Category: Blog

Labour governments typically devalue the currency, run out of money, and preside over industrial chaos. Welcome to the spring of discontent.

The 1945-51 government devalued the pound from $4 to $2.80. The 1960s Labour government devalued it from $2.80 to $2.40. The 1970s let a floating currency float down. This government has recently allowed a 25% devaluation in a free float, taking us down to $1.50.

Each Labour government greatly increases borrowing. The 1960s Labour government introduced an austerity budget just before it lost office to start to correct its own mistakes. The 1970s Labour government was forced into spending cuts by the IMF when they needed an international loan to keep them going. This government has announced major spending cuts for after the next election, recognising that its deficit is way too high.

The 1960s and the 1970s Labour governments both tried to reform Trade Union Law to limit industrial action, but both failed and gave up reform. It was left to the 1980s Thatcher government to push through what they had not managed to do. The 1970s government ended in the winter of discontent, when public sector unions went too far and left public services in chaos. This spring we face a travellers nightmare, with industrial action threatened on the railways and at BA.

Management needs to be fair, clear and realistic in what it expects and what it offers. Unions need to understand in the private sector that it is highly competitive out there, and that higher pay and bonuses need to reflect higher revenues and higher productivity. In the public sector we need to spread the word that all must do more with less – or less with less where the service is marginal or not needed.

Some time ago I predicted a squeeze on living standards as a result of this government’s economic policy. Labour tried briefly to spin that I wanted a fall in general living standards, or was recommending it be Conservative policy to have such a fall. Because they have clung to office they are inflicting the fall that was made inevitable on people whilst they are still Ministers. Last year the private sector saw pay rise by a mere 1% with prices now shooting up by several times that rate. Now it is the turn of Labour’s public sector, offered similarly poor fare for the year beginning this April. They have run out of money. They are not bluffing. It was inevitable given their poor management that it would come to this. You end up with bigger public spending cuts with Labour, because they lose control of the money.

I do not regard myself as a Neo Con. As readers will know, I have been sceptical of the wisdom of being in Afghanistan, and a critic of the way Iraq was handled.

However, the Neo Cons do have at least one good point. If the President is going to remain engaged in the Middle East, as he seems to want to do, he needs to show resolve and strength. Dithering, alternating between more diplomacy and more military intervention, whilst wavering over alliances, is not the best way to handle a very volatile situation.

Recently the Vice President went on a visit which passed off relatively well. On return Washington became very critical in public of Israel. Shortly afterwards Mrs Clinton had to issue a statement stressing the closeness of the Israeli relationship to the USA. It was a bad wobble, leaving most people more on edge and dubious about the US position.

The Neo Cons say rightly that any US President, Democrat or Republican, Clinton, Bush or Obama, is going to remain engaged in the Middle East. Each successive President is heir to what his predecessors did, whether he likes it or not. In practise all recent Presidents have followed a similar general policy. This has been broadly supportive of Israel and the moderate Arab states, has sought to export democracy to certain troubled states, and has fought a war against people the US characterises as radical and armed insurgents. From time to time a peace process is offered.

When President Obama came into office, he implied that it would be different. He seemed to want to offer the hand of friendship to people the USA had seen as enemies before. This was popular with many around the world, and with the liberal wing of US politics. One year or more on, and it all looks very different.

After long deliberation, he has intensified the military involvement in Afghanistan. After flirting with a friendlier approach to China, he has agreed to contact with the Dali Lama, inflammatory to the Chinese, and agreed to send weapons to Taiwan, even more inflammatory to them.

The new fulcrum of the Middle east conflicts is the issue of Iran. Is Iran arming herself with nuclear weapons? Should Israel take pre-emptive action? Would the US allow her to do so by standing aside, would the US support her, or try to bring pressure to bear against it? If the US is not going to condone military action or undertake it itself, what is Plan B if diplomacy fails to prevent a nuclear armed Iran emerging?

