Category: Uncategorized

            In an attempt to pile more pressure on his opponent, Mr Romney, Mr Obama revealed that he has learned since becoming President that he has to represent all of the people, and work for them all.

             I found this a bizarre statement. The President was, after all, a Senator before becoming President. He is a clever and well educated man who has spent much of his adult life thinking about politics. Why didn’t he discover earlier in his career this basic truth of western representative democracy? Even the youngest and most inexperienced MP should know that once elected they have to represent all their electors. If they wish to stay elected they have to show inclusiveness as well as judgement. You do not turn constituents away from a surgery or decline to answer their emails because they have a different political view to your own. You seek to find things that unite us, as well as sometimes arguing passionately for a change or a cause where there are differing views.

             Mr Romney’s “gaffe” will be exploited by his opponents endlessly. I am not a Republican, so I do not write in his defence out of political interest. I have not checked his figures, which may be overstated. He did, however, blurt out a problem which needs debating. If too many people come to look to the state to supply their income and main services, they lose their independence, and the wider society becomes less successful and enterprising. The American dream is to treat everyone equally, to allow them to get on in the world, to let them strive for the good life by their own efforts. There is a similar but less brash version of this vision in European democracies.

              I strongly support generous benefits and support for those who are disabled or unable to work for good reasons. I do not think living on benefits should be a lifestyle choice. Where there are problems with finding jobs the state has to work with the community concerned to overcome the obstacles. Where there are  jobs the unemployed should take them.  Free state education should equip the many to be able to work. Economic policy has to deliver the conditions for enough jobs. Much of the political debate in the UK is about how we can create the conditions for enough jobs to go to UK citizens, to shrink the benefit bills. No political party disagrees with this aim. The rows are over second order issues on how you achieve it.

              Mr Romney was  wrong to imply all people dependent on state support would vote against him. His challenge is to show that he could help them aspire to a better, more rewarding and challenging life. Mr Obama’s challenge is to show that he has been governing in the interests of the many. He has to explain why so many Americans are still out of work, and why his health reforms proved so divisive.

Many of us in England have found regional government offensive, divisive and wasteful. It is good therefore to read the following from Mr Pickles:

“The Coalition government has abolished regional government. The unelected Regional assemblies/Regional Chambers, the Government offices for the regions, the Regional Fire Control programme, the Regional development Agencies have been terminated, as is intended for the Regional Spatial strategies…

“There is also a European dimension to the regions in the form of Eurostat’s nomenclature of units for territorial statistics standard (the appropriately named NUTS Regulations). It is the view of Ministers that the NUTS1 hierarchy is no longer appropriate for structural funds…. Ministers reject a notion of a Europe of the regions where nation states and Parliament are side-lined….”

                On Monday  I was spoilt for choice for a blog topic. I felt the continuing deaths of British soldiers in Afghanistan was of most immediate importance.  I was pleased to see  yesterday the Defence Secretary had to revise his answer to me and others over the protection of our troops. The US has wisely decided to ban all mixed patrols between NATO and Afghan forces. Some of us want the UK to go along with this.   It was one of the reassurances  Bob Stewart and I were seeking in both  Commons sessions. Just how long does it take to train Afghan police? Why can’t we give any additional  advice now from the base, and let them do the patrols?

                The topic I suspect many of you want to talk about is the question of exams. Mr Gove feels the GCSE is no longer fit for purpose. He dislikes the modular approach, the accent on coursework, and the lack of demanding exam questions in some papers. His critics think these  developments from the last couple of decades have been benign. They have helped more young people to gain  qualifications and give them more self worth.

                 As someone who underwent a  school and university education based entirely on competitive exams, with no coursework that counted towards the final grade, I have no personal difficulties with a system more heavily based on performance in final exams.  I do, however, understand that this method does not suit all people, and is not the only way to assess someone’s competence and learning.  In recent years I have worried more about the people who do not perform well in exam conditions. It was also notable that girls results improved  relative to boys as the educational establishment shifted from the grand final exam to more coursework based approaches.

               If you are studying English literature, does it help that you have to spend hours learning crucial quotes to illustrate points in essays on topics unknown, rather than being allowed to take the text in with you to use to write your critical appraisal? If you are  studying geography, should you need to remember many places and terrains or could referring to a map in the exam  be helpful? The balance between analysis, skill in arguing and problem solving, and memorising is a nice one to debate.

                  Being able to recall a topic and argue or analyse a problem or write well on an   essay subject are very useful skills to have. They are not , however, the only ones. There is a case to  be made for developing skill at researching a topic, drawing on a range of sources and producing a more considered piece.

