Month: January 2012

          Defra has recently published a large amount of material on climate change. It needed to do so under the last government’s  legislation, to produce a “risk assessment”. I went along to hear about it from the Chief Scientist and Secretary of State, and have read more about it on their website.

          The fascinating thing is how uncertain the scientists are about their predictions. By the 2080s they forecast an increase in temperature in the UK of somewhere between 1 degree and 8 degrees.  They think summer rainfall may have increased a bit, or may have fallen sharply. They think winter rainfall may have stayed the same, or may go up a lot.

            They are not even sure what is happening to emissions of carbon dioxide. They say “It is too early to establish whether actual emissions are pursuing any particular emissions scenario”.

               Their historical graphs show that there was no warming between 1860 and 1970 overall.  This was despite a very intensive coal burning phase to global industrialisation. There was a warming pattern between 1920 and 1940, but cooling ones from  1900 to 1920 and from 1940 to 1970.  They then extrapolate warming since 1970 and project more to come.

               Their resulting risk assessments conclude that we will spared a substantial number of deaths from the cold in winter, which will far exceed the extra deaths from heat in summer. They reckon there will be more extreme weather, overheating of some buildings, and greater water scarcity. When I asked wasn’t it good news that fewer people will die of cold in the winter, I was told that global warming does have some good effects.

                My view is we will be short of water because the population growth is outpacing new water provision. It would be a good idea to put in some more capacity. I also suspect there will be more flooding, largely because there has been too much development on floodplain. It would be a good idea to improve drainage and strengthen flood defences where there are large settlements. This morning on the radio a Minister assured us they would seek to do that.

                 Defra’s risk assessment needs to concentrate on the here and now and the eminently forecastable. We do need more  water and we do need to protect ourselves from floods. Let’s just get on with it.

            Mr Hester decided to waive his bonus when he heard there would be a Commons vote on it. Labour who had signed such a generous contract in the first place decided to table a debate and vote  in Opposition time to condemn it to make amends for their original deal. Many Conservatives and Lib Dems would have voted with them. 

             The truth is the Board of RBS was set the wrong task and given the wrong remuneration for doing it when the bank was stupidly nationalised in the first place.

              Will this government now call them in and change the requirements? They should be instructed to split the bank up, creating new functioning smaller High Street banks which can be immediately floated off into the private sector, where they need to raise more capital to allow them to lend more to power an economic recovery. The sooner the government does this, the sooner its economic policy will function better. If the current Board does not want to do this, then there are plenty of able people who would happily go in and do it for them, for less pay.

          Mr Osborne’s rhetoric on using the IMF to prop the Euro has firmed up more. He has always said the IMF should not lend money to prop up a currency, only a country in trouble. I interpret this to mean the IMF should not lend to any Euro member, as that would in my view be lending to prop a currency. Mr Osborne may define it less severely.

            Now Mr Osborne is saying the UK should not make more money available to the IMF to lend to Euro members, unless and until France and Germany have made a larger contribution. He seems to have in mind those states putting more money into the European bail out fund. This is extremely unlikely. Germany thinks the problem countries should do more to rein in  their own deficits. France is becoming financially strained herself and is not looking for more ways to spend money. That would seem to mean no more UK money for these purposes, which would be excellent news.

           However, whilst there is still argument over IMF funds for Europe  and Big Bazooka bail out funds within the Euro area, it looks as if for the time being the European Central Bank has issued enough new money to commercial banks to delay the crisis. Italian and Spanish bond yields have fallen. The European banks have gorged on 3 year money at 1% interest rates. We are told in a few weeks time they will be able to take some more from the bountiful Central Bank.

          I am surprised the Germans have taken this so well. They have in the past fought against the ECB buying up government bonds itself. They wrote in the clause that prohibits the Bank lending directly to governments. So now the Central Bank has found a way round these restrictions,  by lending large sums to commercial banks who in turn can hold or buy government bonds, lending to the governments.

          Why have they in the past argued against it? Because Germany’s own experience is bitter when they had too much inflation. They are most concerned that this type of direct monetary action, effectively printing more money at one remove, will be inflationary. I guess they are hoping that in the short term the weak state of the banks will stop them lending this on to others and in so doing bloating the money supply. The ECB needs to be on vigilant inflation and money growth watch from here. It has pumped a lot into the system. It needs to see whether that finds its way into uses that allow banks to gear up and go on a lending spree. If it does, then watch out for inflation. If they are lucky, the broken state of the banks will stop too much inflation for now, whilst preventing collapse in the Italian markets.

