Category: Articles

Labour are worried about a revival of the “extreme right”.In politically correct circles and on the BBC I hear talk of a stunning array of “extreme right” figures, movements and regimes. The “right” includes to such commentators military dictators, “conservative” clerics preaching religious hatred and intolerance, mass murderers, terrorist groups and others who pursue racist intolerance or authoritarian eclipse of the freedoms of others.

They lump alongside the extreme right numerous democratic groups and campaigners as “right wing” who believe in the opposite of such vicious approaches to government and community. It means that Labour and their friends in the BBC have stretched the language to breaking point, where “right wing” no longer means anything if it ever did.

The twentieth century was for many of us disfigured politically by two evil creeds, communism and fascism. To me they were similarly evil. Both entailed the establishment of tyrannies. Those tyrannies eclipsed many civil liberties, placed their citizens under surveillance by the thought police, diverted huge resources to military conquest and the suppression of their neighbours and made themselves rogue states to the international community. Their leadership killed opponents, and launched genocide against large minority groups within their conquered lands.

Some socialists try to distinguish communism from fascism, either defending its proponents like Stalin, or claiming that communism as practised was a distortion of the pure doctrine. None of us on what Labour call the “right” in British politics would ever dream of doing the same for fascism, as we loathe it with an equal passion to our loathing of communism.

In modern UK political dispute “right wing” has come to cover at least five differing groups of people or viewpoints, making it a more or less useless method of describing someone’s political outlook. The five outlooks I identify are:

1. Euroscepticism. Anyone who believes we should be governed from Westminster rather than Brussels, keeping the accumulated liberties of our country and using its representative institutions and courts as the main source of authority are now called “right wing” for such beliefs. This means that a substantial number of figures in the Labour party, including Tony Benn, become right wing.

2. Believers in free markets. Anyone who believes that in most areas of production and economic activity it is better to leave people and companies reasonable freedom to compete and choose, rather than putting more things under state control, is said to be “right wing”. This makes Gordon Brown “right wing” for his recent defence of free trade and free markets in Davos.

3. The Civil libertarian right. Those of us who believe in trial by jury, no detention without charge and trial, the right of free speech and the right to undertake peaceful protest, the right to be free of state snooping and thought monitoring are now said to be “right wing”. This also includes an honourable minority of Labour MPs who have faithfully supported civil liberties against the attacks of this government.

4. The authoritarian right. Those who believe in giving the state more power to eavesdrop, detain, monitor, and restrain in the cause of anti terrorism or civil obedience are also said to be “right wing”. This includes the actions of the present government, under the Blunkett wing of New Labour.

5. The Christian right. Those who wish the state to follow policies which accord with their views of Christian teaching are also often said to be “right wing”. In the USA the religious right are an important part of the Republican coalition. In the UK the causes of controlling abortion, the right to life, and the outlawing of various scientific practises and experimentation are not party matters but free vote ones. The coalition of support includes a number of Catholic Labour MPs as well as Conservatives. This part of the right also includes the wish to use some aspects of public policy to support the traditional family, which again runs across party lines.

Any analyst on the media who wishes to capture the cross currents and undercurrents of UK politics should understand this, and must conclude that calling someone “right wing” no longer tells the audience anything worthwhile about their position. When a term adopted from a different century and a different country is used so widely as a term of abuse, it ends up meaning nothing. As the above shows, no Conservative can possibly believe all the things the democratic right are said to believe, as the freedom loving and the authoritarian strands are in tension with one another. All democratic Conservatives are united in hating racism, communism and fascism.

I remember how quickly I was pigeon holed by the media when I first went to work for Margaret Thatcher. I went into Downing Street to advise her on the need to open the nationalised industries up to competition. I strongly urged more employee share ownership, and where possible employee buy outs of the public sector businesses. When I arrived the Prime Minister asked her press secretary to put out something about me to the media. I sent a suitable background brief. I was not happy the next morning when I awoke to read “hard liner” appointed to Policy Unit.

