I have now been able to catch up with back postings. I have been very busy this week, giving four main speeches on different topics, one in Parliament and three outside. I appreciate your frustration if there is delay in posting a comment. The comments that get delayed tend to be long ones, ones with references to unknown outside sites, and ones with personal allegations against people or institutions that need checking, toning down or eliminating. I often just eliminate them as I do not have time to research them to make sure they stand up. I do not eliminate comments because I disagree with them. When I get time to post, the comments that come up first for me to deal with are the most recent.
I have asked the webmaster to see if he can make changes to make it easier to log on, and to keep your unique identity for future postings.I myself do not know how to make changes like this to the site.

Hard on the heels of a £5bn loss by RBS came news of a £570 million loss at Lloyds HBOS. It all goes to preserve Gordon Brown’s reputation as the nation’s worst investment manager. He sold gold just before a huge bull run in the metal. He bought bank shares in time for a long run of losses. The taxpayers are still waiting for the share prices to return to the higher price Mr Brown paid for them.

There has been some discussion here of what should be done with the shares in RBS, with some contributors asking for my view. Assuming the government keeps RBS together in more or less its current form, there are four main options.

1. The government could give the shares to UK taxpayers or citizens, an equal number to each. We could then individually decide whether to hold or to sell. The bank would no longer sit on the state’s balance sheet or have recourse to the taxpayer from the day the shares were transferred.

This proposal has two major drawbacks. The first is the state spent £45 billion of our money on buying bank shares. On this model the state gets no money back for its largest holding, leaving a hole in the public accounts. The second is a large number of people might want to cash in their shares as soon as they could, depressing the share price badly and leaving them feeling cheated if they got very little for the shares in a disorderly market. It has the great benefit of privatising the bank quickly, and giving some prospect of some money to every family in the land.

2. The government could transfer the shares now to taxpayers as above, but say we cannot sell them until the RBS share price has risen above the government’s sale price. On sale we would have to surrender the government’s acquisition price of those shares to the government – or a large proportion of it. We would gain any profit above the reserved price. This model removes the objection to 1 that the state does not get any money back, and helps somewhat to create a more orderly market, by getting people used to the idea that they have to hold the shares for a time period.

3. The government could sell the shares in the market like the 1980s large privatisations. Some shares could be offered more cheaply to employees, and there could be a discount offer of a limited number of shares for each taxpayer interested. The state would get money back from the operation, and the bank would be transferred to the private sector.

4. The government could offer tranches of shares to control the impact of the large sales on the market. It could sell some tranches to strategic investors prepared to take minority stakes in a large global bank.

There is another approach which I tend to favour. The government could require the further break up of RBS. Individual assets and companies, like Citizens Bank, their US bank can be sold off individually. This route has several advantages. It reduces the scale of any individual sale. It creates more manageable units. It could create more competitive banks for the UK market if the main clearing operations were split up.

Once again a Eurosceptic majority has managed to engineer the election of a Lib Dem Eurofederalist to Parliament. The EU federalists must be laughing all the way to Brussels.
It is remarkable that the Lib Dems at 8% in the national polls, and following their worst three weeks of news I can remember, should emerge as victors. No wonder we find it so difficult to get the new relationship with the EU we want.
Both the Conservative and the UKIP candidate made clear they find our current relationship with the EU unacceptable. They both wanted a referendum to allow the British people to vote No to staying in the EU. Between them they got 53% of the vote. Instead Eastleigh has a Liberal Democrat MP who opposes giving us that vote. We need more MPs in Parliament who will join those of us who have voted for an immediate referendum. Instead we have another anti referendum federalist elected with under one third of the votes.

The taxpayers’ bank is still struggling to make money. We are told that if you regard the losses as special items relating to the past the underlying bank is now profitable. The problem is we the taxpayers have to pay for the total losses. More radical approaches to the structure and sale of this banking group are needed.

         The Coalition’s inheritance on energy was a poor one. The previous government signed up to renewable obligations, to coal fired station retirement  and carbon policies at EU level without accelerating the investment necessary to provide alternative energy outputs. They spent many years asking for a debate on nuclear, without getting round to building replacement power stations for the old nuclear about to retire. This government now needs to accelerate progress, not just to try to get fuel prices under some control, but to keep the lights on and ensure enough power for business requirements.

      What are the options?

