Category: Blog

Banks and oil companies are the corporations many people – and governments – love to hate.
In a way it in unfair on them. Both industries find it best to organise through very large companies. Because the companies need to employ huge sums of capital, they will tend to make profits that look large. You need to have lots of shareholders and substantial resources to build the large refineries, or to have the branches and balance sheet strength to handle the transactions of millions of customers. When you split the large profits up amongst all the shareholders it looks rather different.

The oil companies carry an additional burden – the government. Two thirds of what they charge people at the pumps goes to the UK Treasury, yet so often the oil companies get it in the neck for the high prices the high tax requires.
In the good times for the companies when the oil price is high they make good profits, but these are paid out in dividends to millions of small savers, pension fund members and the like, or go to reinvest in the business so capacity keeps up with demand.

The Banks must be wondering what has hit them with the tidal wave of criticism that has washed over them in recent months. Much of it is pointing in two different directions. On the one hand their critics say they made too many incautious loans and are having to write off too much lost capital, so they should lend less and at higher profit margins to rebuild their financial strength. On the other hand, if the banks start to do that then critics say the banks are profiteering by raising their margins, and are being unfair on the less well off who cannot get a loan any more.
Being a banker must be a hit like being a politician – you can’t win!

Banks were reporting very good profits in the 2003-6 period, and paid out good dividends. Now they are having to report substantial losses, writing down the value of assets they hold which turn out in these conditions to be worth less than they thought last year. At the same time as they announce these losses and write-offs, the regulator is demanding that they keep more money at the Bank of England and as a cash reserve, compounding the pressures on the banks to lend less and be more cautious. This is the mechanism by which the credit crunch is tightening.
Some banks have decided that to provide the extra cash the Regulators want them to have, and to pay for the losses they are announcing in their write-offs, they will raise more money from their shareholders. In effect the shareholders will be paying their own dividends for a bit, as the regulators want the cash generated from the profits to improve the solvency and liquidity.

Ws there a better way? Yes, of course. If the Regulators had demanded more capital in the good times, rather than in the bad times, we could have avoided some of the boom and bust. If there was a better way of assessing the worth of loans and other assets on the balance sheets, they could smoothed, to avoid big changes when markets change dramatically. Getting shareholders effectively to pay their own dividends by putting up more capital is not a great idea, but once a bank has paid out a good dividend it fears for its reputation if it were ever to cut it in a following year. Dividends turn out to be have been too high in the good years, because the high profits they were then making turned out to be unsustainable on some of the business they were writing. The regulators, as so often, are now making it worse by tightening conditions when the market has already tightened it substantially for them. Bolting doors after the horse has gone is so often what regulators

For much of the last twenty years pollsters and pundits alike have told me and anyone else who would listen that people do not want lower taxes. We have been told that whenever asked, people would rather have better public services.
Therein lies the problem. For years Labour, the pollsters and others in the political world have lectured people that there is a choice – you either have lower taxes or you have better services. Faced with such a choice most people would tell a pollster they want the better services. That does not mean they will vote for the higher taxes, or
will be pleased when they have to pay them.
It ignores the way the private sector allows you to have both – better quality and lower prices, as manufacturers worldwide continue to offer better, faster and cheaper as a matter of course.
Margaret Thatcher’s government cut income tax rates and was re-elected easily on two occasions. When she offered people the opportunity to pay more for schools and social services locally, by asking everyone and not just the ratepayer to pay a contribution through the Community Charge, the public turned against her – and so did her colleagues.
When John Major, as an early green , imposed VAT on fuel, that too turned out to be unpopular with those who had to pay it.
The elder Bush offered lower taxes, and then in office did the opposite. He only got one term as President. The younger Bush offered lower taxes and delivered, and got two terms, despite the war.
Last night the faces of many Labour MPs said it all. Called upon to vote for a doubling of the income tax rate of the lowest paid to collect the revenue to pay the benefits, some did it through gritted teeth, and some threatened their front bench with future rebellion if they do not come up with a good package of help for those who have to bear the burden.
Labour is already unpopular for its stealth taxes, for its soaring Council taxes and for its sneaky charges. They are pillaging us at the petrol pump, robbing us every time we need a licence or permission, and plundering our wallets and purses. They have seen a huge decline in their vote from 1997 to 2005, and face an even bigger drop if the latest polls are accurate.
The Conservatives have illustrated just how important tax now is to the electorate. Last autumn things were not looking good for the main Opposition party when the Prime Minister was considering an early election. The Shadow Chancellor announced he wanted to take all but the very rich out of Inheritance Tax. It was as if someone had turned the light on in the Opposition’s darkened room. The Conservative party surged in the polls, and the Prime Minister realised he might not win an election. From the moment of that speech British politics was transformed. The government went from the front foot to endless scrambles before the stumps hoping they will not be given out as the ball whistles past them or into their pads.
The 10p issue is more of the same. In a way it is a defining issue. Labour seems to think all it has to do is collect more and more cash off everyone, and then distribute it to groups it favours through tax credits and benefits. It seems to have forgotten that many of its supporters in the heady days of 1997 were single people and childless couples on modest incomes. The government has shown it no longer speaks for them and no longer seems to sympathise with those many people who want to be self reliant, but need to keep enough of their income at the end of the week to pay the bills.
As Bill Clinton might have said, “It’s tax, stupid”. People may go on telling pollsters, if asked which they would rather have, that they would rather have better public services. The trouble is these do not seem to be on offer, however much is spent, because the promised reform is never delivered. Meanwhile privately people are seething about just how much government is costing them.
Boris should remind people that a Conservative mayor would be a lot cheaper than Livingstone. It beggars belief that a typical London household has to pay £300 just for the Mayor and his entourage. Running a separate foreign policy for London does not come cheap.

