Monday, December 23, 2013

Watch The Savers...

Almost un-noticed came the announcement from the Bank of England that long-term savings had dropped by £23 billion in the year to October 2013 - a drop of 4.7%, the last time there was a yearly percentage drop of that magnitude Ted Heath was in Downing Street. In absolute terms, we've never seen such a big drop.

That reversed the trend from October 2007 to October 2012, when savings had increased each year.

So what caused the change and why is it important?

In July 2012, George Osborne launched the Funding for Lending scheme, whereby banks and building societies could borrow from the Bank of England for four years at rates significantly cheaper than market rates. The intention was to get the banks to lend - but Osborne was too inexperienced/naive/stupid/take your pick, to understand he was dealing with bankers, who simply saw the opportunity to increase their margins. They promptly lowered the already abysmal rates they paid their savers - why bother to go to the expense of attracting savers when you could fill your boots with very cheap rates from the Bank of England?

Then on 7th August 2013, Mark Carney, in his first statement as Chairman of the Bank of England, issued forward guidance, stating flatly that

In particular, the MPC intends not to raise Bank Rate from its current level of 0.5% at least until the Labour Force Survey headline measure of the unemployment rate has fallen to a threshold of 7%
They also announced they would not even consider stopping QE till unemployment had fallen to 7%.

Funding for Lending and Carney's statement shattered the tense equilibrium between savers and borrowers, where borrowers, nervous about rising interest rates should the economy recover, tried to continue to pay down debt and savers, hoping for rate rises if the economy recovered, gritted their teeth and held on.

Not only did savings fall, but there was a record rise in borrowing, according to Bank of England figures. Household debt is the highest since September 2008.

Clearly the figures shocked Carney, because on 28th November 2013, Carney announced that he was withdrawing Funding for Lending for Mortgages.  However there is no sign that lenders have increased savings rates in response - and add to the mix that the govt introduced Help to Buy for all properties on October 2013, where the govt takes on 15% of the risk of the mortgage should a default occur.

Why does all of this matter? Banks can only lend if they have funding - and funding comes from two areas - savers and the money markets. Add in a third source in the form of the Central Bank, in schemes like Funding for Lending.

Savers are now on strike thanks to the Forward Guidance, and their abuse from the banks punch happy on Funding for Lending. So the banks are funding mortgage and other lending via the money markets.

That's the Northern Rock business model. Northern Rock if you remember, thought that other banks and building societies were foolish maintaining expensive branch networks in order to attract savers. They'd be smart and borrow cheaply from the money markets instead. And they made spectacular profits till the money markets froze in 2007 and Northern Rock got stuffed.

But despite the lessons of 2007/8 we have the more of the banking industry dependant on the money markets than before.

The BoE will have to do something to attract savers back - possibly an interest rate rise in 2014. In the meanwhile hope and pray the money markets don't freeze up again...

Thursday, September 05, 2013

Regarding the Syria War Vote

I'm astonished that David Cameron hasn't resigned.

Consider what happened.

He dramatically and portentiously recalled Parliament at great expense for the vote on Thursday 29th August - even though he could have waited just a few days till Monday when Parliament was due to reconvene anyway. But a debate on Monday wouldn't have had the Drama that recalling Parliament early would have had.

He then posed for some pictures which were used incessantly by the war-friendly newspapers, of himself striding purposefully to Parliament - all to convey that he was a Man of Action.

During the debate itself, he kept ad-libbing jokes, in sharp contrast to the serious manner in which Thatcher conducted the Falklands War debate and Blair conducted the Iraq War debate. But in Cameron's mind the killing in a war wasn't important. Syria was going to Make His Name, and he was Having Fun, and why not show it!

Then Parliament slapped him down and he lost the vote.

Losing a vote on war and peace is akin to losing a vote on the budget or Queen's speech - it indicates you've lost the confidence of the house, and usually triggers a general election.

