Month: November 2012

The latest figures for spending and borrowing reveal more of the same. Current public spending excluding debt interest was up by 9%, this October on a year ago. Including debt interest it was up 7.4%, as debt interest fell by 7.4% thanks to quantitative easing. Spending  was up generally. Benefit spending rose, thanks to the increases in rates last autumn. General expenditure was also up. Over the six months spending was up in cash and real terms,but by a lesser amount.

Meanwhile taxes on income and wealth fell by 0.7% on the month and by 2.5% this year compared to last. VAT receipts were up by a useful 3.6% and National Insurance by 5.1%. Within taxes on income and wealth revenue from Income Tax and Capital Gains was unchanged April to October compared to the same period last year, showing the continuing impact of the higher rates.

Borrowing as a result rose from  £5.9 billion in October 2011 to an extra £8.6bn this October.  It would be good if the media reported that the main reason for the bad October figures  was the sharp increase in current spending, but don’t hold your breath. I expect they will continue to ignore this inconvenient fact. They are buying the spin line that a fall in corporation tax receipts is the culprit. The problem with that explanation is the fall in CT is less than the increased deficit, whereas the rise in spending is more than the increased deficit. Clearly these media commentators don’t do numbers or even read the official figures.

As there have been some cuts in some programmes, and some redundancies, the issue is where is all the extra money going? It would be good to hear a programme exploring how the government can spend so much whilst many think it is all being cut.

            Yesterday I attended a fascinating breakfast seminar about the Euro, where we heard the Greek, Spanish and German viewpoints from a panel of experts.  The German speaker  prompted me to think more about the evolution of the German position.

            Germany is being told that a fiscal union and a banking union are being constructed to protect German financial interests. Worried by the prospect that too  much German tax revenue and earnings will be needed to bail out dangerous banks and to pay the bills for excessive debts and deficits in other member states, Germany argues that the Euro area will not become a transfer union. They claim they can have a single currency where each member state has to be responsible for controlling its own debts and deficits without common funding. They are assured that the new banking union will prevent future excesses by banks within the Euro system, so a scheme for mutual deposit protection and financial support will be fair and affordable. They want to believe that you can have a fairly integrated economic government to reassure German taxpayers, without having to send large sums from rich areas to poor areas to make it work.

               West Germany has long experience of the true cost of establishing a premature currency union. The East German union of the 1990s proved to be very expensive for West German taxpayers, as East Germany struggled to catch up with West German living standards. Many East Germans migrated to get better jobs in West Germany, frustrated by the lack of economic progress near to home. This experience is leading many German voters to worry about the extent to which Germany is now going to be committed to financing the large areas of Euroland that are deep in recession and deficit.

                  Mrs Merkel seeks to assure her voters that Germany will not undertake the same massive transfers of cash and finance to the southern states of Euroland in the way they did to help fellow Germans in East Germany. She talks tough at home. Greece and the others have to tighten their belts and borrow less.  However, Germany is already committed to substantial financing of the rest of the Euro zone. German surpluses deposited at the European Central Bank, allied to Germany’s payments and promises to the various bail out funds, mean Germany already has at risk or has promised far more than E 1 trillion of money for weaker states and banks.

                  Some Germans are now thinking the unthinkable.  They ask whether Germany herself may have to pull out of the Euro to prevent the costs spiralling out of control. The mainstream still thinks it is Germany’s destiny to be the voice for prudence and austerity within the Euro area, and to send more money after the money already spent in trying to make it work.

                    Meanwhile, Mrs Merkel on a visit to London warned the UK that it would not be comfortable outside the EU. I suspect such a warning is counter productive.  Many UK voters hearing that would  be more inclined to become more Eurosceptic as a result, rather than being intimidated by the talk.  It is difficult to know what she really means by it. Countries like Switzerland and Norway are the richest in Europe whilst not being members of the EU. The UK is a far larger country than either of those, with a wider range of global interests. If none of the UK’s legitimate fears and disagreements with the centralising EU are to be dealt with or taken seriously, why would the UK wish to stay locked into a club which clearly does not have sympathy for our views?  On the continent it may be about a union, about the mutualisation of various tasks and liabilities, about solidarity and common tasks.  In the UK it is quite simply about whether we can once again  be self governing or not.

