Category: Articles

The Chancellor should say sorry.

He should say sorry for the deepest and longest recession since the Thirties of the last century.

He should say sorry for their regulatory system which did not see banks and building societies were going bust.

He should say sorry to all the people out of work or about to lose their job.

He should say sorry for the huge damage caused to many pension funds b y his tax and regulatory policies, leaving people with little or nothing for their retirement.

He should say sorry for heaping so much debt on the British people.

He should say sorry for the wild conduct of monetary policy in recent years, which stoked the boom and then plunged us into the crash.

Instead, he played silly and dangerous political games, seeking to use the budget to vilify the Tories and set them policy traps. He said Tories wish to do nothing, and wish to damage crucial services. This is simply untrue.

The Chancellor should give us an honest account of the dire state of the public accounts.

He should tell us they may lose us £200 billion through the banks they have bought and guaranteed, as the IMF have warned. That’s more than £3000 for every man, woman and child in the country. Even his own rumoured figure of losses of £60 billion means he admits he has lost every one of us £1000 on his bank nationalisation madness.

He should tell us the build up of debt has been too fast and too great, and poses us a big threat to our future growth rates and living standards.

He should tell us that his forecasts a year ago were wildly optimistic, and his forecasts last autumn were so wrong as to verge on the mendacious. He should give us a sober assessment of the extent and duration of the downturn

Instead, he went for too low a figure for banking losses, was wildly optimistic about the extent of the recovery in subsequent years, and continued to understate the future debts by a huge margin..

Finally, the Chancellor should say that he intends to start getting the UK public sector to live within its means. He should not delay this until after the next election, and not treat reducing public spending as some kind of imaginary game or political challenge to the Tories. He should instead this year make large reductions in undesirable, wasteful and not strictly essential expenditure. Schools and hospitals, nurses and teachers should be safe. ID cards, centralised computer systems, unelected regional government, more subsidies to banks and other large companies, increases in regulation and public administration will all go. He will require all MPs to cut their costs and the costs of Parliament by 10% to show a lead.

Instead, the cuts have been delayed, are political, and often not for real. It was a fantasy budget and a very political budget. It was the McBride memorial budget.This government not only divorced Prudence, but continues to hold a drink and drugs party on her grave. That is bad news for all of us.

What do we want from the budget? We need some better control over the public finances so we do not get pushed more and more in to collective debt. We need better management of the public services, so they deliver more for less.

Consumers are still spending. The latest figures show that has held up reasonably well. The savings rate is also on the rise, mainly owing to people borrowing less or repaying some debt. That’s no surprise, given how difficult it is to get a loan and how overborrowed some had become. The public is learning to handle the new situation, by getting out of debt and by shopping around for the bargains and discounts.

Those with floating rate mortgages and other loans have the pleasure of deciding how to spend the extra money they can keep as interest rates disappear, as long as they keep their jobs. Those on savings income have to tighten their belts, as their needs are ignored.

The two parts of the economy we need to do better, business and exports, remain weak. The government continues to hijack the money , increasing the squeeze on companies through its taxes and regulations. We need a recovery based around increased business investment and a higher level of exports. So far we just have the favourable consumer impact from lower interest rates and the extra incomes of the growing army of public sector employees.

We learn that Mr Darling may admit he needs to borrow a colossal £175 billion this year to pay for all the excess in his public spending figures and to feed the ever hungry nationalised banks. That’s borrowing £3000 extra for every man, woman and child. It would be good if he would start by admitting he borrowed more than £150 billion in the year to March 2009, and not the £78 billion he told us about in the Pre Budget Statement. We need an honest presentation of how bad the public finances are before we can start to clean them up.

We also learn he will be setting out some combination of higher taxes and lower spending to start to plug the gap in the Budget. The problem with higher tax rates is they can send business abroad and jobs overseas. In a highly competitive world you need to keep tax rates at a competitive level in order to maximise tax revenue. The UK is no longer very tax competitive and needs to be careful about any proposal for higher tax rates on individual and company income or gains.

