Category: Blog

The EU Constitution
ID cards
My personal subscription as a taxpayer to their badly handled Save Northern Rock campaign
The South East England Development Agency
The South East Regional Assembly
Half their consultancy contracts telling them how to do things ?? I dont mind which half
All red phased traffic lights
Next years supply of speed cameras
Next years supply of data discs for HMRC
Most of the 2008 legislative programme
The London congestion charge
?5 billion a year of regulation

Instead they will cancel

Many of the trains over the holiday period
Access to many public services

A couple of days into the new Lib Dem leadership, and the press who once thought him media savvy are nostalgic for the golden age of Vince Cable as acting Leader.

It is not surpising. The only thing he seems to believe in apart from the power of spin is the move towards a centralised EU with big government in Brussels. He will discover the hard way this is a very unpopular position with most British voters.

It is symptomatic that one of the first deeds of the Lib Dems as his leadership began was to vote against a referendum on the Constitutional treaty in the Edinburgh Parliament, at a time when the Conservatives and SNP were united in their wish for one and even Labour had the decency to abstain. That shows real determination to break promises and take the unpopular line.

It is difficult to see how Mr Clegg thinks he can break with present politics, as he says he wants to do, by beginning his leadership pledged to deny the referendum they promsied in the General Election, on the specious grounds that the Treaty is not the old Constitution rehashed.

It was also indicative of how he is not serious that his first appointment was of Mr Brian Eno as a senior adviser, before he even got round to finding a job for Mr Huhne or Mr Cable. I recommend websites and press articles about Mr Eno to anyone with curiosity about the kind of advice the new Leader may be getting from this man. Indeed, it would be a good pre Christmas game for surfers to come up with the best quotes and highlights from Mr Eno’s life that could help Mr Clegg in his current quandary.

His casual mistakes about his taste in music, and his clumsy announcement of his atheism pale into insiginificance compared to the Lib Dems flip flop over a vote on the Constitutional treaty. I could forgive them a lot if they join us in the lobbies to vote for a referendum on the Treaty, but it looks as if Clegg has no wish to do the decent and honest thing. That would mean jeopardising an important part of his credo. He is truly Euro Clegg.

The press has turned on Browns economic stewardship with a vengeance. For ten years I have tried to point out that Brown did not make the Bank of England independent, and that he had weakened it in a way which made it likely a future financial crisis would be handled badly. I lost the battle beneath the weight of Browns spin and the readiness of so many to believe him. For ten years I have pointed out that Browns preference for higher tax income and higher spending was bound to create an inefficient public sector, and weaken the overall performance of the UK economy. Many commentators turned a blind eye to this, because inflation and interest rates were low compared to the 1970s and the ERM period.

Now the press can find little good in Browns economic stewardship, seeing that the UK has suffered from higher interest rates, higher inflation and slower growth than the successful Anglosphere economies, and seeing that the UK economy is now unbalanced, with huge public sector and balance of payments deficits.

Browns period in charge of the UK economy as Chancellor and now as PM divides into three periods. In the first, 1997-2000, he carried on with Conservative spending plans, he repaid public debt, and continued the impressive recovery that started soon after we exited the ERM under the Conservatives. He was married to Prudence, and all went well.

In the second period, 2000-2006, Brown went on a huge spending spree, hurling money at the NHS, at education and many other areas of government. He and his colleagues just wanted to boast about record levels of spending. They did not seem to pause to ask what they were buying with all the money. They bloated the budgets for external advice and consultancy, they pushed up public sector pay more rapidly than private sector pay, set up many new quangoes, and recruited large numbers of extra people into the civil service. They did recruit some more nurses, teachers and doctors, just as previous governments did. They did rebuild some schools and hospitals that needed modernising, but there was overall too little to show for the vast increase in spending. Public sector efficiency fell in some areas, and performed very badly overall. Public debt started to build up, and Brown encouraged his own sub prime financing for government, creating a large number of off balance sheet ways of swelling public borrowing.

In the third period we are witnessing efforts to bring public spending growth under control. This is a very necessary task. Stupid mistakes like the meanness over the police pay settlement show a lack of political touch and a lack of understanding of the significant numbers. Worrying about ?40 million for the police is bizarre, at a time when ?25,000 million for Northern Rock threatens to upend any attempts at spending control. The UK economy will not start to perform as well as the more successful economies in the world until public spending is under proper control, and the public deficit is falling rapidly.

