Happy Christmas

When I signed in to write this, I noticed the little box to remember my username and password that said:

Remember me?

Clearly it didn't: its been so long since I've posted anything. Interestingly, my last post about bankers is still valid: our Government, despite helping create the structure that caused the credit crunch and owning major stakes in two banks is focused on an irrelevant bonus tax rather than forcing changes in competitive behaviour and extracting a proper reward from banks for our taxpayer support.

And since then, much has happened as well as the economy: the two main issues I should comment on are the climate change conference and today's revelation of the amount of bonuses paid to civil servants especially at the Ministry of Defence and the Department of Work and Pensions. And perhaps I will - the farcical handling of the climate change conference as Europe sild into a bleak midwinter highlights the need to reassess the background to this agenda. And the moral vacuum that allows senior civil servants responsible for the misery caused by DWP's inability to provide clear guidance and help to people who need it, and for the lack of support for troops suffering their 8th Christmas in Afghanistan to collect bonuses is a good analogy for our Government's lack of morality and humanity, and deserves a longer comment.

But in the meantime, if there are any readers still reading:

Happy Christmas and a successful 2010.

Bogey Banks

People don’t like banks or bankers much at the moment. For good reason:
- They over-extended themselves badly, requiring massive taxpayer support;
- Their failures last year, and the resulting drying up of credit, have been a major factor in the current recession;
- Despite receiving massive taxpayer support, UK banks have not met their side of the bargain in renewing credit to UK businesses; and
- UK and global banks are making a lot of money again, partly because market volatility allows them to and partly because there are fewer banks able to compete. And they are paying out as big a percentage of their profits to employees as they used to. Taxpayers do not like their money effectively being routed to pay substantial sums to bankers.

It’s not all the banks’ fault, though, and developing public policy to deal with these issues can’t simply be based on bashing bankers and taxing bonuses because they are complex. Hence some of the disagreements between the UK Government, the Bank of England Governor and the FSA (although the last two have more in common than the media imply) over what to do. And hence the lack of agreement on real action internationally*.

There are lots of reasons for banks becoming over extended; Bad management is certainly one: George Bush’s comment “Wall St got drunk” is as good an explanation as any. But lax regulation and encouragement from Governments was another very important factor, as was the willingness of most of us to spend future income immediately and as a result borrow too much. I’d split the blame 25:25:50 between the banks, the public and Governments.

Having got in a mess, Governments have had split views on the ideal outcome. Yes, they want banks to lend more but more importantly they want them to rebuild their capital. They also do not want to see them make too much money because of the public impact. But profitable banks have three major benefits for Governments: they can reduce the level of support they are giving; they can eventually sell the stakes they have for a profit; and both the banks and their employees will pay tax and spend money to help kick start the economy. Hence you’ve seen the Governments talk about restricting bank profits and bonuses, while doing nothing. Evidenced by the fact that in the UK some of the bigger pay packets are going to be at RBS, which we as taxpayers own and where the Government could take direct action if it wished.

What should happen?

I wrote some time ago about why banks paid such big bonuses: a lot of that is still valid. Essentially, it’s because their margins are too high for two main reasons:
- the correct price of what they sell (or buy) is only known with hindsight, often after many years. They have better information than their customers and they charge too much. As the end eventual buyer of most financial services is the ordinary person’s savings, this extra profit is a real cost to the rest of us.
- Much of the advisory and financing work banks do for companies and Governments is really important to the individual company and the Government. The impact of a failed transaction is very high – so what matters is the quality of the service and the chance of success. The fee is unimportant: it’s like the price of a drug to an addict.

But overall financial services have been good for the economy, powering increases in wealth, especially in the UK. So any changes must not damage the long term health of the sector.

There are four ways of reducing bank margins:
Capital: insisting banks should have more capital, particularly for certain types of trading activity where customer involvement is limited. This discourages banks from doing this sort of business, the sort of business which caused many of the losses.
Transparency: letting customers understand charges is the easiest way of reducing them. Financial services are traditionally opaque: regulators need to force banks to disclose what they really charge.
Competition authorities: high margins usually mean there is a market structure failure, which should be subject to a competition review. Remedies might include price controls or breaking up banks which are too large.
Government contracts: Banks want and need Government contracts; Governments are one of the main buyers of banking services. They should insist on lower fees.

In addition, I think this and next year are special cases. Governments have not insisted on a proper reward for taxpayers for the support we gave. All banks, even those who did not receive a direct injection of capital, benefited from the support given to the system. There is a case for an override on all banks to prevent excessive bonus payments either by forcing increased capital retentions or special tax payments.

And lastly, the Bank of England Governor’s concern that moral hazard has increased is valid. Banks now know they are important to fail: they have an implicit Government guarantee. This has to be reduced over time and a way found to protect retail deposits while allowing shareholders, bond holders, some creditors and employees to suffer. I think a separation of investment banking from basic banking is too extreme but the head of the FSA's idea of making banks define how they should be wound up and having higher capital for investment banking is a good start. Much more constructive than the Chancellor’s and PM’s refusal to admit the merit of The Governor’s concern.

None of these things are easy. Many are however on the agenda, and not all require co-ordinated international action. They could be done here if there was a strong Government. Which recognised that its flawed regulatory system magnified the problem in the UK.

* Brown did try to take the credit at various international summits for bringing the world together, but as you’d expect there was much talk and no action.

Questioning Question Time

I didn't watch the programme with Nick Griffin; I just saw it as a cheap publicity stunt to improve ratings for Question Time.
I think the BBC should be ashamed, not for inviting the BNP leader to be on in the first place, but:
- For doing so in such a public way simply to generate publicity, and;
- To preserve their reputation as caring liberals who found the BNP abhorrent, staging a lynch mob atmosphere (I understand from those who did watch it) with questions primarily focused on the BNP rather than on normal topics. This ganging up by representatives of a widely disliked establishment will have increased sympathy for the BNP.
I’d rather see the publicity die down as it is just playing into both the BBC’s and BNP’s hands. They BBC should have had a normal programme handled in a low key way to highlight the poverty of policy, and an interrogation by someone like Paxman to highlight character issues. But that would have been quality public service broadcasting and would not have played to their egos.

Cliff!

Another great British tradition: Cliff! Well before the trend for one word identifiers ... Madonna; Kylie etc ... there were two all time greats. Elvis of course. But also the British version - Cliff. And he's still rocking on*. I went to see him last night, on his final (?) reunion tour with the Shadows.

He was as good as ever; the Shadows were a revelation...

Brilliant.

Let there be many more final reunions.

* Comes from a song from A Slice of Saturday Night:

When they're all dead and gone,

There'll be one rock star rocking on,

The man with the quiff,

Cliff .. and his 4 lads,

Cliff Richard and the Shads

Cry 'God for Harry, England and St George!' *

That traditional English - and British - concept of liberty has taken a bit of knock in the last few years, and now another slice has been taken away: a law firm has got an injunction stopping a newspaper (the Guardian) reporting a Parliamentary question. In other words, stopping the public from knowing what is being said in Parliament.

Thanks to the blogosphere, the question, the facts and therefore the matters the law firm (Carter-Ruck) were trying to cover up (Barclays tax-avoidance schemes and Trafigura's Nigerian pollution) have been widely disseminated. I post this - despite the Guardian's unsurprising hypocrisy in going on about tax avoidance while covering up its own tax-haven status - because:

- we should be worried at the loss of liberty;

- despite the issues over MPs' and Peers' expenses, Parliamentary freedom is important and we need the proceedings to be reported;

- as one of the leading blogs noted, the more people who know about this the better. That way the injunction is likely to be removed - and law firms are less likely to try again if the result is greater publicity than there otherwise would have been.
And apparently the application for the injunction has now been withdrawn

* Cry 'God for Harry, England and St George!'

