The spectre of depression

There is a range of forecasts of the extent of recession this year, the quarter by quarter , month by month falls in output of the UK economy.

What we do know is that the second half of 2008 saw a reduction in GDP of 2.1%, and we know from the rapid rise in unemployment latterly that the next six months are likely to see a much higher figure. Already forecasts are suggesting a fall in GDP during 2009 of upwards of 5%, for the year. When the figure has risen to 10% we shall be by definition in a depression.

Virtually no-one, even the Chancellor himself I suspect, believes the Chancellor's prediction in November that recovery will begin from June 2009, despite the attempts of ministers seeing light at the end of the tunnel or green shoots of recovery.

There are forecasters who think that we shall comfortably avoid depression, and their position is not ideologically or emotionally determined. What they must agree, however, is that we shall be carrying a massive amount of debt, that there will be deteriorated assets in some of our heavy industries and some important industries will have declined relative to those in other countries, especially London as a financial centre. In addition our banks will have become largely socialised and probably less sympathetic to risk, entrepreneurship and uncertainty.

It could be close run thing!

Apartheid

Cameron has called the deteriorating pension situation in this country one of apartheid, and he is right.

On the one hand we have a private sector pension situation where final salary provision is to all intents ended. Many of the remaining final salary funds will be ended shortly and in future pensioners will get an annuity based on what they have paid in and reflecting the state of the economy. There will be no open-ended commitment or even indexation.

The reason for this is well rehearsed- a Brownian raid from one of his stealth taxes, the current recession/depression which has reduced stock prices, and the fact that people are living much longer.

In the state sector, there is no problem. Gold plated, fully indexed final salary pensions will continue, with any shortfall made up by the tax payer and therefore unaffected by recession/depression. In addition the workers in the public sector generally have greater security of tenure.

(Little surprise that as the recession/depression advanced, skilled people were leaving the private sector for the rewards in the public sector.

Recently we have heard that council tax payers are already having to pay considerably higher council taxes to pay the pensions for a growing number of council workers and for those who have enjoyed very generous salary increase - huge increases in the number earning more than £50,000 per annum and also over £100,000.

The same applies nationally - more civil servant, and increasingly better provided for MPs. We already have many situations where private sector workers are paying more in taxes for pensions of others than they are paying for their own pensions.

There is here the seeds for trouble in the future. Council tax payers will increasingly find themselves enjoying reduced services and higher council tax, and paying higher income taxes because of government debt and pensions and many of these payers will be on poor pensions themselves.

Increasingly we shall have wealth and comfort in the public sector and poverty in the private sector, rather like that socialist paradise - the USSR. Will the serfs rise, or will they express their feelings in the ballot box, while there is one?

Twelve years ago we had one of the best pension systems in Europe. No-one could say that now!

Thorough reformation of the Lords now essential?

Some of us have looked askance regularly at Blair's dog's dinner of a change to the House of Lords, - at the enormous patronage involved, and "jobs for the boys" whose safe seats are wanted. Recently we have had the spectacle of large numbers of peers created and appointed to cabinet or near-cabinet status. The most glaring example has been the elevation of Mandelson to a position of real power.

We are now to have regularly a minister for business who makes speeches in the Lords, which are then parroted in the Commons by a junior and then, in this case, attacked by Kenneth Clarke with objections either heard by Mandelson in the public gallery or retailed back to him by some minion.

Recently we have had the case of possible corruption by four members of the Lords, who were then defended on the grounds that they were not paid. (I am not quite sure what the £300 attendance allowance is for, given that there are also generous expense allowances, but I hope that they pay tax on the former. One avid attending peer has apparently has apparently cost us £400,000 in a few years.)

If, I emphasise "if", peers have been paid to alter legislation in favour of outside sponsors, then they obviously have more power than is often admitted. The Lords have also defeated government bills on a number of occasions.

My growing conviction that the absurdity of patronage is incompatible with democracy, that important ministers in the Lords and removed from personal questioning is unacceptable and that the lack of suitable rules for disciplining peers cannot persist, means that reform is overdue.

Of course, disciplinary rules and procedures could be devised over some months, but it is surely time to complete the reform which Blair started. I have no doubt that if the USA can exist with a president, House of Representatives and a Senate, there is no reason why we could not have a parallel structure with PM/cabinet effectively a president, and then Commons and Lords.

The objection often made that to make the upper chamber democratically elected would give it power and simultaneously reduce the power of PM and Commons, is a nonsense. There ought to be on occasions a correcting power to that of the executive reinforced by government whips.

Ah well, to the priting presses....!

A few months ago the (present) chancellor promised to revive the economy by spending billions on infrastructure projects, - roads, hospitals and schools, by bringing forward and commissioning projects which were due to start in a year or two.

Many of us were dubious about this, because of the length of time it takes to negotiate, appoint and build. The employment and incomes would not boost the economy for a couple of years at least

It seems that our doubts were right, but for another reason. The Times reports today that billions of pounds worth of schemes have already been delayed. The reason is finance. These would all have been built under Personal Finance Initiative, Gordon Brown's preferred option, because it is a "buy now, pay later" scheme, and which he can keep off the balance sheet - it will be a future government's problem.

PFI depends on private developers and contractors obtaining bank finance. The schemes have hit the same problem confronting would-be mortgage borrowers and firms seeking finance, - inadequate bank lending

Also this morning, this time in the Financial Times, is the report that major offshore wind-farm projects are in jeopardy. In this case the problem may be falling prices of gas, oil and carbon-dioxide permits. This is the case in 1,000MW wind Farm in the Thames estuary The problem for offshore generation is the higher cost of installation and maintenance, as compared with onshore turbines.

Is the Prime Minister the problem?

Gordon Brown, at the time of the October bank bail-out, told us via the Newsnight programme, "You have to got to get a restructuring right. I think people would take exception to a situation when there was a partial proposal...and we had to come back with another partial proposal, and then another.."

That was absolutely right, but he failed his own advice. Last week his spinners claimed that the Bank of Scotland had not told them how much bad overseas debt they had. Others have suggested that Treasury officials never even bothered to inspect the books, let alone enquire into off-book items. He clearly still does not know how many poisonous assets are still in our banking system, to judge from his recent inability to estimate the total liabilities we are being forced to underwrite.

He has belatedly had to recognise that what he has done so far has not worked, - liquidity and lending has not increased sufficiently, and he has even had to take on board a version of the Tory policy of guaranteeing loans.

So what we have is a typical NuLabour announcement of less than fully thought-out policy, - the kind we have seen regularly on penal policy, although there is a difference. In the case of latter Brown statements, while there is still the attempt to convince people that he is in charge and doing something often the main aim seems tobe to hector from a distance. "If the banks do not start lending at higher levels, I...."

Even the "new" lending guarantee scheme, borrowed from the Tories, is work in progress. He does not expect to know the extent of the liabilities he is taking on for some weeks, or even the details of the scheme. (In fairness to him, it is possible that the banks have not been fully able to unentwine the complicated financial derivatives which they bought in packets in their rush to make profit.

Citizens of this country are "trapped" in the situation, - he has already thundered against UK residents who have sent their savings deposits abroad. In some ways more seriously are the foreigners who hold sterling assets. Over the past few weeks they have been cashing in many of these assets, and depressing sterling as a consequence.

If their confidence in sterling is even more eroded, then there is a danger of a failure of the currency, which will make it more expensive for Brown to borrow money from foreigners to finance the vast increase in debt likely to occur. There could even be a further application to the IMF.

Foreign confidence could be restored if we had cross-party agreement on policy, instead of a frenetic prime minister rushing around and proposing a policy a day as he saves the world. There would have to be also a clear plan for the immediate situation and medium term reconstruction.
In this way foreigners might be led to believe that we are on top of the problem as much as anyone else.

