Category: Blog

The banks are unpopular with the public for a variety of good reasons. They are the whipping boys of the politicians for less good reasons. The government has every wish to blame the whole economic crisis on greedy bankers, to suppress the role of incompetent government, regulators and central bankers. The public hates the banks, because it sees it has had to put huge sums of money into them, only to watch as their senior personnel continue to take large sums out by way of pay and bonus.

It is high time we had a proper debate about what went wrong and what should be done to have a better banking system in the future. I despair of getting such a debate in the Commons with my Labour and Lib Dem colleagues. They simply refuse to engage with the many points I make about the history of the crisis and the sensible way forward. They find it an inconvenient truth that the regulators were heavily involved and maybe they made mistakes.

What went wrong?

1. The Monetary Policy Committee followed boom and bust policies, bloating money and keeping rates too low for too long, then squeezing too hard and keeping rates too high.

2. The government followed boom and bust policies – expanding its own balance sheet too much, spending and borrowing too much in the boom, and then forcing the private sector to take all the hit when we lurched to bust.

3. Between August 2007 and the end of 2008 the authorities kept the markets starved of money when over borrowed banks needed access to funds. That is when the Central Bank should have made more cash available in the usual way – by way of short term loans against good security – to avoid the crash. There was no need for any major UK bank to go down.

4. The regulators led by the government blamed the banks for the crash from September 2007 onwards, and decided to make it worse by lecturing the banks in public on how weak they were instead of working behind the scenes to make them become stronger. Usually transparency is right, but in this area the regulator needs to work in private to avoid triggering a run on a bank. Having made the errors in the boom, the Regulators should have given the over borrowed banks time to adjust, allowing them to raise new capital, sell assets, split off businesses, run down their loan books, cut costs or however they chose to do it.

None of this is jobbing backwards – this is what this site said throughout the gathering crisis.

What should they do now?

The approach of the government should be different for RBS from the rest. RBS is state owned. It has received large sums of subsidy. It cannot go offshore or hit back against the UK authorities. It should be broken up, into a series of competing banks. These should be sold to maximise the returns for taxpayers.

Other banks should be placed under a prudent regime controlling their cash and capital. There is no need for a future banking crisis if we have competent regulators who understand the mistakes made in 2007-8. Today the regulator should relax the cash and capital controls, because they are too tight for the conditions.

Will taxpayers get their money back?

The government wants to ease taxpayer grief by claiming close to the election that we are poised to get our money back from Lloyds and RBS. They are adjusting the figures to try to create this happy outcome. They are knocking all the fees, charges and special revenues off the purchase price of the shares. Yet these receipts were connected to the whole package of financial support, not just the share purchases. This flatters the position.

It is unlikely taxpayers will make a profit the way the government is going about it. It would be possible to get all the money back we invested in the shares if the proposals above were adopted. One of the reasons is the pound has fallen so much, making the overseas banks owned by RBS worth more in devalued sterling.

There was a good cartoon in the Telegraph yesterday – the main party leaders not wishing to pull the Excalibur of spending cuts out of the stone.

Public budgets are well defended by lobby groups, BBC journalists, underemployed senior public sector executives and even by many MPs who seem to think it their job to recommend record spending levels rather than striving to do more for less like the rest of the economy.As a result in the public debate you are only thought to be serious about reducing spending if you identify important public servcies you would cut or damage. The irony is that the public sector has so much more scope to do much more for less, because it has not been any good at raising productivity or finding “efficiency savings” over the last decade. It has been the lost ten years for productivity gains and for cost control.

Let me defend the government on one thing. They have at last decided they need to reduce the rate of sickness absence in the NHS. They must have the figures and should be able to analyse them to know where the sickness is genuine and where, if at all, it is a reflection of poor morale and sloppy practise. Their figures imply they think there is a big problem in the NHS. I have been probing and recommending that they take on this challenge in the wider public sector for years, and have asked questions in the past about relative levels of absence in different areas.