Bad News Day

Is it co-incidence that the following bits of news were all released on the same day:

- a large programme of asset sales by the Government (which however will only be enough to fund August's deficit, never mind the rest of the year. Or next year.).

- Letters being written to MPs about their expenses (note that the details of which MPs owe what money back will not be made public)

- Jacqui Smith's second home claim was wrong despite her agonised defence

- The arrest and forcible search of Damian Green for embarassing the Government was "not proportionate".

Clearing the decks for a fresh start? Maybe even another re-launch?

In the meantime: an interesting recent talk about the perils of printing money. Not a theme our current Government would accept.

Olympic Golf

Regular readers know I like golf. But it’s ridiculous that it will be in the Olympics from 2016. It’s not particularly athletic (note: parental guidance required for the language on that link), it’s very commercial, and the Olympics will be close to irrelevant compared with the four Major championships. It’s only in for the money and as a result it demeans golf. It can’t really demean the Olympics: that is so bloated and extravagant as to be beyond hope. As sadly the preparation for the London Games is proving.

Conference Season

Another party conference season over. On balance, a clear win for the Conservatives – as shown by the opinion polls. But I still worry about complacency and underestimating the size of swing required.

I think there were four good things for the Conservatives:
- They started to show they would be serious about the public sector deficit, and distinguished between cutting administrative costs and front line costs (why does the MoD for example have as many people as there are servicemen?);
- They did not implode over Europe;
- Cameron’s speech highlighted the fact that Labour has failed a generation of people stuck in poverty, and that Conservatives want to make things better; to repeat once more: every Labour Government has left office with unemployment higher than when they came in. They fail their people. Continuously.
- Nothing too much went wrong so the faithful will have left enthused for the seven or so months left before the election. But I did like this fake diary of Samantha Cameron’s week.

There were two bad things:
- They have had to start dripping out policy. This means their ideas will probably be stolen.
- The Conservative message - big Government doesn’t work, people should be encouraged to take more responsibility for their lives - hasn’t quite gelled with all the public. But at the end of the day, if the voters want another five years of Labour then so be it. At least it means Labour will have to get to grips with the economy and to take responsibility for what they have sown.


There was one good thing for Labour:
- It really didn’t go very well; there will be no complacency and rather like Avis in the 60s: they will try harder.

There were two bad things:
- It was demotivating for party members. Nothing good happened, lots of MPs didn’t go. They announced lots of initiatives but as I said before – why have they not implemented them before, why wait 12 years? It just all seemed flat. Even without The Sun’s intervention.
- Brown did not come across as a leader with ideas to cope with the present situation. He is still talking a generation ago. He talks about himself as though he has led an economic recovery: I don’t like him, but I suspect that unlike Blair he is honest and has principles and he believes what he says. And in some ways that is even more scary than if he was lying.

The Lib Dem conference was three weeks ago and to be honest I can barely remember it. It didn’t go well: they couldn't decide if they wanted to be more left than right, they didn’t stamp their presence on the electorate and in some ways – because of clear tensions between Clegg, Cable and the rest – it made them appear more divided than normal. If only this had really happened.

Today

I woke up to Harriet Harman's voice in my ear; she was talking (on the Today programme) about all she thought she had done to increase women's employment. But she couldn't see the point of the other guest: that increasing equal opportunity bureaucracy for employers simply discouraged them from emplying as many women as they otherwise would. Unintended consequences flow from Government action. After 12 years she doesn't seem to know that.

A later guest, talking about the lack of investment in new power, made a similar point: if you keep changing regulations then firms lack confidence to invest. Regulation, he said, should increase certainty and reduce risk not the other way round.

A man of influence?

You’d like to think your MP had influence, could get things done.

People who aren’t political junkies might have missed a recent survey published a few days ago of senior Lib Dems asking who are the 50 most influential Lib Dems. Our MP, Alan Beith, was not one of them. Not even in the top 50. I am disappointed but not surprised: this area has lost out in many ways in the last 30 years by not having an MP from one of the main parties who could have helped get investment into matters such as local hospitals, the A1 and school refurbishments. And this is especially no wonder if we don’t even have an influential Lib Dem.

The next election is time to consider whether it is enough to be served by a nice guy who (as an MP should) helps individuals, or whether we need someone who can get also things done for the area as a whole.

Conference Time

I nearly went to the Conservative party conference this year. That intention was great – it has kept almost a week of my diary free so I will actually have time to do things next week. But somehow it seemed just a bit too long to spend hanging around corridors pretending to be important. Plus it was in Manchester.

I’ll nevertheless be interested to see what happens. My main worry is over-confidence. I don’t understand why Labour is so depressed – or why there seems to be such an assumption that the Conservatives will win the next election. I have as much regard for the Sun’s page 3 “News in Briefs” as anyone, but this is not a slam dunk, for four reasons:
- The voting system and boundaries are massively skewed against the Conservatives. It will take a very big swing, and a much larger share of the vote than Labour, for them to have a majority.
- The election is likely to be 7 months away. A lot can happen in 7 months. Reputations can be made or broken. Leaders can come and go. Economies can recover or crash. Wars can deepen or end – or start.
- The Conservatives are reliant on a very small Cameron based clique for policy and personality; it’s worked well so far but...if there's any crack in that small clique there'd be big problems.
- There a big gaps in policy detail. As, to be fair, there were in 1979. And announcing policy will simply see it copied. But not being Labour may not be enough.

In addition, the Lib Dems are clearly, from their conference, leaning to supporting Labour so if there is a hung Parliament there’s no doubt who they will back.

There’s not a lot the Conservatives can do about this – except don’t take victory for granted, don’t appear to take victory for granted and try to work up some decent policy detail behind the scenes.

The Irish won't need a third referendum..what do the Tories do?

It looks as though the Irish will vote to adopt the new European Constitution (I call it a Constitution rather than a Treaty because that is what it really is).

The main reason seems to be that the credit crunch has made many feel safer in a larger Europe; that's strange because:
- most of Ireland's specific problems came because of the excess boom resulting from being in the Euro;
- as a small country they did better than say Iceland by being part of the Euro, so their currency and borrowing abilities did not suffer: but this is irrelevant to the issues of European governance raised in the treaty;
- being part of Europe (as opposed to the Euro) has not helped them at all in recovering from the problems. Ireland has done much itself in terms of working out how to sort out its banks and reduce public spending - far more than say the UK and indeed most other European countries.

But all that's irrelevant to what should the UK, and specifically the Tories, do now. Commentators have suggested that a yes vote would be a major problem for them, because they will have to be more specific about how they will deal with Europe. And many Labour and Lib Dem supporting commentators will hope that they will be riven with internal arguments as a result. I suspect some anti-Cameron Tories will hope the same.

This need not happen: the Tories must be controlled in their response.

First, although the Irish vote makes it more likely that the constitution will be ratified before a UK election, Poland and the Czech Republic still need to do so. There's no immediate need to change the policy: Labour and the Lib Dems reneged on their commitment to offer referendum on the Constitution, we won't.

Second, they need to avoid too much emotion about the wrong issues:

- It will be very frustrating if Blair becomes European President. But apart from having to watch him on TV more, it shouldn't matter too much; his new Middle East role confirms his ability to talk a lot and deliver little. If he is President of Europe, he is more likely to damage the European Union rather than the countries within it;

- Much of our complaints in the UK about Europe stem from how we negotiate and then implement European legislation, rather than the legislation itself. Many things should sensibly be handled at a European level - but many shouldn't. (Lightbulbs?) We need to build the management of European legislation into our Parliamentary processes - unlike Denmark, say, their is no Parliamentary scrutiny of forthcoming legislation until after it has been negotiated. The time to review it is at the beginning of the process, when constructive input will be welcomed and where exceptions can be negotiated. The Tories should focus on improving how we handle legislation within the UK rather than supporting generic complaints;

- If the constitution is ratified before the election then there is no point in having a referendum just on that issue: it has been ratified and we will be bound by it;

- There's no point in having a bland "should we leave the EU" referendum because the answer is clear - no we shouldn't; there's no chance of a majority for leaving and any other question is not specific enough to be asked simply.

