Where have all the money lenders gone?

April 27, 2009

The key issue that has bugged me since the Northern Rock bust up has been whether there have been enough money lenders out there, with enough money, to buy up the shed-loads of debt the Government is going to shovel out into the market. At long last, thankfully, in the last couple of days, one or two members of the commentariat have begun to join the discussion.

During this year the Government will be looking for £175bn of new debt on to which it will reschedule some past debt, giving a total £220bn. Let’s remain in optimistic mood and assume the Government has, for once, got its calculations right.

We are not, however, the only country in search of lenders. Every other G8 country is in the same boat.

That is why it is so fatuous of some commentators to assure us that everything will be alright on the day because our debts now are nothing like the size they were during the Second World War. Surprisingly, Sam Brittan of the FT is leading this particular charge.

The two positions could not be more different, except that at both times our poor old country was in hoc. During the war years America, and those countries that lent to us, were in substantial surpluses. Moreover none of them were trying to borrow while we attempted to balance our budget.

Ambrose Evans-Pritchard, of the Sunday Telegraph, headed his column this week with the caption: ‘The capital well is running dry and some economies will wither’.

He cites “Commerzbank said every European bond auction is turning into an “event risk”. Britain too finds itself some way down the AAA pecking order as it tries to sell £220bn of Gilts this year to irascible investors, astonished by 5pc deficits into the middle of the next decade”.

To drive his point home, Evans-Pritchard cites the US hedge fund Haymen Advisors which is betting on the largest wave of state bankruptcies and restructurings since 1934. The worse profiles, according to Haymen Advisors are almost all in Europe ‘the epicentre of leverage and denial’. American banks have written down half their assets compared with only 17% of their European equivalents.

Evans-Pritchard also countered another foolish piece of whistling in the dark. The tune being bellowed here is that Western Governments have been successful in the past in borrowing from the petro-powers as well as China, Russia and other emerging nations, so why shouldn’t they be as successful now.

This source of capital has been turned off. China is using a huge chunk of its surplus to reflate its own economy – in the hope of preventing widespread disorder and perhaps revolution. The crash in the oil price has seen Russia and Venezuela drastically revising their surpluses and, as if to put the boot in, these countries have become net sellers of US and European bonds.

There have been significant national bankruptcies before and there is nothing special which will prevent a similar scenario today. We kid ourselves that we are now much more knowledgeable in how to manage crises.

We may be, but we do not have time left to debate this point. What we do know is that the international institutions which we set up to create world financial order are themselves struggling to come to terms with the new world in which they, and we, now find ourselves.

All this makes it near criminal that the Government and the official opposition are bent on not spelling out now the tax changes and public expenditure cuts they envisage to bring the public accounts into balance in the short to the medium term.

Their failure to do so leaves Britain dangerously exposed in the world ranking of safe havens for other people’s money. It now costs significantly more to insure British government debt than it does the debt issued by Cadbury’s. The loss of our triple-A rating beckons.

That is why it is urgent that the political class in Britain gets real. We still have time – hopefully -to debate calmly tax and expenditure changes. Above all we still have time to make those changes radical.

As soon as the Government finds it nigh impossible to raise the next necessary tranche of debt there will be a wholesale exit from Sterling. The Government will then be fighting not simply for its own life, but for that of the whole country. Politicians must now act to head off that looming possibility.

Properly Honouring St. George

April 23, 2009

St. George’s Day, falling today, will not be officially celebrated. It would be farcical if it were, as governments seem to do all they can to deny our national character.

It will of course be celebrated in the hearts of millions of loyal English men and women. Some of these men and women come from old stock. Others have newly arrived to make their lives in a land of their choice.

What sort of land do we now have? The present government thinks it is doing us a favour by endlessly prattling on about Britishness.

This is a fatuous exercise. What our rulers do not seem to understand is that no new sense of Britishness can inspire our different nations until the English Question is settled.

None of the young people growing up in Birkenhead are given any sense of what is expected on them to be a citizen of England. Not one official minute is spent in schools setting out a guide to being a good citizen.

The first requirement is that everyone should feel honoured to be a part of this country, to respect it, and hopefully grow to love it. Second, we need to learn again that the cardinal English value of freedom can all too easily be abused.

Fifty years ago a refugee gave his opening lecture at Cambridge. This great historian, Geoffrey Elton, spoke of why he had come to our shores after living in most other European countries.

