Category: Blog

              The last few days have shown us that the Uk economy is generating a good number of private sector jobs. They also reveal that most of these go to a growing workforce, and do not go to those on unemployment benefit. It shows that the welfare reforms and the help with skills and training need to go further and faster to make an impact.

             Inflation at 5.3%  (RPI) is still squeezing real  incomes and living standards hard. It is not surprising that recent shop sales figures are poor. Many people are finding it a struggle to pay for the petrol, the heating and the food after big price increases have gone through. The UK, China and Brazil all have similar inflation rates  – 5.3% (RPI), 5.4% and  6.3% respectively.  The response of the authorities is very different. The UK has an official interest rate of 0.5%, China 6.3% and Brazil 11.75%. In the faster growing countries they want a higher savings rate and fear the impact of rising prices on the public, so they are taking action to curb inflation.

 Meanwhile the UK’s gross contribution to the EU, the amount we have to pay in tax or borrow, has shot up to £19.7 billion last year. Many of us would like to start the public spending cuts with that item.

           On the other side of the world China announced that her foreign exchange reserves now exceed $3 trillion. Such has been her success at making and exporting, at building up a big balance of payments surplus. The good news is that China may now let her currency rise a bit more a bit faster, which will help manufacturers in the over borrowed large importers like the US and Uk to make more at home and export more to China. UK exports of goods are now more to the non EU than the EU, on top of the majority of our trade in services being outside the EU as it has been  for many years.

              The European Central Bank revealed that it is now the proud owner of Euro 77 billion of bonds. It has been active in buying up sovereign debt in the distressed parts of the Euro area to try to help out. With its assistance to Euro area banks as well, it is now highly leveraged with a portfolio of assets that reflect the realities of the current Euro area. It is strengthening its share capital, but from a low base. The new rules on capital and risk that apply to commercial banks do not of course apply to Central banks.

             It is taking a long time to sort out the huge imbalances around the world. China needs to import more and save less. The US, UK, and the weaker parts of Euroland need to export more and borrow less. It is taking a long time to get these countries into a safer relationship one with another.

                    Today the Prime Minister takes time out from his efforts to lead NATO’s response to Libya and the UN to talk to us about immigration.

                    His general theme will be popular with many. He wants good immigration, not mass immigration. The question is, are Ministers now delivering this?

                     Most people agree our universities should be able to obtain visa for students coming here to study. Most also agree bogus Colleges set up to get people round the other immigration rules should be stopped.

                      Most agree that people with special skills we need should be granted visas and work permits. Many also agree that we need to find a way of getting more people already living here legally back to work or into work.

                       Contributors to this site have expressed many concerns about the position in the Information technology industry and the government’s approach to contractors and shorter term permits.

                       It would be useful on a day when the PM himself sets out a more controlled approach to debate whether the new  approach is working. Are the rules sensible? Do they achieve the desired aim?

                     One of the problems with this whole policy area is the fact that Labour gave away the UK’s opt out from the common borders policy within the EU. The Uk government can today only settle an immigration policy for people coming from outside the EU. Migration from within the EU is determined by the common policy and by the success of all EU members at controlling their system.

                The UN resolution that the UK government helped secure charges UN countries to impose a No fly zone on Libyan government forces so they cannot harm their citizens from the air. It has also been interpreted as allowing UN aircraft to take action against tanks and other offensive weaponry of the Libyan government if the UN forces believe those items are going to be used to harm civilians.  The UN forces, now led by France and the UK, have been doing these functions well.

           There is,however, a growing feeling by commentators that success for the French and British forces would take the form of regime change. The ultimate guarantee for the security of civilians in Libya would, some feel, only be secured if the dictator were removed. This is not what the UN agreed to. It also requires offering more help to the rebel forces to secure victory or to force the dictator out.

           In the early  days NATO struggled with the question would they take military action against rebel forces if they appeared to be advancing and running the risk of killing civilians. NATO did not want to say they would, but they recognised that the UN resolution did not say they are to intervene on the side of the rebels to promote their cause.

