvel at how much he does not understand – his political sense was as lacking as his economic knowledge.

The trouble is, we have a generation of politicians brought up in the soundbite-ridden, spin-doctor-controlled, pager-message-driven world of Blairite vacuity. It says on the Labour pager we’ve never had it so good, so he writes it on his blog. Does he not read the emails and letters from his constituents, telling him how the shoe is pinching? Doesn’t he go out knocking on doors and hear how frightened people are of the Council Tax Bill, the home energy bill and the visit to the filling station? Has he no idea how difficult it is to manage, when the prices of basics are shooting up 1970s-style, whilst most people’s incomes are heavily constrained and even more heavily taxed?

Worse still, the spin doctors and allied message makers clearly know little economics. They ignore the way the UK has been falling further and further behind the fast growing lower tax countries. They forget the 5.5million people of working age without a job. They watch helplessly as the twin deficits, government and balance of payments, balloon. They assume the UK government can carry on living on credit at exactly the same time as the private sector is being strongly squeezed to curb excess borrowing.

It’s not just a minor figure like hapless Tom – he speaks for the whole government. They all talk in sound-bites, crafted by marketing people and based on extensive polling. Tom’s mistake was to flesh out the approved sound-bite that the “government has presided over continuous growth and created economic stability” a little too much so the gulf between what the government wants us to believe and the reality of daily life in modern Britain becomes so huge.

It’s a rum kind of stability, if you saw the way the authorities lurched from feast to famine in the money markets last year. It’s not that stable out there if you are an estate agent, in commercial property, or a housebuilder. It doesn’t feel like growth if you are running a small shop or other service business at a time when people’s disposable incomes are being squeezed. The soundbite rolls on. The more they say it, the more people disbelieve them. When one of them tries to unpack it and give it some more life, you see how ridiculous the whole thing is.

Labour have created an edifice of warm words which have grown further and further away from the reality of the country they are governing. That has increased people’s impatience and cynicism about politics. Now we learn that the Prime Minister does not want a full Parliament next time in the unlikely event that he wins. Has he learnt nothing from the Blair resignation debacle? Does the UK really deserve another PM who invites challengers for his crown because he says he wants to quit but wont name the day? Is there anyone in Labour capable of responding to the challenge?

What a surprise – the EU has no immediate answer to the “Irish problem”. They should begin by realising they do not have an Irish problem – they have an EU problem. When we cross examined Mr Miliband this week on the subject he both told us they respect the verdict of the Irish people, and that they intend to carry on ratifying as if nothing had happened. As far as he is concerned, it is Ireland’s government that has to get itself out of the “slow lane” and rejoin the main Euro convoy.

I asked Mr Miliband what things the UK wished to get through the EU that they could not do under the existing arrangements. He is for ever telling us we could make more progress on the things that matter if we signed up for the further transfer of powers under the Constitution. He could not name a single item where the Constitutional treaty would make a positive difference. He is eloquent in telling us voters are not interested in institutional change, yet at the very same time insists he must press on with these institutional changes that have bitten the dust at the hands of voters in France, Holland and Ireland. He tell us there will be ten years of no further institutional change if we sign up to these proposals – why can’t the ten years begin without signing up to these? Whose leg does he think he’s pulling in asserting there will be no more changes? We know the EU is always busy thinking up new powers it can transfer, and ways it can advance its ever more ambitious federalist and centralising agenda.

The Miliband formula simply does not wash. We do not believe this will be the end of the power grab. We do not believe this power grab is needed to make common progress with our European neighbours in items that matter to us. We do not think there is a prayer of CAP reform with or without the new Constitution. There is no chance of getting our fish back, with or without this Treaty. There is no chance of cutting costs and cutting the amount of tax we have to send to Brussels, with or without the Constitution. There is no chance of Brussels calming down, and stopping interfering in our daily lives on the scale it now does.

The truth is the people do not want all the Brussels government they are currently getting, do not want to have to pay so much for it, an certainly do not want more of it. Until Brussels realises this and starts cutting back on its demands, it will go on losing referenda when people are allowed one.

It is pathetic to receive confirmation from today’s government spin that this government is more afraid of appearing to be the awkward member of the EU Council of Ministers than it is afraid of being out of sympathy with British electors.

Throughout this government’s time in office they have been humiliatingly compliant with Brussels wishes. They have failed to develop and promote a distinctive UK agenda for a freer more open less intrusive and less expensive Europe. They have waited to see what measures Brussels wants, and have then said that is what they want so they can appear to be in mainstream. They have the audacity then to argue they have influence, when most of the time they accept what they are given. They have, it is true, occasionally said they want CAP reform, only to fail to deliver.

