Category: Blog

 

               As an MP I have always thought I should be loyal to my constituents, to my country and to my party – in that order. I have always taken seriously what I promised electors at the last Election and done my best to further those aims. When the Conservative party has won an election and formed a majority government, I have felt I should usually   be loyal to the Manifesto of the party. When we lose an election the party itself usually changes or cancels some of  its promises from the previous election, as it seeks a more attractive package for the next one. In Opposition the last Manifesto is a starting point for improving the party’s policies, not a binding contract.

              A Coalition government is clearly different. Its programme contains items which did not form part of the Conservative Manifesto, and leaves out important items that were in that Manifesto. The Lib Dems have just demonstrated that they do not think they owe loyalty to the Coalition Agreement. They have voted down the government’s mutually agreed Health policy, and many of them have expressed their dislike of Dr Cable’s tuition fee policy, despite it being drawn up and proposed by a Lib Dem senior Minister.

             A Coalition government  has to work hard to encourage as wide a base of support as possible, and to reassure and keep on board the MPs and members of the two parties that make it up. I did not myself dream up the Forest proposals, and would not have invented the particular version the government produced. I decided I should not oppose  their approach, and wrote explaining it to my constituents who were worried based on some of the rumours and alarmist fears spread around by its opponents. I sought an assurance from Ministers that they were going to see it through and that being loyal to the policy would be wise as well as helpful. A few days after receiving that assurance they cancelled the policy.

I did not help draw up or lobby for the Health changes. They were in the Conservative Manifesto in some detail, though many people do not seem to have read them until recently. Again I felt I should offer some  support and explain them to constituents, given their origins. My comments on how they could be amended, improved or put across to those charged with implenting them are usually made in private.

Nor did I draw up or lobby for the tuition fee package. The Conservative Manifesto did not contain an answer on tuition fees, though I did warn in the election that I thought any government coming to power was likely to raise the fees that Labour had first imposed. When I  saw them I was concerned about their financial impact on both students and taxpayers. Over the next few years taxpayers will have to borrow more money in order to make the advances to students to pay the Universities, at a time when public finances are very stretched.

Even though the proposals came from a Lib Dem Minister and were not from the Conservative Manifesto, I have done my best to support and explain them to constituents. I have urged the creation of more access funds by a variety of interested parties so more gifted students from low income homes can have the benefit of a grant aided or scholarship supported education.

The issue that I have found most difficult with this government is the issue of the EU. The Conservative  Manifesto said “We will ensure by law no future government can hand over areas of power to the EU or join the Euro without a referendum. We will work to bring back key  powers over legal rights, criminal  justice and social and employment legislation to the UK.”  It concluded by saying  “The steady and unaccountable intrusion of the European Union into  almost every aspect of our lives has gone too far. …. We seek a mandate to negotiate the return of these powers (as above) from the EU to the UK” .

I have sought to be true to the  promises I made about the EU  to my electors , and to the words of the Conservative Manifesto where it covered the issue.  The range and nature of constitutional change that the Coalition has drawn up was not part of my promise in May 2010. I will be opposing AV, and do not believe the 5 Year Parliaments legislation can be binding if a future government does not  want it. I do not support further transfers of power to the EU, and do want powers back.

A government finds it easier to command loyalty if it comes up with sensible proposals to start with, and sticks with them when they are attacked and criticised. It is more difficult for supporters if a government develops a reputation for backing down. Supporters are then reluctant to give public support in the early stages of a new policy, for fear it will be ditched if pressure develops.

If Lib Dem criticisms of the Health policy result in major changes, Conservative party  members will want changes to policies they don’t like.  For example, many of them would like the overseas aid budget increases scaled back, would like the Ark Royal and Harriers reinstated, and Buckinghamshire protected from expensive new train lines.

When it comes to claiming credit for popular policies, Conservatives would say that they too wanted civil liberties restored, Income Tax cut, and the earnings link restored for pensioners. In government there has to be both a sharing of the burden of  less popular measures, and a sharing of the credit for the popular ones. If the budget produces a reduction in fuel tax, that is something MPs of both Coalition parties have been seeking.

 

                   Money has been easy for the UK public sector. The 0.5% interest rate is the one that applies only to government. Government has enjoyed using it to the full, borrowing collosal sums on the back of it.

