Category: Blog

Today we hear Richard Branson has become the preferred bidder for Northern Rock. It is good news that there is some movement, and there could be an outcome which keeps some of the Northern Rock staff trading with a new owner and looking after the customers and loans.

The scheme outlined on the radio implies the Bank of England and the Treasury did not take proper security for all the loans they advanced. It is high time Mr Darling explained the true position about this, and if they failed to take sufficient security for all the lending to explain why they made such an extraordinary decision.

According to the briefings so far, the taxpayer will get around half the money back immediately, and the other half back over a 2-3 year period. In the meantime the taxpayer will get similar security to other creditors. Presumably it also means no more government lending to Northern Rock, compared to the current position where the taxpayer is on the hook to lend more all the time there are deposit withdrawals. That would be a welcome development.

That may be a good outcome. To be able to judge it, the taxpayers’ representatives need to know how bad our starting position is. What, if anything, has been promised on repayment dates for the current loans? How many of them are secured on specific assets, which is better than a floating charge assuming they are secured on good assets in sufficient quantities? I have asked all these questions, but the taxpayer is still in the dark about how much money has been committed and on what basis.

Mr. Darling has made it impossible for the market to value the shares, as the market does not know the basics about how much money for how long is available to the company. If he is to persaude us all that he now will do a good deal for the taxpayer and for the UK fianncial system – his two legitimate aims – he needs to tell us more about the current position. The BBC this morning themselves asserted that there is a false market in the shares. The reason must be the lack of government transparency. That is unacceptable, after the Chancellor’s lecture to bankers that they needed to be more transparent!

I do hope Mr cable is getting ready with his apology for his irresponsible behaviour, if there is a successful rescue bid for Northern Rock. He has been so keen to attack Northern Rock and all involved with the company, making a rescue that more difficult.

The new government in Australia announces a change with the past by saying it will sign Kyoto promptly.

The real question is what will the government do to cut carbon output? We have several countries in the EU who signed up to Kyoto, but whose carbon output has been rising.

Gestures are easy – takign action which people will accept that will change people’s behaviour to burn less fuel is much more difficult. Is the new PM going the usual labour rotue of higher taxes and more regulations to try to get carbon output down? Or will he try the Conservative way, of offering incentives for greener behaviour? Or maybe he is just wanting to pose as a green, with no serious intention of doing anything. Wheh we know which way he is really going we will be able to come to a view on whether he is making a good or a bad difference.

Over the last decade I have made many speeches trying to point out that Gordon Brown did not make the Bank of England independent, and did weaken the Bank’s ability to respond to financial crises. I reminded any audience willing to listen that in 1997 he took away the Bank’s power to regulate individual banks, and removed its role of running the public debt. He did not even make the MPC completely independent in the way advertised.

These two changes greatly weakened the Bank’s ability to understand and control the money markets. When the mortgage bank crisis hit the Bank of England did not itself monitor the daily cash and credit positions of the banks, and did not itself organise the daily intervention of the government in the market with its own debt instruments.The need to respond to a banking problem in negotiation with the FSA and the Chancellor was bound to slow things down and make it difficult to come to a timely and sensible answer.

I reflected this in the more meaured prose of the Opposition’s Economic Policy Review (Freeing Britain to compete – available as a download on this site). In that we wrote:

“We are concerned about the division of responsibility between the FSA and the Bank over banking and market regulation. Fortunately conditions in the last decade have been benign internaitonally, with no threats to banking liquidity. We think it would be safer if the Bank of England had responsibility for solvency regulation of UK-based banks, as well as having the overall duty to keep the system solvent. Otherwise there could be dangerous delays if a banking crisis did hit,with information having to be exchanged between the two regulators; and there might be gaps in each regulator’s view of the banking sector at a crucial time, when early regulatory action might have spared a worse problem.”

If we could see that from Opposition, why was the government unable to do so?

Typical of the BBC to protect Gordon Brown and Alastair Darling by inserting the word “international” in front of “credit squeeze” when correctly reporting this morning that the credit squeeeze is now hitting the “real economy”.

Do you remember all those pompous commentaries from “experts” when the credit crunch first hit, assuring us this was just a problem for all those overpaid financiers and bankers in the City? Many took a dellight in the llikelihood of the well paid financial sector being brought to earth with a bump. This site said at the time this was a serious credit crunch which would have an impact on all our daily lives and on many businesses. So it is proving.

It is also a credit crunch made in Downing Street and Threadneedle Street. There is no home made credit crunch in much of Asia, and in the USA they are already moving to relax their credit crunch. Only in the UK this summer did the Central Bank resolutely tell bankers to sort themselves out, refusing to supply liquidity to markets and refusing to cut interest rates. I warned at the time they were being too tough.

Our accident prone Chancellor made a speech explaining that banks had made too many dodgy loans and needed to tighten up their lending. He warned banks there would be no bail if they did this, just days before he announced a gurantee for all bank deposits for any institution in trouble! We will now count the damage in falling property prices, cancelled investment projects, shortage of mortgages and loans and fewer jobs.

