Thursday, March 26, 2009

A truly scary statistic

According to Chris Giles, Economics Editor of the Financial Times today:

"Wednesday’s failed British government bond auction is symptomatic of the state of the public finances. In the annals of a nation that has prided itself on keeping tabs on government debt since shortly after the Glorious Revolution in 1688, the state has never needed to borrow as much money. According to the Ernst & Young Item club, in the two years 2009-10 and 2010-11, the government will probably have to raise £350bn.

That is more debt bequeathed to its successor than the total borrowed by successive rulers and governments of Britain between 1691 and 1997, the year Labour was elected. "

The South Sea Bubble, Napoleonic wars (which gave rise to the need for an Income Tax), financing the British Empire across a quarter of the globe, paying for World wars 1 and 11 and setting up the welfare state could all have been done, with change, for less than this Government has spent in the last few months.

As a share of national income, public borrowing is expected to rise from 2.6 per cent in 2007-08 to 12.6 per cent in 2009-10 as tax revenues plummet and already fixed public expenditure plans account for an ever larger share of falling gross domestic product.

Public finances are deteriorating at the fastest pace in the Group of 20 countries, according to the International Monetary Fund.

And what have we got to show for it? Absolutely nothing.

The money is needed because as the productive economy (private enterprise) shrinks the non-productive economy (Public service) grows as a percentage of the oveall economy, even if in cash terms it stays the same. This means you will have to take more money from the productive side (in taxes) to finance the growing public sector, if the chancellor takes that money straight away he creates a downward spiral where the productive economy shrinks even further; so instead he is intending to borrow the money and pay it back out of future taxation. As we discovered in the 1970's what that means in practice is tax rises at the first sign of recovery, killing off the growth and the country lapsing back into another recession. Basically a return to the cycle of borrowing, dash for growth, inflation and bust that we grew so accustomed to for forty years after WW11.

Sunday, March 22, 2009

Another home run on expenses.
Herald Express letters regular correspondent Paul Raybould raised the thorny question of MP's allowances and expenses in a letter to the paper last week, and asked whether in these recessionary times, MP's will revisit the subject of their own generous allowances.

This is what I wrote in reply:

"The answer is unfortunately "not before the next election". MP's stopped short of the kind of substantial revisions to their allowances required to bring practices into line with the rest of the Civil Service and most businesses.
David Cameron has promised an early review of the allowances system and if he becomes our next Prime Minister I expect radical changes and cuts. He has already pledged to do away with MP's copper bottomed pension.

As to sincerity, I sincerely oppose the whole gravy train that MP's allowances have become. Since 2003 I have campaigned against the current system where the lines between voluntary political activity and tax payer funded constituency work are blurred so that MP's can employ their political friends, fund their local party HQ and employ members of their own family on the taxpayer.

If I am the next MP for Torbay I have pledged to use the staffing allowance to employ only essential staff, in published job roles, and I will advertise any vacancy openly so that anyone qualified can apply. In addition I have said I will not employ members of my family.
I oppose the special communications allowance and the use of taxpayers money to publish and distribute an annual review to every elector and I will campaign hard, if elected, to have these allowances abolished.

It is absolutely vital that MP's set an example to everyone in the public sector that good service and cost-efficiency can go together. As important in my view, is the need to prove to a cynical public that politicians are in the business of public service, and are not just doing it for personal gain."

This has been given extra prominance by a weekend of revelations about Tony McNulty claiming £14,000 every year to buy a house in Harrow, London; which is 9 miles from his home in Hammersmith, London. He lets his parents live in the Harrow house and pays for it on his Parliamentary Housing Allowance.

And, we are assured by the 'unbiased' BBC, that this is within the rules so he has done nothing wrong!

Well thank goodness for that!

Wednesday, March 18, 2009

Gordons Dirty Secret:

The secret behind Gordon Browns 'no more boom and bust' decade of growth is that the entire consumer boom was built on borrowed money, drawn by millions of homeowners against their ballooning property value, and funded by foreign investors and speculators not British savers.

How the facts contrast with this promise:

"I am determined that as a country we never return to the instability, speculation, and negative equity that characterised the housing market in the 1980s and 1990s.
Volatility is damaging both to the housing market and to the economy as a whole. So stability will be central to our policy to help homeowners. And we must be prepared to take the action necessary to secure it. I will not allow house prices to get out of control and put at risk the sustainability of the recovery."

He said that in his maiden budget speech in 1997. He promised lots of other things which never happened either, but this is one of the most blatant, and damaging.

What we have witnessed in these last few years is exactly the kind of boom, and then bust, we were promised Bank of England independence and New Labour had abolished forever.

Sunday, March 15, 2009

A warning to capitalists.

David Cameron made a very interesting speech this week. The press reported how he has apologised for the Conservatives failing to spot the potential disaster of the credit crunch in what many pundits judged to be a sideswipe at Brown who has pointedly refused to apologise for his part in the banks downfall.
Political ploy or not there were some very interesting statements in his speech which need to be noted, not least by market liberals and free market fans like my good self.
He admitted that a "cosy economic consensus" shared by the main parties had allowed the rise of risky lending, record borrowing and poor regulation.