So apart from improving UK handling of legislation - and don't underestimate how important that would be - there must be a medium term (ie in the life of the first Parliament) commitment to re-assess how the EU is working and how Britain should relate to it, followed by a Parliamentary debate on whether there needs to be a referendum on any EU issue, and what the question would be. This has to be a soft commitment because the new processes are untried and it's unclear what the outcome will be. And there's no point in being too specific on international negotiations because you shouldn't tie your hands too much.

My suspicion is that the best result for the UK and for the EU would be a formal move to a two-speed Europe; those countries that wish to integrate more can, those that don't needn't.

Apologies for the length of this - but I think its an important topic and one where there will be a lot of pressure trying to derail the Tories.

Summer Things

Was the name of an atmospheric book about things that went wrong - and right – over a Summer. So having been silent for so long and needing something to kick start my blog I’ll use the title as a theme and describe what I read over Summer. I didn’t create a reading list, nor did I follow the list sent out by Tory High Command to their MPs, although I did buy one book on that list (The Pathans).

That list was largely political and historical but (I thought*) strangely omitted Bernard Donoghue’s Downing St Diary (vol 2) covering his period as James Callaghan’s Policy Unit head from 1976 to 1979. It’s a very entertaining read by an author who comes across as human rather than a political drone, about how the political process works. It is a good reminder of the last years of the last Labour Government: I am sure things are nastier 30 years on, but there are fascinating parallels.

He describes the frustration of power draining away despite the conviction that only they could do the right things; an inability to deal with a rising borrowing requirement and public sector spending; anger at public service unions wanting to protect themselves and contemptuous of both Government and the public; concern about uncontrolled immigration; some vocal Scots wanting devolution. And rising unemployment (did you know that every Labour Government has left office with higher unemployment than when it came in?). Yet feeling they had the right answers if only they had a bit more time... Fortunately for all concerned the Conservatives were elected.

I also read a book called Making Sense of Pakistan, a detailed exposition of how this vibrant and confused country came to be formed and came to have such a split personality regarding the balance between Islam, terrorism, capitalism and relationships with its neighbours and the West. I continue to worry about the influence of this area (and the resource rich countries of Central Asia) on world stability and the economy. I think Iraq (and potentially Iran) is a huge diversion and it scares me how little interest Western politicians (with the initial exception of Obama) generally show this region. For this reason I also read the Qu’ran – a big topic for another post.

Lastly, I do try to have a life: I also read some lighter stuff: I’d particularly recommend the new Le Carre; a charming book about crosswords and love; a couple of classic crime thrillers; the new Zafon; and a book about a Feng Shui detective. Amongst others.


* It wasn’t on the list because it had been on the 2008 Christmas holiday list – in hardback. I hate to buy books in hardback so I only read it after it came out in paperback.

Labour Conference Speeches

All these new initiatives....hospital parking, sorting out teenage Mums, solving street crime, and so on.


Why now? Why not in the previous 12 years?


Or was it all the Tories’ fault for not being a threat for most of that time?

Threesomes are bad for you

I don't want to moralise about people's private lives. I just want to comment on the tripartite system of financial regulation set up by Gordon Brown. The system, with some detailed changes, is to be retained after a review of lessons learned from the collapse of part of our banking system.

The review also follows the G"20" summit in London at the beginning of April, where Brown announced a whole series of international agreements to co-ordinate on economic and regulatory management.

The trouble with the tripartite system was that when things went wrong it wasn't clear who had responsibility. The Financial Services Authority had information, the Bank (of England) had the money to bail out banks and the Treasury had ultimate authority but neither information nor immediate access to money. None of the detailed changes correct this mistake. They do suggest banks should have more capital, which is good, but there is still a gap between the the FSA's detailed supervision and the Bank's management of cash flows and monetary supervision.

The Conservatives have produced an alternative: to convert the FSA into a consumer/conduct of business organisation and to give the Bank responsibility for all capital/financial issues. This removes most of the lack of clarity of responsibility, and also seeks to apply the best aspects of the monetary policy committee's processes to macro-regulation. There are two problems: it means a reorganisation (which inevitably ties people up unproductively) and any system can only be as good as the people who operate it. But its certainly more likely to be successful.

Antoine Kaletsky suggests some other requirements for a new regulatory system, which I think are right. (I disagree with his opening comment, that Darling did good work in saving the system; as I'll say later, everything was too little too late. But the rest of the article is helpful).

The review has not taken into account international co-operation. This is mainly because despite the summit promises there has been none. And in some ways this isn't surprising: individual countries' taxpayers are at the end of the day the only people who can bail out banks, so it is inevitable that individual countries' own political priorities are more important than acting globally.

I've commented before on the issues leading up to the credit crunch. But:

- the tripartite system set up by Brown didn't work because it assumed nothing would go wrong;

- the independence of the Bank of England to set interest rates didn't work because it was told to only focus on price inflation, not on ecenomic stability as well;

- a massive public sector deficit was created as public spending was increased but without productivity improvements;

- nothing was done for ages to resolve uncertainty over bank stability, and that was after too much dithering over Northern Rock;

- despite majority ownership of two major banks, and the implicit guarantees behind others, nothing has been done to increase lending or to create confidence in bank balance sheets on a stand alone basis, or to improve regulation. So we see a shortage of credit persisting, making unemployment worse than it need be, while at the same time margins on bank products increase allowing excessive bonuses to be paid on the back of taxpayer support which is not being properly charged.

In other words: the economic policy hasn't worked and the Government hasn't actually done much to improve stability recently. The proposed changes to regulations won't change much: the Conservative proposals have more chance of shaking things up.

We've been quango'd

The trouble is that the Government has spent the last 12 years ducking responsibility for anything. And it does this by setting up quangos or agencies to manage things which should have been its responsibility. (And to be fair, the Tories spent much of their last time in office doing something similar). This means that when things go wrong it can hide - and usually the quango can as well, as it can say any problem was not directly its responsibility.

No responsibility inevitably leads to bad management and decision making.

It also leads to unecessary costs as the leaders of the quangos queue up to overpay themselves. Forgetting there would be a raft of semi retired experts who would gladly put something back by doing many of these jobs at much less cost. But the main concern is the loss of political ownership of policy.

It was good to see Cameron focus on this key issue today. It was the subject of one of my first blogs, and nothing's changed.

Does the BBC hate itself?

It seems to have a death wish.

I've always thought the BBC was one of the UK's greatest assets. Every radio I have is tuned to Radio 4. The BBC website is a gateway to the world. The World Service provides a window for the world. The Archers is the longest running saga on any media outlet in the world. Many TV programmes inform and entertain.

Yes, it's full of pinkos who want to destroy the fabric of our society...but I'm sure only in a good way. And no more than most media outlets. So I've always been concerned about the political parties that want to take money away from the licence fee by cutting, sharing or eliminating it. The Tories haven't explicitly stated they will do this, but they have certainly implied it.

Yet so often the BBC tries to show it doesn't deserve support. For example:

- Why buy Lonely Planet guide books, creating a conflict of interest and starting to compete in a different sector?

- Why pay so much more for talent than anyone else would? I think of course of Jonathan Ross. But there will be others? But not properly fund journalism?

- Why pay so much to a whole raft of managers - far more than the commercial sector, although the brand means people would do the job for much less?

- Why let a Government spokesman on business host a business programme between now and the next election?

- Why send over 400 people to Glastonbury (after sending more people to the Olympics than the UK sent athletes)?