He said that the English were not without their faults. But they had discovered the great secret of how people in a crowded country can live together peacefully. We naturally exercise respect to our neighbour knowing that our neighbour exercised respect back to us.

Geoffrey Elton could not make that statement today. Freedom not voluntarily policed with respect quickly degenerates into anarchy. We urgently need to relearn how to respect one another.

Over time we English have been a pretty brutal sort of race. Then, a little over a hundred years ago we began to change. A culture of respectability swept through the country.

This culture and respectability made England the country that Geoffrey Elton wanted to join. Crucial to this transformation of our character was how families raised their children. We were taught how to control the nastier side of our nature.

We need to reinvent good parenthood. We need also to reinvent all those events which once marked out rights of passage.

Of course lots more work needs to be done in a country rediscovering the wonders and beauties of being English. But that task is being made impossible by the government’s open doors immigration policy.

Most of the newcomers to this country have settled in England so immigration is largely an English question.

Not one of the new people here has been required to sign up to an English contract that should also be taught in our schools. Our political class has been criminally negligent on this front.

This does not mean that people have to deny views that they hold dear. What is does mean is that our first loyalty has to be to England.

We can have other loyalties – I might be a Christian or a Muslim, and to hold a number of identities – but we simply cannot go on thinking it does not matter that an increasing number of people have never thought that their primary loyalty has to be to this country.

And we will never regain our sense of identity by pretending there isn’t a big problem here.

So on this St. George’s Day true English men and women, from whatever country they have originally come from, will want to celebrate our national day quietly in their own hearts. But let us pledge ourselves that we do want a government that helps us to recover our sense of national identity. This will not be a Herculean task but one, when it is finally achieved, that will have been well worth it.

The Budget – A view from the benches

April 23, 2009

The Budget – A view from the benches

At a few minutes to one o’clock today the country’s fate passed from the Chancellor and was cast on the waters of the money markets. Public borrowing will be £175bn this year and £173bn the following year.

From the very start of the crisis the Government has consistently underrated its severity. Even so, Britain will proportionately be borrowing more than any other G8 country.

Are the funds out there to meet the colossal requirements of G8 countries? Where do we rate in the international league tables as to whom colossal sums should be lent?

In these very early stages the Government is finding the gilts market sticky when it comes to issuing its endless new tranches of debt. What happens if the gilt market proves itself even more difficult in coming up with the funds for the gilt floatations? At some stage, maybe soon, gilts will be sold at lower prices, thereby pushing up long-term interest rates and damaging the recovery.

Even worse is the outlook if significant increases in the long term rate of interest still do not attract the necessary loans to balance this year’s books. That could lead to a run on sterling.

If the Government has to revise soon its borrowing requirement for this year it would be well advised to accompany that statement with the announcement of either an increase in taxes or real cuts in public expenditure.

Panic in the money markets will lead to a much more deadly confrontation than the one seen of depositors peacefully lining up outside Northern Rock to lift their savings. Investors in gilts will act much more ruthlessly.

10p tax – Round 2

April 21, 2009

The 10p injustice returns to practical politics this week with Wednesday’s Budget. This long drawn out and wretched saga, acts like a cautionary tale of the Government’s loss of direction.

The story is well known. In his last Budget Gordon Brown announced a 2p reduction in the standard rate of tax to be paid for, substantially, by the abolition of the 10p starting rate. While most people gained, there was a very significant number of lower paid workers who lost out.

The Government, at first, thought it could bluff its way out of the crisis. Parliamentary questions were simply not answered and then, after threats of raising the issue with the Speaker, replied to at the very last possible moment, i.e. minutes before I was due to move an amendment calling on the Government to progress over the next 12 months a full compensation package. No such package was forthcoming.

The Government has been less than frank in another respect. The Labour Party champions individual taxation believing that it strengthens the position of women in households. The Government has refused to present information on the number of individual losers from the 10p rate’s abolition: it only gives the number of households made worse off by its move.

This statistical sleight of hand minimises the number of losers. Most of those who lost out from this tax change were women for the very simple reason that they are, generally speaking, on lower earnings.

Many of the losers live in households where, again generally speaking, male workers gained from the reduction of 2p in the standard rate. If the total household income showed a plus, the Government excludes it from its official data on those households who lost out – where one member, usually the woman, lost out.

