Category: Blog

Today there will be a strike of some public sector workers over cuts in redundancy payments. I don’t expect the government to suddenly give in owing to industrial action. The strikers might be disappointed at how little impact there is from their inaction. I can understand employees’ frustration at unilateral changes to their terms and conditions. They are paying the price of their employer’s failure to run the public accounts sensibly and to motivate and lead staff professionally to get better results.

It is the culmination of bad handling of recruitment, training, retention and dismissal in Labour’s public sector. The strike reflects badly on both sides. A good employer should not need to make too many employees redundant, because he would not have over recruited in the first place. Redundancies can be an unhappy necessity in a business where demand suddenly collapses, often owing to government financial and economic mismangement of the economy. It should not be common in the public sector, where traditionally spending goes up every year regardless of economic performance. This year again spending will rise.

It demonstrates that the public sector still does not get how grave the national financial situation is. The government needs to sit down with representatives of all its staff and hammer out how the total pay bill is going to be cut. Will it be done by work sharing, by recruitment bans, by pay freezes, by selective closures and redundancies in non front line services, or some combination of all these? After years of overexpansion of numbers and pay we need something new to the public sector – a fall in the total pay bill. Industry has had to do this on a big scale in the recession, and has done so without large strikes and with substantial co-operation between managers and employees. When will the public sector wake up to what it needs to do?

On the doorsteps, and sometimes on this site, I get asked what would the Conservatives do about the economic problems?

David Cameron yesterday said ” We will never forget there is no such thing as government money. It is taxpayers’ money – your money”. He pledged to root out waste, get better value, and concentrate spending on the important areas. He wishes to start cutting the deficit as soon as possible if elected.

The Conservatives are – amongst other things – pledged to abolish ID cards, centralised computer projects, and English regional Assemblies and RDAs. They have said they intend to cut the overhead and administrative costs of Whitehall and quangoland by one third, impose a pay freeze for all but the lowest paid throughout the public sector in 2011, limit top public sector pensions, cut Ministerial pay by 5% and then freeze it, cut the number of MPs and Spin doctors, cut the government advertising budget, cut regulatory costs through regulatory budgets, cut the overhead and supervision of Town Hall from Whitehall and scrap Comprehensive Area Assessments. They would require Town Halls to list all items of spending over £500, and to list all senior staff earning about £58,500 a year with full details of their total package. They will move to a higher pension age for all.

Recognising the need to cut taxes on enterprise and jobs, they have said they will cut the Standard rate of Corporation Tax to 25% from 28%, the smaller company rate from 22% to 20%, abolish NI on the first ten jobs created by a new business for two years,and make further cuts in NI a priority. They would seek a two year freeze on Council Tax. They would reform welfare to provide better incentives to work.

The nub of the political argument today is over borrowing. The government claims that state borrowing huge amounts now helps recovery, keeps the economy going, and is evidence of its economic prowess. The Opposition says that borrowing too much is risky, could push interest rates up, lead to a loss of confidence, and shows economic incompetence.

There is another argument critics of too much taxpayer borrowing should use as well. It goes like this.

Borrowing is deferred taxation. It damages output and demand. When the government borrows on behalf of taxpayers, it takes the money from companies and individuals who lend it. They no longer have that money to spend. The government spends it on their behalf instead. So the borrowing cuts private sector demand at the same time as it boosts public sector activity.

Worse still, people sense that whatever the government might say, taxpayers will have to help repay all that debt with interest in the years ahead. They know that means tax increases to do so. More borrowing can make people more negative about spending up to their current incomes, as they are always looking over their financial shoulders at the next increases in taxes and charges the government will place on them.

Under the current regime there is another negative complication. Much of the money the government is borrowing will be lent by banks. This is money the banks will not then be able to lend to the private sector. Instead of the banks’ deposits being available to lend out several times over to the private sector (through fractional reserve banking where a bank can lend out multiples of its cash and capital), the new banking regulations mean the money can only be lent out once to the government. No wonder money supply growth is weak, and no wonder the private sector finds it difficult to borrow enough at a sensible rate.

So far from being expansionary, helping pull us out of recession, all this borrowing takes money directly and indirectly away from the private sector. That is why the economy remains weak.

If they really wanted a strong economy they would change the bank regulations to allow more private sector lending, cut the deficit to take less money away from the private sector, and cut taxes on income and employment to encourage more enterprise. That would be a way of supporting the eocnomy and fostering growth. There seems no danger of them doing that any time soon. They would rather go on misleading us about the consequences of too much borrowing.

If they simply print the money to spend in the public sector it is a different matter. Even this government has stopped that, as I presume they now see that can have inflationary consequences. In the short term it can push up prices by lowering the pound. In the longer term it can trigger a more general inflation as too much money chases too few goods.