I did have to encourage the sickness rate down at a private sector company I helped turn round years ago. You can do it, if the high sickness rate reflects poor morale and a culture of offering sick notes or just ringing in to say you feel ill when others would get on with the job. If the sickness peaks around Fridays and Monday, if it is higher near to public holidays, or if staff are heard talking about when they might fit their sick leave in, an employer should know he has to do something. Usually it is sufficient to make it clear you want it to go down, and then to have words with the most glaring offenders. Other employees can then be heard to say “About time too, we have been carrying him or her for years”. So my challenge to the government is not over their new intent, but to ask why haven’t they done anything about it over the last 13 years. Why should we believe this close to an election that they have suddenly discovered how to do it, and now have the will to take on the task?

Let me bring it down to an intelligible level. I have just completed a two year improvement in what I deliver for how much I cost the state as an MP. Starting from 17th cheapest MP in 2007-8, I decided to cut my office costs, staff, travel and expenses budgets by an overall 10% in each of the two years 2008-9 and 2009-2010. I began this programme before expenses became a lively topic of media debate. I have managed to do that, whilst still providing the same level of service. The only “cut” was to replace a printed regular report to constituents with an electronic one, which provides more information more regularly. None of this required redundancies.

Over the next two months if re-elected I have an opportunity to use natural wastage to make a further reduction in costs. The Head of my Parliamentary office has decided to move on to a new opportunity in the private sector, and my part time case worker and organiser in Wokingham is retiring. I currently run my combined Parliamentary office with two full time equivalents, or three people. I am naturally asking myself if we can streamline and improve more. That will require thought and discussion with those involved.

Every part of the public sector should use every retitrement and every departure for other reasons to question how they can run things better and cheaper. Parts of the pbulic sector would work better with fewer people. In some places the bureaucracy is stifling.

The Labour machine is in overdrive to get out the message that things are getting better, and can only get better with more of the same. In practise, things are being arranged for May.

Interest rates have been kept artificially low by printing money. That has to stop for good sometime after the election. Interest rates will rise.

Tax revenues have been artificially boosted by the threat of higher taxes on incomes, leading to a surge of bonus and other payments whilst the rate remains at 40%. The banker bonus tax has also brought in extra revenue which is unlikely to be repeated. Companies and individuals are hurrying to book things to pay tax before the rates soar. Then tax revenue will fall again.

Unemployment has not risen as far and as fast as many forecast, thanks to continuing strong recruitment of extra people into the public sector. This will come to an abrupt halt after the election, whoever wins.

The growth rate was boosted by depressing the output for the third quarter of 2009 in the revisions, not by increasing the output for the fourth quarter. January was a difficult month given the snow and transport problems. The government has been bringing forward various spending commitments to try to boost output for the rest of the first quarter. The cuts come later.

Today Labour launches its latest five point pledge card. I still enjoy reading the 1997 version, which promised to “set tough rules for government spending and borrowing: ensure low inflaiton; strengthen the economy” and wonder when they might get round to doing those?

This year’s version apparently repeats the 2005 promise to raise living standards. This used to be automatic in any 4-5 year Parliament, given the usual growth of the economy. Over the last 5 years the economy has not grown. This morning on the radio Labour’s spokesman avoided offering confirmaiton that they had raised living standards as conventionally measured, knowing how thin the ice was around this pledge. The Bank of England recently warned that we should expect a further fall in living standards on current policies, which I fear is all too likely. What price this pledge? Can the government tell us how much living standards have fallen by since 2007, and by how much more they expect them to fall?

The EU got it right the first time. All those member states in the Euro do need a single economic government. They are limping towards it, crab like and dishonestly. Countries like the UK that have stayed out of the Euro need to stay out of the many moves to economic government, and should use these negotiations to loosen Brussel’s grip on them at the same time as Brussels has to tighten it over Euro members. It should be done by Treaty change so we can have a referendum on the proposals and all that is related to them.

As I explained repeatedly during the big arguments over the Uk joining the Euro at the start of the era of UK federalist government in 1997, joining a single currency is like sharing a bank account with the neighbours. It’s not something most rational poeople would ever do, in the interests of staying friends with the neighbours.