Today we are told they are pleased to go as the latest country to ratify the much hated Constitutional Treaty. They will use the fact that the Lords wrongly voted for it so soon after the Irish people vetoed it, to show they are “good Europeans”. It is all part of the unsubtle pressure being placed on the hapless Irish government, who stay drifting in office after their main policy proposal to the Irish electors has been soundly rejected! People of honour in such a government would have resigned, as they clearly do not agree with the people they claim to represent.

Britain should be ashamed of its government for behaving in this way. Surely now is the time for at least one major government in the EU to seize the agenda, and explain in simple terms to this collection of politicians and grand officials just why their centralising out of date power grabbing project is so unpopular with so many people across the Union? Instead of trying to cobble together new ways to steal the Constitution through against so many people’s wishes, they should announce its death. They should say they will work instead at restoring democratic powers to member states in more areas of life, hold a bonfire of EU regulations, and usher in the winds of freedom to the musty and secretive corridors of the Charlemagne building.

Why is there no Pitt or Wellington or Nelson building? They did much in their day to save the freedoms of many peoples and nations. Why are all the heroes and models ones of people who tried to unify a Europe which is happier as a series of individual nations with their own governments? Will no government speak for the peoples of Europe rather than for themselves? Why isn’t Mr Brown more afraid of the British people, and less afraid of EU bureaucrats who are meant to be there to serve us?

Does he really believe his own spin that the Tories were brought down by being too Eurosceptic in 1997? I seem to remember it was being too pro European which brought the Tories down, thanks to the common agreement with Labour that joining the ERM would be good for our economy!

The Governor’s speech at the Mansion House last night showed more realism about the situation, stressing the way individuals and families were going to be squeezed by the current economic policy. He did not, of course, venture a criticism of the government for refusing to squeeze the waste in the public sector to take some of the strain, did not make a case for a stronger Bank, and decided to threaten higher interest rates if people did not behave as if the Credit Crunch had never occurred. Apparently the government has now realised it got the changes to the Bank fo England wrong and wants to strengthen the Bank’s role in money markets and bank supervision.

I know many of my readers think UK inflation is a much more serious problem than I do, and think the Governor is right to menace us with further tightening if necessary. My case has been throughout that we will have a difficult time with inflation for much of this year, as the high commodity prices work their way through the system. That will simply cut real incomes by more, and lead to further reductions in output and a greater slowdown in the economy as a whole. Inflation will then subside, as it will not follow through into higher wages. There will be no 1970s style inflationary spiral. The collapse of inflation could even happen more quickly if it turns out there is a lot of speculative money in commodities which suddenly departs – as we saw when the gold price hit $1000 an ounce.

Readers could point out this morning that the tanker driver wage settlement, at 15% over two years, has broken out from the low single figure settlements we are used to. If this were to become a new benchmark for aggressive negotiators, and if other employers are about to concede such settlements, you would be right, and inflation will be out of control. Clearly Chancellor and Governor are worried sick about the prospect of wages taking off, as it would cause that foolish chase of differentials and money around the system which simply undermines the spending power of the pounds you seek to earn.

I am sticking with my original view despite the tanker drivers, as I think for the moment they are a special case. Any group of workers tied into the bonanza of energy and commodity prices have a chance to raise their relative position in the wages pecking order thanks to the boom conditions in their markets. Conversely, if you are in property, finance, building and construction you will be relieved merely to keep a job and will not have similar power to raise your wages. My theory can accommodate a few outrider settlements in hot areas of a rapidly cooling economy, but would be wrong if this turns out to be a more general problem. So far there is every sign the government is holding the line on public sector pay, where cost overruns in previous years have been so large. There is still discipline in most of the internationally traded activities despite the take off in Asian inflation.

At the Mansion House tonight the government will doubtless tell us the economic problems of Britain come from a global crisis – they are more the result of sub prime USA, not a sub Prime Minister. Our attention will be turned by attentive spin doctors and gullible media to wicked oil producers overcharging for petrol and diesel, and to greedy speculators chasing up the price of food and other commodities. We will doubtless be given huge reassurances that the UK is being managed well in the circumstances, that the UK economy will keep on growing despite it all, and the inflation will be temporary.

If that is the message, it won’t wash. It will reinforce most people’s impressions that the government either does not know what is going on, or is so steeped in the business of disinformation that they cannot help themselves. It is probably a combination of the two. They have spun their line so many times, many of them now do probably believe it. They may once have understood the need for Prudence, for proper management of the public sector, for avoiding nationalisation and going with the grain of markets, but they have forgotten much of that in their crude political rush to spend money wherever they wrongly think it might buy them votes.

What the government should say tonight if it wished to re-establish some economic authority would be very different. They could of course point out that the Credit Crunch is an international phenomenon, but they should tell people part of it is made in Britain. They should admit that the handling of Northern Rock was unique British bungling, and set about repairing the Bank of England before the crisis gets much older. They need to restart the sale process for Northern Rock and get it back into the private sector as quickly as possible, to limit the amount of damage they have to do to the business by running it down, exacerbating the shortage of housing finance.