I've changed my mind. I still think there should be a licence fee. But it should be much less and it should pay for the website, a couple of radio channels, the World service and the journalism that supports the news and perhaps a couple of TV channels. I suspect that's about half the amount, but it would pay for things that the commercial sector cannot provide. It should not duplicate what it can now it has proven it cannot be trusted.

Since writing this, I have read this later post by Iain Dale which emphasises the point.

Hello again

Belatedly...a few comments on one of the most active months in UK politics since I last blogged. Holidays and golf are my excuse.

Election results

The results of the European and Local elections can't really give good guidance to a general election, partly because the turnout was so low and partly because there were clear signs of a protest vote. Labour's neglect of its traditional constituency explains the BNP's success in getting two MEPs. Like UKIP for the Tories, their vote was a cry for attention from the disenfranchised. The Tories did well but if the results were applied in a General Election, projections suggest they would only have a majority of 28.

The almost universal acceptance that Cameron will be the next PM does not take account of the enormous swing that the Tories need because of the massive bias in constituency allocations to Labour, with Scotland being the worst example. (Something that must be sorted out after the next election). Two other factors: with the general bias in Scotland, Wales and N Ireland, events in the devolved areas could have an exaggerated impact on the outcome. And if the chips are down, the Lib Dems are more likely to support labour, partly because most of their activists are left leaning and partly because they know the Tories will actually do things to get the economy straight again.

So although a Conservative Government is the most likely outcome of the next election, I wouldn't put much money on it. They aren't helped from not having coherent economic policies at the start of the recession, which gives them a weak base to comment on the economy now. They have a year to become coherent - or to hope Labour continues to implode.

A couple of local comments:

- my friend didn't win his local council seat. But he did hold off the NIMBY party to be second.

- in Northumberland there was a low turnout, but the Tory vote was up and the Lib dem vote down - albeit a little. This increases the chances that Berwick upon Tweed could become Conservative again. Which would be good: we need an MP who can actually do things for the area.

Aftermath of the Moat

So much has been said about MP's expenses. A couple of thoughts from a different angle..

a) second jobs. One of Brown's responses to the scandal was to introduce a new set of rules about second jobs, with the intention of discouraging them. This was partisan - I suppose most Labour MPs couldn't get a second job which is why they disapprove of them. Seriouusly, it is surely better to have some MPs with experience of the real world rather than just being political clones or media tarts. I hope a new administration would actually promote second jobs for MPs.

b) creating an independent parliamentary regulator. The trouble is that an independent regulator means that no-one will be responsible for anything. The culture of "it's within the rules" will be emphasised; the regulator can't be that independent because it will be appointed (even if indirectly) by the Government; its members will likely want future quango roles. This approach is typical of so much delegation of miniterial responsibility to outside agencies. It means the buck is eternally passed.

Much better to have full disclosure of payments and to make MPs responsible and accountable. I repeat my earlier view: a closing Parliament should set the salaries for the next parliament - as the MPs would immediately be facing election. Expenses should be radically simplified to be consistent with normal overnight stays in business. Salaries should be increased, but to compensate there should be fewer MPs. And they should have a normal rather than a supernormal pension scheme to help them understand the real world.

The reshuffle

The weekend speculation over Brown's future clashed with a golf weekend so much of it passed me by; my impression was that however bad the election results Brown would not go voluntarily and the Labour party could not finance an early election and most MPs would not want to lose their seats so it was unlikely he would go. And so it proved, although his eventual reshuffle proved he has little control over his party.

Cameron must be pleased: he needs Brown to stay in office to increase his chances of success. I asked a Labour supporting friend of mine to name one capable thing Brown had done in the last 12 years; I couldn't, and nor could they (well, they said his control, of the economy until the recent crash but early successes were the legacy of Ken Clarke's Chancellorship, and the later apparent success was merely a debt fuelled boom before the inevitable bust).

There's one problem of a weak PM, however: the risk of lots of badly thought through initiatives to make it look as though the Government has ideas and enwed energy. The track record is that most intiatives are announced and then fade away - but there's always a risk some may become policy. Like MPs expenses.

Meanwhile, elsewhwere in the world...

As we contemplate our relatively minor problems there are two major events in the Middle East, in Iran and Pakistan. No-one based here can understand what's really going on. But the outcome will have a major impact on the world's stability and the economy. In Iran, I hope the groundswell of disgust against an obviously faked election result will lead to a loosening of the regime's control and a normalisation of life and realtions with gthe rest of the world. Iran is a country of civilised intelligent people: it should be our friend. Pakistan's army is at last taking action after decades of being in thrall to fundamentalism mainly because of an irrational fear of India. Too little? Too late? Again, who knows, but its a problem the West has helped cause and we must hope Pakistan can resolve.

Banking problems

Amid the expenses scandal the Treasury Select Committee published its latest findings on the problems in the banking system. It was generally a good report - it is generally a good and thorough committee - which identified many causes, including Governance, Auditors and Credit Rating Agencies. But its headline factor was problems in the bonus system, suggesting that the regulators were not taking this aspect seriously enough. I can’t see this as being the main reason. Human beings will always push the envelope, be it in banking innovation or expense claims, and unquestionably the asymmetric nature of rewards (reward for success, reward for failure) was a factor.

But because it is human nature to push, it is critical that there is a good legal or regulatory framework. The real problem was the lack of proper controls on bank (and quasi-bank) balance sheets so they over-expanded and created significant off-balance sheet exposure, and that the tri-partite regulatory framework meant no-one had a combination of overall responsibility, market knowledge or experience.

This aspect is to be covered in the next report from the Committee but in the meantime it would be wrong to let jealousy make the focus on remuneration rather than flaws in the regulatory system.

Travels

I've been in Suffolk to help a friend who is standing for Suffolk County Council, although I haven’t yet found anyone to pay my expenses. I then went to the Chelsea flower show in the hope of finding out how to spend them. If I get them.

We were mainly delivering leaflets, stopping occasionally to interact with voters. I had wondered about the abuse we would receive as representatives of a flawed political system. But as I had found before, people were remarkably polite and on the whole pleased to see a candidate.

Northumberland has much to learn from Suffolk. Yes, there was the same enormous variety of care in gardens and houses, beautiful next to non-maintained, the same fascinating insights into people's lives: the hall filled with a 10-piece drum kit, the leopardskin cat-suit casually flung over the stairs, the stuffed dog in the window. But almost all the houses had letterboxes. Almost all clearly said what name or number they were. The passion for anonymity must be a Northumbrian thing.

Will my friend win? Well, he's a Tory standing against a sitting LibDem, with about a 10% swing needed. And Suffolk is a successful Tory council. I am biased, but I think the Tories have come out of the recent sleaze headlines marginally better than the other main parties. The main hassle is that a couple of local landowners have formed an independent party to protest against the development of an entertainment and indoor ski-complex on their doorstep. And although its real nimby stuff, an independent party could well get a lot of disaffected votes. I hope not: such votes, while sending a message, do not help effective management of a County Council.

The second part of my trip was to the Chelsea Flower Show. As always a combination of inspirational and depressing. The show gardens don't seem to have powerful perennial weeds; their wild gardens are so perfectly wild; their flowers are impervious to being battered by wind and rain. The highlights for me were James May's plasticene garden, the three major show gardens (Daily Telegraph, Laurent Perrier and the Perfumed Garden), and the smaller cottage gardens.

As always it is interesting how so many of the designers have the same drifts of green and purple perennials, the same blocks of limestone and water. In some ways its like fashion: the same influences emerge at the same time to form a trend. But actually, the gardens have looked very similar for a number of years. Nigel Havers had a guest spot on the BBC suggesting that all the designers used common blocks of plants and landscape and just took it in turns to move them around each year.

Perhaps, to quote David Cameron, its time for a change.

One other thing: the general mood seemed pretty optimistic, especially from the sculptor I saw opening a bottle of champagne for the customer who had just bought the five-figure sum sculpture. There was no shortage of people wandering around, no shortage of money being spent in the nearby bars although there was a shortage of taxis.

