CentreRight

Winston Churchill said of Russia some 70 years ago “it was a riddle, wrapped in a mystery, inside an enigma”. One can only speculate as to how he would have described the rotting and crumbling Labour Government of today. But it strikes me that it is a dishonest wastrel, wrapped in spin, inside a fraudulent self-serving and imploding machine.

Barely had the pundits finished picking over the bones of the less-than-tasty dish served up in last week’s Budget when we were served the delights of Harriet Harman’s latest effort to tie the business community up in yet more pointless bureaucracy. In her “Equalities Bill” annual reporting of pay for men and women (or should that be women and men?) would become a legal requirement in 2013 if employers failed to comply “voluntarily”. So now we know what voluntary means in Ms Harman’s lexicon. It means you must do it or, if you don’t, we’ll force you to.

Behind this move was the notion of the “gender pay gap”, the difference between average pay rates for men and for women, and how it “must be closed”. Ms Harman quoted the gap at 23%. But she chose to include part-timers – mostly low paid women – producing a far higher figure than the official ONS estimate of less than 13% which is for full-time employees and may be regarded as a significantly more meaningful statistic. Figures apart, there is the implication in Ms Harman’s comments that the gap was the result of “unfair” discrimination against women by employers. Yet this accusation is ill-supported by a strong body of research and survey evidence that shows the pay gap can overwhelmingly be explained by the different career and lifestyle choices of individual men and individual women. The implicit accusation against employers is therefore a grossly unfair slur.

CentreRight has, of course, all the best stories. But the two stories that really caught by eye this week related to the news that European Parliamentarians have been told to use gender-neutral language and a quite spectacular poll that was discussed on BBC2’s Daily Politics show on Wednesday. The nonsense over gender-neutral language can be easily dismissed and I’m just wondering how the speakers of most of Europe’s languages, bar English, are going to cope as these splendid tongues are steeped with gender affiliations in a way that English is not.

But the poll is something else. The results were really quite special. When the sample of people were asked if they thought Britain benefits overall from membership of the EU in terms of jobs and trade only 44% thought so whilst 51% did not. And when asked whether Britain should leave the EU but maintain close trading links 55% agreed whilst 41% did not. Closer inspection of the figures that every age group favoured leaving, as did people in every region and in every social class - bar the ABs where there was tiny preference for, one speculates, staying in the EU. (I say “speculates” because those who disagreed with the proposition may believe that Britain should leave the EU and not maintain close trading links!)

This was at first sight a staggering result – but perhaps it should not be so surprising after all. We, Global Vision, have conducted several polls asking people what sort of relationship they thought Britain should have with the EU. All our polling showed that the majority of people are unhappy with the current relationship. Roughly a half wanted a looser relationship with the EU based on trade and cooperation and a quarter wanted to leave altogether, whilst a quarter wished to maintain the status quo. Clearly when people are given the option of withdrawing from the political institutions of the EU whilst continuing to trade then this option is their favoured option.

I should declare an interest. I spent the best part of 15 years as a member of the Government Statistical Service. Indeed my initial training was as a statistician. I went into the statistical service because I felt strongly that any public policy debate should be informed by the impartial analysis of the relevant unbiased data. The data should be employed to illuminate and inform and not as the old adage states “as a drunk uses a lamppost – for support rather than illumination”. Moreover, the relevant data should be freely available for any issue, however “controversial”. Of course, figures may be abused and misinterpreted but they should be available for all to see. Let us see the figures and then we can make our own minds up. Anything less is the crude manipulation and suppression of information. 

Sadly we have all become familiar with the corrupting spin and dark arts employed by New Labour since 1997. Of all New Labour’s ghastly litany of errors I believe that it is this dishonest spin and suppression of the “truth, the whole truth and nothing but the truth” that has been the most damaging. And I say that as we sit among the smouldering ruins of the banking system, the public finances and other swathes of the economy. When public debate loses its openness and honesty, integrity is lost. When any attempts to discuss openly the economic and social effects of large-scale immigration or question the current religion of man-made global warming are howled down by slanderous and tendentious insult, it is time to recognise that honest debate is under severe threat.

