As Mrs Merkel drives Euroland towards greater EU control over budgets and economies I would like Mr Cameron to say the UK needs a different relationship with this emerging state. It is up to them how they pay for their currency and their wider union, as logn as we are not expected to contribute. The UK should only consent to the changes they need if we get protection from the legal and financial demands they increasingly wish to impose on us.  I will write more tomorrow about this.

 

           Thanks to the policies of the last government, the UK entered this decade as one of the most heavily borrowed countries of all. Private sector borrowings peaked at more than 200% of GDP. The company sector has cuts its debts a bit  in the last two years despite the lower levels of activity, and individuals have stopped their debts overall from going up any more. The public sector has debts of around 250% of GDP.

           The last government claimed UK public debt was under 70% of GDP, as they just quoted the figures for state borrowings through the issue of bonds. This debt is now around £1 trillion. On top of this there are the debts of the banks where taxpayers have a stake. This adds £1.4 trillion to the total. There are then the unfunded public sector pension liabilities of £1.3 trillion. The new government has set all this out, to give a more honest account of the UK balance sheet.

            Some say you should add in the future costs of the basic state retirement pension scheme. The government thinks this is balanced by future NI and Income tax revenues, and has always been a pay as you go scheme, so it has not chosen to do so. I have no disagreement with their approach, as you have to draw the line somewhere  about how many items of future public spending you capitalise, and how many you treat as a call on future income.  

            The government, the Opposition and most commentators agree that the current levels of UK debt are too high, and need to be controlled, and eventually brought down. The argument is not over whether to do this, but how, and at what pace.

           I think the government needs a strategy to tackle all three elements of the balance sheet weakness in the public sector. I think it needs to do it speedily, as the overall levels are far too high and far too risky for taxpayers. Cutting banking risk for taxpayers is to me an urgent priority. Governments are not well equipped to run banks. Taxpayers should not be standing behind the large position  risks run in say the RBS investment bank, and subsidising the large salaries they still pay as if they were a profit making privately financed operation. Yesterday’s decision to sell Northern Rock at a loss was a welcome first step.

          There is no point people tut tutting about losses on these holdings. The last government  was wrong to buy these stakes at the prices they paid. We were bound to lose money on them. Recognising  the loss is a necessary part of sorting them out and passing them on to owners who may be able to make them useful to our economy and turn a profit.Those profits can then be taxed.  That was why I at the time recommended controlled administration.

              I said they  should only support the few bits that really mattered, and let the shareholders and bondholders take the hit on the investment and overseas banks and other non bank businesses.  It was  a policy recommendation which prefigured what are now call living wills. I am glad the policy has been adopted for the future. It is just a very epxensive pity they didn’t do it last time. There is little point in extend and pretend, trying to believe that the assets are worth what you want them to be worth instead of worth what the market now values them at.

          Former Northern Rock shareholders feel badly treated. In the summer of 2007 I argued that the Bank of England and the government should have put more money into the wholesale markets. Had they done so I do not think Northern Rock would have gone bust . They put more than I suggested into the markets, but only after the troubles at the Rock. Timing is everything.  Northern Rock started with a liquidity problem which the authorities refused to help sort out. It became a more fundamental problem, as the shortage of money brought on a drop in property values, which damaged a mortgage based bank. It was all predictable and avoidable. Becuase it was not avoided, shareholders have to accept that their bank did go under and so they lost their money.

            The government is attempting to cut the unfunded costs of public sector pensions.  We might well return to that in more detail at a later date.

               Most of the attention is focused on the smallest of the three liabilities, the public debt proper. Labour is now arguing that the government will borrow £100 billion more than their original plan. I have made it clear for months that the government is bound to borrow more than the forecasts in June 2010. The government itself raised its estimate of the extra amount it would borrow over the five years by £34 billion in March 2011, so it’s not much of a surprise. The mainstream media ignored this change of forecast until this week, but are now taking it more seriously because Labour is highlighting it.