                  Money has been much tighter in the non bank  private sector. Effective interest rates for borrowers have been 5% or more, more than ten times base rate. Savers have suffered from the low official rates, but even they now enjoy a multiple of 0.5% for savings plans of 1 – 5 years.

                 The main reason money is still so tight for the private sector is the Regulator’s demands that the commercial banks continue to strengthen their balance sheets. The large  profits the banks can make out of low official rates for themselves and the government, and the much higher lending rates, helps. Their super profits are the result of the favourable monetary conditions fopr banks, designed to boost their retained profits and so their balance sheets.  It still leaves a lot more to do. That encourages the banks to lend less or to limit the growth in their lending. It is easier to lend less to improve their ratio between the amount of capital and the amount they lend, than to raise new capital.

                 Because lending is effectively rationed by regulatory orders, it is easier for the banks to lend more money to large companies, low risk individuals and corporates, and the government itself, than to lend to riskier and smaller ventures. The large loan books in London for the corporates and the financial sector are easier to administer than the large numbers of small loans in provincial UK.

              This is the essential background to the budget. Getting the banks right is far more important than the small government  schemes Ministers like to dream up for particular areas, sectors or themes. A few hundred million for Enterprise Zones, and a couple of billion for a Green Investment bank are small in relation to a £1.5 trillion economy.

              The danger now is that growth could start to slow later this year or into next. Emerging market economies are being forced to slow down to curb inflation. The US monetary stimulus expires in June. Euroland is struggling  to grow outside Germany and is already talking of monetary tightening. The oil price hike will reduce demand around the world as energy takes a higher proportion of the consumer economy incomes. If oil prices stay high because oil production is cut, all are losers.

            The government is waiting for the Vickers Report into the banks. Much is now riding on that piece of work, and on the government’s response to it. Only by mobilising the banks for sensible levels of money and credit to go into the private sector can the economy hope to make faster progress. Meanwhile, it would be good if the government got on with making a major building programme in the energy sector possible, as we are going to need  more domestic enegry soon.

           I think the USA is right to say that any No fly zone would need UN backing, an invitation from the Libyan democratic movements, and agreement from the immediate neighbours of Libya as pre-conditions. These are all unlikely to come together. They are also right to warn that a No fly zone may require warfare to impose it. It may need the bombing of land installations that maintain and support the Libyan airforce, or may entail bringing Libyan planes down over inhabited territory. It may well result in the deaths of Libyans who are not party to the uprising or who are on the democratic side. The arithmetic of war is always unpleasant to weigh, and poses all sorts of legal and moral issues for anyone thinking of interfering in a civil war from outside. If it is attempted, the west needs to be sure of its legal and moral ground, and to see how it could mount an operation where the positive results outweighed the damage done. Any campaign is about hearts and minds as well as about planes and bombs.

              The UK is not in a position to carry out this task. Yesterday the government decomissioned Ark Royal.  Tripoli is around 1500 miles from London,  and over 1000 miles from Cyprus. If NATO forces are to carry out this task it would be easier for the US to do it from  carriers nearby, or for Italy to do it. Palermo is around 350 miles from Tripoli and Naples a bit over 500 miles. France is considerably closer too.  Marseilles is about half the distance from Libya compared to  London.

               Many of us would like to see the brave resistance of the democratic uprising be successful. It is heart breaking to watch the tv pictures of the brutal repression now underway in Libya. They show that the more serious threat to the Libyan people comes not from the Libyan airforce, but from the tanks, heavy guns and small arms fire of the troops still loyal to the dictator. If you wanted to stop that it would require a western military presence with force on the ground. Trying to stop that from the air would mean numerous deaths and much destruction of  Libyan cities from air bombardment, with no guarantee of success.  The Libyan army could go to ground in the buildings of the cities.

                 The EU is unlikely to be the body that takes such a decision or mounts such an operation. NATO is the organisation  with the command and planning capacity  and potential military support which could do it. NATO will rightly want greater certainty about local reactions before committing forces, and  a plan which gave a reasonable chance of success. The truth is that today the position of the democratic forces does not look good. Tomorrow may bring a change. It is also difficult to see how the dictator can govern a country where  he has so clearly lost control. It is one thing to force people into temporary submission. It is another to govern them, when your army is relatively small and when so many people have reason to resent the government. The dictator’s government will be like an occupying power for many parts of the country. Once  government troops have recaptured a city they need to ask themselves how can they protect themselves once the hot fighting has stopped? How can they enforce the government’s will when there will be so little support from many of the citizens? Brutality can take you so far, but it only works as a means of governing if most people most of the time accept the authority that imposes it.