They should accept that past errors of monetary control have helped fire the inflation we are now experiencing. They should say that now there is a cruel dilemma – should they mainly fight inflation with high interest rates, or fight slowdown and possible recession with lower rates? If they would take some of the pressure off the economy by moving to reduce wasteful public spending and lower the government’s borrowing requirement, they could then risk lower interest rates, and start to give a little hope to the collapsing housing market.

Proposing some self discipline on public spending, instead of the sorry rake’s progress which passes for a public spending policy, could make a lot of difference. The large transport schemes they favour should be privately financed. Regional government, ID cards, central computerisation schemes, extra civil servants, more laws and regulations – these are all luxuries we cannot afford and many of us think we do not need. Let’s have a few billion off public spending by axing these and similar costs. Let’s have a staff freeze on the public sector, exempting teachers, medical staff, police, armed services personnel and other key front line professionals.

That would send a message to markets that the government would take some of the pain of adjustment, as excess demand is removed and borrowing reduced. At the moment an honest Chancellor would have to say that all the adjustment is planned for individuals and families, which means a year or more of greatly reduced mortgage finance, of rising prices going up faster than wages, falling house prices and a cut in real incomes. This will be especially savage on the lower paid.

I would like to thank the Wokingham Choral Society for a great evening on Saturday. They performed a number of sacred and profane pieces around the theme of love, interspersed by readings.

It was a pleasure to be able to read Shakepeare’s Sonnet, “True Love”. It made a welcome break from credit crunch and the trench warfare over the EU. Well done to all the singers.

Let me not to the marriage of true minds
Admit impediments. Love is not love
Which alters when it alteration finds,
Or bends with the remover to remove:
O, no! it is an ever-fixed mark,
That looks on tempests and is never shaken;
It is the star to every wandering bark,
Whose worth’s unknown, although his height be taken.
Love’s not Time’s fool, though rosy lips and cheeks
Within his bending sickle’s compass come;
Love alters not with his brief hours and weeks,
But bears it out even to the edge of doom.
If this be error and upon me proved,
I never writ, nor no man ever loved.

The Governor may soon have to write a letter to the Chancellor apologising for the high rate of inflation and saying what if anything he needs to do about it. In a way it should be the Chancellor writing to the Governor, as the Treasury has been at the bottom of the economic mistakes that have led us to higher inflation, and the Treasury has had more power than the Bank in many of the important matters which guide our economy.

The Governor, in an honest letter, would say:

“Dear Chancellor,

I am writing to report that inflation is now above 3%. This has come about because we held interest rates too low in the period 2004-6, allowing a credit bubble to emerge. The government’s decision to switch target from RPI to CPI made our task more difficult, as the CPI at the time was lower than the RPI, and has since proved to be a very poor indicator of the overall inflation people are experiencing in their daily budgets. Indeed the gap between RPI and CPI has got larger, meaning our failure on inflation as measured by the old target is worse. We felt we had to respond to a lower, easier target once set.

The government’s love of PFI/PPP off balance sheet liabilities and its rapid expansion of public spending and borrowing made conditions far looser in credit markets than was desirable, but we did not feel we could take full action to offset the government’s own wish to expand borrowing so rapidly. We felt the Treasury clearly had good policy reasons for wanting to increase public sector costs and the size of the public sector as much as it did. It was not for us to try to throttle the economy with very high interest rates to offset this huge public sector expansion. I accept that this was wrong in retrospect.

We were also wrong to keep the markets so illiquid in August and September last year leading to the run on Northern Rock. Our options have now been narrowed by the decision to nationalise Northern Rock. This has proved expensive to the taxpayer, boosting public spending still more, and has meant thanks to EU competition law that we are having to run down a leading mortgage bank at a time of mortgage famine and credit squeeze.

What should we now do? The Bank’s options are very limited. If we chase the historic inflation with higher interest rates we will make the credit crunch worse, and cause a sharper slowdown or a recession which seems a bad idea. If we take no action commentators may well say we are neglecting the high and persistent inflationary problem. This is mainly the result now of excess liquidity elsewhere in the world creating strong upward pressure on commodity prices. There is little sign of this spilling over into wage increases at home which would give another twist to the inflationary spiral. In due course it is quite possible the speculative froth in commodities will be corrected and ease the inflationary impact.

However, it is unfair that all the pressure of adjustment to harder times is currently falling on the private sector, with housing and property at the eye of the storm. I am very conscious of the government’s ambitions and high targets for new housebuilding, which are currently unrealistic. If the government wishes to rebalance the economy and ease some of the unreasonable pressure on property and finance it needs to reduce its own claims on the economy. I suggest the government redoubles its efforts, begun with the Gershon Report, to eliminate waste and less desirable spending from the large public sector, to help the adjustment . I would be happy to assist with this process, and can see many easy targets.