                  Meanwhile, back in the real world, politicans in Euroland should be in panic about the high level of youth unemployment and of general unemployment. Now youth unemployment has gone above 50% in Spain and above 40% in Greece, they should ask themselves why they are so much in love with the currency scheme which has helped to bring about such a crisis.

          I would like David Cameron, in the privacy of the  meeting to say:

        “The UK wishes Eurozone members success with their currency. We will not be providing unhelpful remarks or commentary in public on it. As the Eurozone sells us many goods and we sell into the zone, it is in our interests that the future of the zone is handled with a view to restoring growth and greater prosperity.

          The UK does not think further Treaty changes demanding greater austerity and financial discipline are either needed or will work. The current Treaties make it clear what is expected of Eurozone members. The problem is one of enforcement, not a shortage of law and guidance.  Imposing fines on countries with large deficits that can no longer borrow money in the markets to pay their bills, let alone pay the fines, is not going to improve things.

          The Uk sympathises with the German view that each Euro member state has to solve its own budgetary problems and accept the common discipline. The German people are understandably reluctant to pay more money to help the weaker countries. But the UK also has sympathy for the countries currently unable to balance their budgets or to trade themselves out of the large trade deficits they are incurring, owing to their membership of the Euro and the present state of their accounts.

          The Eurozone is being stressed by trade imbalances, by a lack of competitiveness in some peripheral countries, by state debts and banking weakness. All of these issues need tackling urgently. Some countries may need to leave the zone and to devalue to sort out the scale of the problems they face. That is a matter for them and the zone.

         Meanwhile the UK is ready as  a member of the EU to lead an attack on too much EU level government, excessive EU budgets, too much regulation, and other EU levels matters which are impeding a common recovery in European economies. The EU needs to contribute to the spending cuts needed for sensible austerity in public sector budgets. It has much more scope than member states to cut its own budgets.  It needs to promote  policies which help enterprise and innovation, instead of constantly looking for new ways to tax and regulate business”

        The cross party group on repatriating powers from the EU this week launched a piece of work on regional policy. They pointed out that the EU structural funds  account for Euro 348 billion over the seven year budget period, the second largest budget head in the EU accounts.

          The UK is the third largest loser from these funds, after France and Germany. We contribute Euro 35.9 billion over the 7 years to these funds, and receive back just Euro 10.6 billion. Much of the money goes in circular flows, being sent to the EU only to return to the original contributing country, or even circulating within the same region via Brussels.

           In the case of the UK 70% of our overall contribution goes to other member states. 25% of our contribution is given back  to the same region that raised the tax and sent in the money in the first place, with 5% being sent back to a different UK region.

           Apparently the last Labour government looked at the possibility of changing the EU policy by limiting regional transfers to sending money only to regions with average incomes more than 10% below the EU average. Most EU countries would be better off as their contributions would fall substantially. The three largest winners would be France, Germany and the UK.

           Within the UK at present only two areas are net recipients of funds from the EU structural programmes – West Wales and the Valleys, and Cornwall. The rest are part of the money go round, getting a portion of what they send in back. It is returned as   EU approved project payments, often spending money on less valued projects which we not choose for ourselves.  Regions with relatively low incomes per head like Northern Ireland, the West Midlands and Merseyside, are net contributors to structural funding elsewhere.

           It was good to see a cross party consensus emerging that we should push to repatriate much of this policy. We could make savings on the expensive double administration at present. We could then  make choices about how much of this spending we want at home, where we want it, and how much we should spend  on the whole programme.

          The media is contrasting the  US growth rate which hit 2.8% per annum in the last quarter of 2011 favourably with the stalling economies of Europe. What they are not doing, however, is picking up on the different composition of growth.

            In the UK the public sector made a positive contribution to growth, whilst industry and mining fell, producing an overall small decline.  In the US federal spending was down 7.3% and total public spending  down by 4.6%  whilst  the private sector grew well, producing the overall gain of 2.8% per annum.

 I presume this part of the truth did not fit in with the highly spun stories abouts cuts, or with the belief that Obama has avoided cuts.  The facts show in the last quarter tough cuts in US public spending along with good growth. In the UK there was public spending growth with no overall growth.  That’s too difficult for UK commentators to explain!

             When the government was working on a new policy for high pay and large bonuses I raised the issue of RBS. I raised it again when Dr Cable announced his policy in the Commons. People will judge the success of Dr Cable’s bid to control large bonuses in no small measure  by the government’s  success in handling RBS pay and  bonuses, where the government is the shareholder and the employer.

          Modern politics is besotted by all three main parties chasing the fairness vote. In a time of austerity, they intone, it is important that government is fair.