When I complained to Bernard Ingham, the Press Secretary, he told me to understand the reality. The government was split between wets and dries, between those who wanted to make an accommodation with the past and those who wanted reform. Which did I want to be, he asked. A hard liner or a wet? I protested that maybe life was more complex than that, but was forced to accept that if that was the choice he had made the right one for me. So a hard liner I was, even though I was arguing for rather different things from many people’s ideas of a hard liner.

I see myself as a democrat first and foremost, someone who believes in the power of the ballot box and the duty of elected representatives to listen as well as to lead. I have come to understand the importance of no detention without charge or trial, habeas corpus and the right to privacy for most people most of the time, the more our freedoms have been eroded by a Big brother state. Things I took for granted as a free born Englishman have come to be challenged or put in jeopardy in recent years. I still believe that it is better to leave more of the people more of the time free to make their own decisions. Free markets work better than state monopolies. Individuals work better if they have a stake in the business and are in some senses working for themselves.

Many of these freedoms are now under threat. Partial bank nationalisation is an assault on our freedoms as well as bad economics. All of who believe in freedom not only have to complain about the pressures on it, but do more to get it back.

The government is spending money like water in a dangerous way. Its endless schemes to prop up the banks are wasteful, delaying the necessary changes in the banks to sort out their past losses and mistakes. Future generations of taxpayers are being lumbered with huge debts, whilst the economy continues to decline rapidly.

I have set out an alternative much cheaper way of handling the banking crisis. The one helpful change so far in the government’s conduct is the realisation that RBS, a bank larger than our national Income, has to reduce risks and try to control its losses better. I regularly speak in the House when there is opportunity on the damage done to savers by the very large cuts in interest rates, to taxpayers by the profligacy, and to the economy by delay in tackling the underlying monetary and banking crisis.

There is no one single quick fix, no easy way of sorting out the excesses of the past. As a country we need to save and export more, and spend and borrow less. The adjustment is painful., At the moment government action is serving to delay it, and serving to penalise savers and exporters, the very people who we need to encourage.

Parliament has been badly damaged by this government. I am not allowed to table questions on where all our money goes in these banks, as the government claims they are “at arms length”. Yet we learn that a Minister demanded the sacking of the CEO of RBS without asking the right questions concerning the man’s pension arrangements. We are told by another Treasury Minister that they are going over all the bonus and pay arrangements in the state owned banks. That does not sound like arms length to me. In view of the colossal sums being spent and lost, Parliament should have a right to be told and to cross examine those responsible.

The government is undertaking too many expensive initiatives without giving any of them time to work. It needs to calm down, and do just two things well. The first is to get the money supply right, which it has messed up both ways in the last four years. The second is to get the banks to work their way through their portfolios of bad loans and poor investments, cutting risk and taking losses where necessary, with minimum recourse to public money. It should not be buying any shares in banks, given the scale of the losses. It needs to give powers back to the Bank of England so it can run our money markets properly and supervise our banks sensibly. The Brown reforms both wrecked our money markets and our banks.

I keep people up to date with the twists and turns of this crisis daily through www.johnredwood.com. There is a palpable and justified anger now about the incompetence of the authorities and the huge waste of money. The old rules have not been suspended by the crisis. It is better for governments to live within their means. Every penny spent should get us value. The money should be concentrated on front line staff, good service provision, and benefits for those in need. So often the deserving do not get enough, whilst spending on the government itself runs amok.

I look forward to some commonsense returning. If it does not we all end up the poorer, heavily in collective debt. You cannot solve a problem brought on by borrowing too much by borrowing more. You cannot mend the banks by transferring all their problems to the taxpayer. You need to work patiently away at every loan and every investment, to try to get the best result you can. You cannot create a sense of fairness if you reward those who made enormous errors and penalise those who try to take responsibility for their own lives and pay their own way. Today it is savers being attacked. Tomorrow it will be taxpayers, as the bills come in for all the debt this government is busily amassing at the taxpayers expense.

Now we the taxpoayers are paying, there should b e no discretionary bonuses at RBS. The senior executives with contractual bonuses should be asked to forgo them in view of the collosal losses.

If you own a business you are responsible for appointing the management, for deciding how to remunerate them, and setting them objectives. As the taxpayers representatives the government has a duty to tell the nationalised banks what their aims are, who will run them, and what we will pay them. They cannot deny all power or involvement. That’s a stupid cop out.