The UK is now paying the price of its own government excess in recent years. Too much public borrowing crowds out private sector activity. Browns lower tax rates on enterprise through his reform of capital gains tax and his movement down of the rates of income tax and corporation tax, were more than offset by huge tax rises elsewhere through the pensions tax, the congestion charge, national insurance and others. As a result the UK is now much less tax competitive than it was in 1997, and faces the threat of a worsening of parts of the capital gains tax regime.

It is most important that the UK government does get on top of its own spending and borrowing rapidly, to help stabilise a shaky economy. It is also important that the government stops digging an ever large hole on Northern Rock. I cannot believe the huge sums they are risking and committing to this venture, with still no sign that they are putting in basic banking disciplines to ensure we get our money back any time soon. These failures mean continued pressure on peoples spending power, a lower pound, and a falling growth rate.

There is something I want for Christmas.

It is a government which understands that people have seen through spin and are sick and tired of silly media games played by senior politicians.

We are fed up with consultations that are bogus, with promises that are not kept, with side stories that try to distract from the bigger issues and with Ministers who think legislation is just another press release to capture a headline.

We would like Ministers to spend more time in their offices sorting out the problems, and less time on the media telling us they are sorted, or trying to get us to look elsewhere when a disaster is all around them.

We would like Ministers to concentrate on the things where they can make a difference. We would like them to spend taxpayers money as carefully as they do their own. We would like them to find out what they can buy with extra cash before they put out a press release saying they are going to spend it.

We would like Ministers that had some commonsense. It seems stupid to penny pinch ?40 million over police pay, upsetting police officers, whilst asking Northern Rock how many noughts it needs on the latest cheque as the bill climbs higher than ?25,000 million of loans.

We would like Ministers who believe in their staff enough to ask them to do the work, rather than putting so many things out to management and other consultants so we pay twice to get it done.

We would like Ministers who wanted to tell Parliament first, rather than reaching for the spin doctor to brief things in advance. We would be grateful if when they say Parliament will decide something, Parliament holds a decent debate and has a vote before the Treaty is signed or the action taken.

We would like them to answer questions about their stewardship, instead of replying to every reasonable question about something the Conservatives said or did years ago.

We would like them sometimes to take their critics criticisms seriously, instead of trying each time to demolish the critic.

We want them to spend less on administration and spin, and more on the services on the ground. We want an end to regional government in England, an end to ID computers and cards, an end to so much extra regulation.

As we approach Christmas the country is weary of the lecturing and hectoring, the spin and the incompetence.

Could Ministers think long and hard over the holiday about why they are so unpopular? Could they come back refreshed in the New Year realising that people want more delivered for less. We want a government that likes us, not one which is always telling us we have to mend our ways, and that everything is our fault.

I hear that synthetic anger and misrepresentation of my views is being encouraged on another site, following a Labour Minister with nothing better to do with his time than misrepresent my website. In view of this I will not be posting any more on this.

The choices for handling Northern Rock have been narrowed to three by the spinners for the government and the Lib Dems.

The first is sale of the bank to a third party who could repay some of the government loans immediately, and take care of Northern’s financing needs thereafter. The best chance of doing this was the Lloyds expression of interest before the crisis became acute. The authorities failed to respond positively.

Since then we have not been told of any large organisation emerging as a bidder which has the balance sheet strength to take it on and solve the problem itself. The two preferred? bidders need access to substantial market funding, and one only wishes to buy a minority stake. Even Lloyds needed financial help from government and the markets, as Northern is big even for a bank the size of Lloyds. Anyone needing access to substantial market funding will face the same kind of difficulties that caused the problem in the first place the drying up of credit in markets.

Everyone agrees the sale to a third party who could solve the financing problem would be ideal, although there remains scope for disagreement about how to value the existing shareholder interest in such circumstances, and scope for disagreement about how much money taxpayers should expect to get back immediately, and for how long the remaining money could be lent to the new owners.

The second is nationalisation, the Lib Dem’s recommended solution?. The new Lib Dem leader showed his folly by rushing in to back this irresponsible proposal as one of his first acts, after appointing a pop star as an adviser! He clearly does not want to be taken seriously and does not think things through before issuing the press release.

Taking on over ??100 billion of risk in a single mortgage bank at a time of falling house prices and credit crunch is too big a bet for taxpayers. Many of us think taking on ??25 billion of risk is dangerous, but quadrupling that is absurd. The government itself has stupidly increased our risk by an amount the Chancellor told us on December 19th he could not quantify! It shows they are being far too cavalier with our money.