Four legs good, two legs better (2)

I nearly commented last year on the antics by some MPs (encouraged by the Speaker's committee) to try to stop information about their expenses and addresses being available to the public (despite their forcing of similar information about Councillors). I couldn't be bothered in the end because it all seemed so inevitable. Any anger at their hypocrisy and self centredness was smothered by their blatant lack of interest in their electors views.

But happily a combination of public interest, the efforts of a few good MPs, dedicated digging by some bloggers and a newspaper trying to increase its circulation has brought the whole sorry saga into the open. It's really satisfying to see MPs being scared: they and the main party leaders have to realise how they are regarded by the public before they institute necessary reforms. My main worry is that the public humiliation will be so great that we will all get tired of it and forget the reform bit.

I think one reason the public are so angry is that they have seen Government impose more and more controls and irritants on our lives. In most cases any mistakes we make in our dealings with Government, even unintentional or minor, are punished by instant and non discretionary fines. Its therefore galling to see MPs assuming they will be let off their mistakes if they just say sorry.

Here's a selection of thoughts:

- You've got to admire someone who can claim for clearing a moat. I noticed during my campaign last year that Tories tended to have the best gardens, and similarly Tory MPs tend to have the classier expense claims. Moats, landscaping, chandeliers are surely preferable to porn films and wide screen TVs. And I do think Cameron responded as a leader more quickly and firmly than Brown.

- The current Speaker is a block on reform (as well as being out of his depth). Things won't start to get sorted out until he goes.

- I don't think most people go into politics to screw the public. I think they do want to serve. Our Tory candidate wants to make a difference; to her potential constitutents, not herself. Our MP, albeit largely ineffective, does not come across as venal and has genuinely helped individuals. But its easy to get absorbed into "the system". As it is in any job. Like journalism. Or banking. (I wrote earlier on why the bank bonus culture delevolped and got out of line. I think there are similarities between MPs and bankers, which makes it even more satisfying to see the MPs who whinged about bonuses being shown up as hypocrites). So they need a control mechanism, a framework, to keep them in line.

- Paying back the expenses is fashionable. BUT: where are they getting the money from? Not many people can write a cheque for tens of thousands immediately. I suspect there must be some loans from party funds. And Hazel Blears paying the taxman the tax she would have paid on her house sale: if the sale was valid for tax purposes - as it probably was - then the payment she is now making will be treated as an advance on tax she owes. So she is misrepresenting the true picture again.

- People shouldn't let their disgust at how a large number of MPs have behaved stop them from voting, and they should vote for the person or party who most reflects their instincts. Lord Tebbit's intervention - "don't vote for the main parties" - is from a tired man who can't accept his irrelevance in today's world; the main potential beneficiary in the European elections (UKIP) have just as bad a record on expense manipulation as any other party and can offer no help to the development of the UK in Europe.

- The main parties need to ensure there is a review and cull of the worst behaved MPs by local associations so that next year's elections introduce fresh blood into Parliament.

- There should be fewer MPs (with greater equality of numbers of voters) who are paid more; the expense system should be massively simplified. Yes, some office support, travel and overnight accomodation expenses for out of London MPs is fair. But such amounts should be justified, published and according to a simple scale. Which does not include financing a property empire or supporting interior design boutiques.

- MPs shouldn't be prevented from having outside jobs. I can see that a good MP should be busy. But MPs today live in a protective bubble with an increasing number never having had a proper job. Having MPs with outside experience is a good thing. Any restriction on outside jobs should be accompanied by a restriction on the amount of time MPs can serve – perhaps 2 terms. And perhaps that term restriction would be a good thing anyway. It would make MPs more independent and likely to hold the Government to account. But even in that case I'd hate to see a Parliament without people with outside interests. The key is that the time and rewards of such jobs are public.

- Wider reforms to separate the executive from legislature shouldn't be ruled out, but I'd rather see an effort to make what we have work properly rather than postpone improvement by carrying out a long term review.

In the meantime, taken from a Commentator on Guido:

Westminster Ode, sung to the tune of the Strawbs - Part of the Union

Now I’m a Westminster man
Amazed at what I am
I say what I think, that Inland Revenue stinks
Yes I’m a Westminster man
When we meet in Westminster Great Hall
I’ll be voting with them all
With a hell of a shout, it’s “Bail our Banking Brothers out!”
And the rise of the factory’s fall

Oh, you don’t get me, I’m a Parliamentarian
You don’t get me, I’m a Parliamentarian
You don’t get me, I’m a Parliamentarian
Huge pension till I die
Huge pension till I die

Westminster has made me wise
To the lies of the Telegraph spies
And I don’t get fooled by the Parliamentary rules’
cause I always read between the lines
And I always get my way
As I vote for my Brothers higher pay
When I show my MP card to the Scotland Yard
This is what I say:

Oh, oh, you don’t get me, I’m a Parliamentarian
You don’t get me, I’m a Parliamentarian
You don’t get me, I’m a Parliamentarian
Huge pension till I die
Huge pension till I die

Before Westminster did appear
My life was half as clear
Now I’ve got the power, expenses to devour
Each and every day of the year
So though I’m a Parliamentary man
I avoid Revenue’s plan, claim all the expenses that I can
And though I’m not hard, the sight of my MP card
Makes me some kind of superman

Oh, oh, oh, you don’t get me, I’m a Parliamentarian
You don’t get me, I’m a Parliamentarian
You don’t get me, I’m a Parliamentarian
Huge pension till I die
Huge pension till I die
You don’t get me, I’m a Parliamentarian
You don’t get me, I’m a Parliamentarian
You don’t get me, I’m a Parliamentarian
Huge pension till I die
Huge pension till I die

Should our word be our bond?

There are no certainties in politics, but it at least looks likely that Labour will not have a majority after the next election. But it is currently committing to expenditure - in other words contracts - which a new Government may not wish to fulfill. Many of those contracts will be multi-year, and a new Government will potentially have to meet them or suffer penalty clauses.

The latest discussion on ID cards prompted this thought, and there are probably other silly projects which we cannot afford even if we wanted them; NHS databases also come to mind.

Is it ever appropriate for an opposition to give notice to potential contractors that it will not be obliged to continue with a contract if it is elected to Government? I see pluses and minuses:

- a contract is a contract, and a Government has to govern. So an opposition should not normally disrupt this.
- a Government can commit future governments to long term expenditure against the wishes of the elctorate and a new Government.

Exceptionally I think an opposition should warn commercial firms that they do not support a long term arrangment and that they cannot expect compensation if it is cancelled. ID cards certainly shoudl be covered by this; I belive some of the PFI contracts should have been. And I would also like to see any partial privatisation of Post Offices reversed - but it looks as though if that happnes it will be on the back of Tory votes.

A sight of summer?

I wrote last year about the benefits of less street furniture and more mutual respect between different types of road user. There's much evidence that making people responsible for their own actions improves road safety. But there's such a big road safety lobby which needs things to be done to justify its existence that we spend without thinking of effectiveness, we react without looking at the real problem: we initiate without implementing.

And of course this applies to many aspects of Government not just road safety. The default option for many years has been to unthinkingly add a raft of rules and processes in an attempt to solve problems. I don't just blame the current Government - remember the dangerous dogs act, never mind poll tax.

I have hoped for a long time that Ronald Reagan's rumoured instruction
"Don't just do something, stand there!"
becomes the default, or at least the initial, response to all problems but the most urgent or life threatening.

I think there are signs that the mood of the people is starting to rebel against the never ending flow of new hassles in their daily lives. This is coupled with the lack of money available for Government initiatives.

And this morning my heart pounded with joy, not with the sight of May blossom, but rather an article in the Times by one of their columnistists who doubles as a BBC presenter which made similar points. These hearts of the establishment have so long encouraged foolish action. It's a delight to see an establishment commentator starting to question the effectiveness of this approach.