The President is going to discover that diplomacy works better if difficult countries and forces think there could be resolve and military intervention. If diplomacy fails and leads to military intervention that often proves difficult to guide and to end successfully. It is especially difficult if the President’s heart is not in a military solution, whilst sending troops into action. He who would commit his country’s troops has to give them full backing, and plenty of time and resource to do what he wants them to do. Each expedition has to have realistic aims and enough force to make victory likely. The danger of intervention in the Middle East is that it has too many diverse aims, and is a backdrop to some fluctuating diplomacy.

As I did not get a satisfactory answer yesterday, let me have a go firstly at an answer the PM could have given, and then at a fuller answer to the problem I was highlighting.

Question: “The balance sheet of RBS shows £700 billion less in loans and other assets at end December 2009 compared to a year earlier. Where has the £700 billion gone?”

Possible PM answer ” The Rt Hon gentleman should understand that when we took over RBS it had a very overextended balance sheet. Management is currently working to shrink the size of the balance sheet by selling off trading and other assets, reducing liabilities at the same time. I am very keen that they should not allow this process to impede levels of lending to persons and companies in the UK and will take further action as shareholder to ensure they do not restrict their supply of credit in a damaging way”

I wished to highlight two related questions. The first is the actions and attitudes of the Banking Regulator, at a time when we need an economic recovery. The Regulator has chosen this time to demand higher levels of cash and capital from banks than they were required to hold during the boom. This means that at the weakest point in the cycle they are forced to reduce their lending and other risky activities, as a bank like RBS has no easy way to raise further large sums of capital to sustain its former balance sheet. Why is the Regulator behaving in a way which aggravates the cycle rather than smoothing it? Many now say they believe in the counter cyclical regulation I have been advocating, so why aren’t they putting it into effect?

The second is shareholder value. Taxpayers have been made to buy 84% of RBS at an average price higher than today’s share price. Taxpayers would like to get their money back with profit, and will want to know what impact such a rapid reduction in the overall size of the bank will have on the future value of their shares. There has been no guidance from the government as shareholder’s representative on this important matter.

I think it is wrong that these huge sums of money at risk for taxpayers are neither properly reported nor debated in the House of Commons. As I keep explaining to the government, they have got us into a situation where the state is the best part of a couple of large banks with a medium sized government attached. The sums at risk in our bank ownership far exceed annual public spending. Ministers should take a more serious interest in what is happening in these large state owned and influenced banks, and report it to us. Ministers should also be able to answer questions on the main strategic thrust of what they are doing with them in our name.

Today was an unusual day. For the first time in years I won a PMQ in the weekly ballot for the opportunity to ask a question.

I decided to ask him what had happened to the £700 billion of assets that disappeared from the RBS balance sheet in 2009. You would have thought he might have noticed it and taken an intelligent interest in it. After all, £700 billion is more than the government spends each year, and is around half the national income. Now we own a bank on this scale, it would be nice to know the boss was in charge and knew the numbers and understood the strategy.

My purpose in asking was to highlight the conflict in current policy. The public sector is made to spend more and more to “keep the economy going”, whilst the private sector remains under an intense squeeze. RBS has been forced into collapsing its balance sheet by huge sums to meet new requirements for more cash and capital relative to the amount it lends and trades.

I am trying to find out if the government realises it is squeezing the private sector too hard and is doing it because it really does want an ever bigger public sector at all costs, or whether it does not realise that its Banking Regulator is holding back the recovery. I am none the wiser, but hope others may take up this important quesiton on the back of my PMQ. With major banks slimming this quickly it is no wonder mortgages and business credit are scarce and dear.

The Advertising Standards Authority were right to ban two of the government’s gobal warming ads. They attracted a record number of complaints from people who disagreed with their message.

It reminds us how there are some obvious spending cuts to make which would improve the quality of our lives. We do not need the government wasting our money trying to brain wash us into agreeing with their warped view of the world.

The BBC, ever faithful to Labour in its extreme global warming mode, told us this morning the government had had a “score draw” with the Advertising Standards Authority. I don’t think so. The government was judged to have run two misleading and politically biased adverts and told to stop running them. That is defeat for the government. We were told that there was just one word that was wrong – yes, the word that asserted a forecast and causation between global warming and other phenomena – a rather crucial word.