                     In previous pieces I have said I expect the government to forecast a further increase in the 5 year borrowing when they make their Autumn  Statement at the end of this month. I estimated that they will probably say they need to borrow extra  over the five year period, to allow for the slower growth they need to assume for this year and next. It is likely that the Bank of England’s lower forecast of growth, taking it down to 1% this year and1% next year, sets the tone for the official OBR forecast in the Autumn Statement. This compares with 1.7% and 2.5% in the March official forecast. Losing that amount of growth will lose more revenue on top of the £34 bn adjustment made in March. Labour has made claims that the extra  adjustment in this Autumn Statement to the official borrowing figure  will be much bigger than the March adjustment, which seems to me to be unlikely.  

                      The government has rightly said it intends to remove the structural deficit over the lifetime of this Parliament. It has reaffirmed that it will do this despite the falling growth forecast.It can do so and should do so. The total borrowings over the period will however, be higher than the 2010 plans, as the cyclical deficit will be higher. This is all very old news to readers of this blog, as we have reworked the figures before. It is also common ground between Labour and the government that the best answer to get the deficit down more quickly is faster growth.  The battle of the Autumn Statement will be about how you can do this.

                 In order to succeed in eliminating the structural deficit the government might be wise to have a freeze on current public spending for a period, instead of persisting with increases in cash spending. Over the last year,as most in the media refuse to acknowledge, real public spending increased, as the government’s own official figures for GDP make clear.  Today’s news that the MOD has been spending £25o million a year on consultancies to help it buy things show there is still plenty of low hanging fruit for it to cut out. What is true of the MOD which is being asked to make real cuts, will be even more true of depertments allowed to increase their spending.

 

 

         I support the sale of Northern Rock. I will write tomorrow about why, and how we need much more action to cut the financial risks of the state. This is an important small first step in reducing the massive inherited liabilities of the government.

          Meanwhile, bond yields for Spain and France are rising, showing the Euro crisis is getting worse.

Today’s 10 year government bond yields:

 

Greece   28.9%         15.4x Germany

Portugal   11.3%         6x

Ireland   8.2%            4.4x

Spain    6.97 %              3.7x

Italy    6.86%                3.66x

Belgium   4.9%             2.6x

France      3.6%            1.94x

Austria     3.6%           1.9x

Germany 1.87%          1x

 

              Parliament has woken up to the bad habits of some private sector car parks.  MPs want a limit on fines and clamping when people make mistakes in a private car park, or when they try it on and seek to avoid payment. Let’s hope the new rules work.

                Most of the parking problems I encounter for constituents relate not to private sector car parks on someone else’s land, but to public sector car parks on the public’s land.  Car parking should be a public service. It has been turned into a branch of the criminal law, in order to provide a steady stream of public revenue from fines and charges.

                Of course Councils need to keep the highways free flowing. Providing more off street car parks is a good way to do this. Where on street parking is allowed, it should be organised to avoid blocking the highway. Where people ignore the parking areas and decide selfishly to block a road or a driveway,  I have no problem with enforcement being tough.

                 Increasingly Councils impose more complex rules and higher charges on parking in designated places on and off highway just for the sake of it. There is a current passion in many places to narrow roads, removing parking places at off peak times in the process.  There is a growing love of complexity, so an individual needs to study the rules carefully before being sure that they can park in a designated place at a particular time on a particular day.

                 Sometimes the  rules are unclear about bank holidays, or Sundays. Sometimes there are several different rules applying to on street spaces on the same stretch of street. Often there are no regular and clearly expressed signs to tell you the hours that apply to single yellow line prohibitions on parking.  Any misunderstanding can lead to a large fine and even to clamping or tow away, when the car is parked in what is  a parking place for some of the time, showing it is not any great threat or impediment to the highway.

