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Once upon a time there were three little Central piggy banks. Or to be more accurate, at three very different times  three  little Central piggy  banks were set up. First came the smallest one, the Bank of England. There was next the biggest, the Federal Reserve Board. Much later  there was the youngest one, the European Central Bank. 

They all had misleading names. The Bank of England is the Bank of the UK, not just England. It went in for understatement or historical lethargy about its name . The Federal Reserve Board is the Central bank for the whole USA . It has kept its old name too as a memory of how the dollar helped drive integration of the states of the Union through its federal approach. The European Central  Bank is not the Central Bank for Europe but just for some countries that joined. It launched with glorious overstatement. 

By 2000 the three Central piggy banks thought alike and started to hot things up. They all asserted they were very important and independent. They denied that the states who owned them and who appointed their top people had any influence over what they did. Armed with this moral right and their cleverness they allowed a massive bubble in credit, fancy derivatives and bank lending. By 2007/8 it was so extreme they decided to stop it. In doing  so it caused a Great Depression. There was the noise of a large banking crash. 

The governments were not very happy about this. Several of them were criticised  by angry electors who blamed them rather than the banks. So the banks and the governments got together and blamed everyone else in finance apart from themselves. Electors threw out the governments anyway. The top people in  the three little piggy banks kept their high salaries and important jobs.

The three little piggy banks reckoned they needed to try something new as the public might get cross with them as well as just sacking the governments. So they decided to make themselves very popular by printing lots of money and driving down interest rates. All they had to do was create a big figure in an account and then go out and spend it. And so they did. They were not very imaginative shoppers. They decided to spend all their newly made money on buying up government bonds. This meant all those who owned these bonds got richer as the prices went up, and some had lots of money to spend when they sold their bonds to the banks.

The big bad Inflation Wolf stood outside the doors of the little piggy banks. These were wise piggy banks who had learned from the old story of the three little pigs. All their banks were built of  stone or steel  so they did not fear the Inflation Wolf. They told him he could not blow them down.

A small number of monetarists told the piggy banks if they printed lots of extra money there would in the end be a big inflation. The banks ignored them .

They got away with the money printing for a bit. They were lucky because the commercial banks were all so damaged by the banking crash and by new rules stopping them lending so much, money stayed under reasonable control despite the printing. Even the  monetarists were not alarmed either all the time money did not grow too much.  The wolf got fed up with waiting.

When there was a new disease spreading fast around the world governments decided to lock down large parts of their economies and order people to stay indoors. Once again the little piggy banks cranked up their printing presses. The governments were so grateful as it meant they could borrow billions to give to people so they had some money when they could not work. Everyone agreed this would not be inflationary.

Unfortunately as the economies were unlocked and recovered quickly the little piggy banks kept on printing. Why stop now they asked? it makes us popular. There is still no inflation. The monetarists stirred and pointed out that  now there would be a big inflation because the new money was leading to lots more money around . The little piggy banks thought they were silly and  carried on printing and buying up bonds at ever higher prices. 

The bad old inflation wolf had learned a few tricks compared to his ancestor who had landed up on the fire by going down the chimney of the third  little pig’s brick house. He saw that whilst the litttle central piggy banks all had strong steel or stone buildings, they had very weak finances. They were buying many times as much in bonds as they had capital. If as he thought they started to lose money on all those very dear bonds, what would happen then? 

And so it proved. A great inflation took hold just as the monetarists had warned and the wolf had  hoped. The little piggy  banks decided they had to do something about it, as suddenly they were no longer popular . People had believed them when they said they knew what they were doing and there would be no inflation. So they did what they do best. They blamed the  big inflation on  a  nasty war though prices had been surging well before it started. Then they decided to  create a recession to make things cheaper again. This meant they would lose huge sums on all those bonds they had bought.

The wolf licked his lilps  about all those losses. They were going to run out of money and have to leave their strong buildings. In each case the losses would amount to far more than the capital the banks had. If they were normal businesses they would go under. But said the little piggy Central Banks, we are not normal . We do not have to worry about losses. The Bank of England had a good answer to the wolf. They had a guarantee that all their losses would be paid by the taxpayers, so they were financially secure. The Fed said we can just create more dollars. The world needs our dollars so we will just ignore all the losses and print what it takes to pay our salaries. You will not get us Mr Wolf. Which left the European Bank at a bit more of a loss. So they said most of their losses would be sent to the member state national banks , sparing the European Bank  the problem. If the member state banks  ran out of money they would need to get it from their governments.

Mr Wolf is dismayed outside the three little piggy central banks. It looks as if they are cleverer than him after all, just as the third little pig outwitted the original Mr Wolf all those years ago. The little Central piggy banks will live on, with the taxpayers having to pay colossal bills for their latest mistakes. 

The government says it wants to get borrowing down. Here’s a reprise on measures they could take urgently to reduce the excess spending.

1 Strengthen the law and admin actions to stop illegal migrants

2. Move migrants out of hotels into better value accommodation

3 Speed up decisions on migrants so those who are asylum seekers who can stay can get jobs and get on with their lives

4 Stop paying farmers to not grow food

5. Cut sending overseas aid to international bodies to spend without our control

6. Stop energy subsidies to higher income households

7. Lower subsidies to the railways by requiring improved timetables and smarter working to win more fare revenue

8. No further net increase in civil service numbers

9. Pause free smart meter roll out

10. Stop Councils buying up “investment “ property in their own areas on borrowings

The November borrowing figures make grim reading. The OBR was forecasting borrowing of £99 bn this year in the March budget. They are  now forecasting £177bn. By November we had already borrowed more than the March forecast for the entire year at £105 bn.

