Thursday, December 24, 2009

The Coming British General Election

Jackie Ashley wrote an interesting article in the Guardian recently, where she examined the tactics that Labour has been using against the Conservatives.

She observes correctly that the public don't really view Cameron as an extreme Thatcherite regardless of what his actual policies are - his persona is comfortably fat and fluffy. (She didn't point out that George Osborne does look hatchet-faced, but the Tories are carefully keeping him out of sight).

She also made the point that the toff attack doesn't really work because most people recognise that they have no control over whom they are born to, indeed you don't really have much control over the first eighteen years of your life. (What you do after age eighteen is fair game; so attacks for joining Bullingdon are valid because it shows the mindset of the adult, whereas attacks for going to Eton are really attacks on a man's parents, whom as a child he couldn't control)

Further the toff attack makes some in Labour itself uneasy. Keir Hardie, our founder over a century ago made a point of inviting the middle-class and upper-middle-class Fabians to merge with his working class Independent Labour Party, the trade unions and the co-operative movement to create The Labour Party in 1900. Hardie's view was that it didn't really matter where you came from, in a true egalitarian society everyone was equal and it was your values, what you believed that counted. Thus such men as Attlee were welcomed into the Labour party in 1908.

The true class-based party at the moment is the BNP - their entire appeal is down to the perceived victimhood of a certain class and race, and they exclude all others. If you truly believe in egalitarianism and inclusiveness, as do all Labour people, then class-based politics have to be rejected, because how can you create a truly equal society if a segment of society is pitted against another based on circumstances of birth (whether class or race) that they have no control over?

I believe the toff attack hasn't really worked because Labour's heart just isn't in it. We'd be better off campaigning on something we truly believe in - such as egalitarianism and equality: if the poor have to pay tax, then so should rich folk like Michael Ashcroft and Zac Goldsmith; if the poor are slung into jail for drug-taking, so should the rich and so on. The Tory idea of one rule for elites and another for the council estates is just plain wrong as well as unfair.

However, despite the strategic mis-hits, Labour has been clawing back position in the polls since late Oct. The vast Tory leads of earlier in the year where BPIX put them 22 points ahead and Populus put them 20 points ahead have evaporated, and the gap on average is between 6 and 12 points. Why has this happened?

In my opinion it's all down to Cameron dumping his "cast-iron guarantee" on Europe. He not only annoyed eurosceptics, he made centrists and moderates very nervous indeed.

If he knew he couldn't actually deliver on the policy, why make pledges in such concrete terms? Is he a con-man, or someone who simply can't see two steps forward to the consequences of his decisions? (His trip to Georgia during the Georgia-Russia war, to promise them Britain would send troops to fight Russia suggests the latter. What sort of idiot wants to send Britain to war with Russia? What sort of idiot makes these pledges without checking who is in the wrong (the UN concluded that far from being a victim, Georgia had provoked the war)). If Cameron can't keep cast-iron guarantees to his own supporters, then will he also dump mere promises to look after the NHS? What does he actually believe in? Is he sunshine, is he austerity, is he a weather-vane who can be blown all over the place by people more powerful than him?

More and more you hear the old story about him cycling to work while having his gas-guzzler chauffeur his briefcase behind him. Labour's first attempt to define him, those chameleon ads inspired by an idea John Prescott had, turn out to be on the mark.

That princess of pop and populism, Cheryl Cole put it best. "David Cameron. Brrrrr. Slippery isn't he?" she says in her interview with Q magazine. She's voting Labour. "Better the devil you know." The vast middle of Britain who spend more time watching X-Factor than the news will agree with her. They may not follow every twist and turn of politics, but they are shrewd about grasping the big picture. Labour's big strength in this election is that we are known quantities.

I think we should fight the election on the "cast-iron guarantee" question. If he can't keep "cast-iron" guarantees, can we trust any promises and pledges he makes? Does he believe anything he says? Or is he thinking no further than the next morning's photo-shoot? This is not only no time for a novice, it's no time for a flim-flam photo-shoot guy who doesn't know his own mind either.

Tuesday, December 22, 2009

Did the great financial meltdown of 2008 make people turn left or right?

When the financial meltdown of autumn 2008 got underway, there was much debate on how this would affect politics around the world. Some argued that it would make people swing left - after all the cause of the crisis was the private sector out of control and not regulated enough (regulation, which the Cameron-commissioned Redwood report slammed as too heavy turned out to be too light). Others argued that financial crises made people turn right as they became more conservative, and cited the 1930's for proof.

Well, we've now had several general elections around the globe, so we should have a feel for how the global crisis has affected voters. Here are the general elections conducted since the crisis broke:

Canada: The Canadian federal election came during the crisis itself; it was held on Oct 14th 2008. The Conservative Harper government increased their seats by 19, with a swing of 1.38%, but failed to gain the overall majority they wanted. The result was that the incumbent conservatives continued to govern with a minority government. Swing: right

USA: The American federal election was held in November 2008, and voters swung decisively left. Obama took the White House and the Democrats took control of both houses of Congress. The turning point in the election was John McCain's histrionics during the TARP bailout, after which Obama started to pull ahead. Swing: left

Iceland: The Icelanders held a crisis general election two years before it was due, in April 2009, when their government resigned. Iceland was one of the worst hit countries in the financial meltdown, and a combination of being outside the protection of the EU and infuriating the rest of the world by trying to renege on international financial law meant they had to go to the IMF for help. IMF help came at the price of interest rates at an eye-watering 12%. The right-wing Independence party, which had been in power for the previous 18 years got hammered in the election. The Social Democrats were elected in an alliance with the Greens. The Social Democrats ran the election on a promise to try to gain entry into the EU and join the euro within four years. They followed through and formally applied for EU membership in July 2009, and the EU accepted the application, and has started accession proceedings. Swing: left

India: The enormous Indian electorate held their federal and state elections in stages from mid April to mid May 2009. India was relatively unscathed by the financial crisis thanks to the old-fashioned reserve requirements imposed by their central bank and heavy banking regulation imposed by their centre-left government. The governing centre-left Congress party gained seats, with a swing of 3.96%. Prime Minister Manmohan Singh became the first Indian Prime Minister to be re-elected in 40 years - an impressive feat given that India's stroppy voters take pleasure in kicking politicians out. Swing: left

Japan: Japan held their general election in August 2009. Japan was indirectly affected by the financial crisis due to their reliance on exporting to the USA. After spending most of the 1990's mired in zero growth and deflation, they had hoped they had moved back to normality from the middle of this decade. But the crisis plunged them back into deflation and something seems to have snapped. The centre-right LDP, which has ruled Japan since 1955, was swept from power in a landslide defeat (they lost 177 seats). The Japanese finally got tired of crony capitalism where public funds were used for pet projects in LDP constituencies, while doing nothing for the main economy. The centre-left Democratic Japanese Party took power. Swing: left

Germany: The German federal election took place on schedule in Sept 2009. The centre-right CDU had been governing in a grand coalition with the centre-left SPD since 2005. The grand coalition was held to have handled the financial crisis well - but credit went to the CDU's Angela Merkel, whose party gained enough seats to be able to form a government with their preferred partners, the Free Democrats. Swing: right

Norway: The norweigian general election was held in Sept 2009. Norway was largely unaffected by the financial crisis, insulated by it's oil money. The ruling labour party was returned to power, along with the Socialist Left party and the Centre party in a Red-Green alliance. Norweigian Labour gained seats compared to the previous election. Swing: left

Greece: Greece also held a general election two years before it was due, in October 2009. The right-wing New Democratic party, which had been cooking the books, was swept from power, and the Panhellenic Socialist movement led by George Papandreou came to power with a mandate to clean up corruption and sort things out. Greece has also been badly hit by the financial crisis. Swing: left

The conclusion to be drawn from above is that the crisis has moved people leftwards. Only Angela Merkel escapes, and her government is pretty moderate as right-wing governments go.

One thing to note though is that most of Europe conducted it's general elections before the crisis hit (Sweden 2006, Denmark 2007, France 2007, Ireland 2007, Belgium 2007, Netherlands 2007, Italy April 2008, Austria in Sept 2008 - In Austria, the socialists are the largest party and hold the chancellorship, but the far-right made substantial progress too), so it's hard to tell what their populations think about the crisis. They arn't due to go to the polls again till 2010/11.

Friday, December 04, 2009

Tory Inheritance Tax Proposals

I just wanted to remind readers of a post I wrote in September 2008 about inheritance tax which drew attention to an article in the Telegraph entitled Tories plan to raise inheritance tax threshold to £2 million.

Just to reiterate, it's not £1 million (which is bad enough), it's £2 million for married couples. At a time when they claim that the public finances can't cope with such give-aways. Here's a quote from the Telegraph article:

The detail of the Tory plan was uncovered by Clive Scott-Hopkins, a retired financial adviser and Telegraph reader.

