Category: Blog

I understand why many of you are worried by inflation – food prices are leaping up, and the government has just increased the price of petrol sharply through the duty increase and the ad valorem tax increase on the back of the increase in oil prices. It is quite likely our inflation rate on the government/Bank’s measure of CPI will go back above the target of 2% in the next couple of months. If you add mortages in to the full RPI the figure is much worse, given the rate rises we have experienced. There is a real squeeze on disposable income. People may try to have a good Christmas and New Year at the shops, but that will just lead to slower sales thereafter.

The Bank, the MPC and the government should be focusing on the medium term picture – there is nothing they can do to stop the food price inflation in the pipeline, and they seem unwilling to solve the petrol inflation problem by cutting the tax rate as they want to pocket the extra money. I remain of the view that inflation is not the problem over the next couple of years – the problem is deflation from the credit crunch.

We now see that UK commercial property prices have fallen and may well fall more. Experts are arguing over whether they have fallen a few percent or whether it is already by more than 10% in many districts. Residential property prices are falling in most parts of the country outside the expensive districts of central London, where foreign demand seems to be keeping the market lively and detached from the rest of the country.

For the first time for several years the government is keeping public sector wage increases down – save for the top officials and managers who escape the squeeze. THere is no sign of a priivate sector wage lift off either.

Evidence is coming in from the banks that they now want to show more cash on their balance sheets, and are far more reluctant to lend. This will have an impact on retail spending patterns as people find it more difficult to obtain unsecured loans. The slow down in the volume of housing transactions will also reduce spending, as substantial big ticket and housing related expenditure occurs when people move, when a larger mortgage helps.

Keeping the pound high against the dollar by keeping money markets tight is extering downward pressure on manufacturers’ selling prices as they have to try to stay competitive against US exporters.

The Bankl and the MPC should not be misled by short term strength in inflation into making the credit crunch worse. If the government wanted to help they should cut the tax rate on petrol now, to control the short term increase in the CPI. Then the Bank could cut interest rates, lwoering RPI inlfaiton in the process and starting to relax the squeeze.

The authorities have to decide how far they want property and other asset prices to fall before they think they have done enough to make their point. If I were them I would not leave it too late. The US faces a bigger inflation threat than we do owing to the big fall in the dollar, but they decided on two cuts in interest rates to try to stop their residential property price collapse spreading and worsening, with the risk that it could tip the whole economy into recession if the authorities stood idly by.

I was pleased to see Iain Duncan Smith is considering prison reform.

Attention has concentrated understandably on the need to lock up for long periods those who represent a real threat to our future security, becuase they are likely to perpetrate violent crimes against us. To do this we need to have enough prison places to protect the public. These prisons need to be properly staffed and secure, to avoid the scenes of prison riots and break outs we have seen reported in recent years.

Attention should also focus on why so many people in prison are on drugs, unable to read and write to a good standard or otherwise ill equipped to lead a life based around gainful employment.

I hope the Review will ask these two important questions:

1. What more can be done where criminals have turned to crime owing to their inadequacies, to ensure when they do eventually leave prison they are better equipped to earn a living from a legal job rather than from shop lifting or drug dealing or the like? Can more be done to encourage them to learn employable skills, by only allowing reductions in time served if they meet suitable standards and are seriously preparing themselves for a life without crime when they leave. Is their progress monitored properly and sufficiently when they leave prison to try to avoid re-offending? A prison will work better if it is a school for going straight rather than an academy of crime.

2. Are we locking up too many people who do not represent a threat to society in the future and who do not need special programmes to get them off drugs or to equip them for a proper job? The Review should look at whether some who have committed a non violent crime should be expected to remain earning their own living, and be required to compensate society or their victim generously out of their income and maybe expected to give up some of their non working time to make a further contribution to society.

