Category: Blog

On Monday we heard from the Chancellor about Northern Rock. He gave us no figures, but it appears they have already lent ??25 billion of our money to the mortgage bank, and have guaranteed maybe a further ??25 billion. This money is either borrowed, or will have to be borrowed if the guarantees trigger.

Later that day the hapless Chief Secretary to the Treasury came to push through a Bill to give away part of the UK’s rebate on EU contributions – one of Tony Blair’s EU poison pills for Gordon on takeover.

As we have come to expect, the very short Explanatory Memorandum supplied with the even shorter Bill cotained at least three errors, along with an errata sheet. Once again a Labour Minister had failed to supervise papers coming to the House properly.

Andy Burnham wanted to disguise the extent of the giveaway, but had to admit that the gross cost of the EU to the UK over the next seven years, after allowing for the remaining rebate, will be a massive ??70 billion. He and Kitty Ussher, the Economic Secretary to the Treasury, seemed to be find it difficult to grasp that it is the gross amount of our contribution (after rebate) that taxpayers have to pay. The fact that some of the money is subsequently spent in the UK does not mean that money is “free”. It either has to be borrowed and repaid with interest by taxpayers, or paid for from higher taxes in the first place.

So on the same day we saw the governemnt announce ??95 billion of extra borrowing – and more possible for Northern Rock – on just two spending items, the EU and a mortgage bank. They will argue that the EU money is already in their spending figures, but it is a sobering thought that they want to commit ??95 billion of money they do not have to these two causes. If we borrow the ??95 billion at 5% for 20 years that means UK taxpayers will pay ??180 billion, assuming we do not have to borrow the interest payments as well! Let’s hope if they get the money back from Northern Rock they use it to repay some debt.

How dare Mr Darling complain that the odd Conservative tax cut would create a “black hole” when he has two such massive black holes in his own figures.

(If you are interested in the EU contribution debate see the link to my speech in the debate )

When I was a Minister from time to time I needed to write to all MPs to inform them about something. Either I wrote a letter myself,or I adapted a civil service draft so it was relevant to MPs receiving it. Once the letters had been typed and printed, I then topped and tailed each one, writing "Dear Jane (or whoever)…Yours ever John" to show I had taken an interest and wanted to communicate with each of my colleagues.

Yesterday it was Jane’s turn (Jane Kennedy, Financial Secretary to the Treasury) to write to me. She apparently wanted to tell me that "all efforts are being made to ensure that such a loss (of personal data) can never happen again". The "Dear John" was typed in. There was no "Yours ever" or "Yours truly" or "Yours sincerely". The letter ended with a printed version of her signature, Jane Kennedy.

My name at the top of the destination address overprinted the "HM Treasury " that appeared on the headed notepaper. The Treasury’s efforts to keep a slightly long letter on a single page meant it did not fit. It started with the abrupt "You are aware of the Chancellor’s statement to Parliament regarding the serious breach of procedure leading to the loss of personal data…" How couod I be unaware? Had she not seen me at the Statement? Which MP did not bother to go to hear? Which MP has failed to see the headlines in the papers or hear the odd thing about it on the news?

The letter went on to tell me "I am conscious that you may receive enquiries from constituents". She then repeated some information from the statement, and told me I could always ring the Child Benefit helpline.

There was no apology.

What did this letter tell me about this government?

1. The Minister could not be bothered to top and tail the letter herself as she clearly did not think communicating with colleagues mattered that much.
2. I doubt if the Minister wrote the letter or if she spent any time thinking about the draft. if she had, she would have seen that it was not helping MPs do their job.
3. She does not mind how silly the contents are or how badly the letter is set out on the page.

It was symptomatic of all that is wrong with this government. Ministers are not doing the detailed work necessary to provide a good service to the public or to MPs. Jane Kennedy trusted the civil sservice, and the civil service hastened out something to tick the box and hit the target for "communicating with MPs". Public money was wasted on a useless letter, and any MP who read it should see it confirms the low standards we now expect from this regime.