                Off street car parks can make life difficult for shoppers. Some Council car parks make you predict in advance how long you wish to park for, and to buy that amount of time when you leave the vehicle. This can put you under pressure in the shopping centre, if it turns out to be more time consuming to find what you want to buy, or if there are crowds and queues.  Allowing you to purchase  more time when you return, or requesting payment only on return, would help the shopper, and help promote the shops.

                Having the right change can also be an issue. Now some car parks charge so much for the time you need, you have to carry a pocket full of change. Not all car park pay machines take all coins, making an additional hazard for you.

                Councils usually say they want to promote their local shopping centre. They should start by reviewing their car parks. They should cut the charges, where they are too high. They should make the rules easier. They should allow people to overrun their original time and pay the extra for a reasonable extension. Free parking in Council car parks at off peak times and to encourage use of the local shops could be a welcome shot in the arm for ailing High Streets.

              It is high time Councils remembered that Council car parks, on and off street, should be public services that assist the public. They are on public land, and should be run for us the public. Westminster Council would be wise to think again about its latest plans, which are encountering plenty of opposition.

 

           The people who like our current membership of the EU or want more involvement in EU matters rely on just two arguments. The first is that we have to stay in on the current basis because so much of our trade is with the EU. The second is we need to be in to have a seat at the table to influence all the rules and regulations.

             I have dealt recently with the misleading figures they use, looking at just the trade in goods and ignoring the big interest the rest of the EU has in exporting to us.  Today I wish to look at the strange EU idea that you need to have lots of common laws and regulations in order to trade with each other.

              This was the  Foreign Office and EU argument I first encountered when acting as The Prime Minister’s Chief Policy Adviser in the 1980s. The EU wanted UK consent to the Single European Act. This proposed the aboltion of our right to veto proposals, substituting qualified majority voting for a range of measures to do with trade, industry and commerce.

               I argued that there was no need to give away our veto over new laws in order to create a genuinely free market in the EU. All you needed was the simple rule, that if a product was of merchandisable quality in country A, meeting the rules in that country, it should be allowed for sale in the other countries of the EU. It does not mean people had to buy it, but why not trust each country to winnow out the dangerous or the false product, and let the market do the rest.

                  The EU insisted that it needed 272 new laws to make a single market. This was to be the “Single market programme”. Having lost the argument to keep our veto, I tried the compromise position with the UK government, that they should say they would only remove the veto for the 272 measures deemed to be necessary. Even that was thought too tough by the Foreign office. The government decided to back the Single European Act and the loss of veto on a permanent basis.

                       The problem with this approach is the EU can use the excuse of the Single market to push through all sorts of legislation that is not strictly necessary in order to trade. Subsquently Labour gave away many more rights to veto in Nice, Amsterdam and Lisbon, leaving the UK vulnerable to an avalanche of laws we did not seek or want.

                     Having the seat at the table has not succeeded in preventing too much law, or in getting poor or needless regulations removed. All UK governments have said they are pushing for deregulation in the EU, and for leaving more matters to national and local determination. Despite this, the body of EU law has risen at a very rapid rate.

                   Meanwhile China, the USA, Switzerland and many other non EU countries trade quite happily with the EU. They have no seat at the table. They do not find their goods excluded because they are not members of the club. The Single market concept has been made into a Trojan horse for more EU government and law making.  The City is about to fall almost completely under massive EU regulation.  There is little evidence that it will be drafted or deployed in a way that is helpful to protecting and enlarging London’s success in financial services.

 

          Yesterday there was a short debate on the Common Fisheries Policy. The short time for the debate prevented  me from making  a speech. Had I been called, I would have said something like this:

 

       “Today is groundhog day. For 38 years this House has held regular debates on the Common Fisheries Policy. MPs often have cast aside their party differences. They have forgotten their varying prejudices and viewpoints. We have frequently united to condemn the Common Fishery Policy.