If you must, you need to control the neighbour’s spending and borrowing, to make sure there is enough money in the joint bank account when you need it, and to make sure the neighbour does not draw out too much of what you have earned and put his feet up. That is what the argument with Greece is all about. Germany goes out to work in world markets and earns a surplus. Some now think Greece, which has run up a large overdraft, should be able to draw on the German earnings to repay some of the debt.

That is, of course, what has to happen if you wish to keep the joint bank account and keep the bank manager happy – that is what they are now reluctantly recognising they have to do to keep the single currency going. If I were a German I would strongly want to have much more Brussels authority over Greek spending and borrowing, so their drawings on the common bank account do not get out of hand. That is what yesterday was all about.

One of the myths perpretrated by Labour and the BBC is that Margaret Thatcher came in and cut public spending. She did not – spending on the main services grew rapidly under her control. She did cut plans in 1981 to help the recovery, but the overall figures for total public spending including capital, current and debt interest were:

1978-9 (last Labour year) £71.2 billion
1980-81 (first full Cons year) £120.2 billion
1981-82 £130 billion
1983-4 £137.5 billion

(These are all cash figures taken from the Red Books of the day – they also represent rises in real terms, though on a much smaller scale than the cash increases)

She tackled the deficit and the need to fuel growth by asset sales in the middle and later years, and by better control providing better value for money. She also got the high rate of inflation down which she inherited, and put through crucial trade union and nationalised industry reforms.

Margaret Thatcher had no need to cut public spending by the £39 billion Labour now say they need to reduce it by,(or by the then equivalent) because she ran things more prudently and did not borrow so much.

I do wish the commentators and interviewers wouold look at the numbers and the published facts, instead of all this misleading spin. They could also point out that say a 10% per cent overall cut over 4 years is a very modest cut by private sector standards, and has been delivered by many private sector companies with no dimunution in quality of service. Outside the core protected areas this should not cause such alarms.

There are several simple truths – it is possible to cut public spending by substantial amounts without sacking a single nurse, teacher, doctor, soldier. It is possible to cut some public spending and make things better by doing so. It is possible to greatly increase efficiency throughout the public sector, if only someone started to run it with the taxpayers interests at heart.

It is also an immutable law of public sector reform in the UK that Labour spin doctors and some BBC journalists will wish to keep alive the myth of the massive “cuts” of Margaret Thatcher, and the myth that all cuts are damaging if not politically impossible.

Was that it? A few crude bits of politics, a little petty cash moving around, and three wonky arguments.

I am so fed up with a Parliament which is sidelined by the government and insists on missing the main points. The government told us it was doing well with its investment in the banks, failing to mention the accumulated losses of £23 billion at RBS and Lloyds in two years or the £12 billion of potential loss on the shares revealed in the Red Book.

The government told us the deficit would carry us through the recession, failing to see how it was undermining the currency and pushing up interest rates. They press released later some large numbers for efficiency gains in major departments in future years , not wanting Parliament to have a chance to debate that. It was a budget with the spending left out!

The budget applied a £1.4 billion net stimulus to a £1400 billion economy – that’s just 0.1%. The Chancellor behaved as if he did not know that RBS and LLoyds slashed their balance sheets by £800 billion last year. He made no attempt to quantify how much negative impact that had on the UK economy, and offered no explanation of why they were doing it. He seems unaware of the lack of credit and money in the private sector, or of the way his quantitative easing is just designed to feed cheap money into the public sector to see them up to the election.

I will post my budget speech seeking to set out the magnitude of the problem and the reasons why our growth is so sluggish, once we have the transcript available.

The private sector is going to take years to pay off all the debts this government has piled up. We need a strongly pro enterprise policy to give us a better chance of surviving and flourishing. That means lower taxes on earning and working, an end to jealousy over success, and some value for the public money we do spend. Labour have started using some of the language of value for money in public services, after years of proving they do not know how to deliver it. Just using the language upsets many of their backbenchers – they were just there yesterday to cheer to the echo the latest tax increases.

