CentreRight

I was most grateful for Reform's invitation to hear David Cameron talk on quangos today. They have done and continue to do terrific work on how to reform the Public Sector. As a small think tank on a micro budget (and yet the No. 2 google search ranking on quangos behind wikipedia thanks to our online database), I'm always struggling to get my voice heard so I was disappointed that in the very well attended Q&A session afterwards, I didn't get to ask my question. So I thought I'd post it here along with some background information.

Should you win the next General Election, will you order the Cabinet Office to restore a full annual Public Bodies report, that includes not only the 790 bodies in England but the roughly 200 or so in the devolved administrations in Scotland, Wales and Northern Ireland?

Background context - the declining volume of accessible information on quangos:

Basically, there has not been a proper report since the financial year 2005/06 and at no time has it included Scotland or Wales (apart from Boundary Commissions, a handful of advisory committees and Agricultural Wages Committees - how Soviet ! ). It merely includes just some of Northern Ireland and all bodies in England.

Liberally lifted from my blog earlier this year, this his how the rot of de-accountabilitisation of our quangocracy started to set in . . .  

1. In 2004, the last annual hard copy directory of Quangos was physically published.
2. In 2005, this was downgraded to a pdf.
3. In 2006, the online database of which gave crude year on year figures was “discontinued”.
4. In 2006 the Government Financial Reporting Manual changed the accounting rules so that government spending on quangos or “grant-in-aid” is reclassified as a financing transaction rather than income. That made comparing year-on-year figures very difficult between financial years 2005/06 and 2006/07 and is part of the reason why the Cabinet Office chose not to do so the following year.
5. In 2007, the Public Bodies Team – the outfit responsible for keeping track of quangos – was disbanded without replacement. So consequently...
6. In 2008, the annual public bodies report for 2006/2007 was scaled back to a mere 30 or so pages from the more usual 400. Expenditure figures were only given for one quarter of the bodies, along with no individual data on any of the quangos as per previous years – data which we showed in our online quangos database for 1998-2006 – see here.

All official public bodies reports back to 1998 available here for England and much of Northern Ireland (the government has changed the link yet again). The Welsh Assembly do not publish a single report and should do - their quangos are here.  The Scottish Administration - ditto for them and available here. And Northern Ireland, really a lot for 1.7 million people.

Loathe as I am to be drawn away from the closing moments of the French Open Tennis Final (update - well done Federer !), I find it just incredulous that in its dying days the Labour government is;

i) planning rolling privatisation of the government's property base under a new quango, the Property Executive - selling £20bn a year over the next 10 years

ii) Only the Sunday Telegraph has picked it up - doesn't this show how dire our public finances are when Gordon Brown is in favour of a major privatisation programme?

iii) Real Estate - a terrible americanism - is creeping into our language. By that I mean, if property or landed assets are Real Estate, what is Unreal Estate? (Ok, I'm a hypocrite, I wrote this piece The End of the Global Real Estate Boom? in August 2006 for World Finance magazine which I would immodestly suggest was spot on)

I can see good arguments for the sell-off and not least moving large chunks of government out of London. And I'm not sure whether the £370 bn figure quoted - approx 30% of annual GDP - includes chronically underused buildings and land owned by local government, the Highways Authority, Network Rail and almost certainly not the UK's extensive seabed resources, managed by the Crown Estate.

So now even New Labour is cutting spending and talking enthusiastically about efficiency savings. Unfortunately, this looks like too little, too late. Darling is having the most unenviable Chancellorship since Dennis Healey and I don't see the public rallying round to support him. The same is not true for the Tories. As I wrote today in the Yorkshire Post, a great opportunity beckons for George Osborne. As I said;

Timing is everything in politics and with a legacy in mind, George Osborne has the potential to be one of the great Chancellors of history. He will inherit a faltering economy ripe for reform and the certain knowledge that, for the first time in many years, public opinion will be with him. He can also call upon a wide range of earnest, dedicated centre-right think tanks and campaign groups that, in the last decade, have produced whole libraries full of publications and research on reforming the public sector and cutting its expenditure.

I've just heard President Obama on Sky News say;

"I just want to thank and praise France once again, on its outstanding leadership in Afghanistan."

This comes after France has resolutely refused to send more troops to that precarious theatre, less still into the main combat zones. So we can discount the praise he heaped on Gordon Brown for all his G20 travails yesterday, because the POTUS is dishing out the complements very liberally.