I have just met a Japanese author writing about the UK’s difficult relaitonship with Europe to help inform his own country’s approach to China. I explained why I thought the positions were very different. It did occur to me during the course of the conversation that a country is partly defined by its history and common understanding. On that basis the Uk is 200 years old – thanks to Labour ‘s attacks on it through devolution – whilst England is 1100 years young, and growing stronger by the day in its common feelings as a result of this government.

The government did not tell us that it was going to be so cold with all this global warming.

Nor did they tell us at the last budget they would be charging us more than 70p a litre in tax on unleaded with a pump price of 110p.

They did not say that within a few months into Gordon Brown’s premiership the main Forties pipeline would be closed down owing to an industrial dispute that stems from his taxation of pension funds and the consequent closure of many funds to new members.
The more the government says “Don’t panic” the more people worry that the government is not in charge and there may be shortages at the pumps. You can feel the authority draining away from the government by the hour.

The government did not tell us when first elected in 1997 that they would want to damage our liberties in the name of security. They did not stand for election as the party that would give us more surveillance cameras than a communist state, nor did they campaign strenuously for much longer detention without charge or trial, yet that is now their stock in trade.

The government did not tell us in 1997 that putting education first meant changing the exams system into a succession of short term cramming exercises to get through modules so schools could hit their targets. Never before have children been so often examined, in so many different exams, to so little purpose.

The government did not tell us in 1997 that they would spend unparalleled sums of money on public services, spending so much on spin doctors, glossy brochures, management consultants and extra administrative staff. Can the Prime Minister really need £2 million a year of spin doctors as recently reported? Wouldn’t spending more time on sorting out the underlying problems be a better way?

They did not tell us that their anti poverty programme would entail large armies of officials to take tax off many people, and more large armies of officials to give some of it back in the form of tax credits.

They did not tell us they would give away so much power to Brussels, claiming each time an unpopular law came in from the EU that Britain was winning the argument.

They did not tell us that lop sided devolution for Scotland would fuel English nationalism, creating resentment at the better financial deal many English people now think Scotland gets from the Union.

They did not tell us their idea of local government devolution was to seek to create uniformity of policy and approach through hundreds of rules, regulations and guidance notes, and a star system to grade the results as if the electors had no role in judging.

They did not tell us they would face headlines in papers complaining of fraud and error in our electoral systems.

They did not tell us that government to them meant a continuous conversation with the media, rather than seriously trying to identify and solve economic and social problems that government can tackle.

When I heard from a constituent complaining of persecution by the TV licensing authority, who not believe him when he told them he did not have a television, I was sympathetic and took up his case. The response I received from the Authority was typical of this government’s revenue arms – inflexible, and determined to raise the maximum cash it can from the long suffering public. As usual I did not take the matter to the press, as the issue came to me in confidence and many constituents do not want their personal details splashed across the local – or sometimes the national – newspapers.

