Tuesday, 30 December 2008

Tangling with the bishops

During the Thatcher government I was at a dinner for Japanese guests. The junior minister giving the after dinner speech tore up the notes written for him by his civil servants and proceeded to launch an attack on Anglican bishops. The Japanese gentleman next to me and turned me and asked, 'why minister attack bishop?'

The Church of England gave the Thatcher government a torrid time and for a while was the only effective opposition, alongside the House of Lords. Now a number of Anglican bishops have turned on the Labour government and accused it of being 'morally corrupt'.

This is a pretty direct attack on Gordon Brown's 'son of the manse' image (Mrs Thatcher wore her nonconformist affiliations very loosely). It has drawn a robust response from government ministers and MPs. John McFall, chairman of the Treasury select committee, commented: 'I don't know if at the bishops' palaces there has been too much mulled wine passed around over the last few days.'

The bishops would no doubt claim that their faith requires them to pronounce on public policy, especially when there is a social dimension. However, their grasp of economics is less sound that their understanding of theology. A central part of their argument is that people should consume less, but if that happened even more jobs would be lost.

Saturday, 27 December 2008

Bail us out say retailers

Hot on the heels of demands for a bail out for the motor industry the retail sector has asked for help to keep their three million employees in work. Admittedly their request is focused on a 5 per cent increase in business rates due in April which does seem a bit severe in current circumstances.

We are told that the motor industry has to be bailed out by taxpayers to compensate for its inability to sell its product because so many supplier firms depend on the assemblers. But then any industry has inputs of energy, raw materials, machinery and various services. However, in the case of the motor industry the casualties are more identifiable.

When I studied industrial policy, it always struck me that the focus on industries like motor vehicles and steel rather than food processing which employed just as many people had a strong gendered dimension to it. Motor vehicles was seen as a 'real industry' making things and in the 1970s the workforce was overwhelingly male: its composition has changed since then.

Any help to firms in trouble must take the form of loans to tide them through the recession. There must be no return to the days of using taxpayers' money to bail out failing companies. Unfortunately, the Americans have not set a good example. In their present form Chrysler and General Motors are simply not viable.

Tuesday, 23 December 2008

A shift in the public mood

In the run up to 1997, New Labour was helped by a shift in the public mood which considered that taxes had been cut too far and public services run down. Now a new poll in The Independent suggests a shift in the other direction.

Dave Cameron has solidified his lead at five per cent, but more important he would enjoy a 17 per cent lead if the Conservatives pledged to cut public spending and not raise taxes. More details here: Poll

Labour may be hit by a double whammy: punished for the loss of jobs and prosperity in the recession and punished for putting up taxes.

Saturday, 20 December 2008

Friday, 19 December 2008

Brave new world

The Number 10 web site has been re-branded as the 'official site of the Prime Minister's office': Official

Visitors are greeted by a large picture of Gordon Brown looking suitably authoritative and determined as he addresses the problems of the economy. But there are plenty of other pictures of Gordon, including one of him addressing a reception for military heroes who have received an award from the Sun newspaper.

If you want to see someone other than Gordon, you can see a film of the Queen's speech to Parliament (written, of course, by Gordon).

The leading video clip is the action movie 'Helicopter over Baghdad', but you can also see a number of other video clips of the prime minister's recent tour.


Saturday, 13 December 2008

It gets worse and worse

Every day brings more bad news about the economy. This is going to be a long and deep recession and it is going to take years for the public finances to recover. With interest rates moving towards zero, 'quantitative easing' is now on the agenda. In effect, this means printing money but the risk associated with it is inflation when the economy comes out of recession.

An analysis by the Financial Times shows that the economy is deteriorating even faster than the Treasury forecast as recently as two weeks ago. The Treasury also believes that the reintroduction of 17.5 per cent value added tax will hit the economy hard just before the expected date of the general election.

The National Institute is expecting the economy to shrink 1 per cent in the fourth quarter. This alone would push borrowing up by another £2bn to £3bn. The economy is expected to grow by only 0.3 per cent in the first quarter of 2010 in the run up to the general election.

Wednesday, 10 December 2008

A more coherent government

Last night I went to the House of Commons for a Hansard Society meeting to mark the publication of the Palgrave Annual Review of Politics entitled When Gordon Took the Helm. Among those on the panel was Peter Riddell of The Times who is always good value.

He emphasised the significance of the return of Peter Mandelson to the Government. It had cut the legs from under the ultra Blairites. His international experience and knowledge of business was a considerable asset.

At one time there had been a sense of incoherence about the Government. It portrayed itself as different from Tony Blair, but it was not that different. Now Brown had a clear view of what he wanted to achieve as the man who would see us through the recession. As the economic problems got worse, that would be the real political test.

Philip Cowley noted that the Parliamentary session that ended recently had been the most rebellious since 1971 when Edward Heath faced problems over British membership of the European Community. There had been more revolts than in the Maastricht session, albeit smaller ones.

Saturday, 6 December 2008

The return of industrial policy

One of the characteristics of 1970s politics was industrial policy, an attempt to bail out failing firms and industrial sectors at public expense. Subsidy policies often involve the worst forms of government failures as they create opportunities for rent seeking and political favouritism. One of the main recipients of government money was the motor industry.

Now the motor industry is in trouble again and calls for bail outs are being heard, most recently in relation to Vauxhall Motors, part of the General Motors behemoth. It is argued, with considerable justification, that today's British motor industry is leaner and fitter than it was forty years ago. Certainly the industry is in much better shape than at least two of the American big three who look likely to get help from Congress.

The Labour Government is emphasising that it is not reverting to old style interventionism and is indicating that it would support research and development activities or the promotion of environmentally friendly technologies. Without care this come close to the practice of 'picking winners' which governments are notoriously poor at it.

There is a case for providing credit lines to sound businesses hit by the downturn, but the problem is always how one decides that they are viable and this is where political criteria can start to creep in.

Sunday, 30 November 2008

Labour falls back in polls

The latest Ipsos MORI poll reported in The Observer today shows that Labour has fallen back by five points to 32 per cent since mid-November. The Conservatives and Liberal Democrats have gone up by three percentage points to 43 and 15 per cent respectively.

However, a higher proportion of the public trusts the Prime Minister and the Chancellor in the current crisis than trusts David Cameron and George Osborne (46 per cent to 33 per cent). On the issue of which team would be the best to run the country after the next election they are level pegging at 39 per cent.

On careful analysis the Darling package is flawed in a number of respects and is hardly likely to provide much of a stimulus to the economy despite its cost. Equally, the Conservatives have been relatively flat footed in the crisis, particularly in terms of spelling out an effective constructive alternative.

For the first time this year, the PSA Awards were televised (albeit at an obscure time on the BBC Parliament Channel) and the Parliamentarian of the Year award justifiably went to Vince Cable. Dr Cable, who is an economist by origin (but one with extensive business experience), is listened to with respect in the Commons on economics and financial issues because he has been proved right so often.

It was therefore quite alarming to hear him predict that the effects of the present systemic banking crisis may be felt for many years to come. I do not doubt that he is right. Rather one engaging in a blame game, what is really needed is to plot a credible forward course.

Wednesday, 26 November 2008

The sting is in the tail

To understand the pre-budget statement you really need to read it in full which I have not had the time to do that. However, a few stings in the tail are emerging, leaving aside the discarded proposal to increase VAT to 18.5 per cent after the 'tax holiday'. Anyone who has worked on government files in the National Archives knows that proposals are often discarded at the last minute, although Dave Cameron is using it to push his recycled 'Labour's tax bombshell' theme which always invites the question 'well what would you do?'

National Insurance is a form of income tax by another name (the marginal 40 per cent rate is already effectively 41 per cent) and is to go up again. Moreover, tinkering with tax allowances means that owes earning over £100,000 are set to pay a lot more tax in the future.

Even more significant, the tax threshhold for the 40 per cent rate will not be raised setting 'fiscal drag' in motion as inflation returns and clawing more taxpayers into that band, including many public sector workers such as teachers and police personnel. They will take a hit from another direction because, after many years of perhaps over rapid growth, the public sector will receive relatively little extra money in real terms. Indeed, given the demands of an ageing population, in some respects it could lead to cuts in services.

Alastair Darling has not been quite as transparent as he would like to claim. And when the full implications sink in the euphoria about 'soaking the rich' in the Labour Party may dissipate.

There is a real incentive question here. If highly skilled and qualified people think they are being over taxed and also receiving deteriorating public services, there are plenty of other places they can go - although it seems that they may be beaten to it as far as Australia is concerned as many citizens return home.

Tuesday, 25 November 2008

Island politics

There's something odd about politics on islands. Note this gaffe from Guernsey:

Meanwhile, it's all kicking off on the once tranquil island of Sark with phrases like 'feudal Talabinist' flying around:

Sunday, 23 November 2008

The end of new Labour

The widely leaked proposal to create a new tax band of 45 per cent for those earning over £150,000 a year - but not until after the next election - marks the end of new Labour. Once one has such a band, why not then make it 50 per cent for those earning over £100,000 a year?

There are probably no more than 400,000 people earning over £150k a year and one might generate £1.2bn which sounds a lot but is not compared to public expenditure totals. This is symbolic politics, but symbolism is very important in politics.

Of course, it does give something of an answer to the Conservative 'how would you fund it?' question. It also puts the Conservatives on the spot because if they say they wouldn't go ahead it creates a divide on fairness, albeit a somewhat artificial one, between them and Labour.