Yesterday David Davis made the public case for the double referendum which some of us are urging the government to launch.

The idea would be for this government to put through a Bill requiring a Mandate referendum on the EU issue. The question would be:

“Do you want the UK government to negotiate a new relationship with the EU based on trade and political co-operation?”

The aim of such a question would be to unite all shades of Euroscpetic opinion behind a single proposition, to carry it by a large margin. The government would then have a strengthened hand in negotiations in Brussels, and would also have to get on with sorting it out, as the people would have spoken. It should unite come-outers with those who wish to be in a common market, with those who merely wish to repatriate certain important powers.

The second referendum would follow once the negotiations were complete. That would ask

Do you want to accept the new negotiated  relationship with the EU or not? Voting No means withdrawing from the EU.

The knowledge in advance of the second question would send a clear message to other EU members that if they wish to keep the UK in some kind of relationship they need to take seriously the many changes the UK wishes to see in the relationship. If they offer nothing or little, the UK people are very likely to vote for out altogether.

This seems to me to be the best way forward. The negotiations would also allow the government to negotiate the items that would need to be sorted out for exit anyway. There do need to be arrangements on ferry routes, airspace,pipelines, extradition, police intelligence and all the rest between the UK and the rest of the EU.

David Davis dismissed the arguments of the pro Europeans that  we would be damaged by exit. He pointed out how much more trade we now do with non EU nations, and anyway how trade with the EU could continue without full membership. He showed how much damage to our productive potential and our exports the high costs and restrictions of EU regulations now do.

The Lib Dems in the Coalition may not agree to such a Mandate referendum to get this process started. Conservative Ministers should table it anyway. It would be surprising if the Labour Parliamentary party turned out to help the Lib Dems trying to  vote it down, when the public so yearns for a different relationship and a chance to have a say on this most important of issues.

          Later this week the government will ask Parliament to vote again on the issue of  prisoner votes. I thought Parliament’s view was quite clear last time. Parliament voted against implementing the European Court of Human Rights requirement that we give votes to prisoners. The votes may be much delayed, as the draft Bill will need extensive scrutiny before coming to a vote.

         Apparently this time we will be asked to vote for a new law on the subject, which could be drafted to make it clear again that prisoners will not get the vote in the UK. The government has to avoid looking as if it is doing what is so often done in EU referenda, when a country votes against the views of the EU power brokers. They are asked to vote again, with the intention of getting them to change their minds. The new law must set out that Parliament decides, and the UK will not pay any fines if the ECHR disagrees on this matter.

         This issue is now about far more than votes for prisoners.  It is about whether Parliament can still make  laws without outside interference from foreign judges. Whilst this is not the decisive test of strength with the EU over jurisdiction, it is nonetheless an important moment in the evolution of our constitution. Parliament has to show itself resolute. Government has to show it meant what it said, when the Prime Minister said he was against giving prisoners the vote. This now is a fundamental constitutional issue.

         I am very tolerant of UKIP commentators on this site. I regularly post their comments.  They are the one group who are often partisan, and regularly post exhortations to vote for their own party. Contributors from others parties are usually more restrained. UKIP supporters here also often make big claims for what their party can and will achieve. Again other  party supporters rarely do the same.

         Following their defeat in every one of the 24 Police Commissioner elections they fought, without even a second place to their credit, they tell us they made a big breakthrough. They give no credit to the English Democrats, who achieved a creditable 15.56% of the vote and second place in the South Yorkshire PCC election. There are  two  reasons I sometimes highlight the poor electoral showing of UKIP in successive elections. The first is because some of  their supporters here are unpleasant in what they say and write about fellow Europsceptics in other parties, and the second is because they are always claiming that they are doing well electorally or are poised for a breakthrough. Their main case for others to vote UKIP is that they will win, and then miraculously take this country out of the EU. To do that they would need to win 326 seats in Parliament in a General Election. So far they have never won a single seat, even in by election conditions when they can concentrate their efforts, or in a seat where the 3 main parties withdrew their candidates at the 2010 election. To win 326 they would need of course to win seats from Labour and Lib Dems as well as from the Conservatives, yet they always seem to concentrate on fighting against Conservatives.