                    However, there is one overwhelming problem with this latter approach which motivates Mr Gove. If you rely more on coursework, projects, longer submitted essays and the like, how can we be sure it was the work of the student? How much help is a willing teacher allowed to give? Aren’t their variations between schools and teachers over how much they put in to the student’s work?  Doesn’t a child with an able and engaged parent do better than a child without such help? Do we adjust for the very different family environments, where some children have study bedrooms, peace and quiet, and encouragement to use them, whilst others have no such thing? Shouldn’t a young person know and learn enough to be able to answer exam questions without assistance?

                          What is a fair test at 16? Indeed, why do we test at 16, when it is no longer the school leaving age in any meaningful sense? Are 16 year old tests a check to ensure the young people have the basic skills to go on to the next stage of their education? Or should it mainly be a leaving statement for those who wish to go off to apprenticeships and other practical training?

              A sovereign or state government can often borrow more cheaply than companies and individuals. There are two main reasons. The state, backed by police and the military, can demand people pay taxes so it can pay back its debts. A state can also print or create more money, to meet its bills, if more conventional and straightfoward methods fail.

                     Despite these powers sovereign states can and do sometimes renege directly on their debts, rather than doing it by inflation. This can happen if a state owes substantial sums to foreigners and finds its own currency slipping away, making the repayment of foreign debts too expensive. Even allowing for this, markets usually reckon sovereign debt is better quality than other debt, and give it a premium rating in many cases.

                        So called sovereign debt issued by Euro area countries is no longer  truly sovereign debt. These countries no longer have the backstop ability to print the money to meet their obligations in the way the US and Uk are currently doing.  It makes default more likely, as we have recently experienced in the case of Greece.

                       Whilst these states still have most of the normal powers to tax, the Euro area  intervenes more and more in how they tax and the extent to which they tax. There is a greater danger in the Euro area of a state losing the consent of its electors to the taxation, as resentment builds up against the Union imposed economic policies on that particular country.

                                    For these reasons I think markets should invent a new category of debt. Let us call them semi-sovereigns, or half sovereigns. They do not have the full range of sovereign powers. Their ratings should reflect this changed reality. This seems to have happened in the markets with debt from Ireland, Greece. Italy, Portugal and Spain, which sells at large discounts to most western truly sovereign debt.

                                    It is time to recategorise Euro area government debt. It is moving closer to regional and local government debt than to sovereign debt. The task of evaluating it is made more complex by the rapidly changing rules governing public spending , taxation, money printing and bond purchase in the Euro area.

Given the large sums government feels its must spend in the public sector, one option that is worth pursuing is to ensure non tax paying visitors pay their fair share towards it all.

I have been looking with some Parliamentary colleagues at ways we can ensure visitors pay for what they need and use from the UK public sector, just as we taxpayers do through our taxes.

One obvious area has been the way foreign hauliers do  not have to pay Vehicle Excise Duty to use our roads. They also often avoid diesel and petrol duty by filling up on the continent before and after travelling in the UK. I therefore welcome the government’s decision to introduce a new lorry user fee for our roads, and to rebate UK hauliers by cutting their VED to offset it. It is a neat way of ensuring the overseas lorry tax is not discriminatory and does not fall foul of EU rules. We called for a solution to the problem of penalty charges on UK businesses in the Competitiveness Review before the election, pointing out that UK hauliers pay a lot more tax than some of their continental competitors.

If people come to the UK from overseas from a country without reciprocal free health service rights, they should be invoiced for any health care they need whilst with us. A Ten  Minute Rule Bill was proposed last week and passed its second reading without division, as a prompt to the government to get on with ensuring fair charging for non taxpaying visitors for the health care they use. They can come insured, or they can pay as they go, but they should expect to be charged. This Bill is unlikely to become law owing to Parliamentary time pressures. The government and the NHS  has the power anyway to require payments.

We need to think about Museums, Galleries and other freee public institutions. Shouldn’t there be a charge for tourists visiting these facilities, just as they pay for entry into National Trust or other private sector Visitor attractions?

The government is reviewing the issue of the free movement of workers within the EU. The UK accepts the free movement of those with jobs to go to, or of  people who can maintain themselves whilst seeking a job in the UK.  The Treaty did  not say anything about the free movement of benefit recipients. There is need for greater clarity about what rights a worker has who comes to another EU country and who then wants state financial assistance.

