Category: Blog

            I am fed up with hearing that the world will sadly miss Mr Strauss Kahn, and his economic genius.  His supporters in the IMF job say he was so good at brokering a deal to “save” Greece, and was  much needed to do the same for Portugal.

             The truth is the first Greek deal did not work. It had to be renegotiated six moths later, and now renegotiated again. It is not working for Greece, Euroland or the rest of the EU. The IMF needs to ask itself how it can help countries that are locked into a single currency at the wrong rate for them, with economies that are not working harmoniously with the larger economies at the centre of the currency zone. Mr Strauss Kahn’s policy isn’t working and cannot work. It does not take an economic genius to lend more of other people’s  money in the hope that the underlying problems will solve themselves.

           Whenever I listen to Andrew Mitchell, the Overseas Development Secretary, I am impressed by his passion to tackle world poverty, hunger and disease. He believes in what he is doing, and he is making important changes at the department.

          I welcome his decision to stop giving aid to richer nuclear weapons countries like China and Russia. There was something bizarre about the UK granting aid to China out of money we borrow, only to have to borrow the money on international markets from countries like China with large surpluses. It would be good to enjoy those savings whilst we get the deficit down.

          I am glad he has accepted that a lot of state to state aid finds its way into the wrong hands, and can end up buying better cars or weapons for tyrants if it is not properly policed. He has made clear his zero tolerance of waste and fraud in the budget.

         I also think the west needs to do more to give the hungry and poor of the world a better chance in life. There are two things that to me are more important than the overseas aid budget in bringing this about.

           The first is the west should restrain itself from printing too much money which helps power  commodity speculation. Recent food price increases are in part the result of quantitative easing money finding its way into more risky assets like commodity futures. The hungry of the world are the most damaged by the big increases in the prices of the basics over the last year. The west needs to understand that its inflation can do damage miles away from home as well. Spending more on buying food for immediate relief is no permanent answer if food is getting dearer and dearer.

           The second is the west should do more to allow access to our markets for produce coming from poor countries. The Common Agricultural Policy acts as a block on the poorer countries growing more product to sell for hard currency receipts to help get them out of poverty.Reform of the CAP – and the US equivalent protections – would do more to tackle world poverty than many aid programmes.

          I welcome the governemnt’s strong commitment to poverty and hunger relief. I would like them to take a tougher approach to restrictions on world trade and to permissive inflation, as these are two of the biggest obstacles to progress.

          The Liberal Democrat Orange Book, written by Messrs Clegg, Laws and other leading luminaries contains some strong language.

          Mr David Laws wrote about the NHS. He characterised the NHS as a “cumbersome, centrally directed public sector monopoly” delivering a “second rate state monopoly service” to “passive recipients” rather than to “customers”. He recommended a big dose of “choice, competition and decentralisation” and more use of the voluntary and private sectors to sort it out. He sees many people as “losers” from this “failure”, and condemns the inefficiencies. He strongly recommends competition including more provision from the private sector.

 He concluded that the NHS as we know it should be replaced with a National Health insurance scheme, where everyone would have either NHS or private provider health insurance. In the light of these ideas, it is difficult to understand why Lib Dems say they are needed to stop the Conservatives making more modest reforms to the NHS than they themselves have proposed, especially when the milder  Coalition reforms planned were in the Lib Dem 2010 Manifesto.

          Mr Clegg was very worrying in his aims. He wrote about the need for the Lib Dems to be a pro EU party setting out the case for European integration. He proposed “Liberal Democrats should reassert themselves in this debate  (on the EU), by adopting a clear stance  that addresses the need for EU reform whilst promoting the simple and overwhelming case for European integration.”

            At the edges of the EU government Mr Clegg can be persuaded that we need to change the Common Fishery and the Common Agricultural Policy, but at heart he is a strong integrationist. He says “Far from becoming  outdated, such supranational EU governance represents the most fitting response to the modern challenges of globalisation, in which economic and political sovereignty has become increasingly disjointed”

               Mr Huhne in his conbtribution welcomed the creation of a rapid reaction force for the EU – an EU army – and proposed a single budget holder for weapons procurement in the EU. “Europe needs to reshape its military  to make a substantially greater contribution to the keeping of global order…”

                It may be that the Conservatives have to act as a moderating influence on these bold and in some cases dangerous views.