Today I can vouch for the hectoring behaviour of this body, backed up from my personal experience. I have a studio flat in Westminster, which I use when I have to vote after 10 pm in the Commons – or attend a working dinner in London – and then need to be up and out early the next morning for a breakfast meeting or the like. It is not a place I plan to spend my evenings in. I decided not to buy a TV partly because I deeply resent having to pay a poll tax to the BBC for the TV coverage of public issues they choose to put out, and have no intention of paying them two, one for home and one for the flat.I do not like the way they use so many voices who want higher taxes, more European government and more regulation for every problem.I also tire of the very large number of self advertisements on the BBC, when no-one else can buy the advertisement time.

When I moved in they sent me a letter reminding me of the need to take out a TV licence. I wrote back telling them I did not have a TV. For my pains I received another couple of standard letters telling me I needed a TV licence, and that inspectors might call unannounced to check up on me. I wrote back again complaining of the harassment. They replied saying they were sending me another standard letter, that inspectors would be calling unannounced, and they were sorry I was cross about it. They said they would be writing to me in a similar vein at least annually.

It is typical of this government and its state broadcasting corporation that the only thing they care about is extracting more money from the public, and they cannot believe that anyone could possibly live without their TV output. They clearly regard anyone who says they do not have a TV as a liar, and spend large sums on writing them endless letters and sending out inspectors. Their inspectors will, of course, be wasting their time in my case, as I am most unlikely to be in any time they call, unless I am to experience the knock at the door at 2 am, to confirm that I am living in a version of the Soviet Union circa 1960.

We see the daily incompetence and waste of most branches of government, where letters go unanswered for months, where people have long waits to get on a waiting list for a hospital appointment, where many parents and pupils cannot get into the school of their choice, and where the roads are constantly disrupted by the authorities who are meant to look after them. It is galling to discover that the only thing they are persistent about is taking money off us. Life in a democracy requires civil exchanges between the government and the governed, and a framework of trust. Governments should assume honest conduct by citizens unless there is evidence to suppose otherwise, and should have a framework of sensible laws and requirements that most people most of the time respect and wish to follow. As soon as government becomes heavy handed and imposes too many laws – and too many laws that do not seem reasonable to the governed – there is more chance that more people will deliberately or inadvertently break them, and more likelihood that government will then intensify its snooping and heavy handed enforcement. Such a progress makes public life coarser, and creates a growing gap between government and governed. The UK now is suffering from rapacious government, seeking ever larger sums of revenue to feed the bureaucratic monster. It will in turn create an angrier electorate, resentful of how the money is spent and cross about the bullying techniques used to extract it.

The TV licensing website – with comments in 16 languages – tells us they spent over £130 million last year on collecting the revenue and enforcing the charge. They also claim that around 5% of the public with TVs do not bother to buy a licence. It is difficult to know how they work out such a figure, yet still fail to collect the money from them. In this multi media digital age the licence fee is looking increasingly out of date and expensive to collect. It is time for rethink.

The old Labour knocking copy against the Conservatives is being retailed against them, and recycled by a government in a hole against its “rebels”. It really is too absurd.
In the 1990s Labour put around the idea that the Conservatives were too divided to be able to govern. The Conservative Prime Minister echoed these sentiments, constantly briefing the press about the need for unity – around his view of what we should do and say next. Now we have a Labour government in trouble. The pollsters ask the public if they think the governing party is divided – of course it is. They ask if the governing party is unpopular – of course it is. The Prime Minister then yells at the rebels for daring to disagree, blaming them for the poor showing in the polls and the probable poor results in the forthcoming local elections. Everywhere from the super loyal Mirror to the leader page of the Daily Telegraph we see the old fib wheeled out – what is wrong with the government is the persistence by the rebels in disagreeing with their Prime Minister.
How stupid! The Conservative party of Margaret Thatcher at the height of her powers was both popular and deeply divided between wets and dries, pro Europeans and Eurosceptics. The Conservative party of Michael Howard was uniquely united in the run up to the Election of 2005, but it did not make us popular. The Labour government of Tony Blair was hugely divided between modernisers and traditionalists, between Brownies and Blairites, between old left and new left, yet it kept on winning.
Very often when a government is in a deep hole of its own digging it is the so-called “rebels” who are the true friends of the party and the government. If the “rebels” who were angry about the abolition of the 10p tax band had been taken seriously earlier, and concessions made before the row became so public, the government would be more popular than it is today. The government is not unpopular today because it has rebels. It is unpopular because it has failed to see that the rebels are usually on the popular side of an argument.
The main cause of the government’s current unpopularity is the state of the economy. People feel squeezed by higher taxes and higher prices. Some now fear for their jobs – as do some Labour MPs as they look at the opinion polls. People know that the government has taken too much money from them, and spent much of it unwisely. That is what is making them angry. They welcome the fact that some Labour MPs understand, and are trying to get the government to think again.
It is never easy trying to get an obstinate government to understand the sources of its unpopularity, as I well remember from my experiences in the 1990s. What you can be sure about is if you do not try to point out the errors of a failing government’s ways you will go down with the ship. If you succeed, you can help right the ship. I admire the Labour “rebels” who want to save the Brown government, but listening to the rhetoric coming out of Downing Street – and from Tesssa Jowell – they cannot be saved because they think the rebels are just being difficult. At their best the rebels speak for Britain.