The reason for getting rid of high tax rates was in terms of the disincentive effects compared with the lack of revenue generated. Of course, what is often overlooked is that the 40 per cent marginal rate starts at a relatively low level in Britain compared with other countries. Someone like a deputy head teacher finds themselves in the higher tax bracket.

Timely, temporary and targeted

This was Gordon Brown's rhetoric tonight on tomorrow's 'pre-budget' report, although in practice it is more like an actual budget than the usual dress rehearsal. It appears that a central plank is to be a 2.5 per cent cut in VAT which could last for fifteen months. Whether that will be enough to boost the economy remains to be seen.

The retail economy is actually not doing that badly, although some retailers find the official figures misleading. One of the paradoxes of the present situation is that the real problem in the UK, as the IMF recently pointed out, is personal indebtedness. But given the importance of household consumption in driving the economy, shoppers have to be encouraged to splurge some more.

The IMF, business organisations and the majority of analysts agree that a substantial fiscal stimulus of more than 1 per cent of GDP is essential. Somewhat cheekily, Samuel Brittan suggested in the Financial Times on Friday that the Government could print more money without risking a monetary driven inflation.

I am afraid that Dave Cameron and George Osborne are out on a bit of a limb. Of course, I understand why they are upset. It's like someone else ordering a slap up dinner of the sort the Bullingdon Club might have enjoyed and then presenting you with the bill eighteen months later.

Taxes will have to be raised and public expenditure cut. The risk is that this would not be a temporary phenomenon, but could go on for some time, acting as a drag on the economy. But the greater risk is not doing enough now. This is a very deep crisis, as the problems faced by Citibank show.

The consequences can be seen in the normally 'cool' country of Iceland where police had to use pepper spray and batons to disperse an angry mob trying to invade a police station. Angry Icelanders want their prime minister and central bank governor to resign and for an election to be called. But how many of them were complaining when their country was floating upwards on a great iceberg of debt?

As always, I would recommend the Institute of Fiscal Studies for informed, authoritative and balanced coverage tomorrow. Visit their special pre-budget page here: IFS

Not beyond our Ken

Ken Clarke is always good value and the long interview with him in The Times is worth a look: Ken

He is studiously loyal to George Osborne, pointing out that it has been 'get George Osborne fortnight', but does not rule out ever being Chancellor again, whilst emphasising that he has many interests outside politics. He could not be accused of a lack of what Dennis Healey calls 'hinterland'.

I have only met Ken once, but I must say that I find him very likeable and he is a considerable asset for the Conservatives as he always manages to deliver a few blows at Labour, as he does here on the subject of public expenditure, an area where many nonpartisan analysts would say that they have been profligate and sometimes wasteful.

Wednesday, 19 November 2008

Dave and Yvette

First of all let me recommend the latest article by Peter Riddell on developments in economic policy. As always, he talks very good sense: The Economy

Yesterday I had Yvette Cooper on Radio 5 attempting to defend government policy. It was a classic series of examples of politicians not answering the question asked. She repeatedly failed to answer a question about why there should be speculation against sterling rather than any other currency.

She also claimed that the Government was able to pump money into the economy now because it had reduced debt. Well, it all depends on what you mean by debt. Do you count all the projects funded under PFI arrangements which will have to be paid back? Do you count the amounts used to nationalise Northern Rock and Bradford and Bingley as well as to buy shares in various banks? To be fair, it should be possible to recoup most of that money when the recession comes to an end.

Dave Cameron has now said that he will no longer stick to Labour expenditure plans should he gain office. I can understand why he needs a 'not me guv' defence against unpopular tax rises and public expenditure cuts.

What he will not say is where the public expenditure cuts will fall other than on 'central government waste'. Now, of course, there is always some waste in such a big operation as government which is why we have a National Audits Office and a Public Accounts Committee. One could save quite a bit of money by not proceeding with the identity cards project. But that wouldn't be enough.

Equally, Yvette Cooper would not specify what combination of tax increases and public expenditure cuts will occur in the future, as they will have to. It's going to be an interesting pre-budget report.

I think that the Government has to give a major fiscal stimulus to the economy. Already the CBI is talking of 9 per cent or 3 million employed by 2010. If no action was taken, the recession could be much worse than those of the early 1980s or early 1980s. But the Government also has to be honest about how it would rebalance the public finances - and so does Dave.

It also applies to Vince Cable as well, except that he is unlikely to be in government, so he can continue to make admittedly very shrewd attacks on policy from the sidelines.

Sunday, 16 November 2008

Did we learn anything?

The Sunday Times today has a full page feature on 'Our tax manifesto: what Brown could do to help.' Now, admittedly, this was probably put together by the journalist in a very tight time frame.

However, suggestion three is 'bring back mortgage relief'. It took a big struggle to get Mrs Thatcher to reduce what was originally brought in a subsidy to counteract an unpopular tax that used to be applied to property owners (Schedule A as I remember). Labour finally got rid of the relief (Schedule A went after it cost the Conservatives at the Orpington by-election).

It is argued in the piece that it could be limited to first time buyers. In practice, actually ensuring someone was a 'first time buyer' would take a lot of time and effort, involve endless complications and be open to fraud.

The most basic objection is that this involves subsidising an investment that should yield positive returns in the longer run. So those in social housing or in private lets would be transferring some of their taxes to those making house purchases.

From various hints the Government seems to thinking of using the tax credit system and the winter fuel allowance to distribute its fiscal stimulus. But not everyone who is entitled applies for tax credits, while neither measure would reach those who are in work but not well paid and without children.

Far better to increase personal allowances and make an offsetting change in the higher rate threshhold.

Saturday, 15 November 2008

Breaking news

Radio 5 booked me yesterday to talk about the G-20 summit this morning. A 7.05 slot wasn't ideal, as we went to the theatre in London last night to see The Tragedy of Thomas Hobbes (which I would recommend). However, by the time I got in the cab at 6.30 the producer was on the phone: the main story was now George Osborne's 'scorched earth' remarks.

Leaving aside the partisan political rhetoric, what sort of case does Osborne has? There is no doubt that the pound has fallen heavily against the pound and the euro and I would expect it to fall further. I don't know where it will bottom out but hopefully before we have parity with the dollar and the euro. My guess would be $1.20.

Potentially this fall has inflationary implications and would thus constrain the scope for further interest rate cuts. However, it will be some time before there is an inflationary effect and in the meantime there will be scope for selling more British exports. Of course, it's going to cost a lot more to go on holiday abroad and I think that voters are quite sensitive to that.

George Osborne wants monetary policy instruments to do the heavy lifting, but my view is that one needs a two club policy and a fiscal stimulus is important. The key on a global level is further action by China and the United States.

He is also being a bit disingenous when he says that the problem is government debt. Of course, the Government has been guilty of fiscal laxity. However, as the IMF made clear the greater part of the problem in the UK has been personal indebtedness. People in Britain have been living beyond their means - but paradoxically they have to carry on doing so to maintain the economy.

I can see why George Osborne is upset because the Conservatives have beeen handed a poisoned chalice should they come into office. However, he has laid himself open to charges of talking down the currency. Labour has also repeated the 'novice' charge, but this will wear thin if it is overused.

Thursday, 13 November 2008

Dave's tax dilemma

The proposals for the Conservatives on tax in terms of a National Insurance rebate for employers hiring new workers have not gone down too well. On the one hand, employers are pointing out that the resultant fiscal stimulus would be insufficient. On the other hand, economists have been reminding us of the 'dead weight' or 'additionality' problem which always rears its head when any kind of subsidy (which a tax rebate in effect is) is proposed.

This means that you are paying for things that would happen anyway. An employer needs to take on a new worker, but collects £2,500 when s/he passes 'go'.

It now seems likely that Labour will outflank the Conservatives by offering bigger tax cuts. At some point the money will have to be repaid. And what worries the Conservatives is that they may be in government by then.

Tuesday, 11 November 2008

Congestion charge

I got a bus from Euston to Aldwych today (not a straightforward journey by tube given that the Aldwych stub line was closed aeons ago and is now used for film shoots). It took nearly 40 minutes. I should have walked: it was a nice day and it would have been quicker.

I asked my London hosts what had happened to the congestion charge and they said that it had had an impact for about a year. Then people got used to paying it (or found a scam to evade it).

No doubt Ken would blame Bozza. I see that today Ken 'announced a new task force to revive London's flagging economy ... called Progressive London, to offer an alternative to the Boris Johnson regime at City Hall.' And no doubt to help Ken's plans to stage an early return.

Brown bounce cuts Tory lead

The latest Populus poll in The Times shows Labour up 5 points and the Conservatives down 5, which, if it was repeated in a general election, would probably result in the Conservatives being the largest party in the Commons but without an overall majority

Once again it's the economy, stupid. Gordon Brown has a 20 per cent lead over Dave Cameron in terms of being the best prime minister 'to deal with Britain's economy in recession'. However, Cameron has a 7 per cent lead in terms of being able to lead Britain forward after the next election. Peter Riddell develops this theme here:

The Conservatives have been caught a little flat footed by recent economic developments and George Osborne's reputation has taken a bit of a battering. However, it's a difficult wicket for an opposition party. Criticism can be seen as irresponsible carping, while the prime minister is able to appear as decisive and authoritative on the world stage. Much will depend on the credibility of the tax cuts package proposed by the Conservatives.