What we need are some cuts in public spending. Not from the 25% of public spending that goes on the salaries of nurses, teachers, doctors and other front line service providers, but cuts from the rest. What we need is a government that understands spending too much will cause problems raising the money, will crowd out the private sector, and will make bringing the balance of payments back into order more difficult.

You can’t solve a crisis brought on by borrowing too much by borrowing more. Government spending is not necessarily reflationary, as you need to take the money from the private sector to be able to spend it in the public sector. Let’s hope this budget begins the necessary process of sobering up. The Prime Minister did not merely divorce Prudence. He is now holding a drink and drugs party on her grave.

For a decade now we have been sold the mantra that public spending is investment and that every penny of it is well spent and well judged. If any of us suggested some of the spending was wasteful, or undesirable, or not a priority we were immolated in a fire of words claiming wrongly we wanted to sack teachers or throw nurses out onto the streets.

It took an 88p basin plug to help undermine that. It’s unfair on both the inoffensive plug and the Home Secretary. If Parliament allows MPs to claim for the costs of maintaining second homes, then the odd plug will qualify for the careful and bureaucratic MP who remembers to keep the receipt and fill in the form. If only all public sector claims were so small and practical. One has to assume the MP or her assistant installed the plug themselves on that occasion, unlike normal practise in the public sector where procuring and installing a new plug would be a complex and expensive task involving the expenditure of much more than 88p. I wonder how much a new basin plug in the executive loo at the local Council costs to buy and install? It would be a lot more than 88p, and would not appear on the list of personal expenses of the Chief Executive.

The passion and anger over basin plugs and the like reflects the public mood that MPs, along with much of the rest of the public sector, just does not offer value for money. If you look at the full extent of the £93 million MPs claim you will soon realise that the main cost by far is the cost of employing people, not the cost of plugs or even patio heaters.

Some of my fellow MPs think it is grossly unfair that all these figures for our total expenses get published. They point out that when the local Chief Executive of the Council gets some adverse publicity for being on a large six figure salary no-one also adds in the salaries of his or her deputy, assistants, secretaries and other hangers on. When some quango head gets done for his exotic travel at the taxpayers expense or for his energetic wining and dining for the public good, no-one adds in the cost of running his private office in the quango, yet that office spent time and our money organising the trips or the jollies.
I think they are missing the point. The anger directed to MPs is a good sign that there is some health and life left in our democracy. People think it is worth being angry about MPs, because they might be shamed into spending less or changing the rules so they are less offensive to the public that pays the bills. People do not think they can make other public sector bosses responsible for larger abuses elsewhere in the public sector accountable in the same way.

The searchlight of public opinion needs to be well directed to start to get us some value for money out of this vast increase in public spending the government has presided over. If MP s together are claiming too much by way of expenses, then so is the whole public sector. There is a generalised culture in quangoland and Whitehall of travel, eating and drinking at the public expense, of employing more staff to do your work, and contracting out anything difficult or risky. The biggest cost by far is the cost of employment. It is the surge in the numbers of administrative staff, spin doctors, secretaries, case workers, regulators, glossy brochure writers, press release authors and the like which characterises the poor value public sector.
This culture is obvious in Parliament, in quangoland and in many a local Council. Some MPs have staff to write press releases, to produce blog text, to write speeches, to draft questions, to attend meetings about important issues. Surely an MP wants to ask their own questions or make their own speeches? If we can’t find 645 people who do want to do that and are capable of thinking for themselves, let’s have fewer MPs. The same is true of many quangos and Councils. I am often approached by paid staff at these bodies urging me to send out a press release they have already drafted for me, complete with a quote from me! This is from people who have never met me, let alone taken the trouble to find out what I think about the issue by reading my website or books.