Meanwhile, if this wiki on the deployment of the French military overseas is anything to go by, it makes it obvious that for France, Afghanistan, unlike for the overstretched UK military who will send yet another 2000 trooops, is far from a priority for them.

Maybe President Obama's emerging flaw is that he really wants to be liked, for very little in return, not just by France, Saudi Arabia and Nancy Pelosi, but by Iran and Russia too.

My fear is that this is one charm offensive, that will not end well at all.

I'm reading Arthur Laffer's excellent book, The End of Prosperity - How Higher Taxes will Doom the Economy - If We Let It Happen and I'm struck by one particular passage on then Senator Obama. He was caught out last year when he said that he wanted to raise the level of Capital Gains Tax, even if revenues went down, because it was "fair".

Are we poised to do the same thing with a higher rate of top income tax and retreating from an inheritance tax cut because we want to look fair?

In the short run, revenues may rise a bit, but government will swiftly find that they will quickly drop off. Some of us still dare to think that there's plenty of room and public support for cutting public expenditure instead. As Roger Bootle said in the DT today;

"On the latest figures, while pay in the private sector was down over the year by 1.1pc, in the public sector it was up by 3.7pc. If you are employed by the public sector you don't know what recession is all about. No reductions in salary or disappearing bonuses; no worries about your pension; no anxiety about losing your job; no increased tensions at work because of the pressure. You just sail blithely on. Whenever I travel about the country I never cease to be struck by the depth of anger about this contrast. It is going to intensify.But this contrast will be temporary. For there will be yet another stage to the recession. As soon as the economy starts to recover, and maybe even before, the next government will have to bring in massive cuts to public expenditure programmes".

News today that the Financial Services Authority has discovered a precisely correct and safe level of mortgage lending for everyone - up to 3 times annual salary - struck me as pretty absurd. Why not 3.21 or 2.95 or 4.0319?

Sadly, during this recession, there may be lots of people going into negative equity. But it's only when people lose their jobs combined with massive hikes in interest rates that the mortgage stops being paid. When this last happened in 1991, the repossession rate was only 0.77% - horrible for those concerned, but the mortgage books of lenders continued overall to be profitable. I just don't agree that mortgage lending fuelled the housing boom as much as is commonly portrayed because to use the jargon, unlike sub-prime lending in the United States, almost all of the UK's mortgage book is performing debt and will remain so. In other words, in Britain, there may have been some excess lending, but not much and thanks to a few burnt fingers, you really don't need government intervention to stop it happening again.

Meanwhile, there are lots of long term measures a government could implement to help the housing market to supply the homes Britons actually want. Most notably, much less interference in deciding where (I doubt that many people want to live in the Thames Gateway), how many (the Barker Review), at what level of urban density (most people just don't aspire to live in flats, but houses with gardens) and for whom (social housing, key workers, all subsidised) homes should be built. 

But for the FSA to seriously consider straitjacketing the country into a one-size fits all safe lending limit is deeply mistaken.

So says Jim Rogers, erstwhile partner of George Soros and commodities/China investment guru, adding further that  the currency will fall below its record low of $1.0520 reached in February 1985.    

Beat that for pessimism - this has to be Gordon Brown's worst headline of the day!

With the honourable exception of Mark Steyn ("Bush - 90% Tony Blair with a ranch"), I think a lot of the write-ups of the Bush Presidency have been spectacularly one-sided. And much as I admire London's new Mayor, as one might expect from a gifted classicist, Boris Johnson's chief beef with the man seems to be that he was inarticulate and bungling with his choice of words.

Yet the Western world is overrun with politicians who try to dazzle us with their fluent verbosity, whilst leaving us wondering what they actually believe or intend to do. Not so for President Bush. He pretty much always answered the question, got to the point quickly and didn't bore us with long answers. So on the language front, I would venture that he was a much better communicator than many have assumed.

But there is one error made early on in the Presidency which no one has picked up on. He believed Mexico would be the US's most important friend.

Having just read a most thought-provoking exchange, The Great Tory Tax Battle: seconds out . . . in this week's Spectator between Fraser Nelson and Danny Finkelstein, two people whose insights I genuinely respect, I thought I'd add a couple of points that still need to be aired.

So here's what I wanted to say . . .