            Mr Strauss Kahn is innocent of the criminal charges brought  unless and  until proven guilty. It is nonetheless interesting to hear how much the EU and some left of centre broadcasters are said to be missing him and how kind they are about him. As he was one of the leading architects of the Euro bail outs so far, I think he has a lot to answer for regardless of the US criminal case which now envelops him.

           It is people like Mr Strauss Kahn who perpetuate the myth that there is an easy way out of the problems heavily indebted Euro members find themselves in. Is it caring to offer the overborrowed nations more borrowings they cannot afford on easier terms? Is it caring to peldge more of the IMF’s money, usually reserved for  the world’s poorer countries, to help rich countries that have embroiled themselves in a common currency scheme that does not work?  If Mr Struss Kahn is such a financial genius, why couldn’t he see in advance that the Euro had no system for controlling excessive deficits, did not have sufficient transfer payments around the union, and had  no agreed system for deciding how to manage bond rates and money printing in a  way which was good for all parts  of the currency union?

            All the current troubles of the Euro were easy to forecast, and some of us did so more than ten years ago. Then people like Mr Strauss Kahn drove this political project through against the wishes of many of the people of Western Europe and against the advice of people who understood markets and had studied the break up of past currency unions that did not have a single country behind them.

              Greece is now having to slash public spending in a  way  people like Mr Strauss Kahn usually condemn because they are locked into the Euro at an exchange rate they cannot handle. Those who wanted the Euro must accept that their scheme has helped  cause the extreme cuts.  Many Greeks are out of work or facing wage cuts because the Euro scheme does not work for them. Ireland and Spain had property and credit bonanzas thanks to the imperfect design of the Euro system. They are now suffering badly from big credit and property price hangovers.

              I do not believe the EU has lost by not having Mr Strauss Kahn  at their discussions.His medicine would probably be  more of the same – new loans at below market rates, with new tougher and more unrealistic conditions attached.

               In the private sector some banking is now called pretend and extend. The banks pretend that the borrower will be able to repay one day, and that one day the asset cover will be restored when the assets go up again in value. On that basis they lend more, or maintain the existing loan, and continue to keep it on their balance sheet. They usually do make some general provisions, so there is a reserve if they eventually have to give up and write it off.

             The plight of portions of  the banks sovereign debt portfolios is far less rosy, thanks to the regulators and loan extenders. The banks are told that their sovereign loans are risk free and worth what they lent. Lending more should pose no problems. If you look at what the markets think Greek, Portuguese and Irish state debt is now worth, you should at least pause for thought. Those who lend too much to weak sovereigns are undermining the banking system of  parts of the EU as well as doing no favours to the states that cannot afford their debts.

             There has been substantial press comment based on the exchanges between Treasury and the  Business Department  on the one hand and Mr Huhne on the other. We are led to believe that they have settled for demanding targets for carbon reduction  over the next two decades, as well as confirming the exacting  2050 target. In addition they have all signed up to a £16 carbon tax on CO2 producers.

           The government has two aims which have to be reconciled. The one is to drive down the UK’s output of CO2. The other is to rebalance the economy towards much more industrial output. The government suggests that these aims can be compatible one with another, because they are planning a massive greening of industry and business generally.

          It is true that new factories and new processes can use less energy per unit of output than older processes and plant. It is of course true that jobs can be generated to put in renewable power generation, high speed trains, home insulation and the rest that they say will cut the UK’s carbon emissions.

           However, it is also true that most manufacturing is energy intensive, and if you manufacture more you will use more power.  Manufacturing more cement to put in the concrete foundations for windmills or the railway sleepers for new train track is a very energy intensive process. Making more glass in the UK to put in better windows and solar panels entails substantial energy burn. Were we to make the trains for the high speed tracks, or make the steel for the tracks themselves, those too are very energy intensive activites. Whenever you make steel, forge components, shape, weld and rivet steel parts and put metal through an automated factory process, you naturally need to use substantial power.