Many people today have woken up to the news that this government is incompetent. For the first time many have had the scales taken from their eyes, as the dreadful truth sinks home that this time the government’s incompetence has left them personally vulnerable.

Every family in the land now knows they must watch their bank accounts nervously to see if the important private data the government has lost has got into the wrong hands. For busy families struggling to get to work on the government’s congested and useless transport system, trying to pay the higher mortgage and Council tax bills this government’s policies are visiting upon them, and trying to comply with the myriad forms, regulations and requirements of an ever more intrusive state, this is just the last straw.

Many of us already had personal experience of the government’s incompetence. Farmers have felt it as payments have failed to materialise when promised, and as the government’s mishandling of disease and floods left a grief stricken countryside and many dead animals. Estranged parents have felt it, as the CSA has struggled to get a grip on their caseload. Many recipients of Tax credits have been on the wrong end of it, as case after case emerges where people are asked to repay large sums they had been awarded months earlier. Northern Rock depositors have felt it, as the Treasury and the Bank failed to keep confidence in markets this autumn. We have all witnessed it at the Home Office, with farce after scandal over borders and prisons.

Too many people have believed that Gordon Brown was a talented Chancellor who ran the Treasury well. Now his successor has taken over we can see what a tacky inheritance he received. Gordon dined out on the soundbite that he had made the Bank of England independent and this was good for the UK economy. The first banking crisis to hit showed that far from making the Bank independent he had crippled it, so it was unable to handle the crisis itself and needed the involvement of the FSA and the Treasury. Under Darling this ring of three failed to head off the run on a bank, and failed to keep the markets liquid. They lost control of short term interest rates, and precipitated a credit crunch. The Conservative Economic Policy Review chronicled how Brown had damaged the Bank of England and how it left us vulnerable to a crisis, in a section written months before Northern Rock and published well before the bank ran into public difficulty.

Over the 10 years of Gordon’s stewardship the UK had to pay higher interest rates than our main competitor economies, and ended the period with higher inflation than our main competitors. He did not even make the Monetary Policy Committee truly independent, retaining the ability to appoint all the members either directly or indirectly, and refusing to answer questions about why some were reappointed and others were not. He overrode their policy by changing targets at a crucial time.

Of more immediate impact for many British people was Gordon Brown’s raid on pension funds, taking around ??5,000 million a year from them every year in additional taxes. He allowed a new supervisory and regulatory framework to create a system which few companies wanted to live under, so we have seen a flight from offering final salary pension schemes. Gordon’s lethal mixture of higher taxes and more regulation is denying a new generation of employees access to a final salary scheme, something their parents took for granted in most jobs.

The only thing the government has been good at is taking our money off us. Because this matters most to these Ministers, it is done with military precision. If anyone is five minutes late back to a parking place they are likely to face a ticket. If you dare to live without a TV at home you will be bombarded with aggressive notices claiming you are dodging the TV poll tax. The beefed up Customs and Revenue has been much more aggressive than its predecessor Inland Revenue in dealing with law abiding companies and individuals. I have more cases now of people being required to pay tax they do not owe thanks to errors and dubious decisions. Local Councils have followed suit, harassing people to pay Council Tax and to fill in regular records to maintain their single person discounts.

The casual incompetence and carelessness of this government is on display every day of my working life as an MP. Much of my office’s time is spent referring cases where the Inland Revenue or the CSA or the Immigration Service have made a wrong decision or have failed to make any decision at all. More time is spent chasing departments for answers, and chasing them again for a proper answer once the standard reply has come in. Papers and documents produced to Parliament are often error ridden. Bills are rewritten in great chunks just before Report stage. Ministers sometimes do not know the detail of the Statutory Instrument they are putting through so debate is fairly pointless with them. The Bank of England’s official copy of its last annual Report presented to Parliament and kept in the library of the House had several important pages missing which no-one at the Bank had bothered to check. Ministers do not appear to proof read anything themselves or to go over the detail beforehand.