A very good post by Douglas Carswell MP yesterday on defence procurement which has attracted some interesting and insightful comments. It's surprising though that none addressed the most important and troubling point that Douglas raised, namely;

"Sikorsky tells me that it wrote to the MOD, offering to supply some 20-plus lift helicopters within months. It tells me that it took Sir Kevin’s former Department longer to respond to the offer than it would have taken the firm to fulfil it".

I find that deeply disturbing. So-called - usually economically-illiterate - defence experts would like to gloss over something like this, telling us that it's all very complex and hope that we all forget about it in short order. Well it's not complicated to understand that something very wrong has happened here and it merits further discussion.

As I argued late last week in the Yorkshire Post, contrary to received opinion, outside of the Armed Forces, the City is the most highly disciplined, conservative and regulated work environment in the UK. So a reasonable starting point ought to be not about the lack of regulation, but the existing thrust of it.

With that in mind, I'd like to invite you to read  this excellent blog, which I think merits some quality economic debate on Centre Right - by Art De Vaney, Professor Emeritus of Economics at the University of California. As he says . . .

Few people realize how much of the present damage to markets is caused by the new regulations imposed by Sarbanes Oxley and the “mark to market” rules imposed by FASB. How do you mark to market when there is no market? The market for troubled loans has dissolved for two reasons: no one knows what they are worth, and if an investment bank takes the loans into its portfolio it must mark them at the market price. The market is illiquid and facing not mere risk. They are facing uncertainty. No one knows what the values are or what the probabilities are.

Moreover, on preventing bank runs in the future, de Vaney adds . . .

Anybody who has mastered seventh grade arithmetic can figure out that no bank or money market can sustain a run. In order to earn a return, liquid assets must be invested in assets that cannot immediately be liquidated, and if many similar assets are liquidated simultaneously in a market the value will fall precipitously. Yet no one ever proposes that bank depositors or money market depositors shouldn’t all have immediate access to all of their deposits, why?

No regulation of markets will ever overcome such moral hazard, we should be regulating depositors rather than the market. Depositors should have the expectation that they can receive some portion of their deposit immediately, but if they ask for it all they will have to wait some period of time, that increases proportionately to the size of the amount they want to withdraw AND the number of current withdrawal requests. This will never happen. Instead we will have recurrent bail outs.

Discuss!

If you'll forgive the personal plug, one of the arresting facts from the Economic Research Council's Digest of Energy Statistics 2008 published today is that whilst the UK is still struggling to get a nuclear replacement programme up and running to build a handful of plants, China has 7 under construction, 24 planned and a further 76 proposed. As reported today, that amounts to a serious competitive challenge for skills and resources that the government has yet to factor in. Not many companies have the know how and strength to build and finance nuclear power plants. Thus far, the UK appears to be putting all its eggs in the EDF-Areva basket. Would that they understood that long-term investment in clean and secure energy supplies requires long-term - at much lower cost to the consumer - incentives for investors. Alas, the government is still mired in a reality distortion field which posits that White Papers and Big Public Announcements rather than stimulating private companies can deliver nuclear power stations.

In the meantime, a few other findings from the Digest . . .

Most of us could more or less agree that the Cold War was won thanks to a combination of Thatcher and Reagan's arms build up, falling commodity prices bankrupting an inflexible soviet economy and the total moral failure of socialism in its suppression of personal freedoms. A Russian would more likely say they lost because of Gorbachev. Yet in one crucial respect, the Cold War has not yet been won - and is still being lost, most notably in Georgia - the moral dimension.

Today, many Russians understand that their defeat in the Cold War was strategic, but they have failed to understand it was moral.

Unlike in Germany following it's defeat in World War 2, there has been no Bewaeltigung der Vergangenheit - a coming to terms with the past - in Russia. Modern Germany has a deep sense of guilt for doing wrong which has made them a nigh pacifist nation for ever. But not in Russia. Far from it. All too many Russians are still proud of having enslaved so many nations for 50 years. Bizarrely, the Soviet Union, less its worst excesses under Stalin, is looked at as some sort of Golden Age by the likes of Vladimir Putin.

Meanwhile, Russia apologists - and they are numerous in the UK - like to say that the West humiliated Russia with the end of the Cold War and so it's all our fault.

But even if that was true, isn't humiliation a small price to pay for imposing misery on hundreds of millions of people for so long?