           I would suggest the UK needs to be aware that single country CO2 targets can be misleading and may be unhelpful both for the domestic economy and for the green aims behind them if implemented in certain ways. A country can hit its targets to lower its own CO2 emissions if it turns to importing large quantities of enegry intensive product. If, for example, the UK imported more steel, glass and cement our domestic  energy use would be cut and therefore our CO2 output. If we still used the same quantities of these products total world CO2 output would still be the same – or it might even be higher if those products were made in countries less committed to driving down the  CO2 output in their plants.

              It is true new capacity to make energy intensive goods can be more energy efficient than older generations of plant. Some could even be powered by electricity generated from renewable sources, or imported from French nuclear reactors. However, there will remain furnaces and plants that have to burn gas or oil, or need to rely on the preponderance of fossil fuel electricity the country currently generates. When you rely on more wind energy there will be periods when the wind is not blowing when you need to use fossil fuel power. Building the stand-by power stations also  creates CO2.  It is important that any new target takes into account the impact of rebalancing towards more energy intensive activities.

           It is also important that the carbon tax is levied and fixed in such a way that it does not price basic industry out of the UK. I am not surprised that steel and chemical manufacturers are complaining about the tax, and saying they may move their activities abroad as a result. The government needs to make sure it has done its sums correctly, and designed a tax which is fair and sustainable, so it does not conflict with the policy of increasing industrial activity. Each project that is said to cut CO2 output needs to be analysed on a full life basis, including  the initial production of the trains, windmills and the like, and the complete  patterns of use of those who come to rely on these investments. When calculating the CO2 impact of train travel, for example, it is important to do journey start to journey finish, which may include car and taxi as well as train and is very influenced by the average occupancy rates for all the trains in the timetable on that new route.

            I have tabled a few questions to find out more of the details behind the public sector wage freeze the government has introduced. I have no disagreement about the general thrust of the policy. One of the ways of controlling the growth in public spending is to keep pay rates level for a bit after a period of strong absolute and relative gains for public sector employees. The policy is turning out to be tougher than originally imagined, because inflation is so much higher than planned. This means a bigger reduction in real living standards for those with frozen pay.

             I also agree that the lowest paid should be exempted. This is especially necessary given the high inflation, making it very difficult for people to balance family budgets from low pay.

            The issues I am trying to tease out are these:

Does a pay freeze mean a freeze to all age and experience related increments?

Does it mean no bonuses, or no increase in bonuses?

What is the approach to rewards for exceptional service or for hitting tough targets under a bonus plan?

What happens to someone who gets promoted or takes on additional responsibilities?

                 I think the answers vary by departments. It will be interesting to see. My suggestion is a pay freeze should mean an end to age and experience increments, but should not mean a refusal to pay performance bonuses. I also think if someone takes on more responsibility and work, as part of a cost reduction or efficiency programme, they should be eligible for a pay rise. Pay rises for promotions should be looked at in the light of the overall pay of the individual but should not be ruled out in principle.

              I would be interested to hear bloggers thoughts. At a time of 5% RPI inflation keeping pay increases down to say 1% would be quite an achievement. I would not expect a pay freeze to deliver zero. I would expect the overall pay bill to fall, as I would expect employee numbers to come down.

                Occasionally I hear old rhetoric aimed against the Trade Unions. In the private sector that is a battle fought and decided years ago. There is no need for friends of management to demand tougher laws or to pursue an anti Union vendetta.

              Trade Unions can be a good way for some  employees to organise their representation to management. They work best where there are large groups of employees doing the same or similar work with a graded pay structure. Modern well informed Trade Unions are not a soft touch,  nor are they business wreckers. They recognise the need for managers to manage, and recognise the need to generate revenues and  profits before discussing how to share them out.  They see the need to raise quality and efficiency if British companies are to survive and compete successfully in a very competitive world. There are fewer jobs from loss making or near bankrupt companies.

