Tuesday, November 28, 2006

Tories resort to Graphology

From the Times:

Relations between Gordon Brown and his Conservative shadow reached new depths of animosity yesterday after the Tories cited handwriting analysis claiming that the Chancellor’s judgment is flawed.

George Osborne, the Shadow Chancellor, said that he had hired a handwriting expert to analyse Mr Brown’s character — and the conclusions were far from flattering.

We await with bated breath to see what Osborne's astrologers and tarot readers have to add to this. No doubt they'll claim that Brown's Moon clashes with Mars or something and casts a shadow on the chancellor's character!

This is classic Osborne - he won't attack on economic policy (possibly because he struggles to understand it). Instead he thinks Graphology is the thing to impress the public.

Isn't it lucky he's not Chancellor? Imagine him in a meeting with Mervyn King.

King: Post neo-classical endogenous growth theory indicates that the gap between savings and required investment determines the rate of growth in the capital-labour ratio and .....

Osborne: Sorry, to interrupt. Can you handwrite that? I need to consult my graphologer!

Friday, November 24, 2006

Pub Alcohol sales drop in the year since licensing easing

From Bloomberg:

Alcohol sales in U.K. pubs, bars and clubs have fallen since the government eased restrictions on opening hours a year ago and drinking habits have barely changed, a trade group said.

The volume of alcohol sold in licensed establishments fell 2 percent in the year through September, according to the British Beer and Pub Association, which represents more than half the pubs in the U.K. Food sales are gaining, the group said.

On Nov. 24, 2005, Prime Minister Tony Blair introduced the biggest change in U.K. drinking laws since World War I, allowing pubs to apply for a license to serve alcohol all day and night. The government said longer drinking hours would make towns safer and consumption more measured. Critics including the opposition Conservative Party, judges and doctors said it would fuel ``binge drinking.''

...........The biggest change has been the disappearance of the ``last orders'' rush, when drinkers hurried to buy drinks before closing time, according to pub groups. By law, they had 20 minutes to finish their drinks before they had to leave.

"You don't get anything like the rush you used to,'' Jim Clarke, finance director at J.D. Wetherspoon Plc, which owns 629 pubs in England, said. "It makes it much more pleasant.''

The government's aim was to reduce the number of fights that took place as city centre pubs all ejecting drunken customers onto the streets at the same time.

"There appears to be a genuine spread of closing times, bringing an end to the old madness of everyone being thrown out onto the street at the same time,'' Licensing Minister Shaun Woodward said in a statement.

Some police forces have reported falls in the level of alcohol-related crime. Sussex police, whose beat includes the seaside resort of Brighton, said 1,000 fewer people had been injured in alcohol-related violence since the law changed. Greater Manchester Police said actual bodily harm cases were down 0.8 percent.

Anecdotally, there seems to have been a subtle change in drinking habits: people are going to the pub later, after they've had their dinner, and there is no longer any pressure to gulp the alcohol down or binge. Drinking on a stomach lined with food and simply slowing down the speed that alcohol was drunk probably resulted in the volume drunk to reduce.

Good on the government for pushing through this change instead of caving to the opposition's silly argument which went as follows: "Last orders has caused a surge in rushed and binge drinking, therefore we must keep it at all costs!"

Monday, November 20, 2006

Derivatives - an accident waiting to happen?

Interesting piece from Morgan Stanley analyst Serhan Cevik:

Driven by the global liquidity cycle and investors’ growing risk appetite, the notional amount of exchange-traded derivative instruments increased from US$2.3 trillion in 1990 to US$14.3 trillion in 2000 and then soared to US$84 trillion in the first half of this year. According to the Bank for International Settlements, annual turnover recorded an astounding surge from 510 million contracts to almost 7 billion contracts over the same period. However, this is still just a small part of the pool of synthetically created financial products, most of which are actually traded over the counter. Indeed, the data compiled by the International Swaps and Derivatives Association show that the outstanding volume of over-the-counter credit derivatives increased from US$3.5 trillion in 1990 to US$63 trillion in 2000 and over US$283 trillion this year. Put differently, the total amount of exchange-traded and over-the-counter structured financial instruments ballooned from 27.3% of global GDP in 1990 to 772.8% this year.