              The National Audit Office has entered the debate about public sector staffing levels and costs. They tell us the civil service actually cut its numbers by 1% in the last ten years, but put the real costs of employing people up by 10%. It was especially generous with promotions, creating many more senior positions.  The public sector as a whole increased its wages costs by 40% more than prices over the last ten years, with an increase of 13.7% in the numbers employed .

               The Office concluded that ” Organizations do not have comprehensive understanding  of their own staff costs or skills in order to support this cost reduction activity adequately”. What’s stopping them gaining this understanding quickly?

                They also conclude that there will need to be redundancies. It cannot, they say, all be done by natural turnover. It would still be a good idea to maximise the use of natural turnover, which is not currently happening.

 

                     I have been involved in turning round companies that had too much borrowing, too little cash and too big a running deficit.  When a new team goes in to save them, everything in the first few months is designed to stem the outflow of cash. You first have to stop the losses or the running deficit, then move on to repaying some of the debt.

                      First actions usually include:

1. Ending all new recruitment. The CEO’s permission for any new person, replacement or additional, is only given if the company lacks a particular talent needed to carry out the turnround, or suddenly wins so much  new business which requires new people to provide the service or make the goods. Normally as people leave they can be replaced from within, and posts removed.

2. Ending all capital expenditure. The only exceptions the CEO might make are items that have to be replaced because they are essential to the business and no longer function, or plant and equipment specific to new orders just won.

3. Stopping all purchases of supplies and components, save where it can be demonstrated the company no longer holds stocks and is about to run out of the item.

              The second round of actions are concerned with motivating the people in the business. The aim should not be to cut wages or make life more miserable for staff. The aim should be to reward greater productivity and output. Staff will buy into a recovery plan, if they know that failure of the recovery plan means the loss of all the jobs and the end of the business, or if they see that  at the very least failure of the plan  will mean more job losses and poorer wages.  The use of natural wastage to slim staff numbers offers better promotion prospects to all employees, as more senior jobs will become available with priority given to inside candidates. It may be necessary to close the final salary pension plan to new members and to new accruals if one still exists. There should be no action taken against earned rights within pension plans. A defined contribution plan should be made available for future use. There should always be a message of hope. The changes are needed to move the business from the danger list to the success list.

           The third round entails seeing if there are assets or businesses that are surplus to requirements or peripheral to the main aims of the company that could be sold. Early disposals can generate cash, cut or eliminate the first year’s deficit and get the programme of deficit control off to a strong start. They also simplify the management task, concentrating on the main parts of the business that remain.

              The fourth round of actions will be ones to raise more revenue by selling more of the good or service. This may require quality improvements, better marketing, and in due course the launch of new ranges. Harnessing the energies of the team to this is positive work, creating a sense of optimism. As quality improves so sales and margins should improve. As new products are launched, so the business has a newer and more exciting feel to it. Staff have something to believe in.

                   The first three rounds of work for a company turnround also apply to local or central government fighting the battle of the deficits. Government does not have the option of winning new business. The nearest it has to that is raising more tax revenue. This can only be done on a sustained basis by creating the conditions for faster and  more sustained growth of the economy. Raising tax rates is self defeating, leading to slower growth and more trouble in raising living standards, consumption and public morale.

 

             On this site I last reported  public spending up 11% in cash terms in November 2010 compared with the same month a year earlier. I pointed out that the average increase was a more modest 7% from May 2010.  November was a particularly expensive month.

              It is good news that the figures from April 2010 to January 2011 are only 6% up on the same period the previous year, showing that the rate of increase is now on the way down. It would be better still  if other people in the public spending debate used the actual numbers so people can see the scale of the problem the government is trying to tackle. The worrying figure was debt interest. At £36.7 billion for  April 2010-January 2011, it was 47% higher than the same period in the previous year, showing the impact such high borrowing levels has and will have on public spending and  the public accounts. Debt interest now costs more than the Ministry of Defence.

 

               We need to raise more tax from the rich to help cut the deficit. That much many people agree. The question is, how do you maximise the tax take from the rich.

             In the past when the UK has cut rates of Income Tax and Capital Gains tax the amount paid by the rich has gone up, and the proportion of the total tax paid by the rich has gone up. Today the Adam Smith Institute reinforces this message. They say the 50p rate will lead to lost revenue and slower growth. The expect more rich people to emigrate, and more to find ways of  avoiding tax legally.  Their Report is entitled “The Revenue and Growth effects of Britain’s high personal taxes”.