As the Lib Dems themselves admit, the government would not bring any especial expertise to running a mortgage bank and would need to seek professional management from the City. They say it would be temporary, leading to a sale at a later date. They forget that nationalising would mean the taxpayer had to pay for any one off losses or write downs that may be necessary on inspecting the books, and for any running losses the bank might incur under nationalised management.

If it turns out the bank cannot sustain its current level of employment, the taxpayer will have to pay for the redundancies. If the bank needs to expand its branch network or invest in new computers, the taxpayer will have to make a judgement about that use of public money as opposed to school and hospital spending. Given the scale of Northern Rock total liabilities bigger than the health budget any government would be mad to take on those risks. Just losing 1% of the assets costs more than ??1000 million.

The third is Administration. The government could demand repayment of its loans (subject to any legal promises it has made about their duration, which the government refuses to tell taxpayers and Parliament) which could trigger administration in current circumstances as there is no lender prepared to replace the taxpayer at the moment. That too would be a foolish policy. Shareholders would be aggrieved, as they have been told by the authorities that their bank is solvent and been led to believe taxpayer funding will see it over a difficult period. There is no good market in mortgages and the other principal assets Northern Rock owns, so any fire sale at these levels would guarantee the taxpayer lost money. The Administrator is no more likely to find a big buyer for the whole bank than the current auction team. There cannot be any potentially interested party in the world who is unaware of the sale process. If the government favoured this route it should have refused to lend the bank any money in the first place so no public money was at risk.

There is a fourth option which needs proper discussion. I call it the tough bank manager? approach.

The option starts from where the government has got us from the position where taxpayers have lent money and guaranteed loans but do not own the mortgage bank. It recognises that when you are in a hole you should stop digging. We have to accept that the Treasury/Bank of England combination are the principal bankers to Northern Rock. It is high time they started acting as a bank manager faced with an over borrowed client who cannot repay in a timely way.

They need to:

1. Explain the limits of their funding to Northern.
2. Set out the interest rate and interest payment dates for the loans.
3. Set out a schedule for capital repayments.
4. Take all the asset cover there is left in Northern to secure their huge loans.
5. Insist on daily cash and profit monitoring.
6. Place a cash sweep on the business that returns surplus cash to the taxpayer at regular intervals.
7. Insist on approving all increased spending of any kind on capital and revenue account.

The repayment schedule should not expect repayments currently, whilst the main banks are trying to arrange their own affairs to show strong balance sheets for the year end. It should start phased capital repayments later in 2008. It would be up to Northern’s management to decide whether these repayments could be met from trading profits and cash generated within the business, or from refinancing in commercial markets, or from selling assets. Where assets are sold, the government team needs to insist on a minimum price to protect its asset cover position.

The extraordinary thing is that apparently many of these basics of banking have not been observed by the nation’s top financial team. The Chancellor on December 19th in the news conference once again told us little. I hope they are doing more than they are saying, but there is no evidence that they done a good job on securing the taxpayers position, either by means of securing full specific asset cover or by means of repayment schedules that are tough but achievable. It’s high time they started. We are told they have asset cover for the loans, but specific questions have not been answered about how the protection works. There has been no hint of any repayment schedule.

It appears they hoped the Branson bid, and then the nationalisation idea, would reassure depositors, reducing the pressure for taxpayers to put up more money to replace lost deposits. The best way to secure the deposit base is to take strong and sensible action, so it looks as if the government as bank manager has a professional grip on its over borrowed customer, and will stand behind them until it is sorted out. If a buyer emerges who can raise the necessary money then all well and good the bank manager can agree to the sale if that is what shareholders want to do, having secured the taxpayers’ interests.

All this assumes Northern is a solvent business which we know it has to be as the regulators are letting it trade. Assuming they are right there is no need for taxpayers to lose a penny so why won’t the Prime Minister repeat his promise about that? His hesitation damages confidence. If they nationalise it the taxpayer is likely to end up with a huge bill given the past track record with nationalised businesses, as well as legal actions from unhappy shareholders assuming they offer little or no compensation to them.

I naturally wish those trying to sell Northern every success in finding a good answer, but I do want the government to protect the taxpayers’ money fully in those negotiations.