Earlier this year, Mr Scott-Hopkins wrote to Theresa May, shadow leader of the House of Commons asking how the Tory tax plans would affect married couples.

She wrote back, saying: "I am happy to confirm that our inheritance tax proposal will introduce a threshold of £1m per person (not per couple).

"This means that it would be possible for a married couple to enjoy a threshold of £2m."

Conservative Campaign Headquarters confirmed that the £1 million limit would transfer to the surviving spouse.

A Tory spokesman admitted that the party had not publicised the detail of the now-famous plan.

He said: "We would keep the automatic transferability of the nil rate band, if it is still in place when we inherit, and we would raise the nil rate band to £1m per person.

"This has always been our position; it's just that we haven't shouted about it."

Time for Labour to shout about it now?

Wednesday, September 30, 2009

Has the Sun lost it?

Rupert Murdoch isn't the man he used to be. First he bought MySpace for $1/2 billion just as Facebook was taking off. Then he got the New York Post (the American equivalent of the Sun), to endorse John McCain, shortly after McCain chose Sarah Palin as his vice-presidential candidate. Murdoch was clearly convinced that the Palin appointment was a game-changer...

Then News International announced in August that it made a $3.4bn loss. Then James Murdoch launched a vicious attack on the BBC - which prompted previously indifferent people to rally around the Beeb.

And yesterday we had the news that Rupert Murdoch instructed the Sun to say they were backing the Conservatives in the next general election.

No surprise there - the Sun has been hostile to Labour since Cameron became Tory leader in 2005. So this won't change many Sun readers minds.

But it will affect how Labour voters feel. Labour's problem at the moment is widespread apathy. The September Guardian ICM poll showed Labour certainty to vote at just 53% (compared to 68% for the Tories and 59% for the LibDems). The ICM for 23/24th Sept was a little better - our certainty was 59% (but the Tories certainty had climbed to 70%). Labour needs to get people to the polls, and this could galvanise our voters. One person said to me, if Murdoch is against you, you must be doing something right...

Thursday, September 03, 2009

The Murdoch plans for media pricing

It's been a couple of months since I last posted - mainly because I have been so busy in my off-line world, I haven't had time to watch the news let alone blog a response to it.

It's an odd sensation not watching or reading news. You very quickly get used to concentrating on real everyday issues, and you only hear about what is going on elsewhere as a sort of distant muffled echo when a news item is big enough that it gets mentioned in conversation by largely non-news following people. When I logged into the Guardian today, I was sort of disorientated by what they deemed to be important news - most of what was on there (murders, Libya etc) seemed pointless and irrelevant to my life (is it sacrilege to say this?).

Only two pieces of news actually got through to me over the summer - the whole upset about the Tory chap thinking the NHS was a "60 year mistake", and the news that Murdoch wanted to charge for access to his newspapers.

Of the two, the Murdoch news is actually the more significant (the NHS is the third rail of British politics, no-one except a suicidal politician would dare to touch it), so I thought I'd explore what it means for the Labour party.

Throughout the 109 years of it's existence, the Labour party has faced a right-wing news-media in Britain. The Daily Mail scuppered the 1923 Labour government, by printing a fabricated letter about imminent communist revolution. Throughout the 1980's and early 90's Labour faced a hostile press given to personal attacks when they couldn't attack on policy.

Despite this however, the three biggest landslide wins any political party has won since universal franchise have been by Labour (1945, 1997 and 2001). We know how Labour achieved the 1997 and 2001 wins - it was done by a two-prong strategy where Blair schmoozed the press while Alistair Campbell ran a relentless rapid rebuttal unit determined to close down negative stories.

But what about the 1945 landslide? Atlee certainly had no PR skills nor any friends in the press. And he faced his equivalent of Murdoch in the form of Lord Beaverbrook, who poured out relentless poison about Labour in the 1945 election campaign, and even managed to influence Churchill so far that he made his shameful "gestapo" speech during the campaign.

So why did this relentless right-wing campaign fail so spectacularly, handing defeat to Churchill just three months after D-day?

In my opinion it was because though the press was pouring out it's bile, a significant part of the electorate wasn't consuming it, for the simple reason that they were still abroad at war, posted in places such as Germany, Burma, North Africa, all over the place really. They weren't reading any of the rubbish the press were putting out, and therefore their choice of party was based on what they personally wanted from post-war Britain - they didn't want soldiers forgotten as they were after WW1, they didn't want unemployment as in the 1930's, they weren't impressed by Tory appeasement of Hitler leading up to the war, and they were fully aware of Churchill's deficiencies as a manager, as they witnessed one cock-up after another in the theatre of war (Churchill was running the war while Atlee ran the home-front). So Labour was swept to power.

How does the 1945 experience inform today's politics? Simple. If Murdoch puts his newspapers behind a pay-wall, we will have once again a significant part of the electorate not exposed to his poison. Except instead of circumstances of war insulating the public, Murdoch will himself be walling off the public from his thoughts.

When the New York Times experimented with it's pay-wall a couple of years ago, their readership fell by 90%. Those 10% who paid did cover the bills - so the experiment was profitable. But significantly the NYT abandoned the paywall because for them profit was not enough - they wanted to be influential as well.

Suppose Murdoch goes ahead with his pay-wall - and suppose for argument that all the other newspapers follow. Suppose even further that he succeeds in his campaign to get the BBC to axe their website. He is assuming that because people cannot get news for free (a dubious assumption as due to the nature of the net, there is always leakage), they will "have" to pay.

I don't think people will be rushing to pay at all, even if all news online was behind a paywall. What will happen instead is a whole bunch of people simply "give up" the news. It's not necessary to daily life after all, and indeed when detached from the emotive poison put out by the news media, life takes on a pleasant tenor. I didn't miss the news at all this summer, and I don't think I'll be consuming it in the same quantity in the future - it now just seems a collosal waste of time, especially if you are busy. A whole generation of twenty-somethings and thirty-somethings have already come to this conclusion, and simply find out what is going on by spending 10 seconds scanning the headlines on their email portal (they don't even bother to click the links).

This is a huge deal for the Labour party. It means one of the biggest headwinds against us eliminates itself. It means that on-the-ground work by Labour members to inform the population (leaflets, canvassing etc) takes on new importance. It means that the influence of media barons over government diminishes (will anyone pay attention to what Murdoch wants if no-one is reading his output?). At a stroke emotive personal attacks on our leaders will lose their power (because no-one will be listening) and policy issues will gain importance (as they actually do affect daily life). Absurd situations where people fear crime even while they don't experience it will disappear if there is no media to fuel fear and people start to draw their conclusions from their own experiences. This probably sounds sacrilegious, but even the elimination of the BBC as a news provider would benefit Labour (as we would no longer be subject to the constant "not good enough" criticism we face no matter what we do, which leads voters to take us for granted and to discount our achievements).

I think this will be a watershed - a step-change in how politics is conducted, which will make the next thirty years very different to what we've known in the last thirty.

I only wish Murdoch was bringing in his pay-wall now, before the general election. I wonder how we could persuade him to go ahead sooner?

Wednesday, June 10, 2009

How much do the euro elections matter?

For the best analysis of last week's turbulent politics, I refer you to Hopi Sen's excellent article How Not to Plot. He says it all.

But there is a question that hasn't been addressed. How important are the euro-elections anyway? It's fashionable to claim that because the Tories got 27.7% and UKIP got 16.5% and "of course" UKIP people will vote Tory in a general election, the Tories are on course for a general election share of 44.2%.

But this overlooks turnout, which was an abysmal 34%. What happens when turnout rises to general election levels? The best way to gauge this is to see what happened between the euro elections of 2004 and the general election of 2005.

Looking back to the 2004 european elections, the Tory and UKIP results were not that different to now. Here's how the results panned out.

Party Votes %
Conservative 4,397,090 26.7
Labour 3,718,683 22.6
UKIP 2,650,768 16.1
LibDem 2,452,327 14.9
Green 1,033,093 6.3
BNP 808,200 4.9
Respect 252,252 1.5
SNP 231,505 1.4
Plaid Cymru 159,888 1.0

The Tories plus UKIP are 42.8%. And in number of votes Tories plus UKIP total 7,047,858.

Now look what happens in the 2005 general election:

Party Votes %
Labour 9,562,122 35.3
Conservative 8,772,598 32.3
LibDem 5,981,874 22.1
UKIP 603,298 2.2
SNP 412,267 1.5
Green 257,758 1.0
BNP 192,746 0.7
Plaid cymru 174,838 0.6
Respect 68,094 0.3%

The Conservatives plus UKIP are now 9,375896 (2,328,038 up from their 2004 euro election showing). But Labour puts on a whopping 5,843,439 votes in the 2005 general election compared to the 2004 euro elections.