Highly leveraged positions have started turning into a futile game of musical chairs. In today’s global network of financial markets, almost everything becomes interdependent and correlated, diminishing the advantage of portfolio diversification. Take, for example, the breathtaking rise of the hedge fund industry. In 1990, there were only 300 hedge funds in business, increasing to 3,000 by the end of the decade. On the latest count, however, the number of hedge funds reached over 10,000, with approximately US$1.5 trillion worth of assets under management. Although that may still look small relative to the rest of the investment community, hedge funds employing risky derivatives strategies to enhance returns already account for 45% of emerging-market bond trading volume and 55% of all credit derivatives trading in the world. In other words, the rise of hedge funds, driven by cheap financing, is behind the explosive growth in structured products and massive flows to emerging markets. However, as the number of players searching for arbitrage opportunities has kept increasing, seeking alpha via highly leveraged positions has started turning into a futile game of musical chairs. Indeed, as competition has squeezed returns, the number of failed hedge funds increased from 4.7% of the funds in operation in 2004 to 11.4% last year.

His last point is important - the sheer number of hedge funds in existence are competing away any advantages hedge funds may have had over ordinary funds. But ordinary investors continue to pour money in, believing they can get better than average returns. It's quite possible that much of the growth in M4 since 2003 has been lending to hedge funds rather than households. Central bankers are worried. At the meeting of the G-10 central bankers on the weekend, Jean-Claude Trichet, President of the ECB said that "There is an under-pricing of risks in general in financial markets,'' and that he and his G-10 colleagues "don't exclude the possibility that there will be a re-pricing of risks,'' though the central scenario was that the process would be "`orderly, smooth and progressive.'' .

Saturday, November 18, 2006

The First Female Leader of France since Catherine de Medici?

Ségolène Royal won the nomination to be the Socialist candidate for president with over 60% of the vote.

She has a good chance of winning as she's one of those unusual politicians with cross-gender appeal; women identify with her, see her as a role-model and aspire to become like her, while the men find her attractive.

I hope she defeats Sarkozy who is a little Napoleon (and remember the trouble Britain had with the original Napoleon). Royal also marks a more definite break with traditional French politics than Sarkozy (who after all has been in government in both the finance and interior ministries but has made precious little difference to addressing France's malaise).

Andrew Hussey did a very revealing profile of Royal for the Guardian in July. It's worth reading in full, but here are some excerpts:

In concrete terms, she has campaigned on local issues that affect real people - education, child-raising, anti-porn laws, the environment - rather than any of the big abstractions which still dominate political discourse in Paris. 'Segolene represents us, the ordinary hard-working people of France who are trying hard to keep things together,' I was told by Anne-Cecile, a mother of two and creche-worker in the lower-middle-class part of Paris where I live. 'She knows that times are tough for people like us, and she wants to help. She is not like the men with all their big speeches.'

............As I trailed Segolene through the stands in Nantes, I was struck by her stern manner. Close up, she doesn't look like Audrey Hepburn at all, but she does have something of the stern, posh sexiness of Margo from The Good Life.

He concludes,

No one knows yet whether Sego is, as her detractors put it, empty and doomed like Marie-Antoinette or, as her admirers hope, a real force for change, as potent as Delacroix's painting of Marianne, the bare-breasted heroine who is an eternal symbol for radical change to all French people. From what I saw in Nantes, my hunch is that Sego is rather closer to the very English figures of Margaret Thatcher and Supernanny, which means that if she ever does achieve power we might indeed see a truly revolutionary force at work in France.