The government also needs to answer the questions raised this week-end in the Sunday Telegraph about payments to foreign consultants from the Overseas Aid budget. Why did they need any consultant at all? Why, if they needed one,  did they not find UK consultants that were capable of delivering the job at a good price?

                The US Fed’s decision to print some more was clearly designed to show Mr Obama they are doing something, at a time when he needs to show his determination to get unemployment down.

                There was no great need to print more dollars. The US banks are better placed than European ones. The US money supply has been expanding modestly anyway. The US economy has been performing better than most EU economies.

               The immediate joy in world markets at the thought of yet more money in circulation was to be expected. Maybe Mr Bernanke is right and this latest round of money printing will not be too inflationary in itself. However, the promise to keep interest rates on the floor until 2015 at the earliest is another blow to savers. It is also surprising. There could come a time before then when the Fed needs to brake the inflation it is currently trying hard to provoke.

               On the other side of the Atlantic Mr Draghi has been hinting that he wants to print, but  his stated policy still does not allow that. He has to watch his back, as Germany is no fan of money printing after their bitter experience of it in the 1920s when it led to hyperinflation. Markets also seem to ignore the fact that Spain and Italy will have to enter IMF programmes before the ECB will buy their bonds.

           The UK is pressing on with its latest programme. With RBS and HBOS still troubled banks, and with the stiff regulatory controls on new credit, the QE’s inflation consequences are for the moment restrained. In recent weeks the thought of more US QE has knocked the dollar generally, including against the pound. The pound, of course, devalued so much more early in the Credit Crunch when all this monetary experimentation first began.

            There is no substitute for creating stronger and more competitive banks, and for both the private and public sectors getting on top of their excess debt problems. Money printing may delay some of the adjustment, but it does not replace the laws of arithmetic. Mr Micawber still was right to say keeping income slightly higher than  expenditure made for greater happiness.

           We have discussed before the current slow progress with the government’s One In, One Out approach to domestic rules. We have noted that EU regulaitonm is not included within this programme, and that continues to expand.

            The arrival of Michael Fallon as Minister of State at the Department of Business is a good opportunity to review it all again. I am sure he wishes to beef up the programme. What obstacles will he face?

             He inherits the ambitious Red Tape Challenge system. 6500 domestic regulations are being exposed to criticism and comment, linking them around major industry groups and taking those in turn. The aim is to “abolish or reduce 3000 regulations” out of this tally.  The review will be completed by December 2013.

              We are not told what the split might be between scrapping and reducing, an important issue. Nor are we told if the ones to be scrapped are in effect being replaced by new EU ones anyway.

               Some of the ones to be scrapped apparently impose no costs on business, demonstrating that they are obsolete. I have no problem with them being swept away, but if they impose no cost their removal brings little benefit, other than a tidier and simpler list.

                  Some of the ones to be scrapped will be replaced by  a single consolidated regulation. Again I have no problems with doing this, but it is unlikely to cut the burden by much.

                 What is needed is the reduction or removal of regulations that are costly, where their costs do not bring sufficient benefit to justify the financial demands they impose. So far we have been told they will remove the need for  a paper driving licence, just requiring the plastic card; remove employer liability for any misconduct by customers under the Equality Act; lessen the costs and compliance needs with Employment  Tribunals saving £40 m a year; and deregulate some live music performances.

                 What I fear the civil service have decided is to surrender gradually some UK domestic regulations, safe in the knowledge that bigger and better ones now apply from the EU anyway. Given the huge range and scope of EU regulation, and the inability or unwillingness  of most UK governments to do anything about this, it is difficult to see that we need much domestic regulation any more. There are not many things the EU has not thought of controlling.

                           The role of the EU in governing us makes Mr Fallon’s task especially difficult. I wish him well with abolishing more of the old domestic requirements, but the big cost is increasingly to be found from Brussels. As we noted yesterday, if the UK abolished its own domestic  financial regulation, there would still be a comprehensive EU system in place.

                         Total regulatory costs may be around £100 billion a year in this economy. Achieving savings of a few hundred millions of pounds, whilst welcome, makes little difference.  The challenge is to find significant savings without leaving  areas without protection where regulation can help.

    I was pleased to read today that Mr Hammond now tells us he can bring more troops home early, and have fewer UK troops on patrol in Afghanistan. As readers of my previous post will know, the sooner the better as far as I am concerned.

