Category: Articles

Who will rid us of these turbulent banks? The government has landed taxpayers in a dreadful and expensive mess.

First they blundered by allowing banks to lend too much and balloon their balance sheets in the good times. The Regulators fell down on the job. The government encouraged them for political reasons, wanting to keep interest rates too low and credit plentiful. Few were to be denied a mortgage, regardless of whether they could pay it back.

Next, they made the crisis worse by hiking interest rates too high for too long and starving the money markets of cash, leading to the crash in 2007 and 2008.

Then they panicked, buying shares in RBS, Lloyds, and Northern Rock without valuing all the dodgy loans properly. They didn’t ask for a discount or protect the taxpayers interests. Vince Cable became the apostle of nationalisation, given large amounts of airtime to help the government dig us deeper into the mire of owning too many risky banks on bad terms.

Messrs Darling and Cable tell you they had to intervene to buy all these nasty bank shares at high prices and then watch them fall once in public ownership. They claim it was the only way. They want you to think they saved the world.

Their actions were damaging and costly. Far from saving us, they have lumbered us with huge debts for years to come. So what should they have done?

In the good times they should have raised interest rates earlier and told the banks they needed to be more careful. When the bad times started they should have slashed interest rates much more quickly, and lent money to the banks in trouble on tough terms to see them through. There was no need to buy shares in RBS or Lloyds. Northern Rock need not have gone under if they had seen the obvious warning signs in August 2007 and done then what some of us recommended.

We are now being mugged by these bad banks. The government makes us stand behind them as their owners. On top of that the government is offering to take all their worst loans off them and give them to – yes you’ve guessed it – us the taxpayers. What ever did we do to deserve that?

So what should they do? How could we get out of this catastrophe?

The first thing to understand is that RBS and Lloyds/HBOS are simply too big and too risky. They should be split up. Their profitable foreign banks should be sold off as quickly as possible. There are buyers out there now for good overseas banks.

Investment banks in the private sector are coining it in again. The investment banking arms of RBS and Lloyds should be put quickly on a commercial footing and sold as well. The taxpayer should not be expected to stand behind casino banks. RBS had £500 billion at risk playing the markets at its last year end. That is far too much for taxpayers to have to underwrite. They are playing with almost as much as the government spends in total in a year.

The loss makers, including the UK banking arms, should be told to cut costs and get back into profit quickly. There should be no bonuses for senior executives in nationalised loss makers. If they want top drawer remuneration they should produce top drawer results – or do it with someone else’s money, not the taxpayers.

Meanwhile, the government and its regulators need to get their act together. Mr Darling has recently lectured the banks on the need to lend more. He has told them he did not make all this public money available for them to sit on their hands.

Oh yes he did. For at the same time as grandstanding and lecturing them, the FSA, his regulator, is telling the banks they need to keep more of the money they have in liquid form. That means they are not allowed to lend it to you or me or to companies. The rules stop them.

The authorities have created a self serving money go round. Taxpayers put money into the bad banks. The banks are then told they need to keep more of the money handy and lend it back to the government!

The government was wrong to allow all the mega mergers that created a bank on the scale of RBS. They could have blocked some of them. They were even more foolish to urge Lloyds and HBOS to get together. Merging a bad bank with a good bank does not create a good bank, as we have seen in the latest figures showing huge HBOS and Lloyds losses.

We the taxpayers now support banks that risk more than twice our total national income, what we all earn. I warned when they embarked on this crazy course that they could easily lose us the equivalent of the defence budget. It is going to be more than that. HBOS alone lost £13,400 million in the first half of the year, which was close to what we spend on our armed forces. What benefit are we getting for that?

It is time to try a different approach. This government can no more suspend the rules of sound finance and the laws of arithmetic than the rest of us. If our nationalised banks go on losing us money on this scale, it means much less available to spend on other things. It is high time they were put under some pressure, to shape up and sell off their businesses. And in the meantime, don’t insult us by sending us the bill for large bonuses. Can’t Mr. Darling at least sort that out?