Wednesday, November 15, 2006

EU considering proposals to impose controls on emissions on all flights into Europe

The EU announced yesterday that they were preparing draft proposals to impose emissions controls on all flights into the EU. Under the proposal, airlines would have to meet emissions targets by Jan. 1, 2011, for all flights in and out of Europe. To encourage other countries to introduce similar measures, the union would drop its emissions requirements covering the return leg of a round-trip flight if those countries also adopted pollutions caps for
airlines. Airlines will be included in the EU's carbon trading scheme.

The draft proposal will be presented to EU Heads of Governments in the Council of Ministers on December 20th. The Council will debate the proposal and then decide whether to go ahead.

Because practically every airline on earth flies into Europe, this proposal would cover them all in one fell swoop. It solves the problem of Europe making huge efforts to cut emissions only for these efforts to be cancelled out by the Americans, Chinese and other recalcitrant countries. It should mean the burden is shared and the chances of meaningful reductions in emissions more likely.

According to the New York Times, the Americans are already getting very agitated. We should expect massive pressure from them to abort this. But hopefully Europe will resist - we'll never make a difference to global warming if airline emissions are not tackled on a global basis.

Tuesday, November 14, 2006

Carrier Bags

I only found out yesterday that the Republic of Ireland had a carrier-bag tax, and decided to find out a bit more.

The levy was introduced in March 2002, and is 15 cents per bag (about 10p) . The results were astonishing - they had used about 1.2 billion bags a year, but this fell to just 85 million bags - a 93% reduction.

Plastic bags are one of those products that are, at the same time, both very handy and a nuisance (in that they hang around for ages, blow about the streets and clog up land-fill sites). They are also an oil derivative and as oil is a scarce resource, perhaps we shouldn't be wasting it on bags.

The Scottish parliament looked at putting a levy on them in Scotland and you can find their report on this here. Amongst other things, the report says:

After taking set-up and administrative costs into account, the food retail industry would benefit from net cost savings from a bag levy. Savings would come from having to buy far fewer plastic carrier bags that are given away for free, while sales of 'bags for life' and bin liners would increase.

However, this would not be the case for non-food retailers. Evidence from the Republic of Ireland from those retailers that switched to paper bags (mainly 'high street' non-food retailers) suggests that greater storage space and more frequent deliveries are now required. This has increased overhead costs for material purchase and transport by over four-fold.

There are also different consumption patterns between food and non-food. For the former, people often shop regularly and can thus plan to take reusable bags with them. For the latter however, it is often an impulse purchase. Overall, retailers feel it would be fairer if all bag materials (not just plastic) and all businesses (small or large) were levied UK-wide.

In terms of system needs for compliance, it is envisaged that larger retailers will find this easier, having computerised systems and greater resource available. There will be a cost associated with administration of the levy, but experience in the Republic of Ireland suggests that the effects were generally positive or neutral. In general, costs are considered modest and, in some cases, are less than the savings the retailers enjoy from buying fewer lightweight plastic carrier bags. Although there have been some reports of problems with increased theft, it is understood that, after an initial rise in theft, retailers state that levels returned to those before the introduction of the levy.

The report concludes that it's not really worth Scotland going ahead with the levy without the rest of the UK, and recommends alternate approaches in the meanwhile, such as voluntary agreements from retailers to promote reusable bags. The UK government has no plans to introduce a levy.

I understand that a Mori poll a while back showed that 63% of Brits were in favour of a levy - but as always with these things, people tend to be in favour in theory, but not in practice.

I must admit that personally I like plastic bags and collect them to bag my rubbish. But I guess if we want less plastic rubbish clogging up Britain we should look at reducing use and I think we should follow the Irish example.

Sunday, November 12, 2006

The problem with Jon Cruddas

Headline in the Telegraph yesterday - Labour heartland turning to BNP, warns Cruddas. Another headline putting Labour and the BNP in the same sentence, and implying that the BNP's rise is Labour's fault.

In the article they write

But yesterday Mr Cruddas admitted: “The BNP thrive in areas where people feel forgotten by the mainstream parties.

“There are signs that the fascist party is becoming a home for many disgruntled former Labour voters."