The last time a minority government fell - Callaghan's - it was brought down on the minor issue of a referendum in Scotland, and it was the Scottish Nationalists who delivered the blow by voting with the Tories. Minor issue or not, Parliament was dissolved and a general election was called, and nobody moaned about it - that was politics.

But Cameron clings on, and his latest tactic is to blame Ed Miliband for his defeat. But it's not the opposition's job to prop up a government, their job is to oppose it and defeat it, which Ed Miliband duly did. It's not Ed Miliband's fault that Cameron was unable to secure a majority in the 2010 election, and that he is unable to control the motley crew of Tories that did get elected - that's all down to Cameron.

Cameron might imagine he can overthrow three centuries of precedence and remain Prime Minister - but the old rules about power still hold. A Prime Minister who cannot command the Commons is impotent. Cameron is in office but not in power, and it's only a matter of time before this reality registers.

Sunday, August 25, 2013

In Politics Demographics Are Destiny

The image above comes from the ONS Census Animation of the last 100 years. (Click to enlarge the image and see detail).

See that huge bulge from age 40 to 50? That's my generation. We were teenagers in the 1980's (which shaped our politics). We started voting in the 1990's, and by 1997, as late twenty-somethings and early thirty-somethings, we were a big enough cohort to put Labour into power with a massive majority. Even now, this group is firmly on Labour's side according to opinion polls. This is important because not all generations are equal. The pollsters present the age related data in a way that makes you think that all the cohorts have equal numbers. This is not the case as you can see from the image.

Demographics have always played a bigger part in British politics than the commentariat likes to acknowledge. A big factor in Thatcher's election in 1979 was the passing of the generation that had voted for Attlee. As the 1980's went on, more of them died and the Thatcher majorities increased. In the 1990's this started to reverse - the generations that had put Macmillan into power started to pass on, and my generation started to vote for the first time.

What is reassuring from the polls is that Labour supporters (and Labour tactical voters, who may be recorded in elections under another banner but who identify with Labour) think that the 2008 crisis was global and nothing to do with Labour. They continue to have fond memories of Labour's 13 years in power when many prospered, and are hoping for a re-run, hence their solid support for the party in the polls.

Labour leads for all the cohorts under 59.

You often get newspaper commentators wondering what happened to the people who voted for John Major. Two million Conservative voters have gone missing, they lament. It's simple - they died, and the Tories didn't think to replace them with a younger generation.

People's personalities and their politics seem to get fixed by about the age of 24 (you need to get 'em young). After that, it takes a real disaster to shake people away from their broad party allegiances.

And the 18-24 year olds who were tempted to vote LibDem in 2010 are young enough to be open to persuasion to back Labour. According to IpSOS-Mori, in the 2010 election, the 18-24 year olds voted 30% Tory, 31% Labour and 30% LibDem. Current polls are showing this group as 30% Tory, 48% Labour and 10% LibDem. So Labour has secured the next generation.

When you have demographics on your side, as Labour does now, the most important thing is to hold your nerve and not do anything to alienate people.

Thatcher in the 80's had demographics on her side - but in a fit of hubris thought that it didn't matter if she shafted the young as she believed they'd come round when they were older. She was wrong. My generation simply waited patiently till we could vote and then kicked the Tories with all our might. Keeping the Tories out is still imperative for Britain's bulge generation.

With the advent of the Iraq war and the anti-Labour fervour on university campuses, Labour very nearly made the same mistake. We were lucky that the LibDems got rid of Charlie Kennedy and replaced him with the mendacious Clegg. And all quickly enough to turn the under 24's before their views got set.

The last thing Labour needs to do is ignore it's demographic dividend and pander to the right-wing tendencies of the over 60's. The UKIP phenomenon is much talked about - but it is primarily about old people raging at their loss of dominance over British politics, they are raging against the night. (According to Yougov, UKIP register at about 16% amongst the over 60's but only 2% under the 18-24's). The relentless cycle of birth and death means that by the next election a few more UKIPers will have gone to the great cemetary in the sky and a few more anti-UKIPers will be eligible to vote.