Most of all, thee must be transparency and honesty in order to restore confidence. It is clear that the banks have been hesitating to borrow or lend to each other because fears and suspicions about toxic debts concealed in other banks. If they could feel confident by full and complete disclosure, then foreigners ought also. Being confronted by a series of ill thought-out and ineffectual policies based on incomplete information and accompanied by megaphone diplomacy is not likely to increase confidence.

It may prove necessary to use penal threats to banks and their auditors to produce honest and complete statements of assets and risks. I suspect, however, that some "bundles" are very complicated and it will take time and effort to unravel them, but time is somethig we do not have after our months of dithering and inadequate solutions.

Take responsibility or take the bus, or stay at home

This week will see the second reading of the Welfare Reform Bill which proposes that virtually everybody who accepts financial support will have to dance to the government's tune. Those able to work must look for it, parents of young children will have to attend training in parenting.

Recently the Work and Pensions Secretary, James Parnell, indicated that he is prepared to get tough on non-residential parents who avoid financial responsibility, - "absent fathers". Among the things mentioned, and which may appear in legislation is the threat to confiscate the driving licences from such fathers and also their passports.

It seems right that men who father children should accept responsibility. One of the problems, it is claimed, is that after separation or divorce the fathers enter other relationships and father still more children. Many of them fail to make their maintenance payments because they cannot afford to support two or more lots of children. If so, this is a sad reflection on our society and source of concern to many others who have to pick up the tax bill for these defaulters.

But to return to Mr. Parnell, how effective is his threat likely to be? If the men concerned are genuinely not able to afford to maintain two families, then the threat has no power. Indeed if driving is needed to get to work, it could even throw some into unemployment, and if they are genuinely that poor how much of a threat is the loss of a passport?

He probably knows that his threats will be ineffective for many absent fathers. He may deter others. Is the point to be making a big song and dance to emphasise how tough the government is?

Should Gordon Brown cut his losses?

Peter Oborne in the Mail today claims to detect in the "fag end" of a dying Brown administration something like the dull resignation and decay that typified the end of the Callaghan years in 1979 or the Major years in 1997.

One major bookmaker reports that over the past month or two it has taken no bets on Gordon Brown to be prime minister after the next election. The polling bounce has gone flat, and the general suspicion is that the prime minister has given up and is really now only hoping to salvage his reputation in posterity.

His bounce has gone, smiles are fewer and he is even more irritable than usual.

So what should he do?

Should he cut his losses and go for an election now, knowing that he is unlikely to win? In this way the worse economic news would be faced by his successor.

Should he fight on to June 2010, in the hope that "something will turn up" which will as if by miracle turn round the situation, or if the Tories self-destruct in the meantime? The deliverance would need to be very big and even then the best he could for would be a LibDem revival which would leave no party in control. This could even promote a government of national unity, which could be needed to deal with the wastage or resources and the massive accumulated debt.

One thing is sure, all the experts agree that the recession is going to be deeper and longer than Brown has ever admitted, and its severity may contrast with the experience of other countries.
The same experts are even beginning to mention the "D" word - depression.

So far Brown has refused to admit any responsibility, and the more the blames everyone else, and especially the Americans, the global banks and our own banks, the less conviction he will convey.

The Tories seem to be ready for an election soon. Is Brown?

Does anyone know?

Is it possible that Gordon Brown is not so much dishonest as we thought, but rather he really doesn't know, despite his show of omniscience?

There is little doubt that he tells porkies, and persists on under-reporting government debt, but as to how much more debt we shall rack up he really has no idea. I suppose his general approach could be summed up by the phrase "as much as it takes".

Quite apart from the wasted £12 billion to reduce VAT unnecessarily and the £37 billion to provide the banks with liquidity, which they have not apparently used, there are the siren voices claiming special treatment (i.e. money) for their industry because of the number of jobs at risk, to preserve resources ready for the upturn whenever it comes, to maintain exports, to keep our world lead, etc.

Choose any one or more from the list to justify subsidy from the Treasury. So far, in fairness these pleas do not seem to have been heeded, but they have not gone away.

Finally, there is the ignorance about off-balance sheet items in the banks' accounts. The Treasury Select Committee recently demanded a comprehensive disclosure by the banks. Each bank suspiciously eyes the others and hesitates to lend or borrow because trust has gone in the face of the poisonous assets which each believes the others have. It seems, according to Peter Oborne in the Mail today, that last autumn when pumping £37 billion into the banks, the Treasury do not seem to have made detailed enquiry into banks' loan books!

In November an estimate was made that the combined liabilities of all our banks amounted to be about £7 trillion, or about four times our annual output. These liabilities are supposedly backed by assets. This is serious, but the government final destructive button to press, to expand money rapidly, will lead to inflation and a reduction in the real value of these liabilities.

What is really worrying is that as much as £4 trillion, that is £4 million, million, is actually denominated in foreign currency, and there is no way the printing presses can reduce the value of these.

There are a growing number of people who see the future of the UK as either a basket case which applies to the IMF for a bail-out or else a limping economy like that of Japan for many years.

Statistics and statistics, again.

Before Christmas we had the unedifying spectacle of the Home Office publishing unchecked data on knife crime before departmental statisticians and the ONS were aware what was happening.

They were rightly chastised, and Jacqui Smith duly apologised.

Recently crime statistics were published without serious offences being included, it seems because the Home Office realised that there were serious discrepancies in the way that different police forces categorised different offences.

Part of the problem it seems is that in an effort to give a truer picture, - let us give them the benefit of the doubt, government departments almost routinely change definitions and categories. The consequence of changes is that it makes it difficult to compare data over time and to know whether there have been changes in subsets.

(It should be admitted that even in the case of the RPI and CPI, which are carefully calculated and published regularly, the "weightings" employed are adjusted regularly because fashions and patterns of consumption change and items drop out of or come into family budgets rapidly. The same is true even in crimes, especially in the nature of fraud and theft, - 20 years ago credit cards were much less common, mobiles had not arrived and on-line transactions were few.)

With these caveats about all time series published data, it remains true that tinkering will cause confusion and that definitional changes must be communicated clearly to all concerned.

Knowledge and suspicion

There has been no parliamentary debate on the economic situation since November, although it has to be conceded that debate can merely result in concealment by the government and accusations by government and opposition alike.

Even if there were a debate, therefore, it is questionable how much light would be thrown on various data which are required to assess our situation, apart from the various series published more carefully now by the Office for National Statistics, - monthly and quarterly data on prices, unemployment, trade and output, etc.

There are other data which are not published, and there are disputes about the level of government indebtedness. The ONS had a moral victory over the Treasury recently in requiring the latter to add more off balance sheet items in the budget statement. The Prime Minister has obstinately refused to accept some very large items as government debt, such as PFI liabilities and pension liabilities. He has consequently lost any reputation for honesty and openness.

Where data are not reported and are ignored by government spin, they do not go unconsidered by analysts, and especially by foreigners who have large holdings of UK financial assets.

Credit Ratings Agencies, whose reputation depends on including all factors, are becoming concerned with the level of UK debt. Whether true or in jest, there was a suggestion that the British government had a much lower rating than MacDonald's, the fast food firm.

The Prime Minister may gain immediate advantage by concealment and deception, but serious questions are being asked which could lead to devastating conclusions for the country.

Many people are suggesting the the banks should be required to "come clean" and divulge all things which could deter dealing with them. It is surely not too much to ask that the government should as well?

Tough on crime?

Tony Blair used to recite his mantra, "Tough on crime, tough on the causes of crime."

The second part has been a complete disaster and a non-fulfillment. They have passed thousands of new laws, - a truly legal diarrhea, as I mentioned recently, which has done nothing to deal with the causes of crime. The society is broken, with many dysfunctional families and behaviour problems at school, which suggests that little has been done to deal with the causes. Apart from bleating about inequality, the government seems to have done nothing of the scale or depth of the work of Ian Duncan-Smith.

The failure was emphasized in the figures published this week, that four in ten of people arrested for serious offences are not prosecuted, but merely given a caution. According to the Daily Telegraph yesterday, in some police force areas the figure could exceed half. The number of cautions given for violent offences has risen by 82 per cent in five years.