         We have condemned the chronic waste of fish with the demand to discard dead fish in the sea in the name of conservation. We have condemend the collapse of the UK trawler fleet as the policy has degraded our fishing grounds. We have complained that the policy has left us short of fish, with dear offerings in the supermarket.

          Ministers of various parties have usually sympathised. They have told us their aim is to reform the policy. They tell us they will go to Brussels to negotiate a better deal. We are often told about the EU in general that we need a place around the table in order to have influence.

              38 years of having a position of influence around the table has not yielded a Fishing Policy we are proud of, nor even one we can accept. Many of us have concluded that the only answer is to regain control over our own fishing policy. Some of us would like the UK to say it will enact the return of our fishing grounds if we do not get a reform we can accept.

              The Common Fishing Policy has made the UK Parliament powerless in this field, and left successive governments impotent to create rules for a successful UK fishing industry. It should be a warning not to allow the EU similar control over other matters. When they run a policy, it causes decline  and unemployment.

Don’t expect the euphoria over a new Italian government to last long. There is no need to share it. The markets  enjoyed a relief rally on news of a new government forming in Italy. The European establishment is behind Mr Monti, so we should expect the ECB and the spin machine to try to engineer some better results in the bond markets this week to get him off to a good start.

The tasks ahead for him are not easy. He first faces the challenge of putting together a coalition of support within the Italian Parliament when he has never stood for election or been an active party member. He needs the support of Mr Berlusconi’s party. This grouping wants an early election, and is so far only prepared to back the new Prime Minister to implement the measures which Mr Berlusconi rushed through last week. They are likely to quibble about any new measures. The Northern League do not wish to back him, leaving him dependent on the forces of the left, with their strong links to the Trade Unions. They will be suspicious of public sector cuts. Over the weeks ahead we will learn that the first rush of enthusiaism for a PM above politics and for a government of national unity may not miraculously bury all old differences, rivalries and legitimate political ambitions of the parties and people who did get elected.

He next faces the even greater challenge of the poorly performing Italian economy. Italy is in the icy grip of Euro deflation. Italy’s cost base is far too high to compete successfully with Germany within the zone. Money supply is falling, unemployment is high, and living standards have been static for a decade. There is nothing Mr Monti can do to the money supply and exchange rate given Euro membership. Efforts to make Italy more competitive require cutting internal prices and wages, against the combined opposition of business and Trade Union lobbies. The need to make the public sector smaller and more efficient will be resisted by deeply embedded public sector defenders.

Mario is clearly an intelligent man. He has made a good career out of his diplomatic skills as a pro EU official. His time as Competition Commissioner meant he was one of the senior people in the EU responsible for economic policy. To some that makes him a talented administrator who can take on another difficult job. To others it associates him with the failure of the European economic model to generate jobs and prosperity on a sufficient scale. Individual critics complain that his famous case against Microsoft did little to help the EU economy. The team he belonged to heaped regulation on regulation, as they sought to extend the EU’s finger into every pie.

He did recently author a report into developing the Single Market in the EU. This Report provides good analysis of the different political forces within the EU that had led to “integration fatigue” and “market fatigue”. Mr Monti proposed a large programme of further integration, offering to the Anglos Saxons more market opening and competition measures, to the continental social democrats more tax “co-ordination” and common welfare, and to the newer nations more emphasis on investment and European networks. He sought more workers rights and a more competetive market, more public procurement and social service provision. He decided the EU needed a stronger single market to back the single currency. He recognised the big advance made by the Lisbon treaty in favour of more integration, seeing in it full recognition of the need for a”highly competitive social market economy”. He wished to use the powers of the Lisbon Treaty to complete a European level government over most things that matter.

That is Mr Mario’s problem. He is well versed in how to extend EU power and influence through a mixture of right and left facing measures. His Report did not, however, set out how the EU could start to compete more successfully with China, Brazil, India or the USA. Mario may find it is not easy being super when it comes to turning round an ailing economy locked into the Euro at the wrong exchange rate. Markets may enjoy a supporting wind from the EU for a bit for his efforts, but the full Monti is likely to be just more European government rather than a bracing fix for Italy’s problems.