Further examples of poor management in the present UK public sector are in today’s papers. We learn that despite having a special agency to check out applicants for security jobs in the public sector – a new quango established by this government – thousands were not checked to see if they were legally settled here. Maybe the lack of such an obvious check occurred because there was a new quango: the line mangers of the new recruits did not bother because they assumed the quango covered them, whilst the quango did not do it because it did not think it was in its remit. It shows how more is worse, and how responsibility is reduced if you intrude quangoes and others into areas that should remain the responsibility of HR and the line manager deciding on the employment of the individual.

The position can be summeed up as follows:

IN THE COMPETITIVE PRIVATE SECTOR FIRMS STRIVE TO DELIVER MORE, AT BETTER QUALITY, FOR LESS COST

IN THE MONOPOLY PUBLLIC SECTOR, ORGANISATIONS STRIVE TO DELIVER MORE AT BETTER QUALITY FOR MORE COST

and what do they deliver?

THE COMPETITIVE PRIVATE SECTOR DELIVERS MORE, AT BETTER QUALITY, FOR LESS COST.
THE MONOPOLY PUBLIC SECTOR DELIVERS LITTLE MORE, SOMETIMES WITH WORSE QUALITY, FOR MORE COST.

I was pleased to see today’s Sunday Times highlight the huge increases in some of the top public sector salaries under this government, and the large 12% plus average increase in these incomes last year when the government was preaching pay restraint to everyone else. It shows the government’s plan to have a better paid public sector with lower productivity and higher costs is on track.

Every day when they do come to the Commons to tell us what they are up to Labour Ministers boast about how much extra particular public services are costing us compared to 1997. They come less often than their predecesssors used to, as they need half term holidays three times a year. They live their brand of lower productivity in the public sector. They tell us proudly they have increased the cost of all the public services under their control. They seem to muddle cost up with quality. We can now see that some of the increase in cost is their generosity to high flying civil servants, Regulators and nationalised industry chiefs. It is doubtful if these people would have resigned and been replaced with inferior talent if they had made them experience the same pay restraint as everyone else. The bosses at the Post Office have benefitted from the new approach to public sector pay, but not all their customers are convinced that it has bought them a better service, especially given the recent strikes and the reduction in deliveries.

The fall in public sector productivity – or in some cases its failure to rise at the rate achieved by the private sector – must be laid at the doors of the very senior managers who are receiving the largesse of big pay increases, both in basic pay and in "performance" bonuses. All too often now we have to pay twice for something to be done – once for the salary of the official in charge, and then again to the consultant that he decides should be given the job rather than doing it in house. As public sector productivity and quality fall – as with poor hygeine standards in hospitals – the taxpayer is made to pay for an ever larger army of Regulators, as the government seeks to show it is doing something about the problem.

The government should ask itself how it is the private sector keeps raising productivity and quality, whilst keeping costs down. I do not go to a local supermarket because it spends more on its staff and top managers than the one down the road. I go to it because it provides high quality merchandise at competitive prices. I do not want my constituents to go to a local school or hospital becuase they are dearer than some other school and hospital. I want them to go because they deliver an excellent quality service at a price the taxpayer can afford. I do not see supermarkets boasting that they have put their costs up.

Driving back into London and then onto home last night by the A13 I was reminded that this government has done something sensible in transport. The six lane highway from the M25 into the East end of London which they have completed is a good addition to our road network.
Properly run,it would be both safer and greener than the smaller roads it replaces or takes traffic from, allowing cars to cruise into London in top gear at optimal speeds for fuel efficiency, free from conflict with pedestrians.

Instead, the government has allowed its dislike of the car, van and lorry to colour its judgement on how to regulate the highway. A large section of the new road has a speed limit of 40 mph. Most drivers using the road think 50-60 is a safe speed. Unfortunately because there are several cameras along the route this means all too many drivers slow down abruptly for the cameras and accelerate away when they are past them. Some even indulge in high speed lane hopping, frustrated by the control and by the lower speeds of some of the other drivers resulting from the control. Doing a steady 40 mph I found myself in the slow lane watching the antics in the other lanes, using a lower gear than I would have liked to keep the speed down. That meant I also had to watch the higher fuel burn.