A diary highlighting the main events in the 10p saga is appended. Under pressure the Government brought forward a compensation package that was so cack-handedly constructed that, despite spending £2.7 billion, 1.1 million households and 6 million individuals were still left worse off.

Given the amount the Government was spending on the rescue package I did not believe it expedient to proceed with a blocking motion to the Budget. I also doubted whether I would carry enough Labour MPs with me to take the Government to the wire. I also believed the reassurances Government ministers gave that they would do all in their power, later, to compensate fully the losers.

Some Labour MPs were critical of my tactics and they have been proved to be right. The promise that this issue would be dealt with as fully as the Government could in the November 2008 Pre Budget Report proved bogus. So today, 32 Labour MPs have signed an Early Day Motion Greg Pope and I have tabled calling for action in Wednesday’s budget. The EDM’s wording is:

That this House records with real disappointment that up to 3.8 million individual taxpayers are still worse off as a result of the abolition of the 10 pence tax rate; registers that the two measures the Government have since announced do not yet compensate them fully; and calls on the House to secure justice for this group of low tax paying workers at the next Budget.

Aneurin Bevan once remarked that the language of socialism was priorities. I want to believe that Wednesday’s Budget will show such a great ranking of priorities that ensures justice for all the 10p tax losers.

A Godless Society?

April 9, 2009

A good Lent reminds us that we’re at another stage in the year, and another stage in our life. One of the failures of a society that has, in a sense, walked away from, or banished God, is that it does not have these regular points in the year where it is reminded about its own existence: the need to take stock, the need to make new beginnings. So, for example, if you think about baptism, in the First World War, most people being sent to the front were baptised. That was not only a sacrament, it was also a way in which society said, ‘You are being welcomed into a larger family than your immediate family.’ One of our failures in modern Britain is that we somehow thought we could not only lose God, but that we could lose all that wisdom of giving life a rhythm that religion gave us. So for example, I think we should reinvent baptism as an initiation service that, as you sign on for child benefit, there should be a little celebration of the family saying ‘Well here we are, we’re presenting a new child,’ and society saying ‘Welcome. Now this is what we want you to do for this child and these are the resources to make sure that you do a really successful job.’

So Lent for me is not just the ‘sackcloth and ashes’. It’s this wonderful dividing up both the year and one’s life to reflect on the purpose of our being. I’m always struck by those who claim that they don’t believe in God, how moral they are. The first time I really noticed this was when a friend of mine, Barbara Wootton, who was one of the cleverest people of the last century, said that she realised the point at which she did not believe in God. The next move she had to make was to decide how to draw a set of beliefs by which she would live a moral life? What she had done was largely take what she thought the best of Christian morality and lived her life accordingly. It was a life one of service. It was a life about exploring how you ennoble individuals and ensure individuals can lift themselves up. I do think that we’ve got out of the habit as a society of doing that.

In the middle of the nineteenth century, when doubt was springing up and devouring people, the cleverest of individuals thought, ‘How can we have Christian morality without Christian dogma?’ They realised you could not live your life in a vacuum; you could not do it without guidance. The miracle of their success in inventing what in fact became a public ideology, the agreement we all subscribed to without even thinking about it, was that it lasted for so long. Partly by sheer accident, the Christian morality was secularised by a group of individuals known as the English Idealists. They wouldn’t have said that that was what they were doing, but, I think looking back, most people would say that’s what they did. They took the stumbling blocks away from Christianity, particularly that you had to believe in the miracles, they reinvented worship as service, and they also taught us that God was present in all of us, but that the Creation was never complete – neither in God nor ourselves. That part of this journey was to achieve our best selves, or ourselves as moral beings.
We fell in love with that way to approach life, and this approach was shown and reinforced by an extraordinary period of the care that we gave to the nurturing of children. The English have always been a pretty brutal race. Then all of a sudden, we changed dramatically. Our natures didn’t change. We changed because we decided we should live as a community. That was the success of this secularised Christianity. So whether you were a teacher, whether you were a policeman, whether you were a magistrate, whether you were a Sunday School teacher, everybody knew what the purpose, what the train journey was about, why we were on that train, and where that train was heading. The late Victorians and the Edwardians that put so much effort into this failed teach us one critical thing, however, and that was that we have to keep remaking ourselves. We did not change our DNA – but we hit on a marvellous way of people voluntarily choosing this kind of freedom or self-governance.