The message from the above that the Tory+UKIP vote is a reliable indicator of what they will get in the general election - their supporters turn out to the ballot box come rain or shine for all manner of elections. They will put on a bit in the general election, but only marginally. But look at the Labour voters - they just don't bother to vote in non-general elections at the best of times. And in 2004, some were probably abstaining because of Iraq. But they came out in the general election.

Now to the 2009 euro elections. the results were as follows:

Party Votes %
Conservative 4,198,394 27.7%
UKIP 2,498,226 16.5%
Labour 2,381,760 15.7%
LibDem 2,080,613 13.7%
Green 1,223,303 8.6%
BNP 943,598 6.2%
SNP 321,007 2.1%
Plaid Cymru 126,702 0.8%

In terms of numbers of votes, everyone is a bit down from the 2004 euro elections, apart from the Greens and the BNP. But Labour's vote is sharply down. It hasn't "gone" to anyone. They've just stayed at home.

The challenge for the general election is in getting them to come out and vote. All the plots etc have probably put them off big time. But now that the plots are over, if the party can focus on the idea that the next election is a make or break election, which is going to be close, with clear differences between Labour and the Tories, then, well, it's not over.

It's all about getting out the vote. The most disturbing article to be written in recent days was the one penned by John Prescott where he alleged that certain members of the government were not even trying to win. He's right to be concerned. If that attitude is replicated in the general election, we will lose badly. If the govt pulls up it's socks and starts to fight, that needn't be the case.

Thursday, May 21, 2009

Should the taxpayer be buying ginormous houses for MPs?

A Tory MP who has been forced down over expenses has claimed that people were jealous of his big house. Of course there might be some envy flying around - but in general people accept that if you pay for things yourself you can have as large a house as you like. It's only when you get ordinary taxpayers on low incomes to pay for it through their taxes that it becomes a problem.

The second home allowance was designed to help MPs conduct their parliamentary duties and look after their constituents as well as attend Parliament. They can have as large a main house as they like, as they are paying for it themselves, but do they need a massive second home? Wouldn't a modest three-bed or four-bed in the constituency do to enable them to conduct their constituency duties?

And we come to David Cameron's £750,000 second home in Oxfordshire. The Daily Mail, actually raised this issue last year. It's worth having a look at the photo of Cameron's house.

Does he really need something that large to carry out his constituency duties and should he have charged the taxpayer for it?

Cameron bought the second home when he got elected in 2001. Here's what Cameron has claimed on his second home alowances since then (mostly mortgage interest):

2001/2: £18,009
2002/3: £19,722
2003/4: £20,328
2004/5: £20,902
2005/6: £21,359
2006/7: £20,563
2007/8: £19,626

Total: £140,509

No doubt Tories will swarm on here accusing me of class envy - but he's welcome to have as big a house as possible as long as I don't have to pay for it. It's not clear to me that he needed such a large house to do his constituency duties, he clearly bought the biggest one he could at the taxpayers expense and clearly intends to make a profit from it by selling after he has left parliament whenever that is. Thus he is as guilty of taking the taxman for a ride as some of the other cases we have heard.

Tuesday, May 19, 2009

Looking at how different approaches to the recession have produced different results

Eurostat published Q1 GDP figures on the 15th, and they were all but ignored because of the expenses scandal. But it's worth looking at to see how different approaches to the crisis have affected economic performance

All the following figures for GDP are growth per quarter. Eurostat also show American GDP stated per quarter, for comparison.

Country Q208 Q308 Q408 Q109

France -0.4% -0.2% -1.5% -1.2%
Germany -0.5% -0.5% -2.2% -3.8%
Italy -0.6% -0.8% -2.1% -2.4%
Spain 0.1% -0.3% -1.0% -1.8%
UK 0.0% -0.7% -1.6% -1.9%
USA 0.7% -0.1% -1.6% -1.6%

All the countries that stimulated have mitigated the bad effects of the recession.
The Americans in particular have applied several stimuluses to their economy. Their growth was positive in Q208 because the Bush stimulus bill signed in Feb 2008 released $178bn in tax rebate cheques in May 2008, then $300bn for distressed homeowners in July 2008, and then Obama signed a $787 billion package in Feb 2008. No wonder the American economy is doing less badly than everyone elses.

Elsewhere the centre-left Labour govt of the UK and the centre-left socialist govt of Spain also stimulated in the fourth quarter of 2008. The Germans didn't bother and the Italians under Berlusconi were also slow.

Germany belatedly started to take action earlier this year. But the delay has been costly - some economists reckon that the cost to fix things will be more than the cost of re-unification. The real cost of recessions is the drop in tax revenue - and the longer and deeper the recession is, the worse that cost is. Germany has now admitted that it will experience it's biggest budget deficit since WW2. It's actually cheaper to go for a stimulus early to mitigate the recession and ensure it is short-lived than to let it run and run. Tories like George Osborne cheered Germany to the rafters when they were making their idiotic comments last Sept about "crass Keynesianism". But they are strangely silent now.

It's not fashionable to say this, but we in Britain were lucky to have Gord at the helm in Sept 2008. No one else would have had the sense to take the right course of action.

Why Hazel Blears is a crap communicator

I was trying to work out what bothered me so much about Hazel Blears appearing on TV waving her cheque for £13k which she will repay to the taxpayer. Why was this so much worse than other MPs like Margaret Moran, and David Davis merely saying that they were repaying money?

It came to me that there was a touch of "loads-of-money" about Blears actions. Waving cash at people, waving cheques implies you have got a lot of money on hand. Essentially she was saying with her body language, I'm rich, I can write a cheque for £13 grand just like that (imagine smug click of the fingers). Which makes things so much worse.

The median income in Britain is about £25,000, which implies that about half the workforce, 14 million, earn less than that. They don't have £13k on hand to be able to write cheques to wave in people's faces. And if you've got lots of money on hand, why do you need to nick from the public purse?

Hazel Blears has been making a big fuss in recent weeks about how she is a better communicator than Gordon Brown. It's perfectly true that Gord doesn't know how to do anything but serious. Put him in front of a camera and ask him to smile and he struggles. But he has never been known to wave cheques in the faces of people either. If Hazel Blears was really the great politician and communicator she claims she is, she wouldn't have done it. Instead she'd have been contrite and apologetic. If she's such a useless politician, should she be an MP?

Today's NEC meeting has provided some guidelines of what will happen. There is going to be independent scrutiny of every claim made by every Labour MP in the last four years. The people breaking the spirit of the rules will be made to return the money. An NEC panel will recommend the deselection of the worst cases regardless of whether they have repaid or not (i.e. repaying will not save you). I hope Hazel Blears is one of those given the chop.

Sunday, May 10, 2009

Labour should move swiftly to deselect MPs who have abused the expenses system

It's hard to overstate how shocked Labour members have been over the revelations about MPs expenses in the Telegraph and other newspapers.

Members after all join parties for idealistic reasons - and they then proceed to give money, give up spare time to attend meetings to select candidates, give time delivering leaflets and canvassing, give time defending the party online, give, give, give, in an act of civic altrusim without which we would have no democracy. And to find that we've been betrayed by the MPs who were solely focused on their own profit and who then have the gall to traipse around the TV studios trying to defend the indefensible...

MPs may bleat that "all parties are at it" or that they are underpaid compared to GPs or they are victims of the press, but none of this washes. To your average voter, MPs arn't underpaid at all. To your average party member who gives so much for free, the MPs sense of entitlement is shocking.

There is only one response to this - the MPs with the worst abuses must be deselected. To use the GP analogy, if doctors are found to be incompetant or have brought their profession into disrepute, they are struck off. The job of a politician is to understand what voters are thinking. Barbara Follet and Margaret Moran to name two MPs, appear to have no political nous whatsoever. So what is the point of having them as MPs?

There is also the issue of the reputation of the Labour party - this must come above the needs of individual MPs. In the 80's, Labour was constantly attacked over letting extremists hijack the party. It wasn't till Neil Kinnock publicly took on Derek Hatton and other Militant extremists at the party conference that the tide started to turn and the public began to see that Labour was serious about putting it's house in order. Indeed Kinnock took the whole issue so seriously, he actually missed Prime Ministers Questions, in order to attend Hatton's disciplinary meeting in 1986, which was scheduled at the same time. He prevailed and Hatton was expelled.

By contrast, the Conservatives did not deal with Neil Hamilton in the 1997 election. They foolishly allowed him to represent them, so the story became "Conservatives back MP who receives money in brown bags". They should have protected their party and forced him to step down.