But how true is it that it's disgruntled Labour people turning to the BNP?

Here's the results from a recent by-election in Rotherham:

Rotherham MBC, Rotherham West Ward
Labour 1024 (44.3% +3.8%)
BNP 606 (26.2% + 26.2%)
Ind 538 (23.2% -15%)
Con 146 (6.3% +6.3%)
LibDem (Did not stand -21.3%)

The 44.3% that Labour got was respectable. And the 40.5% that Labour got in the previous election was respectable too - Labour voters plainly didn't switch to BNP. Instead the BNP vote came from the collapse in the support for the Independent candidate, the no-show from the Lib-Dems and the very poor showing from the Tories.

You could only spin this as "disgruntled Labour people switching to the BNP" if you believe that the Labour vote "should" be 70.5% of the vote. But this is impossible in any multi-party democracy. Maybe Mr Cruddas believes that because the ward is working class at least 70% should vote Labour. This is old-fashioned romantic nonsense about what the working class should think - in reality there will be a range of political beliefs in every single economic stratum of Britain, and there always has been.

The BNP is a problem - but it's a problem for the whole of Britain. It's about the failure of the two other opposition parties to make any mark in some parts of Britain, leaving Labour the sole mainstream party to battle the nutters (in some parts of Britain these nutters are the SNP or PC). In some of the wards that the BNP gained in Barking in May, the only parties on the ballot were Green, BNP and Labour, which is not much of a choice. We should be asking Why and pushing the other two parties to pull their weight in tackling the BNP and making sure that their candidates are on the ballot on every ward being contested. What's needed is a co-ordinated cross-party strategy against the BNP.

It's not just in "Labour" areas the BNP is massing, they are present in Tory dominated Epping Forest and in parts of Herts - but you'd never know this from the press. That's because people like Jon Cruddas are making this just about Labour - and in doing so, he is damaging the party. By constantly putting "Labour" and "BNP" in the same sentence, he gives the impression that the Labour voters are so cretinous that they fall for BNP rubbish at the drop of a hat. If you were a floating voter, would you want to join such a dumb tribe? No, you'd prefer to associate yourself with that nice clean Mr Cameron, or those nice middle class Lib Dems. But it's the 21st century, and Labour is actually more than the working class. We're the party of aspirant people who want a job and a home, and economic stability and Labour voters are not cretinous and largely resist the urge to switch to the BNP.

I respect Jon Cruddas' work on the ground in tackling the BNP - but in his speeches he is hyping the BNP, giving them the oxygen of publicity, (which they are thrilled about). At the same time he's giving the impression to floaters that Labour people are brainless nasty people who could go BNP at any time - and the Telegraph is thrilled as they can do another headline with Labour and BNP in the same sentence. If Cruddas becoming Deputy Leader means this is the impression he constantly gives out in the next election, then we're dead in the water. It's decent floating voters who will decide the next election, not the BNP.

I hope he's more careful about the speeches he gives and takes more trouble to see how they can help the BNP on the one hand and used as ammunition against Labour on the other. If he can't do this, sorry, he doesn't deserve to be deputy leader.

Saturday, November 11, 2006

American Mid terms - Chinese Reaction

While most of the planet was overjoyed at the Dem gains in the American mid-terms, it turns out one country was not - China.

According to Bloomberg, on Thursday Zhou Xiaochuan, chairman of the People's Bank of China, told the press that China intended to continue diversifying it's foreign reserves. Just in case people didn't the message, he repeated it on Friday in Frankfurt, saying

they would ``stick to the existing policy'' of reducing the share of U.S. assets it holds, because of ``safety, efficiency and liquidity.'' When asked whether China is selling dollars, he said: ``No.''

This means putting new money directly into non-dollar currencies (while keeping the existing reserve where it is), and China has been doing this since about 2003 - so why the song and dance now, especially just as their dollar reserves (held mostly in US Treasuries) hit the $1 trillion level?