One of the big events that happened in my lifetime – and I’m a war baby – is that we ceased doing the work on nurturing children and raising citizens in the way that our immediate past did. The effects of that are to be seen all around us, where young lads in Birkenhead reply with with ‘Why?’, when I say ‘I don’t think you should be doing that.’ You realise that you can’t run a society where everybody thinks they can say ‘Why?’ to every suggestion that’s ever made to them. We have to have a ‘Highway Code’ that we all are happy to use to navigate life by. We fell out of love with nurturing our children. Of course lots of people still do this job brilliantly, but increasingly, parents do not.

The reasons why we fell out of love with living in this way are complex. It’s far too easy to say ‘Oh it was the ‘60s, where everybody let everything hang out.’

The effort of winning that war, the Second World War, the surrender of freedoms, the commitment to the common good was so enormous that, I think afterwards, people wanted break from the personal cost of that. One also had living standards beginning to rise very substantially, and therefore there were choices, or ‘temptations’, which were there for the first time. The fruit of the tree was to be tasted – and why not? That’s what human nature is about. I also think that we became too confident that somehow we’d cracked the way that we raised children. That somehow that this was in the air that we breathed and hadn’t realised just how recent it was that English society moved from being pretty vicious to being a peaceable kingdom.

The case that I make is not that somehow we’ve always been very civilised; but rather we had an extraordinary interlude. We see how sharp the present change is if we take any parliamentary seat like mine. During the last year for which data are available, there are more violent crimes against the person in my seat, and in every other seat like it than was in the whole country fifty or sixty years ago. And I use that not to suggest there’s anything very peculiar or awful about Birkenhead – far from it. It is that those restraints have gone, have collapsed, which we somehow thought we could take for granted. The problem is how do we draw back and begin to remake our characters again?

That is why I’d like to see a secular Lent to run alongside the Christian one, because I do think we, as a society, need these different festivals and, and seasons of the year, to help us take stock in building our best selves. If you look back a hundred or so years, we had lots and lots of collective services, but they were not run by the State at the centre. We’d run our own local hospitals, or we would have charitable foundations doing that. There were many more independent or church schools then, with their own governing bodies. The Victorians fell in love with the Greeks, and their ideal of citizenship was what they tried to reproduce in England’s green and pleasant land.

The vote was conceded in this country because people like Mr Gladstone saw that, in fact, the working class were running their own welfare states, their friendly societies, their mutual aid societies, their hospitals, their trade unions. How could you say that this group didn’t deserve the vote? By their very nature, the way they behaved, the sort of people they were, they showed they had actually earned the right of full citizenship, which included the vote. We as a nation somehow felt this was a once and for all operation, and was not something that was continuous. That not only had we to renew it daily amongst ourselves, but we had to do it through the generations. And I think that, with rising living standards, wanting the freedom after the efforts of the Second World War, led to us becoming very careless about who we were, how we should gain respect and what we think is worthwhile and In the end, what we really thought about our own country, because our country’s only us writ large.

I’m anxious that we look across the various religions in this country and examine how much of their teaching on how we should live our lives as individuals, in families and communities, is common to all of them. From that basis we could establish our social ‘Highway Code.’ This self-governing, peaceable kingdom is another way of talking about a land where order is not imposed, not run by law, not centrally directed in the way we are now and one that is natural to us. But we need the guidance to do that.

Finally, this social ‘Highway Code’ needs to be backed up by contracts. We have contracts in employment, if I buy a house, I have a contract buying the house. And I think we need contracts – to establish what we should expect? What are the different parties going to bring to our education system, including the pupils themselves? The biggest Government budget is welfare. It is absurd to think that we can change people’s behaviour on smoking, but we cannot change their behaviour through the way welfare is paid. So there needs to be contracts in that area as well. They’re not once and for all – we’re not coming down Mount Sinai with them. They’re ones which somebody has got to start and say ‘Here’s my first effort. But, as time goes on, we will improve them.
On one occasion, while I was listening to the Archbishop speak about children, Peter Bottomley made the most wonderful suggestion that we should have a guide to ‘5-star parents’ so that you could know you were a ‘5-star parent.’ I said ‘Peter, for what are the stars to be awarded?’ He replied ‘Well the first one is that you get your children up in time and they have something to eat and they are at school in time.’ Then I asked what the other four might be. This year we were both at the Advent service in Westminster Abbey. He began scribbling on the service sheet, and he passed me down the other four stars, which he put on his website.* That is a start. The aim of him putting it on the website was for people to improve on it.