An excellent piece in today's print version of the Wall Street Journal - Obamanomics is a Recipe for Recession - by a Stanford Economics Professor, Michael J. Boskin. As he says, "despite his obvious general intelligence, and uplifting and motivational elequence, Sen. Obama reveals this startling economic illiteracy in his policy proposals" . . . which are (and I paraphrase) to;

• unilaterally renegotiate his country's international  economic treaties
• dramatically raise marginal tax rates on the "rich"
• change his country's social insurance system into explicit welfare by severing the link between taxes and benefits

All this at a time when America's budget deficit is starting to baloon again - possibly up to $500 billion in 2009 and world trade talks have just collapsed. That's why I don't really have much time for Tories who genuflect to Obama. Their adulation is a classic example of what Paul Johnson might call anti-intellectualism - believing personalities are more important than ideas. Of course, the UK and the US economies start from different places. Above all in the standard of living, in terms general economic freedom, rates of government expenditure of GDP, a still marginally lower budget deficit in the US etc. But in the entirely implausible scenario that Gordon Brown wins the next election, how likely would he be, this time, to significantly raise taxes again, embrace a protectionist stance on trade and roll backwards on their late conversion to welfare reform?

As Boskin says, "History teaches us that high taxes and protectionism are not conducive to a thriving economy, the extreme case being the higher taxes and tariffs that deepened the Great Depression. While such a policy mix would be a real change, as philosophers remind us, change is not always progress".

Am I alone in finding every G8 meeting a massive anti-climax, self-sustained only by fawning media coverage?

Don't get me wrong. I'm all for "World Leaders" - and those who think they are - meeting other heads of nation states. But this has become a forum with increasingly little basis in economic and geopolitical reality. Inflation, if you like, runs rife on the international meet and pose for the cameras mediafest that has come to dominate our daily news. So I would ask you to ponder these questions;

• How can China and India not be part of the G8 when Russia has a smaller economy and shows less respect for international law? (Both their GDPs are bigger by purchasing power parity and India is only just behind Russia in nominal terms - probably not for long. Moreover, neither the India or Chinese governments have been strongly suspected by our own security services of ordering the murder of a British citizen on British territory).

• And much as I admire, genuinely, Italy, a fellow G8 member, on all sorts of levels (the easy civility of the people, eternally beautiful art, a cuisine that reaches the world and successful family-owned businesses in the North), who seriously cares what their latest revolving-door leading politicians think?

The G8 has had its day. I don't buy into the idea that all we need instead is a league of democracies (imagine the trouble France would cause) or an annual anglo-saxon nation state talkfest (bound to attract an infinite numbers of obfuscating detractors). What we really want is to start emphasising state-to-state relations, on an evolutionary, when necessary, basis.

The world is globalising. But it's not because of über-Blairite events like these currently taking place in Japan. At the very least, the G8 should be reduced to meeting every 2 years rather than every 12 months and save us all a bit of money.

Many seasoned diplomats will tell you that the answer to Zimbabwe lies in South Africa. They are certainly right. Sadly, South African diplomacy - the softly, softly approach - has been an abject failure. Arguably, this was because many of the ANC old school could not stomach the idea that a party of African national liberation would one day be turfed out of office by popular acclaim. Despite his worst excesses, they never really wanted to see Mugabe gone. Perhaps now that the Zimbabwean crisis has been exported to them in vast numbers of refugees, they may have a change of heart and choose a policy that can actually deliver results; cutting off electricity supplies.

The figures may be old, but a full 25% of Zimbabwe's electricity in 2005 came from outside the country which is chronically undersupplied anyway. Most of these imports stem from their much bigger southern neighbour as well as from Mozambique.  And as the Zimbabwean dollar reaches new lows and the existing power infrastructure rots away thanks to vandalism and copper theft, I suspect that percentage is even higher today.

This idea of freezing electricity exports into Zimbabwe has been muted for some time, most recently again by our own Foreign Office. It will still be South Africa though that has to make this decision and it shouldn't be that hard - I doubt the Zimbabwean regime even pays the market rate for it, if at all.

That's why all international diplomatic pressure should now come to bear on South Africa to enact this policy and bring an end to this long-running tragedy.

An excellent piece by James Whyte in the Times today. He makes the case - and I entirely agree - that it would be far better to abolish all expenses and allowances and just pay MPs and MEPs a flat salary, leaving it to them to decide how to allocate their resources. The high frictional compliance costs, unfathomable complexity, lost time and worry generated by the existing system are extraordinary - so why continue?

Even with the best will in the world, I don't doubt that in the years to come, some determined accountant/journalist/campaigner would not find some technicality (or worse) and run to the press after poring over a random selection of MPs accounts. It's a statistical certainty.