I am aware that cautions could count against offenders in the case of further offending, - apparently it is left to police discretion as to whether or not the offence is recorded on the Police National Computer. If it is not so recorded, then the offender has no criminal record!

Why is this happening? Is it because the police lack confidence in the CPS, - there have been some notorious cases where police felt they had a good case but the Prosecution Service decided not to prosecute? Is it because of police lethargy, - it takes so much less time and energy to proceed with a prosecution? Is it because available police time is limited because of all the other demands on police time? (We know what they are, - form filling, health and safety appraisals, etc.?)

What message is sent out to the public, who are already struggling to get the police interested in turning out to investigate? What message is sent to the would-be criminal community? What message does this send to victims, who are already deterred from reporting crimes, unless there is an insurance claim and they need a police crime number?

How others see us...

In today's New York Times, an article by Julia Werdigier and Nelson Schwartz begins with a somber summary of the UK.

"London - An island nation that bulked up on debt and lived beyond its means. A plunging currency. And a financial system edging toward nationalization.

With the pound at a multi-decade low and British banks requiring ever-larger injections of taxpayer cash, it is no wonder that observers have started to refer to London as "Reykjavik-on-Thames".

They quote Will Hutton, very much Nulabour, "I fully back what the government is doing, but there is a risk of being Iceland on the Thames... And the more sterling falls, the greater our liabilities in terms of what we owe."

The pound trading against the dollar at $1.3618 is at its lowest since September 1985, but it was over two dollars to the pound not many months ago.

The two Americans and Will Hutton are all correct, though with the US already having pledged billions of dollars and Barack Obama promising to splurge much more, and having had bank failure on several occasions recently in the US, perhaps the two major differences between the two countries are the indebtedness and the strength of the currency.

There is almost certainly a very direct relationship between the indebtedness and the currency, and this is the main concern of the Americans and Hutton. G.Brown borrowed heavily and allowed too many citizens to go into massive debt, on house purchase and credit card, etc. If we are in a weaker position, then it is our indebtedness which is the cause.

The Blame Game

Lord Turner, the Chairman of the Financial Services Authority on the Toady programme on Radio 4 this morning and later quoted by the Daily Mail, did admit that his Authority did over- look the danger of complicated financial instruments ultimately based on bad debts, and thereby contributed to the credit crunch.

In his view, so did Gordon Brown and many other bankers and academics. Finance ministers across the world also failed to spot the dangers, and they must bear some of the blame as well. "The key problem was not that the supervision of Northern Rock was insufficient, but that we failed to piece together the jigsaw puzzle of a large UK current account deficit, rapid credit extension and house price rises, the purchase of UK mortgaged-backed securities by institutions in the US performing a new form of maturity transformation, and the potential for irrational exuberance in the market price of credit."

Who should have pieced together the jigsaw pieces, - not the FSA, - their task was to regulate financial institutions?

The parties who failed to look at the bigger picture here were H.M. Treasury and G. Brown!

They not only failed to appreciate what was happening in the money markets here, after the liquidity they had pumped into house purchase and debt generally, they also saw no connection to the larger and larger trade deficits we were incurring. He was hell-bent on driving through and financing his expenditure programmes. Once he left Prudence, he seemed blind to the dangers of alternatives.

At the moment there seems to be a spat between Lord Turner and the government over the fact that the FSA has permitted "short selling" to begin again. Turner claims that there is no evidence that short selling has been instrumental in recent bank share plunges, but a rather prickly government and chancellor did not want reinstatement.

It's getting more expensive

The government budget debt figure for December 2008 has recently been announced.

In December government expenditure exceeded government income by £11.4 billion. This is equivalent to about 4p on standard rate income tax.

This figure will get larger as companies fold, the unemployed stop paying tax and as the government has to pay benefits to more and more unemployed. It begins to look as if the chancellor was over-optimistic on how soon recovery will begin and also how deep it is becoming.
He expected to have a deficit for the year April to April of £70 billion or so. It now begins to look much more.

Of course, government taxation receipts do not flow in regularly and it is possible that January's figure will be a reduction on this dreadful figure, but it is a sign of the debt will rack up even without wild spending by G. Brown to save his reputation. I blogged yesterday on the level of present total indebtedness as a percentage of GDP. December's figure was expected to be high, but not as high as £11.4 billion, so it may be that the chancellor was much more optimistic than we thought.

Those who have been expressing concern about the level of indebtedness, the possible collapse of sterling and national "bankruptcy", have every justification. Individuals and institutions are clearly concerned about our economy, but more important the markets, including those whose income depends on accurate forecasts, are beginning to have doubts about our future.

A surfeit of laws

Many commentators have pointed out the tendency for NuLabour to rush out new criminal laws, often ill-thought out and badly drafted. The result has been virtual duplication in some cases, and in a few even contradiction. Many of the laws have never resulted in charges. (NuLabour spin masters might see this as success - no charges because the law has discouraged the offence!) In fact in the last 10 years no less than 1,036 new offences have been defined which could result in imprisonment, - a new law every four days on average! Many of these would be seen as mere misdemeanours or even social nuisance in other countries.

Yesterday the former Lord Chief justice, Lord Phillips, recently stood down, raised another aspect. He complained that sentencing was now much more difficult because of the sheer number of laws. His comments came in the annual report of the Appeal Court's criminal division.

The complaint is often of sheer complexity and sub-division into categories, which causes difficulty for judges and magistrates in trying to decide appropriate punishment. Given that justice is often delayed in the preparation and administration, such complexity and volume will not help.

On the edge

Yesterday Fraser Nelson in a Coffee House Blog quoted some figures and analysis from Michael Saunders of Citi Bank. They make sobering reading.

Debt owed by various groups rose as follows: (expressed as a percentage of GDP, national output and effectively national income, to avoid the problem of a changing value of money).

Household and non financial firms - 98% in late 1987, 128% at end 1997 and 219% in mid 2008 (This last was the highest in the EU)

Non-bank financial firms (funds, wholesale mortgage lenders, etc.) - 66% at end 1996, 172% in 2008 first quarter

Banks sterling and foreign exchange - 240% at end 1996, 521% in early 2008.

For all the above, and including the government debt, externally, ie to overseas creditors - 129% in 1987, 197% at end 1997, 413% in 2008 third quarter.

(As a footnote, roughly 75% of the external debt is short term, that is could be recalled quickly if creditors lost confidence in the UK's ability!).

Nelson apologises for lacking the ability to explain clearly what this all means, although he does talk in terms of Britain, like the RBS our dodgiest bank, have the same "credit default swap" rating - the estimate of likelihood of going bust.

There is a real threat, especially as the saviour of the world, contemplates borrowing and splurging still more money. (The speaker on "Thought for the Day" this morning actually spoke about a Brown like a gambler is throwing more and more at trying to retrieve a situation.

If foreigners decide they do not trust sterling any more, and pull out their money when it matures. We shall have to persuade them or others to lend us some more. The only way they could be persuaded would be for us to pay a higher and higher rate of return to them. As our traders and importers, among others, have to repay the same will apply. It is not possible entirely to separate internal and external interest rates, so internal rates will rise again, and .....

There is little surprise that Brown's bounce, polling and gait, is less obvious now. He is becoming a desperate man. This is not due to the global problem as he likes to call it.

It is due to the vast bubble of debt which he caused and permitted when once he turned his back on Prudence.

High hopes

President Obama will today begin his presidential career, carrying with him the hopes of a large majority of the American public, even of those who didn't and wouldn't vote for him.

Many of us over the months have felt that Obama seemed like a Tony Blair in 1997, - an orator who won over many people by sheer rhetorical power.

The honeymoon with Blair lasted for a few years, certainly into his second term and perhaps until he decided to commit his country to the war in Iraq. Will Obama enjoy as long a honeymoon?