          Today the western powers remind us there are diplomatic actions they need to take to complement the military. What the public want to know is how long we are committed to our current range of actions, and when other countries will play a fuller part in policing the No fly zone. A No fly zone on its own was never guaranteed to bring the regime down, nor was that the UN agreed plan. If we are in for a longer operation, policing the skies above a war torn country beneath, it is high time there was proper burden sharing with other NATO nations. One of the reasons I did not vote for the intervention was the difficulty in seeing how this open ended commitment would work, and my feeling that countries nearer to Libya were better placed to do whatever needed doing from outside.

               I do not think we should seek to widen the mission to involve western countries in deciding the military and  political outcome on the ground as Libya struggles with its future. Going too far in helping the rebels means the UN then becomes involved in the conflict which is killing  people on the ground, and leads to the west being involved in any future political settlement.

                    I wish to examine the curious case of the possible resignation of Mr Norman  Lamb. Many people will not have known until the last couple of days the importance of Mr Lamb. He is a trusted adviser to the Deputy Prime Minister. He is a Lib Dem NHS expert, who has said that the NHS policies need changing.

                    Mr Lamb we are told has been in continuous discussion with Mr Clegg about the NHS and the government’s proposed reforms since May 2010. In that case, Mr Lamb must have been actively involved in Mr Clegg’s participation in drafting the crucial July 2010 White Paper setting out the need for and nature of the very wide ranging NHS reforms.

                 Mr Clegg was one of three signatories of the Preface on the title page of the White Paper, “Equity and Excellence: Liberating the NHS”, with Mr Cameron and Mr Lansley.  The one page Preface said the following:

                 “We will make the NHS more accountable to patients. We will free staff from excessive top down control…

                 “We will empower health professionals. Doctors and nurses must be able to use their professional judgement about what is right for patients. We will suppport this by giving front line staff more control.

                  “Of course our massive deficit and growing debt mean there are some difficult decisions to make. The NHS is not immune from these challenges. But far from being reason to abandon reform, it demands that we accelerate it…”

                  This seems to be crystal clear. Mr Clegg with the help of Mr Lamb signed up to a radical programme of health reform. There were no ifs and buts, no minority report, not even  some precautionary spin against the details.  Inside the document they co-authored it  said all PCTs would be abolished, “Money will follow the patient”, “providers will be paid according to their performance”. The document pledged £20 billion of efficiency savings, and a reduction in NHS management costs by a dramatic 45% in four years. “We will radically delayer and simplify the number of NHS bodies”.  The NHS providers of health care were to be converted into social enterprises, freed to compete. The private sector was also to be invited to compete to provide better health care. There were to be maximum prices, but no restriction on price competition beyond that. Monitor was to have a duty to promote competition, to ensure better quality and value for money for the NHS. The approach of providing good quality care free at the point of use was preserved but much else was to change to deliver it in a patient friendly way.

                    Many people now say they did not understand the nature of the NHS reforms, or how wide ranging they were. Many claim not to have read the Conservative Manifesto which had in it the main outlines, or the Lib Dem one which also covered some of this ground. It is strange however that those most concerned about the NHS today claim they were in ignorance of the scope of  the changes. Why  did they not  bother to read the seminal consultation document, this White Paper, issued ten months ago? Surely when this was launched with considerable publicity it was the time to catch up and make an effort to understand the plan.  Why didn’t they  have the row then before the legislation passed the Commons easily? Where were they when the Bill made swift passage?

                    Mr Lamb must have read the White Paper and given his views before and afterwards. Mr Clegg was presumably broadly happy with the document, and in his interview yesterday still seems to be happy with the main themes within it.