If government spending and borrowing stopped a recession and built a strong economy, the UK would be doing well today. Never has so much money been hurled at the problem, and never has so much been borrowed in such a short time. Yet the more they borrow the more unemployment rises. The more they spend, the more is wasted.

As so often in the British political debate there is no disagreement about what we want to do. All sensible politicians and parties want to end the banking crisis, stabilise the economy and start to get people back to work. We all want the conditions in which business can flourish and people can earn good money for their work. The government’s attempt to draw a contrast between “Labour investment” and “Tory cuts” is one of the more stupid misrepresentations.

In private most Labour politicians accept that somehow, sometime the massive public deficit has to be brought under control. Indeed, Labour’s own spending plans beyond 2010 imply reductions in spending to start to curb the deficit. In public and private Conservatives say they have no wish to sack teachers or nurses, and wish to run good quality core public services. This week Conservatives have been calling for better equipment for troops committed to Afghanistan despite the spending crisis.

There could be more agreement than crude spin doctor driven politics allows. The Treasury itself accepts that there is waste and inefficiency in public spending. This so far has been a very lop sided recession, with manufacturing taking the biggest hit and the public sector getting the extra money and jobs. There is the danger now that too much borrowing by the public sector will drive interest rates up again, damaging prospects elsewhere. Borrowing is just a deferred tax increase. At some point the debt has to be repaid.

The issue is how we can do more for less in the public sector. The answer is not difficult. Many of the techniques that are second nature to private business have not been adopted in the large public sector empires. There are too many layers of government, too much complexity, too many codes, rules and regulations. We could begin by removing unelected regional government, scrapping much of the instruction and prescription that Whitehall visits on Town Hall and scrap large centralised computer schemes that are often over budget and much delayed. Scrapping ID cards and the ID computer would be especially popular with many.

Last week the Bank of England raised the possibility that printing £125 billion to buy up government debt was enough. The interest rates the taxpayers have to pay when the government borrows more rose, as you might expect. It was chilling reminder of what might be to come, as they try to get our economy back to normal. It is still grossly out of shape. Much more work is needed to get us fit and well again.

Next year’s budget at Wokingham Borough Council is not going to be an easy one for Councillors to make. As we sit on the edge of a major deterioration in the public finances, it might help if I set out the background to their decisions.

Over the last five years times have been good for public spending. There have been large increases in most areas, but unfortunately the national government has not always chosen its priorities well, nor has it achieved the results you would expect given all the money spent.

Over the last five years Wokingham Council and the MPs representing the area in Parliament have made the case for more generous grant financing of Wokingham’s activities from national taxation. We have been successful in this. From a low base government grant has gone up by 23.6% in five years, or by 12.5% more than inflation. Over the same period prices have risen by 11.1% and Council Tax by 19%. Since the introduction of the schools grant to pay for education in 2007-8, that has gone up by 8.5% compared to 6.6% inflation.

In 2009-109, the present year, government grants and recycled business rates will pay for 62% of Council current spending. I am leaving out housing which is paid for separately, mainly from rents. Government grants are also paying for 87.5% of the capital spending this year on school renewal, roads and the like.

This year the Council is spending £201 million on running its general services and education. It is spending £30 million on school buildings, bridge repairs and highways work, on capital account. All these figures are taken from Wokingham’s Medium term Financial Plan on the Council’s website. Total spending may be around £100 million more when housing and other spending paid for by fees and charges is taken into account, but the gross figures are not published in an easily accessible form.

The Council has been prudent, putting money aside for rainy days. It now has £22m of general,specific and ring fenced reserves. It also has £72 million of longer term borrowings, which paid for previous building works.

The government is planning reductions in spending in many areas from next year onwards. It knows it cannot go on spending on the scale it is at present, as so much of the money is borrowed. My worry is that they will want to hit local government as one of the easier targets. They could also revisit the grant settlement and make it less favourable to Wokingham, after the advances of recent years.

We will continue to support fair funding in Parliament. It is necessary, however, for all in the public sector, including MPs, to be planning how to do more or the same with less. This is not a good time for people with pet ideas and new schemes to seek public funding,. It is a time to look after the crucial core services, like schools and care for the elderly, and then see what is left over for anything else. It is a time when all organisations have to cut their overheads and expenses.