Obama seems to have undertaken extensive preparation, which he needs to do as he is entering a much less benign situation than Blair entered in 1997.

Disillusion will enter when it appears that Obama cannot be all things to all men, when he has to disappoint some in order to benefit others. (The largest area could be over the basic direction he takes. To judge by the few clues he has given to his political philosophy, he will push America in a much more avowedly socialist direction, with a pronounced redistribution policy.) There will be issues such as abortion which will drive a wedge between him and the Christian community which supported him.

The other source of disillusion will emanate from the emotional investment made, where some people believe that he could walk on water and solve all problems. In reality he will be defeated by some problems because they are intractable, Palestine for instance, and he will make mistakes on others. NuLabour is acquiring a reputation for incompetence as it encounters problems it struggles to overcome.

Even if the Democrat spin machine, from which NuLabour learned so much, goes into overdrive, they will not be able to prevent gradual disillusion, certainly among his political opponents who ran him close in the election and who will presumably re-group into a more effective political force.

Will he enjoy a second term? Given the hopes and support now, you would think this likely. The black and other ethnic groups, which are large in some areas and are growing, will largely remain faithful to him, and the political left which has less commitment to the liberal society of independent Americans should as well. There seems a good prospect that although his popularity will fall, slowly at first but later more rapidly, he is likely to have a majority in four years time.

A conumdrum

The Government is understandably trying to encourage banks to lend to business and private individuals. Few people would disagree with this. Indeed, for weeks the Tories have been urging the government to set up a loan guarantee scheme to promote lending and spending.

Lending to small businesses, which provide a very large proportion of employment opportunities, could be the difference between survival and going to the wall.

What of lending on house purchase? We want the housing market to revive, both to keep people in their homes and to provide for mobility of labour - to enable the unemployed to move to work elsewhere, they need to be able to sell and then buy.

Is it so simple? With house prices falling, and people in negative equity, how many of the unemployed could face moving? For first time buyers there is the added problem of losing value after buying a house which suffers a fall in price.

The lenders may be protected against loss in lending on house purchase, but borrowers who lose their jobs will be in trouble, despite schemes to defer mortgage payments for months. The foregone mortgage payments will have to paid at some point, either in cash or in lower selling proceeds.

It could be that would-be house buyers lack the confidence to buy, unless they have large resources and are confident about their employment status. Whatever their situation, with falling house prices, it is not a good time to consider buying.

The argument is that selective advances to business may arrest some of the decline, even saving firms for a year or two until recovery sets in. Lending for medium term then is justified, but only if there is a prospect of eventual recovery.

Grasping at equality

Last week Kristian Niemietz posted a blog on The Institute of Economic Affairs website describing a country in Europe, and revealing which later in his posting.

In this country
- twenty per cent have to live on less than half of average income
- among those working the bottom thirty percent receive just seven per cent of total earned income
- the top twenty per cent receive forty-five percent of total earned income
- women earn twenty per cent less then men on average, and have an unemployment rate fifty per cent higher than that for men
- there is no minimum wage.

Where is this hell on earth? The answer is Liechtenstein, which has been one of the outstanding economic success stories.


The inequality cannot be denied. There is, however, another aspect. This is the absolute levels of the various groups:
- average (- median) annual gross wages are £42,000
- at the 25th percentile, - the top end of the bottom quarter of wage income, the person earns £32,400.
- unemployment is 2% for men and 3% for women.

What do we make of it, and what should a good socialist say?

First of all, the figures are perhaps the best available in any country, but they are subject to definition, collection and analytical problems.

Secondly, in making comparisons between countries with different currencies, there is a problem of what is the appropriate rate of currency exchange to permit the comparison?

Thirdly, there is the question of whether the pattern is repeated with post-tax earnings levels, and what is the effect of "unearned" income? In Norway, for instance, incomes are high but so are taxes.

Given these problems, what do we say to the figures?

In economic terms would you prefer to live in a country with greater inequality, but with everyone at a higher level of income, or would you prefer to live in a country with less inequality but also lower incomes? What should socialists say, given their dogma of equality?

If there were a prospect of moving from one kind of society to the other would short term adjustment costs change peoples' view?

Do they really want us to save?

I wouldn't suggest that there is a conspiracy to plunge us into a squalid socialist republic, - it's more like misguided and bumbling incompetence, but incentives to save are fast disappearing.

We know of the raid on pension funds by Gordon Brown very early on and which continues, of course.

We know that some personal tax allowances are reduced pound for pound for any income you have provided for yourself over £17,000 or so.

We also know that the floundering government has held down interest rates for too long and encouraged debt, until inflation caused them to rise slightly before panic sent down them rapidly. So we have reached the point where there is little financial incentive to save.

Now this week we have the government almost admitting some culpability in the Equitable Life scandal, - I am not sure whether they did accept the fault that everybody agrees on. There is no assurance of an immediate or substantial payment as more people will spend years looking at what has been established before an "ex gratia" payment may be made, not, you will notice, compensation. If and when the moment arrives, and most policyholders are dead, it is unlikely to be full coverage for losses, and there is even the suggestion of "means testing". Never mind, your heirs may benefit slightly, even if you have been reduced to penury!

Could there be a bigger disincentive to saving? In the end you cannot do much in a democracy about a rapacious and uncaring government except replace them after five years, but if we are ever to repay most of the new debt and move into a position of self-reliance again, something radical will have to change.

in 1997 we were saving over 10% of our incomes, the banks had deposits from which they could lend to mortgage seekers, and we could hope for some addition to the derisory state retirement pension. This has been much changed now. We save less than 1% of our incomes, and many are heavily in debt, taxes may well have to rise to pay Brown's extra debt, the banks had to borrow among themselves and were led to take "poisonous" assets.

Could there be a greater indictment of government policy on savings?

If the law is in the way, change it?

Anyone who works in private industry, or even in the public sector, knows what a chore it is to have to produce receipts and act responsibly in use of funds. They have to answer to their employers.

Not MPs, it seems, they are self employed and do not have to answer to us their employers in any great detail over their expenses.

Yesterday's announcement, made on a good day to bury bad news, - when all were concentrated on the the third runway at Heathrow and a non-announcement on compensation for Equitable Life policyholders , is in defiance of a High Court Order under existing law which applies to them.

So the way out is to remove their need to observe the law, which applies to everyone else including councillors. "All animals are equal but some (the law makers) are more equal than others"?

It is true that MPs expenditures will be slightly more revealing, but the categories are so wide as to be virtually worthless. Thus "furnishings" will cover so many different things that we shall never know how far they have indulged themselves in any direction.

At a time when politicians are held in such low esteem, even contempt, this represents another dent in democratic accountability. We are talking about very large sums of money, well over £100,000 in many cases for all expenses, and to disguise by including large groups does not help.

It is to be hoped that a large number of MPs will speak and vote against the proposed exemption from the law which is to be debated next week. Even if they are defeated by an arrogant, gravy-train riding, self-seeking majority, it is to be hoped that sufficient of them will considering publishing a breakdown of their expenses and so shame the rest in their secrecy. At a time of recession, when many of us are losing jobs, homes or savings income while the gold-plated MPs are to have pension enhancement, it is imperative that they are seen to be behaving sensibly.

Activity but no action

(The title was, I think, from David Cameron.)

Today, on his blog, Iain Dale, reports on a conservation he had a few days ago with Gillian Shepherd, now a member of the House of Lords.

What emerged borders on the frightening.

In the nearly 12 years of Labour government, there have been 69 green and white papers affecting children, nine health service reorganisations and seventeen Acts of Parliament affecting local government structure. Directors of Children's services have had to assimilate and implement anything relevant to their area of responsibility.

Gillian Shepherd estimates that 150 local authorities have Children's departments, and in many restructuring has brought adult and social services under a cumbersome umbrella with them. The result has been confusion, muddle and a lack of oversight caused by the sheer size and complexity.