                      Mr Lamb needs to be careful. He is in danger of being used by the enemies of the government and the enemies of Health reform at a sensitive time for the government he supports. If he makes Mr Clegg flip flop on his robust support for the White Paper he weakens his party as well as the government. It just leads people to ask why did Lib Dems sign up for these reforms in 2010, only to seek to overturn them in 2011 at the first sign of concerted Labour and Union opposition?  May-July 2010 was the time to show political caution, the time to cause trouble on these proposals. For a signatory to the White Paper 2011 is the time to show some steel and determination to put through the vision they signed up to ten months ago.

           Listening to Mr Clegg this morning, I was struck by the central paradox. He said the most important thing the government was doing was a short term fix to cut the deficit. He rightly argued that getting on top of the deficit was essential for economic growth and stability in the future.  At the same time he wanted to stress that the government has just restored the earnings link for pensioners, and introduced more spending in schools for certain pupils through the enhanced pupil premia. Good news is higher spending, yet if you are serious about getting the deficit down you need to spend less.

           In an age of  deficit reduction politicians have to find things other than higher public spending which please voters. We need a culture where giving voters greater freedoms is a good in itself, and where we talk about the results of public spending rather than the quantities of it. Our political language does not seem yet to have accommodated the good news of doing more for less. Cutting bureaucracy by removing requirements is a way to get people on side and cut the deficit at the same time.

              The week-end press had started to wake up to the private sector squeeze which we have been talking about on this website  for the last year, the squeeze which was even heralded by the Bank of England itself. The high rate of inflation coupled with a low rate of wage and salary increases is squeezing spending power.

             At the same time there is a recovery underway, which has been best so far in manufacturing. The Bank which likes to cling to the notion that there must be plenty of spare capacity in the economy because of the depth of the recent recession, should get out more. They would discover that large manufacturing companies rely on a worldwide supply chain. They would learn that there are shortages of raw materials, components and manufactured goods around the world. The Japanese earthquake and tsunami has just made this worse by removing some Japanese capacity. The fast growth in India, China, Brazil and the other emerging markets is keeping things lively.

         Some of the world’s main manufacturers are trying hard to get more components and materials to meet their growing output. Some are even talking of putting customers onto quota and allocation, as they cannot keep pace with demand. In the UK input inflation is running at very high levels. It’s not just oil and energy that has rushed up, but so have metals, foodstuffs and a range of semi manufactures and components. The rapid printing of dollars, the strong money and demand growth in the BRIC and related countries, and the shortages now emerging are inflationary as some of us have been predicting for many months.  In China, India, Brazil, Australia and elsewhere interest rates have been put up to cool things down a bit. The cost of inputs to business shot up by almost 15% in the UK over the last year. Did the Bank forecast that? Is all going to plan?

            In the UK the high costs of motoring appear to be hitting the numbers of people travelling, going to shops and attractions. It is good news that the government now says it wants to do something about that, starting with fewer MOTs. It also needs to do more to ease congestion on the roads at busy times, which is often the result of poor traffic engineering, or the direct result of Council and government spending to cut the flows on the road with expensive new traffic engineering schemes.

           I was also pleased to read that the government plans to ban Councils from taxing and fining people who fall foul of increasingly arcane rules on rubbish. That may not be very localist, but it is very welcome news to people who now fear the bin police along with all the rest of the bureaucratic snooper army.

             On Monday 11th April we will hear or read the preliminary conclusions of the Vickers Report into banking. A lot is riding on a successful outcome to this important Inquiry.

              Politically John Vickers has to say enough to persuade people he understands the anger many feel about the conduct of banks and bank regulators prior to 2008, and the frustration they feel about the large sums of public money used to buy up Northern Rock, RBS and part of Lloyds/HBOS. Technically he has to understand what brought and keeps so many banking jobs in London, and how he can in the future keep income and wealth generation here whilst cutting the risk and size of any future bail out by taxpayers.