It's because they are nervous of the Dem control of Congress and wish to fire a shot across their bows. Charles Schumer a Democrat Senator, has been sabre rattling about China's trade surplus and "under-valued" currency for a while. In 2005, he and Senator Graham (Republican) tabled a bill that proposed to slap a 27.5% tariff on Chinese goods if they didn't revalue the yuan within two years. The Chinese responded by revaluing the yuan by 2.1% in July 2005, and easing the peg to the dollar - the yuan now moves against a basket of currencies (the make-up of the basket is unknown). After a trip to China in March 2006, Schumer and Graham shelved the bill for a further six months to give the Chinese more time - and the yuan has been slowly strengthening against the dollar since.

It's not known if Schumer and Graham are serious about their bill, or whether it is just a useful tool to pressure the Chinese. Tariffs and protectionism would be a bad thing, and would hurt America as well as China. The Dems tend to be associated with protectionism (notwithstanding Clinton's NAFTA and other ground-breaking trade deals). The Chinese are clearly worried, as the Dems now have enough votes to pass their bill and they've decided to do some sabre-rattling of their own. On the other hand, the Bush administration was clearly negligent in letting it's spending get so large that they had to borrow from the Chinese to the tune of a trillion. No one should be that dependant on a foreign lender.

Hopefully the Dems will exercise caution and not take punitive measures against the Chinese. And hopefully they will cap US spending and bring the deficit back (which should solve the whole issue of having to borrow abroad so much).

Speaking of nervous countries, an American blogger le-enfant-terrible, had this to say about Syria's foreign currency manoeuvres;

Throughout the year Syria has been transitioning from the dollar to the Euro. In February it switched its international transactions to Euros and by July it had switched over half of its central bank's currency reserves. Other articles indicated that before the end of the year Syria would stop pegging its currency to the dollar (in favor of some basket of currencies).

The Syrians are clearly worried that any dollar reserves parked in Treasuries would be in danger of being frozen by the US at George Bush's whim, and are taking steps to protect their money. I wonder how many other countries are doing the same.

Friday, November 10, 2006

Do women fancy Gordon?

Well Maryam D'Abo, ex-Bond girl (below) said she did on This Week. Diane Abbott lit up talking about him (Portillo looked miffed) and I too am, um, a fan! Poor Andrew Neil looked puzzled. What about David Cameron, he said.

Here's the thing - women hate men who love themselves (Blair). Ditto men who are too slick (Cameron), and men who pay too much attention to how they look (Cameron). Blair comes across as self-centred and Cameron comes across a little camp (he may win the pink vote). Also Cameron's eyes are too small.

Diane Abbott has said she thinks Brown may have a Mr Rochester thing going for him, right down to the near blindness and awkwardness, a mix of strength and vulnerability. Someone who'll keep you safe, won't cheat on you, but at the same time needs rescuing and looking after. It's an ancient stereotype - Mr Darcy in that other great novel had a bit of that too. (And of course men are completely puzzled as they don't really get Jane Eyre or Pride and Prejudice at all).

Thursday, November 09, 2006

Implications of the American mid-terms

Well the results are mostly in, and it looks like the Dems have taken both houses of congress (though it may take a while to confirm Virginia).

How does this affect us? Lots of ways, big and small. The Dems are less likely to go for the new world trade agreement so close to Gordon Brown's heart, especially with a slowdown in the US economy next year. The EU might have to pursue bi-lateral agreements with India, China and Brazil instead.

The Dems have also pledged to end Bush's ban on the states negotiating their Medicare drug bill down when they buy in bulk. (All other health care systems negotiate this, including the NHS). Drug stocks, including stocks like Glaxo, have already dropped in price anticipating lower revenues, but this measure should save the US govt a lot of money, helping with their deficit.

The Dems also plan to restore lapsed legislation that require tax cuts or spending increases to be offset with spending cuts or tax rises. This too should help the deficit and restore confidence in the US system. The dollar is likely to rise as a result.