            At the highest level I have no problem with this. What politican or political party would want to make unfairness their aim?  It is part of  a trite catchphrase. Of course all those of us with some public spirit and some grasp of democratic politics wants things to be as fair as possible, and wish to design and back policies that are “fair”. Any good  MP or Minister has drilled into them the need to be fair to all constituents, fair between competing claims on their time and for their support, and fair in assessing need and cause. We have a duty to represent all in our constituencies or the wider nation, whatever their views and backgrounds.

            If you try to go further you start to appreciate that there are almost as many ideas of what is fair as there are voters. Going beyond the general, you soon get into some serious politics.  MPs and Ministers have to make decisions and judgements. On any given issue we cannot personally back all the viewpoints, though we can ensure they are all taken into account.

            This week the Bishops from their Palaces have thundered that it is not fair to limit benefit claimants to £26,000 a year tax free, as they might have to cut their spending. The public has thundered back, by a large majority, that it is not fair to expect all the people in paid employment, many earning less than £26,000 tax free, to pay extra tax to pay benefit recipients more.

             Labour, usually instinctively on the side of the benefit claimant, in the Commons seemed to side with the idea that there should be some cap on benefits, whilst in the Lords they did their best to work with the Bishops to undermine the notion.

             The European Human Rights Court often claims that if someone has come to the UK uninvited we have to put them up and support them if their home country no longer wants them or might give them a hard time if they returned.  Some in the UK agree with this approach, and think that it is fair to uphold the individual’s human rights, even where their views and approach to life is very different from the UK democratic traditions.  Others in the UK say that such treatment is unfair on UK taxpayers. Why should we pay, they ask, to support people who were not born and brought up here and who have not paid taxes and made other contributions here and may have gone on  to commit a crime here?

             People who want the clocks to be advanced by an extra hour by law say it was unfair that a handful of MPs last Friday tabled amendments and spoke about the problems with the Bill so that it did not pass. Those who did not like the change think it entirely fair that MPs in Parliament should be able to use Parliamentary procedures to prevent a new law they do not want.

               It is the job of the parties to make their own judgements about what they think is fair, and to persuade enough people to buy into their concept of fairness. In the current debate there are many voices who think fairness means giving more money to those who depend on the state, and taking more money from those who are successful in business. The problem, as always, is that there are not enough very rich to pay all the bills. If the state spends more Mr and Mrs Average have to pay more. Meanwhile Mr  Rich may leave the country or simply hire a better accountant.

                 I find it is often my task in these debates to speak up for fairness for people who try to pay their own bills, who believe they should go to work to support their families, who buy their own homes, and pay for their own travel. They  just ask that the state does not take too much away from them to make self help difficult or impossible. There are millions of UK people who do still think they should do a good day’s work for their pay, and think their pay should provide for their needs.

                   Too many of the people in this fairness debate effectively want to tax these people more. If you tax them too much, more give up and become wholly dependent on the state. More need some state assistance. The welfare reforms are about reducing the numbers who have to depend on the state. The  best way to a job is to have a job. The best way to a better job is to have a not so good job and to work up the ladder. The government needs to be whole hearted in its support of such people. It needs to ensure its view of fairness includes a healthy dose of getting behind those who are determined to do the decent thing.

                I have repeated many times the likelihood that the economy will grow much more slowly than government OBR forecasts. I have said the government will borrow more than is desirable. I have called for a stronger growth strategy.

                 Last year’s figures showing just 0.8% growth were disappointing to the official forecasters. They expected 2.4% growth for 2011-12 in June 2010, reduced that + to 1.8% in March 2011 and to 0.6% in November 2011.

                They are forecasting 0.9% growth  in 2012-13 and 2.4% in 2013-14, down from 2.9% and 2.8% forecast in June 2010. The IMF has now downgraded its forecast for the UK to a lower figure for 2012. If 2012-14 growth is still overstated by say 1.5% over the two years, that adds another £10 billion to the deficit in the second year.

                 The government knows it needs to do more. It is still working on  the credit easing scheme promised in the Autumn Statement. It has relaxed its borrowing limits to accommodate cash increases in public spending in every year despite the shortfall in revenues compared to  budget. The government needs to intensify its search for better value for money in what it spends, and for less desirable budget items that can be removed or delayed.

                   It needs to relax the squeeze on the private sector which we have often discussed. Falling inflation will help. So would some reduction in tax rates, as we have argued before.

                    Above all the government needs to understand that it has to tackle the problems of the banks. There is not enough competition or capacity in HIgh Street banking in the UK. The government owns many of the important banks that service the businesses and public. It needs to split them up, create new competing banks, and float them off with sensible balance sheets so they can get on with the task of financing the recovery.