We were told in advance of the budget yesterday that RBS and LLoyds are going to be made to lend more. We were given early warning of legislation to force all banks to offer basic bank accounts to anyone who wants one.

Maybe the government has been listening to those of of us arguing that the private sector is still being starved of reasonable lines of credit at affordable rates. Unfortunately the idea that you can simply instruct a couple of banks to lend more is not going to work. They have told them before to lend more. Just bellowing it across the media again, only louder, is not going to bring it about. The government needs to ask why lending to companies and individuals is depressed.

The first thing they should learn is that the Banking regulator wants private sector lending to be depressed. The Regulator is insiting on the banks holding more cash and capital relative to their lending. They are doing so at the wrong point in the economic cycle. Banks are reining in their credit and balance sheets to comply. If the government wants more private sector expansion, they need to tell the Regulator to back off.

The second thing they need to grasp is economic conditions are still quite hostile for many companies, so they are paying back debt rather than committing more money to investment. They do not see a strong recovery, so they are not spending more on facilities, machinery and stocks. There is a vicious circle in the private sector. A shortage of demand means no incentive to invest. A shortage of cash means no wherewithall to invest.

This vicious circle is reinforced by the speeding decline in living standards. Relatively high inflation by world standards is leaving many families worse off, as wages and salaries are going up by far less than prices. This means less home demand for domestic businesses. The public sector is taking too much of the limited national income. The private sector is further depressed by fears of tax increases to come to pay for it all. It’s going to take some tax cuts to boost spending power and some reductions in public sector waste and over spend to instill more confidence. Lecturing the banks will not do the job.

Bank accounts for all may not be as popular a policy as Labour like to think. Some people who do not have bank accounts may not like banks or bankers. The government needs to think through how it would enforce it. Are all banks with a licence under an obligation to give anyone an account who applies, regardless of their size and their specialism? Will they regulate the charges, or can banks put people off by charging too much for certain kinds of customers? How do you regulate the full panoply of charges? How do you avoid the regulation stifling competition?

This is all probably just more gesture politics. I am not sure even the government takes itself seriously any more. We need an election. Before that nothing sensible is goling to be decided.

Events, dear boy, events, can make so much difference to the best planned campaigns. The last thing Mr Brown wanted was media coverage of the claims of former Cabinet Ministers about how they could lobby, influence policy or appointments, all for a mere £3000 to £5000 a day. That, however, is what he has got.

The government machine moved smoothly to limit the damage. Miss Harman assured the Commons that no currently serving Minister or official had done anything wrong. Former Ministers had not succeeded in influencing policy for private gain. We could relax. All was well. The issue was left unanswered as to why at least one former Minister suggested they could or had, and what if anything should be done about that.

The short term damage is to Labour, but Parliament as a whole will once again suffer. I have always thought the best way to lobby to change policy or to pursue an interest is through the cosnttiuency MP in the way the system is intended to operate. A company or individual that wants its case heard by government can ask the local MP to represent them, to arrange a meeting for them or to ensure written representations are considered by the Minister. The service is free, and the MP will decide whether to back his constituent with his own voice as well or just ensure a hearing for their case. What’s more, it’s a free service to the constituent.

Wouldn’t it be good if we could hear a message of hope from the government – hope that we could have a faster recovery, hope that it could be more worthwhile to work hard and be successful, hope that we might earn and innovate our way out of the national poverty we see all around us.

The reason for the dreadfully slow and feeble recovery is as clear as can be – wrong government policy. The governent is obstinate. Its approach is to offer more of the same. As we see spending, borrowing and taxing too much does not do the trick , so they recommend taxing, spending and borrowing more! Why can’t they see that if you spend more in the public sector, you have to take more money away from the private sector to pay the bills? That does not fuel a strong recovery. If you borrow too much in the public sector, that can undermine confidence. It puts people and companies off spending more, because all they hear from politicians is talk of what new taxes they can impose. It worries markets that interest rates will be forced up, as investors become reluctant to back Britain and offer the huge sums the government wishes to borrow at low rates.