1. Negotiate with the EU an extension  to the life of coal stations pending the construction of alternatives

2. Accelerate the building of new gas powered generating stations

3. Press on with nuclear replacement build

4. Accept that the large amount of renewables now in build will require almost 100% back up by conventional power stations, as so much of the alternative energy depends on the wind blowing

5. Expedite shale gas extraction onshore

6. Continue or strengthen a favourable tax regime for offshore oil and gas, to raise the investment and exploration rate further in the North Sea and other offshore waters.

7. Improve import facilities and contract arrangements  for gas

          All or any of these approaches requires stability in the framework which will now require firm contractual commitments or clear promises which all political  parties will keep to reassure investors. Government has to allow energy producers the opportunity to make a fair profit. It also needs to ensure enough competition in the market to avoid monopoly exploitation of customers.

       The Italians are angry. Being in the Euro means big cuts in public spending to get their budget deficit down and keep it down. It means cuts in pay and spending power  across the board, as they suffer an “internal devaluation” to make themselves more competitive again.  The election results were a cry of anguish about the impact all this is having on families and living standards.

        The pay cuts are correcting the balance of payments. People can afford fewer imports, cutting the deficit on trade account. The Italian budget deficit is under better control than many. The worry the establishment shares in Italy is the need to refinance a very large debt inherited from former governments and decades. The establishment parties and personnel in the Italian government are keen to keep the squeeze on so the markets will not take fright at future borrowing requirements. The EU establishment is even keener, as the last thing they want is Italy to need special loans and support from the rest of the Eurozeone.

           Mr Monti was parachuted in as Prime Minister by the EU although he had not been elected. He replaced Mr Berlusconi, who was making Eurosceptic noises and  beginning to represent the dislike of EU austerity policies felt by many voters. Mr Monti calmed the markets and started to make some progress. Soon he discovered that without his own party and his own MPs in parliament he not get much done. They decided on an election.

            The European establishment threw its weight behind the centre left mainstream party, expecting them to win easily. They hoped Mr Monti too would poll well, and be able to assist the new centre left government. Instead Mr Berlusconi, mildly Eurosceptic, and the 5 Star party of Mr Grillo  polled more than half the votes. Mr Grillo campaigned against politicians, and in favour of a referendum on withdrawal from the Euro.

            The political establishment sees this as irresponsible and damaging behaviour by the voters of Italy. It is surely predictable? If people feel their living standards have been pushed down too much, and are offered no immediate hope of a better tomorrow, they are quite likely to complain and refuse office to those who have been the architects of the single currency led policy. Mr Monti’s  desultory showing in the elections demonstrates just what a huge chasm there is between the political establishment in Euroland and the voters.

            Markets and commentators are shaking their heads in disbelief. They are telling the Italian people they just have to knuckle down and do as the EU and Euro authorities say. The public may not have an immediate and better answer, but is not surprising they are demanding that their politicians find one. Permament austerity, locked into the single currency, is not palatable to many voters.

The original idea behind Plan A that we need a private sector led recovery to rebalance the economy and pay more of the public sector’s bills was a good one. The trouble was the government also tried to pursue other objectives at the same time. Several of these got in the way of recovery.

The government signed up to carbon taxes, renewables and dear energy. That has cut into people’s spending power, and made industry less competitive.
The government carried on attacking the banks and bankers, and forced them hold more cash and capital. As a result they were unable or unwilling to lend to smaller and medium sized enterprises to help them expand.
The government left RBS to get on with it, instead of insisting on an early and full clean up of the outstanding debts and balance sheet. As a result parts of the property market are still suffering from the overhang of the past, and a shortage of new credit for new purchases.
The government backed a High Speed Train plan, and more expensive replacement of railway bridges, instead of spending money on improving the crucial road network which transports more than 90% of our goods.
The Bank of England presided over a rapid inflation, which cut into people’s take home pay and left the markets short of confidence and spending money.
The government’s tax rates on higher incomes, on fuel, and on capital gains were too high, leading to a loss of revenues rather than bringing in more tax. These taxes meant some people left the UK altogether to earn large sums abroad instead, and others could only afford to do less. High inherited fuel taxes have hit everyone, and left many families short of spending power.

It’s that time of year when the government asks Parliament’s approval for increased spending within the 2012-13 year.
On cue I find on my desk three supplementary estimates for increased spending. The government plans to spend an extra £531 million in Scotland this year, boosting that department’s Expenditure Limit by nearly 2%. It plans to spend an extra £327 m in Northern Ireland, boosting the Limit by 3%. It plans another £107m in Wales, a rise of 0.7%.
It would be good to hear a bit from other MPs and the media about these increases and the reasons for them, at a time when we are told about “cuts”.