             His analysis will be important, as well as his conclusions. I hope he will illustrate how there were two phases to the regulatory disaster – the first one when they allowed too much credit and leverage in the system, and the second when they allowed too little and starved the market of funds. His story will have to include the fact that Northern Rock and Lehmans, the two worst casualties of the Anglo-American crunch, were specialist banks, not large general banks combining investment and retail banking. Forced separation of the two components would not of itself have prevented the 2008-9 rolling collapses.

               I trust he will seek to make changes to address two big issues. The first is the question of “too big to fail”. Early briefing suggests he will propose that the necessary utility UK banking arm of a large bank should have its own balance sheet and its own means of continuing in business whatever may befall the rest of the organisation. Alternatively it should be capable of separation in the event of a crash of the global  bank owner. The latter proposal is probably the easiest answer, and the easiest to sell to the global banks in London.

                   All that matters to UK taxpayers is that any future crisis is not only less likely, but also much cheaper and easier to deal with because it will only relate to the essential utility UK banks. The rest of the banking groups will have to follow market disciplines in the event of a crisis, which could include a controlled move into Administation or temporary protection from creditors whilst it worked out how to sell assets and write off lossses.

                     The second big issue is how we can have a more competitive banking sector in the UK. Individuals and small and medium sized companies are not well served, and could do with more choice, better service and more competitive prices. The EU has made RBS and Lloyds sell off some assets in UK retail banking to provide some competition. Sir John could ask for more to be done from the RBS stable whilst it remains in public ownership.

                      It would be good if another couple of High Street banks could be hived off from the state assets owned by taxpayers. At the time of sale they could raise more private capital so those new banks would have money to help grow their businesses and give them a stronger position in a more competitive UK High Street. We have lurched from far too much credit to too little. The Regulators are now restricting the flow, and the few banks we have left are keen to sort out their balance sheets by squeezing their loan books.  Regulating too tightly brings other problems to regulating too loosely. We are suffering from first one, then  the other.

               First we are told that providing a new loan to Greece, or Ireland, or Portugal, creates a line in the sand, prevents the contagion spreading. As each sucessive loan demand showed, that did not work. The incoming tide of debt erased the lines. The contagion spread. The mixed metaphors were too weak to face  the facts. 

           Then we are told a loan package for a troubled country will be linked to tax rises and spending cuts which will sort the problems out. In the case of Ireland it emerged that the banks needed another E24 billion to satisfy the incoming government. In the case of Spain they are putting sums into their banks at risk which the market fears will still not be enough.

           A loan package from the EU and IMF achieves two things. It firstly offers the country subsidised credit compared to market rates. That’s why they ask to borrow, as they are finding it too dear and difficult to borrow in the normal way. The subsidy is paid by the lending countries.  Secondly, it claims to offer a policy change which will curb the deficit, mend the banks and put the economy onto the right course.

         Such a policy change, if convincing, would remove the need for the subsidised  loan. If the markets believed that the country concerned was taking sufficient action to curb its deficit or mend its banks, then that country would be able to borrow in the market again at sensible rates. If the market is not persuaded, then we need to ask why the IMF and EU do not insist on deficit reduction measures that carry conviction. The interest rate on Greek and Irish debt did not subside to more normal levels once the policy changes demanded by the lenders were announced.

          It is possible the markets are wrong and the EU is right. As taxpayers contributing to this folly it  would be good if for once they were. The markets are concerned that the policy changes do not allow more rapid growth in the damaged economies. Without decent growth deficit reduction is a far more painful process. Tax rises can result in lower revenues. Business investment and new jobs can be diverted elsewhere. With no devaluation countries locked into the Euro can find it difficult to export their way out of trouble. There are conditions when locked into the Euro when countries can be forced into round after round of tax rises and spending cuts if growth does not come through to ease the pain.

       I would recommend strongly that instead of sitting down and discussing the terms of a bail out loan, the EU should discuss with Euro members the terms of that country’s new economic policy designed to restore market confidence. It is a matter of general Euro area concern, as the European Central Bank stands behind them all. Only if they re-establish market confidence can these countries be sure of a better future.