One article doesn't make a summer. But could it suggest a trend?

Grumpy old man

I called in at the National Railway Museum in York. I'd strongly recommend it: it's free and it's fascinating (although a little full of slightly strange people ogling railway engines and spare parts).

But it reminded me just how far standards have fallen. Travelling on the East Coast line used to be a pleasure. But since National Express took over the franchise from GNER almost everything has got worse - comfort, standard of food, ease of booking, lack of newspapers. They have now stopped the restaurant service and are in the process of putting back ticket barriers on platforms. Fortunately, they are losing money so there is a chance they will have to hand back the franchise, as GNER did. Hopefully any new franchise will include service standards.

Here is a photo of LNER's place setting for dinner. Followed by the current effort.

Enthusiasts may appreciate this background information on the route. A film was made about it in the 1950s.

Does this make me a grumpy old man? Probably. But I feel better for writing this. And it does reinforce one of my messages: as a country, we too often forget the value of things as we focus on the price.

April 2009 Budget

Its a real struggle to think of something to say. I listened to the budget driving along the M1 (if I were witty and concise I would make a pun along the lines of it doesn't matter what measure you use, M0, M1,M3 or M4, the Government has lost control, but as I'm not I won't) and struggled to keep awake. The other options were a Flying Pickets CD or Jeremy Vine: the latter would have been even worse and I saved the former for driving through London.

Taking the main things in turn:
It's not Darling's fault. I suspect history will show he was a decent person doing his best to cope with what was left behind (think of the analogy of the person with the shovel following the elephant).
The debt position is truly scary. Not just the scale of what was announced yesterday, but the fact the amounts assume a major pick up in the economy quite quickly. There will have to be savage cuts in Government spending in due course (fortunately there's so much stupid spending that will be easier done than said, although cutting public sector pensions will probably cause tension and strikes).
There were lots of superficial schemes to provide help for specific groups or sectors - but as is typical there were very few details which probably means they won't actually happen. As Cameron noted in his reply, the schemes announced in the last budget mostly haven't been taken up.
The tax increase for higher paid people is silly: it will raise no extra money, in fact it may lead to lower revenues as people adjust their behaviour. It will serve one purpose: it is highly political. Coupled with the rushed attempt to change MP's allowances announced by Brown on Monday, it is an attempt to widen the gap between Labour and the Conservatives and to show the Conservatives as only caring for the wealthy. I suspect that won't work: it's too easy to point out that every Labour Government has left office with unemployment higher than when it came in, and with Government finances in a worse state.

So, I think it was another irrelevant budget. Actually, the strategy of making a lot of noise and doing too little too late may not be such a bad one. Government actions often have unintended consequences, and letting the economy sort itself out with little interference will probably work, although more slowly and with more pain than might have been the case.

I bumped into a London estate agent today as I headed home: his comment (and he wasn't trying to buy or sell anything for me, so I believe him) was that there were signs of activity and London prices below £1m seemed to have reached a floor. Activity above that was still very slow. He was also pleased that bankers had become even more reviled than him.

Eddie George

Sad to read about the death of the previous Bank of England Governor, Eddie George.

He was very successful as the first Governor managing an independent monetary policy. This was after expressing grave concern about the transfer of bank regulation to a new Financial Services Authority, without any clear responsibilities for financial stability being allocated. At Gordon Brown's instigation.

In the last year, he saw the consequence of that bad policy.

Blog Power

The political headlines of the last few days have been dominated by the news that the Prime Minister employs unpleasant people to do unpleasant things. Forgive me for not being surprised. However, it is good that the worst excesses of spin have been at least temporarily toned down. I take three important lessons from this:

a) The “new labour” Government project has mostly been about presentation, not implementation. True in the beginning (see Sultans of Spin, written 10 years ago) and true now – when almost none of the announced initiatives to help the economic problems have been implemented.

b) Blogs have become important. Not many of them – they are mostly (including this one) self indulgent – but a few are influential. My successful neighbour first introduced me to political blogs. There are lots, mostly just repeating predictable stuff about their interpretation of political events and not worth bothering with. I have settled on three I read regularly (although this blog has a feed from Total Politics magazine’s summary of latest posts from their top 25 political blogs):
Guido Fawkes. Guido is the blogger who broke the recent story, and incidentally a number of other scandals. I enjoy his blog: he is a libertarian who recognises the flaws in politicians (they are after all human), but despises the hypocrisy in so many of them. Most of his posts are not about serious issues – but some are, and they usually present new information (at least to those of us not in the Westminster bubble). He is not (despite some press comment) particularly right wing; he’s (to repeat the point) a libertarian.
Iain Dale. Iain really cares about politics. He networks furiously and therefore keeps up to date with most political issues. He is a conservative (in most ways, my sort of conservative i.e. a bit soft and cuddly). These two are the most widely read political blogs by a long way, and are anti Government. I think there are two reasons why the most popular blogs are not of the left: first, because the left is in power, and comments from an opposition are usually more interesting, and second because blogs are about freedom of expression, the left tends to be about centralised control. I have looked at various labour and liberal bloggers but they all seem full of the usual stuff you would expect. One exception:
John Prescott. I’ve always respected him as a genuine person. He has been mocked for his presentation – but you always know what he means. And his blog is equally straightforward in presenting an alternative point of view

c) Old media (MSM, or mainstream media in blog terms) like newspapers TV and radio have been shown to be at best ineffective and at worst unreliable in telling us what’s going on. Guido wrote about this in the Times (and on his blog): newspapers primarily nowadays write what they have been told to write by their informants. They do not generally apply a veneer of editorial control. The most blatant example recently was the Telegraph spinning the Labour line about the email scandal, apparently primarily because their journalists were drinking buddies of Labour’s attack squad. MSM is usually necessary to bring a story to fruition, as happened in this case, but too rarely does it initiate anything. Other examples: listen to the Today programme. Very rarely do its lead stories talk about what has happened and analyse that; they usually talk about what is going to be announced or happen and talk about what the initiator wants. This is called leading the news, but its really about unthinkingly spinning a line.

What to do? First, recognise MSM for what it is: the presentation of what people want to be presented, and assume its misleading, be it celebrity relationships or Government policies. Second, read/listen/watch more than one media channel, including the blogosphere. I haven't seen In the Loop yet - but I'm sure it will describe the inevitable outcome of the new labour project very well.

Or of course just get on with your life and ignore it all.

In a week when the Government now makes ISPs keep records of what we all read on the web, and a month when it has started to keep records of where we all go on holiday its very satisfying that it’s been caught out because it can’t keep control of its data. But that’s a subject for another day.

Is the end Nigh?

Prompted by a comment on a previous post, I went to see "The Age of Stupid".

It's a documentary, with a bit of drama, about climate change. The drama shows one of the last remaining humans in 2055 in an enormous tower in the Arctic, which was an archive of almost everything valuable that had ever been produced or found. The man had apparently created and collected the archive himself. It was enormous: the carbon expended in its creation kept me worried throughout the whole film. The documentary showed him selecting excerpts from a series of stories from 2007/8, interspersed with comments about climate change, big business and George Bush. The stories were about a trainee doctor in a Nigerian village next to an oil processing plant; an Indian entrepreneur launching a low cost airline; a couple of refugee Iraqi kids; a retired oil worker who survived Hurricane Katrina; a French mountain guide mourning the shrinking of glaciers; and a British wind farm developer. They were interesting stories presented in a brief and shallow way: the good thing was that unlike the rest of the film they alluded to the issue rather than shouted about it.

Would I recommend it? No. I’m not sure what the point of the film was: it had too many unchallenged sweeping allegations to convince anyone not already convinced about the dangers of climate change. And it did not offer solutions. But it was mildly entertaining (is that patronising enough?), so my rating, to quote the Hitch Hiker’s Guide about Earth would be: Mostly Harmless.