Yours etc”

An honest Chancellor would write back:

“Dear Governor,

Thank you for your letter. I agree we have made mistakes together, and we need to reform our system for inflation control. I wish to discuss with you strengthening the role of the Bank in managing the money markets by restoring powers to you to monitor the clearing banks day by day and to run the government debt. Like you, I now realise the Northern Rock decisions were not well made, and we need to be careful how quickly we run the business off.

The government is concerned about the state of the housing market. We see now that getting prices down to make housing more affordable does not allow more people to buy if the mortgage market has dried up. Nor does it help if people generally decide to sit tight rather than change their houses, as it limits choice and increases the number of families living in less suitable accommodation.

It will not be easy with colleagues, but I do see the force of your argument that too much of the adjustment is being taken by the private sector in general, and by the property and mortgage sector in particular. I think there is scope to reduce public spending without in any way damaging services. You are right in hinting that public sector efficiency and productivity can and should be raised. I will take your letter to Cabinet along with spending suggestions the Chief Secretary has been preparing on a contingent basis and see what we can achieve.

I agree with you that putting up interest rates now would be an inappropriate knee jerk response. I just hope you are right and that commodity prices start to subside. It will be uncomfortable to live through much more of this commodity boom, but I see no alternative that is less damaging to UK jobs and output.

Yours etc”

It is not surprising that when China and India come to the party they need a lot more oil and the price goes up. Striking delivery drivers here do not help the situation either.

I can still buy a litre of petrol for around 45 pence, pre tax. That is good value compared with bottled water or soft drinks sold by the same measure. What I can’t afford so easily is the 70 pence of tax the UK authorities stick on top. (Based on the last price I checked out of 115p a litre – and I know it’s still going up at the pumps)

The Saudis have shown some political wisdom by offering to produce some more oil, as western politicians demand, if the West will, at the same time, cut its heavy consumption taxes on the products. As the UK government takes more than 60 pence in every pound charged for petrol, they should provide more than 60% of the price cut they are now claiming to want.

If Mr Brown really feels my pain at the pumps, he can ease it more quickly than the Saudis. I am ready to vote Yes to a government proposal to cut petrol duty any time he likes to make one.

Mr Miliband is presiding over a dreadful period for the UK’s reputation abroad. Our foreign policy bears the imprint of the last foreign visitor or international institution we have dealings with. We retreat and change positions as overseas visitors and meetings demand. The US delivered the insult to the French at the time of the Iraq war that they were “surrender monkeys”. Who are the surrender monkeys now?

In the last few days we have seen the humiliating spectacle of the UK government rushing to reassure France and Germany that the UK will speedily complete its ratification of the Constitutional treaty without asking the people, as if Ireland had not voted against. The UK government surrendered to the common Franco-German position. Simultaneously we have seen the government plant a story on the front page of the Sunday Times that the same Treaty is dead, just before inviting sensibly Eurosceptic Mr Murdoch to dinner at Number 10 with the US President. Clearly the government was unwilling to stand up to Mr Murdoch in defence of its view that the Constitutional treaty has to be railroaded through the UK Parliament, ignoring the wishes of the British people. The President announced in advance of his visit that he wished to stiffen the UK’s resolve not to pull out of Iraq to any prearranged timetable. The government went on radio and TV and dutifully said they had no pre-arranged timetable to leave, yet we have seen suggestions in the media that they do intend to get our troops out within the next year.

No wonder people hold our government in low esteem, and no wonder people do not believe much of what they say. Mr Miliband should have stood proud for the UK. He should have said to France and Germany:

“The Irish vote changes everything. The Treaty cannot now be ratified by all 27 states. If we held a referendum in the UK as we should it would be voted down here as well. Let us use the next summit to discuss ways of reducing the unpopularity of the Union with many of the people who live within it. By all means cut the numbers of senior officials and streamline its procedures, but with a view to it doing less and better, not with a view to it grabbing more power away from elected governments. We could cut officials, reduce regulation and do less without the need for a big new Treaty. The EU has to say to the people of Ireland that their views are respected, and mean it. It is quite unacceptable for the Union to be threatening or sidelining any member because they have the wrong views or are a small country.”

He should have said to Mr Bush:

“The UK Parliament and people are unhappy at the way our joint military interventions in Iraq and Afghanistan have worked out. We admire all that our troops have done, and are concerned by the continuing high casualty levels. We would like to agree a private timetable with you for joint withdrawal, but if that is not possible we do intend to get our troops home from Iraq soon. It was never our intention to become a permanent army of occupation or a police force for Iraq. We believe in self-determination of peoples.”