The best response MPs could make to the criticism of the £93 million is to do it for less next year. My expenses were £40,000 below the average in 2007-8, and I intend to reduce my costs further. That’s what private enterprise is having to do. Why should we assume we can tax everyone else more to pay the extra? We do need a wind of change to sweep through the public sector, concentrating money on the public services and transfer payments people want, and reducing the rest. I am happy to pay for the basin plug, but not so happy to pay for all the spin doctors and quangos that have multiplied like crazy in recent years.

The G20 agenda was always going to be a bizarre mixture of items reflecting the very different perceptions and priorities of twenty different world governments, and of the other countries and international institutions in attendance.

The leaders were unsure whether to spend more of their time on discussing how to get out of the present international economic downturn, or on trying to prevent something similar happening again. They were more willing to discuss greater regulation and higher borrowing in the future, than how much stimulus to apply to the present.

The US and the UK were keenest to get others to spend and borrow more. No country was prepared to use the summit as a platform to offer tax cuts or spending increases above those already announced.

Instead agreement was reached on putting more money into the IMF so they can lend more in turn to countries that get into serious financial difficulty. This was presented as a policy to help the developing world, but may need to be called on to support higher income countries that can also borrow too much and reach crisis point in bond and currency markets. Those who borrow too much will be able to borrow more on terms to be settled in the future.

The French and Germans were keenest to clamp down on tax havens, hoping to drive business back from lower tax jurisdictions to higher tax countries like their own. They will settle for a list of offenders with gradations of opprobrium to be heaped on places that dare to offer lower taxes with insufficient transparency. They were also keenest on more regulation in the future to try to stop run away banks. Whilst the structure of largely national regulation will be kept, there will be suitable words about international co-ordination and tightening of efforts. It will only work if regulators suddenly become capable of reading the cycle and willing to demand more capital and cash when all is going well. They haven’t been able to see the need for this in the past.

The myth of the summit was that all the leaders needed to agree and to do the same thing. What we want is for the countries involved to do very different things, for their own crises are different. Germany, Japan and China need to borrow and spend more, to import more , and to save and export less. The US, Spain, Ireland and the UK need to do the opposite. They need to export and save more, and to borrow and import less.

Their solemn declaration that they will not pursue protectionist policies is unlikely to be followed in practise. Many countries are now trying to devalue their currencies to gain a competitive edge. Many countries are offering subsidy to their financial and their industrial sectors. Some are even looking at ways of buying home produced at the expense of imports and examining tariff and non tariff barriers to foreign goods and services.

What matters is the changes being made to monetary policies throughout the world. These, and their currency impacts, will scarcely get a mention but they will largely determine what happens next. There are signs that the massive sums being committed to banks and markets are beginning to have an impact on some asset prices and on commodity prices. It looks as if the authorities favour another bout of credit expansion and inflation, but they will not want to mention that in the communiqué.

The only thing we can be sure about is we, the British taxpayers, will be picking up the bill. As good hosts we will buying the lunches and the dinners, the limo trips and the goody bags. Londoners will find it difficult to get round their city as barriers are put in place and the menacing security clamp comes down.Only go to London this week if you cannot avoid it.

The main players all want something different from the meeting. China wants her financial strength recognised by more votes and more voice in the big international financial fora like the IMF. If you are paying more of the bills you expect some say. Germany and France want to bridle Anglo Saxon capitalism, using this opportunity to insist on worldwide regulation of hedge funds and shadow banks. Spendthrift America wants to persuade all the others to spend like there’s no tomorrow to make US borrowing look more reasonable. The UK wants to regulate, tax and spend on heroic scales all round the world.

All are likely to be disappointed. China will be told she is important, and will have more power, but not yet. Germany and France will be told there will be regulatory review, but there will be no rush to put in place new rules that work. Both the US and the UK will have to announce again the stimulus packages already announced long before the meeting, as n o-one seems to want to deliver a new one this week, or if they do fears the markets will not accept yet more public borrowing to pay for it.