It’s not just the global warming ads that grate. This government bamboozles us continuously about lifestyle and taxation, spending much more than any previous government on “public information”. It stretches the limits of public information ever closer to political messages which should never be paid for out of tax revenue.

The government should do the decent thing and stop all this advertising in the run up to the election. A new government should make the ad budget one of the first targets for substantial reductions.

The USA thinks the answer to the huge imbalance in world trade between China and the rest is a revaluation of the Chinese currency, the renminbi.

China has responded strongly to this advice, telling the USA not to meddle in what China regards as her business. Premier Wen advises the USA to look to itself to sort out why it imports too much and exports too little. He managed a good side swipe at the hapless US President, by reminding the world that the uSA refuses to export some of her hi tec wizardry to China, items which China would like to buy.

The renminbi is a managed currency. There are tight restrictions on who can buy it and how much they can buy. It is not the official currency of either Macau or Hong Kong, relatively more exposed parts of the Chinese economy to world finance and trade. As Premier Wen explained, policy is to “keep the yuan (the highest unit of the renminbi currency) basically stable at a reasonable level”. The managed rate will only be changed if it suits China to change it. At the moment they think it adds to world recovery, as it enables China to grow rapidly.

There are two important questions for analysts to ask.The first is, could external events and US pressure lead to such a revaluation? The second is, might China wish to revalue the renminbi any time soon for her own reasons?

It is extremely unlikely that China will give way so soon after making a clear statement she has no intention of doing so. That would entail loss of face. China is also all too conscious that she owns large sums in dollar based investments, so any revaluation of the yuan immediately leads to a substantial loss on her holdings, as well as making it a bit tougher to export. The main thing she wants from the US – the cancellation of weapons exports to Taiwan – is unlikely to be conceded by the President, as that would entail too big a loss of face for him. US diplomacy is counter productive, delaying a revaluation which might other wise occur.

For there are domestic reasons which might lead to a revaluation. China has a growing inflation problem. The rate rose to 2.7% in February, and could rise a lot higher this year, following the explosive injeciton of credit and spending over the last year. China has started to rein in by ordering more bank reserves. She can do more of the same. A revaluation would also help cool the domestic economy, whilst cutting the prices of imports and helping a little with the inflationary pressures. She has not yet raised interest rates, fearing that could abort the recovery in a world where other economies are still struggling.

A revaluation of the renminbi is possible, but is not an immediate probability. The US could delay it further by overdoing the pressure on China. The USA does not have a very strong hand. The outside risk is the USA for internal political reasons overdoes the posturing against China and embarks on a course of tariffs or other restraints on trade. A more likely outcome is delay, followed by the inevitable revaluation of a strong currency for a country which remains super competitive at these exchange rates.

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One of Labour’s spin successes in recent years has been to shape misconceptions of the Conservatives. The press and public have been fed the line that Conservatives are the ugly ducklings. It is time to reveal that, on the contrary, they can be the swans.

The ferocious spin has been relentless. Anyone who believes, as I do, that more decisions should be taken democratically here in the UK and fewer bureaucratically in Bruswsels, is branded as extreme – even though voices on the left and of no particular leaning think the same.

Anyone who believes as I do there ought to be better rewards for hard work and thrift, and think tax revenues would be bigger if we set lower rates of tax, is also branded right wing. We are deliberately said to favour cuts in schools and hospitals, despite our view that our approach would expand the revenues, and our constant reminder that we did not come into politics to sack teachers or nurses.

Anyone who questions the wisdom of some new set of regulations on the grounds that they might not work, is said to wish the harm the regulations purport to be against. I have been accused of single handedly causing the problems in banking owing to my belief in deregulation, despite writing a report saying they needed to regulate cash and capital more strongly and intelligently than they managed.

So it is for the Conservative party as a whole. Labour’s surveillance society, its poltically correct agenda, its belief that every problem can be solved by some combination of new regulation and public spending has been the zeitgeist for too long. Too many interviewers conduct interviews from the proposition that all public spending is good and more is better. They ask questions based on the assumption that laws and rules stop bad behaviour, and that if you question their efficiacy you condone it.

Labour tries to set the agenda to stop the Conservatives speaking well on tax, on Europe, on social policy and on immigration. It is time to throw off this constraint, and to change the terms of the debate.