RMT leader Bob Crow was in full flow on the BBC’s Broadcasting House yesterday, eulogising (seemingly) the return of wildcat strikes. Happy shades of the 1970s. But now the week-long strike at the Lindsey oil refinery has been called off and attendant wildcat strikes have ended, it is an opportune moment to reflect on the dispute. Two factors stand out.

The first is that some commentators seemed to be slightly fazed by the notion that the UK had effectively no control over EU nationals entering its territory and working in its workplaces. But this is a fundamental aspect of EU membership and the Single Market with its four freedoms of goods and services, people and capital. And it does seem that the strikers were really objecting to the basic EU principle of the free movement of workers, rather than individual directives (including the much maligned Posted Workers Directive) or specific court cases.

I was quite astonished. Could it really be that even now, after over 35 years of membership, people are still unaware of the huge restrictions on this country’s ability to make its own sovereign decisions as a member of the EU? It is as if there is still the view that, somehow, EU membership means belonging to a club which imposes very few obligations on its members. Whereas the truth is that the EU’s rules and regulations penetrate just about every aspect of our lives. Indeed employment law and related matters is an area where the EU has been especially active in creating “Social Europe” with numerous and costly regulations that have been vigorously supported by the unions. A recent, excellent, report on regulations by Open Europe found that EU employment law had cost Britain £31bn since 1998 and that new EU health and safety legislation had cost £5.7bn during the last decade. These are significant extra costs by any standards.

One of the major stories on this morning’s Today Programme was the weather. We are, apparently, experiencing the coldest winter for at least ten, or even thirteen, years and the heaviest snowfall for eighteen years. We also know that global temperatures have not risen for the last 10 years – indeed they have been falling for the last two. Of course, there is evidence that some parts of the globe may still be warming – but selective geographical data is not by its very definition global. And yet, amongst stories of heavy snowfalls and more to come, the Today Programme still managed to include a story on the global warming effects of fridges just to remind us that we are still wrecking the planet unless we change our wicked ways. The story was introduced and presented without the slightest hint of irony – such is the compelling power of propaganda.

As I have discussed in my previous posts, I believe that man-made global warming is a huge con, propelled by clever propagandists who don the green cloak of environmentalism to wreck freedoms and control people’s lives. Jonathon Porritt’s latest outburst that couples who have more than two children are “irresponsible” because of the burdens on the environment was extraordinary and yet very telling. It told us everything about the totalitarian, bullying intolerance and arrogance of the “greens” and their ruthless and sinister determination to interfere in people’s most personal decisions.

But I am not the only one who believes man-made global warming is a huge con. Far from it. The majority of British people are sceptical as well and see green taxes as a cynical way to raise revenue. If more people were aware of the costs of “green policies” in their electricity bills, I suspect they would be shocked – if not very angry.

This week is yet another week of horror for the British economy. Monday’s banking rescue package contained several useful ideas – including the “Asset Protection Scheme” (the insurance scheme for “toxic” assets) and the “Asset Purchase Scheme” in which the Bank of England will buy corporate bonds, initially with Treasury Bills, though probably, before long, by pressing a few keys on a computer (“quantitative easing”). Indeed one could argue that this second rescue package was necessary - such are the problems with credit availability. But the potential costs of this new bail-out, along with RBS’s mammoth losses, spooked the markets and sterling fell like a stone. 

I have already written about my concerns for the public finances – indeed I have been writing about them obsessively since Gordon Brown foolishly turned on the spending taps at the beginning of the decade – but it is now quite clear that chickens are coming home to roost, bringing all their avian friends with them. And the markets are beginning to worry about the long-term ability of the British Government to service its debt. Today’s public sector finances data (for the month of December) were simply dreadful. Making allowance for the “financial sector interventions”, including the recapitalisationsof RBS and the Lloyds Banking Group, public sector net debt as a percentage of GDP reached 47.5%, the highest since 1978 – two years after the humiliating IMF bailout.

Today’s labour market data were also shocking. The claimant count alone was up 78 thousand in December and it is quite clear that unemployment, on the wider ILO measure, will reach at least 3 million during this recession. The preliminary estimate for fourth quarter GDP is due on Friday and is expected to show a drop of around 1½%, thus officially confirming the British economy is in recession. The economic news is unremittingly appalling.