They will all agree that this is no time to introduce protectionism, when world trade is slumping. They will not mean it. The US is considering subsidy to its auto industry. The UK and the US are up to their necks in subsidies and favourable financings for their banks. The UK has already allowed a big devaluation of the currency to try to steal a march, and several of the other big economic powers would now like their currencies to fall to make things easier. The UK talks of “British jobs for British workers” and the US wraps policies in the flag.

They will also all agree to attack the offshore centres around the world from Jersey to the Bahamas and from Monaco to Bermuda. They are small enough to gang up on, and offer the prospect of easy pickings for the tax hungry large powers. Even this may defeat them, as the tax havens may prove fleet of foot in offering something whilst preserving their special advantage.

I don’t think we in Wokingham should expect the world to be transformed or the economic problems to vanish like magic this week. We can be sure we will just collectively be more in debt at the end of the week than at the beginning.

On Wednesday 11th we were told the Bank of England will create £2,000,000,000 to buy government bonds back from the people and institutions who had bought them. The reason given by the Monetary Policy Committee is that they need to create more money. This is the first of several such visits to the printing presses, with a target to create an extra £75 billion in the first instance.

We need to ask why? If you take the last three months figures for money supply and express them as an annual rate, the recent rate of money creation has been lively. The latest figures show notes and coin growing at 12.2% – that is literally printing money – and wider money including all our deposits in banks growing at 22.6%. Yes, 22.6%.

It is true that in August 2008 notes and coin was only growing at 2.7%, and a year ago wider money was growing in single figures. It is a pity the Chancellor was unwilling to come to the Commons to explain why he has given the MPC permission to go ahead with this experiment, and why he has been silent on how much money he wants to create. If 22.6% is not a fast enough growth rate, can he tell us what growth rate he does want? I guess, given the sums involved, he wants to boost the money growth rate above 30%, which would certainly be racy.

The hope of the scheme is that this extra money will be spent on home produced goods and services, bringing factories back into use and leading to more people having jobs. Unfortunately it can also go elsewhere. It can go into pushing up prices, it can be spent on more imported goods and services, it can linger in bank tills and book entries and go nowhere as the broken banks throw an extended fit of caution after their past excesses.

The government is doing it in the spirit of “we will do whatever it takes”, and this is just one of many initiatives. I think it is dangerous to be putting so much at risk in the banks and running such a huge borrowing requirement at the same time. The pound is taking another pounding on the back of the government’s risky gambles. It means we are getting poorer by the day, as our money buys us less and less from the world market. Expect more price increases in the shops as the lower pound works it way through.

I support action to get the economy moving again, and to help businesses through the recession. The danger is this government is juts plunging us all ever deeper into common debt. These are bills we will all be liable to repay in the years ahead.

When old maids bicycled to holy communion and men drank warm beer, the bank manager knew each of his customers. He knew whether they were honest, how stable their job was, and whether he could risk a loan to them. You could deposit money with the bank without having to show your passport and a gas bill. You could get a mortgage limited to a modest multiple of your salary if you had already saved for a deposit.

I like the modern world, and live for the future to be better. I love the anarchic democracy of the internet, the sleeker greener and faster cars, the sophisticated TVs and the organic products that the modern marketplace has created. I even like the ability to use some modern financial instruments to manage risk. In this one area of banking ,however, there was commonsense and magic in the old arrangements that we have lost at our peril.

We need a new generation of bank managers in the branches of our largely nationalised banks who take time to size up their customers and work out how much they are good for when it comes to lending. We need them to nurse many customers through this damaging downturn, correctly identifying those people and businesses who will be able to honour their debts in the fullness of time. They also need to be shrewd and tough enough to close down the problem loans where it is unlikely they will get the money back, before more is lost. It is difficult to make these judgements from head office, or by running a new computer programme based on clever mathematics. It’s the people, stupid, in the end.