Mr John Redwood (Wokingham) (Con): I, like my right hon. and hon. Friends, welcome the two aims of this legislation. The first, to hold a referendum on any future transfer of power, is vital to try to secure some democratic legitimacy for what might happen next. The second, to assert that this House and Parliament in general is sovereign, even over European law, is excellent, but I hope that Ministers will take away from this debate the great sense of unease among many colleagues, who feel that the Bill does not deliver what Ministers say it intends to.

As my hon. Friend the Member for South Dorset (Richard Drax) just said, we face a large transfer of powers in all sorts of areas at the moment-in criminal justice, in City and business regulation, in the External Action Service and, soon, in economic governance. Any one of those areas would deserve a referendum, but the whole lot together would make a good package for testing out the Government’s new enthusiasm for democracy and the debating skills of the Opposition, who say that that is exactly what the British public want. What is stopping them, other than fear and the belief that, perhaps, the British public would not vote for such measures after all?

I am also worried about the assertion of the parliamentary sovereignty clause. My hon. Friend the Member for Stone (Mr Cash) has probed and tested it, and there are legal dangers on the route that we are now taking. Sovereignty is something that we have for a period if we are prepared to use it, but it is also possible to let it slip away or to lose it, and we cannot make this Parliament sovereign by a single clause in a piece of legislation. It means nothing. This Parliament will be sovereign again only if it wishes to be; this Parliament will be sovereign again only if it has some political will; this Parliament will be sovereign again only on the day it says to the European Union, “We disagree with you on this. You will not give us what we want by negotiation, so we are going to legislate for ourselves.” Ministers should not pretend that this Bill has resolved the problem.

Let us take the issue of fish. I have heard Ministers, from all parties that have been in government, say to the House that they, like me, thoroughly disagree with the discard policy, think that it is wrong and intend to negotiate a better answer. No better answer has been negotiated. We gave the European Union 20 years’ warning. Why do we not simply legislate now to take ourselves out of the common fisheries policy and show that this Parliament is sovereign and works in the interests of the British people and a great British industry.

Mr Ian Davidson (Glasgow South West) (Lab/Co-op): Will the right hon. Gentleman give way?

Mr Redwood: I do not have time, otherwise I would be very happy to.

Mr Davidson: You have the support of Labour’s Back Benchers!

Mr Redwood: That’s great; I am very glad that I have the support, from a sedentary position, of Labour’s Back Benchers.

If this Parliament is never prepared to legislate against the views and wishes of the European Union, people will rightly conclude that the European Union is now sovereign. I mentioned in earlier debates on this legislation that the Crown remained sovereign for a long time in our country, and that Parliament whittled its powers away. There is no precise date on which people all agree that the Crown ceased to be sovereign and that Parliament replaced it, but the situation illustrates that, if we make too many concessions, make too many mistakes and grant too many powers on lease, one day we will not be able to get those powers back. The Crown discovered that it had given away too many powers and lost too many battles, and perhaps power finally resolved to Parliament on the day when they murdered-or killed-the King. That was a fairly definitive act, but it took place after a long series of battles and struggles when power had been ebbing away from the monarchy-and the monarchy was invited back.

I want no such violence in resolving the issue with the European Union, but I do want some political strength and some political substance. Surely, the European Union now does so many things that rile the British people that we should take matters into our own hands.

As my right hon. Friends on the Front Bench will always want to be diplomatic and to negotiate, I give them this final thought in the few minutes that I am allowed. The Germans, for their own reasons, think that they need a treaty change to accommodate the bail-out activities and the huge increase in economic governance powers that they intend to take over the other member states of euroland. They need our signature on that, even though we are not a member state of euroland.

I do not believe for one moment that we will be exempted from many of the requirements for information and common policy formation and negotiated solutions, even if we are opted out for the time being from the power of the fine. We will be dragged into the situation. I wish the Government would not only say, “We have no intention of being dragged into it and seek clearer language,” but to confirm that, say, “As proof of good faith, we want economic powers back.” The latest language from the Government suggests that we are going to keep control over the main elements of our taxation system, not our taxation system as a whole-a red line that the previous Government always said that they had attempted to preserve. We can see the drift in economic powers and economic governance.