The macroeconomic event of the week, in terms of media coverage, was undoubtedly the Bank of England’s cut in official interest rates of 0.5%. But other economic developments, which had much less media coverage, caught my eye. And they were very disturbing indeed. Firstly, the Chancellor conceded that his Pre Budget Report forecast for the economy was way over-optimistic – he conceded that perhaps the economy would not recover in the second half of this year after all. I didn’t know of anyone in November who thought it would. Reflecting this, it is inevitable that public borrowing will balloon even more than was expected to balloon in the PBR. The PBR expectations were horrendous enough. Borrowing this financial year would be £78bn, followed by £118bn next year and £105bn the year after. The Treasury estimated at the time that it would need to sell about £350bn worth of gilts over the next three years.

I dread to think what the Treasury actually believes the borrowing figures will be and the amount of gilts they estimate they will need to sell.

Secondly, there were worrying signs that there is faltering enthusiasm for government bonds in investor markets, even though government bonds are currently seen as a “safe haven” investment. Indeed there has been a “boom” in government bonds. Prices have risen and returns have fallen back. But this week an auction of German government bonds partially failed. Not all the bonds on offer (at the specified price and with given returns) found buyers. And “booms” have a horrible habit of being followed by “busts”.

Last weekend the Prime Minister announced yet another “anti-recession” plan which included the “creation of up to 100,000 new jobs”. There was also more talk of bringing forward planned public spending projects. Here was our Prime Minister, man of action and saviour of the nation, at the helm micro-managing the road back to economic prosperity.

But it was little more than a cheap party political stunt and it will not work. The economy is in the grip of a pernicious and deepening recession and will not recover in the second half of this year, as we were promised by the Chancellor as recently as in the Pre Budget Report on 24 November. He had the courtesy to acknowledge this inescapable truth earlier this week. Come the Budget, the GDP forecasts, along with the horrendous public borrowing figures, will look incomparably worse. One attempts to avoid obvious analogies, but as the chill winds of winter are making a mockery of the great global warming narrative, so the chill winds of recession are making a mockery of the Government’s remaining claims to economic competence.

Even as people are urged to “spend, spend, spend” in order to lift the economy out of recession, all the economic evidence shows that households are reining in after the years of credit-fuelled excess. Two key indicators are housing equity withdrawal (HEW) and the saving ratio (broadly defined as the ratio of saving to household disposable income). In the heady days of 2002 to 2007, consumers extended their mortgages in order to buy all sorts of consumer “goodies”. Large and positive HEW was a significant driver behind to consumer boom. People are doing just the opposite now – with the inevitable knock-on effects for the High Street and car show rooms. The saving ratio collapsed in late 2007 and actually turned negative in the first quarter of 2008, as “shop ’til you drop” hedonism gasped its last. People are battening down the hatches now and building up their savings. They are making the necessary, long overdue, adjustments to their balance sheets. There will be no consumer-led recovery for many a month.

This week’s EU Summit in Brussels has been, so far, a fractious and contentious affair. Ireland has apparently been bamboozled into holding another referendum on the Lisbon Treaty, thus dismissing June’s decisive vote against the Treaty as of no significance. Such high-handedness confirms, as if confirmation is required, the monumentally undemocratic nature of the EU. The Irish people have spoken already – but they said the wrong thing. So they must speak again. Well, at least they have the opportunity to speak, whereas we were denied our vote on the Treaty on some trumped up charge by the man who is currently “saving the world”.

German finance minister Peer Steinbrück attack on Gordon Brown’s fiscal rescue package was extraordinary. Whatever happened to diplomacy? But his assessment of Brown’s squandering of the nation’s finances was spot-on. Britain is being back to one of the sick men of Europe, not that any of Europe’s economies are in A1 condition, and there is not much sympathy in the EU for the man who boasted and boasted and boasted again about the British economy’s superior performance and the end of “boom and bust”. The word “hubris” springs to mind. And as for the suggestion of a major coordinated fiscal stimulus package in the spirit Communautaire camaraderie and fraternal love, the Germans seem reluctant to play ball.