Witch hunting was always an unpleasant and overrated pastime. It is popular today. Many people have been out to hunt down the criminals, the fools and the incompetents who they think caused the Credit Crunch.

Who was to blame? Apart from the bankers and other financial experts who lent too much, the regulators failed to stop them. The whole Tripartite system of regulation was tried and found wanting by events of the last decade. Not one single senior person in any of the 3 supervisory institutions of Treasury, Bank and FSA thought the banks were lending too much. Not one tried to blow the whistle on the most extraordinary credit binge any of us have seen. They did not lack powers to stop it if they wished. They did not lack information. You could see it by reading the balance sheets of the top four banks in the country, something you would expect the senior people in all 3 institutions to do as a matter of course. You not only had to read them, but to show some judgement. You needed to understand that the new rules allowing such excess were foolish.

The important issue is not which individual or which individual institution was more to blame. It’s water under the bridge now. The big issue is why are we still operating with the same system? What have regulators learnt from this dreadful experience? How can we be sure someone next time round will have a clear understanding of what needs to be done? We need them to answer the following questions:

What are the regulators’ views on the degree of bank support? When will they force the state’s clients banks to cut costs, improve their business, and sell off assets to repay the money they have received? Isn’t it time the taxpayer got some money back from those banks? Isn’t it time they cut the top pay and the excesses , to try to make a profit for taxpayers?

Do the regulators agree the banks in the UK are too big to bail and too big to fail? When will they start splitting them up to create a more competitive and more manageable sector? Surely they could separate out the profitable foreign banks from RBS and sell them? Couldn’t they close down or sort out the large investment bank within RBS and pass that on, so taxpayers do not have to take all those risks?

Do they agree that appointing more and more regulators, and ticking more and more boxes failed to create orderly markets and successful regulation? Do they understand that having one or two senior people with judgement would have transformed the situation, as it needed someone to see the overall problem?

Why do they think they now need more people and better paid people? Why can’t some of the people we have already make the big judgements you need to make to regulate successfully?

Why is the Monetary Policy Committee of the Bank of England happy with the current level of government deficit? Does it not foresee funding problems ahead? Why doesn’t it raise interest rates a little, to offer some return to savers, and to bring its rate more into line with reality?

How does the MPC think it can get the UK off quantitative easing? What is its current view of our inflation prospects, given last year’s devaluation and this year’s commodity price rises?

Is any regulator concerned about a bond bubble?

It is my view – and has been throughout the last fifteen years – that the Bank of England is the best body to undertake the related tasks of supervising the banks, managing the money markets and setting interest rates. The Bank did not distinguish itself in the last decade, so I am not proposing powers for them based on any witch hunt against the FSA. It just makes sense to look at money markets, credit creation and the price of money together. You still need to find good people to do it, but it makes their task simpler if they control all the relevant levers and have full responsibility under the Chancellor for the results. If you did that well you would need a big army of box tickers, looking the other way on the things that matter. If the Bank coulld smooth and control the money markets properly, we would not have such violent swings. We could start to dampen boom and bust.

It is sad to learn this week that several good employees of the Wokingham Times have lost their jobs in this painful recession, and sad to report that the Wokingham Times office in the town has closed. Many of us would like to thank the staff concerned for their contribution to Wokingham life and debate.

I read that my prospective political opponents for the next election wish to make political points about the issue of MP expenses. I look forward to reading the Lib Dem explanation of why Lib Dem MPs have had to repay money claimed for a £1000 rocking chair, a trouser press, and a designer make over of a London flat among the more eye catching items. It would be especially interesting to hear Lib Dem comment on those MPs of their party who banked substantial sums to surrender moderately priced rental agreements and leases on flats in Dolphin Square when the rents had been paid by the taxpayer, only to claim higher sums after surrendering the favourable lease.