So, if you haven’t had a wonderful Mum and Dad, and you feel cast adrift, you can easily catch up on the ground rules. We need to give people the confidence to do what their gut tells them is right, and to do so even if they might look silly. This whole exercise in making good citizens has to become once again a passion of the whole of society. Here is the theme for a secular Lent; by which we stir up a passion again about becoming – all of us – first class citizens. That great adventure will simply get nowhere unless all parents begin the wonderful task of nurturing their young.

*Peter Bottomley’s “Five Star Parent Guide” – one star awarded for each of the following
1. Get each child to school each day on time, fed and in the right clothes.
2. Have a planned event in the child’s diary on one day next week.
3. Have a meal together with another family at least once a fortnight.
4. Be on the best terms possible with the other parent.
5. If in doubt, the child’s best interests come first, but usually there should not be any doubt.

(This post was originally broadcast by BBC Radio 4 as a part of their Lent Talks Series.)

Yesterday’s News

April 3, 2009

The Prime Minister deserves full marks for the sheer effort he put into the G20 summit. But . . .

The summit has not agreed anything concrete on the central danger facing the world economy. The slump into which we have now been thrown is unique. Its origin lies in the banking system which has ricocheted into what some people like to call the real economy.

Britain, let alone anywhere else, has yet to deal effectively with the toxic assets which are paralysing the banking system’s willingness to lend to businesses.

There are warm words in the communiqué, but they simply mask the lack of any new concrete actions. Until this central issue is grasped, the world’s economies lie in mortal danger.

We only have to go back to last weekend in this country, with the collapse of the Dumbarton building society, to realise how frail the banking system remains, despite having huge sums of tax-payers’ money thrown at it.

The sense of unease is increased over a central plank of the communiqué which focuses on the new monies for the IMF. Here, unfortunately, the Prime Minister, comes with a track record.

If the last twelve years have taught us anything, it is the Prime Minster has a near-pathological weakness in recycling and recycling again monies already committed and then to present them as new initiatives.

I would expect a careful analysis of whether the “new sums” going to the IMF will show that much is already committed, or worse, they are sums that will never be paid.

Of course it is helpful to strengthen the IMF and the role it might play in protecting the prospects for developing economies. But while making sure the ambulance is more fully-equipped for a crisis has some advantages, the IMF efforts might best be seen as yet more diversionary tactics.

The summit was silent on the timetable and the agenda for the next round of trade negotiations.

Surprising, really. For making world trade easier is crucial for the developing countries.

And while it is of less interest to the US, which has a much more contained economy, it is equally vital for Germany, the great exporting power, and to a lesser extent ourselves.

Despite the hype, the G20 summit not surprisingly fails to provide any new international economic architecture.

If the world is to prosper it won’t come from such high-falutin talk, but from months of hard slog negotiating that next trade round.

Local Blog: Clatterbridge Oncology Centre

April 2, 2009

Local Blog: Clatterbridge Oncology Centre
The Clatterbridge Oncology Centre is under threat. That is the view of the local members of parliament. What is the threat and what are we doing about it?

Sometime last year, the local members of parliament learned that the Merseyside Primary Care Trusts (PCTs) had initiated a study on cancer services in our area. Nothing wrong with that. Indeed, I applaud bodies that are proactive.

But local MPs were not involved and, as it were, found out by accident. No marks there.

The plan, as described to me, had an unbelievable degree of unreality about it. A new centre was to be built the other side of the Mersey costing £150 million.

That proposal has now been vetoed, but anybody who is part of Merseyside politics knows that some of these big blue-sky thinking type projects have a habit of returning.

So the review is now concerned with access to radiotherapy treatment. National guidelines stipulate that no patient should have to spend more than 45 minutes travelling to reach their treatment. I assume they mean by private transport. Given the state of public transport, and despite huge subsidies to the bus companies, a 45 minute time limit would make for a very limited catchment area. It is worth noting that over 90% of patients attending at Clatterbridge travel by private transport, taxi or ambulance.