Sunday, 9 November 2008

Open season on the banks

Attacking the banks is a popular political sport at the moment and Alastair Darling and his aides piled in on Friday, showing those who attended the meeting with the banks at No.11 Downing Street an unfavourable headline in one of the day's papers. At least those attending got bacon rolls rather than miniscule sandwiches and 'soldiers' of marmalade supplied by caterers who must also have the contract for Back House. (But quite possibly that is the C list menu).

My local MP has also jumped on the bandgwagon, proclaiming in his circular letter that 'This help has strings attached. Banks must mend their ways and stop paying huge bonuses.' I would rather say that they should stop paying bonuses that are unjustified by performance.

In practice the banks have some scope to make cuts in mortgage interest rates as the gap between the key inter-bank lending rate, the three-month Libor, and base rate has narrowed. It fell by about 1 per cent at the end of last week to just under 4.5 per cent, leaving it at 1.5 per cent above base rate.

Another area in which the banks are under pressure is on maintaining overdraft facilities to small businesses and not upping the rates charged. Small businesses do fail with some regularity, in part because they have unrealistic business plans, particularly in relation to cash flow. Admittedly anecdotal evidence from a chamber of commerce network suggests that the two businesses that have failed recently were both regarded as unsound.

Of course, the whole relationship between the banks and the Government is complicated by the fact that it takes three forms: nationalised banks - Northern Rock and Bradford and Bingley; those with substantial government shareholdings; and those that have preferred to look elsewhere for their money, notably Barclays which turned to the Gulf States for recapitalisation. This pleased me as a Barclays customer, but did not please shareholders who felt that their holdings had been diluted by selling a stake at a generous price.

It is worth nothing that Barclays is a bank that has global ambitions and has a business model that does not fit with the UK government as an investor. Royal Bank of Scotland has operations in the US and Asia and a large investment banking division. Its rivals claim that with government as a shareholder it will struggle to attract new investment banking staff or commit to significant investment in operations outside the UK.

It should be noted that the combined Lloyds TSB-HBOS operation (providing it goes ahead) will be largely focused on the UK market and in particular retail customers and SMEs. It is thus well placed to respond to government exhortations to maintain lending to house buyers and small businesses.

Lord Mandelson has made it clear that the bank shareholdings would be managed at arms length from government. This has led to a revival of the idea of the state holding company which in the 1970s was championed by socialists as a mechanism for bringing about creeping nationalisation of the economy. It saw fruition in the National Enterprise Board which was really a mechanism for bailing out lame ducks rather than establishing a vast state commercial empire on then then vaunted Italian model.

The new holding company is to be headed by the chairman of J Sainsbury, Sir Philip Hampton, who has a public service record and John Kingman, a senior Treasury manadrin. The overall aim of UK Financial Investments Limited is to 'protect and create value for the taxpayer as a shareholder.' In other words, there will be no return to old style nationalisation, but some discreet influence will be exerted on the banks, recalling the old days of 'lunch table directives'.

How bad is the recession - and what can be done?

According to the IMF the UK is going to have the worst projected recession in the rich world with the economy contracting by 1.3 per cent in 2009. What marks out the UK is the high level of indebtedness, particularly among households.

The IMF is encouraging countries to give a stimulus to their economies and the UK has been using both fiscal and monetary instruments. The one-and-a-half percentage points cut in interest rates was a bold move by the normally cautious Monetary Policy Committee, but just how quickly it filters through to the economy remains to be seen.

There are also some downsides. Just how far can the rate be cut? Well, notionally to zero, but the consensus figure is 2.5 per cent, although some commentators are holding out for 1 per cent. That means negative real interest rates, bad news for savers, but also potentially inflationary. If sterling falls, that could also be inflationary. But the Bank is caught between a rock and a hard place.

There is also going to be a fiscal stimulus. Robert Chote of the Institute of Fiscal Studies has suggested that in the pre-Budget report due later this month the Chancellor would have to announce lower taxes or higher public spending close to 1 per cent of national income or £15bn.

There is quite a lobby gathering for a cut in VAT from 17.5 per cent to 12.5 per cent, but that would have a big effect in revenues. It might, however, be possible to tweak both VAT and corporation tax payments to help company cash flows. One could also, in effect, give profitable firms encountering losses a tax rebate by allowing them to 'carry back' losses for three years rather than one as has been the case since 1997.

But at some point the bills are going to come in. As well as stimulating the economy, the Chancellor has to demonstrate that he has a medium-term plan for re-establishing fiscal prudence, once New Labour's watchword. The temptation will be to offer jam today and leave the bill to be sorted out after the next election, most likely by George Osborne (who has already stated that taxes might have to be increased).

A forecast from the European Commission implies £90bn of public borrowing next year compared with the Treasury's budget forecast of £38m. Paying that back implies some pain.

A breezy circular letter from my local (Labour) MP first of all blames the problem on the Americans, overlooking indebtedness in the UK. He then goes on to assert that the Government can afford to borrow more money in the short term 'because we repaid a lot of debt when our economy was growing strongly.' In fact, most independent experts agree that there was fiscal profligacy after the Government's first term in office.

If one was going to be generous, one could say this was Panglossian. I think that he really belives what he is saying, but that is what worries me.

Political cartoon archive online

The University of Kent has put its extensive archive of political cartoons on line:

I used the search function to find cartoons about the post-war prime minister, Clement Attlee, generally regarded as one of the outstanding prime ministers of the 20th century. The first cartoon I came up with was one about the Irish sweepstake which just shows that you need to know some obscure history to put this in context.

This was really a form of offshore gambling. When he was a young man (in the inter-war period), my father used to travel over to Ireland at the weekend to buy pre-ordered tickets in the Irish hospital sweepstake. As a railway worker, he could make these journeys more cheaply than anyone else could, but it must have involved some rough crossings on the Irish Sea now and then. But probably he had the same genetic make up as me, as I have never been sea sick, even in some very rough seas.

Saturday, 8 November 2008

Thinking the unthinkable

The conventional wisdom is that the House of Lords must be replaced by a wholly or largely elected second chamber, although actually bringing about reform has proved difficult. It was therefore interesting to hear a talk yesterday by Professor the Lord Norton of Louth who put the case for the status quo, albeit with some reform to existing arrangements. More can be found here: Campaign for an Effective Second Chamber

The core case of the 'if it ain't broke don't fix it' brigade is that the Lords is essentially a revising chamber, one of legislative scrutiny, a task in which the expertise possessed by its members plays a key role. The argument against the Lords in its present form is that it lacks the legitimacy provided by election. But if the upper house was elected, it would be in a stronger position to challenge the Commons and legislative gridlock could result.

One of the anomalies in the present situation is the continued existence of 92 hereditary peers who are selected by election on the basis of their contribution to the House. This was a compromise in which my former colleague, Professor Lord Skidelsky of Tilton, played a part. I remember him asking what the arrangements had been under the old system of electing Scottish 'representative' peers which was abandoned many decades ago.

Professor Lord Norton and his colleagues would argue that the herditaries should be allowed to 'die out' by not replacing them through by-elections when one of them dies. However, this is likely to be a long process and it might be better to create life peerages for those who are really effective.

What I do know is that I often turn to Lords committee reports rather than those from the Commons because they are more authoritative and less influenced by partisan debates. The Lords also undertakes the scrutiny of European legislation much more effectively than the Commons.

Thursday, 6 November 2008


The substantial Labour victory at Glenrothes is a major shot in the arm for Labour, particularly given the personal involvement of Gordon and Sarah Brown. Even yesterday, Labour was saying that while it had narrowed the gap, expecting the SNP to win. In fact the swing to the SNP was only five per cent giving Labour a comfortable majority of over 6,000.

The SNP case has been looking more than a little weakened since the collapse of the 'arc of prosperity' and the two leading Scottish banks having to be bailed out by Britain. The local SNP council was also none too popular, particularly over care charges, and the council leader was their candidate.

Labour had a popular local candidate, but it would seem that the economic crisis helped Labour. One voter remarked in a vox pop that Gordon Brown was needed to get the country out of the mess.

It's the economy, stupid?

This is not an American politics blog, but it is interesting to compare the predictions made at the forecasting panel held at this year's American Political Science Association conference in Boston Ma. in August with the outcome.

All but one of the panelists (allegedly a Republican) forecast a victory for Obama, although three of them with substantially larger shares of the popular vote. With some votes apparently still to be tallied, Obama's share is currently running at 52.4 per cent. The nearest forecast was the economic indicators model at 52.2 per cent.

Perhaps it was a case of 'the economy, stupid?'

Tuesday, 4 November 2008

Scottish identity

Further to my piece on Glenrothes yesterday, a Scottish friend writes:
'I find the identity question perplexing. In my lifetime Scotland in some senses has become much less distinct - disappearance of Sunday observance and the erosion of influence of Church of Scotland. People follow the English Premiership as they do everywhere else. The Scottish editions of London newspapers grow all the time. Now the banks are eroding and yet just at the point that everyday life is becoming less Scottish many feel more Scottish.'

Of course, it is just when an identity is threatened that people cling to it more strongly and try to re-define and reinforce it. In an era of greater global interdependence, more specific identities can provide something of a security blanket.

Monday, 3 November 2008

Glenrothes too close to call

The general consensus of the UK, Scottish and local media (aka the Glenrothes Gazette) appears to be that this week's by-election in Glenrothes is too close to call. Breaking the convention that prime ministers do not campaign in such elections, Gordon Brown has been there twice, while the new secret weapon, Sarah Brown, has been there virtually daily and appears to have gone down well.