Labour musn't make the same mistake. The MPs with the worst abuses cannot be allowed to contest the next election representing Labour. But how to force the rotton MPs out is exercising many. As seen by the way they seem to be defending themselves, they clearly mean to fight to stay on. And because we are so close to a general election, many sitting MPs will have already been reselected for their seat. There are several ways the CLPs can act. They can put pressure for the MPs to stand down and they can start disciplinary proceedings. Under rule 2A.8 of the Labour party rule book, "No member of the party shall engage in conduct which in the opinion of the national constitutional committee (NCC) is prejudicial, or in any act which in the opinion of the NCC is grossly detrimental to the party." To any reasonable person, MPs engaging in property speculation at the taxpayers expense is "grossly detrimental to the party".

It's always hard for individual members to stand up at constituency party meetings to question the MPs. But they must do it if the Labour party is to survive with it's reputation intact. The public won't be happy till MP's have been punished and brought to heel. If we dont act, the voters will act, by choosing "anyone but the incumbant", and as we have the most incumbants, we have the most to lose.

Sunday, May 03, 2009

On fanciful talk of defections from the LibDems

Paddy Ashdown created a bit of a stir when he claimed that some Labour MPs might defect to the LibDems.

This is so off-base, where to start? First of all the searing memory in the Labour party is of the split in the early 80's when the SDP broke away. It's not just about the fact that the Labour party dislikes disloyalty above all things. It's also about the fate of the MPs who defected to the SDP - 28 Labour MPs left to join the SDP, along with loads of PPCs and activists, and they thought they were leaving a Labour party that was "finished" and going on to form the next government. Actually, they were trashing their careers and going nowhere.

By contrast, parliamentary candidates like Tony Blair, standing for election in 1983 for the first time, stuck with the Labour party, fighting from within to make it electable. He then became leader of the Labour party and Prime Minister for 10 years. If Vince Cable had stayed put, he would now be chancellor, but instead has to content himself with appearances on TV when they need a third voice. The lesson is clear - stay and fight your corner and you eventually prevail. Flouncing out pays no dividends. Politics is a long, long game.

In addition Ashdown and others who believe that Labour will lurch left have absolutely no understanding of the make-up of current Labour activists nearly 30 years after the SDP was formed. The party is a different animal.

It's not just the Labour party that has changed of course. The entire political landscape has changed. The Tories are now further to the right than they've been in 60 years. They are also more euro-sceptic than they've ever been, more isolationist, more fearful of the rest of the world. This closes off options.

It's a cliche to say that the left of the Labour party has nowhere to go - it was true in 1996 and is true now. But what is new is that the right of the Labour party also has nowhere to go. If like me you are centrist in the grand scheme of things (which means on the right of the Labour party), believing in and engaged in commerce, and understanding that globalisation needs rules and safety nets, and that the EU supplies these in Europe and that we have to be in the EU; if you rather like the world and it's peoples, instead of fearing and hating it, there isn't anywhere else to go apart from Labour.

Pro-europeans like Peter Mandelson and Charles Clarke need the Labour party as much as Dianne Abbot and Dennis Skinner do. That's why no MPs have crossed the floor away from Labour since Gordon Brown became leader in 2007, and why there won't be any coming up in the next few months. We are all locked together in mutual need and must help each other to get anywhere.

Sunday, April 26, 2009

The Obama factor in Labour's budget

Most of the commentariat are busily discussing the supposed "death of New Labour" and trying to come up with reasons why Peter Mandelson and co sanctioned the introduction of the 50% top rate if income tax.

They've overlooked an important point: Labour was only able to do this because the election of Barack Obama gave us cover. Here's what I wrote on 5th November 2008 (the day after his win):

Obama has stated that he thinks a person on an income of $250k is rich (this is about £158k at current rates). He intends to raise the top federal tax rates to to 36% and 39.6% (from the current 33% and 35%). Remember that Americans pay state income tax in addition to federal income tax. The American state that mirrors Britain's economy most is New York State. There, the state income tax if your income range is between $100,001 and $500,000, is 7.375%. If your income range is $500,001 and over, your tax rate is 7.7%. People living in New York City pay city income tax too of between 2.9% and 3.6%.

That means that the top marginal rate of tax for high earners in New York City (London's great rival) will go up from the current 46.3% to 50.9% under Obama. Compare that to the 41% levied in the UK. It gives cover for the Labour govt to raise N.I. by a mere 1% over the upper earnings limit (to take the marginal rate to 42%), should they wish. Especially as the Irish have introduced an income levy of 1% (and 2% for earnings over €100000) to take top rate to 43%. Alistair Darling has ruled out tax increases for now. But what has happened in the USA gives us room for manoeuvre if we need it.

People always overlook the fact that you may want to do something, but are constrained by your neighbours and can only take action when they move. This applies to tax more than anything. It explains why there is a lot of corporate tax competition within the EU, with every EU nation's corp tax rate coming down including Germany's - in the UK corp tax is 28% compared to 33% in 1997. But in the USA, even under Bush, the corporate tax rate remained 35%. That's because the US federal government is able to impose a blanket rate (the state corporate tax rates are offset against the federal ones). The EU imposes no such blanket rate, and hence this opens things up for the states to compete on corporate tax, the opening salvo of which was fired by Ireland in the early 1990's. The American states compete on income tax rather than corporate tax.

All movements in matters of taxation have to be relative to that of your main rival. London's main rival is New York in high paid individuals and the financial services industry. In the USA, Obama has also helpfully capped the earnings of people in bailed out firms at $75000 (£51724 at current exchange rates). Many bankers will prefer to remain in the UK and bite the bullet of the 50% tax than move to the USA. I expect the Labour government is also calculating that their move on income tax will give cover to the other EU nations should they need to raise taxes (and many will not want to do this, but will need to do so due to the exceptional circumstances we are living in). Many of the high paid of the UK have been threatening to go to Switzerland. But the Swiss are in trouble with their banking system, which will probably need to be bailed out by the Swiss government - and they will likely have to pay for it by, you guessed it, tax rises.

As for the "death of New Labour" - what is happening is no different to the evolution that took place in our sister party the US Democrats, from Bill Clinton to Obama. We sustained the "Bill Clinton" bit a little longer than they did - but then they had to endure the extreme-right wing Bush in the interim, which provoked a bigger backlash. One of the what-ifs of history is what would have happened had Al Gore been elected in 2000. The forces bearing on the Labour government would have been quite different. Oh well.

Wednesday, April 22, 2009

Initial Budget Reaction

Well no-one can accuse Alistair Darling of being boring now! It was the most exciting budget in decades.

The reaction from the Tory Commentariat is interesting: Ian Dale in the Guardian declared he was "fizzing" with anger at the 50% tax rate for earnings over £150k, and Danny Finklestein wrote in the Times that "I think the tax rises will go down very badly with the bulk of voters". Both of course opposed the VAT cut because it benefitted rather more than the top 2% of the workforce.

Their knee-jerk response is very much the politics of the last 30 years. They assume that everyone identifies with the rich and that at least 40% of the population believe they will become part of the top 2% next year. While simultaneously believing that ordinary people are unhappy with the VAT refund on their sales slips.

I'm not sure if this thinking holds anymore. We shall find out if there has been a step-change in attitudes soon enough, at the next election...

Of course Tories will try to get around the "we are the party of the top two percent" by claiming that this hurts "entrepreneurs". But as most entrepreneurs will testify, they take their income in the form of dividends, are careful to retain as much in the company as possible (to fund future growth) and only set the dividend amount to be within the lowest tax rate bands. And when they make it and cash out (usually by allowing their small firm to get taken over by a bigger one for a tidy sum), they take their money in the form of capital gains which are taxed at just 18% (compared to 40% under the last Tory government). And why not if they've created a company and jobs out of nothing. So true entrepreneurs will not suffer at all.

However what could be termed the "officer" class, those who are high level management and directors, who pay themselves big amounts at the shareholders expense, bankers in the City who've done so much to ruin their industry, some extremely high paid staff in councils - these are the types of people who will be taxed at the new 50% rate. But they are not entrepreneurs. If they are encouraged to switch from being rentier types to becoming true entrepreneurs, then good. And if some of the bankers wish to bestow their talents for ruining businesses on the good people of Hong Kong or Dubai instead, I wish them bon voyage and cross my fingers that those countries will take them in.

Saturday, April 04, 2009

G20 Reaction

It's safe to say that the outcome of the G20 last week was a surprise to everyone. Last November the Americans were expecting to sweep into London and dictate the agenda, while the French and Germans were expecting they would get to lecture everyone about how their economies had survived intact while the Anglo-Saxon economies had not. And both the Tories and the press were loudly anticipating a failure by the Brown government to get all the differing parties onto the same page right up to the eve of the summit.

As it turned out, Gordon Brown not only pulled it off, Britain was central in driving the agenda (the first time this has happened at these meetings in decades).

It wasn't just the official agenda that went right, the peripheral one of welcoming the Obamas on their first visit abroad went right too. We saw Sarah Brown again for the first time since Glenrothes, and again she was a hit. She managed to strike exactly the right note, from getting her friend JK Rowling to give a reading (thrilling not only the Obamas but the Medvedevs), to making tea in a cancer centre, she was pretty much the perfect representative for Britain.

