As 2013 draws to a close the bond markets have been quietly increasing UK government interest rates. The rate on a 10 year loan by the  government has reached 3%, double the low point of 2012.

            The official forecast by the OBR assumes gentle but consistent rises in the UK government’s borrowing rate. They measure the average rate on the UK government’s debt, and expect this to rise from 1.6% in 2012-13 to 3% next year to 4.2% by 2018-19.  As so often with these predictions, the markets are taking the rates up faster and further than the official forecast suggests. 

              The OBR expects the Bank to keep official short rates down for longer. They are forecast at 0.5% this year, 0.6% next year and 1.2% in 2015-16, before rising to 3.1% in 2018-19.

              The Governor of the Bank of England made a lot of his wish to keep official short rates down to very low levels for a couple of years or so. He wanted to reassure borrowers, and force investors to take more risks, by holding out the prospect of poor returns on deposits, bonds and other “safer” investments. He was keen to see more growth, which he recognised would require more money in circulation and more borrowing.

                   The markets immediately challenged his view by driving up government bond rates, and through a series of comments arguing that the property market would require higher rates earlier to prevent a  bubble. The Governor responded by saying he could always take action other than interest rate rises to deal with any excess credit in the property market. He then showed what he meant by stopping Funding for Lending   money being available for mortgages.  He could take future action to demand higher capital ratios, special deposits or other quantitative controls to slow mortgage lending.

                         Recent polls show that higher interest rates would be popular.This is no surprise, as the number of savers is greater than the  number of borrowers. Quantitative Easing has been seen as a kind of additional tax on the prudent. It has transferred income and wealth from savers to the state. The issue before those making the judgement about whether and when to raise rates is the issue of what impact an interest rate change would have on output and jobs.

                              It seems likely that 2014 will see more of the same that we have witnessed in  the second half of 2013.  Market forces are likely to raise interest rates on government debt higher, given the absence of further quantitative easing.  The Bank is likely to keep official short rates down at very low levels, to be surer of the recovery and to assist with more jobs and better growth.

                            The Bank thinks there  is currently no case to raise official rates to cut inflation. At last, after a period of excess inflation, it is coming down. Persistent weakness in many commodity prices, coupled with recent strength in the pound, gives a better inflation outlook. This implies the Bank will keep official rates lower for longer.

                             Meanwhile, the upwards movement in government  bond rates may lead to some improvement in longer term savings rates generally, which will be most welcome for the prudent.

 

In the run up to the European elections we will hear the oft repeated claim from UKIP that they are going to “win” the European elections. They aim to obtain the highest share of the vote of any party and therefore gain the largest minority of the UK  seats on offer through the EU’s complex system of PR. UKIP followers who love to set out their case on this site have been “warning” us of this possible outcome for many months. Today I am giving UKIP supporters a free chance to make their case.

Last summer it was revealed that our current UKIP MEPs have the worst attendance and voting record of any party in the European Parliament. Four of their MEPs turned up for less than half the votes. As Mr Nuttall said at the time ” I’ll hold my hand up, as my attendance record is flaky to say the least”. The UKIP defence has been based around the proposition that they do not think it their job to try to amend or block new EU rules by turning up and voting. They prefer to draw the pay and support staff costs to help them campaign and take up issues  around the country. UKIP also enjoy the biggest loss rate of MEPs by a long way, finding it difficult to keep people in their party once elected to office.

It would be good to hear some answers from UKIP on what we could expect if UKIP MEPs are elected in 2014.

1. Would it continue to be UKIP party policy not to try to amend or block much EU legislation, leaving the detailed work of the Parliament to others?

2. Should people wanting an MEP to represent their view in Brussels look to MEPs of the other parties, given UKIP’s view on the irrelevance and undemocratic nature of the EU?

3. Would UKIP MEPs continue to draw  salaries and allowances whilst not wishing to be participating Parliamentarians in a full sense? What will the support money to spent on?

4. How would the presence of UKIP MEPs speed the UK’s exit from the EU ?  What have the current UKIP MEPs done to speed our exit?