One of the earlier versions of the seat was for fifteen years one of the few seats in the House of Commons ever to be held by a Communist, reflecting its mining roots. The local SNP council is none too popular and Alex Salmond's arc of prosperity is looking a bit sick, but Labour supporters may well not bother to vote.
Labour has admitted that it was 3,000 or 4,000 votes behind the Nationalists a month ago and the gap might be too big to close. Paradoxically, Labour can campaign against the incumbent administration in Edinburgh.

If the SNP do win, it will be a big boost for Alex Salmond and a blow for Gordon Brown. But the real winner will be Dave Cameron, even though the Conservatives are not expected to do well. Labour's recovery will have derailed. Successfully defending a 10,664 majority would hardly be a great feat, but it would be an improvement on the nadir of Glasgow East.

Thursday, 30 October 2008

A failed policy

Martin Weale's commentary on the economic policy framework in the last National Institute Economic Review is well worth reading. He starts by stating bluntly that, 'It is abundantly clear from the chaos of the past few weeks that [the 1997 policy framework] has failed.'

Weale is, of course, suddenly back in fashion because his Cassandra like prophecies of doom entitle him to say 'I told you so', particularly in relation to the National Institute's forecasts which are more pessimistic than those of the Treasury.

He does qualify this by saying that the monetary arm of the framework has been its most successful component. But this is now being politicised with strong hints from the Chancellor to the Bank to cut interest rates sooner rather than later. The inflation objective thus effectively disappears, whilst cutting rates will do little for demand when there is so little liquidity and the base rates and mortgage rates have increasingly become decoupled. As Weale notes, the belief that interest rate changes can play a major role in easing the current crisis is probably mistaken.

Some of his main criticisms are:
1. The regulatory framework for the financial services sector. In particular the FSA was not equipped to prevent or at least dampen asset bubbles. Regulation of the financial sector was not regarded as a macroeconomic issue, but was given an equivalent importance to the regulation of utilities or commercial television.
2. The Treasury's method for measuring the economic cycle, 'giving rise to an inevitable perception that it was subject to political manipulation' to ensure that the fiscal rule could be met.
3. The treatment of the surge in tax revenues around 2000 as a permanent increase in revenue rather than a temporary or poorly explained surge. This led to fiscal policy errors.

He forecasts a current account deficit of 3.7 per cent of GDP in 2010 with a national debt as a proportion of 55 per cent by 2010. In other words, any new government would inherit a poisoned chalice. As Weale points out, a shift to a budget surplus is needed, but explaining that to a public which has been used to deficits is going to be difficult.

Weale anticipates that the UK will be the most affected of the advanced countries by the recession as it has very high private sector debt levels and a large financial sector. However, he expects a recession similar to that of 1990-92 rather than 1920-22 or 1929-32.

John Major was able to ride that out politically, but he was a relatively new face, whilst Gordon Brown was Chancellor and hence directly involved in the policy errors that were made. Of course, everyone makes mistakes, but some have more serious consequences than others.

I will deal with Weale's remedies, which I find less convincing than his analysis, in a subsequent post.

Tuesday, 28 October 2008

Further warning from Bank

After a comment by the Bank's deputy governor that this was possibly the worst financial crisis for a hundred years, the Bank has delivered a gloomy half year financial report this morning: Bank

It talks of significant risks remaining for the banking system, but also of concerns about the health of insurers and hedge funds.

In the event of a further crisis, there might be calls for a Government of National Unity, but this didn't work all that well in the 1930s and partisan tensions are probably even worse now.

Monday, 27 October 2008

Drawing a line under things

All of us make mistakes and it's nice when politicians admit that they have. George Osborne was right to draw a line under the Queen K affair by doing just that. Media attention may now switch again to Mandy, fortunately in Moscow at present. Sadly, once again, he has been shown to have been economical with the actualité.

The problem for the Conservatives with this relatively minor squall was that it allowed generally sympathetic papers like the Sunday Times to dig out their old stories and photos about the Bullingdon club. Chaps from fee paying schools in white (and blue?!) tie; swilling champagne; rolling a chap down a hill in a portaloo after more champagne at 'brekkers' etc. etc. It all creates an image of the idle rich which is not helpful when many people are financially stretched.

The class obsessed inverted snobbery that John Prescott displayed on television is just as bad. The best moment came when one of three young women from Lewisham asked 'Who is Gordon Brown?' when asked for her opinion of him. All these young women, who were insistent that they should not be labelled as 'chavs' were evidently NEETs (not in employment, education or training). Which shows once again that in labour market policy, as in any other policy, implementation is everything.

Sunday, 26 October 2008

Urbis et orbe

The Mais lecture is often used to signal important changes in economic policy: in 1984 Nigel Lawson used it to turn the traditional distinction between macroeconomic policy and microeconomic policy on its head.

Alastair Darling's lecture has been delayed by events but it will take place at City University on Wednesday. The intention is to try and halt the slide in sterling by emphasising that the Government is serious about slowing down public spending.

All well and good, but one can't invoke a new sainthood for Keynes as the Chancellor did last week (aided by noises off by his biographer Robert Skidlesky) and at the same time proclaim that public spending is to be brought under control. Of course, the Government is making plans for an early sale of bank shares, but the stock market will have to recover first. At the moment we have panic all round.

The question with any public expenditure cuts is 'where?' and the answer is usually 'misery all round'. Except that one can't (Philip Snowden notwithstanding) cut benefits and public sector salaries without upsetting a large bloc of voters. It is simply not a politically viable option. And it's not easy to touch primary and secondary education, health, law and order and defence.

It will be interesting to see whether the Chancellor's speech has any specifics about where falling tax revenues might be offset.

The Established Church

When the Political Studies Association was drafting its reponse to the rather flabby Green Paper on Governance produced by the Brown Government in its early days in office, I was given the task of drafting the section on the Church of England (because no one else would). Around two pages of the Green Paper were devoted to this subject, some of it on very obscure topics like the 'Royal Peculiars' (which admittedly are of special interest to head of state, Her Majesty the Queen). You can link to the document called 'Failed Politics' here: PSA

What quickly became apparent to me was that few political scientists had views on this question, but those that did have views held strong ones and I had quite a difficult task in coming up with an acceptable form of words that did not offend.

Now controversial minister Phil Woolas, having stirred up the immigration pot, has suggested that disestablishment of the state church is inevitable. His infuriated boss at the Home Office banned him from appearing on Any Questions. The last thing the Government wants is a row about disestablishment.

There are, of course, those in the Church of England that favour disestablishment. The Church itself is increasingly divided over a wide range of issues, not least those relating to gay priests and the whole Anglican Communion is splitting apart.

The Church of England has always been divided between 'bells and smells' High Church Anglicans whose only quarrel with Roman Catholics sometimes appears to be that the Pope is not English and at least two other tendencies. With the arrival of women priests, increasing numbers of the Anglo Catholics have 'gone over' to the Roman Catholic church (the English Church purports to be 'Catholic' in the sense of universal). At the other end of the spectrum are the Evangelicals who (in some versions) emphasise the literal truth of the Bible and believe in services which involve a great deal of audience participation, even 'speaking in tongues'.

This leaves a narrowing middle ground for 'broad church' Anglicans who attach importance to the nature of the Elizabethan post-Reformation settlement, particularly in relation to the doctrine of transubstantiation. Such broad church Anglicans are also often 'liberals' on women and gay priests and in their interpretations of doctrine, especially on the Resurrection.

A widely held, and understandable, view is that in a multi-faith society an Established church is at best an irrelevance and at worst an obstacle to harmonious community and inter-faith relations. On the other side, The Times produced the following arguments in favour of Establishment (which were duly attacked by a libertarian in Saturday's paper):

— The presence of a parish priest for every community [the parish church is of importance in rural communities, although many have been closed]

— The right of all, unless there is a separate legal inhibition, to be married, baptised or given a funeral at their parish church [I have a personal interest in the last offer]

— The Church’s central role in helping the nation to mark important events, such as royal weddings [of course some would see them as unimportant]

— The role of the Church as an education provider through church schools [from which I benefitted, as all my grandchildren now do - the standard of these schools is especially high and I know that it was good for my intellectual development to face complex theological questions at the age of seven/eight]

— The public enactment of church legislation. The laws of the Church are part of the laws of England – measures passed by General Synod also need to be passed by Parliament – and therefore the Church’s courts are part of the English legal system

— The role of the Sovereign as supreme governor of the Church [but the Prince of Wales would like to represent 'all the faiths' as and when he becomes monarch]

— The role of the Crown in appointing bishops and other senior clergy [but likely to change]

— The presence of bishops in the House of Lords – they are not there to protect self-interest but to represent communities in a non-party-political way [but, of course, there is pressure to reform the second chamber]

The depth of the recession

The 0.5 fall in output reported last week was more than most analysts expected and it is evident that the recession is going to be quite long (I would think at least 18 months) and relatively deep. With the fall in share prices, the problems of the banks are not entirely sorted out as they are finding it difficult to raise capital on the markets. This may be a particular problem for Barclays who understandably eschewed government aid.

As the public come to perceive the banks as 'publicly owned', they may expect government to intervene on all sorts of issues from customer service to repossessions. This is going to cause a real mess as the old model of nationalisation never worked as far as accountability was concerned and we don't have a new one. What the Government should say is that they have no responsibility for day-to-day commercial decisions, but that is politically costly as far as repossessions are concerned.