In this environment the actions of the Customs and Revenue this week are neither surprising nor out of the ordinary. I was not shocked by it, as I would expect nothing less from a government that has so neglected the arts of departmental management and administrative discipline. I am very sorry for all those families whose data has gone astray, but pleased that this incompetence was so noticeable that maybe now more people will come to understand that this is the nature of this government. If organisations behave casually it is because the signals sent from the top are casual. Too many Ministers in this government fail to stress the need for accuracy and care at all stages of their department’s work. They live on the media and die politically on the media. They have still not learnt that as a Minister staying out of the papers is usually more difficult and more successful than getting into them. Papers mainly want to report mess up and conspiracy.

The first thought I had when I heard late yesterday morning of the government’s loss of sensitive personal data was this should be the death blow to the government’s expensive, intrusive and insecure personal data computer scheme with ID cards. I encouraged the Opposition to make that the main point for the future coming out of the Customs and Revenue disaster.

In a way the loss of Child Benefit data sums up this government. Its systems are intrusive and costly, yet they do not work properly. The very people who should be protecting us and our personal details are the most cavalier with our identities and our personal safety. It is this government which presides over hospitals where infection is so common, this government which fails to control our borders and keep out criminals, and this government which now loses the bank accounts, addresses and identities of every family in the country.

Why on earth should the public trust the government to hold all the crucial data about us on one central identity computer? Why should we believe next time they will look after it better? Why should we believe they will be able to control the numbers and details of our data on such a system, when they have issued many more National Insurance numbers than there are workers in the country, and when passport forgery or false issue is all too common?

ID cards have become a NuLab soudbite, the answer to every criticism of their lamentable record at keeping our borders secure and dealing with serious crime. We all know if they carry on with them they will arive late, massively over budget and unable to do the jobs they are said to be able to do. ID cards will not keep us safe. They will cost us more, make all the law abiding have to fill in yet another intrusive form, and allow the government to carry on running the borders and the criminal justice system badly.

Let’s hope there is a silver lining to the black cloud of yesterday’s news – that even this government now udnerstands the British people will njot put up with more of their money beign tipped down the ID drain, and will ot trust this government to put onto one massive computer disc all the details fo everyone in the country just feady for fraudsters and terrorist to steal it, hack into it or be sent it in the post.

Yesterday was a dispiriting sight in the Commons. We saw Lib Dems and Labour arguing over the future of a bank when none of them seemed to understand the first thing about how banking operates. Nor did they seem to understand the complicated banking regulations and company law they have put in place over the last decade.

Cable for the Lib Dems set the terms of the debate in an entirely false way, which unfortunately some in the media have copied. He offered two “solutions” as the only possible options – put NR into administration (i.e. bankrupt it) or nationalise it.

Neither of these courses of action make any sense and should be rejected at this stage.

Of course the government could bankrupt the Rock, if it withdrew its funding and the promise of more cash and if no private sector party stepped in with the offer of the money. That would renege on government promises and might break its loan agreement (we still have not seen what form that takes or what period it covers). It would still require the government to bail out the depositors, unless they reneged on that promise as well. It might prove to be dearer than other options, and would probably lead to law suits against the government by shareholder and other interests who could legitimately complain about the inconsistency of government actions.

The government could push a nationalisaiton bill through the Commons with Lib dem support. Presumably that would offer no compensation to the shareholders. Then the taxpayer would be on risk not just for ??24-25billion of loans and the estimated ??16 billion of remaining deposit guarantees, but for the whole ??100 billion of liabilities on the 2006 balance sheet and any additional ones added since the last year end. The government would then have to make the announcements about sacking the staff that were superfluous to the slimmed down business they would be running, would have to pay all the bills whether the company werre profitable or not, and stand behind all the obligaitons of the company. The government would need to repay the debts outstanding to other city institutions as they fell due. Why would that be good for the taxpayer? What does Alastair Darling know about running a mortgage bank that he cannot share with the external management already in place?

The only sensible course of action from here is to ignore siren pleas for liquidation or nationalisation, and to manage the debt and the deposits rationally like a proper bank manager. The government has not “nationalised” the bank by lending it money. What it needs to do, if it hasn’t already is:

1. Secure sufficient asset cover to guraantee repayment of all its lending to NR whatever happens. If it does not have enough asset cover – and in current conditions you need to take much more than100% cover given the possibiltiy that the value of mortgages will fall – it should do so as a condition for future lending.