5. How will UKIP MEPs be whipped to ensure the elected party sticks together and delivers in relation to its manifesto?

Some UKIP supporters seem to think voting UKIP is a kind of referendum on coming out of the EU, and that more people voting UKIP makes coming out of the EU more likely. The problem with this approach is that as UKIP will poll less than 50%, if UKIP insist on saying they are the only true Eurosceptics it means commentators can use their approach to say the UK wants to stay in the current unreformed  EU. It makes more sense to recognise the Europscepticism of the Conservatives, and to accept that it will take Conservative votes in the Commons to sort this problem out.

It would also be interesting to see how many possible UKIP voters like Mr Farage’s latest policy of more immigration from the Middle East.

 

 

 

 

                Many of us awake to the sounds of the Today programme on Radio 4. It likes to think of itself as an agenda setting news and comment programme. This week we are treated to “Guest editors” who so far have served to remind us that the professional team knows a thing or two about how to construct an agenda and keep the audience engaged, even if we are shouting at the radio, annoyed  at the continuing human made global warming big government EU friendly bias of their interviews.

            Sir Tim Berners Lee is a great man whose role in the development of the internet can be recalled and celebrated in various ways. Asking him to choose the items for Today produced a turgid show based around his one main interest. The regular presenters struggled to generate dispute, varied opinions  and criticism in the interviews and selection of guests.  Eliza Manningham Buller avoided the error of filling the entire programme with stories of a secret service reluctant to have much airtime to expose itself, but ended up producing a timeless and harmless magazine of a  programme with features on house plants and actresses which added nothing to the Today tradition of tackling more serious topics.

         I will tune in for the remainder of the week in  the hope that a Guest editor with something to offer appears – and will turn off much more rapidly than usual if the present pattern persists. I long for the day that the programme contains stories like the attitude of the French to EU migration, the problem of ultra high  youth unemployment in Spain, or  the growing resentment of the Germans in the struggling Eurozone countries. I have got used to the Today diet assuming that anything European is great.

             I long for a few stories which suggest public spending is too high, not too low, that taxpayers money is being wasted,  how  the public sector could easily become more efficient, or how we could gain a few million jobs by leaving the single market. I would like some audit stories to run back over campaigns and spending plans that have been pushed through with the encouragement of Today programme guests, to see if any of them worked as planned.

            I would like to hear about all the jobs that higher taxes and higher energy prices destroy. I would like to hear from climate change “experts” in response to yesterday’s report that our wildlife flourished last summer when it at last warmed up, and that wildlife is very capable of adjusting to different temperatures.  It would also be good to hear them answer how they are getting on with their predictions of sea level rise, disappearing islands, higher temperatures and ice levels in Antarctic.

             Indeed, many of us would welcome a day or two when the Today programme conducted all its interviews from the opposite perspective they usually adopt without thinking or realising the bias implicit in most of what they do. Big government is not always best. Higher and more  taxes are not always a good thing. More government action may make things worse. Overseas aid may go to the wrong people and causes. The EU may damage our wealth. The single market may be more about laws and less about free trade. The 3 million jobs that “depend” on the EU may be a ideological myth. The climate may change in unpredictable ways, and may change for reasons other than man made CO2. Some public services might run better with fewer people and fewer levels of hierarchy, not more. Maybe people could take more responsibility for their own lives, and we could look to government less in some areas. England has a right to self expression, just as Wales and Scotland enjoy on the BBC.

             I yearn for just a few of these ancient heresies, as I think we might need some of them back.  

 

 

               Yesterday the papers splashed a long range forecast which said the UK economy would soon overtake the French in size, and by 2030 would be larger than Germany. The reasons given were the UK’s relatively low tax regime compared to the continent, a younger and growing population compared to declining and ageing populations on the continent, and our avoidance of the Euro. All that makes sense.