The fate of small business is becoming something of a political battleground between Labour and the Conservatives. I have a personal interest as one of my children and her husband run a small manufacturing/service business and they are in the process of moving into new premises. (See Signs ) They say that it is quieter than usual, but orders have by no means dried up and they seem to be getting more interest from abroad as the pound falls (although that will push up the cost of the out sourcing they do in China). On the subject of China, controversial columnist Will Hutton has something to say in The Observer this morning. In my view it borders on the insulting, but you can read it yourself here: Hutton

As far as small businesses are concerned, the Conservatives favour tax breaks or deferment, Labour subsidies. Tax breaks really are a form of subsidy but they are perceived differently. Tax concessions give more autonomy to the small business person to decide how to use the money, but it may end up in their pocket. Subsidies, however, may not achieve the required objective and then there is the 'additionality' problem.

This means that you are paying people to do things they would have done anyway. For example, supposing a small firm was trying to train someone up to become a manager and wanted to send them on some courses with their chamber of commerce. As I understand it, even very small firms can now get these paid (or largely paid for) under the Government's 'train to gain' scheme. In other words, taxpayers are paying for something that would have happened anyway.

What is clear is that all this borrowing and spending to boost the economy will end up with a bill which could amount to the equivalent of 2.5p on income tax for ten years. If Dave Cameron wins the next election, as still seems likely, it could be a poisoned chalice.

Thursday, 23 October 2008

Sterling slump poses challenges

Sterling started falling on Tuesday night and it continued falling yesterday closing at $1.62 or 4 per cent down on the day. On Monday it was worth $1.75. In a recession, there is nothing unusual about a flight to the global reserve currency, the dollar.

However, it does pose policy dilemmas for the UK Government. Given that the pound is also low against the euro, imports will cost more and this will have an inflationary effect. This reduces the chances of inflation falling to offset the rise in unemployment in the misery index.

It is still likely that interest rates will experience another 0.5 per cent cut, but there are limits to the extent to which interest rate cuts can offset a recession as Japan found out (rates are still only 0.5 per cent there). If rates fall too much, savers - another important political constituency - will be hit hard. They may stop lending money to building societies and banks - although they are then left with the question of who to hire their money out to, given that National Savings rates have already been cut back.

No country can insulate itself from a global recession, but political reactions can differ.

Wednesday, 22 October 2008

The George Osborne affair

Gordon Brown is trying to up the ante on this by calling for an enquiry, but I can't see this having any great lasting impact. Clearly, though it is embarrassing for the Conservatives in terms of their ability to communicate their concern for the problems of those on relatively low incomes. It is also doesn't help Osborne's reputation much which has suffered somewhat during the financial crisis with rumours of a return for John Redwood to the front benches.

Osborne seems to have upset Mandy by breaking the code of 'omerta' which covers these occasions and Nat Rothschild is also upset. Never mess with a Rothschild.

The report in the Financial Times verges on the sensational for the pink 'un. The Russian oligarch's yacht is described as 'something straight out of a James Bond film, complete with deep-pile carpet, uniformed crew and speedboats.' Oxford University's Bullingdon Club, of which Mr Osborne and Mr Rothschild were members, along with Dave Cameron, is described as 'an elitist society whose members like to disport black tie and a condescending sneer.' It is also described as a society 'known for its drunken hellraising' which could apply to student activities at the most unfashionable of universities.

The FT speculates that Nat Rothschild was angry on behalf of his friend Oleg Deripaska over Dave Cameron's anti-Russia stance during the Georgia conflict during this summer, when the Tory leader proposed withdrawing British visas from oligarchs.

Monday, 20 October 2008

Mandy backs postal privatisation

Everyone has been talking about a new era of nationalisation, but now business secretary Peter Mandelson has indicated that he may back partial privatisation of Royal Mail. The operator's dire financial situation is producing increasing pressure for part privatisation.

Lord Mandelson said his 1998 proposal to allow private sector stakes in the state-owned postal operator would have become law if he had kept his post as trade and industry secretary. A report from the Hooper review of postal services is imminent and may give Lord Mandelson the basis he needs to act. The review is expected to express doubts about Royal Mail's ability to continue offering a 'universal' one-price-goes-everywhere service to every address in the UK, without further multi-billion pound injections of capital.

Public ownership of Royal Mail is a fundamental commitment for many unions and backbenchers. The Communication Workers' Union has threatened to cut off funding to Labour if Royal Mail does not remain in public ownership. About half the Parliamentary Labour party signed an early day motion in 2005 demanding the government continue to own all shares in the operator. Labour's 2005 manifesto declared that there were no plans for privatisation.

Tory Poll Lead Shrinks

He's smiling - for now

The latest YouGov survey for the Daily Mirror shows that Labour has narrowed the Conservative lead to eight points. This would still be more than enough for Dave Cameron to have a working majority, but it is a long time since the Conservative lead has been down to single figures. A ComRes poll for the Independent on Sunday gives a similar Labour lead of 9 per cent. During the summer the Conservative lead reached 23 points, although such a lead was unsustainable.

These figures do suggest that Labour has gained some traction during the economic crisis, although that may not persist as the recession deepens. As Gordon Brown himself said recently, one hour is a long time in politics.

Brown got a big thumbs up from the elctorate for his handling of the financial turmoil, 62 per cent saying that he had done well compared to 34 per cent who said he had done badly. Some 40 per cent backed him and Alastair Darling to handle the economy as against 28 per cent who preferred David Cameron and George Osborne.

These latest figures do present Dave Cameron with some tactical challenges. If he overdoes the attacks on the Government, it will look as if he is carping. Personally, I dislike the 'broken economy' phrase as much as the 'broken society'. An American politician would never describe his country in those terms. But perhaps the fact that British politicians can is a good thing.

Sunday, 19 October 2008

Turning on the spending tap

The Treasury is trying to boost public spending, a difficult task to say the least given the UK's fiscal condition. One risk in the present situation is that the Government will start printing money, leading to an inflationary spiral.

However, the Treasury does have one trick up its sleeve which was revealed in the somewhat obscure Public Expenditure Outturn White Paper published in July. When Gordon Brown was Chancellor, rules were changed to stop the mad rush to spend any money that was left in departmental budgets at the end of the financial year. They were allowed to carry on capital spending without penalty to the following year.

This year the Treasury sliced £4bn from the amount that departments wre allowed to carry forward, particularly from the Department of Health budget. That money is now available to be pumped into the economy.

However, the latest higher than expected increase in the unemployment figures show that the recession is effectively under way. Just how high unemployment will go no one knows, but 2.5 million by the end of 2009 is not unrealistic.

Of course, not everyone suffers equally in recessions. Sales of knitting patterns at Sirdar are now running 4 per cent over budget and 6 per cent above last year as the thrifty hobby enjoys a revival. Sales of vegetable seeds are up and do-it-yourself stores might benefit as people seek to save money on home improvement projects.

Small businesses are always under threat in a downturn, but the small business run by one of my children is moving into new premises. Although things are perhaps a little bit quieter than usual, business is holding up well and enquiries are coming
in from potentially new customers.

Of course, it's the aggregate picture that matters and the Government will certainly be trying to keep house repossessions down to tolerable levels. Those who suffered personal hardship under the Major Government were, unsurprisingly, particularly likely to move their vote away from them in 1997.

Friday, 17 October 2008

'Light touch' regulation

Adair Turner, the new supremo at the Financial Services Authority, has promised that things will get better after a period when the FSA did not seem to have its eye on the ball or even know what was going on on the pitch. More staff will be hired and they will be paid more. Of course, the challenge is to pay them enough so that they don't go off and work as compliance officers for the banks which is what has happened in the past.

The regulatory state can impose high transaction costs and stifle initiative. As the originator of the term, Mick Moran, has recognised, it can pose a threat to individual liberty. Mick originally saw it as a positive, modernising tendency, but his recent work has acknowledged the downsides.

However, the case for financial services regulation is very strong. As Polanyi pointed out in 1944, money is not a normal commodity, but a fictitious one: 'the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would provide as disastrous to business as floods and droughts in primitive society.'

Letting banks close in the United States in the 1930s rather than intervening with a properly designed policy instrument (which Milton Friedman accepted should have been done) led to a 30 per cent loss in GDP.

Thursday, 16 October 2008

The world turned upside down

One reason for quoting this (British) civil war song (which was probably not played when the British surrendered to the Americans at Yorktown) is the way at which established paradigms are being replaced by discarded paradigms.

Keynes and Keynesianism is a case in point. See this piece by my former colleague Robert Skidelsky (Lord Skidelsky of Tilton):

Of course, Keynes wrote so much that you can probably find a quote to justify anything. Robert Skidelsky's three volume biography emphasised his monetarist leanings.

He did, however, advocate a fiscal stimulus for a faltering economy and there are siren voices calling for that, presumably to be funded by borrowing more money. Lessons learned are quickly forgotten: Keynesianism ended in tears with high inflation, high unemployment and low growth: 'stagflation'. The misery index (unemployment + inflation) shot up.

Once again, we have to be careful what we wish for.

You couldn't make it up

A model for 'this bank is now managed by Royal Bank of Scotland on behalf of the people?'

It now appears that the public spending watchdog, the Audit Commission, has placed millions of pounds in Icelandic bank accounts. The story has not been confirmed, but they have refused to deny it. Today's joke in the civil service is that they should send in a 'crack taskforce' to sort out the commission which was set up to promote 'value for money' for taxpayers.

Meanwhile, the taxpayers are losing their heads as well. Maybe it was meant as a joke, but a letter in The Times yesterday said, 'Now that the UK banking system is owned by the people, perhaps it can finally serve the people ... I want a return to traditional banking standards.' A friend of me who does charitable work trying to sort out the considerable problems caused by the tax system for the elderly, pointed out that H M Revenue and Customs is owned by the people.