I think the issues around environmental damage are better set out, and in a more balanced way, in a book called Collapse (about how societies fail or succeed) by Jared Diamond; he gave an hour plus talk about the book a couple of years ago which is I think more challenging than the film. The book covers many themes and problems; my main take on it was that our biggest current worry should be over-population rather than carbon usage, and trying to manage birth rates globally would be our best chance of avoiding societal and environmental collapse.

The issues are also set in out in a less balanced way by Michael Crichton (of ER and Jurassic Park fame) in his book State of Fear (criticised by some for mixing science with a thriller and spoiling both aspects). My overriding thought from the book is that the main drive behind the climate change campaign is to increase the powers of the state by frightening people into submission. Although fear of terrorism has now been picked up as the main reason for state expansion and interference, the climate change campaign started before 9/11. And petty though they may seem in the bigger picture, replacing heat generating light bulbs with mercury filled low light bulbs and encouraging fly tipping and poor public health by restricting litter collections are examples of this.

I’ve always been nervous of people who cannot imagine they are wrong. I was a member of Greenpeace for many years (I still have the green umbrella with the “Stop Acid Rain” logo I used in the City, instead of a tightly furled black one) but left when they campaigned to stop Shell from disposing of the Brent Spar platform in what seemed to be a sensible way. They seemed driven by distaste for Big Oil rather than logic. That approach worries me about so much of the “carbon is evil” campaign. One of the telling scenes for me in Age of Stupid was the wind farm entrepreneur driving away from his country home in the middle of a wind farm free area of natural beauty (in his black BMW) saying that the reason people objected to wind farms was that they spoilt the view.

The reason I object to wind farms is not the view: it’s that they are ineffective; they wouldn’t exist in the scale they do if the Government wasn’t over-subsidising them compared with other energy sources.

So what would I do? To coin a phrase from our Prime Minister, it’s a global problem. So although they are full of soundbites and achieve little, we should participate in the various global conferences/agreements. But perhaps we could set an example by mostly communicating by video-link and email? We should be encouraging population control at the same time as trying to improve developing world healthcare. We should encourage the taxation of aircraft fuel to try to offset the real cost of flying. Nationally, we should be investing in nuclear energy and carbon capture coal power stations (if the figures add up for the latter). We should be providing more grants for micro-power generation at home. We should be encouraging refuse collection and not seeing it as a way for Councils to make money: bulk recycling is most efficiently done centrally – but we should make shops be responsible for their own packaging. We should not build a third runway at Heathrow; we can tax aircraft fuel on internal flights even if we cannot on international ones. We should establish a carbon trading system and as a nudge for the consumer and a sop for statists, charge for plastic bags.

But despite all this I suspect the solution to global warming will come from new technology of which we are not yet aware so both nationally and internationally we should support pure as well as applied scientific research.

A view from Europe

He says it better than I ever could:

http://www.youtube.com/watch?v=94lW6Y4tBXs

A quiz question

I don't normally gratuitously insult people I don't agree with - there's more effective methods than that. But this from today's Telegraph (via Guido Fawkes) appealed:

Q: What's the difference between Bernard Madoff and Gordon Brown?

A: One has drained fortunes from gullible victims, plundering their income and savings to create an illusion of prosperity. The other is going to jail.

Another difference: I met Madoff a few times many years ago. He was charming, switched on and positive. His misdemeanour was a genuine surprise. Brown's was obvious from the beginning.

Light Touch Regulation?

It is popular to say, in the financial field, that there was too little regulation.

The photo (of two colleagues) shows the amount of paper generated in a year by the UK's financial regulators in terms of new regulations, amended regulations ro consulations on regulation. Just think how long that would take to read, never mind understand and implement. And also - what good it did.

The problem hasn't been too little regulation, its been too much. And of the wrong kind. The mass of paper stopped regulators and firms from focusing on the real issues, but gave the impression of action. Bit like most of the Government's initiatives, really.

We know where you live

Not a comment about our surveillance society, but a concern about the balance of local responsibility for policies and a standard minimum acceptable level of service depending on where you live.

Today's Today programme featured two contrasting issues:
The Tories are about to announce plans for more local democracy.
John Suchet went public on the problems of Alzheimers, noting that some local authorities provide more care than others. The postcode lottery.

I don't have answers, but there is a real problem in this balance. At the moment most local authority funding is national not local, hence the imposition of central control. People chafe because central targets do not always match local priorities. BUT if you don't have them then postcode lottery problems get worse: we do not have national standards of service where people expect them. And this is particularly concerning as so many authorities have one dominant political party so the prospect of voter-led change is small. (Hence the argument for Mayors, but that seems a very unfortunate road to go down as it will just encourage outsize egos. My other worry with Tory proposals is I don't see how they will change the funding arrangements, and without changing that nothing will really change.)

I suspect the answer is to more clearly identify areas where national standards are needed, and to remove most other regional/central prioritisations. Also, to encourage dissemination of powers to Parish/Town Councils. And lastly to not allow councillors to stand for more than two terms. But that sounds like hard work rather than a quick announcement.

Worry of the Week

My biggest worry is not the economy, Palestine, Russia, Iran etc; it's this story from the BBC's website: the situation in Pakistan/India/Afghanistan seems very unstable and the development of an extreme State is a real possibility.

Because I'm worth it

I worked for an investment bank for about 18 years, and was therefore a part of the bonus culture which is now rightly being criticised (although as a support rather than front line person my bonuses were never big enough to be a cause for concern, except to me). I think I can comment on why the culture grew as it did.

People have written before about how the bonus culture works in banks; from the outside it is bizarre and worth a novella. The annual bonus round is a critical part of managing people and therefore the business. This is because rather sadly the bonus is how a generation of bankers came to value themselves: it was the principal measure of their worth as a human being. And this is how the current crazy position has come about. People think they deserve something even though they are part of an organisation which has massively destroyed value – and in some cases, requires tax-payers money just to continue to exist.

I’d distinguish bonuses for three types of people:
- The Board and top management. It is fair to motivate them by some form of long term bonus based on performance. Ideally this should be long term and based on long term increases in shareholder value. In this regard, they are no different to directors/top management of all companies. In 2008 most deserve nothing (a few banks globally, probably only one British one, have performed well and their management may deserve a reward for surviving). I say Bank boards are no different from other companies - but in one regard they are; as I discuss below, margins in banks and financial companies tend to be higher than normal companies. And perhaps schemes should not reward that extra profit.
- The front line people: traders, salesmen and so on. This is where there is most controversy. Traditionally they have been paid a bonus based on their performance - or the performance of their bit of the bank - each year. This is often a standard percentage of profit or revenue. This is like many salesmen or business getters in all companies: superficially it seems reasonable. But:
o Margins in banks tend to be artificially high;
o Many products sold are long term. It is not possible to tell whether or not they are profitable in just one year.
o Both bankers and banks underestimate just how much of the profit comes because of the franchise of the bank – its size, its customer base, its brand and so on. The real contribution by individuals is smaller than they think.
o Many banks see the profits made by more established ones and want to compete – and seek to recruit people to start new business areas. They offer inflated and often guaranteed bonuses to tempt them away. Usually, these new players never make their expected profits.

The problems at most banks have been caused by a small number of business units and a small number of employees. Most business lines have done reasonably well. Hence the temptation to pay some people. But most banks really don’t have the money: they have lost a fortune and depend on taxpayer support. There should be no bonuses at these banks.

(It’s not easy to implement this if there are contractual commitments. But if they really want, Governments can do things. The problem wouldn’t be there if the Government had been more decisive about nationalising the banks in a bad condition, transferring bad assets into a “bad bank” and putting the clean bank back into the private sector.)