"Of course I'm sorry that we have got some things wrong, we were right to call time on government debt but should we have said more about banking debt and corporate debt? Yes," he said. "Actually saying sorry is the easy bit. The difficult bit is for politicians to look back and say, 'Right, where did I go wrong?'"
"We need to recognise that our economy, as well as our society, is broken - and we should have said so sooner. But if we're honest, we must also recognise that some of our economic difficulties today relate not only to what has happened in the last ten years, but also to certain fundamental weaknesses that have been there for decades."

In a speech to the British Chamber of Commerce, he said that the next government needed to "make a clean break" with the policies of the past. He said that while his party had flagged up rising public sector debt, it "could have warned more" over the mounting debts of banks.
This could have been some clever political positioning but I think it is much, much more important than that.
The Conservative Party was a willing partner in the post-war left of centre consensus that meant slowly growing public spending as a percentage of the economy, State ownership of key industries, Government support for manufacturing industry, including hands-on interference over matters like factory locations, a commitment to full employment and close control by the Government over exchange rates, incomes and prices.
The spell was broken in 1974 when Kieth Joseph - a leading member of the party, had a Damascene conversion and said he repented of his role in government, claiming in April 1974 that, at the age of 56, he had only just become a true Conservative. He regretted his participation in the Heath government's introduction of statutory controls on incomes and prices and other measures which weakened the market economy.
His at the time very radical thinking set in motion what we now call 'Thatcherism' - and it's illegitimate offspring 'New Labour' - which has become the philosphy of letting markets and free enterprise set the terms, and repositioning our Government to simply react to economic needs rather than to drive them.
Critics on all sides of the political divide have claimed that unfettered capitalism is a formula for disaster. They have never agreed that the unprecedented period of growing prosperity that this change released was a benefit worth having, if the cost is social inequality. On the Tory benches these pragmatic people used to be called 'the Wets' the respectable term is 'One Nation Tories' named after Macmillans 1959 election manifesto "One Nation". Having been in the driving seat of the Party since the 1930's they were usurped by the far more idealogically driven followers of Keith Joseph which included Mrs Thatcher, after the failure of Ted heath in 1974.
David Cameron is a politician who believes that the best policy is the one that works, he represents a return to a more pragmatic, less idealogical era in the Conservative Party when the Government has an obligation to look after all citizens.
I detect a real move back to a more interventionalist Government whoever wins the next election and I suspect that as Prime Minister David Cameron might do things that will make some free marketeers blood boil.

Monday, March 09, 2009

I am very grateful to Shadow Home secretary Chris Grayling for coming to see us today.

In a packed schedule we spent an hour at the Town Hall with councillors, officers and the Mayor to review Torbay Councils effective partnerships with the police and the health trust to improve the Harbour area at night and to help Chris understand what has worked (mop and bucket initiative for drunk and disorderly anti-social behaviour) and what has not worked (ASBO's) in this area and why; to help him frame better legislation if we win power.

We also went to the Herald Express and spend another hour talking to staff and editor Andy Phelan there about many of the issues facing Torbay that they see every day, including the effects of drink and drug addiction on peoples lives.

We talked a lot about the licencing laws and the prospects of reform to minimise under-age drinking - we agree it's a problem and my view remains that the fault lies not with shops selling to under-age customers (I don't think they do) but young people of 18 or 19 buying booze legally in supermarkets and then passing it on to under age friends. The benefit of ensuring that young drinkers drink in licenced premesis is that they are supervised, on the street or at home they often aren't.

Chris is very pessimistic about funding for the bypass coming through this year and I think the Herald will go big on this tomorrow; he didn't spell it out but the prospects of the roads budget being big enough to fund us next year would seem to be diminishing rapidly.

Sunday, March 08, 2009

A fascinating weekend canvassing
When you get involved in politics the first thing you discover is the value of doorstep canvassing.
Every week, on at least two days, we get a small group together and go knocking on doors talking to voters in Torbay.
At election time this activity is targeted at establishing the whereabouts of people committed to vote for you, so that on election day you can remind them to turn out; but in 'peacetime' canvassing is less about how people are going to vote and much more focussed on issues that worry them.
Most politicians have a bad habit of being elected and promptly losing touch with real people, they glean all their public opinion eitehr second-hand from activists, the press or the TV or they form opinions by talking to people at surgeries or reading mail (about as unrepresentative as it is possible to get, these people have already taken the huge step of contacting their political representative, something less than about 1% of votes actually ever do.)
Over the years I have canvassed most streets more than once, indeed where we were this weekend is an area I have done three times before. You do remember people, you remember individual houses -especially where residents have engaged with you before.
Time after time this weekend I have said to my activists as they headed off up the path of homes "They are "Against" there; if I recall" only to be told when the activist re-joined the group that I am wrong, that they are 'strong C' (These are codes for certainty to vote for us).
At the last election I was particularly interested in any UKIP supporters and I spent longer than I should have chatting with anyone who told me they were going purple in 2005. There were many homes we visited this weekend where I remember UKIP signs swinging in the wind and people gleefully telling me that I couldn't count on their support last time that are now firmly back in the Conservative fold.
I'd love to feel that it was my charismatic personality :) that had made the difference; but realistically I know it's nothing to do with me and everything to do with a certain Scot in Downing Street.