So what should Labour do? Not stray too far from the spirit of 1997. We've got a chance for a do-over - times are different and hence the policies will have to be too, but the desire for a humane civilized country is still as strong as ever.

It may sound surprising for a Labourite to say this, but my generation is not really left-wing in the same way as the generations that came of age in the 1940's and 1960's. Instead we are soft social democrats. We like prosperity (some of us run businesses) but we're kindly enough and civilised enough to want a safety net and are willing to pay for it. We don't want to harass disabled people for kicks like the Tories, we want to cuddle them. We don't hate foreigners, some of us have employed them and others have married them - we just see them as humans who are trying to better themselves and escape awful circumstances (life in Poland is no picnic). We want to preserve the NHS for another 60 years. We're a humane generation, in contrast to the nastier strain in older people. And our children are being raised with our values.

Matthew Parris wrote in 2007 that the Labour government had changed the country - "Mr Blair will leave a happier country than he found. Something tolerant, something amiable, something humorous, some lightness of spirit ... a changed, kinder, gentler Britain."

Kinder, gentler - these are still Labour's unique selling points - it's what all under 60's want of the country. As long as Labour keeps this in mind and doesn't move out of step with what is now a clear majority of the country, the next election is ours. Is Ed Miliband a kind and gentle man? Yes - which means that personality politics, so beloved of the press, arn't against us either.

Tuesday, April 09, 2013

Ding Dong - A Warning For British Politicians

One of the most disturbing things about watching dictators is the way they force the people they've hurt to show "respect" to them. Who can forget the terrified boy standing stock still with fear as Saddam Hussein patted his head or the cold hungry people of North Korea praising their "dear leader"? It's an exercise of absolute power over the absolutely powerless.

In the last day, our over-class has been expressing Shock! Shock and Dismay that no such respect and reverence exists in Britain. To which the only sensible retort is "That's what's so Great about Britain!"

Part of the reason our politics is a tad cleaner than that of all our neighbours is because citizens don't let things go and they don't forgive and forget.

Telling people they should have "moved on" from their grievances over the Thatcher era is like the editor of Sun writing to the citizens of Liverpool asking them to lift their boycott and let bygones be bygones. "If countries can go to war and be friends in 15 years then can't the Sun and Merseyside do that as well?" said Sun editor Graham Dudman in 2005. As it happened the Liverpudlians had a reason to hold out implacably for justice. If they'd forgiven Italian-style, they'd have encouraged more bad behaviour.

Similarly people in other countries thought we went over the top with the MPs' expenses scandals. Jon Stewart of the Daily Show even did a "those crazy Brits" show about how we were getting wound up about what he saw as trivia over bath plugs and duck houses. But if the public didn't hound MPs over the small transgressions, they'd complacently graduate to the bigger ones. It's fear of voters not intrinsic goodness that keeps British politics clean.

Thatcher's supporters have gone a bit nutso in having such a public funeral combined with demands for "reverence" from those she hurt, North-Korean style. Attlee didn't get a ceremonial funeral and his government invented and set up NATO and the NHS - two institutions that are still going strong today. Lloyd George didn't get one either and he invented the state pension. Disraeli didn't get one either and he expanded the number of people who could vote.

The other point to make is that the Tories had their "Ding Dong" moment in 1990. They didn't wait for the lady to die before dancing on her tombstone. They made her watch while they dug her political grave, and then pushed her into it fully conscious and buried her. It was the most vicious defenestration of a leader in centuries and they enjoyed it.

Was that because they were Tories or was it because they had something in common with those revellers in city centres now (who look like harmless amateurs by comparison). In other words was it all about Thatcher and nothing else?

If Ding Dong gets to #1, the real message is to living politicians, not to the dead one who is oblivious. As Voltaire observed half with horror and half with admiration, when a British Admiral was executed in the 18th century, it was done "pour encourager les autres". It's savage but necessary - part of the Great British tradition. Are the living politicians smart enough to heed the message?