The problem with Plan A, the government’s June 2010 Plan to get rid of the deficit this Parliament, was it relied on a big hit on the private sector. The Plan was to increase cash public spending over the five years, and to pay for the extra spending and get rid of much of the inherited deficit at the same time by a huge tax increase. It was tax and spend on a vast scale.
It was misrepresented by many commentators as a big cut in public spending – because the original plans were for an even larger cash increase in public spending. Austerity was not visited on the public sector in the way it was on the private sector. Even now, during a wage freeze in the public sector, public sector wages are going up faster than private sector wages.
Now we hear endless arguments about sticking to the Plan. I do not know why. The government abandoned the Plan shortly afterwards. We are well into Plan B, which has delayed cutting the deficit because they now realise they will not get all the extra tax revenue they wanted. We are also into Plan C, a plan based on an attempted large increase in capital spending, the one area they did cut at the outset, based on Labour’s planned cuts.
Before people can comment sensibly on what the Chancellor should do next to rescue some growth, they need to understand what has happened so far. It is silly having to field interviews based on the false premises that they cut public spending, and that they are sticking to Plan A. This week I will be looking at the options for the Budget in more detail. I will include inflation and energy prices, banking and credit, public current spending, capital spending, and taxes.

Plan A June 2010

Total Spending 2009-10 £669bn 2014-15 £737bn (plus 10.2%)
Total tax revenue 2009-10 £479.7bn 2014-15 £656.5bn (plus (plus 36.9%)

(Red Book Budget 2010)

Plan B December 2012
Total spending 2009-10 £669bn 2014-15 £731bn (plus 9.3%)
Total tax revenue 2009-10 £479.7bn 2014-15 £604bn (plus 25.9%)

Green Book (Autumn Statement 2012)

Plan C
Add a £50 billion Infrastructure funding scheme to the cut level of capital spending in the original plans.

Plan B accepts a revenue shortfall of more than £50bn a year by 2014-15 compared to Plan A, leaving a much larger deficit and more borrowing.

Dear Lucy,

Just when I thought Ministers were learning of the compromises and commonsense government needs to progress, I am alarmed by some recent developments.

Our carefully crafted compromise over the EU designed to keep the Coalition together is in danger of being broken by the Prime Minister’s latest speech. Many of us are deeply unhappy about his new language. The UK does not need a new relationship with the EU. There is nothing to put to the British people in a referendum, as there is no new Treaty in the making that the Uk is going to sign. Some of us think it a pity we did not join the Fiscal and Banking unions, but understand the political sensitivites at the current time. We think ti will be very difficult to maintain our position at the European table with all this ultra sceptic rhetoric flying around.

The Foreign Office has rightly been saying under this government that it is in the British national interest to be a full member of the EU and to stay engaged. It has been long standing policy of all three main parties that the Uk needs to be a member of the single market. We need to explain this more to some of our current Ministers. They seem to think it is or should be a free market or even a free for all market. That was never the idea. It brings duties and responsibilities. The European single market is about regulation to combat climate change, regulation to ensure high labour standards, regulation to ensure it is a social market, regulation to promote more environmentally friendly methods of travel, and regulation to ensure high standards of health, safety and cleanliness.

We need to explain to the Environment Secretary that the agricultural and fishing policies are to do with solidarity and sharing around the whole European space. These were not entered into lightly, and cannot suddenly be renounced by the UK. We need to tell the Welfare Secretary that the UK does have obligations to people coming to the UK from other member states. We cannot have a welfare state for poeple already here, but deny it people arriving from elsewhere in our Union.

I do hope the Home Secretary’s wish to pull out of many of the Justice measures so carefully compiled in recent years will be tempered by the need to re-enter many of these agreements. We need to co-operate fully on justice matters with our partners, and need to grasp the requirement to share intelligence and enforcement with our partners now most of the border controls have been dismantled within the Union.

I will pass over our major worries with the Education Secretary, who seems to think he needs an alternative civil service to carry out his duties. I would be grateful to hear from you what we can do to prevent the march of unreason over EU matters.

I would also be grateful for guidance on how much we have to accept from the new arrivals in the form of senior Ministerial advisers from outside the service. We must avoid traffic accidents and misunderstandings , which become more likely if Ministers do not trust and confide in us, their faithful servants. The last government wrestled away control of media and communications from us, which was just about tolerable. It is not possible to govern well if they wish to take away control over policy as well.

Yours ever

Roy