Mr Cable is being praised by the BBC for his “success” as acting Lib dem Leader. This “success” is to pursue a nasty campaign against the shareholders and management of Northern Rock, in an attempt to politicise a difficult situation and force a nationalisation of the bank. Mr Cable seems to want to wipe out the value of Northern Rock shares, being no friend of either the small or large shareholders of the bank. Rightly asking how the government secures and retrieves the taxpayers’ ??25 billion, he then makes a fool of himself by suggesting taxpayers take on all ??100 billion of the liabilities instead!

I have a few questions for the garrulous Mr Cable:

1. If he is worried about security for the ??25 billion, why does he think taxpayers securing all the ??100 billion of total liabilities which the state would take over if it nationalised the bank would improve the taxpayers’ position?

2. What could the government as owner of the bank, that it cannot do as bank manager to the bank?

3. How much skill would this government show at running a mortgage bank? What skills do they have that the market lacks?

4. Why does he wish to bail out all the creditors of Northern Rock by guaranteeing their position through nationalisation?

5. How would he pay for the nationalisation? I appreciate he thinks he should take over the shares for nothing, but the whole ??100 billion of assets need financing, and all of that borrowing would then fall to the taxpayers’ account.

Mr Cable has shown little understanding of the complexities of a mortgage bank, and no statesmanship. Some of us commenting and asking questions have been very careful not to say or do anything which could make the position worse. When I was warning of the dangers of the UK credit crunch before the run on Northern Rock began I made sure I did not repeat market rumours about Northern and other institutions by name. Mr Cable seems to revel in trying to make things worse. The BBC fails to ask Cable the difficult quesitons about his wish to condemn all involved with Northern Rock, and fails to expose the folly of his nationalisation scheme. Nationalisation would be expensive at a time when the government is already over borrowed and over committed; would delay tackling the real problem of refinancing the Rock in the private sector; and could lead to shareholder actions against the government for failing to recognise the potential value of the Rock’s assets.

If it’s Calamity Clegg, it’s also Calamity Cable.

The data loss at the Revenue has done one good thing. It has made the world wake up to a problem frequently highlighted on this blogsite the incompetence and waste of the UK public sector. Perhaps now we can have a proper discussion of how the public sector can be changed to give us a better service at a lower cost.

So many things have to change before we have a smaller and more effective public sector. Government has to stop prying into so many facets of our lives, and move away from the idea that Whitehall can manage all the schools, hospitals, police stations and other public facilities from the centre.

This government treats new legislation as just another press release, pushing too many Bills through Parliament at breakneck speed without proper scrutiny, only to fail to implement them or make them work properly. We need to legislate less, and legislate better. We need to reduce the volume of legislation on the books, and make sure what is left is well drafted and effective.

This government treats a press announcement of some new initiative as mission accomplished. Instead we need Ministers who understand that announcing a new measure is just an early step in a long journey. Successful Ministers have to supervise the implementation, and make sure the measure works and is well administered.

This government has introduced higher pay with performance elements for senior staff. The problem is the performance elements are not well designed, allowing too many staff to achieve the criteria for the pay out even when the underlying service is poor or when major errors occur. There needs to be an overhaul of performance pay, containing a personal element and a service wide element, and there needs to be tougher adjudication of whether the criteria have been met before making any payment.

Ministers need to take more interest in how their departments run, and learn to be clearer in setting objectives and sticking to them. Whitehall’s target driven culture does not work because there are too many targets and too many changes. Most departments do not know what winning means. If you set a department or an individual five targets you can assess their achievement and hold them to them. If you set them 100 targets they are off the hook, as no-one expects they can hit all 100, and there will be contradictions between the differing targets giving people a good argument as to why they have failed to hit any particular one.

We need to blend the best of the public sector ethos, with the best of the performance orientation of the private sector in a new way of managing the public service. Wherever possible the public service should have a choice of supplier. Where something is done in house it should be done by people who want to do more with less, not by people who think their aim in life is to spend more money and employ more people whatever the issue before them.

Old initiatives in Whitehall never die, they just fade into the background. When a Minister wants the department to do something new, he or she will be told it needs more staff and more money. He should reply that he wishes to shift money and staff from the old initiative that is no longer required, rather than allowing those officials to slip into the background but remain on the payroll for the old purpose.

The public sector is cost plus it always assumes dearer is better, and lower cost is impossible. The competitive private sector company either delivers more for less or perishes.

The public sector is regulation plus it always takes the longest way round to comply with its own regulations, is slow moving and cumbersome.

The public sector can be very jobs worth. Ministers have created a cynicism in their staff, which leads staff to think the best course of action is to argue This problem is not within my power?, or This issue is not within my budget? or I am going on holiday tomorrow so why bother to start this today? All too often my constituents ring public sector phone lines that are off the hook or permanently engaged. All too often they find the hours for client contact are very limited, data gets lost, phone calls go unrecorded. It is all evidence of a service which is badly led and does not have to compete to keep customers.

Senior staff are often moved around too much. As soon as a senior official gets to know his or her job they are likely to be promoted or moved sideways into a different role. Whilst career progression and development are important, if you change them every couple of years you never have people in post with high levels of experience. It means no-one is ever accountable for anything, as no-one has been in post long enough to have set it up and created the problems that occur. We need to slow down the movement, and give people incentive pay when they do a good job and have the experience to do it better.