           For their part, sensible modern managements keep their workforces well informed, argue the case for any change, and provide career progression and incentive for their staff. Great companies are as conscious of their image and achievement as a good employer as they are conscious of their brand or product image for their customers. They regard workplace safety, flexible working patterns, decent pay and conditions and team operation as the basics in creating and developing a good positive workplace atmosphere. The business has to be customer focused, but to be so it also needs to treat its employees with respect and give them sufficient scope to use their skills and improve their performance.

                 Recently we have seen two possible strikes averted. BA’s new CEO has done a deal with the new leadership of the Union which should put behind the company the difficult labour relations that have disrupted it over the past year or so. On the tube, a series of strikes was averted by talking and finding a solution to the underlying dispute. Passengers, British business and the employees should be the winners from this.

                  The public sector remains more prone today to labour disputes and Union difficulties than the private  sector. It is both more heavily unionised, and has more trouble in generating good positive employee relations.  The Coalition government needs to have a strategy to lift the public sector’s achievement as an employer, whilst pushing through agreed changes to working practises that boost quality and output for any given level of resource put in. To do this the more militant employees where they exist need to know that the government employer is no soft touch, whilst the sensible majorities need to know that the government wants to improve the public sector’s performance as an employer and is prepared to listen to good ideas.

            I have found when I have been resposnbile for workforces that most employees like a strong and positive lead from the top management, as long as it is explained, as long as they have a chance to influence it, and it is fair in its demands. In the public sector one of the first tasks  is to  improve morale so that absence rates fall. If a department has a high rate of absence compared to the average private sector experience it should be a warning to its managers that there is need to lift standards and motivate staff more.

            The debate we held on Wednesday evening was a crucial one. It was about the EU’s plan for a complete change to our Corporation Tax system. We widened the debate into one about sovereignty and why the government does n to simply say “no” to radical tax changes. I heard no mention of the proposals or the debate on the media.

            There was one bit of good news yesterday. Newsnight did run a debate on the Euro criss, and George Osborne did seem to rule out the UK making any contribution to a further Greek bail out, which was excellent news.

               I have always opposed the Common Fishing Policy. I always thought it was bad for consumers, bad for fishermen and bad for the fish. The discard policy was especially crass, forcing the return of large numbers of dead fish to the sea in the name of conservation. It was always aimed at allowing others to raid our fishing grounds, but did not give the UK similar rights in southern waters.

               Yesterday under the excellent new backbench business arrangements we held a debate on it, and passed a motion urging reform. I have lost count of how many times I and other critics of the scheme have called for change. The good news is we hear that at last, after nearly 40 years of injustice and folly, the EU is considering reform. It is still a matter of doubt whetehr they will come up with anything worthwhile, but those who follow these things  will doubtless be pleased that the UK Parliament did do its duty yesterday on  this issue.

                    The NHS has always relied heavily on the private sector. When it was set up the GPs were not nationalised. They remain to this day as independent contractors working for the NHS, but some can and do undertake their own private work as well. Hospital Consultants may also undertake work in  the private sector in addition to their NHS duties. All the drugs supplied to the NHS come from  profit making competing companies.  For many years governments of all three parties have used private sector cleaners, caterers, maintenance services, builders and professional services consultants on a large scale.

                   Labour during its last period in office widened the scope of private sector work, by encouraging private sector providers of clinical services to come forward to help clear waiting lists and backlogs of work.

                  The Lib Dems website acknowledged all this and supported the use of charities and private sector companies where this can strengthen choice, raise quality, and keep costs under control. They said:

         “Focus the NHS on the results it actually delivers for patients by allowing the best people – whether from the public, independent or charitable sectors – to deliver the care which patients needs”

         “Both the Conservative (p27) and Lib Dem  (p 42)Manifestos promised that new social enterprises would be created to deliver NHS services.  The Conservative (p45) and Lib Democrat (p42) manifestos promised that all types of providers – NHS, voluntary or independent sector- would be free to deliver NHS services.

          “We want patients to be able to choose to be treated wherever they want to be – whether it’s an NHS hospital, or one in the voluntary or private sectors. This is because more choice and more competition will lead to benefits for patients”

          “The NHS has never been a single, national organisation. It has always been made up of hundreds and thousands of different organisations and individuals – many of them from the independent sector…”