I am glad Paul Smith’s excellent research work showing our roads have got more dangerous as safety policy has concentrated on speed control is now receiving a wider airing. Judging by the driving standards last night on the A13 speed control is now a direct cause of worse driving and should cause even this government to think again. The A13 could be a greener and safer road, if only they would use common sense in choosing a speed limit. As Paul Smith points out, less than 1 in 20 of all accidents has speeding as a cause.

We are meant to be grateful to the government and the Environment Agency for predicting a sea surge and telling people to leave their homes yesterday to avoid the flood. I am certainly grateful that on this occasion the flood defences worked and the sea surge was not as big as predicted. I would feel more grateful to the authorities if they got on with sorting out the mess after last summer’s inundations, and did some work to prevent them happening again.

I spent part of Friday visiting people in my constituency who still cannot live properly or at all in their homes which were damaged by flood water and sewage last summer. There is still a row going on between the various authorities over who is to blame, and who might be bothered to do something to sort the problem out. It simply is not good enough that four months later no-one is taking responsibility and no-one is even carrying out works to stop homes being deluged with sewage. I will carry on harrying the authorities until there is some follow jup and some action. The government just doing a few interviews on the media and sahying job done does not protect people’s homes.

Today we learn some new Review is looking at how to increase motoring taxes more to "curb carbon outputs". Apparently they think the way to do this is to increase taxes on older and bigger cars to force people to switch to smaller and newer ones. This idea ignores the large carbon outputs of making a new smaller car, let alone the impact more car production has on other resources of the earth. If these people were truly green they would take all that into account as well. I guess the true reason is they have been told to report before the budget in the Spring with a long list of higher motoring taxes, because Darling has plenty of ways to waste the money and does not think he can get by with just his current rip off tax burden. No wonder people are cynical about this government’s "green" taxes, because so often they do not make the world greener, they just make the Treasury fatter with out money.

At the same time we learn of plans to increase speeding penalties to 6 points in certain cases.They make the correct observation that doing 60 in a 30 mph area can in some cases be dangerous, whereas doing 79 on a motorway is judged safe by most motorists, and say they wish to penalise the one more than the other. They never think that maybe the thing to do is to lessen the penalty on the motorway offender who is not doing anything dangerous as most people see it, judging by all the cars that pass me when doing 70.I guess here they are aware that our roads are too crowded, so they are hoping that they can take a lot of people off the roads by removing their licences after a couple of speeding offences.

I wold take all this anti motoring passion more seriously if Ministers all gave up their cars and showed the rest of us how you can go shopping by train or how you can get to your business appointments by bus.

US export growth is lively, and will receive a further boost from the latest drop in the dollar.

So far the Fed has decided recession fighting is the order of the day, and has been cutting interest rates, whilst the ECB and the Bank of England are still fighting the last battle against inflation and are keeping interest rates up. As a result the USA will export more, and the EU/UK will export less.

In the UK there has been a double tightening of monetary policy in the last two months. The first tightening occurred because market rates of interest have risen above the recommended rate by the Monetary Policy Committee. The second tightening has occured thanks to the rise in the pound against the dollar, given the importance of dollar trade to the UK accounts.

Just as the oil price approaches $100 a barrel in the market we hear that Brazil has found substantial reserves, which could turn this considerable oil user into an oil exporter.

This level of price also makes the exploitation of tar sands, and the conversion of coal to fluid hydrocarbon more likely. The doom mongers who think the great oil economy is soon to be undermined by a lack of raw material should think again.

The BBC has managed to run pieces on petrol and diesel prices now going above ??1 a litre ( ??4.56 a gallon, $9.56 a gallon) and has even mentioned that there has been a recent hike in the fuel duty, but still they blame oil markets and not the government.

When will they tell their audience the truth, that two thirds of the price is tax and the main reason we pay such high prices for fuel is the rip off government?