We need a new generation of Ministers who wish to work with the civil service, but who wish to lead it to higher standards and less waste . These Ministers like making the announcements and appearing on TV and radio, but often do not help the civil service do the serious work of designing a good policy in the first place, and sorting out the detail of implementation and administration after the announcement. As a result they have allowed shoddy standards in too many cases, and bought the line that appointing more people will solve problems that require thought and management, not more staff.

If you have too many people in an organisation it becomes difficult to manage. The civil service is both too large and too little motivated. It sums up New Labour good at spin, hopeless at managing the government.

You don’t get much for ??550 billion these days. You just get a load of targets, a load of undigested new laws, and some very prosperous private sector consultants who are brought in to almost everything to sort out the mess or do the real work.

Did you notice there will be another consultancy contract as a result of the date loss? Poor old taxpayers.

Mr Cable cannot go on the media without saying something nasty about Northern Rock. Today he was accusing a leading shareholder of “blackmail”, when all the shareholder was doing was poiting out that this is a regulated solvent company according to the FSA and the Bank of England, still trading and with a valuable mortgage portfolio. Mr Cable should stop attacking it, and understand that there are ways to protect the mortgages, the deposits and the taxpayer loans without nationalisation. Any sensible person who cares about the living standards of people in the UK should want a successful outcome to the rescue, and would understand that attacking the current shareholders who still decide the future of this bank is counterproductive.

I am glad there are bids on the table that may offer a way forward. There is also the option of running the bank to ensure the taxpayer is repaid, following agreement on the timing of repayments, without a takeover. I still think the government should set out in public how much money it will advance for how long, so every bidder bids on the same basis, and so the taxpayer can see how his or her interest is going to be protected. The taxpayer also needs reassurance that the government/Bank have taken sufficient security over Northern Rock’s assets to protect the position. If they haven’t so far, they should do so now and publish how much collateral they have for the loans.

The absence of public information over how much the taxpayer has committed. Parliament should be told about this large sum. Those assessing the bids should also want to know that all bidders had bid on the same basis concerning the available public support, and should want confirmation that there are no misunderstandinbgs about how much money is on offer for how long. You cannot value Northern Rock shares today, as Mr Richards the shareholder said on the radio, unless you know how much public money is on offer on what terms.

The European Central Bank has decided to keep interest rates up and to threaten higher rates still. Meanwhile, the Fed is moving to recession fighting, with many expecting lower interest rates despite recent rhetoric. The dollar drifts lower, the Euro rises.

The higher Euro is making it very difficult for companies in many parts of the Eurozone to set competitive prices for their products in world markets. In the US there is an export surge underway, and European companies are coming to realise that the US is now a cheaper and better place for manufacturing than countries in Euroland.

Airbus is going to have to cut its European costs or put some if its manufacturing into lower cost places elsewhere. They should not expect immediate relief from the European Central Bank, and should remember that the stronger German currency needs higher interest rates than the weaker parts of the Eurozone.

European politicians like the French President are keen to take the Euro and European interest rate down, but many Europeans will want the counter inflation strategy to continue. Whilst Euroland battles over its future the US will enjoy being a magnet for investment and a stronger exporter. Airbus may whinge all it likes, but it needs to become more efficient.

An update – more policies and views announced:

Clegg: Adopt the EU constitution
Huhne: Adopt the EU constitution

Clegg: Probably enter the Euro
Huhne: Enter the Euro sometime

Clegg: More regional government in England
Huhne: More regional government in England

Clegg: Build more Council houses
Huhne: Build more Council houses

Clegg: Don’t apologise for the anti Huhne stories in the press, as they are nothing to do with him
Huhne: Apologise for "calamity Clegg" aphorism, as it was nothing to do with him

Clegg: Make climate change a priority
Huhne: Make climate change a priority

It’s a real cliffhanger, as the egg and spoon race roars into life with a genuine spat over the "Calamity Clegg" briefing.

I asked the Leader of the House today the simple question:

When will the government seek Parliamentary approval for the ??25 billion they have spent so far on Northern Rock, and the ??25 billion they have guaranteed and where did the Treasury and the Bank find the ??25 billion?

This should not be a difficult questions to answer. The Leader of the House is meant to know Parliamentary procedure. Every item opf public spending has to be approved by the House under a vote for an estimate. There was no estimate for Northern Rock when Parliament approved this year’s budget. Clearly the government is either going to have to put through a supplementary estimate for the money, or to seek to argue that it does not have to bother, on the spurious grounds that it hopes to get the spending back.

Clearly also, as the govrnment is already borrowing heavily this year, the money for Northern Rock was either borrowed or came from selling other Bank of England assets.I suspect it was mixture of the two. I suspect there is also a Treasury guarantee to the Bank of England.

It is high time Ministers worked out how they are going to report and control this massive spending, to look as if they know what they are doing. Miss Harman told us that the ledning to Northern Rock was made available, amongst other reasons, to ensure shareholders did not lose money. Has she looked at the share price recently? Wouild she like to apologise for getting that wrong?