I am told the service provider needs to install more capacity as the site is growing rapidly. This may mean some interruptions to service over the week-end, so please be patient.

How many Labour MPs thought it would come to this? Many of them wanted Gordon Brown with a passion, preferring his more socialist approach to Tony Blair’s Third way ambiguity. Many of them thought he was too decisive and powerful to be stopped. Even the minority of loyal Blairites who privately predicted disaster before he was crowned did not have the courage to put up a candidate against him and expose the obvious weaknesses in advance, to spare their party and our nation the agony we are now living through.

Yesterday’s news was a new low for a government which lives by the news and is judged by the headlines.

We had 8000 schools on strike, making a mockery of Labour’s claim to be the party of “education, education, education”.

We saw the Grangemouth refinery closing down to prepare for a strike over pensions, highlighting the immense damage the government has done to private pension schemes.

A government Minister on TV told us they were taking an active part in ensuring proper supplies of diesel and petrol to Scotland, whilst the same TV programme showed five out of six filling stations they visited had already run out of diesel, with some rationing of petrol.

Over in the City there was more news of the mortgage famine, preventing many young people from buying their first home. Ministers tell us helping such people is one of their aims.

News came of a leading housebuilder announcing it would not be starting work on any new housing sites, as demand was so poor. Ministers have spent the last couple of years lecturing us all on the need to build more homes, and trying to find greenfields they can insist we build over.

In the corridors of Westminster Labour MPs were heard asking if the PM and Chancellor’s climb down the previous day over compensation for some of the losers from Labour’s Income Tax rise was a “con”.

Ministers were still cobbling together some way of sending some money back to people they now admit they are overtaxing, but were unable to explain how much would be sent to how many on what date – and this is sorting out a problem created by a budget delivered a year ago.

The problem for Mr Brown is how to break this desultory cycle of bluster, incompetence and climb down. He wants to avoid looking like James Callaghan bedevilled by strikes, visits to the IMF and high inflation in the 1970s. Clearly the spin strategy this week has been to seek to isolate the 10p tax band problem, make the minimum concession to see them through the otherwise difficult vote next week, and then show resolution in the face of future rebellions. Unfortunately for the PM his backbenchers are suspicious, and will demand more detail before they finally settle the tax question. Meanwhile, the rebels over the ghastly 42 day detention policy have not gone away, and will have learnt from this that The PM does change his mind under pressure. Journalists are already circling the issue, looking forward to dramas ahead.

I enjoyed some of the BBC coverage of the strikes. With a hint of incredulity in his voice, one reporter said it was Labour voters (Meaning NUT members) striking against a Labour government. It was an interesting slip. NUT members were never all Labour voters, even in 1997. They are certainly not all Labour voters today! The left is watching as one arm of the Labour movement, the public sector Trade Unions, turns on another, the Labour party in office. It is not a pretty sight, and it is most disruptive for members of the public caught up in the consequences of the battle. Yesterday it was areas that voted strongly Labour in recent elections which were most affected. Diesel is in short supply in Scotland, and more teachers were on strike and more schools closed proportionately in places like Wales, where people had chosen mainly Labour MPs.

To recover from here the Prime Minister needs to change his character and approach. He needs to become more interested in the underlying problems and seek to solve them. The number one problem is people are short of cash to pay the ever rising bills – he needs to understand the damage tax poverty is doing to his reputation. To solve this he needs to lower taxes, which requires running a more efficient public sector. He needs to show more flexibility and more honesty in dealing with Parliament. Where his whips tell him there could be problems he needs to listen and adapt, rather than talking tough and then conceding. He should not conclude from all this that reform is impossible or undesirable. He should understand that public sector reform requires persuasion, strategy and tactical skill.