But in exchange for the advantage of stress-free flat salaries for the Political Class, how about some flatter taxes for the British Economy?

Do we really want a country that can't function without at least 250,000 accountants ?

And wouldn't most of those same accountants - deep down - have rather learnt something more interesting and instead be engaged in genuine value-adding activity?

...he had pledged to match Ken Livingstone's spending for 3 years or more. That's why in the nascent dispute between Daleonomics and Finkonomics, I'm with Iain. Boris' victory does show how receptive the voting public can be to politicians making government share the proceeds of economic pain in a cyclical slowdown. Other than a small and rapidly diminishing pool of Brownites, no one really buys into the argument that higher taxes beget better public services anymore. Seriously, how many people on the doorstep in Crewe are saying please put up taxes so we can have better public services?

And then there's that other canard - favoured by some Tories who should know better and a handful of unreconstructed Social Democrats who talk to the wrong people - that you can't reform public sector without spending more money on it first.

The record of both of those are; been there, done that, failed.

So all credit to Boris for aiming to cut expenditure from Day 1, especially those 40 daily copies of the Morning Star !

...was not to sack Gordon Brown, early on. He would have made him look stupid. Unlike say, Michael Heseltine, Brown just did not have - and still doesn't - any of the requisite people skills to cause a lot of trouble on the backbenches and mount an eventual leadership challenge. Pushed out of the Cabinet, Brown just would have become even more dour,  grumpy and isolated.

Ok. This government seems to think that it would be acceptable to raise taxes going into a possible recession. Well I don't. What about making the public sector share the proceeds of economic pain come the downturn?

With that in mind, I've decided to draw up a starting list of where we should aim to have a 0% increase in spending after 2011 and the benefits that could be had - not just tax cuts - by 2015.

1. The Regional Development Agencies - are amongst the most indefensible creation of the Blairite era, yet they continue to pump them full of money. Worse, the government even knows they don't work. As the  government's own report said, RDAs "appear to have made no discernible difference to long-run patterns of  uneven regional development in England". RDAs face a huge internal contradiction. On the one hand, their role is to accelerate development in a certain region. On the other, their job is to equalise regional economic disparities with other regions. Success then in one objective undermines the other. The idea that you can equalise the distribution of economic growth through Soviet-style planning is asinine. England's 9 RDAs received an additional £335m in 2007. From 2011-2015 there could be a saving of £1.2bn.

I'm struggling to understand why so many supposedly well-informed business and economics commentators are describing the nationalisation of Northern Rock as the right decision, albeit a little late. Well I think it's wrong and an excellent piece by Tim Congdon in the FT provides a timely rejoinder. He draws very uncomfortable comparisons between Northern Rock's compulsory nationalisation and the Yukos saga under President Putin. As Congdon said;

"Western governments have deplored the Russian state’s expropriation of privately owned oil companies. What the British government has done with Northern Rock – by falsely representing a business transaction at market rates or above as “state aid”, encouraging a frenzy of hostile and largely silly press comment, cajoling the management and shareholders, and finally imposing a compulsory nationalisation without compensation – bears comparison with President Vladimir Putin’s devices to steal assets in the former Soviet Union".

I also think it's disturbing how in a supposedly fair-minded, top-ranking liberal democracy, 100,000 shareholders throughout this crisis have been almost universally treated by most of the media and the political class with at best indifference and at worst, contempt. So when Northern Rock is eventually reprivatised, wouldn't it be just for shareholders - not the Treasury - to be first in line for at least some of the receipts?

(And no, I'm not a shareholder)

It's worse than we thought Guv !

Britain's public finances are deteriorating faster than anyone, Tories, Labour or LibDems, expected. The National Debt has balooned to £650 billion from £315 billion in 2001/2002. And the revelation that funding this debt is now practically equal to the annual defence budget ought to be pause for some sober reflection.

I keep thinking about Tim's post earlier this week about Britain in relative decline again, much of which I wholeheartedly agree with, apart from the "again" bit.

Thank God for that - looks like ID cards have been kicked into touch, or at least quietly into the long grass. Cost has to be the primary reason, between £5-6 Billion for 10 years or quite a bit more than one of the new large aircraft carriers, a snip at £4 billion which will last 40. As a small island nation, we should be capable of securing our borders and knowing who is in the country. But if you don't control the borders, what's the point of ID cards?