They plan to reverse Bush's limits on govt funding for stem cell research. Britain had been doing well out of the Bush ban, as researchers came here instead, so this is not quite so good for us.

The Dems may also take a greater interest in climate change and energy policy (they plan to investigate the Bush administration's energy plans). If they decide to introduce a fuel tax (for energy security reasons as well as climate ones), there would be several consequences; the commodity markets will likely panic about falling American oil demand and the oil price should tumble; this in turn should reduce the revenue for places like Russia and Saudi, making them more amenable; and it should make it easier to pursue climate change policy here in Britain, if we can point to American action. There is an obstacle - the American public is hostile to the idea, and the Dems might wait two years till they've safely got the presidency before doing anything.

Finally Iraq - Rumsfeld has been sacked, and it looks like Bush is manoeuvring to accept any recommendation from James Baker III to exit Iraq. This will benefit Britain - it will free up troops for Afghanistan, it will help Labour if we're gone from Iraq before the next election. Obstacle - Blair might find it hard to swallow the "cut and run" scenario - in which case he'll probably have to leave before it is implemented. There is time for him and others to get their heads round this - the Baker report doesn't come out till January.

Was Iraq the cause of the change in Congress? It's tempting for our media to conclude so. But Brits on the ground in places like Georgia are saying it was more disgust at overspending/pork-barrelling, and at the hypocrisy of religious conservatives. One said that Rush Limbaugh was the Republican equivalent of Michael Moore in this election, putting moderate people off. We'll never know - all politics is to some extent local and unfathomable to outsiders.

Tuesday, November 07, 2006

Monday, November 06, 2006

Farm Subsidies

Gordon Brown writing in the Times today about the prospects for a fresh world trade deal, , fleshes out what he thinks the deal will look like:

Europe should now go considerably beyond its initial offer of a 39 per cent cut in agricultural tariffs. It even could go beyond the 51 per cent currently mooted. Similarly, America could and should go beyond a 53 per cent cut in trade-distorting domestic support for its farmers. Brazil could and should go beyond its pledge to reduce tariffs on industrial goods, with India responding on services, and all of us contributing to an aid for trade.

He is signalling that under his premiership, CAP will be drastically reduced. Farmers (and the French!) should be afraid. Brown is likely to be a much tougher negotiator than Blair, and unlike Blair has no sympathy for countryside matters/farmers, who don't vote Labour in any case.

Saturday, November 04, 2006

Matthew Parris

Matthew Parris has written a desperate article in todays's Times, pleading for a challenger to Gordon Brown to come forward, saying

What has Mr Brown done to deserve their quiescence?..... I still refuse to think it inevitable.

It's worth remembering that it was Parris who started the press speculation about Alan Johnson as Labour leader, with an article in June, entitled, How the postman will deliver knockout blow to Gordon Brown. Of course this was just wishful, delusional thinking - after all what does a Tory like Parris know about Labour, or indeed the qualities required for leadership?

Speaking of Parris delusions, he also wrote an article last December entitled, The Force is with David the Unruffled , declaring,

The Tories’ hour has come. .... Cometh the hour, cometh the Dave

It may take longer for that delusion to burst, but it will. Parris is a bit nuts, and people endorsed by him should think, what's wrong with me?

Friday, November 03, 2006

The Stern Report

It's been a few days now since the Stern Report was launched, and the terms of the whole green debate have changed.

The Stern Report was commisioned by Gordon Brown in the summer of 2005 after the Gleneagles summit (at a point when David Cameron still believed in the Tory manifesto he had just crafted for the general election) - the reason being that while the govt had set Africa and climate change as the main topics of discussion at the summit, nothing got achieved on the climate change front due to obstruction from the Americans. As the Economist put it, the report was more about politics than about economics—specifically, the politics of getting America involved in the global effort to mitigate climate change.