What is true of the local branch should also be true of the nation’s Bank, the Bank of England. The Bank is the government’s way of running the money markets and banking the banks. Just as you or I go to RBS or Barclays for our current account, so the big banks bank with the Bank of England. Their bank manager is the Governor.

I think it was huge mistake to demand much more regulatory capital in a hurry last autumn, and to force three big banks to go to the government to get more share capital to meet this requirement. It meant the taxpayer was forced into buying banks shares at prices which now look very high. We have already lost a packet on the deals. Instead, if the banks needed financial help, their bank manager should have given it privately, behind closed doors, and on loan terms which forced those banks to sort themselves out.

I find it offensive that taxpayers often earning far less than the bankers are being asked to stump up huge sums from their taxes and future taxes to bail out high cost banks. Putting so much money into them without proper banking terms has allowed them to go on paying megabucks and mega pensions to chosen employees and leavers as if nothing had happened.

If the Governor had been asked to be their bank manager instead of the government becoming their owner, it could have been very different. As a tough and experienced bank manager he would have demanded a plan from them to get back into profit as quickly as possible, He would have asked them to raise more of the money they needed by selling some assets. He would have told them to cut the size and risk of the Investment banking arms immediately. Taxpayers should not be bailing out or standing behind casino banks.

He would respond robustly to the nonsense that these banks are so complex you just have to pay up or else. He would have told them to become less complex as quickly as possible. He would not have accepted the government argument that these banks were so large, posing a risk to the whole system, that they simply had to be given huge sums of new capital. He would have said to them that he had no intention of letting them go down. Nor would he featherbed their pay and bonuses, or put up with atrocious management of investments in dangerous financial instruments.

All is not lost. We still need the intelligent bank manager approach, both on the local High Street and at the Bank of England. Alistair Darling should stop acting as subsidiser of first resort to these badly run banks, and let the Governor – or Labour’s new bank quango chief -get with the job of making them shape up. Couldn’t their Chief Executive start by telling all the highly paid staff in the nationalised banks that they could keep their jobs only if they accepted senior civil service pay with no bonus, until they have got their banks out of the losses and onto a proper financial footing?

I don’t drink much warm beer myself, but my constituents would love to be able to carry out financial transactions again with bank managers who know their customers and who do not need to have a gas bill, passport and ten page form every time you want to do something. I would also be greatly relieved if I knew the national finances were being conducted with the taxpayer looked after. The present situation means too much risk and too much expense for taxpayers, and means delaying sorting out the problem banks.

The Credit Crunch has brought a rash of moralisers onto the media to condemn the immorality of bankers and capitalism. My advice to all who feel a strong urge to do so is to remember the Christian injunction, let he who is guiltless throw the first stone.

The moralisers think the crisis is an easy story. A small group of very greedy bankers lent too much so they could pay themselves huge bonuses. The answer recommended by these self appointed national preachers is equally easy. Nationalise the banks, and in some magic way lending too much and paying bankers too much will no longer be possible, whilst at the same time the economy will miraculously grow again. As we have seen, the nationalised banks still seem to pay large pensions and salaries to people working for loss making concerns, whilst the government itself decides it and its nationalised banks need to lend and borrow more, not less. Meanwhile the economy goes from bad to worse, with all too many people losing their jobs or their businesses.

If lending too much was greedy and wrong, wasn’t it also wrong for so many people to borrow so much, especially if they cannot now repay it and are going to walk away from their obligations? Who was more guilty – the lender or the borrower?

If the bankers who did the lending were greedy and wrong, weren’t the shareholders in the banks similarly guilty as they were happy to receive the dividends from all that excessive lending? Didn’t that include most people in the country? The Church Commissioners who pay the clergy salaries doubtless owned lots of bank shares, as did practically every pension fund in the country. I don’t remember them speaking out at Bank shareholder meetings asking for the banks to grow less and pay smaller dividends.