        Meanwhile, it would be  helpful to have a statement from the European central Bank about how much state debt from Euro members it is prepared to buy, and how much support it can give to Euroland area banks. There is a danger the ECB could build up very large positions in the weaker countries and banks. Then one day they might decide, as they did with Ireland, that they need to cut their positions. That can trigger difficult negotiations at very difficult times for the country concerned. Maybe there should be more transparency and stability in this crucial area of policy.

I am told that there is a new welcome emphasis on the public’s views at Downing Street. They are taking polling more seriously. It was worries by the public about the Health reforms that lies behind the recent decision to consult again and if necessary to change the plans.

I trust they will also follow the polling in other respects. Polling shows that a majority do think the deficit is a big worry, and a majority think the state needs to live within its means. I suspect if the public were asked, they would also say charity begins at home.

The British public are generous to people in a crisis or in great poverty. They like the fact that the UK is a generous donor to try to prevent starvation or to help clean up after natural disasters. They should be asked, however, if they think this country should give £80 billion over the the lifetime of this Parliament by way of EU contributions and overseas aid. I suspect they would say economies could be made in these big programmes, whilst continuing to respond warmly and generously to humanitarian and natural disasters around the world.

The Secretary of State for Overseas aid has himself said that many of the inherited programmes did not do the job intended or did not offer good value for money. As he cancels or streamlines those, couldn’t we save the money for a year or two whilst we get the public finances back into more robust shape? Wouldn’t new programmes that offer better value for money be improved by taking a couple of years to think them through and consult on them before committing the cash?

The Prime Minister fought to limit the increase of the EU budget. With the EU wanting UK support for their new programme of economic governance, wouldn’t it be a good time to ask again for cuts in the EU budgets?  As every Euroland country in trouble is told to slash its own spending, isn’t it time the EU as a whole agreed that cuts could best start at the EU level? Why is the EU unable to show by example how to control public spending, when its main message to all its member states is to get the deficits down? Bail out packages do not seem to solve the problems of Greece or Ireland, so why should we go on contributing to them? Don’t they need pro growth policies? Aren’t the weaker banks of the Euro system the responsibility of the European Central Bank  who can lend them what it takes?

I suspect this would all poll rather well. Let’s hope for some action. People would like this deficit reduction business over more quickly.

The British public debate is schizophrenic when it comes to excellence, and its ally, selection. Most socialists want the most stringent tests and selection to ensure the leading football and athletics teams in the country only contain the best sports people. They encourage vigorous selection, promotion on merit, tough training regimes, access to elite facilities, and differential treatment for the successful. No-one argues that the rest of us should be able to use the England training ground for our leisure sports, or be eligible to play for our national team based on a sense of justice and equality. We want the best and try to create and nurture the best.

When it comes to academic excellence many take a different view. If the many cannot go to the elite institutions,they demand changes by the elite institutions to accommodate more representatives of the many. If the standards of the elite top performers are too high, they criticise them for being stuck up and demand a different approach.

Creating a cadre of top scientists, lawyers, medics or other academically based professions requires the same approach to nurture, training and excellence as creating an elite sporting team. You want people who are motivated to be the best, and who know they are competing globally with the best in the world. You need elite libraries, laboratories and other facilities. You need the best teachers, just as the soccer stars need the best trainers.

Just as the future Wayne Rooney needs to practise his place kicks when his mates want the night off, so the future Nobel prize winner or leading lawyer needs to read another book and attend another seminar to reach top form. There is a price to success, and a prize for success. That is why some attempt it and others do not. If we want a more socially mobile country we have to acept the pursuit of excellence in the academic world as well as in the sporting world.

The British are more divided over business excellence. Some entrepreneurs capture the public imagination, and are forgiven for making themselves very rich at the same time as serving the public well. Others are pilloried for the trappings of their success. There is not the same uniform enthusiasm for the self made business person that you encounter in the USA. The successful business builder needs to be a careful politician as well, to avoid public disopprobrium of his success.