2. Set out the repayment schedule it expects, preferably in agreement with NR but if necessary it has to impose one.

3. The shareholders and Directors of NR then have a choice – a) trade their way out of it b) find a bidder for the whole who will meet the repayment schedule or c) start selling the assets off piecemeal to meet the repayment schedule. They and the Regulators tell us they are solvent. That means that the assets cover the liabilities, so selling the assets will enable them to repay the liabilities. The government only wants one quarter of the assets of the business to repay it loans so far, so it should be achievable.

4. The deposit guarantee should continue but the governemnt should replace it as soon as possible by the beefed up general deposit insurance scheme they are working on with the City. If the deposit guarantees trigger the need for more funding the Bank of England should allow for that within its schedule of repayments.

The Directors and shareholders should be given a chance to rescue it by methods a) or b). The timetable should ensure that if they do not do so in reasonable time then method c), an orderly run off, kicks in automatically. That way taxpayers can get our money back without legal actions against the government for precipitating a crisis.

Mr Darling failed to tell us what markets and Parliament needed to know yesterday – how much money has been lent on what terms. The absence of this information runs the danger of creating a false market in the shares. It also means the task of evaluating bids for NR is difficult if not impossible . If bidders do not know how much money is available on what terms, how can they ascribe a sensible value to the company? And how can you compare bids, if bidders have made different assumptions about government generosity?

Yesterday I needed to refill my car. That meant paying ??40 to Mr Brown and ??20 to an oil company.

The cheapest filling station was offering diesel at 3p a litre less than some others. As that represented a saving of ??1.80 and I had to pass it anyway it was the obvious place to go. Most other local people in need of fuel decided the same thing, driven there by the enormous cost of the tax on petrol after the recent tax hike and by the upwards move in oil prices.

It took me more than one quarter of an hour to queue to fill, fill, pay, then queue to check the tyres and to check the tyres.

It gave me plenty of time to get angry with this tax greedy government . No doubt they need the money to pay for all the fuel in Ministerial limos and airplanes as they jet around the world lecturing the rest of us on what to do.

The BBC today offered two visions of the future for Northern Rock. The first is nationalisation, with the Lib Dems recommending compulsory purchase of the Rock, apparently for nothing, wiping out all the shareholders. The second was another Treasury guarantee, this time to small long term shareholders so they do not lose out if things get worse from here.

Both of these ideas are absurb. The taxpayer already has too large a commitment to Northern Rock, and should not be asked to take on a bigger one. It is not the taxpayers job to own and run a mortgage bank. Nor can the taxpayer decide to subsidise one group of shareholders amongst the wider list of shareholders. The compulsory nationalisation of the bank with no compensation to sharteholders would probably trigger law suits from them claiming their shares still had value. The subsidy to some shareholders might trigger law suits from the others claiming the division was arbitrary and unfair.

The Lib Dem acting Leader has pursued a persistent campaign against the outgoing management of Northern Rock in a way which makes offering impartial advice difficult, and has displayed a lack of knowledge of legal obligations and how banking works. That presumably is why the BBC have him on so often on this subject. His advice would put the taxpayer at risk of legal actions by shareholders and leave the taxpayer with larger problems of how to manage the whole mortgage bank.

People ask what could be done? What should the Conservative position be? I think that is obvious, bearing in mind I would not have started from here, as I recommended pre-emptive action long before the bank experienced the run.

What the Chancellor should do with the Bank of England is treat this lending to Northern Rock as if it were a commercial loan. They must agree with Northern Rock the duration and interest payments, with a schedule of repayments. They must take sufficient security to guraantee that in no forseeable circumstance can the taxpayer lose money, and then force the mortgage bank to manage its way out of the debt to the agreed timetable. If they cannot agree a sensible timetable then they have to impose one which they think the bank should be able to meet. Above all they must have enough security to ensure no taxpayer loss. Then they need to agree all that with Brussels, which may be the most difficult part of the obvious remedy. I assume they got Brussels agreement in the first place to temporary assistance – they now need to define how long is temporary.