            Every day in Parliament 100 plus Conservative MPs watch the measures and agendas from Brusssels. We highlight issues of concern. We vote against measures we think unacceptable. We urge Ministers to negotiate us out of various measures, or seek to see them voted down in the EU itself. Many Conservative MPs voted for a referendum, and voted for a lower EU budget, against 3 line whips.  We feel we do the work and take the arrows of opposing the growing powers of the EU day  by day. There are no UKIP MPs to help us or to swell the vote against extra EU power in the Commons.

              We are sometimes successful in persuading the Coalition government to withstand Brussels pressures. The Prime Minister did veto a Treaty for the UK, which would otherwise have bound us into EU controls over our budgets and tax policies. Instead of getting thanks from UKIP, this is misrepresented as a non veto. The  government has said it will veto any move to increase the EU budget, something the former government would not have dreamed of doing. We have persuaded the government to adopt as its policy the need to negotiate a new relationship with the EU, making it clear the UK has no intention of being bound into a political and monetary union. The Conservative leadership has now accepted that there will need to be a referendum at some future date. We are now discussing when and what about.

               I have no wish to waste time criticising people or policies in UKIP. I appeal to all Eurosceptics of good will to see we are stronger working together instead of some fighting petty feuds, seeking to split the Eurosceptic movement  for their own personal advantage.        

           We need votes in the Commons now. We need to carry on influencing the government in a Eurosceptic direction now. It is not  UKIP that is driving this process, but Eurosceptic MPs, and the mood and commonsense of the British people. We need more Eurosceptic members in the Conservative party to help us with our cause. We need any party that wishes to fight EU federalism to direct its fire at the federalists, not at fellow Eurosceptics. Smaller Eurosceptic parties may develop a stronger negative capability from time to time and in various locations, to be able to damage other Eurosceptics more. This does not help solve the EU problem for our country.

Judging from the results of 3 by elections and the Police Commissioner elections there has been a shift in opinion in the last two and a half years from Lib Dem and Conservative to Labour. The Lib dems have suffered the bigger drop in vote share from being in a Coalition government than the Conservatives. Labour achieved a 16.8% swing from Lib Dems in Mancheter and an 8.4% swing from the Conservatives in  Cardiff South.

The Corby result came from the one serious by election contest, where Conservatives put in their  biggest  effort of the 3 by elections. Labour won it comfortably, with Conservatives in second place. The swing was  12.67% from Conservative to Labour. The Conservative win in Dyfed Powys in the PCC election was a good result for the Conservatives, as was the Conservative win in Humberside against Prescott. The loss of Dorset to an Independent should worry both Conservative and Labour.

There has been no UKIP breakthrough. They came fourth after the 3 main parties in Manchester Central, and did not contest Cardiff South. They came fifth in the Wiltshire PCC election after the 3 main parties and an Independent. They did not get into the run off in any of the PCC elections where they stood.  They did not contest 17 of the PCC elections at all. They did best with their third place  in Corby, despite English Democrats and BNP also contesting it. The size of their vote was not sufficient to claim sole credit for the defeat of the Conservative candidate, though that seemed to be their main aim.

The low turnout in the two Labour seats at the by elections probably reflects the feeling there that Labour was likely to win. Turnout was best in Corby, where there was clearly going to be a closer contest. The low turnout in the PCC elections reflects feelings about police independence, the lack of understanding of the role or disagreements with it, and the failure of the parties to deliver leaflets to every door to explain the position and put forward their candidates.

It is now especially important that the new Commissioners work hard to offer great value for money, and to show how they can choose good Chief Constables, and influence police budgets and priorities in helpful ways.