So the local MP Ben Chapman, who has been leading the campaign, is asking for a detailed breakdown of the 45 minute catchment area. He wants to know how many people north of the river seeking treatment are outside a 45 minute journey to Clatterbridge.

The most advanced technology currently available in the UK to deliver radiotherapy comes in the form of the Linear Accelerator machine (LINAC). A radiotherapy base is to be built at Aintree hospital, and a second centre is apparently to be built merely five miles away at the new Royal Hospital in Liverpool.

Will these developments downgrade the position at Clatterbridge? That is what so concerns Wirral MPs. Will some of the LINAC machines at Clatterbridge be moved or mothballed? If that happened then it is quite clear that the centre of excellence at Clatterbridge hospital will be downgraded – no matter what the experts say now.

And what might that in the longer term mean for the provision of the very best cancer services in Merseyside and Cheshire?

I’ve been around long enough to have seen huge sums of public money, partly wasted, in rebuilding the Royal Hospital. It is now down for rebuilding yet again, and while the absurd grandiose schemes have been trimmed back, history seems to have a habit of repeating itself.

Under a then new Chief Executive, the Royal boasted it was going to become the cancer centre in our area. It now claims no such objective, but one cannot help wondering.

So, if the plans go ahead unamended, we will have three centres in the inner area of Merseyside providing advanced radiotherapy. But the possibility of building up Clatterbridge to become centre of excellence to counterbalance the wonderful centre at the Christie Hospital in Manchester will be lost.

Here my main worry comes into play. Advanced cancer treatments are amongst the most expensive offered by the National Health Service. In an age of public expenditure cuts, any Government will be looking for today’s centres of excellence to provide the new cutting edges to develop new cancer services. The restricted budget of future Health Secretaries will demand this approach.

And where will Merseyside stand in this new scramble for new funds? Will we have one centre of excellence that can become a country leader in providing cancer services? Or will we have a near broken-back service in Merseyside spread over three sites?

So the campaign that Ben Chapman is leading is not merely an old fashioned turf war dispute. It is about how our cancer services should develop in Merseyside and Cheshire and whether the political decisions involved should include elected political representatives, like MPs, or should such a decision be left to the PCTs, who have a statutory duty here in developing certain services, but who, through no fault of their own, are not elected.

What can we expect from the G20?

April 1, 2009

What Governments do and say can affect the course of an economic crisis.  Their actions and statements can affect the all-important expectations of the rest of us.  But once a crisis is underway Governments are powerless to rewind the film. 

On this score the Government has proved clumsy.  The delay, allowing the Northern Rock crisis to fester over that long weekend where depositors queued to take their savings, left the Government well behind the curve.

Likewise with its so-called stimulus package.  Why so much of our limited room to manoeuvre was wasted on a VAT cut still awaits a sensible explanation.  I thought the move ill-judged and I was the only MP on the Government side to vote against it.

Similarly with the G20 summit.  For over a month the event has been talked up way beyond what could reasonably be expected from a short day meeting, even if that meeting has been backed up with some careful work beforehand, as it obviously has been.

The danger here is that the all important financial markets will take away a message of division and lost opportunity, and act accordingly in becoming even more cautious about the world economy.

Victory can still be snatched from the jaws of defeat.  For this to happen four key moves need to be made.

First, the G20 would be well-advised to drop all talk about further reflationary measures.  Britain certainly has no room in its collapsing national budget to find such money anyway.

But the reflationary sums being spoken of are puny compared with the deficits Governments are already running up. 

Over the next two years the British Government will be borrowing probably in excess of £380 billion.  Imagine the impact on demand if these sums were not forthcoming.  Now put that sum against the Government’s £20 billion reflationary package.

All the G20 Governments are into big borrowing.  This, surely, is the mega fiscal stimulus that is hopefully going to prevent major economies collapsing.  The message that should go out from the G20 meeting is to emphasise on the size the reflationary borrowing to which all Governments are committed.  

This leads to the second important announcement.  Let’s remain cheerful and assume that these record sums are out there somewhere to be borrowed.  A key task of Governments is to coordinate their issuing of debt and to do so in an ordered and staged manner. 

Such an approach will lessen any turbulence that might be felt if the debt demands are not spread out evenly throughout the next few years. 