Everyone likes Sarah. Part of it is that she isn't pushy like Cherie (who was vilified by the press) but not cringingly shy like Norma Major (who was bullied by the press). She is very much as middle England likes to see itself - kind, well-mannered, endearingly plump and sometimes a little frumpy. Cherie (and Samantha Cameron who fancies herself as a fashionista) would not have been able to resist competing with Michelle Obama in the fashion stakes. Sarah, who is the same age as Michelle, didn't bother to try, and her instincts were right. While the Americans and French supposedly don't mind seeing their leaders' wives spend thousands on couture in the middle of a recession, Brits are a different cup of tea.

It's a rare skill to be able to tap your country's mood without even trying. Sarah Brown turned out to be the big winner of the G20 summit.

Thursday, March 19, 2009

When will the recession end?

The old-fashioned answer is "When the market clears". That is, when gluts are eliminated, balance sheets repaired, debts repaid and pent-up demand builds to the point where it can't be postponed and people spend again and the economy rebounds.

The biggest threat to markets not clearing is the banks' balance sheets. As the BoE noted in it's Feb09 inflation report:

"UK banks need to restructure their balance sheets,reducing their overdependence on wholesale financing and realigning the scale of their loans relative to their deposit base.That in turn will require adjustment to private sector balance sheets — in part by the non-bank financial sector, but alsothrough higher saving and lower spending by households and companies"

But of course to do this, the banks need money to repay their wholesale loans. The best way to do this is have the household sector repay some of their debt, which in turn allows the bank to use the money received to repay some of their wholesale debt. But whenever someone suggests this (I've been writing posts urging people to repay their debt since early Feb), the Paradox of Thrift is invoked. When Bush urged Americans to "go shopping" in the 2001 recession, he was invoking the Paradox of Thrift. Greenspan urging Americans to invest in housing and abandon the traditional American 30-year fixed year rate mortgages in favour of variable-rate mortgages, so they saw a rise in disposable income (temporary as long as interest rates remained low), was also acting on the Paradox of Thrift and trying to keep consumption going.

It's perfectly true that if everybody stops spending (households, businesses and government), the economy spirals down in a vicious cycle. However, lets get a few things clear. This is not the 1930's. In the UK at least, we now have a full-blown welfare state, and government spending automatically increases in a downturn on things like unemployment benefit, housing benefit, mortgage help and so on (the so-called automatic stabalisers), which support a degree of consumption in the economy. And governments can always expand spending beyond that on public works (the Olympics-related spending being an example).

As long as government stands ready to take up the slack, there isn't any danger of a spiral down. But recovery depends on the private sector clearing - without the private sector clearing you get a stalemate and stagnation.

The best way to illustrate this is the Japanese example. Japanese businesses took on a tremendous amount of debt in the 1980's. Their debt to equity ratio was 4 (they were financing about 20% of assets with equity and 80% with debt). In US companies in the 80's the ratio was 1.02 (equity was financing 49.5% of assets). When Japan went into recession in the early 1990's, after some hesitation the Japanese government embarked on a Keynesian expansion. As Stephen King points out, they managed pretty well to avoid a collapse 1930's style: "growth was very low but not entirely absent; unemployment rose, but not too far; and per capita incomes were maintained at a high level by international standards.". It was a success, as they prevented the spiral down.

But they still lost a decade in stagnation and barely-there growth, and in the meantime the government debt kept climbing (Japan's debt as a % of GDP is forecast to be 217% in 2009). People focus on the stupendous Japanese government debt and shudder and claim that thus we shouldn't go down that path. But their government debt rose so much only because it took so long for the private sector to clear. If they had cleared in about five years instead of a decade, they wouldn't have the public sector debt they have now.

The problem was not in the government action (they did what they had to do), but in the private sector which took forever to repay debt and thus "clear". Worse, in a deflationary situation, debt becomes harder and harder to repay as incomes and corporate revenues fall, so the longer you leave it, the worse it gets.

The conclusion must therefore be that we should encourage our private sector to clear as fast as possible, while letting the government take the strain. Those whose disposable income has increased thanks to interest rates being cut should do their bit for their country (and themselves) and repay debt as fast as possible, including overpaying their mortgages if they are allowed by their mortgage terms. We'll have a few bad quarters, but at some point a tipping point will occur. The banks will clear their wholesale loans and start to think about profits again (which they can't make unless they lend again). When households repay their debts they will find disposable income jumps as their monthly debt commitments disappear, and they will spend some of the money freed up. Pent-up demand will build (purchases of things like cars can only remain at current depressed levels if existing cars last about 27 years, which they are not designed to do). Obviously it will help a lot if those who have no debt carry on spending as normal and are not panicked into drawing in their horns.

What happened in Japan was that corporations hesitated to clear their debt and carried on like zombies, while some Japanese households who had no debt cut back on spending in a panic. If we do this the other way round (people with debt clear it at speed while people with no debt continue as normal), we should be out of this recession as rapidly as we got into it. Of course if this doesn't happen, this could drag on for years.

Tuesday, March 17, 2009

The Recession and Journalism

From tomorrow, the Seattle Post-Intelligencer becomes an internet only newspaper, as the Hearst Corporation tries to stem losses. According to the New York Times, they will go from news staff of 165 to 20 people who will provide commentary, with the news coming from feeds (presumably from Reuters or Associated Press). The problem was this: no one buys print anymore, and advertisers are loathe to spend high rates to advertise in newspapers. But internet advertising rates are so low that they can't support more than a staff of 20 (compared to print advertising supporting a staff of 165).

The Recession combined with the Internet is creating a bloodbath among American newspapers, (and can British and European newspapers be far behind?) The best article about the phenomenon is an essay written by someone called Clay Shirky - I urge people to read it in full.

He points out that the old newspaper model was built on a barrier to entry that doesn't exist in the internet world:

"If you want to know why newspapers are in such trouble, the most salient fact is this: Printing presses are terrifically expensive to set up and to run. This bit of economics, normal since Gutenberg, limits competition while creating positive returns to scale for the press owner, a happy pair of economic effects that feed on each other. In a notional town with two perfectly balanced newspapers, one paper would eventually generate some small advantage — a breaking story, a key interview — at which point both advertisers and readers would come to prefer it, however slightly. That paper would in turn find it easier to capture the next dollar of advertising, at lower expense, than the competition. This would increase its dominance, which would further deepen those preferences, repeat chorus. The end result is either geographic or demographic segmentation among papers, or one paper holding a monopoly on the local mainstream audience."

Because of this monopoly, newspapers could use their advertising revenue to subsidize all sorts of things such as war correspondents, whether or not the advertiser wanted their money spent that way or not. But with the internet, the advertiser can target their ads. Further, because there is no barrier to entry online and so many places to put advertising, the advertising rates that newspapers can command online are way lower than in print. After all, why advertise on a newspaper site such as the Guardian or the Times, where the readers might or might not be interested in your product, when you can target the ads like a laser by placing them on the Google search results, so that only people searching for your product niche see them. Google continues to do so well precisely because the ads on their search engine have a much higher convertability into sales than ads in almost any other medium, whether print, television or other internet pages.

But there is a side-effect to this - if the revenue supporting journalism dries up, stories won't get broken anymore, apart from by Reuters and Associated Press, who should do well by everyone buying their feeds. And as a result, pretty much all newspapers will start to feature exaactly the same news.

There is only one organisation that is immune from all this - The BBC. Alone, they can afford to send correspondents to Baghdad or Timbuktu. Alone they can afford to cover every part of the planet.

This is most certainly NOT the moment to curb the BBC whether by trying to cut their income by freezing the licence fee or by trying to force them to compete for the rapidly diminishing television advertising revenue (which is being hit by both the better targetting of advertising on Google and by the ability to tape shows and fast forward through the ads) - by doing so you would curb the one last source of free independent news (one of the pillars on which our democracy rests).

Journalism benefits society as a whole, and public service journalism has never been so vital when the private sector looks like it will curl up and die. Clay Shirky asks the question, So who covers all that news if some significant fraction of the currently employed newspaper people lose their jobs? and answers, "I don’t know. Nobody knows." One answer is that every country adopts the BBC model of a license fee funded public service journalism. It's either that or accept that most of the world's news will be coming from Britain via the Beeb (I can see the BBC selling news feeds to the world in much the way Associated Press does), which will have the side-effect of making our country the centre of the planet information wise.

Monday, March 02, 2009

January lending figures from the Bank of England

The monthly lending figures from the Bank of England were released today, and predictably the newspapers have reacted with screaming headlines saying that Mortgage lending plunges by 60% and lamenting how this would affect the economy.