             However, what the forecasts and figures also reveal is the growing irrelevance of Europe to the progress of the world economy. The individual large EU economies will lose out to China, India and other emerging market countries, as they surge. According to UN population forecasts Europe’s overall population will shrink from 728 million in 2000 to 632 million by 2050. Meanwhile China’s population will grow to be more than twice that of Europe’s and India’s will be more than 2.4 times Europe’s. As India and China get bigger and as they raise their living standards and output per head, so they will come to dwarf the economic output of the main European countries.

            Mrs Merkel has wisely asked the question how can such a small part of the world’s population in Europe account for one quarter of world output and one half of world social spending? It looks as if the answer to the question on the share of world output will be answered by Europe’s share contracting over the next two decades, as the emerging economies outgrow the west. Our living standards can only remain substantially higher than those elsewhere if we continue to develop the companies, the products and services with high value added that command good prices around the world. This is going to get more difficult as the rest of the world catches up with brands and technology and as EU government does its best to undermine enterprise.

             Whilst some of the high proportion of the world’s social spending will be eroded by the same process, by growth elsewhere, it looks as if the brutal logic of the Euro will continue to put downward pressure on social spending, forcing higher retirement ages, lower pensions and meaner social benefits. That is what Mrs Merkel implied in her remarks.

            Europe will make its position worse by continuing with high energy prices, relatively high taxes, and an excess of poor regulation. EU government specialises in  the hammer of regulation to miss the nut, and will probably continue with more of the same. This will compound Europe’s difficulty in earning a good living and boosting value added and real wages. The pressures from EU government are mainly in the other direction, forcing EU companies to do less with more.

             And what of the UK?  If  the UK could cut lose from the EU’s dear energy and excessive regulation it could grow faster still. It has an advantage from being out of the Euro, and another from relatively low corporate taxes. If it added more competitive personal taxes and dug itself out of the excessive burden of so called single market regulation it could do even better. Above all it needs a more plentiful supply of cheaper energy, which is probably beneath our feet as we think about it. Lots of cheap gas would power an industrial recovery, which would add to the present recovery underway.

 

 

 

 

              David Cameron and Enoch Powell are or were very different kinds of politician. Dr Cable’s recent abuse of the Conservative party was designed to equate current Conservative  thinking on migration with the “rivers of blood” extremism of Mr Powell’s most infamous speech.  It shows a lack of respect for the Prime Minister he serves, and a lack of knowledge of Mr Powell’s general work on government and the EU.

              As always with people like Dr Cable his rude remarks are loaded with contradictions and errors. Two years ago Dr Cable was happy to sign up to a government decision to put off for another two years opening our borders fully to Bulgarians and Romanians. Why was it the case that two years ago this deed was neither damaging to our relationships with eastern European countries, nor Powell like?

               Now that Mr Cameron and Mrs May are trying to find legal ways to prevent overloading our welfare system by too many new arrivals, Dr Cable changes tack and accuses them of Powellite tendencies. They are seeking to implement the Coalition agreed policy of curbing immigration, something he signed up to at the beginning. How does he propose to hit the government’s target for reduced migration, as he disagrees with the measures needed to achieve it?   Where does he think the UK is suddenly going to get a large amount of extra public cash to provide generous public services and benefits to more new arrivals?  What is he suggesting we cut in our public budgets to make this extra cash available? One of the left of centre think tanks is already saying we do need to give more cash to local authorities likely to receive new  migrants.

                 Dr Cable is also clearly against the UK government seeking to change the EU rules to give a country like the UK more control over its own benefit system and  borders. Does he not read his emails or talk to his own constituents? I cannot believe his voters are keen on all this close EU integration that many people write to me to complain about.

 

       Thanks to all the contributors. Enjoy your day.

Sleigh Ride conjures images of Christmas, set to infectious music. It tells us “ These wonderful things are the things we remember all through our lives”. That song is part of the magic of Christmas. I always look forward to hearing local schoolchildren play it at the annual Carol concert.