The main reason for the big overrun is debt interest. I have commented before on how they conflate capital items, the need in due course to repay indexed debt with more devalued pounds, and the true revenue costs, the actual interest charges. Because they did not see all the inflation coming they have had to revise up the forecast in the light of the big increase in indexed debt repayment costs. There is also the impact of the higher Bank of England rate increases which were the predictable  result of the unforeseen inflation.

The second reason is the increased spending on benefits and special subsidies for people and businesses to handle high energy costs. The government has made this higher by offering handouts to all people whatever their income or housing circumstances. The Chancellor has said he will offer a more targeted and therefore cheaper proposal from next April.

Inflation will come down next year given the big real income squeeze and the dramatic shift from too loose to very tight money by the Bank of England. The Bank should not be increasing interest rates next year. If only they had followed advice and got them higher sooner. I urged them to put them higher at last rate rise decisions.

The government needs to take more of an interest in managing the interest charges part of public spending as it has been wildly out of control. It needs a more  affordable way of helping people and business with energy bills. If only it would get on with allowing more oil and gas production in the UK it would get a revenue boost from high oil and gas taxes, and help to ease the squeeze on supplies.

Total spending was up a massive  19.5% in November on the previous year. These two main problems account for a lot of that. The government also needs to take up some more of the ideas for controlling and reducing spending outside the crucial public service areas of its priorities that have been set out here. It also needs to work with public sector managers on raising productivity more widely. We need many more something for something public sector pay deals.

It am in receipt of unpleasant and false allegations  because I refused to post someone’s opinion on allegations about an MP’s conduct. This site does not run stories about MPs alleged personal failings because I do not study them and do not wish to get dragged into legal disputes about what someone did or did not say or do. If you do not like that do not come onto this site with your unpleasant remarks. I am also daily sent the same allegations about billionaires influence. I have commented on that in general terms and am not going to pursue allegations about named business people for the same reasons.

The public sector has entered a period of rolling strikes from Network Rail and Border Force to nurses and the Ambulance service. Postal workers are also on strike in a service which still has a public sector service guarantee to meet, to deliver post to any address in the UK and preferably to keep down the cost of a second class stamp.

Most of these groups of employees negotiate their settlements with independent managements. The Health Service has an Independent Pay Board which makes recommendations which government usually as this year accepts. Whilst Ministers make the overall call on the NHS  national pay scales in line with the recommendations, the senior managements of the Trusts and the national health quangos determine use of pay scales, promotions and other conditions of employment. The  nurses are often raising matters about staffing levels and work organisation which are the preserve of the senior management to resolve. There are various issues over payment for parking, meal arrangements, shift patterns, use of Agency staff and the rest.Local managers should use more of the flexibilities to look after valued existing staff as the best Trusts are doing.

It is true in the  case of the NHS most of the revenue to sustain the service comes as a Treasury grant, and Ministers are the decision takers over the budget totals for the NHS and over the national pay scale awards. There are too few medical staff with plenty of vacancies. It  is the case that Ministers could ask the Pay review Board to think again, though this would be a new departure. They could also invent a one off payment not consolidated into pay rates going forward to deal with one off high inflation on family budgets. The Prime Minister has stated he does not think he should depart from the Pay review Body’s conclusions, and the Secretary of State has been forceful in saying a 19% pay rise for nurses is unaffordable for taxpayers.

The railways are a series of disputes with different employers. Network Rail is a public sector company, and some franchises are now in state hands. The rest are under the control of competing private sector franchise holders. The railways are currently offering services which in many cases attract few passengers and in some other cases only have decent numbers by offering heavily discounted fares.  The bulk of the money to pay the wages should come from the fares travellers pay to use the railway. The railway is short of passengers.

The state has been offering large sums of subsidy to the railways during covid lockdown, and is  still providing substantial financial support. There must be limits to how much for how long, as the whole point of the railways should be to construct a timetable of popular services which largely pay for the costs of the industry from fares. That is why any further pay rises for the rail industry should be linked to improving working practices and improving services to attract more travellers willing to pay the costs of their journey. Working smarter could help bring down the costs of travel, boosting demand.  The Secretary of State should not join in the negotiations between Unions and employers. The answer should not be for the industry to conclude wages should go up without improved working and service provision, requiring a yet larger subsidy from the taxpayer.

I would  be interested in your thoughts on how these strikes can be resolved and what role if any you think the government should play.

Many in the public sector understandably want a rise to offset the cost of living squeeze. The government is alarmed by current levels of spending and borrowing. It offers the below inflation rises the Independent Pay Review  Boards propose, based as these are on private sector comparators. Most in the private sector are settling for rises well below current inflation.

Meanwhile productivity, output per person has at  best gone sideways and in many public sector services has fallen since lockdown. This is painfully true of the asylum/economic migrant section of the Home Office. On the railways the collapse of commuter traffic and of passenger revenue has slashed revenue per staff member needed to pay the wages.

In each case the way forward should be a something for something deal. Management should be striving to improve work processes, offering right systems, protocols, training and supervision to raise output per person which could lead to better reward.

In the case of the NHS management is talking more in public about limiting the damage strikes do than about how to end them. Within nationally agreed rises and pay scales local managements have scope to offer increments, regradings and promotions to encourage and reward good people and to attract new full time talent.

In the private sector managers and supervisors help out to keep operations turning in the event  of a strike.