The draft EU report on the UK economy is unfortunately all too accurate. It says the government does not plan sufficient measures to control the deficit, is running with growth forecasts that are too optimstic, and has failed to offer credible detail about the cuts it is planning to make. These are conclusions any self respecting UK governemnt would come to themselves without having to be told by Brussels. It is a nice irony that this most Europhile of government should in the end be undermined by their continental bureaucratic friends.

David Cameron’s week-end message –

“Britain is in serious economic trouble. Not only have we just had the longest and deepest recession on record, but our recovery is one of the weakest in the developed world.

This has all happened on Gordon Brown’s watch. But now the man who promised “no more boom and bust” says he’s got us through the worst of the storm, and all we need is his hand on the tiller to steer us through the choppy waters.

That is 100% wrong. He didn’t steer us safely through the storm – he made it worse for us, by spending and borrowing so much.

So, we’ve had enough of Gordon Brown’s hand on the tiller. We need to change course – as I explain in this week’s video message.

We need to act now to show the world we’re serious about paying back our debts. We need to get more for less with government spending – just as families across the country are having to get more out of their money. And we need to make Britain the best place in the world to do business.

That’s the big choice on our economy today. Five more years of Gordon Brown – or change with the Conservatives with the energy, leadership and values to get Britain moving again.”

The government has belatedly decided to disagree with UNITE, one of its largest benefactor Unions. Alarm bells have gone off in Downing Street. They remember too well the damage the winter of discontent did to them in the 1970s and do not wish to be too heavily associated with an unpopular strike.

The irony is that UNITE are simply arguing in one company for the approach that Labour wishes to take with the national budget – to put off reform and keep on spending. We need to ask the PM why it is necessary for a company – or a family – to bring their costs into line with their incomes, but not for the nation.

The truth is that most of current policy is very old Labour. These are the bank nationalisers, the people who wantonly threw billions of public money into banks which had been brought low by a change of rules of their very own regulators, following the banks’ all too willing response to previous encouragement of too much credit by those same regulators.

These are the over regulators of our daily lives, the people who wish to force dog insurance on dog owners and spend hours thinking up new ways of taxing and controlling motorists. These are the men and women who sent in the thought police.

These are the people who think there is a public spending answer to every social problem, regardless of whether the nation can afford it or whether it works. This is a government of the control freaks, of borrowers, and of wasters of other people’s money.

It is true it is also a NULabour regime to the extent that it believes you can control what people think most of the time by superior spin, paid for by taxpayers.

Many people have fallen for bank nationalisation, because Labour allowed former Labour Councillor Vince Cable to front run the idea for them, with the government “reluctantly” giving in to this “moderate” lobbying. Sensible alternatives to avoid bank collapse and to protect taxpayers were carefully kept off the airwaves or airbrushed out of the official script.

Some may now fall for the idea that UNITE and the government are at loggerheads, and the government is not in favour of such strikes. The test of that proposition is will Labour give any of the money back to the Union which they have received, saying that they think it wrong to have taken money from people who behave in a way they condemn? Will the Union tell the governing party it will not be receiving any more in the future because the Union disagrees with Labour’s stance on its strike? I doubt it.

We will be told endlessly that public spending has to continue at full throttle all the time the recovery is so weak. We need to ask why Greece was brought up with a jolt by the markets for following Labour’s policy on spending and borrowing? We need to ask why is the UK so different from Iceland, Ireland and Greece, all of whom have been forced into bigger spending cuts and interest rate increases owing to their failure to take timely action?

We will also be told that taxing the rich is the answer to the deficit. This morning’s news that their changes to Non Dom taxation may end up losing us tax revenue should be no surprise to sensible people. Their 50% tax rate will also drive successful people and businesses away. The proof that this lot are old Labour is their belief that you maximise tax revenue from the rich by raising the rates, and that in itself is enough to pay all the bills.

As readers of this site will know, you maximise tax revenue from the rich by lowering rates – and you increase it from the not so rich by exactly the same means. We also know that the deficit is so huge, any additional tax from a tax the rich policy that worked would not solve the problem on its own.