Last but by no means least there are the struggles over the 20/20/20 climate change package, involving the Renewables Directive and toughening up the emissions trading scheme (ETS), to combat “dangerous global warming”. (These targets refer to the proposals to attain a 20% cut in man-made carbon dioxide emissions by 2020 compared with 1990, combined with 20% of fuels to come from renewable sources by 2020.)

The last couple of months, since the demise of Lehmans, have been extraordinary, earth-shattering and unprecedented. But, at least, it can be said with some confidence that the worst of the financial crisis has now been contained. (I trust that I am not tempting fate by that remark.) The grip of the credit crunch on the real economy is, however, now intensifying. A painful recession is on the cards - whatever Alistair Darling does next week. GDP will probably continue to fall and unemployment rise well into next year.

Into this economic Slough of Despond, ride the battalions to save us all. So critical and so weak is the pound and so inconsequential is Britain’s economy, they cry, that we must look to salvation in the euro.

Professor Willem Buiter is one of the euro’s chief cheer-leaders. He asserts that Britain, like Iceland, is a “small economy” which has a minor currency for ever at the mercy of cruel and unforgiving markets. May we be damned to perdition for our folly in resisting the seductive allure of the eurozone. Suffice to say that the UK’s economy is many times larger than Iceland’s – which has a population of around 320,000. The population of the London Borough of Barnet, of which I am a resident, has a population of 330,000. The idea that Britain is a “small country” in the same league as Iceland is simply laughable. Another of Professor Buiter’s views is that Britain’s large and, arguably, vulnerable financial sector endangers the country’s fiscal solvency – and thus fatally undermines the currency. But Switzerland also has a large financial sector that has experienced its fair share of financial difficulties in recent months. Yet the Swiss franc remains strong and Switzerland, a much smaller economy than the UK, sees no need for euro, or even EU, membership.

I was absolutely astounded by the Monetary Policy Committee’s decision to cut the Bank Rate from 4.5% to 3% at its latest meeting. Even though I had been making the case for a 1% cut I had really only expected the Bank to cut ½%. When I first heard it, I thought there had been dreadful mistake! But, sure enough, the Bank had cut interest rates by a quite unprecedented 1 ½% and the markets, on the whole, took it in their stride.

Looking back to Mervyn King’s speech to the businesspeople of Leeds on 21 October it was quite obvious that he was worried about the state of the economy. His gloomy recession-laden remarks promptly drove the pound down. By the end of that week, the third quarter GDP figure was released which showed a far-worse-than-expected fall of ½% in the quarter. And just about all the news since then has marked further deteriorations in the economic climate. Unemployment and short-time working are rising and confidence is falling. The exception to this generalisation is that oil and other commodity prices remain subdued and inflationary pressures are melting like the snow in October. A good dose of monetary easing was definitely in order.

It is, of course, most unlikely that the full 1 ½% cut will be passed on by the lenders to people with mortgages or small firms with bank loans. The inter-bank market is still not functioning normally, LIBOR has trickled down at a glacial pace since its recent peak in the week of the great financial panic in early October, and many lenders are nursing damaged balance sheets. But some of the Bank’s cut will be passed on and this will help borrowers and encourage lending and, hence, alleviate the worst effects of the recession. But it cannot avert recession.

It snowed in London last night – the first time it had snowed in October since 1934. And as the temperatures plummeted our elected representatives voted in favour of the climate change bill which includes draconian man-made CO2 emissions cuts of 80% by 2050 (raised recently from 60%) in order to save the planet from “dangerous global warming” and frying to a cinder.

As I discussed on 15 October, there is no dangerous global warming. Indeed there is no global warming - the planet is, if anything, globally cooling. And as I also discussed then, even if one accepts the hypothesis that by cutting man-made CO2 emissions one could “control” climate change, British efforts, unless backed by the other large emitters, would be futile in the extreme. We account for less than 2% of global emissions – and falling. China and India, for a start, have better things to do than comply with westerners’ neo-colonial diktats on reducing their CO2 emissions and restraining their economic development.