Delving into the figures shows a more interesting picture, however. It's net lending that had plunged (i.e. new lending less repayments and redemptions). Mortgages issued for purchases of houses were slightly higher in value compared to December. Remortgages are down - but that's because of a lot of people coming off their fixed-rate onto the standard variable rate are deciding to stay there instead of remortgaging for another fix (rational as the arrangement fees on new fixed rate mortgages have soared). As a result, gross lending is down by £875 million.

But net lending is down by £1104 million. Which suggests that in January households made a concerted effort to use the money released by falling interest rates to pay down their existing mortgages. This is actually a good thing. It puts households in a stronger position, and as explained in my previous post, repayments of capital help banks and building societies who wish to reduce their wholesale funding.

It's coping with the roll-over of wholesale debt that continues to pose a problem for the banks. According to UBS, HSBC has $97.3bn in securities maturing in 2009/10, Barclays has $69.8bn, and HBOS has $57.6bn in securities maturing in 2009/10. They can either try to refinance these over by issuing new securities - but every bank in the world will be trying this, and competing with governments also seeking to borrow from the markets at the same time. They can try for a rights issue to raise money from shareholders (as HSBC is doing). They can simply get more capital from governments through bailout schemes (but will make them even more "nationalised" than they are), or they can rely on households repaying debt at an accelerated rate.

The commercial sector is not repaying debt (most of the horror story of the HBoS losses concerns their commercial lending unit). Shareholders are reluctant to inject more money into banks - see the sell off of HSBC's shares today following the reports of the losses they made in the US and Asia and the announcement of their rights issue. Governments can inject more money, but there is a reluctance to nationalise, and the more money injected the closer outright nationalisation gets. That leaves households, the one sector that has had their disposable income increase, thanks to falling interest rates, falling oil and falling prices. As I said before, if I was in charge of these banks, I'd be writing to every mortgagee on a tracker or standard variable mortgage, pointing out the benefits of making extra capital repayments. The banks are not making much profit on these mortgages anyway, so they might as well encourage people to pay the money back.

Sunday, March 01, 2009

On part-privatisation of the Royal Mail/Post Office

Not sure why there is such a furore about this. It's exercising certain unionists but I'm detecting indifference from the general public. Most people don't actually get that much mail these days - we are all being incentivised to get our statements by email instead and given discounts off our bills to do so. Nobody sends cheques out any more, it's all done by automated bank transfer. No one sends personal letters anymore, all contact is made by phone, text and email.

The only mail that seems to be delivered is junk mail, and does it matter who delivers that?

And while people feel indifferent to the Royal Mail, they feel outright irritation with Post Offices. I remember having to go to the post office in my lunch hour to get my tax disc renewed. After queueing for ages, you finally got to the counter only to be told by a jobsworth, sorry I can't give you the disc, as your insurance starts tomorrow, you should have brought your old insurance papers with you as well. I'd protest in vain that they knew my old insurance was in place as the system had granted me a tax disc last year. To no avail. So I'd have to come back the next day and repeat the process. What a relief when the DVLA started doing tax disc renewal online!

One of the great achievements of the Labour government these last twelve years has been to automate government services and make them all available online. No need to venture into a hideous post office any more. I'm sure millions feel the same way I do - people have been voting with their feet, and that is why the numbers using post offices has dropped.

As to why the government is pressing ahead with this - to raise money of course. Doh! Because of the recession, tax revenue is down. And it's a bad idea to raise taxes in a downturn. And no self-respecting Labour person will countenance cuts to essential services like the NHS (which is well-loved, unlike the Post Office). So Royal Mail privatisation it is.

I also predict that the government will prefer to get the banks to buyout the government at the earliest opportunity, so the taxpayer gets their money back, rather than keep the bank shares and raise taxes. And I'm pretty sure that Northern Rock will get flogged off at the first opportunity too. If it's a choice between keeping public services and flogging off these albatrosses, the choice is clear.

Saturday, February 21, 2009

A look at C2 voters

In the comments of my previous article, Devon Chap made this observation:

"The "internationalist and Europhile group who are moderate, centrist and mostly middle class" are not those who election specialists who study such things consider the key group. It is the social group C2 (lower middle class/higher end working class) - The Gavin and Staceys of the World. These are the ones who turn elections."

Of course he's right to mention the C2s. Just for you DevonChap, I draw attention to an article in the FT about C2 voters, or white van man as they call him.

The graph above comes from the FT. They compared opinion polls for 2009 to 2008 to see which voters are shifting and came to this conclusion:

"The change is most marked for the lower middle class – known to pollsters as the C1s. This group has swung by three points from Labour to the Conservatives since last spring, and by 10.5 points since 2005 – the biggest movement of any demographic group since the last general election.

But the C2 skilled working class appears to be bucking the pro-Tory trend. These “white van man” voters, who backed Margaret Thatcher in 1979 and Tony Blair in 1997, are seen as bellwethers of big shifts in the prevailing political mood.

Their support for Labour has fallen dramatically since the 1997 and 2001 elections. But Mr Cameron is failing to win them over in big numbers as the recession bites.

The C2s are the only demographic group to show a shift back to Labour since last spring, albeit by just two points, according to the analysis.

If Labour can retain the C2s, and win back the Guardianista group who are "internationalist and europhile", then an election win is still a possibility for Labour. DE's at the moment are splintering to radical groups and Tories, but they too can be won back when labour points out Tory plans to allow employers to opt out of the minimum wage, as well as making deep cuts to the services they rely on. As I keep saying, Labour is a coalition, and we need to keep the whole coalition intact. We can't lose any part of the coalition.

Sunday, February 15, 2009

Back to the early 1980's?

We've now had three opinion polls from ICM, Populus and Comres showing a drop in the Labour vote and a surge for the LibDems, with the Tories either staying the same or dropping a little, but gaining a massive lead by default as the centre-left vote is split. Three polls showing the same thing makes a trend.

I got shouted down a week ago on Labourhome, when I wrote that what was causing the shift to the LibDems was part of the Labour coalition feeling disgusted at the xenophobia displayed by the anti-European wild-cat strikes in Lincoln. Tories rushed onto the thread to say that of course the strikes were popular as "most people" hated Europe - but if that was the case why didn't the europhobic Conservatives gain in the polls? Other people on the old left of the Labour party rushed to say that "everyone" supported strikes - so why the shift away from Labour? Because the elephant in the room was that it was the internationalist europhile LibDems who gained.

To me this seems almost like a re-run of the 1980's. In 1978 we had the unions campaigning against the Callaghan government (which was made up of people on the moderate right of the Labour party), as they tried to force Labour to the left. Result: Margaret Thatcher was elected. Then in the early 80's we saw the right of the Labour party break away and form the SDP, who formed an alliance with the Liberals. And the left of Labour ran amok, with the Miners Strike, Scargill declaring his intention to "bring down the government", something that is the prerogative of the voter alone, and the "longest suicide note in history" declared Labour's intention to take Britain out of the EU. As a result, the centre and centre-left vote peeled off towards the Alliance. Ironically the only thing that saved Labour from being pushed into third place in the 1983 election was the Falklands war. Michael Foot was full-square in favour of the war to get the islands back from the fascist regime in Argentina, while David Owen for the SDP thought the war a waste of time - centrist righties peeled off back to the Tories and patriotic centre-left voters peeled off back to Labour and the Alliance were pushed back into third place.

There exists in Britain a large internationalist and europhile group who are moderate, centrist and mostly middle class, and who have decided every single general election since the 1970's. They don't like xenophobia and they don't like extremism (strikes make them nervous). Forget those on the Tory right or old Labour left who claim that Brits hate Europe. Their opinions don't deliver elections, only those of the europhile middle do.

It was New Labour's genius to court this group, becoming pro-European and centrist in order to do so. Governing as New Labour meant amongst other things facing down the RMT's strike demand for a 40% payrise in the early part of this decade and kicking the RMT out of the Labour party. But governing as New labour also meant the ability to deliver things that helped the poorest of society - the minimum wage, support for parents, Sure Start, improved healthcare, better rights for part-time and temporary workers - something Old Labour signally failed to deliver as they failed to win elections.

Unfortunately the turmoil in the global economy has persuaded some in the unions that it is OK to go back to 1983. They are wrong. The outcome of this turmoil will not be a willingness to tolerate xenophobia or strikes but such things as separating out investment banking from retail banking and increasing banking capitalisation requirements - technical things, not ideological things.

Labour only wins elections when the right of the party (which equals the centre and centre-left of the entire political spectrum) is in the ascendant. Move too far away from the centre and our vote fractures. In the 2001 to 2005 period Blair moved too far away from the centre in the rightwards direction on war and we saw part of our coalition move to the LibDems - it was only because Howard's Tories were even further to the right that we managed to hang on to power. We have now moved back to the centre on war, with the Brown government distinctly unenthusiatic about starting wars anywhere, but the new danger is people wishing to drag us leftwards on economics and Europe. But we can only win from the centre, this has been the case for decades now. Someone needs to have a word with Unite and co to point out the facts of electoral life to them.