Some of us can remember the notice boards put up outside National Coal Board pits after nationalisation declaring that the pit was now managed by the National Coal Board on behalf of the people. The history of nationalisation in the UK was not a happy one. It's a sobering thought that Sweden still has publicly owned banks 17 years after they were nationalised in the last recession.

The government share ownership is, of course, supposed to be temporary and perhaps the shares can eventually be disposed of at a profit. For the moment no one, particularly mutual funds focused on income, wants to hold bank shares because there will be no dividends (even Barclays which remains wholly private has said that it will not pay a dividend next time round).

Tuesday, 14 October 2008

Anne Crossman

An interesting obituary of the widow of Cabinet minister Richard Crossman is here: Crossman

I was never a great fan of Richard Crossman, but paradoxically I am the person who has to make decisions about access to his papers, including the Crossman diaries which caused such a storm when he attempted to publish them. These were the days before freedom of information was really accepted to the still limited extent that it is today. I think that one of his greatest legacies is the posthumous contribution that he made to this debate and it was here that the determination of his widow to see the diaries published was so important.

I would like to pay tribute to the way that Anne Crossman helped us at the Modern Records Centre at Warwick with the Crossman archive. Link to the Archive collection here: Crossman

John Biffen, who was a very cerebal Conservative, contested Crossman's safe seat at Coventry at an early stage of his political career. The slogan the local Conservatives came up with was 'Vote for Biffen - not an intellectual.'

I am also told that in the early days of Warwick University Crossman as a Cabinet minister, at a time when Labour was unpopular with many students because of the Vietnam War, would come and talk in a very relaxed and informal way to students in the 'Airport Lounge.'

The Icelandic saga

Britain has been obliged to lend Iceland £100m to help it unthaw its banking system which, in the circumstances, is an appropriate step. However, local authorities continue to demand help from the Government and are threatening not to hand their business rates over.

Let's consider some simple facts:
1. I wouldn't have put my money anywhere near Iceland. All one had to do to learn about the problems was to read the Financial Times which is available in any newsagent.
2. If you don't believe the pink 'un, then read what the IMF said in July, especially the second paragraph: Iceland
3. Brighton and Hove Council saw the amber light and pulled their money out.
4. Local authorities are trying to blame their professional advisers. Perhaps they have a case against them?

The taxpayer is being asked to bail out local authorities who made bad decisions. Someone should be held to account.

Sunday, 12 October 2008

The return of the government director?

As the UK Government prepares to take majority shareholdings in two banks, the question arises, will we see a return of the Government director? When the Government had a substantial shareholding in BP, there were two government directors who came from the Treasury. However, the convention was that they never contributed to meetings.

One suspects that this time round the government director will not be a civil servant and will not remain silent.

The knock on the door, part 2

We have referred before to the risk that a voter might open the door and find Harriet Harman there. More seriously, recent research does suggest that if electors are asked in person for their vote, it does affect their propensity to vote.

On Saturday lunchtime, there was a ring on our doorbell and a representative of the Conservative Party was there. Until 1997 Warwick and Leamington (Leamingtonians call Warwick 'West Leamington') was a rock solid Conservative constituency, held for a long time by 'Major' Eden as older people always referred to him. The Garden of Eden was eventually inherited by Dudley Smith, who became a junior minister, but was not perceived as the most assiduous of constituency MPs.

In 1997 former political scientist James Plaskitt won the seat for Labour. He held it with a reduced majority in 2001 and scraped home in 2005 by a few hundred votes. Until recently he was parliamentary under-secretary ('pussy') for Work and Pensions, but is now waiting to fill some mysterious new job which requires prior approval from Parliament. A complicating factor is that since then there has been some redistricting which should, all other things being equal, help Labour. However, if Dave Cameron wins a majority, he is likely to win Warwick and Leamington.

The new Conservative MP will be Chris White who was defeated in 2005. I have met him a couple of time and once had a long talk with him. For those who are cynical about politicians, it should be noted that he has made considerable career and personal sacrifices to stand for Parliament. He seems a thoughtful individual and I am sure he will be a good constituency MP like James Plaskitt has been.

The problem was, what to tell the canvasser, given that I try to steer clear of partisan politics. 'Will you support us in the general election?' he asked my wife. 'The election is too far away to decide,' was my wife's reply 'and I am sure my husband feels the same way.' This was evidently an answer he had not received before, as he seemed to be nonplussed. At least he was prepared to call.

Saturday, 11 October 2008


The world financial system is teetering on the 'brink of systemic meltdown', Dominique Strauss-Kahn, the head of the International Monetary Fund (IMF) has warned in Washington. The usefulness of the IMF has declined in recent times, with Turkey its only major creditor, but now it is ready to lend to countries in difficulties, not least Iceland. IMF staff are rumoured to be already there, just as they came to London in the famous crisis of 1976.

Britain does seem to be making some headway in its talks with Reykjavik. The people of Iceland are not known for their ready smiles, but Icelandic civil servants looked particularly grim faced as they faced their British colleagues across the table in what looked like an understandably tense meeting.

According to a report I have just heard on Radio Scilly Iceland's prime minister intends to sue Gordon Brown over the use of anti-terrorist legislation to seize Icelandic assets in Britain. I am not a lawyer, but I think that the legislation is broadly written and could be applied in this case. As a political weapon it was one of the few that Britain had available for use against the wily Icelanders. Whether it was morally justifiable is a matter for debate.

However, it does seem that personal depositors will get their money back - eventually. In the meantime the fact that people cannot get access to their accounts is gumming up the housing market even more as Icesave accounts had been used to store deposits.

There is also a real problem for a number of charities who put money into the Northern Atlantic (they might as well have done). Prominent among these is the Cats Protection League and I have a personal interest as there my wife is a fund raiser for the local branch. One thing I have discovered at their coffee mornings is that you musn't mention dogs or the temperature will drop several degree and the word 'doggist' will be heard.

Already there have been emotional appeals on television for the 'government', i.e., the taxpayer, to bail out these charities. As far as I can tell, none of them is any immediate danger and this might be a situation where the Charities Aid Foundation could step in.

Another interesting sight was British entrepreneur Philip Green having his cover blown in Reykjavik, despite having used the discreet second airport favoured by the country's wealthy (some of whom have apparently made off to the Cayman Islands). Green is incredibly rich because he and his family own stores like Bhs privately and do not have to pay anyone a dividend. Hence, he is hoping to hoover up some of the substantial retail assets in Britain owned by Icelandic interests. If you have some money, you can really make a killing at the moment.

It's not all bad. It's been a lovely weekend weather wise. Dave Pender, whom I regard as a minor cult figure, was really rocking on Radio Scilly last night, in part because he was going to a party at 9 p.m. and promising to 'paint Hugh Town'. Apart from his classic 'Are you rocking, St.Agnes?' call (a bit doubtful as I think there are 54 people on St. Agnes and many of them elderly), he had a new cry of 'Bring it on St. Mary's.'

A trivia question: what has happened on St. Agnes that, as far as I know, is unique in British politics and which I included in a book I once wrote?

The Charities Aid Foundation is here: Charities

Dave Pender broadcasts on Radio Scilly from 6 to 8 on Saturdays, unless he has an off island disco engagement (he is reputedly king of the Five Islands disco scene). Radio Scilly has a number of excellent programmes, including Steve Watt's discussions of popular music, and you see the schedule and listen on online here:
Radio Scilly

Dave Pender's personal web site is here: Dave

The bank holiday option

Whether the G-7 declaration will be enough to halt the developing global international financial meltdown remains to be seen. There is a five point plan, which certainly identifies problem areas, but it seems a bit short on specifics and the devil is in the detail. The G-7 has a bit of a track record of delivering well-meaning platitudes and, although it has done more than that, whether it is enough is another question.

One possible option is to declare a bank holiday on Monday which would close the stock exchange. However, such a circuit breaker would only be worthwhile if the G-7 plan, or anything agreed at the IMF, did have some bite. Otherwise, one could just have a worse crash on Tuesday.

As I recall, there was an emergency bank holiday at the time of the 1967 devaluation and Harold Wilson wanted to use the option again in 1968 when sterling was under pressure, but was not able to do so.

There's a certain amount of trumphalism, to say the least, on the hard left about the crisis of capitalism. However, two notes of caution are necessary. First, the model that seems to be emerging is what might be called state venture capitalism rather than anything that looks vaguely like old-style socialism. Second, whilst the recession in the 1930s boosted the parties of the far left, many people flocked to parties of the far right.

This is even more likely when those parties have been 'sanitised' and don't march around in absurd uniforms doing silly walks. I think it was Harold Macmillan who said that the fascists in the 1930s might have been more successful if they had worn sports jackets rather than blackshirts. The message is: be careful what you wish for.

Friday, 10 October 2008

The C.O.D. wars

Austin Mitchell, the maverick MP for Grimsby (Mitchell is a New Zealander by birth and a political scientist by training) always has a good line and has described Britain's spat with Iceland as the new cod (cash on delivery) wars.

Mitchell was on the radio in his role as Icelandic apologist: he is chair of the Britain-Iceland Parliamentary Committee, a body of which I had hitherto been unaware. His line was that Britain (and Gordon Brown in particular) was bullying a small, benighted country; it wouldn't have happened if it was an African country, etc. etc.