Today, at last, on the Jeremy Vine show, I was allowed to explain how the government should deal with Northern Rock, and set about getting our money back from the ailing mortgage bank. I was also allowed to debate why nationalisation would be too expensive and too risky for taxpayers with Vince Cable.

I trust also it was good radio for them. It was certainly more balanced and more lively than the Today programme’s fawning interviews with the Lib Dems, with no-one allowed to challenge their nostra.

Readers of this site know that I have always thought Clegg would win, and never thought it made much difference whether he or Huhne did. They both believe in massive transfers of power to the EU, and both want to deny us the promised referendum on the constitutional treaty.

Mr Clegg should be given no honeymoon, as his leadership begins by denying the referendum his party promised in the last election. He and his party misled the public, and he cannot claim to be a new honest face when his first important deed will be to instruct Lib Dem MPs to vote against our referendum amendment to the European Treaty Bill. His silly rejoinder that he wants an In-Out referendum just increases people’s cycnicism about politics, as Labour has clearly ruled such a vote out, and never promsied one of those in the first place. We should expect rebels of conscience on the Labour side over a Treaty referendum, but they are not in the same embarrassing position over an In-Out vote.

Mr Clegg’s very poor margin of victory will mean he has to get on with Mr Huhne, and will doutbless tack a little more to the "left" or bigger state side of the argument, as that is clearly what his party membership wants. Mr Clegg has no decisive mandate for change, and will need to be careful. Lib Dems turn nasty if they do not win by-elections. Mr Clegg will have to watch his back if the third party squeeze continues.

The government’s bodged sale/reorganisation of Northern Rock has a new complication today.

We learn that one mortgage bank is interested in buying the mortgages. Maybe others would be too. The response depends on the price they are prepared to offer, and on whether there will be a successful new owner/lead shareholder or not.

My advice is to say to anyone interested in buying the mortgages that there will be a competition to sell some of them if after a suitable period there is no successful bidder for the whole business. This is a decision which has to be taken by the Northern Rock board, but one which should be influenced by the Bank of England telling them they want some of the taxpayers money back soon.

It would be quite wrong to enter discussions with just one buyer of mortgages, without allowing others to bid. It would be wrong to force the sale of good mortgages at a large discount under the pressure of circumstance. There should be a reserve price which protects the taxpayers’ interest. That is why we need a timetable for repayment which allows this immediate market crisis to pass, and allows some sense to return to the market in second hand mortgages, so the shareholders and taxpayers get proper value for their asset and their security.

At a time when even the Bank of England acknowledges there is insufficient market liquidity, it must be obvious to the authorities they will not get a good price for anything being sold in distressed conditions. First sort out the worst of the credit crunch, by making markets more liquid, and getting banks through their year end book squaring, then see what can be realised to cut the debt mountain at Northern Rock.

Meanwhile the ECB is upping its intervention in markets substantially, as it sees how serious the squeeze has become. The Fed is taking all sorts of action ,trying to repackage off balance sheet debts, cutting interest rates and making cash available. It is still the Bank of England that is doing too little very late, as it still seems to be in denial over how dramatic this year end credit crunch is.

We will not know until the new year whether the banks will feel able to lend a bit more once their year ends are out of the way, or whether their balance sheet stretch is such that current restricted lending is the new norm. Some people say that of course there must be a long period of much restricted lending, as the west has overblown the credit for too long.

Whilst agreeing that money was far too loose, and agreeing that the Basel rules encouraged all sorts of off balance sheet lending that the regulators allowed to happen on too large a scale, I do not agree that we want to live through a long period of little new credit being advanced.

I want to live in a country where young people have a chance of raising a mortgage on their incomes to be able to buy a house. I want new businesses starting up and existing businesses wanting to expand to be able to borrow money to grow and create jobs. It is not evil to lend and to borrow. It is crucial to a successful enterprise ecomnomy, and it is beneficial both to those of us with savings in our pensions or elsewhere to lend, and those in need of borrowings to get started.

I might have guessed when the Today programme phoned to invite me on they were not about to do a serious peice on the credit crunch, or provide some balance to the perpetual diet of pro nationalisation comment from the Lib Dems on Northern Rock. Apparently they are readers of this site – but of course the story they wished to do was Mr Coaker’s misrepresentation of a couple of sentences on rape, not a tough interview on the series of articles on how to handle the financial crisis.

When will the BBC learn to follow big stories like the credit crunch and Northern Rock in a balanced way? I have no intention of dancing to NU Lab’s media tune just to please the Today programme.