It’s none of the government’s business how much Barclays pay their staff or how big their bonuses are. That’s still a matter for Barclays shareholders as they refused taxpayer share capital. Barclays made a profit and can afford to let staff join in the success.

At least there has been recent briefing from RBS that they are at last going to slim the Group down to cut taxpayer risk. Let’s hope the government backs this or even encourages this. Or is this further evidence of banks we own but do not control? Was this a spontaneous policy on the part of the new management, quite unconnected with the interviews and job offers made? What is UKFI doing in all this to earn their bonuses? What guidelines are they setting RBS? I of course as an MP am not allowed to know, as my questions on it are blocked. People should not be so surpised. Many of my questions on all sorts of subjects relating to public money are blocked, and many of the ones that are allowed do not receive anything a normal person could call an answer. It’s just the way this government treats Parliament.

They are looking at cutting back the size of the investment banking activities substantially, as they should. They are looking at disposals of overseas activities. The sooner the better, as we need to get the bank down to a size the government can manage, before completing the return of the viable parts of the business to the private sector.

Meanwhile the Chancellor kicks bank bonuses into the long grass of a year long review. Why is it so difficult to accept the consequences of his mistaken nationalisation of RBS? Why can’t he come out and say as owner he wants to sell it off bit by bit as quickly as possible before it does more serious damage to the public accounts? And in the meantime there will be no bonuses for 2008, because the bank as a whole lost a stunning £28 billion and needed public money to preserve all its jobs. Cross examining past senior people from failed banks is not going to pay the bills. They walked away with their past bonuses intact. I do not ant my constituents having to pay more tax to subsidise highly paid bankers in loss making banks.

Last week the media’s attention was on the Treasury Committee’s cross examination of the failed bankers, men who have lost their job because they lost their shareholders and now taxpayers so much money. It was never going to be a very informative session. Their apologies will not pay any of the bills.

Meanwhile in the Commons chamber itself something far more important took place. The government sought approval for unlimited sums of money to be spent on propping up or nationalising any bank or related financial institution they choose.

We were given just 45 minutes of time to discuss this item, which was not nearly enough. I did speak, but under time pressure because other colleagues wished to talk as well. The Minister introducing it said very little in his introduction. It was a Money resolution, but he gave us no figures oat all of how much money might be involved or what we might be buying for it.

I pointed out to the House that if you added up all the loans, guarantees, share purchases and other financial provisions the government has made or promised in recent months to banks, it comes to around £1 trillion of cash and guarantees. (£1,000,000,000,000). It was the largest sum ever sought from Parliament. It is larger than the government’s version of total current liabilities of the UK government.

The Minister did not deny it could be £1 trillion. He did not leap to his feet with an official figure, or even suggest I was exaggerating when he came to sum up the debate. Once again I might have been too prudent in my calculation!

Worse still, the measure confirmed this government’s belief in nationalising very large banks. I reminded the House that we now preside over a large bank with a medium sized government attached. The government’s version of the state’s balance sheet has it that total state liabilities are under £1 trillion. The share purchases at RBS add a whopping £2 trillion to the liabilities on that balance sheet (and we hope they add to the assets a similar amount). RBS puts at risk more than three times the annual tax revenue of the state. As we saw last year, it can in a single year lose almost as much as the annual defence budget.

My colleagues Richard Shepherd and William Cash called a division on this spending. Only 7 of us voted against the open ended commitment the government sought. More than half of all MPs abstained, leaving the government to carry it with a minority of members.

The Commons needs to sharpen its act on holding the government to account on spending. Each item under the banking packages should be given proper time for debate and a vote if MPs wish. The government would do better if these issues were scrutinised more. It is a disgrace that I am prevented from tabling many of the sensible questions we need to ask on the risks and costs of running RBS. Now the government itself says it is crawling all over the remuneration and bonuses of that bank, it is high time they agreed to answer some questions on it. After all, we now have more money at risk in RBS than in the state’s annual budget. It is high time we were able to hold them to account for it. We could rescue the banks more cheaply and at much less risk to taxpayers. I will carry on explaining to them how they could do just that, by acting as an intelligent Central banker to the banks instead of buying shares in them.