People are rightly alarmed at the easy way two European democracies have been pushed over by EU officialdom. The ever tightening grip of the Euro has given the EU the power of the purse over them. He who has the money has the management in this governing situation. Whether Mr Monti can win support within and outside the Italian Parliament for long enough to have an impact remains to be seen. Going by the policies he and his fellow Commissioners followed for the whole of the EU, he does not have a plan for prosperity and growth which is going to work.

There is a debate about what responsibility Mrs May and Mr Green should take for the borders troubles that have recently come to light. Mrs May herself says that she did not want some of the controls lifted at our borders which it turns out have been lifted. She says one of her senior officials went against Ministerial orders. He was suspended from work by another official who also thought he had acted out of turn.

The doctrine of Ministerial accountability is not straight forward. In 1954 the Crichel Down case led to the resignation of Sir Thomas Dugdale, Agricluture Minister. He did not himself handle the land at Crichel Down in the way which offended, but he took the blame for his officials approach. Since then many think that a Minister has to resign as he did if something goes wrong, even if he knew nothing about it.

This doctrine has been modified by subsequent governments and cases. When there was a bad break out from the Maze Prison in 1983 the Secretary of State for Northern Ireland did not resign. He argued that it was not his policy to allow or encourage prison break-outs, so he had no need to go.

Mr Howard, and subsequent Labour Ministers in the 1997-2010 government, sought to argue for a distinction between policy failure and administrative failure. They said that if the Minister’s policy or instructions had led to the problem,the Minister was to blame and should go. If the failure was at executive level, where civil servants had failed to implement the policy efficiently and effectively, the senior official should go.

This approach has been buttressed by the establishment of Executive Agencies. The officials who lead these agencies have more right to speak in public and to lead their section of government than officials within departments. They are usually paid better and may have a bonus based on executing the policy well. Ministers often feel if the mistakes occur as a result of poor Agency implementation, it should be the Head of the Agency rather than the Minister who resigns.

Mr Dancona, arguing in yeaterday’s Sunday Telegraph, suggests the hard and pure doctine of Crichel Down should be modified at least to ensure one thing. Surely he says, if an official deliberately flouts a Ministerial instruction or policy in the anticipation that this will force the Minister to resign, there should be a relaxation to prevent that happening. It would seem tough indeed if a Minister has to go when a critic within the department seeks to undermine them whilst observing secrecy whilst undertaking the violation.

In practice each case is different and is judged on its merits against the mood of the time. Mrs May has on her side the fact that she was trying to tighten controls on illegal entrants whilst easing the queues for the law abiding at the borders, and the clear support of the Prime Minister.

The case has served to highlight the dilemma of the Coaltion government. How can it implement its stated aims, when there are habits of working and assumptions amongst some officials based on the previous 13 years which point in the opposite direction to the Minister’s policy? Will Ministers now devote more time and enegry to supervising and following up once they have set out their general policy aims? As a rule of thumb, there needs to be three times as much follow up, analysis and chasing after the policy launch and press realease, than before when constructing it. If there is insufficient interest in the execution of policy more Ministers are going to be wasting time defending their actions and claiming that the policy was fine, it was just a pity about the implementation.

The public wants the right press release or policy, but it then wants it to be enacted, administered and enforced.

Today we mourn the many dead in two world wars, and other conflicts. We admire their bravery. We thank them for their sacrifice. We remember they died to keep us free.

Today we mourn without members who fought in the 1st World War to tell us of its horrors. We have memorable poetry from the trenches, many moving memoirs and accounts, and blood stained histories of a war that turned into a mass slaughter. It was the war of the machine age, the war when defensive weaponry was usually too powerful for attacking forces. It was a war of years of stalemate in grim trenches.