The British Government must stand up for British interests. They will have no better chance than the new treaty that is about to be negotiated-so please, Government, use it, don’t lose it.

 

                          When oil prices first soared in 1973-4 they were blamed for the recession and collapse which occurred in western economies. In practice there were other things wrong with the economies then, with banking difficulties and a switch from easy money to tight money at the same time. It is also true that in those days western economies were more dependent on imported oil. The Uk was just developing the North Sea oilfields. Western countries had a bigger manufacturing sector which used more energy than the services which came to replace some of it.

                       Oil price hikes since have done less apparent damage, though they are not helpful to the western importing economies who rely on foreign oil. There is always an inflationary impact. The fuel price is important in its own right, and  fuel prices also tend to push up other prices, as fuel is needed for transport and production of many other goods.There may also be a deflationary effect. As people and businesses have to spend more on oil, they will have less to spend on other things, unless they can push up prices  and  wages enough in an inflationary way.

                 This latest oil price rise is unlikely to lead to successful inflationary pay settlements in the US, the UK or the Eurozone. It will be one more reason why living standards get hit. It will be a deflationary force on the economies later this year, to add to the downwards forces of  slowing demand in the emerging market countries, and tight bank credit in the post bubble retrenchment by the western  regulators. If the loss of oil output is on a  Libyan scale, and is temporary, the price rise might abate as that becomes clear. If the troubles spread into Saudi Arabia and production there is damaged, the markets may well take fright and push the price considerably higher.

             Most forecasters assume there will still be a good supply of oil from the Middle East, and that overall global economic growth will continue at a reasonable rate this year. Now, however, forecasters and policy makers should take note that there could be disappointment later in the year. Money is tight in the west, and getting tighter in the emerging markets economies. If the oil price goes too high on top of this, it will curb the growth and cause particular difficutlies in troubled economies like Greece and Ireland.

 

              As readers of this site will know, I think the worst errors that led to the Credit Crunch were made by the banking regulators, the Central Bank and the government. It was lurching from too easy to too tight money and credit which brought the banks into stress. It was the decision to pump public money into bank shares which was the last straw for a public losing patience with the government and the banks. That was a needless folly, as there were other means of avoiding depositor loss or system collapse whilst ensuring shareholders and junior  bondholders took the hit they deserved.

            The Governor’s criticisms of the banks today claim that the banks do not offer good service to customers, and are all too ready to take advantage of gullible customers with high charges and poor products. I have heard numerous specific criticisms of banks in general, which revolve around the following main points.

1. Regional and national centralised banking for business,with computer and model based analysis of loan prospects, makes it difficult for small and medium sized enterprises in each town to attract finance and the personal support of the Bank Manager.

2. Margins between lending and deposit rates are high. The costs of credit card borrowing in particular are substantial.

3. Large global banks pay their Investment bankers large sums, and seem more interested in that side of the business than the basic commercial banking on the High Street.

4. Banks do not know and understand their customers sufficiently, failing to offer the range of competitively priced savings and loans products that people would like.

             Part of the current large gap between savings and lending rates is the result of the Regulator’s demand that banks make more money to put aside larger reserves. Part of it is owing to the very low official interest rates set. The banks would say that professional credit evaluation is crucial so they do not lose too much money in future. They deny that reasonable lending prospects go without an offer of a loan.

              It is clearly true that Investment banking arms attract the best and most highly paid people, and are usually very profitable. That offends some people who do not like high remuneration, but does not in a well run conglomerate bank make it more difficult for people to get a loan or good service from the local branch business. They are two different types of business, run by different people.

           The quality of service and the prices will be improved for customers if there is enough competition in the market. It is arguable that the past government and Competition authorities allowed too much concentration in UK retail banking, a process encouraged by the last government when it allowed margers in the boom days, and when it encouraged the merger of Lloyds/HBOS in the bad days.

              The last wave of cost and price reducing competition was the advent early in the last decade of the new web based banks. Since then there has been little to match the impact of Chinese competition on industrial products, or the aggressive price cutting of the food retailers and clothing shops on the High Street. If new banking capacity could  be created or brought on stream we might find new services offered at better prices. New banks might want to allow more decision making at branch level with an improved relationship with the branch manager. They might want to use more analysis of people’s accounts to offer a wider range of cost effective services relevant to each customer’s financial position. They might offer a better deal to depositors and not force them to keep moving accounts to keep up with the best rates.