On my recent visit to Bearwood School questions on the role of an MP soon became a more lively exchange about Christmas. Young eyes fired when I asked them for their view of Christmas. They all thought it was a time to be happy, to relax in the warmth of their families and to enjoy the special treats and presents that the season brings in most homes. As children get older so they learn the rhythms, traditions, words and music of Christmastide. It stays with them for the rest of their lives, though the wonder is probably brightest when it first fills a young mind.

All accept that at Christmas we should be friendly to others. We should say thank you for all those who have worked hard for us and our community. It is a time to remember service. It is also a time to extend friendship and kindness more widely. Visiting elderly neighbours or relatives who might be lonely, inviting people with no warm home to go to into our homes, ensuring young people who lack family support have presents and some cheer is all part of the tradition of the season.

I still love Christmas. Making the puddings, enjoying the turkey, decking the house, seeing the reflections of the tree lights in the bay window, exchanging presents and cards are all part of a special time. Betjeman painted a picture of Christmas that included some of his wry irreverence, but even he expressed the joy as well. “And girls in slacks remember Dad. And oafish louts remember Mum. And sleepless childrens hearts are glad. And Christmas morning bells say “Come””

I wish you and yours such a happy Christmas. Small acts of kindness, acts of love and memory are more important than the cost of the present. Christmas is a time to be generous to others in spirit, and to recognise the good in others. Let’s all try to add some magic and do something wonderful, so we will all share great memories of a Christmas well spent.

 

 I read in today’s Mail online something about what I am going to recommend on taxation when doing the policy work on the Manifesto. It was a very misleading piece that does not reflect my views.

 

The Sunday Times was not a lot better with its front page story on migration, though the media of course immediately assumed every word of it was correct!  The best source for my views and actions is here, for any journalist interested.

 

           The EU partners are pressing on rapidly with full union. The logic of the Euro requires ever more control to be taken to the centre over economic, fiscal and banking policy. The logic of ever closer union and the wish to harmonise their countries leads to outbreaks of integrationist policy. The EU view of mutual solidarity and support leads ineluctably to more sharing and pooling of power.

             This process has been going on for more than a decade since the Euro was established. Under Labour it was disguised. The then government usually signed up to it all, avoiding rows which would have highlighted its import. When challenged, as they regularly were by the Conservative opposition, they played down the importance. They always said they had established red lines which meant we controlled our own tax, benefit and borders policy, though it turns out we do not.

              The Lib Dems like to behave similarly, or sometimes wish to be more honest and to welcome ever closer union and more power for the EU. Mr Cameron does not, and seeks to use the Conservative position in  the coalition to limit the damage to the UK constitution. In recent days he has sought to keep the UK out of the impact of the banking union. He has argued against a defence union. He has sought to gain greater control over our benefit system. When will the other main parties in the UK wake up to the need to define a new relationship with the EU as the Euro area rushes on to full political union?

              The UK debate on the EU has been made more difficult  by the unwillingness of Labour to debate it openly and honestly. When the main opposition party is in denial about how much power they transferred, and how much power the EU would like to add to that transfer today, the public debate is enfeebled.  Today when the EU’s big role in benefits, borders and energy is at the centre of the UK political debate, we do not know what if anything Labour would want to do about all the power the EU wields over these crucial matters.

             UKIP supporters will continue to protest that all can be solved by their party, by simple withdrawal. However, the polls continue to point to most people voting in General Elections  for parties that welcome further EU integration, or for the Conservatives, the only Eurosceptic party with MPs capable of doing anything to resist the tide of EU power. We need to force the federalist parties to explain how much power they have given away, and to come clean about how little scope there now is for an elected UK government to alter great swathes of policy.

Because it is nearly Christmas, today we have a fairy story.

Once upon a time, not so long ago,  Jacques was a French farmer who lived with his mother. Their farm was not providing them with a decent living, and poor Jacques struggled every day to provide for the family.

Jacques was not stupid. He has heard the old English fairy story of Jack and the beanstalk. He was  not going to sell his last cow for magic beans, as he is not sure he believes in those. Nor does he like the sound of the giant very much, even though the giant’s hatred was specifically reserved for Englishmen, which Jacques can understand. There is no guarantee, thought Jacques, that he would like Frenchmen much more, or that the giant’s wife would be successful in hiding him.