In 2001 Hazel Blears said in a debate that on average one child dies a week in this country from neglect. Evidence recently given to the Children, Schools and Families Select Committee suggests that the figure is now probably three children per week.

Ofsted recently reported that the number of local authorities failing to protect children properly, in their judgement and from their inspections has doubled in one year.

There is an a likely connection between the last two paragraphs.

What is happening is change brought before previous changes have settled down and been evaluated, of a rush to legislation rather than considering other options, and of a government which needs to be seen to be doing something. Many of the changes are ill thought out and rushed.

There has been almost feverish activity but no effective action. If genuine consultation, time for trials and adjustment took place, there might be less activity but there would be a greater possibility of success. As things are two many changes have been rushed in, when it might have been better to have taken longer to prepare.

Democratic deficit?

Today the Labour MP John McDonnell was ejected from the House of Commons. He did what Michael Hesseltine did all those years ago - he waved the mace about in his frustration at how democracy has become subverted.

The issue was the proposal to build a third runway at Heathrow. Now most people would concede, I think that as this cuts across several local authorities, planning permission could not be given in the usual way. Mr. McDonnell was concerned at the effect of the proposal on his constituents, both noise and air pollution, and also the destruction of their communities and eviction from their homes.

All he wanted was that the decision should be taken by parliament, the highest authority in the land, but although the government support for the proposal was predicated on the claim that Heathrow is a national treasure and must be expanded, the nation was not allowed to vote through its elected representatives. This is an irony, as well as an affront.

So the decision, with government approval, is to be delegated to the faceless bunch in a regional planning quango, all unelected, and appointed by the government.

I share Mr. McDonnell's concern at this process, and the democratic deficit it reveals. To this could be added the fact that the government has elevated another peer, Mr. Mervyn Davies, a senior banker. I have lost count how many there are like him - Lord Digby Jones has resigned, but others remain, Lords Mandelson, Malloch Brown, Darzi, West, Carter and Myners, and also Baroness "Green Shoots" Vadera. Patronage and personal whim, as in ancient royal courts, still exists, and to this extent reaches back to a pre-democratic age. (Can the travesty of the House of Lords with all its patronage be allowed to continue much further?)

Add to this the increasing domination over our lives by unelected quangos and European Commission, and one has to ask to what extent are we still a democratic country. Is there any surprise that turn-out at elections is diminishing year by year, when it is for most a pointless exercise?

The role of education

For many people, if not most, education is thought to be the chief way by which those from a disadvantaged group may achieve something very significant in their lives. Channels by which people may migrate to success, achievement and influence are many, but education is surely a prime means.

Everyone agrees that social mobility has not increased over many years, in fact it has gone down since the 1970s. The Labour government has tried all sorts of policies, has resorted to threats and inducements to educational institutions and has pumped huge sums of money into the education system, it has to be said with no conspicuous improvement. Rather our education system is slipping down the international ladder of educational achievement, with devalued standards and non achievement.

Educational achievement has many contributory factors, including marital and home circumstances. This is true for many countries in the world. But to return to the subject of social mobility, are there any explanations? I offer you some reasons advanced by Janet Daley in a recent Telegraph Blog.

She offers these facts to consider:
In the 1960s Britain had the highest proportion of working class university students in Europe.
This was entirely due to the 1944 Education Act, which created grammar schools which reflected the best traditions of our historical public schools, including discipline, willingness to study and a positive attitude to learning. Admission was by selection, the so-called "11-plus" and junior school recommendation.

In the early 1970s, unbelievably in pursuit of social mobility and equality of opportunity, most of the grammar schools were closed or re-organised as comprehensives. The problem with comprehensives, apart from the obvious one of becoming very large in order to accommodate all subjects at all levels of ability, was that students were trapped in their neighbourhoods, so called catchment areas. In some vast council estates where there was little interest in learning, a bright and would-be achiever was submerged in a mass of disinterest, and didn't escape from his own poverty. He became frustrated and even delinquent.

I was brought up in a humble working class family, and I was part of 1960s working class presence at university. I shudder to think how my energies could have been directed if I had found myself in a reluctant mass of disinterested students. I owe everything to the grammar school I attended - values, abilities, interests, opportunities.

In the 1970s, by now a lecturer in higher education, I went as part of our extra-mural lecture programme to a recently established comprehensive in Birmingham. On arrival I was warned that sixth formers to whom I spoke would be unlikely to ask questions afterwards. The teacher explained that a few who would be interested would fear to ask questions because the mass would verbally abuse them. It was, he said, part of the ethos change which had come about when the former grammar school was made a comprehensive.

I can imagine that dedicated teachers do their best to prevent the mass of disinterested students, many with 'attitude', hindering the process of the more able or committed. Unfortunately, with the great disruption and difficulty of exclusion in our schools at present, in and out of the classroom, the few enterprising students are frequently held back.

I readily concede, from my own observation, that secondary modern schools, the repository of 11-plus "failure", were underfunded often. I also concede that a single exam at age 11 should not separate "sheep and goats" for life.

These two criticisms are easily overcome, the first by increasing funding to non-grammar schools, the second with something like the German system which aggregates marks over four years at junior school, and by allowing later transfer from one school to the other according to progress or interest.

I am with Janet Daley completely in her assertion that comprehensivisation " was one of the most retrograde social policies in modern political history even though most Labour supporters are probably prepared to accept that academic selection would make it easier for able children from poor families to gain access to higher education and the professions."

It is to the discredit of the present Conservative policies which seek to portray them as progressives, that their attitude to grammar schools is at best condescending and luke warm. They, following Blair, seem to accept that schools can specialise, - in music, art, science, sport, in fact almost everything except ability.

A smaller House of Commons?

In an Interview with the Financial Times, David Cameron expressed the intention to reduce the number of MPs by sixty, or just under 10%, as a priority in his first term as prime minister.

This is not a reflection of the inadequacy of the Commons chamber to accommodate all MPs, nor an attempt to save money, though the saving would not be small. It is not even a reflection of the lack of work MPs do in London because so much legislation, - up to 80%, is made in Brussels.

It is merely because there is an injustice, with a built in advantage to the Labour Party as they return MPs with electorates as small as 50,000, especially in inner-city areas, whereas the national average is something nearer 80,000 electors. There has been a massive movement out from inner cities and into suburbs and rural areas. If Conservatives enjoyed a 10% advantage in votes, as in this week's poll, this would translate into a Conservtive majority of 34. If Labour had a similar lead they would have a majority of something like 130.

There have been somewhat slow and infrequent boundary and constituency adjustments since it was last done more often in the 1960s. So Cameron would be restoring a more regular process.

Ultimately, of course, it would help the Conservatives at subsequent general elections.

Could fewer MPs cope? Why not, - the House of Representatives in America has only 420 or so members, and for a much larger country? Are yes, but they have large states which undertake much government! That is true but we have local authorities who do work but are not permitted to make many decisions, as these are all handed down from on high. Arguably they should have more autonomy.

In fact many of the issues raised with their MPs by constituents are really the concern of local councils, and the MPs liaise with council departments and do work which really should be done by local councillors.

It seems fair to reduce the number of MPs, given that London is increasingly subservient to Brussels, to make all constituencies of similar size. In the process it will save millions of pounds and it could just push decision making back to where it belongs for many issues, to local authorities and their communities.

Cameron has my vote, for what it is worth!

A new record

Our trade balance, that is the difference between exports and imports of goods but not services, has achieved another record level - a monthly deficit for November 2008 of £8.3 billion, up from £7.6 billion in October.

Experts were predicting a November deficit of about £7.5 billion, already massive compared with just a few years ago, so our trade result was something of a shock. All this despite a fall in manufactured imports for the fourth consecutive month.

As soon as the result was announced the sterling/dollar exchange rate dropped to $1.46. There will be further falls in sterling if our trade account continues further into deficit, and confidence in sterling falls.