Third, while it sounds good to pontificate on the need for new worldwide financial controls, such a distant goal is of less importance now than bringing to book some of those whose actions have brought us to this sorry pass.  When will we take action, for example, against the main players who have brought near financial ruin to all of us? 

We do not need to wait for any new regulation.  What is most urgently required is to throw the existing regulatory rule book at offenders. 

The FSA’s rulebook lays down eleven principles rather like the ten commandments which must guide the actions of our country’s main financial players.  These are:

  1. A firm must conduct its business with integrity.
  2. A first must conduct its business with due skill, care and diligence.
  3. A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk-managements systems. 
  4. A firm must maintain adequate financial resources.
  5. A firm must observe proper standards of market conduct.
  6. A firm must pay due regard to the interests of its customers and treat them fairly.
  7. A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.   
  8. A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.     
  9. A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.      
  10. A firm must arrange adequate protection for clients’ assets when it is responsible for them.    
  11. A firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.

It would not be that difficult to start handing out sentences for the breech of any one, let alone all these principles.

When is the FSA going to give up its absurd quest to create the most complicated and rigourous form of new regulation and start, instead, implementing the existing measures?  The G20 countries should agree to instruct their regulatory authorities to begin legal action now against the main culprits.

Fourthly, a beguilingly simple, but important reform could be agreed that leads to re-establishing the split between retail and merchant banking.  There clearly will be pressure against such a change.  President Obama’s chief economic advisor, Larry Summers, was largely responsible for its destruction in America.  And I do not need to mention who was responsible for an equally dangerous move here.

This reform will begin to build and effective firewall between the deposits we as ordinary members of the public make into our banking system, and with it the expectation conservative banking policy, and those of us who want to invest their savings in more risky ventures in what was once known as the merchant banking system. 

Such a reform would be an important insurance against a return of the economic devastation that we are beginning to experience as a result of the whole of our banking system believing it could make big bucks on the cheap.  It would also restore individual confidence in at least one part of our financial institutions. 

And nobody could talk down a summit which agreed these four proposals as being anything but a success. 

 

 

 

 

Gilt-trip

March 27, 2009

Is the failure yesterday to sell the next modest tranche of Government debt due to the Governor of the Bank of England’s call against further reflation? Or something much more serious at work? It will be sensible to plan for the latter scenario.

The magnitude and force of this financial and economic crisis is throwing the public accounts into even greater disarray. Governments of all parties have never found ways of taxing us beyond 38 per cent of GDP. Yet we as voters like governments to spend up to 50 per cent of GDP on public services. This growing gap between expectations and tax revenues was apparent before the banking implosion, and these two forces alone put at risk our entire economy.

For it is on to these fast disintegrating public accounts that the Government is set to borrow at an unprecedented peace-time level. The Government’s early estimates of this borrowing spree always looked unrealistic at 7 to 8 per cent of GDP.

Ernst and Young’s item club group now forecasts borrowing at 12 per cent of GDP by 2009-10, but I wonder what odds one would get for the Government exceeding even this level. The country is well and truly in uncharted territory with worse news coming with practically every new batch of statistics.

Tax receipts have plummeted by 9 per cent over last year, and last month’s figures show a 10 per cent decline. Contrast this with the Chancellor’s prediction of only a 2.6 per cent fall in revenues.

Expenditure is up. Last week’s claimant count when revised will show that the unemployment level for February surpassed the level the PBR predicted for the end of the year, i.e. it was ten months ahead of planned expenditure levels. The failure to sell all the gilts on offer yesterday is probably a judgment on how fast the public accounts are disintegrating.

If that wasn’t bad enough the Government remains hampered in grappling with an unprecedented crisis by its failure to deal effectively with the banking crisis. Much of the poison of those wretched toxic assets remains in our banking system. With bankers deeply distrustful of other bankers, believing them to have larger stocks of these poisonous assets than they have publicly admitted, inter bank lending remains stalled and the hope of getting working capital to viable businesses remains blunted.

Into this economic and financial maelstrom the Government has added the new dangerous ingredient of printing of money. No-one knows what the longer-term consequences will be of such a strategy.

Yet cheers went up when the first venture of using this new cash to buy back government debt was five times over subscribed. That institutions and countries are quitting holding what is supposed to be this country’s safest of assets, is surely grounds for alarm and not congratulation.

Now wind the clock forward. Soon the Government will be trying to offload what many expect to be at least £180bn of debt in each year, for as long as it dares to predict.