By focusing for the first time on the economic consequences of not tackling climate change, Stern appears to have gone some way to achieving his objective. The report was covered in the Washington Post, the White House issued a press statement saying they welcomed it, and partisans got stuck in, the Daily Kos in favour, and the editorial in the New York Sun, predictably against. Australia (who haven't signed the Kyoto protocol) also covered it in some detail - ABC news had a piece on it, and the Australian Labor party also waded in (they support Kyoto).

Everyone responded pretty much as expected - apart from the Tories. They seem to have forgotton their "Green Tory" theme from their conference (it seems an age ago doesn't it?) and reverted to type. Tory supporters and activists loudly denounced the science and rejected having to pay any green tax on websites like the BBC's Have your say .

On the Newsnight debate on the Stern Report, they were represented by that old warrior Nigel Lawson, who immediately expressed doubt that climate change was taking place at all and claimed that all the green taxes to date had made no difference to people's behaviour (untrue - the volume of petrol consumed in Britain hasn't grown since the 70's despite the population increasing sharply, thanks to fuel tax incentivising the car manufacturers to concentrate on smaller cars and fuel efficient technology).

Conservative Home gave prominent position to Lawson's subsequent sceptical speech on climate change to the Centre for Policy Studies. It was as though the whole "Green Tory" business had never happened. And this despite the Stern Report being welcomed by the CBI and other business groups.

Why put Lawson up for the Newsnight debate - why not a Cameroon, like Zac Goldsmith (why has Goldsmith been so silent on this subject)? And if Lawson is now setting the terms of the Tory climate response so sceptically, what happens to Goldsmith's report when it is published? (And is it any point in him publishing, can he do a better job than Stern given that he lacks Stern's economic credentials?) Cameron having his chauffeur following his bike may be a metaphor for their entire green project.

What happens next? The government will press ahead with nuclear power for energy security reasons, as well as climate ones - Goldsmith is known to be against nuclear; should be fun to see the Tory response! The government is seeking to put climate change on the EU's agenda during the German presidency, which begins in January 2007, with a view to getting a pan European deal on flights - possibly VAT on airline fuel, or an airline tax). The EU is pretty good on climate - carbon-trading was pioneered by the EU and the summit held in the first half of 2003 yielded the Biofuels Directive, which meant that from 2005 the petrol you buy is cut with ethanol (2%), and diesel is cut with bio-diesel, and from 2010, it will be 5.75% - given the volumes consumed across the EU, it's a pretty big substitution. An attempt will also be made to get Son of Kyoto started to get a new international agreement.

One thing is for sure - the green agenda is now firmly back under Labour control, and others will have to respond to us. The Lib Dems will bleat about nuclear (as will Goldsmith), other Tories will bleat about green taxes and they will confusedly alternate from climate change scepticism (Lawson) to claiming they are Green Tories (Cameron). And David Cameron may have to resort to making a trip to Antartica to hug a penguin to counter scepticism about whether he really is green.

Thursday, November 02, 2006

Mervyn King's testimony to the House of Lords

Mervyn King said something very interesting at his testimony to the Lords Economics Committee on Tuesday. According to this report from the Independent,

Mervyn King said that the lack of accurate statistics on the size and make-up of the workforce was hindering the bank's ability to set interest rates.

.......Mr King said: "We just don't know how big the population of the UK is because the composition of the population - between young and old, immigrants versus ordinary residents - has changed in recent years.

"It may be that the statistics are not giving an accurate reading." He said rules on benefits for migrants might mean that the claimant count might be understating the level of unemployment. On the other hand, the official measure, based on the labour force survey, might be overstating joblessness.

Of course we all knew that the claimant count didn't contain many migrants because of the rule that they have to pay N.I. for two years before they can claim. But it's very interesting that King thinks the the labour force survey is overstating unemployment.

If unemployment is overstated, then the labour market is tighter than everyone thought and the Bank may wish to put up interest rates. If the figure is correct though and the Bank puts up rates thinking it is wrong, it could send the economy heading downwards. I expect they'll have a very lively debate on this when the Monetary Policy Committee meets next week to decide whether to put interest rates up.