One day Jacques could not get his sums to add up at all. He went to his mother and said he had been offered the chance to share their money and currency with the Germans over the border. He thought this could be a good idea. He pointed out that the Germans had plenty of gold. They seemed much richer than Jacques and the other French locals. If we joined the Germans, Jacques, said, we surely would be able to share some of their wealth and success. It was even rumoured that just like the old giant in the story, the Germans had a goose that laid golden eggs. Maybe they would share it with him.

His mother was sceptical. She didn’t like the Germans very much, because she heard bad things about them in the past. Jacques soon put her right. Modern Germans, he said, are very different. They are nice people now. They do want to help. They have said we can share our currency. They are not like old Blunderbore the giant.

His mother was won over. She consoled herself by thinking, at least my son doesn’t want to give our last cow away for a silly magic bean like Jack in that old tale. Maybe there is something in what he says. She didn’t have a better answer to how they could make a living, and the thought of all that German gold was very enticing. She didn’t really believe they had a golden goose, but she had read of big German gold hoards. There was no telling how they had got those.

So Jacques and all the other locals agreed to share their currency with the Germans. The Germans wanted to do it, as they could then sell many more of all those wonderful things they made so  well to all the other people in their currency zone. it meant they could sell more and save all the profits.

       The others  lived well for a few years, mainly by borrowing money to spend whenever they wanted to. Being associated with the Germans meant they could suddenly get cheap credit. They all wanted to buy lovely new German motor cars, which they did by borrowing.  Then one day when Jaques went to the bank to borrow some more so his family could have a holiday, the bank manager said No. He said the Germans were not sending him the money he needed to make all the loans, which had proved ever so popular.

Jaques went home and told his mum and friends. They said he would have to go to see the big German bank manager, and ask him nicely to keep sending the money to their local banks. After all, they did all share the same currency and had all agreed to look after each other.

So Jaques set off the see the German bank manager. He didn’t really believe the manager would be anything like the giant in the story, but as he got near to the office he thought he heard someone with a loud voice chanting

Fee fi fo fum
I smell the blood of a Frenchman
be he alive or be he dead
I’ll not part with my gold to buy his bread

That was probably all in Jaques imaginings, but when he got into the office a very polite normal sized bank manager confirmed that Germany was no longer willing to send lots of money to help everyone else in the currency zone. He said charity began at home. He said the Germans had worked very hard and had earned their gold. They did not have a magic goose that laid gold eggs, contrary to rumour. He was being kind by telling them there was no more money, so they could turn too and work harder. That had made the Germans more prosperous and so it should them.

So there was no golden goose after all. Or if there was, the Germans were being nasty and would not share it. If the Germans were right that they had got all that gold by hard work, how were Jacques and his French friends to catch up? The Germans said they had made all their gold by selling things to all the other people in their currency zone. The French couldn’t do the same because the Germans had already satisfied the market. Now the other people in the currency zone, like Jacques himself, had run out of money and could not buy lots more goods. Only the Germans could afford to buy more goods, but they refused to.

So what were Jaques and all the others to do? They had relied on all that German gold. Some of them really thought the Germans did have a golden goose. Some were morally indignant that the Germans did not want to send them any more. They thought the least the Germans could do, having taken so much money from them in the past for the goods they sold, would be to send some of that money back.

This fairy tale could have a happy ending. Some say the Germans relented and sent Jaques and the rest some of the German gold and they all lived happily ever after. Some say the whole area found a golden goose after all. It was a modern kind of goose called quantitative easing, so they could simply print enough money for everyone. Some say the Germans dug in saying if necessary there would be the break up of the currency. The others all had to go back to their farms, cut their costs and try to make a living after years of neglecting the hard work they needed.

I can’t tell you the ending, because, you see, this fairy tale is not yet over. Perhaps you can help me by telling me your idea of how we can end it happily.