The Obama package to save the world is now under scrutiny to see if it can even save America. Adding too much public borrowing to protectionism is not a winning recipe for success.

I can see why Mr Obama thinks that if he is going to borrow and spend such huge sums, he should at least say that the money should be spent on American supplies and American labour. After all, he will reason, the point of the package is to revive the US economy, so it must make sense to spend the money on employing Americans. The USA has been importing too much. It would make little sense for the US state to borrow more and spend it on imported Chinese steel or Japanese cars.

Unfortunately things are not as simple as that. Drawing up a list of useful purchases where the US is more likely to win the contracts is one thing. Placing a ban on products and labour from overseas is another. If the USA moves from the former to the latter, other countries around the world may follow suit, making it more difficult for the USA to export its goods. There would be no winners from a trade war.

Sometime the world has to address the huge imbalances between countries that lies behind the current crisis. Of the five largest economies in the world at the start of the crisis, two, the USA and the UK were borrowing too much, spending too much and importing too much. Three, Japan, Germany and China were saving too much, exporting too much and lending too much. Part of the crisis lies in the painful process of seeking to adjust to a point where the three creditors import and spend more, and the two debtor countries borrow less and export more.

Policies in the UK and the US to borrow more and spend more may delay this adjustment. In the UK the government’s attempts to offset the iron laws of economics have led to a sharp collapse in the pound, cutting the spending power of all of us and putting us off buying so many imported goods. This is offsetting some of the fiscal profligacy and thwarting the government’s hopes of avoiding a fall in living standards. If the US overdoes its attempts to borrow its way out of trouble, it too could run into difficulties requiring higher interest rates and a lower value for the dollar. The US reflationary package is dependent on the goodwill of the creditor nations continuing to hold US government bonds and adding to their holdings as new ones are issued in huge quantities.

The world needs agreement between lenders and borrowers. Adjustments need to be made by both groups of countries. The successful exporters and savers do need to spend more and save less. China has announced a reflationary package with that in mind. They do need to allow their currencies to appreciate, so imports are cheaper and more attractive to them. Some of this has happened with the sharp upward movement in the yen and the lesser upwards moves in the Chinese and German currencies. It is in the interests of the creditor countries to reflate, as their economies are being hit hard by the collapse in demand for their exports which have accounted for such an important part of their past economic activity. Germans need to buy more of their own manufactured cars and trucks, and the Chinese need to buy more of their own electricals and textile products, as the debtor nations can no longer afford to.

The US and UK authorities are taking very large risks by thinking both that they restore consumption levels to the unsustainable ones of the boom, and that they can at the same time underwrite their bloated banks and stand behind all their bad and doubtful loans. Their attempt to do so has not succeeded in avoid a severe downturn anyway, but it is delaying the adjustments needed to get back into some kind of balance on trade and in finance. Mr Brown seems to think the UK’s credit is unlimited and any kind of spending is a good idea. Mr Obama must be careful not to go the same route, as we need a solvent USA tackling the twin deficits he has inherited. The USA needs a period of borrowing less and exporting more.

Has the credit crisis changed the debate about Britain joining the Euro?

For those of us who support the idea of Britain having control of her own affairs, it will always be a bad idea to join the Euro regardless of the economic climate. The electorate needs to be able to appoint and sack the people who make the big decisions about our economy. This includes keeping the power to determine interest rates, the amount of currency in circulation and our budget deficit or surplus. The fact our Government has been making a mess of these powers does not justify scrapping them, but reinforces the case for keeping them under democratic control.

From a purely economic point of view, our economy is too big and too dependent on global trade and the dollar to fit comfortably inside the Eurozone. Were we to join the Euro we would suffer lost jobs and investment. In order to join, a country has to keep its currency stable against the Euro to show it has converged with the others. In the last few months we have moved from 60p to the Euro, to 71p, to 83p and now to around 95p. The fact we are now at parity does not mean that our economy has converged with the Eurozone, and the fluctuations indicate we are not about to. The Euro is the ERM you cannot easily get out of. The last time we hitched ourselves to a European currency scheme it did huge damage to our economy despite being recommended by all three political parties and the CBI.