Yet we are not the only government set on this course. The Americans, to take the largest example, will be attempting to sell over $1,750bn of government debt this year and for many a year to come.

Even if the credit is out there, we cannot assume that Britain necessarily ranks high on the list of safe destinations. And it certainly won’t be if the failure to get a grip on the widening imbalance in the public accounts leads to the loss of our AAA credit rating. The results of yesterday’s efforts in the gilts market suggests that there may well be growing difficulties in selling government debt as each new tranche is issued.

Our currency has too often in the past been our Achilles’ heel. And this weakness may not necessarily the time around be countered by a floating exchange rate. What will happen to the price of sterling if the debt management office reports that it is unable again to sell all the next tranche of government debt, or only if long-term interest rates rise?

These are treacherous days for the Government and they make the delayed Budget perhaps the most important one in living memory.

Will the Government be able to float new debt on its projected scale without convincing the market that it is dealing now, and not after the next election, with the huge structural imbalance in the national accounts? I doubt whether the international money market will wait for ‘resolute’ action for another year.

Here is the test for both Gordon Brown and David Cameron. The test of the Government will come in April’s Budget which needs to contain announcements of immediate tax increases for this financial year, over and above those already set out in the PBR for after the next election. If we are to have any hope in the shorter run of raising the debt we need to have an agreed timetable within which to balance the accounts. Similarly, and as a first move, the public expenditure budget has to be cash limited.

David Cameron will soon have to declare his hand that the appalling state of Government finances makes the introduction of tax cuts in the next Parliament, or the one after that, an unrealisable possibility.

British politics is being transformed. For well over one hundred years a central belief has been that social progress comes from expanding government expenditure.

Government expenditure will be cut in real terms, not just now, but over the next two Parliaments. So the drive must be to get better results for less money. That is the least that taxpayers are going to demand as their tax bills soar.

A progressive centre left will insist that any tax increases go onto those with the broadest shoulders. A cool additional £6bn revenue would result from allowing pension tax subsidies at the standard rate only. Surely this must be just one of the measures to increase tax revenue in the next Budget.

Likewise, we need to take seriously Aneurin Bevan’s assertion that Socialism is the language of priorities. While events already unfolding look like testing this belief to the point of destruction, its sentiment still offers the best prospect there is of protecting the poor from the economic gales now besetting us.

Local Blog: Going back to school

March 26, 2009

Jeff Green, the Tory leader in Wirral, has launched what some people may want to see as an attack on establishing new academies in Birkenhead. There are a number of people with vested interests who, it seems to me, are prepared to defend the indefensible even to the point of metaphorically being taken to the stake.

The facts are pretty plain. Is it unreasonable to expect that, after twelve years of tax-payers’ investment, at least 95% of our young people should leave secondary school with minimum leaving requirements? I do not think so.

Now compare that eminently reasonable objective with the facts. Despite heroic efforts by teachers, and the heroic support of some parents, no state school in Birkenhead achieves half that target.

Indeed, all too many pupils leave hardly able to read and write.

Clearly there is something wrong with the education we offer many young people in Birkenhead – and elsewhere.

All our schools have a national syllabus that mimics an academic grammar school education. That is not a suitable education for perhaps the majority of young people.

The advent of the academies will allow some schools to offer what we have failed to do since the 1944 Education Act promised a tripartite system – a pukka technical education. All academies will be able to adapt the national curriculum to local needs.

Now take the actual results of Birkenhead schools and transfer the results to imaginary hospitals. Here we would have a success rate for operations of 23%, 26%, 37% and 44%.

What would the response be for, say, hospitals where 80% of patients were maimed or died during an operation? We would demand that they were closed that day.

So why have we accepted an education system which has a similar maiming rate for our young people? We clearly need to bring back to the drawing board our idea of schooling.

That is what the new academies will offer us in Birkenhead.

So back to Jeff Green. My guess is that his policy is now to oppose anything the ruling Labour coalition proposes up until next year’s local elections. His strategy is nothing to do with me.

But I make a plea to him not to play those party politics with the future of young people in Birkenhead and beyond. Every political strategy is worth an exception. And we will get our minimum success rates up towards that 95% mark all the more quickly if everybody puts their shoulder to the wheel. And Mr. Green is too important a person not to help in this great endeavour.