From my boyhood onwards I have read and watched accounts of those murderous WW1 battles. Each time I have come to share the common conclusion that it was lions led by donkeys. I have tried hard to understand how it could have been allowed to happen. I realise that some intelligence was applied, as senior officers and strategists wrestled with how to overcome the mighty power of the machine gun, artillery and shells, mines and barbed wire. I see they tried heavy bombardments to make a dash across No man’s land safer. The tried undermining and blowing up opposing lines. They developed tanks, which helped. They resorted to gas and flame weapons to try to break the deadlock of the western front. I still cannot accept the way the politicians and generals accepted death on such a huge scale. They often asked their juniors to run into the guns as if their lives did not matter, or as if the result would be different from when the last waves of young men had tried it. It was not how Wellington would have handled it, always keen to keep his force together and to minimise causualties.

I developed more of a dislike of the politicians who thought this was a necessary and worthwhile war. The first war lacked the cause that a hated ideology and the fanatical treatment of non Germans by Hitler gave to the second. It lacked the sense that the UK had to stand alone and fight to preserve her independence from tyranny that the nation shared in 1940. In 1914 the Uk went to war over the Balkans and ended up fighting shoulder to shoulder with France in what was yet another Franco-German dispute. The Uk could have stayed out of it, safe in the knowledge that her mighty navy shielded the homeland from threat and her Empire offered her trade and commercial interests.

If there was a strand of common policy that provided some justification in the twentieth century it was the wish to avoid any single power dominating the continent. How ironic that today the UK’s foreign policy seems based on encouraging France and Germany to unite, when the twentieth century saw us fight two huge wars to prevent just such an outcome. We can be proud of and grateful to our armed forces. We should pause to ask if the politicians spent too many lives and too much treasure in European interventions.

We are going to hear two constant refrains in what passes for economic debate in the UK. We will be told that our exports to the EU are crucial to our economy, and will be at risk in some unspecified way if we dare to demand a renegotiation of our position or a referendum. We will be told that the the UK economy is not growing quickly, owing to the cuts.

The EU lies are the easiest to rebut. There is not the slightest shred of evidence that if the UK seeks to better deal or a referendum on membership of the EU it will damage our trade with the EU. The trade is guaranteed by WTO rules. As the rest of the EU sells us a lot more than we sell them, they will not want to disrupt it in any way. They have more to lose than we do.

EU goods trade probably accounts for around £120 billion of our output. (EU exports adjusted for the entrepot factor) That’s around 8% of our total National Income. It’s important, but not nearly as important as the 92% that is not dependent on selling things on the continent. Since 2008 the government figures show that our exports to the rest of the EU have anyway fallen by 6%, whilst our exports to the rest of the world have risen by 4%. So the trend has been going against the EU before the crisis. Slowdown in the EU and collapse in the weaker EU economies will accelerate this process.

On the radio yesterday Lord Skidelsky was kicking off the ridiculous argument that the Uk economy has slowed down owing to large cuts in public spending. The interviewer and the other participant failed to point that that public spending is up in real terms according to the govenment’s own figures since 2010. No-one mentioned the planned borrowing of at least £122 billion this year, or the additional borrowing and spending announced in the March 2011 budget.

Why on earth do they want to debate something around a completely wrong version of the facts? The question they should have asked Lord S is “Why has the UK economy slowed when real public spending is up, and public borrowing remains at near record levels?”. Why can’t any of these commentators bother to read the numbers? Why does the BBC insist on suppressing the true numbers, so there can be no debate about what is going on as opposed to what is being spun?

Neo Keynsians love high levels of public spending and borrowing, and say they stimulate the economy. They need to be asked why public spending at nearly 50% of GDP, and borrowing of more than £10 billion a month, is not stimulus enough. They should be asked how much more borrowing would it take to get faster growth, and would anyone lend us the money? Could it be that spending more in a wasteful or less productive way, and borrowing more than the country can afford, could be a road to ruin rather than a welcome shot in the arm?