To join the Euro a country must keep its deficit beneath 3% of income. Our Treasury is forecasting a deficit of 8%. While I want to see this reduced, going from 8% to 3% would be too far too fast, resulting in crippling short-term tax rises that would damage the economy further.

The EU would be foolish to want the UK in at any price. The Euroland is already struggling with the excesses of Italian, Spanish and Greek economic policy. Trying to incorporate Sterling would be a bridge too far.

People from the Irish Republic are rushing over the border into Northern Ireland to take advantage of the cheap prices in the shops as they flash their Euros. The shops in Kent and London are welcoming many continental trippers who find sterling prices cheap to them. On Sunday visiting a shopping centre nearer to home, I was struck by how many of the voices were speaking foreign languages.

The market is beginning to work, to adjust the big deficit in the UK balance of payments. Foreign shoppers will swell receipts, whilst UK shoppers will buy fewer foreign made goods as their prices surge. Families nervous of job prospects and finding it difficult to balance domestic budgets will cut back on foreign holidays. Gradually imports and exports will come into better balance.

The danger in the present situation is that many countries and currency blocs might like the sound of devaluation. The UK’s neighbours in Euroland are becoming unhappy about the very strength of their currency which makes UK goods and services such a bargain for them. The Euro area is demonstrating just how dangerous it is to impose currency union on economies and markets that had not properly converged in the first place.

There has been considerable worry about Portugal, Italy, Greece and Spain. None of these economies had been brought fully into line with France, Germany and Benelux, the core countries of the currency union.

The cost of borrowing money has risen for the governments of the weaker economies of the Union, despite the fact that they are all part of the same currency area with some implied obligations from the stronger to the weaker members. Spain is struggling with a property collapse, and all four are finding it tough to export at current levels of their currency.

Some Euro critics see in these pressures the beginnings of a break up of the Euro. They think that maybe one or more of the troubled countries will conclude they need to leave the Euro, devalue, and get more people back to work through such a realignment. Why not take the softer option to price yourself into work, rather than the tough option of staying within the Euro and having to cut wages and other costs?

I think this is a misreading of the Euro project. The single currency was always more of a political project than an economic one.
There is no easy way out of the currency. Whatever the people of the peripheral countries may think of their currency, their governments regard it as a matter of faith to stay in and manage the consequences.
At the same time as some members have to accept the pain that the common currency brings them, some are discussing British membership of the Euro again. German sources have confirmed to me that Germany herself does not think this would be a good time for the UK to join, as they are worried that at this rate of exchange the UK is too competitive for comfort. They see the recent large moves of the pound against the Euro, showing that the two economies have not converged. I think the UK government appreciates that 80% of the UK public are still against membership, and understand that the promise to hold a referendum before joining is a pledge they dare not break. Ministers regularly repeat the mantra that now is not the right time to join, even though they stick to the view that in principle they would like to.

My conclusion is the Euro club’s membership is going to be more stable than some commentators suggest. Weak countries will be reluctant to leave, and big new entrants will either be reluctant to join or kept waiting before they do. Looking at the economies of Western Europe it is difficult to conclude that the Euro area is a perfect size and shape. It appears that too many peripheral economies with different economic policies and circumstances have already been allowed in.

The British Chambers of Commerce report today that orders, investment and demand for labour all fell heavily in the last quarter of 2008. This will be no surprise to many people reading this. These declines are continuing in the first quarter of 2009. It is the inevitable result of the monetary policy mistakes of a year or so ago, and the weakness of the banking system.

The government is now rolling out a couple of schemes that borrow from ideas put forward by the Opposition – a loan guarantee scheme, and a subsidy scheme for employers taking on new workers. Both schemes can be helpful, but both need careful work on the small print. If you are offering a subsidy for a new hiring you need to make sure you are not encouraging an old firing at the same time. If you are offering a guarantee to banks for offering credit, you need to leave the banks sufficiently on risk if the loan goes wrong so the banks do not lose interest in assessing risk properly.