Friday, February 13, 2009

Eurozone struggled in Q4 2008

Eurostat released figures today for the GDP of the Eurozone economies in Q4 2008, and Germany's performance in particular was worse than expected. Here's how the major European economies performed in 2008:

Country Q1 Q2 Q3 Q4

UK 0.4% 0.0% -0.6% -1.5%
Germany 1.5% -0.5% -0.5% -2.1%
France 0.4% -0.3% 0.1% -1.2%
Spain 0.4% 0.1% -0.3% -1.0%

When you look back to late last year, and the way the Germans in particular were insisting that this was an "Anglo-Saxon" problem and that the Brown-Darling team was engaged in "crass Keynianism" in the stimulus announced on Nov 24th, one is tempted to say to the Germans, "should have had a VAT cut, love". George Osborne, who loves to pop up quoting the Germans on the British economy (while the Tories still shun Germany in the Council of Europe and in the European Parliament), should pause to eat his words. The simplistic idea that if you don't have a housing boom, you are immune from recession, and if you have a trade surplus you are immune from recession just shows that the Tories have nothing in their heads.

It remains a fact that our government reacted more speedily to the crisis than other governments in the Western world - our stimulus was in time to support Christmas (and without the VAT cut, we would have seen a worse performance than the Germans), and the money hit the economy immediately. Germany didn't move till Jan and their stimulus involved raising income tax thresholds (something panicky Germans will save rather spend despite their economy badly needing domestic consumption to offset the drop in consumption elsewhere).

Osborne similarly complained about sterling dropping, but the fall in sterling helped exports rise in December, despite the massive drop in global demand. He's a total cretin for wanting a strong currency in these times.

I firmly believe that we will weather this recession better than other western economies, because our economy is more flexible than others (the sterling drop for instance) and our government is more agile than others.

Saturday, February 07, 2009

The effects of last thursday's base rate cut

As soon as the cut was announced, we had the usual commentators saying, "this will prompt savers to stop saving and withdraw their money, and then banks won't be able to lend", or words to that effect.

But the rate cut creates a new potential source of capital for the banks, other than savers. Many borrowers on tracker mortgages, standard variable rate mortgages, and those who have just come off fixed rates onto the SVR, have experienced big cuts in their monthly mortgage payment, increasing their disposable income.

HSBC have spotted the potential and have written to all their mortgagees on tracker rates, encouraging them to use their freed up money to overpay their mortgages. It's good advice - this is a unique opportunity for homeowners to shed their debt. Once rates rise again, their disposable income will shrink too, unless they've taken advantage of current circumstances to reduce their loans. Current conditions are highly unusual, low interest rates will last a year to eighteen months at most. And when rates go up, they will go up fast, as the BoE seeks to avoid the mistake Greenspan made in 2001-2004. If people want to permanently increase their disposable income, remembering that you pay tax on what little interest you earn, whereas overpaying the mortgage gives you a gross return, paying off the debt is a no-brainer.

But it would be really good for HSBC too, if their tracker mortgagees overpaid debt. They'd be getting capital, just as surely as if they had received increased savings deposits. And they can then either lend the capital back out to business at rates which are more lucrative than getting base rate plus 0.5% or 1%, or keep some of it back to shrink their loans to capital ratio. Given that on the retail side loans to capital are about 8 times, persuading people on variable and tracker mortgages to overpay is more lucrative than attracting savings.

I'm surprised more banks arn't taking similar action, especially those who were silly enough to offer deals where the tracker was below base rate. Some newspapers such as the Daily Mail and some money forums such as MoneySavingExpert are trying to get people to overpay mortgages, but the industry itself needs to start publicising the benefits.

As an aside, the real excess lending was done on the investment banking side, where loans of about 30 times capital were made. Unfortunately they'll be less able to get their clients to repay, as the hedge funds and buyout firms etc they lent to are broke.

Friday, February 06, 2009

Halifax reports house prices rose in January shock!

The Halifax reported that house prices rose in January by 1.9%, the first rise since Feb 2008. We shouldn't get too excited, as the Nationwide reported a 1.3% fall. But still, it cheered me up no end.

The Halifax and Nationwide have different geographical strongholds as regards where they lend, so all we can glean from this is that the price falls are not uniform across the country. But, it might be a clue that housing may not quite go the way of the USA.

As mentioned in my previous post about American mortgages, the key advantage that the UK has over the USA is that in the UK there is incentive to resist defaulting and to repay debt come hell or high water.

This is crucial to house prices. Prices fall mainly if there is forced selling (supply overwhelms demand). But if people stay put, and try to repay debt instead, then you simply have a stalemate as sellers refuse to put houses on the market and buyers wait for further drops. What usually happens in times of recession is that the sellers blink first, due to unemployment.

However, since the October 2008 meltdown, people have been frantically paying down debt so that they may cope better should they be laid off - the British Bankers Association says that unusually, outstanding unsecured debt fell in December, though it is usually a month it rises. Anecdotally, people are taking advantage of the money freed up by interest rate cuts to overpay their mortgages. In addition, the 1.8 million or so who came off fixed rates at the end of the year also experienced a rate cut as they went on to the SVR (earlier in 2008 there were a lot of stories warning they would face payment rises). The government has also changed the rules so that from 5th Jan 2009, if you are unemployed, you qualify for help with the interest payments on the mortgage for the first £200,000 of debt after 13 weeks of unemployment (the old rules provided help with interest on the first £100,000 of mortgage after 39 weeks of unemployment).

All of the above should mean that forced selling is kept at a minimum, and thus property prices start to stabalise. Fixed rates on offer are also coming down and many would-be buyers are conscious that these are once-in-a-generation offers and are wondering whether to take the plunge.

The behaviour of the mortgagee (rapidly paying off debt), the government in supporting those unemployed and the Bank of England in cutting interest rates sharply, make this quite different from the early 1990's recession when there was also a house price crash. Then, interest rates in particular didn't fall till 1992 when we crashed out of the ERM, a good two years after the recession started, and mortgage holders were also not as savvy about things such as overpaying mortgages. We shall wait to see how this pans out.

Tuesday, February 03, 2009

Buy America madness

The original Buy America act was passed in 1933 and together with the infamous Smoot-Hawley tariff bill caused the rest of the world to enact retaliatory penalties against American goods and companies. The result was that the recession turned into a depression, with Americans suffering worse than countries like the UK, which was able to keep free trade open in the empire.

And, unbelievably, here we are again. The European Union has sent an official warning, that they will take the Americans to the WTO if the clause remains in the bill and Obama signs it into law. The last time the EU took the Americans to the WTO over steel tariffs, the EU won, and proposed retaliatory tariffs so well chosen that Bush caved within a day. It's likely that the EU's retaliatory tariffs will hit the Americans where it hurts - defence contracts that American companies like to bid for, but which are paid for by the European taxpayer. I imagine lots of furious lobbying will now take place by those companies who are fearful of losing out.

Closer to home we have the idiotic wild-cat strikes over IREM refusing to sack it's permanent workforce (that it moves around) in order to hire itinerants. IREM appears to have won the contract in the first place because it delivers projects on time, which probably has something to do with having a permanent workforce (who are being paid Unite rates). They would lose their competitive advantage if they shifted to itinerants. Unite have got this wrong - they should be arguing for British contractors to adopt the same permanent team model that IREM have, which would enable them to do a better job as well as relieving the uncertainty that many itinerant workers suffer under.

Instead the fools at Unite seem to be arguing for discrimination against Italians. Note that there are more Brits living and working in Italy than Italians here (same goes for Spain, Portugal and Germany, with France the numbers net out). And some of them work in construction. I wonder how they are feeling. I sometimes wonder whether these unions have been infiltrated by BNP people. If they have, we should expel them. At least Peter Mandelson has made it clear that we have no plans to alter the existing treaties on freedom of movement. I'm glad he's back in government.

Update 4th Feb 2009: It looks like Obama is already moving in response to the EU complaint. The Times reports that:

Last night Mr Obama gave a strong signal that he would remove the most provocative passages from the Bill.

“I agree that we can’t send a protectionist message,” he said in an interview with Fox TV. “I want to see what kind of language we can work on this issue. I think it would be a mistake, though, at a time when worldwide trade is declining, for us to start sending a message that somehow we’re just looking after ourselves and not concerned with world trade.”

But read some of the 130-odd comments on the Times article, mainly from Americans - they don't believe in free-trade at all, and this will be a political hot potato. The American public in general is less in favour of free-trade than the European one - in part I think because Europe does have a comprehensive welfare safety net that the Americans do not, so European individuals don't experience the downside of globalisation quite as acutely as the Americans (those strikers in Lincoln should take a trip stateside to see how lucky they are). Obama needs to move full-speed with healthcare reform and the like, because he won't be able to hold the free-trade line without offering some kind of safety-net.