The interviewer suggested that Brown was trying to get some credit with the electorate by playing on anti-foreigner feeling, although most people's knowledge of Iceland probably comes down to the following: all-night partying in Reykjavik; bathe among the ice in a steaming lake (not too pleasant in my experience); see the havoc of recent volanic eruptions and watch the geysers blow; beautiful blondes.

The Icelandic prime minister was not very happy that Britain had moved to seize some of his country's assets by using anti-terrorist legislation, but Iceland is a member of the OECD and it should live up to its obligations. It has now become close to being a failed state, but it is hardly a kleptocracy - or perhaps it is.

A Treasury team has now been dispatched to Iceland which is better than sending a gunboat. Relations between the two countries have had many periods of difficulty, but having shown that we can act tough, now is the time to talk. However, Iceland is a fiercely patriotic that country defends its interests tenaciously, as it has to, so don't expect too much too soon.

Indeed, if the Treasury team come back with a single krona, they will have done well, not that the Icelandic currency is worth very much any more. However, they can avail themselves of the large duty free opticians that will greet them at Reykjavik airport.

Richard Rose and Guy Peters were truly prescient many years ago when they wrote a book called Can Government Go Bankrupt? Interestingly, the last example (leaving aside kleptocracies) was another North Atlantic country, Newfoundland, in the 1930s depression. The end result was that it was absorbed in Canada. Iceland would certainly not surrender its independence.

Thursday, 9 October 2008

Alastair Darling as Thunderbird puppet

Enjoy here:

At least he isn't seen as a dreary sidekick to a dreary prime minister any more.

What next?

Standing firm amid the ice

It appears that some 20 local authorities are in serious trouble because they have lent money to Icelandic banks:

What do these local authorities think they were doing? I would not have put any of my money anywhere near an Icelandic bank despite the attractively high interest rates. That in itself should have been a warning sign: if it sounds too good to be true, it probably is. It has been evident for some time that the highly leveraged economy of 300,000 former fisher folk was in deep trouble (and there have been darker rumours as well).

I once met the controversial president of Iceland, Olafur Grimsson. I was at an International Political Science Association meeting in Edinburgh and this big guy came up to me and introduced himself by saying 'I am political science in Iceland.' And he was. He was the first person in Iceland to get a PhD in political science (from Manchester).

Perhaps his nifty footwork has something to do with the Russian offer to bail out the Icelandic economy.

Since writing this post, I have learnt that Olafur is ill with heart trouble. I hope he gets well soon, as he could help to stabilise the internal situation in Iceland.

Wednesday, 8 October 2008

The end of an era?

'We shall look back on today as the end of an era. This is the end of the Thatcher-Blair period. Neo-liberalism has come to an end.' Thus proclaimed the business school professor.

Leaving aside the question of whether Thatcher and Blair's policies can be rolled together (and I would argue that there are some non-trivial differences), it may be a bit too soon to write off the market economy. Or at least I hope it is. Do we want to go back to the days when a visitor from the Soviet Union could ask the question, 'Who organises the bread supply for London?'

Markets have a lot of benefits as an economical way of transmitting large and complex amounts of information through the price mechanism. There are identifiable market failures, of course, but often when governments intervene to correct them, they can create government failures which are even worse.

Of course, an unregulated market economy can easily destroy itself. The trick is to have enough regulation to prevent this happening, but not so much that it strangulates the market economy so it cannot operate properly.

Politically, Gordon Brown is a beneficiary of the turmoil, as is Alastair Darling. There is a new spring in Gordon's step and apparently he was winking at the press at his press conference this morning. He was apparently more than usually effective at PMQs. Cometh the hour, cometh the man.

Tuesday, 7 October 2008

Bailing out the banks

The statement by the Treasury can be found here:

One point that has been overlooked is the taxpayer is getting some assets in essentially sound and profitable businesses which have taken a short-term knock from the freezing of the wholesale money markets. So the Government could actually make a profit on the transaction.

George Osborne tried to score a cheap point last night about taxpayers paying for bankers' bonuses which was surprising given that the Conservatives have been claiming to be bipartisan and responsible in the crisis.

Sunday, 5 October 2008

Mandy becomes the story

The downside risk with having Peter Mandelson in your cabinet is that he becomes the story. This is what has happened today with the coverage of what he might or might not have said to George Osborne over a convivial meal in a Greek taverna (ITV appeared to have taken the trouble to locate the taverna, although I am not sure how the authenticity of the story was enhanced by rows of upturned empty glasses).

Mandelson was, of course, hounded by the media on the second occasion he was ejected from ministerial office and in retrospect it would appear that this campaign was unfairly based.

Mandelson was certainly popular with civil servants at what was then the Department of Trade and Industry, as shown by them all coming out to greet him in the foyer on Friday.

At least Gordon Brown can't be accused of dithering over this appointment. It was a bold move, but hopefully not a courageous one in the 'Yes Minister' sense. Mandy took the option of 'phoning a friend', one Tony Blair, before deciding to accept, but the former prime minister told him that it was a 'no brainer'.

The knock on the door

It's the moment every Labour supporter dreads. There is a knock on the door and Harriet Harman is standing there.

Matthew Morrow managed to hold to a safe Labour seat on Greenwich Council in the Plumstead ward. However, there was a 6.6 per cent swing to Labour on a turnout of 21.56 per cent and this was hailed as evidence of a 'Brown bounce'. Hence, the visit from Harriet.

Labour activists should be allowed to carry a card saying 'In the event of an election victory or hospitalisation, I do not wish to be visited by Harriet Harman.'

Friday, 3 October 2008

Mandy is back

Peter Mandelson will make return to the Cabinet in a major reshuffle to be unveiled by Gordon Brown later today. The European Commissioner for Trade will be made a peer and join the Government as Secretary for Business, sitting in the Lords. John Hutton, the current Business Secretary, will be promoted to Defence Secretary, taking over from Des Browne, who will leave the Cabinet.

This is a very surprising move and marks the apparent end of tensions between Mandy and Gordon, although at one time they were firm friends. Peter Mandelson was forced to resign from the Cabinet twice, but Gordon Brown may think that his undoubted political skills will be of help to him in the run-up to the general election.

In other moves, Geoff Hoon, the Chief Whip, takes over at Transport from Ruth Kelly, who announced last week that she wants to spend more time with her family. Mr Hoon will be replaced by the Brownite fixer and former Chief Whip, Nick Brown. The other Cabinet entrant is Liam Byrne, the Immigration Minister, who will become Mr Brown's enforcer as Cabinet Office minister.

Peter Mandelson will be coming to a diminished Business department as its energy functions will be transferred to a new Department of Energy and Climate Change headed by Ed Miliband. This will also acquire the climate change function from a diminished Defra which looks more like a MAFF Mark II responsible for food and rural affairs.

Margaret Beckett looks likely to return to the Cabinet - in what role is unclear, but possibly as a spokesperson for the government.

Tuesday, 30 September 2008

Council tax offer less good than it looks

The Conservative proposal a two year council tax freeze looks like an attractive offer to voters against a grim background. However, it is less good than it seems. The freeze would only be available to councils who kept spending increased down to 2.5 per cent and many argue that would only be possible with significant cuts in services.

Moreover, commentators have pointed out that if the Conservatives are as economically responsible as they claim, there should be no tax giveaways at all to sweeten the bitter economic pill. It is also worth noting that the offer would be of least value to the less well off, allowing critics to pile in and claim that this is further evidence that the Conservative commitment to social justice is only skin deep.

The proposal to have an independent budgetary office is one that has been recommended by a number of economists, but it would be only advisory and would have no real power over policy. Indeed, it is very difficult for politicians to surrender control over fiscal policy, given that 'getting and spending' is at the heart of what government does.

The economic crisis has served Gordon Brown well for the time being, narrowing the Conservative lead, although it is still in double figures at 10 to 12 per cent. Moreover, Gordon Brown and Alastair Darling have opened up a lead in economic competence over Dave Cameron and George Osborne.

The financial crisis has overshadowed the Tory conference and denied them much of the media coverage they had been hoping for. Meanwhile, several days have passed without news of plots against Gordon Brown or speculation about how long he will stay in office.

Monday, 29 September 2008

Bozza hits back at terminator

Boris Johnson has hit back at the Governor of California, Arnold Schwarzenegger, who was heard last year describing Bozza's speech as 'fumbling' in a clip widely aired on YouTube.

Now Bozza has got his own back at the Governator in a speech at the Tory party conference by describing him as 'a monosyllabic Austrian cyborg'. I am not sure he would have said that to his face. But perhaps Boris has been taken out of those old Charles Atlas courses that built you up so that you could act when you had sand kicked in your face on the beach (apparently at one time a common social problem).

Yesterday Bozza pretended to (or did) search out Dave Cameron in the audience, yelling 'There you are, Dave'. Although 'call me Dave' likes that form of his name to be used by his acquaintances, and I always use it on this page, he is less keen on its informality now that he is trying to develop the gravitas of a prime minister in waiting.

Actually it's quite cool these days to be a Dave. A TV channel of that name (which to my annoyance displaced UK History on Freeview in the evenings) clearly appeals to a young male demographic with repeats of Top Gear and the like and has been quite a success.

Friday, 26 September 2008

Mixed messages for Dave

So we head into the third of the party conferences with the Conservative lead over Labour reduced to a still comfortable ten points after a 'Brown bounce' from Labour's conference. Interestingly, the latest poll from Glenrothes show Labour and the SNP neck-and-neck. Labour have put up the head of the local secondary school who seems to be a tough cookie.