As the Chambers of Commerce survey should remind us, these two subsidy schemes are not of themselves going to turn round the plunging economy. Companies need orders. They will not be hiring extra people if their order books continue to fall by anything between 5 and 75%. We heard recently that JCB are currently producing just 25% of the volume they were making a year ago. No wonder they had to sack another 684 people. Companies do need overdrafts and short term loans to be able to pay the wages and pay their suppliers, but they cannot go on doing this on borrowed money if the demand is not there to justify the employee numbers and the material and component stocks.

We have got used to importing lots of good value products from China, India and other parts of the Far East. Many of these goods are produced by workers probably earning around one fifth of workers in the UK. Some of these workers are probably being sacked as we speak, as there is a sharp contraction of global demand for Chinese manufactures. They will enjoy little of the benefits and safety net that workers fortunately enjoy in the UK. These hard working and successful exporters are now experiencing more grief than we are, as they shed jobs more quickly in their manufacturing heartlands and leave people without a western style welfare fall back. The Chinese as a whole continue to save massively, and kindly invest some of their savings in UK and US government bonds enabling those governments to buy their products by lending them the money.

Recently the pound has nosedived. An importer told me the other day that he could go on offering low prices for imports for a bit longer, as he still had some stock bought at better prices, and had some currency cover in place. However, in a few months time this will have run out. Then the UK economy is open to the full shock of a 25% increase in import prices from the collapse of the pound. The government hopes that this will not just choke off demand for imports, but will kick start home output at better prices to replace the lost imports. The issue is will it?

Normally such a big price movement would change things dramatically. I hope there will be some positive change this time as well. However, we need to factor in the possibility that China(and other low price producers) will actually cut their wages and do whatever it takes to lower their prices again. UK producers will find it difficult to obtain the money, the permits and the facilities to start producing all the many products we have got used to relying on China to deliver. Prices and currency point to big scale import substitution, but UK companies are badly weakened by low or no profits, poor access to finance, and regulatory complications to expand capacity to drive out the imports.

There are no easy solutions to any of this. We do need a drive to substitute home made product for overseas, and need to get used to mending and improving using local labour rather than automatically reaching for the order form for a complete new overseas product. The currency move will push people in this direction. The danger is our companies are too weakened to respond as vigorously as we would like. In that case we will simply end up buying less and having fewer modern and working items, and will have missed another opportunity to strengthen manufacturing in the UK.

The government has in the last week admitted that its measures last year to sort out the banks have not done the job. I hope they will now make the changes to the regulatory systeam it is going to need to get the banks into a position where they can lend again.

The flight to “quality” allied to aggressive interest rate cutting by the Bank of England has taken bond yields down to unusually low levels. Today you could get 1% for lending to the government for one year, just over 2% a year for lending to them for 3 years and a little over 3% for ten years. Why would you want to do that?

The optimists about government bonds say that people are going to have to buy them. Cash on deposit will yield next to nothing if rates fall further. If we go into slump and stay there, and if price increases drop away, perhaps to the point where prices start falling, then bonds yielding 2-3% are a good bet.

So what could go wrong for the bond bulls? Governments could succeed in generating recovery sooner than they think. As economies pull out of the nosedive so interest rates would have to start going up again, and inflation could resume. Governments like the UK may hurl so much more money at the problem, ballooning the Bank’s balance sheet, printing notes and other wise expanding the money supply that they will start to generate inflation.

A bubble is when an asset class moves outside its normal price range and values, only later to fall back to earth. A few months ago many told us oil had to keep on going up above the $140 a barrel it had reached, because the Chinese needed so much of it. Today bond bulls tells us bond yields will have to go down, because they are the only safe investment in a world of very low and falling interest rates and plunging inflation.

They should remember there remains a very big seller of bonds out there. The UK government is planning two bumper years of bond issue in a row. You need to take your own investment advice, but anyone should ask themselves has the world really changed so fundamentally that lending to the UK government at 1% or 2% is a great deal? Will the market willingly lend as much as the government wants to borrow whilst paying ever higher prices for the bonds? At some point in the future people might be surprised that lending to the UK government at 1% was thought to be a good deal for the saver.