The truth is that Parliament ran too generous a system of expenses for too long, and it was laxly administered. MPs of all parties claimed under this system, and some of the money should now be repaid as the claims may have been legal but they were not well judged. For my part, I intend to cut my expenses further, as I did last year before this row blew up. I will maintain my bedsit in Pimlico, as it saves me hours of travelling each day, allowing me to do more of the MP job myself and save taxpayers having to pay for another member of staff to which I am entitled under the scheme. As we need to cut the overhead of public spending substantially without damaging services, I am not now claiming any taxpayer assistance for my flat.

Labour are about to run a campaign complaining if MPs have a second job. Candidates pledging never to take any additional task on other than being a backbench MP do not understand how the job works, or how Parliament and government works. The whole edifice is based upon the idea that an MP can do another job. MPs may become Ministers, taking on a very time consuming and demanding second job with a good official salary. Others act as Shadow Spokesmen, chairmen of committees, a Speaker of Deputy Speakers and the like.

It is possible to do these other jobs because whilst the MP’s job is demanding and requires plenty of time and effort, it is not a 9 to 5 office job. On long Parliamentary days to get most out of it you need to be working as an MP from 7 am until 11 pm, to capture the meetings, events, activity in the Chamber and outside. On the many days when Parliament is not sitting there is much greater flexibility about what to do and when to do it. An MP does have to be on call all the time, and does need to do week-end work, but there is time in a well planned MP’s schedule to be a Minister as well, or to have a non executive role outside Parliament.

Parliament is in my view better for having many MPs on all sides of the House who have current experience of life outside politics. Their contributions to debates can provide the mixture of commonsense and experience that is needed to be amend or challenge the official view. I doubt I would be an Economic Adviser to the Conservative leadership if I did not write a twice weekly commentary on economies and financial markets outside Parliament.

The furore about MPs expenses is the tip of a very large iceberg of public spending. The MPs expenses scheme was too generous, and laxly enforced. It is important that Parliament puts in place a cheaper and tighter system for the future, that gives better overall value for money. No-one can now say that public spending has been cut to the bone, when you read of what has been spent.

Whilst MP expenses naturally attract more publicity, there is waste, undesirable spending and excess costs elsewhere in the public sector. The level of public borrowing is now very high. On current plans the government intends to borrow another £3000 for every man, woman and child in the country this year, on top of a similar increase last year. It is going to become more and more difficult to borrow so much without pushing up interest rates, and without taking too much money away from businesses and families who are already hard pressed by the recession.

The political battle usually revolves around claims that any call for less public spending means damaging cuts to essential public services. No-one I know goes into politics to supervise such cuts. We all go in because we want our communities to enjoy better schools, hospitals and public protection. The party divide does not extend to disagreement about the need to be generous to those in need, or to spend on decent services.

The divide is about how many other things governemnt should do, and how much it needs to spend to do it. In Parliament’s case, we could do the job with fewer MPs and fewer supporting staff. Do we need all those expensive computerisaiton schemes in the public sector, ranging from the Identity computer database through to the centralsied NHS computer system? Do we need unelected regional government in England? Do we need so many quangos? Does the BBC need to pay high six and seven figure salaries to people to appear on a public service channel? Do we need to expand the civil service further, as the present government has been doing? Do we need to pay for civil servants and for outside consultants to do the task that one of those could do alone?

We need to apply the techniques of audit and cost control more widely throughout the public sector. We can do more for less. We need to do more for less, as public borrowing is out of control.

Parliament is badly broken. This Parliament feels as if it has run its course, with many people wanting a General Election. Unfortunately the Prime Minister and the Labour majority do not share this view, so we limp on.

There is an atmosphere of despair around the government. Business before the Commons is light. The government does not welcome criticism and scrutiny of its response to the economic and financial crisis. It time limits debates on the important matters. The Speaker has resigned, the Home Secretary has resigned, and as I write the Chancellor looks as if he has lost his job. All these changes create a sense of instability and drift.

When authority falls away from a government all Ministers find it more difficult to get things through, or they themselves start to wonder if it is worthwhile or sensible to try to do anything. It seems to many of them easier to put off a problem or to delay a new initiative.