We have been covering a rapidly growing deficit on trade account by our invisible exports (-services of various kinds) and by borrowing, - paying foreigners to leave their sales proceeds here in return for interest. The loss in confidence, if it continues, will require higher interest rates just as the Prime Minister saves us with a mighty debt financed splurge.

A final comment - November trade result will have been produced by decisions made some weeks before. If other countries were retrenching then, it is likely that December and subsequent months will show even more shocking results and confirm that we are in a severe recession.

How time changes things!

"This is desperate stuff from (them, they) continue to scrabble around trying to find a coherent economic policy. There is no way they can get 350,000 new jobs out of these proposals".

Any guesses who "they" are?

The words were uttered by the Labour minister Tony McNulty on 11th November 2008, and "they" of course were the Conservatives who had just announced their new policy to encourage employers to offer work to recently unemployed workers.

The irony is that G. Brown has just borrowed the proposal from the Tories, but in an evident re-appraisal is now suggesting that where the Tories could not raise 350,00 jobs the government can raise 500,000! The government of course contains the saviour of the world, which makes all the difference.

The moral is that you can believe neither the criticisms nor the promises made by this discredited government as they scrabble around to find any new ideas.

Democracy in 2008

In December the Home Secretary, Jacqui Smith, (she whose relatives and friends support her by letters to the press written under assumed names), announced that she was scrapping plans to make police more accountable to their local community. The actual proposals were very weak, at least in the eyes of those who want full accountability.

Among those who made representations to her were the Association of Chief Police Officers and the Association of Police Authorities. (The latter have the slogan "Giving people a say in policing!) This was predictable, however they dressed it up, politically they had more to gain from toadying up to powerful politicians and much to lose if they had to answer to citizens who are not impressed by recent police performance. (More surprising was opposition from the Local Government Association, whose website contains the objective "to push decision-making to the lowest possible level."

Douglas Carswell, MP, who had introduced a Ten Minute Rule Bill on directly elected Justice Commissioners or Sheriffs, afterwards received a call from the lobbyist organisation Connect Public Affairs about his attempts. The Lobbyist lists among its clients the ACPO and the APA.

In December, and again in January, he raised on his blog the question of publicly funded bodies spending money on lobbying government. Specifically, he asked, did he police organisations spend money with the lobbyists to influence public policy, and if so whether this was proper. At the very least, he suggested, we should be told.

The main body representing lobbyists, the Association of Professional Consultants, is very concerned at the Tories proposing that government agencies be barred from hiring lobbyists. Over a five year period the Conservatives had identified at least 71 separate contracts between state-funded agencies and lobbying firms, and involving £9.7 million. If, when elected, the Conservatives do this they would be following the U.S. government with its Byrd Amendment of 1989 which banned U.U. government agencies from hiring lobbyists.

Lies, damned lies and statistics.

Dominic Grieve, the Shadow Home secretary, is beginning to surprise many people with the effectiveness with which he has undertaken his brief. The apparently dry and scholarly lawyer has already caused the government much trouble in just a few months.

Today he announced two reforms on the handling of crime statistics which would be introduced by an incoming Conservative Government. Both are intended to make it more difficult for any government to misuse crime statistics, in the way that the "progress on knife crime statistics" did before Christmas, and for which Jacqui Smith subsequently had to apologise.

Firstly, responsibility for compiling and publishing both sets of data, - (police) recorded crime statistics and also the British Crime Survey, would become the responsibility of the Office of National Statistics. This body until fairly recently at times has seemed more like an arm of government, or of the Labour Party, but more recently has acquired greater reputation by its balanced stance, even facing down Gordon brown on the definition and size of public debt within the budget. The public and experts now have a greater trust in the ONS.

Secondly, the incoming Conservative Government would abolish the present practice of permitting ministers, their special advisers and civil servants having pre-release access, and thus able to "spin" the figures before release. They will still be able to put their (defensive) slant on the data, but will have no more opportunity than anyone else. Since 1997 they have been able to make a preemptive announcement. Even if subsequently opponents made them retract, their immediate announcement had long enough unchallenged to emerge with some influence.

The ONS should improve the trust placed in national statistics, and government attempts to explain away will be contemporary with opposition condemnation.

It is worth quoting Grieve: "Labour have proved themselves serial manipulators of official statistics. Their obsession with covering up, rather than facing up to, problems has meant serious violent crime has only got worse. A new approach is required (and hence) we propose (the) two radical reforms of crime statistics."

If such reforms are enacted then accountability and transparency will be enhanced and deception will become more difficult. Moreover, any future government which proposes to rescind the principles will immediately be suspected of wanting to use deceit.

Grieve seems to be making harder for David Davies to be considered worthy of replacing Grieve. This is no mean achievement.

Well, we're all human!

Andrew Lansley "appeared" on the Toady programme this morning to give results that he and his colleagues had produced on the issue of mixed wards in NHS hospitals. (Kate Devlin, the Medical Correspondent of the Daily telegraph summarised the findings in the Telegraph on Line yesterday.)

In many of his assertions Lansley was supported by a spokesman of the Confederation of the NHS.

In brief, 86% percent of trusts, in answering an F of I search, admittedly that they still have some form of mixed sex ward or bay, or had mixed sex washing or toilet facilities. (In a 2007 DHS report 20% of hospital trusts were using mixed sex wards.)

About 15% of trusts and 2% of mental health trusts admitted that they still used mixed wards of the large open "nightingale- style".


All this despite repeated promises. In the 1997 election NuLabour promised to "work towards the elimination of mixed-sex wards". In the 2001 they promised, "Mixed sex wards will be abolished". Similarly in 2005. In April 208 Alan Johnson, the minister, assured us that mixed-sex accommodation would be scrapped within a year and that the goal was within touching distance.

(It should be recalled that Lord Darzi, not a career politician, in January 2008 warned us that the policy was "an inspiration that cannot be met". Perhaps he should talk to Mr. Johnson!)

Why is it so important?
Patients in hospital are often at a very low ebb, and really do not need the extra stress caused by the presence of members of the opposite sex. Some are confused and may not act rationally. They may walk about with no clothes on and may make unfortunate comments. Above all, in a situation where washroom doors and toilets are not lockable, highly embarrassing encounters can occur. Patients need dignity, and this may be destroyed by such encounters.

It seems amazing that after twelve years and an enormous financial expansion, such situations occur so regularly. New hospitals have been designed to meet the needs of patients, but the presence of so many "nightingale" wards suggests that there is a long way to go. Lansley suggested that a small amount, perhaps £ one billion or so, could change things dramatically, and provide finance to rebuild some of the wards.

One reason for the continuation of the mixed sex wards is that there are constant variations in proportions of medical conditions across the sexual divide. If we are to aim for full bed usage then the situation is unavoidable. We have scrapped how many beds over the last 12 years, - twenty or thirty thousand? We need more beds, and perhaps MRSA would be reduced in incidence if there were a few empty beds and newcomers were not put into a still warm bed vacated by a previous patient only minutes before.

The mystery bus.

Or rather the mystery of the empty coach.

The Times has uncovered the fact that an executive coach leaves Ealing Broadway station in West London every Tuesday morning promptly at 9.45 a.m. (Where it has come from is not clear, but evidently from its garage somewhere. ) No one gets on or off, and it leaves on a 70 minute trip to Wandsworth Road in South London. The coach has 48 seats, but occasionally when it is unavailable a split level 100-seat "megadecker" is used, again running empty.

There it waits for 2 hours and and quarter, before returning, again empty of passengers. No timetables are published, staff generally do not know about the service, although there is written detail, entitled "Rail replacement bus. Internal document not for display or distribution."

The service costs the Department for Transport £500 for each return journey, although a Times reporter and a photographer did manage to catch it at a cost of £5.10 each.

In fact when a passenger complained that the DfT was withdrawing a service, without going through legal process, public consultation or investigation by the Office of Rail Regulation, he received a replay from DfT that a replacement bus service was operating between stations close to the sections of track, which were not being closed!