Wednesday, March 04, 2009

Could Nick really be Torbays first and last directly elected Mayor?
Having won the vote on cutting the budget for the ceremonial chairman at the Town Hall Nick Bye has proved he has a determined streak which is essential to succeed long-term in politics, but has it also demonstrated something else, too?
The popular view amongst many who want to retain the old-style ceremonial mayor is that the directly-elected system is deeply unpopular with the public and that as soon as they are given the chance the good citizens of the Bay will flock to vote to abolish the post.
There has been some backlash against the directly-elected mayors that do exist elsewhere. Campaigns are now under way in four of the remaining twelve local authorities with directly-elected mayors to hold referendums to abolish the posts. Last year Stoke voted not to carry on with their Mayor (although there's was a slightly different type of mayoral role) In Doncaster, in March 2007, "Fair Deal" campaigners presented an 11,000-signature petition to the council calling for a new referendum. In Lewisham the Bring Back Democracy campaign is calling for a new referendum, citing poor turnout and a very close result in the 2001 referendum; and here in Torbay almost immediately the decision was made to launch a referendum the Lib Dem council opposed it; and they have consistantly berated the public for having had the temerity to impose a directly elected mayor on them ever since.

There are striking simularities between all of the campaigns to abolish directly elected mayors. The complaint is always that the Mayor wealds 'too much' power (a laughable complaint when you think about it) and that the towns decision-making is suffering as a result. The campaigns are also nearly all originated, managed, and run by previously senior councillors, and opposition party activists.
If something looks like a duck and quacks like a duck it probably is a duck; these campaigns look and sound like sour grapes from political losers jealous of the power the public have vested in someone else; and most people can see right through them.

The debate that has raged here in recent weeks over the Chairmans £50,000 budget has been the first opportunity to actually measure public opinion on the issue. And it's been very interesting for what it has shown - the public haven't the slightest appetite to return to the old system.
Were there a groundswell of opinion against the office of a directly elected mayor you might have thought that scores of angry residents would have taken up their placards and marched on the Town Hall; in fact they didn't even manage to take up their pens over the issue. The Herald ran a survey that showed 9 to 1 in favour of 'finishing off' the old order - dumping the Ceremonial Chairman. The number of letters in support of the old way? - just one.
This confirms what I have been saying all along, there may be people who don't like what Mayor Bye wants to do with his power, there may be some people who don't like Mayor Bye personally but there is hardly anyone outside the narrow confines of the local political elite who would wish to hand power back to the self-serving cabal that had occupied Castle Circus before.
I remain convinced that at the next mayoral election in 2011 not only will Mr Bye vastly increase his vote but that the turnout will rise dramatically.

Monday, March 02, 2009

Is the banking crisis going to teach our public services something?

Three weeks away from domestic politics is a useful time to do some serious reflecting. My weeks holiday back to back with two long business trips abroad has given me ample time to think about our current crisis in a slightly new light.

For a long time, ten years or more, my wife (who is a part qualified accountant and book-keeper) and I have been privately aghast at how easy it has become for businesses to borrow very large sums of money. In some cases we know of people who have disasterous financial histories have had absolutely no problem starting new businesses and promptly running up six and even seven figure debts.

Now partly I agree this is largely pure jealousy, when my own food business was developing in the 1980's we always used to complain that our No 1 challenge was persuading anyone to lend us a penny - my bank manager used to take a peculiar delight in refusing to lend us more money, or increase our overdraft, basically because he thought it would make us lazy about collecting in our debtors cash.

But since the early 1990's the rules changed. Banks merged and merged again and became bigger and bigger and soon they couldn't handle the concept of thousands of individual managers making millions of individual lending decisions all over the globe. So they centralised.

Bank managers lost their discretion and lending decisions were first taken to regional office level and then centralised altogether, sometimes in a different country. Central decision making about loans meant systems had to be devised to regularise the process and hence we ended up with the 'credit score' system that dominates lending today.

Bluntly, with credit scoring, if you answer the right questions the right way the computer will always say 'yes'; and what a surprise, quite quickly canny businessmen began to arrange their business affairs so thet the computer would say 'yes' a lot.

Lemming-like, the entire banking sector has galloped off a cliff together - the computers telling local managers it was fine to lend to people they knew full well from bitter experience were unlikely to ever pay them back, but were powerless to refuse.

And the worst of it all is that the banks have become so big that not one of them can be allowed to fail for fear of catastrophic knock-on effects to the survivors.

The lesson is clear, centralised decision making might be more scientific and outcomes more measurable but it isn't necessarily of better quality. And in some activities the quality of decision making is the most important issue of them all.

A large number of our public services have gone down the same route as the banking sector. Policing, social work and teaching are three areas of the public services where I believe the centralising of decision making has been a reverse step, with the potential for similar disasterous consequences.

Smaller, localised decision making by professionals whom we pay and train well enough to trust their judgement is the only way forward for banks, and a large number of our public services too.