Since 15 October, there have been two significant developments in the debate. Firstly, it is even more apparent than it was a fortnight ago that the “new EU” countries will do all they can to dilute the EU’s ambitious climate change policies. Moreover, they were robustly supported by Silvio Berlusconi, Italy’s Prime Minister, who said “our businesses are in absolutely no position at the moment to absorb the costs of the regulations that have been proposed.” End of story. And, secondly, here in the UK, GDP registered a much worse than expected 0.5% fall in the third quarter. The economy is inexorably tipping into a painful recession. Businesses are failing and jobs are being lost.

The third quarter GDP figure was very disappointing and much worse than the markets expected. The overall recorded fall was 0.5% in the quarter, with most sectors showing a decrease. There were indeed only two exceptions: agriculture, which must have had a reasonable harvest despite the soggy weather, and, less surprisingly, “Government and other services”. Given that business expectations are worsening, the consumers’ feel-good factor” is evaporating and unemployment is rising quite rapidly, it is almost certain that GDP will fall again in the fourth quarter and the country will then officially in recession – as defined by two consecutive quarters of decreasing GDP.

Given the over-extended state of the consumer and the punctured housing bubble, personal consumption is likely to remain depressed and the recession is likely well into 2009 with any return to growth a tepid and restrained affair. Further cuts in interest rates by the Bank of England, pound permitting, and some easing of the money markets should help to ameliorate the worst aspects of the recession.

Turning to fiscal policy, the Prime Minister announced on Tuesday that he’d spend his way out of recession, as the latest horrendous, borrowing data were released. And the Chancellor has talked about “reprioritising” capital spending by bringing forward funding earmarked for financial year 2010/11 into 2009/10. But there are problems with this. The first is that capital projects take time to implement and the second is the extraordinarily high risk that “retimed” spending merely morphs into “extra” spending – especially as any transfer of funding from 2010/11 to 2009/10 would leave the spending plans in 2010/11 significantly weakened. A Keynesian injection of public spending into an economy may make sense of the public sector is in a fit state to increase its borrowing. But the truth is, it’s not.

Such is the ongoing turmoil in the financial markets, that there has been relatively little attention paid to a potentially extremely important development at this week’s EU summit. High on the EU’s agenda is the subject of climate change and carbon reduction targets. 

Just to recap – the EU has a target for cutting man-made CO2 emissions by 20% by 2020. The original base year was 1990, but this is to be revised to 2005. In comparison the UK Climate Change Bill, soon to achieve Royal Assent, has a target of cutting CO2 emissions by between 26% and 32% by 2020, compared with1990. The EU has two main policy weapons for attempting to achieve the targets: charging for the permits in the EU’s Emissions Trading Scheme (ETS) and a major switch to renewables, as outlined in the latest Renewables Directive. 

The purpose of cutting carbon emissions is, of course, to reverse the “dangerous global warming” that, according to believers, is not just happening but will wreck the planet. The fact that global temperatures have not risen for the past decade and have, if anything, actually fallen in the past couple of years does not shake them from their unshakeable beliefs.  Moreover, they claim, the main cause of “dangerous global warming” is man-made carbon emissions. Cut this dangerous “pollution”, then temperatures will fall and climate change will be “controlled”. Leaving aside the many, convincing challenges to the thesis that, firstly, man-made carbon emissions are the main cause of global warming and, secondly, the notion that by changing just one of the thousands of relevant variables (i.e. carbon emissions) the climate can be “controlled”, one should ask the question whether such a policy will be effective.

The current meltdown in the markets is quite terrifying. Trust between banks has collapsed and inter-bank lending has all but collapsed as fears of insolvency of counter-parties prevent banks from lending to each other. And it is concerns over solvency, not liquidity, which is the driving force behind the current, vicious twist in the banking crisis. Surely, it can only be a matter of days before the British Government steps in, directly injecting capital, to help re-capitalise our High Street banks in order to stabilise the banking sector. Forget moral hazard, forget ballooning public sector debt. Desperate times call for desperate measures. And these are desperate and dangerous times.

Whatever the criticisms of the US authorities and whatever the criticisms of the British authorities at least both countries have the institutions that are charged with tackling the banking crisis. The US Treasury and the Fed can concentrate on the travails of the US banking system and here in Britain the Treasury and the Bank of England can concentrate on the British banking system.