If the bankers who did the lending were immoral, surely the governments and Regulators who allowed them to do so by signing off their balance sheets and business plans were also wrong? Weren’t they employed as upholders of public morality, and didn’t they set the tone for the age of irresponsibility?

And if it were morally wrong for us collectively to borrow too much from the private sector, isn’t it even more immoral for us now collectively to borrow staggeringly larger sums through the government, as we are being forced to do?

It it were immoral for the authorities to sanction so much easy credit in the good days, wasn’t it even more immoral for them to bring the whole system crashing down in the bad days, by hiking interest rates too far and by demanding the banks suddenly held more capital? Why is too much private sector credit immoral, whereas too little private sector credit is moral? And why above all is too much public sector credit moral? Is printing money the height of morality and responsibility, a new kind of public duty, as some now have it?

I think it unwise to make this a morality tale. I could take no pleasure in thundering against the immorality of one or two scapegoat groups. We all lived through the age of private sector irresponsibility, and are now all having to live through the age of government financial irresponsibility. It’s a very one sided morality which condemns lending too much but does not condemn borrowing too much. It’s even more bizarre that over lending only matters if it is done by a private sector bank but is encouraged if done by a nationalised one. If lending and borrowing to excess is immoral these moralisers should be on the airwaves condemning the excess of public debt now being built up on a scale which dwarfs the credit boom of 2003-7.

I have expressed my strong concerns about the way in which the government is combining printing more money with borrowing to excess and putting so much of our money into damaged banks. I want them to cut our risks in bad banks, and make those banks sober up and sort themselves out. Giving them too much money too quickly just delays the day of reckoning.

The government is taking too much financial risk. Taxpayers are being dragged further and further into massive debt.

A couple of years ago the government claimed that national debt was around £500 billion, or under £10,000 a head. This was understated. You really needed to add in the pension liabilities of the state, and the money borrowed under the so called Private Finance Initiative. Even a cautious accountant would have concluded the total was around the level of the national income, or say £30,000 a head.

Today the numbers have gone crazy. RBS has a balance sheet larger than the National Income. We the taxpayers now own most of it. That more than doubles the national debt if you add it to the state’s balance sheet. Meanwhile the government aims to borrow another £157 billion this year and almost as much next year on its current probably understated forecasts. The national debt and the state’s liabilities now add up to more than £4000 billion , or nearly £70,000 each.

The government defends this rapid run up in debts and guarantees on the grounds that there is no alternative. They say they need to underwrite all the big banks, and offer them as much as it takes. They also think they need to spend more than they collect in taxes on an ever bigger scale to “reflate” the economy. The banks after all have assets as well as liabilities.

So far there is no sign of either of these very expensive policies working. What should they do instead to get us out of this ever bugger economic hole we are in?

They need to offer the banks tough love. They should not rush to put so much money in. It just delays cutting the costs, writing off the bad business and sorting out the casino banks that the majors all added to their balance sheets for no obviously good reason. I do not want to see a major bank go under, but I do want to see government tell them to clean up their acts for themselves, with as little recourse to taxpayer loans as possible and no recourse to taxpayer share capital.

They should remember that spending more to “reflate” means the private sector spending less. The private sector either has to save more and lend them the money, or pay more in tax so they can spend more in the public sector. Neither way of paying for it is necessarily reflationary. It just intensifies the squeeze on the poor private sector.

The private sector needs more demand, more orders, more money coming in from customers,. It does not want more bank loans if there is going to be no improvement in demand, for that just delays bankruptcy a little and means the business ends up losing even more. If the public sector keeps on squeezing, that will make matters worse.

We need the government to understand there is no quick fix or magic formula. You cannot borrow your way out of a crisis caused by over borrowing. There needs to be intelligent and painstaking work to right the banks and right the economy. The government is borrowing too much to support the banks, and needs to stop.