Thursday, January 22, 2009

The problem of the American non-recourse mortgage

In Britain (and most of the world), all mortgages are "recourse mortgages". That is, the borrower is personally liable for all debts, whether secured or non-secured. Therefore, if a borrower gets into difficulty and their home is repossessed and then sold, if the sale of the property yields less than the loan, the borrower is still liable for the difference, and the courts can attach their future earnings. This is one of the main reasons the UK has a low repossession rate. It makes sense to try to meet your mortgage payments instead of having to pay rent plus repay outstanding debt on your repossessed property. Even strict banks such as Northern Rock only repossessd 0.56% of the loans on their books in 2008 - and their rate was three times that of the other banks.

In the USA though, uniquely in the world, they operate non-recourse mortgages in 27 states, including California and Florida. With a non-recourse mortgage, you only need to return the keys to your home, and you are no longer liable for the debt. While property prices are rising and there is equity in the home, it's rational to continue paying the mortgage. But if your home is "underwater" as the Americans like to call negative equity, and you are struggling with the payments, it is rational to simply return the keys and let the lender deal with the problem. The lender then has to sell the house - but increasing supply of homes for sale into a falling market simply depresses house prices even more, and increases the losses the lenders incur on that property. Hence the reason why US house prices have been falling continuously since 2006. In non-recourse states such as Nevada, 7.3% of all it's housing units received a foreclosure notice in 2008.

No wonder the American lenders were so keen to sell on their mortgage portfolios to guillible European banks! And this is why the losses are mounting up.

The Obama administration is likely to take drastic action to solve the problem and simply legislate to reduce the homeowners mortgage to below the market price so that they are no longer "underwater" and no longer have an incentive to default. A write down figure of 20% has been bandied about together with a clause making the new loan a "recourse" one, so that is the limit on the losses. American banks are worried about this as they will lose on the mortgages that haven't yet defaulted. But the upside is that there won't be this glut of foreclosed homes coming onto the market to depress prices and house prices should stabalise. Those holding the liabilities (mainly our silly banks) will take a hit, but reducing the foreclosures should mean that those losses are confined to the 20% or so write down in the loans. Given that the banks are currently suffering from uncertainty about how big their losses could get, stating now that their losses will be about 20% and writing it all down in one hit should mean that the banks should stabalise too.

The true solution for the future of course is to end all non-recourse mortgages - but there are so many vested interests in America who want to keep them that this is unlikely to happen.

Sunday, January 18, 2009

At last Obama's inauguration draws near...

It seems like an aon since the US general election. I wish they had a system like ours where the newly elected government took control the day after the election. The last three months might have been so different, from the point of view of the economy and foreign policy.

But still, on Tuesday 20th, Le Président du Mort, (whose death toll includes 2752 dead in 9/11, 1836 dead in Hurricane Katrina, 4227 Americans dead in Iraq, about 100,000 Iraqis dead, 640 Americans dead in Afghanistan plus unknown Afghans dead), finally exits the scene. Of course Bush isn't entirely responsible for all the deaths on his watch. But his incompetence made difficult situations worse. The ancients would have concluded that the gods on Olympus were displeased with him, and would have dispatched him a long time ago.

Obama, who symbolises hope, will finally take control. It's natural that expectations are running sky-high. And it will be natural that he will disappoint some people. But he seems to have the competence to make his own luck. Lets hope the gods love him and that his presidency is a success. He faces heavy-duty problems, but he just has to do better than Bush to be a success.

He comes to power with so much goodwill - according to Gallup, he has an 83% approval rating, compared to 68% for Clinton in Jan 1993 and 61% for Bush in Jan 2001 - that his mere presence in the White House is bound to have an effect on American confidence, which should immediately start to feed through to the economy.

Anyway, we are all holding our breath, and wish him well.

Saturday, January 10, 2009

Is the Guardian becoming an internationally renowned publication?

I ask because there's a bit of a moan piece in today's New York Times, entitled Who leaked to The Guardian and Why, with respect to reports that the new Obama administration is willing to talk to Hamas.

Most of the American newspapers are busily denying that there is any fundamental change in policy over Israel/Palestine - but the NYTimes piece also notes that it was the Guardian that broke the news that Hillary Clinton was to be the new Secretary of State and American publications spent a lot of time rubbishing that idea before it was officially announced and it turned out that the Guardian was right.

It's possible that the Guardian has developed close links with someone in the Obama administration, and if so, the next few years will be very interesting indeed. The characteristic of the last eight years has been the primacy of Murdoch's News International media (particularly Fox News), with American papers such as the Washington Post and New York Times being very careful not to upset the Bush Administration (most notably over Iraq). The Guardian by contrast takes a much more robust attitude in criticising governments both British and American (especially over Iraq), and if loads of Americans start to read it because they think they have an inside line to the Obama administration...

I very much hope that is the case. It will be nice to see a British publication really break through to become a major international player, and especially as the Guardian is independently owned by the Scott Trust Limited (formerly the Scott Trust) and is not dominated by a "tycoon" or single personality the way the rest of the British (and American) media is.

Tuesday, January 06, 2009

Christmas Retail Sales turn out OK

It was a bit of a nerve racking wait for results. Prior to the VAT cut, John Lewis had reported that their sales had been 13% down on the same period last year. It looked like there would be a proper bloodbath on the high street. However, immediately post VAT cut, their sales were only down 6.7% on the previous year, and they finally reported that in the five weeks to Jan 3rd, their sales were up 2.9% on the year before.

Other retailers posted a similar story - New Look had like for like sales increasing 2.8% in the 14 weeks to January, Debenhams had posted a 3.5% drop in sales, but said their profit had risen thanks to tight stock control, Ocado, the online grocer had it's sales up 25% compared to last year, Co-Op Group had like for like sales up 5.2% over fourth quarter, and even home furnishings firm Dunhelm managed to maintain margins and was down only 5.6% in sales, despite the housing market being stagnant.

Twas the VAT cut that did it - Alistair Darling saved Christmas for the retailers. It brought people out to shop and it reassured the customer that government would do whatever it took to keep the economy going and therefore brought confidence back into the system. So many armchair analysts tended to assume that people wouldn't turn out for a 2.5% VAT cut when there was a 50% sale on. But the actual shopper (as opposed to those who opine but avoid shopping) understands first-hand that the 50% sales were very much selective. Some things were on sale, but never the stuff you really wanted to buy - no change there from previous years! Shoppers are used to these sales and sceptical about them, even assuming that some retailers deliberately put some prices up, in order to then cut more spectacularly and justify the sales posters. But the VAT cut was very real, it was real money off, and people appreciated it.

The good Christmas also has tax implications - the Treasury might be down on tax revenue from the Banks, but at least VAT should hold up, and retail corporate profits shouldn't be too badly down. It would have been a rout though had the government not acted.

I know the naysayers are going to rush to point to Waterford Wedgewood and Woolworths - but Waterford Wedgewood made six years consecutive losses (i.e. they were doing badly in the boom), and Woolworths were similarly badly placed - nothing could have saved them, apart from someone changing their business models, and that is not usually the job of government. Some businesses go bust even in boom time (Rover anyone?), it is a normal part of the commercial environment.

US Christmas sales figures come out on 7th Jan, and it will be interesting to see how they have fared, as they did not make any attempt to stimulate sales.

Finally, I must comment on Germany. After lashing out, and complaining about Britain "tossing around billions" in an act of "crass Keynesianism ", they have now U-turned. They are going for a €50bn package (much bigger than ours as a % of GDP), which they are borrowing to fund and they include some tax cuts. The Germans have gone for raising income tax personal allowances. Not sure how that will help them though. The American experience with income tax cuts showed people hoarding the money, and the Germans are even more inclined to hoard than the Americans. But I suppose a VAT cut was ruled out after all the fuss they made earlier...

Update: 7th Jan. Car registration figures came out today. They were bad, new car registrations fell 21.2%, but everyone had expected a drop of 35%. According to the FT,

"The Society of Motor Manufacturers and Traders said the cut in value added tax from 17.5 per cent to 15 per cent on December 1 may have been a contributory factor in the smaller than expected dip in sales.

Until December, the slide in car sales had accelerating, from a fall of 18.6 per cent in August to a 36.8 per cent drop in November.

....The better-than-expected UK figures contrasted with much bigger falls elsewhere in the final month of 2008. Earlier this week, all the leading US carmakers reported declines of more than 30 per cent in December, while sales in Japan dropped 22 per cent to the lowest December level on record.

In Europe, registrations fell by almost half in Spain, by 24 per cent in France and 13.2 per cent in Italy"

So VAT cut to the rescue again. Of course some of the benefit will go to those ungrateful Germans, but hopefully the Nissan and Mini plants here were supported too.