Good news – Conseravtives still want to abolish RDAs. RDAs have failed to narrow the gap between richer and poorer regions, have often got in the way of private sector led growth and development, have failed to deliver good transport systems and have been very bureaucratic. I look forward to their abolition, and hope we will save some money on all the bureaucracy. London would remain at it is the Mayor’s not the government’s.

Today the Prime Minister should be asked two sets of questions about Iraq. Why did he cut or limit tightly the defence budget, uniquely amongst all the budgets he supervised, at a time of war? What were the consequences for our troops of his decisions on the purchase of helicopters, body armour, and protected vehicles? What was his attitude to the war? Did he ever question its wisdom or its legality? Why didn’t he make a strong case for it when out and about as a senior cabinet Minister in a government committed to it? Did he have any reservations then or now about what the UK did?

My own interest is today stronger in the war in Afghanistan. All too many of our young soldiers are dying there. We are expending large amounts of blood and treasure on this conflict. This is the Obama/Brown war, the war they have just intensified, the war they clearly do support. Whilst I understand you do not announce an exit date in a way which could increase the difficulties for our troops, I would like to feel that the government is impatient to leave Afghanistan to the Afghans to govern. These wars in the Middle East do not make me feel safer. We cannot conquer and garrison great swathes of the Middle East and should not be wanting to. There has been too little emphasis on political solutions, to what are problems of government more than military questions.

New Labour was keen to preach toleration for various minority groups, but their friendly theory never did extend to Tories or the rich.

Their recent witch hunt of selected Non Doms is a case in point. There is one thing much worse than seeing rich people avoid paying UK tax on their foreign earnings – and that would be to see them leave the UK or not come here in the first place, meaning they would not pay any tax at all here. I see nothing wrong with tax rules, presided over by both parties in government, that allow rich people with substantial overseas business interests and homes abroad to pay tax abroad on those, if they pay UK tax on their businesses and investments which they do base in the UK. It’s a win win for the UK taxman, as they come here, create jobs and companies here, and spend money here, paying tax on all those activities like the rest of us.

Given the state of near bankruptcy we now have been driven into, this country will need all the rich entrepeneurial friends it can find to pay some tax and create some enterprise here. It would be a foolish government which chose this moment to make the climate so hostile to enterprise and success that the rich queued up to leave or decided to stay away.

It becomes more complicated when these individuals wish to participate in UK politics and wish to spend some of their money on helping political parties. Both main parties have had Non Dom money, and all three parties have had some controversies over particular donors. Until recently it was accepted and it was legal for a party to propose a Non Dom for the House of Lords and for such a peer to influence the laws Parliament passes. Now the main parties have decided to change this ruling, and say only people paying full UK taxes on all their income and activities should be eligible for the Lords or able to stand for the Commons.

I have no problem with such a stance. It goes with the new spirit of transparency and regulation. The old position was defensible and used to cause no worry before the current crisis. It has never been a requirement to hold elected office or selected office in Parliament that you have experienced all the things we regulate or legislate about. Most Parliamentarians are not criminals, but happily opine on the best way to frame the criminal law. Men legislate for women and women for men. Adults legislate for children. A good legislator can think himself or herself into the position of those who will be affected by the legislation without necessarily having experienced the problem or situation themselves. It may seem strange today that people who did not pay UK taxes on all their worldwide income could legislate, yet such people were often paying more UK tax than others in the legislature because they were richer or more successful financially.

I would like to make one comment on Michael Ashcroft. At no time when I was Shadow Business Secretary, Shadow Environment Transport and Regions Secretary, or was busily writing the Economic Policy Report for the Opposition did Michael ever contact me to lobby me about the policies we were proposing, nor did he ever write to me seeking influence. Nor did any Leader ever do that for him.

Most commentators expect the Bank’s Monetary Committee to admire their handiwork and recommend more of the same. They are likely to blunder on with cheap and easy money for the public sector, a shivering small and medium sized business sector denied credit at a sensible price, and a rotten deal for savers. They call this supporting the recovery, and skate over their considerable role in the inflationary boom and the credit squeeze slump that preceded it.

So what should they do to restore some private sector jobs, prosperity and balance to the UK economy? They should send a letter to the Chancellor telling him to make necessary changes so they can run an intelligent money policy that does support recovery. The letter should recommend:

1. The FSA relaxes cash and capital controls on banks lending to the UK private sector, so more money can be released for companies in the UK to expand jobs and investment.

2. The government should start immediately on a deficit reducing package of spending reductions to cut the government’s demands on credit markets.

If the FSA did what it needs to do, the Bank of England should at the same time start to unwind the £200 billion of quantitative easing, providing us with a target of how much money and credit it is happy to see in circulation. Unleashing bank lending without a phased withdrawal of the QE would be inflationary.