Yesterday I spoke to the Bruges Group meeting in King’s College Hall, London about the need for a referendum on the Constitutional treaty. I proposed that all should write to and lobby MPs who promised a referendum on the Constitution before the 2005 election, and who now say they will not vote for one on the result. The bets chance we have of stopping this undesirable further major transfer of power is to force a referendum. This has been made more difficult by the apostasy of the Lib Dems, joining forces with the government to stop one after promising one. We need more popular presure on both Lib Dems and possible rebel Labour MPs to have a chance of success.

Meanwhile, Mr Miliband was surveying the damage to his career that had had been done by failure to clear a speech on European integration with the PM before briefing the press. Hearing Mr Miliband on the radio today he is a very worried man, hastening to say he is fully behind the PM, and keen to do his bidding. Miliband joins Alan West, the wayward former Admiral, in having to do some more revision before opening his mouth in public about government policy.

Clearly Mr Miliband mistook the PM’s enthusiasm to ram the EU Constitutional treaty down our throats for genuine pro EU enthusiasm. Miliband wanted to wax lyrical about more defence integration, at a time when the PM was aware of the danger to his position of going ahead with the Treaty without a referendum. Brown used to brief in a Eurosceptic direction before he became PM, and must know he has moved such a long way from those briefings in his recent stance pro more EU integration through the Treaty. He has lost support in the Sun and the Times, and jeopardised what relationship he has with the Telegraph, as a result of his pro EU stance on the Treaty. To be seen to be advocating a European army before the Treaty is through would be unfortunate timing from the PM’s point of view. That can come later, once the dirty deed of ratification is done amidst protests that nothing important is happening!

It is interesting to see how lacking in political skill and understanding Mr Miliband is. This government is more treacherous than Blair’s or Major’s when it comes to Ministers making speeches or statements that say something new. It is important to nail down the PM’s view, and to understand whether the PM really means the view he expresses, if you are to have a quiet political life and a long one!

How many more interviews of these two are we going to hear on the BBC with no question about Europe?

Both these men believe in selling our country down the river to the Brussels bureaucracy.
Both campaigned for a referendum on the Constitution to win their seats for the first time in 2005, and both intend to rat on this promise when we get a chance to vote for a referendum on the Treaty soon.

Surely they should be asked why they have torn up their promise on the Constitution?
And shouldn’t they be asked why they want the organisation that has given us the Common Agricultural Policy and the Common Fisheries Policy to be given more power to mess up more of our country?

I still think Clegg will win, as friends of Clegg are clearly better at helping the media write anti Huhne stories, than the friends of Huhne are at hitting back. It is good to hear the underdog critcising the front runner more – it makes the egg and spoon race of the Liberal leadership a little more interesting.

The Chancellor has to be careful not to create a false market in Northern Rock shares.

The amount and duration of government lending to the mortgage bank is fundamental to valuing the shares. If this funding is to be there for as long as Northern Rock wants, the company will have one value. If the funding is to be phased down it has another value. If it is to disappear rapidly it has yet another value. In circumstances where the funding is withdrawn quickly the value of the bank then rests on what private sector funding is available at what terms. The differences between these values will be large.

In such circumstances it is vital to avoid a disorderly market in the shares that the government makes a statement tomorrow saying:

1. How much money has been lent to Northerhn Rock so far via the Bank of England?
2. How much more might be lent under the guarantees in place?
3. What time limit if any there is on this arrangement?
4. What if any agreement is there over repayment schedules?
5. Is this funding available to any buyer of Northern Rock, or only to the independent company that first asked for assistance?
6. If funding is available to a buyer of Northern Rock, what will be the requirements concerning repayment by them?

The markets need this information so people can value the shares sensibly. Parliament needs it so we can do our job protecting the taxpayers’ interests. I fear a false market in the shares unless we are told what the government’s position is on these and related matters.