So what should they be doing? They need to get a grip on runaway public spending and borrowing, to start with. MPs expense claims have given the lie to the idea that all public spending is under good control and is pared down to the essentials. Parliament needs a meaner and better administered system for MPs, and then needs to do something similar for the rest of the public sector. We need to get control of staff numbers in the civil service and the quangos, and control outside consultancy, travel, entertainment and other costs throughout the upper echelons of the public sector. We need to cancel undesirable and unwanted spending like regional government and ID cards.

We need to reform public services so the public has more say and more choice, and more of the money reaches the schools, hospitals and front line personnel who provide the service.

We also need to restore purpose and teeth to Parliament itself. Strong government should welcome a strong Parliament to cross examine it and keep it up to the mark. As a Minister I used to welcome regular and searching Parliamentary scrutiny of what I was doing, as Parliament often saw flaws I could correct or improvements that I could adopt to make things work better. We need Parliament to have more time to cross examine the government. We need longer and better debates on the main topics that matter most. We need less but better legislation, and more time for strategic debate and audit.

Parliament is at its best when it offers some menace to poorly performing Ministers and departments. Ministers are at their best when they listen to Parliament, and take its better ideas, and respond to its strictures. If Parliament cannot or will not do those things, it is failing the nation.

The press has done a good job exposing the expenses of MPs. The system has been far too generous, and some MPs have made bad judgements about what to claim. As someone who believes in transparency and value for money, I want to see reform and a much tighter system. I was one of only 25 MPs to oppose plans to exempt MPs’ expenses from the Freedom of Information Act, which would have stopped the truth from coming out.

I am glad David Cameron and Nick Clegg both offered to pay back some money they had claimed and have told their MPs to do the same where the claims were unreasonable. It is good to see more than £200,000 has already been promised back from MPs of all three parties, with more MPs still to be investigated. David Cameron was right to apologise on behalf of MPs, and to understand the importance of this issue to Parliament and the public we should serve. He was right to say Conservative MPs should only claim for mortgage interest or rent, Council tax, and service charges on a second property they need for their job.

In 2007-8 I claimed a total of £105,917. This made me the 19th cheapest MP, claiming around £40,000 less than the average. One fifth of that claim was the mortgage interest costs, the Council Tax and service charge and maintenance on a bedsit flat in Pimlico. It is entirely used to enable me to work longer days in London when there is important Parliamentary business. During my ownership it has only been slept in by myself. I do not need it for any other purpose. The deposit and repayments of capital are of course paid for out of my taxed income.

Some people locally think that I should travel to and from London by train on days when Parliament is in session. I have given this serious thought. My nearest station is Crowthorne. On two days a week business of the House continues until 10 pm, often followed by two votes. I am not able to leave until after 10.20 pm on such occasions. If I caught the 10.50pm from Waterloo, I would arrive in Wokingham too late to catch the last train to Crowthorne which departs at 11.43. Sometimes important business can go on even later. During the budget debate on the 12th May I made my first speech just before 4pm and my last at 1:15am. It was long after midnight that the issue that had generated the most correspondence from constituents finally came up. I was back at my desk at 7am the next morning.

With the flat I am able to be in my office by 7am to deal with emails and letters, and to write my daily blog to keep constituents informed about what I think and am doing. I can be back in the flat ten minutes after the Commons business finishes for the night. It enables me to save on staff and travel costs, as I can do more of the job myself. I write all my own speeches and all the daily web pieces, and do most of my own research.

I decided early in 2008 that although my claims were low by reference to others, I could do the job to a good standard whilst cutting my costs. I set myself the target of cutting my total expenses by 10% in 2008-9 and by a further 10% in 2009-10. As an advocate of getting better value for taxpayers across the public sector, I felt it especially important to show I could practise what I preach. I have preliminary figures for 2008-9 which show that I have cut by more than 10% in that year, which will put me more than £50,000 a year below the likely average MP claim.

Throughout my time as an MP I have always had a second job. The nature of Parliament often requires it, as for years I was a Minister, and then a Shadow Cabinet member. These were very demanding jobs requiring substantial travel around the country and a great deal of case work, meetings and reading. Like being an MP, these jobs require you to be on call seven days a week, and to undertake numerous evening meetings and events. When I have not had these responsibilities I have been a non executive chairman of a company, which has always made much less demand on my time and can be arranged to avoid any conflict with the Parliamentary diary.