If the government does not start to cut the deficit the Bank should raise interest rates. The fall in sterling we are witnessing is inflationary. Delaying raising rates will lead to a worse problem later, and to higher rates later. Once again this MPC seems to want to live in denial, and will end up doing too much too late as it has done over the last five years of this monetary crisis. The current Bank rate bears no relationship to the structure of rates being paid by business, or even by the government itself for anything other than very short term money. It is time for a reality check. If the MPC doeds not seek to get back in charge, it will continue to be made irrelevant by the markets who have a very different view of the success of UK policy to that of the government and its MPC.

Yesterday saw the return of the government’s Constitutional Reform Bill. The government could not resist two more studied insults to the Parliament they have done so much to destroy.

The first was another ridiculous guillotine or “timetable motion”. All previous governments have followed the convention that MPs should have as much time as it needs to debate constitutional Bills. Not this one. We were given just five hours to consider more than 50 pages of amendments and new clauses, many of them produced by the government itself. We protested, we pleaded. We pointed out that if the government wishes to be taken seriously in its new found role of believer in a strong Parliament the very least it should do is to allow sufficient time on major matters for criticism, debate and proposed improvements. We should have known better. Once again, the government used its majority to insist on too little time.

The second was the “Money resolution”. Each Bill which will impose additional costs on long suffering taxpayers has to come with a Money resolution. The government invites the House to vote in favour of the extra spending as part of the proceedings on the Bill. This Bill had already come with one Money Resolution, but apparently they had got it wrong or it had not covered later amendments to the Bill, so they needed a supplementary.

The new Money Resolution came without any figures. I asked how much we were being asked to approve. I was told that the previous Money Resolution was somewhere between £80 and £100 million. This new one might or might not be additional. There were no numbers. On this sloppy basis I and my colleagues voted against. The Labour majority happily shoved through a Money resolution in ignorance of how much it might cost.

This one was a relatively small item. It is nonetheless representative of the casual approach to spending that has characterised the last five years. No wonder the government has lost control of public finances. No wonder this Parliament had a reputation for uselessness, when we can’t even be told how much money we are voting for, and when the majoritry party does not seem to think these little niceties matter. No wonder the big issue which so many MPs do still not seem to grasp is the looming deficit and the financial crisis it will engender if not tackled soon.

Dear Shareholder,

I told you so. I always knew the Conco offer to cut the deficit and stop borrowing and printing so much would not take off. The latest news of the polling for the Board elections is wonderful for your Board and for Uk PLC.

We have been thinking about how we can reinforce our offer and consolidate our position in the marketplace. Some favour introducing a GOF GAF. It’s a bit like a BOGOF (Buy One Get One Free) only more generous – Get One Free, Get Another Free. Why bother wasting time and money collecting cash from people for the first one, when we could simply give away two for the price of none? It should be knock out popular.

Others say let’s just helicopter in some cash and drop it over the most deserving parts of the country which will be participating sensibly in the UK wide Board elections. It would show off our never knowingly underborrowed, never knowingly underspent strategy so well. That should have them waving all the way to the state owned bank. It will get things moving again.

I think I prefer the third idea we have been working up. These first two ideas are a bit too flashy and could give us a bad name. We will simply announce lots of extra UK PLC jobs, of interest to supporters of our general approach. We need some more Networkers, Co-ordinators, Cross cutting policy Specialists, Deputy chief Executives of departments and quangos, Senior and Junior Spin doctors, Media handling specialists, Message honers, Press release and Glossy brochure authors, web monitors and web interveners. Come to think of it, I could do with a few more people to help liven up these letters to Shareholders whilst I am about it. Meanwhile let’s have a national competition for a new slogan. Send in your ideas beginning “UK PLC is right to borrow more because…..”

Rest assured, one way or another, we will go to new records on spending and borrowing. We will see you through tough times. We will print what it takes. We will never be underspent.

Yours enjoying every minute of all this money

CEO

Yesterday the Local Government Secretary was trying to tell us there will be no cuts in Council spending in the next couple of years. When challenged he could not give us any figures for 2011 and beyond, nor would he share with us what might come out of the 3 year spending review which Labour has delayed until after the Election. He just kept repeating the mantra that things would be tougher than in recent years when there had been substantial real increases in money available, and that every Council should concentrate on making themselves more efficient against the day when they know the settlements. He would neither confirm nor deny the Prime Minister’s statement at PMQs some time ago that there will no cuts.

Local government and some outside commentators are talking about cuts as large as 10-20%, based on the extent of the overspending in national budgets generally. These figures seem high, bearing in mind the importance of schools spending within local government totals, and the priority accorded to education spending by all three main parties. What is clear is that cuts are coming to Councils once the election is out of the way. The government made itself sound silly by trying to pretend this was not so, when their own plans to cut the deficit in half must require cuts from Councils as well as elsewhere.