The latest Populus poll shows that just 56 of Conservatives supporters say that their vote is a positive one for the party, while 44 per cent say it is a vote against Labour. Of course, negative votes still count. However, 81 per cent of the Labour vote is positive and only 19 per cent against other parties. This suggests it is more solid, although that is not surprising when Labour has been largely reduced to its core vote.

Perhaps more interesting is that only 28 per cent of voters say that the Tories have changed much under Dave which suggests that there are limits to the 'decontamination effect'.

Dave has always warned his troops against complacency and has said that the phrase 'Go back to your constituencies and prepare for government' won't be used in Birmingham. It was, of course, one of the most foolish statements ever made in British politics.

Dave's speech will be a difficult balancing act: enthusing his activists, having a pop at Labour, but also reaching out to the broader electorate with a positive message about why they should vote Conservative.

Tuesday, 23 September 2008

So, farewell then, Ruth Kelly

Ruth Kelly is to leave the government in the impending reshuffle to spend more time with her family and this time it appears to be a genuine excuse - she has a young and large family. Apparently, she asked to leave four months ago, but Gordon Brown asked her to wait until the autumn.

Some commentators this morning have portrayed this as a further blow to Gordon Brown, taking the shine off the success of his conference speech. Whilst it is true that Ruth Kelly appears to have been unhappy with the direction of the Government for some time, the Transport Secretary is hardly a leading figure in the Government.

What this perhaps illustrate is how the media frames any story concerning the prime minister and this is not a problem he can make go away.

Gordon survives the test

Gordon Brown's speech at the Labour Party conference today may be regarded as something of a success, even if the principal effect was to shore up his support within the Labour Party. The speech was better delivered than is usually the case with the prime minister. This was probably because he was speaking from the heart, using illustrative examples from his own life in terms of the importance of good public education and a National Health Service. He eschewed the fashion for scrolling screens with the text and spoke from notes. It was also a nice touch to get his wife Sarah to introduce him.

His main themes were stability and fairness. In terms of stability, he was the serious man for serious times, playing to his strengths. He got in a dig at Dave Cameron by saying that this was no time for novices. In terms of fairness, he was stressing a theme that warms the hearts of Labour activists, but it may also play well with a wider audience in these straitened times. The speech was short on specifics, but there isn't the fiscal scope for many giveaways.

Whether the speech will produce much of a poll bounce remains to be seen. But the prime minister has bought himself valuable time with his party. The conference response to his most likely successor, Dave Miliband, was muted, reflecting the fact that his base in the party is far from being a broad one.

Monday, 22 September 2008

The Two Daves

Dave Miliband and Hazel Blears delivered a coded attack on Gordon Brown's stewardship at the Blairite Progress beanfeast in Manchester last night. Meanwhile, a subtle campaign is going on to 'humanise' Dave as a potential prime minister.

While I was waiting for my takeaway on Saturday evening, I noticed what we would have called a 'yuppie' in the 1980s carefully perusing a long piece in The Times magazine on Dave Miliband.

Much of it was a recycling of familiar material: musician wife; adopted children; dad was a leading Marxist theoretician - great respect for him, but don't share his views. We also got the occasional personal revelation: he has a painting of nude women in his living room. Daring Dave, then. We were also told that he was well on top of his briefs in the Foreign Office and could handle awkward customers like the Serbian foreign minister.

However, the most interesting part of the article was the comparison with Dave Cameron. They were born 15 months apart, both have a first in PPE from Oxford, both married creative women, both became MPs in 2001. Admittedly, Dave M. went to a comprehensive rather than Eton and one, he tells us, with a 'sense of edge'. Dave lives dangerously.

Dave M's take on Dave C was that he is very fluent, but he lacks depth and that his commitment to equality of opportunity and social justice was superficial - or at least advocated the end without willing the means. The charge that Dave C is persuasive but shallow is one I have heard before.

So perhaps we shall have the Battle of the Daves at the next general election.

Saturday, 20 September 2008

So, farewell then, Alan Johnson

Alan Johnson has ruled himself out of any Labour leadership contest, thus reducing the number of 'safe pair of hands' candidates and by implication increasing the chances of Harriet Harman as a compromise candidate.

I thought that Dave Miliband's endorsement of Gordon was less than ringing (Dave seemed to be involved at an unexplained event at a semi-detatched house, although it looked no more riduculous than Gordon's staged arrival in Manchester in front of an enthusiastic claque of about twenty Labour activists). Anyway, Dave said something to the effect of 'going forward under the leadership of Gordon Brown'. Going where or for how long was not clear.

The clear message from the Labour hierarchy is that Gordon should not be dropped in the middle of a financial crisis where his interventions have been timely and well considered. The danger time will be after the May European and local government elections when time is running out for Labour. BTW, one Labour MEP told me yesterday she is worried about BNP gains in the context of a low turnout in the European elections.

Gordon isn't looking good. Can't something be done about the shadows under his eyes, even if they are the result late nights saving the nation?

Still, he does look like a serious act compared to Nick Clegg. As the FT remarked, the Lib Dems tried jolly (too jolly), then they tried mature (too mature) and now they have gone for Cameron lite.

They went on to argue the Lib Dems are a bit like the tethered balloon they had at their conference. You ascend, get a vague view of hopeful distant shores, wobble about a bit and then descend to earth.

Tuesday, 16 September 2008

The gathering storm

A Minister of State in a department that many think has no real purpose is not high up the political food chain and is probably not even a household name in Scotland. Nevertheless, this latest resignation is more significant than a challenge from the former assistant minister of fish or whatever. It is another blow for Gordon Brown and keeps the media feeding frenzy going.

Apparently this particular minister was flushed out through his links with a minor rebel (Siobahn McDonagh) and as a former Catholic priest could not square defending Gordon with his conscience.

Ms McDonagh got star billing in the Sunday Times under the heading 'Will this woman bring down Brown?' The obvious answer is 'probably not', even though the article reveals that the devout Catholic MP is being compared to Joan of Arc. Burning at the stake in her suburban constituency of Mitcham and Morden is not on the agenda.

Senior Cabinet ministers feel that Gordon Brown should be given his chance to rally the party at what will undoubtedly be a ferbile conference. But he is unlikely to assuage the doubts and the poll numbers will not recover. So it's going to be a tough autumn for Gordon and he could eventually be pushed. But there is still no clear successor and it won't be the Cabinet minister who wields the knife (remember Michael Heseltine?)

Meanwhile, Dave Cameron can sit back and enjoy the mayhem, hoping that it will continue as long as possible before a Labour leadership contest is followed by a general election. Canada once had a woman prime minister who held office for some weeks before being defeated in a general election. Step forward Harriet Harman.

Vince gives it large

In what sometimes qualifies as the Very Silly party of British politics, Vince Cable is a beacon of sanity not just within the Liberal Democrats but in British politics generally. The cheeky chappie told Britain to confront its 'national obsession with property' and stop using homes as 'gambling chips'.

The former economist urged the Government to resist 'propping up' the market so that prices could 'fall back to a sensible level which makes housing affordable to ordinary families.' Politicians had to find a new, more honest language better suited to times of economic hardship.

Ministers should avoid 'socialising losses' and financiers rattling their begging bowls and demanding help from taxpayers should be sent packing. In a sense that is what the federal authorities have done with Lehman Brothers, deciding that the US taxpayers should not pay for the mistakes of its senior management.

Vince and Nick Clegg also managed to get their tax cutting package through the conference. Unfortunately it focuses on the totem of cutting the standard rate, when raising allowances to take the less well off out of tax altogether might be more sensible. Higher rate taxpayers, an increasing number of people, may not yet have realised that they would be paying more because of a cut in pensions tax relief.

Interesting that Vince's endorsement of Nick Clegg was somewhat lukewarm. Perhaps the ballroom dancing maestro feels that he may yet shimmy into view as Lib Dem leader while Clegg fends off charges that he is 'Cameron lite'.

Economic and political events elsewhere have also take the sheen off the Lib Dems conference. No one is shouting: 'Global crisis. Send for Nick Clegg.' But they could send for Vince Cable and should have listened to his warnings in the past.

Sunday, 14 September 2008

The need for a narrative

Plotters against Gordon Brown now have a tactic of a kind which is to ask for leadership nomination forms, hoping to create momentum for a contest. These efforts are reinforced by what appear to be carefully timed statements from dissidents. It is always amusing to see how these individuals are then billed as 'ministers' by the media when they are about as low as it is possible to be in the food chain. This applies even more to those who achieved junior ministerial status and were then let go.

Is this effort going to go anywhere? No. First, they are not going to get 71 signatures. Even more important they are not to get a credible candidate to put his or her name forward in a letter to the party. Although they have some recruits from the left, and Gordon Brown is being attacked from two sides, the core of the rebellion is made of ultra Blairites.

Nevertheless, the spectacle of the Labour Party tearing itself apart in public is not good for the Government and it is not good for Gordon Brown. Once again he appears to have made a mess of the extension of the 'Warm Front' scheme, hinting at a great deal of help for those in fuel poverty and then simply extending the scope of a scheme which has often been blighted by shoddy workmanship.

What Brown needs is a stellar performance at the party conference. However, on current form, he is unlikely to deliver it. The leadership row will then rumble on without resolution while the Conservatives benefit. What Labour really needs is a new narrative rather than a new leader. Of course, a new leader could help that search, but it is not as if that narrative is readily at hand. Like Thatcherism, New Labour has become an exhausted project. A Labour equivalent of John Major just might avoid electoral defeat, but would not resolve the underlying problems.