The Government’s waste line and the BBC

This morning I heard the BBC asking the new Labour question, Where would you make the cuts, to some brave representative of the business community.

He explained in general terms how businesses go about cutting waste and improving efficiency. He said those techniques should be adopted by people running the public sector. That was not good enough for the BBC. They always act like Labour Ministers, regarding only a painful cut in frontline services as a cut that counts.

The businessman got more specific. He said the public sector should try a pay freeze, as many companies are doing. That would be big money, given the large payroll. He said the public sector should change its pensions schemes in the way most businesses have. Again that would be mega bucks.

The BBC interviewer left the the impression that once again a “cutter” had failed to name a single thing that would reduce public spending.

It’s a dialogue of the deaf. Labour Ministers and most BBC people clearly have never run anything efficient in their lives, so they have no understanding of what you need to do to run a cost conscious high quality service.

Meanwhile they lavished praise on President Obama for sending US taxpayers the biggest bill in their history. Apparently because most of the excess spending will be financed from borrowing in the first instance, that is a triumph.

They still have not grasped that if a government “spends what it takes” to “pump up” demand, it means the private sector has to spend less to be able to lend them the money and then to pay the public sector bills.

An easter message

Happy Easter to you all.

The miscarriage of justice which resulted in the crucifixion of Jesus of Nazareth was a great event for both Christians and non Christians. For Christians the resurrection confirms the divine power of Christ, and represented the triumph of hope over despair, good over evil. Non Christians accept that the events 2000 years ago in Jerusalem had a lasting impact on human history, fashioning an important reglious movement which also changed the exercise of secular power for many centuries in the West.

Pontius Pilate, the weak and unfortunate Roman ruler, would never in his worst dreams have imagined that 2000 years later people would still be arguing over his actions. He probably did not expect his name to become a synonym for people in authority trying to wash their hands of responsibility for wrong actions, when they do them to appease the mob.

The case against Jesus, to the extent that there was one, was that the doctrine which he taught undermined authority. Jesus and his followers could reply that they wished to render unto Caesar what was Caesar’s. They were careful in their reported comments not to call for regime change or to be openly critical of the government. Nonetheless they challenged established power structures and views, making some in authority feel uncomfortable.

That is partly why the Easter story is still so powerful, whether you are a believer or not. Since that first Good Friday there have been many miscarriages of justice, weak rulers, mobs full of hatred, and fearful establishments lacking the confidence which authority should bring. Few have been so infamous in western traditions as that ill fated Roman regime in the Middle East.

What should we learn from the Easter story? That you cannot make a weak government strong by seeking to silence its critics. That you cannot silence critics, even by the extreme action of killing their leader, if they are saying something people want to hear.

Our modern Easter celebrations are a magnificent muddle of older traditions, the Christian message, Victorian additions, and the hope that Spring is at last with us. All our Easters are lit up by the wonderful soft yellows of the daffodils and the fresh greens of the hedgerows sprouting into life. I like the Hot Cross buns, the Simnel cake and the decorated eggs. Enjoy your Spring festival, the celebration of rebirth and new life. Enjoy your Easter if you are a believer. This is a day to enjoy hope. Perhaps it is time to think that things can only get better?

Citibank and Woolworths – signs of the times

Do you remember Gordon Brown on coming to power telling us he would take Parliament more seriously and make it the centre of our political life? Ministers would report first, and fully to Parliament. So this weekend the government was busily leaking all the contents of the Pre Budget Report and the media were lapping it up. I will of course go in today to hear it in Parliament as well, but it does take much of the point away when it has been the subject of media debate for twenty four hours beforehand, and when I have been able to get my views across about it on the media before the Chancellor rises.

Meanwhile a more gripping drama was unfolding in the USA. Paulson’s much battered and changed bank bail out plan had to be modified again to handle a real crisis for Citibank. They ended up both buying some equity in the institution and guranteeing loans. On both sides of the Atlantic mega plans to spend $700 billion (£570 billion) and £487 billion to prop up banks have been on ice owing to problems with their design. This week-end reality caught up with the USA with the need to do something to help a mega bank which would otherwise damage the system.

In the USA too there are long debates about whether, when and how much money to give to the US car industry. Is it a bellweather for corporate USA still? Is the gas guzzling US car an icon worthy of state preservation? More importantly, how serious was President elect Obama when he implied his magic wand could be waved to help keep the jobs? If they debate for too long there could be car makers going into Chaper 11. Reading some of their balance sheets does not reassure.

In the UK this week-end it was the turn of bankers and shareholders to pour over the plight of Woolworths. The Credit Crunch has come back to the High Street, after its earlier visits in the form of the run on the Rock and the refinancing of MFI.

Citibank, Woolworths, the car makers all in one weekend show just how big this crisis is and how so far government remedies have not worked, or even started to work. In the 1974 world oil crisis the bankruptcy of Burmah Oil in the UK was a huge event. Once that had passed the market sensed the worse was over and a long slow process of recovery began. Secondary banks were nursed through the crisis by intelligent Central banking, until they could be disposed of or dispensed with. They were not nationalised in the meantime. One large bank was in difficulties but all the talks and actions took place behind closed doors and no long term public money was committed to seeing it through.

This time the crisis is much bigger, and the action of the authorities so far much less adept at containing the damage. So what should Mr Darling do today?

He could begin by apologising for the leaks. He could surprise us by doing something better than the VAT cut. He is right to delay his increase in profits tax on small business and the extra Vehicle Excise duty on cars we already own – better still just to cancel those proposals.

He should say that nothing is going to work to reflate the economy unless the banks work. Instead of lecturing them and threatening them with legislation to make them lend he should revisit his huge £487 billion bank package. He should ask why it is not being taken up, and should seek to find ways to guarantee, supply liquidity and offer short term loans so the banks can lend to each other and to customers again. It is no good getting bored with the banks package and moving on to a general reflationary package. It reinforces the impression that this whole thing is just one great spin exercise to show the “governemnt is on our side in difficult times”. What the public wants is a government who knows how to get us out of the difficult times they led us into. That requires understanding, patience and perseverance to get through it all.

The idea of legislating to force the banks to lend is bizarre. How would that be phrased? Do they have to lend to anyone who fancies borrowing, whatever their income and security? Or do they start laying down in law details of how a bank should assess a customer for a loan? How do they protect the banks (for they will be owning some of them) from customers who manage to meet the criteria in the law on Day One but soon change their circumstances once the loan is obtained? How do the courts deal with genuine differences of interpretation of the loan rules?

One of my contributors says that the difference between myself and the government is that I like bankers. My answer to that is I like some bankers. I do not condemn any group as a whole – there are some good estate agents and politicians, and there are a few bad doctors. More importantly I recognise that we need bankers, as they create and destroy money by the attitude they take to new and old lending. If they are contracting their businesses and being tough, it means the authorities have set the wrong framework of regulation and interest rates, as bankers like most business people are natural optimists who would rather exapnd their businesses. That is why Mr Darling must go back to the drawing board and revisit the capital adequacy framework, the interest rates and the support package for the banks. In that lies the answer to the Credit Crunch, not in the level of VAT.