Worse still are the damaged banks, residing in the public sector, and the banks being punished for being banks in the private sector. The single biggest cause of the feeble recovery is the government’s approach to regulating them. Its current insistence that the banks find and hold much more cash and capital than they had to in the good days is acting as a great brake on the recovery. If Labour were serious about recovery they would change these rules immediately, to allow more lending to business and individuals to get things going again. We don’t want out of control private lending as we had in 2007, but we need more than we are getting at the moment.

The second biggest brake on recovery is the huge public deficit itself. We need immediate action to start to bring it under control, to stop the upwards drift of market interest rates we have been experiencing in recent months.

The third problem is the huge cost and intrusiveness of regulation. Some of it is a sledgehammer to miss the nut, and some is a nutcracker to crack a nut that does not need cracking. They need to make is easier for people to set up new businesses to run them.

The fourth problem is the UK is no longer tax competitive. We need lower corporation tax rates to keep and attract more larger businesses here. We need to tax the rich more, which means scrapping the 50p tax rate to stop the race for more people to leave or go offshore, and to send a message out again to the world that the UK is open for business.

If we made these changes in the budget, then we could turn our minds to providing sufficient reaonably priced energy, improving our transport systems and sorting out our planning system so the UK could once again be truly friendly to enterprise. We need to earn our living again. We have to start to repay the huge national debts Labour has piled up for us. The only way to recover from this is to have a more dynamic and successful private sector to pay the bills and create the jobs we need.

I am a keen defender of fresh air, a regulator of chimneys, a controller of exhausts, someone who wishes to defend beautiful countryside and great heritage buildings. I dislike fumes, noise and other environmental nuisances. These days being green seems to mean to some just one thing- cutting carbon dioxide emissions. I am quite happy to do that, where it means more fuel effiency, less waste and better methods of making things, heating and travelling.

There is a general view that railways are green whilst all other modes of engine powered travel are not. This is a strange view. Trains need diesel or electric engines to pull them, which in their turn generate emissions including CO2. If we wish to see how much more efficient railways are than cars, buses, coaches, ships, planes and other powered transport, we need to do a proper audit. The figures which result show it all depends. It all depends how the electricity was generated and hwo the double inefficiency of the power station and the electric engine works out. It all depends how new or old the train is, how efficient it is and how many people are on it.

The figures are mainly sensitive to capacity utilisation.Crowded buses and trains do emit less CO2 per passenger mile than single occupant cars or vans. By the same kind of measure fully packed container ships can be more efficient than container trains.

However, in the real world we need to compare journey with journey, looking at the total journey, not just the part of it conducted by train. In practise many train journeys are part of a mixed mode journey. People drive to the station, or go by taxi or bus. They often use other powered transport at the other end. Containers are often taken to the railhead by truck, and may be shifted from the end of the train journey by truck or ship.

When you start to look at actual journeys as opposed to station to station journeys the audit becomes more complex and less favourable to the train. If you factor in poor capacity utilisation in the off peaks that too can reduce or eliminate the lead of the train on emissions per mile travelled.

Maybe we should also factor in the impact of one mode of travel on another. One of the main causes of congestion in the typical town or city in the UK is the shortage of places to cross the railway. This can be exacerbated when the crossing is provided by means of a level crossing rather than a bridge or tunnel.

In Wokingham we have three level crossings to let traffic across the two railway lines serving the town. Under new plans for more train services the level crossing at the station could be blocking cars for 34 minutes in every hour. This will create substantial jams around the town, and in the off peak periods will mean a lightly used train could be holding up many more people in cars.

We need some commonsense. For peak period travel on busy routes trains are clearly superior in terms of emissions of all kinds and should be better for timeliness. This ceases to be true if trains are lightly used, and if the full journey requires considerable fuel burn by other transport modes to get to and from the stations. Tackling congestion is the best green policy we could have. That requires patient work improving junctions, and providing more ways of crossing railway lines – and rivers which have the same impact. The best way to raise the railway’s eco friendliness is to improve routes to and from stations.