At the beginning of last year I agreed to chair a new company for a friend of mine who had been made redundant, for no fee and light duties. Unfortunately he died young and suddenly of pancreatic cancer towards the end of last year, but not before he had expanded the company, creating nine new jobs and brought in outside shareholders. They have asked me to do more to help them, for reward. I have agreed a contract which states “There are no fixed hours of work. Parliamentary duties always take precedence.” I have therefore decided to do more for them at times of my choosing. There is more time available for example when Parliament is in its very long recess. I will make no further claims for Additional Cost Allowance, and pay for the flat which I think is wholly necessary for my job as MP out of my other taxed income.

I trust the proper scrutiny which is currently going into MPs costs and expenses will also be undertaken throughout the public sector. We need to ensure that everyone who is in public service, as MPs are, remembers who pays the bills and uses public money wisely.

We are in the midst of the debates about the Finance Bill in Parliament. I voted against the whole Bill last week, and will be seeking amendments to it this.

The budget was not the budget we need at this time of national financial crisis. We needed a budget that would start to control public spending and borrowing, before the whole country is up to its neck in oppressive government debt. Instead we got a spend more ,waste more, borrow more budget.

We needed a Finance Bill that eases the tax burden on people and companies to help the recovery. Instead we got a budget which marks the transition from Stealth taxes to Spite taxes.

I reminded the Commons in my speech that the way to tax the rich more is to set internationally competitive rates of tax. Then more rich people stay here and set up business here. They pay more tax here. When the Conservatives cut the top rate of tax from a confiscatory 83% to a more normal 40% the amount of tax the rich paid went up, and the proportion of income tax paid by the rich went up. Surely that is what we need again today? The economy grew faster.

The Irish did that on a bigger scale, slashing business tax rates and income tax rates. Their economy grew well for years, as more and more businesses and enterprising people opted for an Irish base.

We need to set a rate which attracts more entrepreneurs and capital here, and encourages people to set up the new manufacturing businesses we need to start to reduce the huge balance of payments deficit. We cannot go on living so far beyond our means. The day of reckoning has arrived. We need to make more and sell more.

The Finance Bill hit all the usual groups that Labour dislikes. Car drivers will have to pay more thanks to the fuel escalator and higher Vehicle Excise Duty in many cases. Drinkers and smokers will be hit again. Business people will need to wade through another 400 pages of legislation to make sure they are complying with the latest requirements.

Just to add to the misery, there are stronger powers for Revenue and Customs. Tax law is now so long and so complicated it is difficult even for the experts to tell you what you owe and what you have to pay. With the government in its current mood of wanting to rob anyone who works hard or makes a good investment, these new Revenue powers are worrying.

“Government of the people, by the people and for the people” was Lincoln’s immortal description of democracy, as he gazed on the battlefield of Gettysburg.

This government would do well to rediscover that.

They have picked a fight with too many largely law abiding people. They have created a nasty surveillance society, eavesdropping and spying on the normally law abiding. We need to save some money on the cameras, the prying, the email eavesdropping. The first public spending cut I would make is to cancel the ID computer and the ID cards. They will not make us safer, but the system will make us poorer.

They have picked a fight with too many MPs, on their own side as well as across the Chamber, by their juvenile and unpleasant spin. Mr McBride’s departure was widely welcomed by Labour, but it has not ended the culture of spin at the heart of government. Even in a crisis budget, which should have concentrated on sorting out spending and borrowing, they could not resist a “Tory tax trap” with a nasty 50% income tax on higher earners coupled with yet more tax on pension contributions.

They have undermined that mutual respect and support for our society and its traditions and conventions that keeps the social fabric together. They have badly damaged our freedoms and our democracy. We need to restore more of our freedoms, by strengthening the independence of the courts, the criminal law and Parliament so all can defend our liberties against a powerful executive.

When people no longer think their system of government is safe in the hands of an incumbent government, it is time for change.