Some have asked about spoiled ballot papers. There were more than usual, with some from people who are against these elections. In the Wokingham,  there were 516 spoiled ballot papers on top of the 16,250 valid votes cast. This was not nearly enough to undermine the result, but a higher level than normal reflecting concerns. “None of the above” was effectively outvoted thee arch of the  other candidates.

             Strikes in Spain, dissent in Greece. The noises of protest are becoming all too familiar in Euroland, as people complain about the policies their governments are following. Euroland as a whole is in double dip recession.

              Euroland democracies no longer function well. Voters can change the people in office, but they cannot change the main economic policies.  The incoming Spanish, Irish and Greek governments, replacing the ones the electorates sacked, have to follow the same rules and live with the same loan terms as the government displaced.

              One of the oddities is the electorates tend to blame their national government and politicians rather than the EU government and the Euro scheme. In part this is because the national governments are better known and easier to protest against. In part if is because the EU offers the struggling member states some money from its budgets, and claims that the national government is making the main calls when evidence suggests the main calls are now made at the centre.

                  Policies designed to protect and preserve the Euro are now producing deep and long lasting recessions in several Euro countries. As a result these countries have a growing deficit as employment falls, reducing tax revenues, and benefit bills rise. Individual countries cannot devalue to improve the competitiveness of their exports. They cannot themselves print more money to try and stimulate more activity. They are locked in to the austerity packages.

               They are often attracted more to higher taxes than to lower spending. This can compound their difficulties. If they attack high income earners and profitable companeis too much they relocate elsewhere. Instead of raising the tax revenues, this lowers it by reducing the tax base. They also probably are encouraging more tax shy activity, with growing black economies.

                     We should expect more frustration with the austerity policies and the lack of progress in restoring growth. The extent of activity that is undertaken without paying tax or done through barter and other systems will act as some dilution to the anger.

            Yesterday the latest Bank of England Inflation Report told us that they now expect inflation to stay  above target “for a while”. A “while” seems to mean until the second half of 2013.

             In february of this year the Bank told us “Inflation should continue to  fall sharply at the start of 2012…..inflation is likely to decline further thereafter….inflation is judged somewhat more likely to be below the target than above  it for a good part of the forecast period”.

              That’s quite a change of forecast, from optimism to pessimism. It follows, of course, the hard facts that inflation stayed higher for longer, and is rising again now.  The Bank clearly thinks it could rise further this winter as the energy price rises kick in.

                The Bank is also forecasting now that output “may shrink” in the fourth quarter of 2012, after the third quarter spurt in growth thanks to Olympic ticket sales and the as always unmentioned increase in public spending. Does the Bank not read the GDP figures and see public spending made the largest increase to the Quarter 3 growth  figures  or is there some conspiracy to suppress the truth about this? How did the Bank miss the further fall in output in Quarter 2?

                  In February the Bank was forecasting an increase in output this year, with an acceleration of growth thereafter. It is another big change in forecast this autumn.

                       The Bank confesses to being puzzled b y the continued improvements in the labour market with a million new jobs since 2010, and the poor performance of productivity. Why can’t the Bank appreciate that the sharp declines in output in financial services and banking, and in oil and gas, have of course hit productivity, as these are highly productive areas, with substantial value added per employee. The growth is occurring in more labour intensive areas of activity, with the obvious results on jobs and productivity.

                           It is worrying that the Bank so struggles to understand the modern UK economy. Its doctrine of unused capacity preventing inflation has shown strains, and the Bank has not yet found a new way of analysing and understanding the reality. Wages and prices in the traded private sector are under substantial competitive pressures to keep them down. There has been some relief from the devaluation, where manufacturers have often taken the benefit on margins rather than pushing for higher export volumes.  Public sector fees, charges and regulatory interventions in areas like  energy are pushing prices up.

                                  As the Bank say, “We face a rather unappealing combination of a subdued recovery, with inflation above target for a while.”  That is what you get from bank nationalisation, a failure to sort out damaged banks and  stressed provincial property markets, from a tax based strategy for cutting the deficit and from quantitative easing.