            We read that the Uk government wishes to protect home regulation of our banks from the new banking union proposed for the Euro area. We are told that they wish to do so whilst preserving the wider single market in banking and financial services. People are already arguing over the detail, worried lest the stronger Euro area banking regulation impinges on banking regulation in the EU outside the Euro area. A concession has been granted, modifying voting procedures on the European Banking Authority, to ensure some support to new rules from non Euro area members.

            It is time people woke up to the reality. Over the last decade huge powers have been transferred from the UK to the EU, especially in the banking and financial services sectors. The FSA has written on its website that “70% of the FSA’s policy making effort is driven by EU initiaitives”. When the new bodies, the PRA and the FCA, replace the FSA we may well see the figure over 90%. The horse has bolted, long before this latest lock on the stable door comes up for inspection.

           UK financial regulation is now subsidiary to EU regulation. The EU has recently established a European Banking Authority to regulate banks, a European Insurance and Occupational Pensions Authority, and a European Securities and Markets Authority. There is now a grand European Systemic Risk Board overseeing the whole pan European system.

           There is plenty of EU law for them to implement and supervise. The Mifid Directive controls financial services. Banks are under the Banking Co-ordination Directive and the Capital Requirements Directive IV. Insurance has Solvency II. Most investment funds come under UCITs IV. There is the Money Laundering Directive and the Market Abuse Directive to regulate conduct. The EU has been busily working more recently on new legislation to govern OTC derivatives, mortgage credit, Insurance guarantee schemes, short selling, compensation  and a wide range of other activities. There is the well named Omnibus Directive.

        When the new Prudential regulatory Authority and the Financial Conduct Authority spring forward under Bank of England guidance, much of their work will be to enforce and interpret EU law.  The latest proposals do entail an even stronger possibility that European authorities could force on UK banks regulations or requirements which did not please the UK government. It is, however, a matter of degree. That can already happen given the way powers have been systematically transferred over the last decade.

         The latest proposals seek a single supervisory handbook for banks for the whole EU, with harmonised deposit insurance schemes, common capital requirements and a single European recovery and resolution framework. That does not leave a lot to national decision.

         The document from the Commission says:

“To avoid fragmentation of the internal market following the establishment of the single supervisory  mechanism, the proper functioning of the European Banking Authority needs to be ensured. The role of the EBA should therefore be preserved in order to further develop the single market and ensure convergence of supervisory practices all over the EU”

                 The UK government does need to stand up for more domestic control of these important matters. Like most things to do with the EU, just blocking the position getting worse is not enough. The government needs to admit the reality. Today, the UK financial and banking sector is largely controlled and regulated under EU law, with substantial influence from EU institutions. The Single rule book  applies to the UK, and it is about to get much more detailed and wide ranging, even if we stay out of the new  single supervisory mechanism for the Euro area.

              There have been rumours that the Chancellor may this autumn announce that he is not going to press on with the elimination of the “structural” deficit as planned. The Autumn Statement is in the diary for the rather late date of December 5th. Some think the Chancellor should offer an early Christmas present of a further “fiscal stimulus”, or more spending.

             The media, to understand this briefing, need to understand the story so far. The present Plan for cutting the deficit and curbing new borrowing is very different from the Plan announced in the summer of 2010 when the Coalition took over. Each time the Office of Budget Responsibility has revisited its forecasts it has had to downgrade growth for the ensuing period. This in turn has cut tax revenue forecasts and raised spending.

             In the first plan in 2010 the government aimed to borrow an additional £451 billion over the five years of this Parliament.  The following year they increased this to £485 billion, and this year to £556 billion, or more than £100 billion up in two years. If there is a further increase forecast in the Autumn Statement that would not be a change of trend or a unique event.

                   Some of this drift can be attributed to the “cycle”.  The first Plan assumed faster growth with better and earlier recovery. This meant an expectation of more revenue and less cyclical spending. Each subsequent revision is in part down to a slippage in the speed and direction of travel of  output.

                     Some of this drift can be put down to an overoptimistic forecast of tax revenues. Higher rates have been more damaging, actually cutting revenues  for Income Tax and Capital Gains Tax, where the OBR assumed rises.

                    There is little evidence that the fiscal stimulus applied liberally in recent years through large rises in cash current spending coupled with slow growth of revenues has produced a spurt to growth. It is difficult to see that a small extra fiscal stimulus on top of the large current budgetary deficit would of itself  change the speed and direction of travel of the economy.

                       There is a lot to be said for a policy which drives public sector productivity much higher, and  which cuts out questionable programmes or  nice to haves which we cannot afford. Eliminating the structural deficit was and remains the best policy. The test is how to do it without damaging the things that matter, and without taxing the country into recession.