According to the Times, until 14th December 2008 Crosscountry ran two trains in each direction between Birmingham and Brighton, using these sections of track in West London, each train used by about 80 passengers. DfT claims that the carriages were needed to relieve overcrowding between Birmingham and Leeds, as orders for the delivery of new rolling stock had been delayed. The DfT has no immediate plans to reinstate the Birmingham/Brighton service, and it is likely to remain suspended indefinitely.

When the Birmingham/Brighton service is a distant memory and its removal has lost some of its political sting, it is possible that it will be wound up with some kind of public consultation and proper legal process. In the meantime, the whole issue is being "buried" at the cost of £500 per week.

What is worrying is that a government which is currently taking its cabinet meetings into the provinces, and talks regularly about consulting the public, engages in subterfuge and duplicity, and in the process subverts democracy.

The cost may be only £25,000 or so a year, but it is highly likely that similar amounts are being spent in other places in order to conceal and prevent the public from using processes which are laid down. Perhaps the words mendacity and cynicism are appropriate?

Chaper and yet cheaper...

The base rate was lowered yet again by the MPC, to its lowest since the Bank was set up in 1694. This says something about the predicament produced under the stewardship of G. Brown, though not his fault, of course. Never before in recessions, depressions, war times when the nation was threatened has the rate been set so low.

The reason is two fold, and both relate to time.

Firstly, the government has taken steps to restore the liquidity of the banks because we have not saved enough to produce healthy balances by our deposits, and banks cannot borrow sufficient funds elsewhere. Still, according to owners of small businesses, banks are not lending sufficiently.

The reason for this is the sheer uncertainty that lenders face - they do not lend to each other because they are fearful of what may turn up in future balance sheets of other banks. On top of this is the strong possibility that borrowers from the banks, - the small firms principally, may themselves go bust in the recession and cause similar problems for the banks.

In time, and this is where it comes in, lender balance sheets may improve, if the government does not demand such quick payment of monies it has lent to banks, or by some other means. Then confidence will have returned. This will take too long, of course, so the government was precipitate action now, or even earlier.

The problem is that the government thinks that it can pull levers, and like so many machines borrowers and lenders will act precisely as the government decrees. They are dealing with people, not machines, and people are subject to mood, doubt, fear, and so on.

This is why the Cameron proposal, for the government to "guarantee" for a fee all the debts of those who borrow from the banks. This should make the banks more keen to lend with confidence. Cameron should go further and try to reduce the uncertainty and suspicion between banks in the wholesale market. This could require compulsory auditing, with certification, that there are no more "poisonous" assets being hidden off balance sheet. There would have to be heavy fines on bank officials who are after certification are found to be deceiving. Perhaps full disclosure should be required between all participants who wish to engage in the money market.

The first difficulty, of a lack of confidence, should be tackled by the government, rather than dressing down the banks in public and threatening them with a megaphone.

The second time problem is the uncertainty about how long any measure will take to have an affect. (The confidence issue is an example of this also.) Whether the government tries to drag forward infrastructure projects, where it could be years before the project is complete and the full employment and income gains realised, or whether the government decides by some means to create money by enlarging the safe asset bases of banks so that they are happy to lend more, in both cases, and others, there is uncertainty about the time when sufficient extra spending has been undertaken.

A major problem is that although the government may succeed in causing new expenditure, some of it may arrive too late to help, indeed it may be trying to raise expenditure in some areas which are already fully recovered with the result that inflation could become real possibility through shortages and bottlenecks. This last could be reinforced if sterling loses more value and causes import prices to rise.

Someone has said that trying to manipulate the economy in a fine and detailed way is like steering a ship by looking at the wake, that is that the decision makers will always be acting on information which is out of date. We are still revising the output figures for the April-June quarter 2008, and company and trade data may be even longer out of date.

There is a further difficulty, especially when the government does not decide on the direction of spending but merely inflates the bubble of debt still further. Once the initial money leaves the government's hands, short of repressive controls it cannot forecast in what further directions it will be spent. This is the uncertainty of what income recipients may do. The government seriously miscalculated in its hopes over the VAT reduction. It seems that it did not consider the possibility that consumers might save the small amount they saved in order to reduce their over-large debts. This could happen again, or they could decide to spend new income on finest french wines or imported electronic goods, which will not produce much further income here.

The government, to its credit, has recognised that extra income here could well be spent to produce foreign goods and services, which will aid recovery abroad and not here. This is why our wizard debt maker, G. Brown, has been appealing for international cooperation, to encourage foreigners to reciprocate by buying our goods and services and not just their own.

Unfortunately some of our major foreign currency earners have been damaged already by the recession, e.g. London financial expertise, and others may yet be, - such as Wedgewood, Jaguar, etc. It may be that our economy will have suffered longer and deeper damage to its productive capacity than is the case in other countries where the recession was less severe.

Nothing changes

" The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."

The name of the city, Rome, gives it away really. In fact it was written by Cicero in 55BC. Some of our moral leaders ought to be advised to go back to any classical studies of their youth. Some things seem to be timeless!

Big brother takes a step nearer

Surveillance and a consequent loss of privacy has gained another impetus recently. The Times reported recently that the Home Office has adopted a policy to allow police to hack into peoples' computers on a regular basis without obtaining a warrant or other permission.

In doing this they are adopting policy originating from the EU, so it has gone quietly through two administrations without debate and with announcement. The EU has used and amplified a little used possibility of surveillance of private property.

The result will be that member police forces of the EU will be able to ask British police to hack into a computer and receive any material gained. The hacking will we done remotely, of course, and most of us will be unaware that anything has happened, and the computer suffering intrusion could be at home, at work or in an hotel. The material could be e-mails, files, web browsing history and instant messaging. How long the copied material will be kept is not known.

The authorisation required is a senior officer who judges that the intrusion is necessary to prevent or detect serious crime, that is offences attracting a jail sentence of more than 3 years.

In theory at least the police could go on fishing operations, so long as the senior officer believes that something worthwhile could be found.

The Home Office would defend itself by pointing out that the provision is one from Brussels, and that we would have to comply with requests from other police forces in any case. Given their willingness to intrude into private affairs already, does anyone doubt that police and security services would employ this off their own bat as well?

The EU and our own government, those bastions of democracy and individual rights, have given another glimpse of what value they attach to privacy and the individual.

I hope that friends and colleagues will fight back by sending each other messages in gobbledy-gook, and giving the police plenty of opportunity to unravel random and jumbled sequences that have no meaning. Or would we be found guilty of wasting police time?

With respect, Cardinal, you are speaking nonsense

Cardinal Cormac Murphy O'Connor recently made a speech in which he claimed that as communism ended in 1989, so capitalism has been killed off by the credit crunch.

We may concede the first statement that communism in eastern Europe seems to have ended in 1989, although ex-President Putin seems to want to reverse the process. But there still remain states like Cuba and North Korea, and there are other countries like Venezuela which have hopes of something in this direction. Whether these are socialist or communist may interest adherents of these ideologies, although the state trappings and dictatorships seem remarkably similar.

It is his second judgement which raises eyebrows. Again we could concede that a version of capitalism may have come to an end, as the result of deficiencies of government in various countries and a failure to carry out the proper monitoring and regulation.

To dismiss capitalism out of hand is a terrifying prospect. What is to replace it? Government control and administration of all economic matters? We have seen the gross inefficiencies which result. We have seen the failures all too often, and with them the political and social tyrannies.

If the best we can offer leads to centralisation, to suppression, to liquidation of dissidents, to rigid control of knowledge and behaviour and to the endemic inefficiency, then may the Cardinal's God help us!

Or did he mean that unfettered capitalism and uncontrolled markets must be no more? This is to misread the recent past. Markets have been suppressed, controlled and used by politicians to reflect their own ideologies, rather than the free exchange of information and distribution of goods and services in accordance with consumer needs and wishes. Freedom has been savagely curtailed. Does the good Cardinal wish us to go further down this road, to have individual privately owned firms being threatened with punitive action if they do not do the wish of the government of the day? This is what we have seen, - regulatory tyranny trying to replace the 'benign' effect of Adam Smith's invisible hand.