It is becoming a cliché, that doesn’t mean to say that it’s not true, but the current financial crisis will change the way the financial system operates. You don’t have to be an out and out Marxist (or indeed the Archbishop of Canterbury) to express concern about some aspects of the behaviour of lenders in the low-interest rate, easy credit, boom years. And this especially relates to the US lenders which were obviously quite comfortable about providing “sub-prime” mortgages to people of very little financial substance. So much for good banking practice!

Of course, other things have contributed to the current crisis. Regulators failed to perform their tasks properly. The FSA regulation of Northern Rock springs to mind. The handling of this beleaguered financial institution provides a text book case of why our current tripartite regulatory system is “not fit for purpose”. The ultimate responsibility for dealing with Northern Rock fell between the cracks in the edifice of Gordon Brown’s Brave New World of City regulation at its first significant test. In addition, the ratings agencies simply failed to adequately rate a whole range of bizarre and ultimately toxic assets. And the authorities, especially in the US, kept interest rates too low for too long. Now the party is over and Anglo-Saxon capitalism is having a very nasty hangover.

Professor Ian Fells has recently warned, again, that our energy supplies are in a potentially parlous state. Over the next 10-15 years we are expected to lose about a third of our electricity generating capacity as most of our nuclear power stations are due to be decommissioned and about half of our coal-fired power stations are to be retired because they will infringe the EU's Large Combustion Power Directive (which deals with the control of sulphur and nitrogen emissions). The Government’s favoured response, wind power, will simply fail to fill the gap. Instead coal and nuclear power stations will have to be extended beyond their decommissioning dates and the government must start immediately on building new nuclear power stations and coal stations (using carbon capture). If we do not act the “lights will go out.”

He was, of course, immediately denounced by Greenpeace and other eco-warriors, whose real agenda, some would say, has little to do with the environment and all to do with undermining people’s freedoms and prosperity. I couldn’t, of course, possibly comment.   

I have little doubt that Ian is right. I have heard similar messages from many other energy analysts. If we do not act the lights will indeed go out. And may I add the notion of being dependent on Mr Putin’s Russia for our gas supplies, whether for heating or electricity generation, does not appeal.   

I was struck by the fact that Ian’s remarks were being made in the same week as Meltdown Monday, the demise of Lehmans, the rescues of AIG and HBOS and the end Merrill Lynch’s independence. For many years, voices had been warning about the dangers of the credit boom and the lack of adequate controls in the credit markets. But such voices were dismissed as old-fashioned and slightly unhinged Cassandras and Jeremiahs. Well, they were right. And, after the events of this week, the financial system can never be the same again.

The British Government has been negligent in its attitude to our electricity supplies - negligent beyond belief. And, there is now a great deal of catching up to be done. Otherwise the lights really will go out.         

Last Monday Global Vision organised a conference, co-sponsored by the Daily Telegraph, on “What next for Britain and Europe?” We were more than delighted to have the former French President Giscard d’Estaing giving the keynote speech. He was honest and thought-provoking.

The core of his speech concerned his analysis of the profound differences between different EU countries on the degree of integration required for the future success of Europe. The majority wants integration to continue – indeed they regard this as necessary for the future of Europe. For others, especially Britain, this is not the case. Such differences create antagonisms. Surely it would be better for all, if these antagonisms were to end. One way forward is to recognise that Britain is a special case (and there may be others). If Britain does not want to integrate further, then Britain should, must, be offered a “special status”.  Britain could then opt out of any EU developments towards further integration. It would be a case of “this far, but no further”.

The significance of the President’s speech is hugely important. Clearly some Continental politicians, at the most senior levels, are prepared to negotiate a new settlement for Britain with the EU. President Giscard d’Estaing, informed by his unrivalled knowledge and experience of European politics, has offered a solution and opened the debate. As a country, we must follow up his lead.

By the way, the President also mentioned the Lisbon Treaty. He said that it was the same as the Constitution, of which he was the chief architect, albeit in unreadable legalese. Gordon Brown, please take note. But, of course, our Prime Minster knew this all along.