- Junior and support staff. They have usually got a small bonus based on overall results and meeting individual targets. Effectively, this is part of their pay. But if it’s coming out of taxpayer money – as it is for a number of banks this year – it needs more justification than normal. Especially as those targets are often defined as selling products to customers who do not always need them.

The real problem of financial services in general and investment banking in particular is that, through the ages, the true value of their products are only known with the benefit of hindsight. And the time period is often long. But the bank usually has a much better idea of the price than the customer who will often therefore overpay resulting in the bank making above average margins, and then sharing that with their employees.

As it happens, in the last few years, the banks didn’t know the value of their products either; they misjudged the risks on the basis of flawed mathematics and artificially cheap money, and actually sold their products too cheaply and lost money when the truth became clear. This was made worse because they over-expanded – they borrowed and lent too much in relation to their capital, which meant that the losses have wiped out their capital. This over-borrowing was encouraged by regulators, supported by Governments. And in the UK, it made worse because the reorganisation of banking regulation in 1997 by our current Prime Minister removed a market focus from bank regulation.

The inherent problems were made worse by another factor which developed during the 1990s; the most profitable parts of banks appeared to be those that sold long term derivative products. Such products really could not be properly priced or even understood by many customers. They were frequently designed to create a false impression by ignoring the spirit and twisting the letter of laws by for example turning highly taxed profits into lower taxed ones, or delaying or bringing forward profits. Bankers engaged in such legalistic behaviour easily lost common sense and sight of the real world, and potentially their moral standards. The resulting culture of high hidden margins and payouts to employees trickled through to the rest of the banking system and also fuelled the "Master of the Universe" syndrome.

I’ve tried to explain why what at first seems reasonable grew into stupidity. This year, bonuses should be non-existent or small and certainly should not be paid by taxpayer supported banks. Going forward, shareholders can’t be relied on to control bank bonuses because of the lack of transparent margins and the incentives of competition and mis-pricing. The regulators need to:
- Restrict bank gearing so they cannot overexpand;
- Require capital to support "off-balance sheet companies"
- Separate investment from Retail banking. Customer deposits should not be used to fund high risk trading.
- Ensure bonus schemes are linked to long term profits; if they are not then capital required should be incresaed for that business unit (so less business can be done).

And customers should only buy what they understand and borrow what they can afford. I remain convinced that the finance industry has on balance done more good than harm – it has enabled the increase in wealth in the last few years – but at a cost much higher than it need have been. Regulators and bankers have a part to play in behaving more sensibly in future, but so do customers.

The Road to Hell

Chris Rea’s song was reportedly based on the M25, but the title could fit the A1 north of Newcastle. Not because it goes to Scotland (or indeed to Newcastle; both are worth a trip). But because it is hellish to drive on: mostly single carriageway, dangerous bends, traffic moving at very different speeds. Lots of delay, bad temper and death. I get a kick out of my hamlet (adult population: 3) being signposted directly from the A1. But I’d give that up for a decent road. (The picture isn’t actually the A1 but its close).
Dualling the A1 would be one of the most significant things which could help this area, by making it accessible and confirming it as main route to Scotland. The local MP, Sir Alan Beith has spent over 30 years in the job; he has certainly helped individuals but I can’t see any sign of him doing anything significant for the constituency. My own view is that he cannot because as a Liberal Democrat he has no influence. During his period Labour and Conservatives have been in power for roughly half the time each. They have not had to take this area seriously. To paraphrase the Liberal Democrat slogan in 2008: A Liberal Democrat vote is a wasted vote. It’s critical at the next election to get someone who can achieve something.
This point is made even more relevant by the Liberal Democrats’ latest economic policy announcement. It makes it clear that they would not spend money on upgrading the UK’s road network. So the Liberal Democrat support for the recently re-initiated campaign to dual the A1 is actually misleading: they do not want such projects to be funded. I hope Berwick upon Tweed electors both realise and remember that at the next election.

Why bother?

The Bank of England's half percent cut in its base rate last week is irrelevant in the real world. It will have minimal impact on borrowers, deter savings and do nothing to help get bank credit moving.

When the history of the "credit crunch" is written I believe the Bank will carry a lot of blame. Less than six months ago, it was still talking about the risk of inflation and the possiblke need to increase interest rates. It did not provide sufficient help or liquidity to banks when they needed it last Autumn, and it has still only done so reluctantly. Like the Government it has reacted too little too late.

This whinge was prompted by the Governor's refusal yesterday to apologise for being slow to act: I agree fake apologies aren't worth having but if he hasn't recognised the need in this case then there is a real problem

Choice is good for you

Sometimes I wonder if I am cut out to be a Conservative: I was disappointed to hear the Competition Commission had forbidden BBC ITV and Channel 4 from launching Kangaroo, a one stop portal to view their programmes over the internet. Because something so useful and popular would prevent competition.

Why wouldn't consumer usefulness come first?

I'm not sure that competition and choice is always helpful, particularly where consumers have much less information than suppliers. Competition authorities for example took directory enquiries and made it a disorganised mess; and just how many types of orange juice or Ribena does a supermarket shelf really need? And are mobile phone tariffs a consumer benefit? And the Competition Commission has over the years given backing to Tesco's monopolistic control of our shopping and destruction of high street services.

I'm probably just a grumpy old man.

Protectionism 1,2,3

Hard times make people more selfish, even if selfishness indirectly harms them more. It’s a live topic at the moment which has prompted three thoughts:

What shall we do?

Nick Robinson in his blog, and John Humphrys in his interview with Lord Mandelson yesterday morning highlighted an apparent difference of thinking between cabinet ministers Alan Johnson and Peter Mandelson on how to deal with the “British jobs” issue. This was taken as important – the interview often focused on it. But why does it matter if two people disagree? It surely must be normal for people to have different views and there should be no shame in such disagreements being public until a final line is decided and implemented. Much of what has gone wrong in politics is the spin and tightly controlled flow of information. Different thinking is good.

Four legs good, two legs better

I was going to comment on the “drafting for sale” scandal at the House of Lords: that although politicians criticise the old fashioned nature of the House of Lords, suggesting that it should therefore move to an elected chamber with rules similar to the House of Commons, the alleged offenders were in fact elected MPs who had been transferred to the House of Lords to get them out of the way. And that having a wholly elected upper house would be more likely to create even more legislators divorced from the real world and with no experience of real life.

Then I discovered Rachel Sylvester had said this, much more eloquently than I could, in the Times today.

So I will just express concern about one of the ideas - to ban MPs from having outside jobs. I can see that a good MP should be busy. But MPs today live in a protective bubble with an increasing number never having had a proper job. Having MPs with outside experience can be a good thing.
Any restriction on outside jobs should be accompanied by a restriction on the amount of time MPs can serve – perhaps 2 terms. And perhaps that term restriction would be a good thing anyway. It would make MPs more independent and likely to hold the Government to account.

Lessons of history

The “great depression” was made worse because of protectionism. This is well know. The “Smoot-Hawley Act” is a watchword for the perils of protectionism, a foolish act by short sighted Congressmen. And yet... Democratic Representatives have inserted similar terms into the Obama stimulus programme. So far, the President has not said he will veto these terms*. If enacted as is, much of the good of the programme will be restricted. Why do people not remember the lessons of history?


We see similar short sighted actions by Labour unions in the UK, complaining about foreign workers. Fortunately so far all three parties have correctly pointed out the benefits of the free movement of labour in Europe. But as the Government’s poll ratings continue to be bad I wonder if they will hold the line?

* Although about an hour after writing this he started a round of interviews to say that he did not like the Buy American clauses. I'm sure there was no connection: he was trying to get his Presidency back on track after his picks for Cabinet started fading away. It's good he has accepted protectionism is unhelpful. It will be interesting to see if he can continue to command the high ground, and the debate, now that the first flush of euphoria is over, he has admitted mistakes in Cabinet selection and the Republicans are being stupidly unco-operative. I hope so.