It should be remembered that sub-prime mortgages were the result of US presidents driving lenders to lend to "no hope" borrowers, or persuading them to lend too much, and a credit crunch from lax controls on private debt accumulation and too much public debt accumulation, and all this with traditional controls removed or diluted.

The credit crunch was not a failure of markets, and capitalism has been permitted great excesses because governments took their eye off the ball.

If honesty and integrity are restored or produced by better and not more regulation, if openness is demanded, if competitive forces are allowed, and if governments can keep their hands off, then capitalism can continue to do the work which it alone can do, - use resources efficiently, harness human ingenuity, drive and vision, to increase the wealth of all nations with all that this implies for health, education and human improvement.

I am sorry to cross swords with an eminent Christian leader, but I am afraid that on this topic he is as ignorant as I am on the finer points of Catholic theology. If I were required to speak about the latter, I would make sure that I spoke to experts first. I would recommend that he does the same on topics in which he is not expert.

Higher and yet higher...

Royal Mail slipped out during the Christmas period that postage charges are rise again in April, first class by 8.3%, - three pence to 39p, while second class will rise by 11.1%, again by three pence to 30p.

Both the percentages are way above recent inflation rates, and for a period when inflation is expected to be very low.

To judge by recent proposals to provide capital, know-how and management from foreign postal services, and from international comparisons, our postal service is very inefficient. (The trade Unions have vetoed earlier attempts to privatise, or to bring in more efficient practices.)

Royal mail is under competitive pressure, especially from various forms of electronic mail, so substantial price rises could be damaging to it.

The removal of Sunday collections, along with bank holidays, means that if you miss the last Saturday collection in my area, - 11.00 a.m., you mail will not be collected until some undisclosed time on Tuesday, so you are facing a minimum five day delivery time. Deliveries here can be at any time from 9.00 a.m. until 2.30 p.m. If you receive one of the alleged 7% of first class mail, or 98.5% second class, which does not arrive within the promised overnight or three days respectively, you may feel that the service is falling apart.

Many, I suspect will increasingly use e-mails or text-mails, or even phone calls, where previously they would have thought of letters. E-Christmas cards, anyone?

This is one of the last antediluvian state-provided services which will require massive subsidies as it shrinks. How long will it be before it is reformed or privatised?

Full marks!

Cameron today committed his party to two important things:

1) Removal of tax on savings income for all paying tax at the standard rate.

2) Increasing retired ( i.e. over 65 years old) tax allowance by £2000, that is an increase in after tax income of £400 per year.


The first proposal will achieve two things, firstly it will recompense all those who live on income from savings and who have suffered by greatly reduced interest on their savings and also inflation, and secondly it will encourage many to begin saving again. (Whereas BB (before Brown) we were saving on average 10% of our income, after nearly 12 years of him we are saving less than 1%, and in fact have been encouraged to overspend and go into debt. The consequence has been, in part, that because we were not depositing as much money as before with banks and building societies, they have had to borrow much more from other banks to provide cash for mortgages, - we have contributed to the credit crunch.)

The second proposal will help a group of people who have been facing the highest rate of inflation of all of us. The goods which take the bulk of pensioner spending, - heating, lighting, food in particular, have seen the greatest price rises over the past few years, and state retirement pensions have not kept pace.

So long as the very poorest pensioners, those who are trying to live on £120 a week state pension ( that is on an income of little more than half the minimum wage,) and currently pay no tax, are also paid more by some means, - preferably a significant increase in the state pension as soon as possible, this all sounds very good.

The two proposals are very welcome. They try to help some of the poorest members of society and they will encourage thrift among many more. If we are ever to get back into some kind of balance then the virtue of thrift must be rediscovered.

There will be a price, of course, and that will be reflected in reduced growth of all future government expenditure except health, education, overseas aid and defence. The effect will be moderated to the extent that the next government is able to make massive savings - (ID cards, useless computer systems, quangos, anyone?)

50 years a paradise

We are at the fiftieth anniversary of the Cuban revolution. Fidel has effectively gone, but the dynasty carries on under his brother.

Has the experiment been a success?

As an economist within 10 years of Fidel's success, I predicted the economic failure which has resulted in every case where state socialism or communism has been tried. I was not alone, most economists would condemn the command economy in economic terms because of its gross inefficiency.

Cuba has been no different. It is a backward country, and survived for many years only because Russia subsidised it for political and military reasons. It is now apparent that its cars are 30 or more years old, and patched up, mobile phones and other consumer goods are unavailable. If there are televisions, it is because the government wishes to speak into homes and proclaim its message.

Ah, but some say, the health service is something to be proud of. Really? Thousands of doctors have left, especially to go to Venezuela, to earn currency to enable Cuba to buy essential goods such as oil. Hospital care is not great and hospitals not clean.

The people are content, and support the revolution! Then why did1.2 million leave, often at great personal risk, between 1959 and 1993? Why did so few apparently go the other way to enjoy the island paradise.

Americans originally from Cuba have estimated that 12,000 have been executed under Fidel since the revolution. How many more have languished in prison for political crimes which we would not recognise as crimes, such as trying to leave the country without permission? Why are newspapers routinely censored, and why are people encouraged to spy on and report non-conforming neighbours?

Castro has been a dictator for almost 50 years. Some on the left regard him as a hero, and we would have to admit that he has not been as cruel as Stalin or Hitler. Nevertheless when citizens want to leave in such numbers, often without permission and in small boats for a long sea crossing, it is difficult to see that they have many positive compensations for the economic misery they have suffered.

It's a hard job, and getting harder?

Michael Gove, shadow children’s minister, and his team have assembled some details on teacher sickness absence.

Absence is increasing. In 1999 the average teacher was absent because of illness for 5.1 days, compared with 5.4 in 2007, an increase over the eight years of 6%. In total, in 1999 2.5 million days were lost from staff sickness. In 2007 the figure was 2.9 million days, an increase of 16%. These figures include both full-time and part-time registered teachers in England., but not classroom assistants.

The reason for the discrepancy between increase for the average per teacher and the annual total is large, I lack information to enable an attempt to explain. For my purposes here they both suggest a significant increase over the 8 years.

In 2007 of the 465,672 registered teachers no less than 311,770, or 67%, took at least one day off through sickness.

On average each day in England in 2007 there were 14,908 teachers off sick. (This hides a big variability, of course, with illness more likely to strike in December and January). Absence seems also to be higher in London than elsewhere. The concern here is that there is an enormous cost. In 2007 schools had to pay upwards from £103 per day for each teacher missing. This figure could rise to £210 per day for a senior teacher at an inner London school.

Michael Gove can do no more than estimate that the financial cost to schools of the supply teaching must into hundreds of millions of pounds each year. Other costs are the disjointed and disrupted learning which occur when a supply teacher replaces a teacher who is absent ill.

Gove appeals to the government to discover why this is happening, but so far the response to his calculations is a bland assurance from the Department for Children that teacher sickness remains low and stable, and comparable with industry norms. In addition the department, while accepting that the occupation is a demanding one, claims to have helped teachers by giving them free time for preparation at school, the help of support staff, and greater ability to remove unruly students.

It would not be difficult to suggest reasons for the increase in sickness, and also a 25% rise in teacher vacancies recently, as well as four in ten new teachers quitting within a year.

Many teachers would point to endless changes in instructions and requirements handed down from Westminster, and too much (unnecessary) form filling. Others would point to behavioural problems which means that they expend so much time and energy in merely keeping order that they have too little for the real business of teaching. Figures for classroom violence are disturbingly high, even at primary level.

What is clear is that teacher morale is low in many situations, despite the vast amount pumped into education under Gordon Brown.

What is equally clear is that the situation will continue, even worsen, until teachers can expect better behaviour from students and less demand from the government for time on activities which contribute little if anything to education.