All hung together

April 16, 2010 — simonashall

I'd rather have the Royal Mail deliver for me than this lot

I was stopped on the street the other day by someone who wanted to talk about the economy. “Do you know where the problem started?” he said. I started on about how the banks had mixed their High Street and investment banking functions for the sake of profit. “I know all that,” he said. “You’re wrong, let me tell you when it started.”

“The Bank of England used to get payments from the banks and could control money flowing in and out of them. If a bank wasn’t performing or was lending too much, the Bank of England could control the amount that it let flow to them or demand that they pay more money into them. Then Gordon Brown decided he didn’t want that to happen any more. He created this thing called the Financial Services Authority, which didn’t have any of those powers. And with their new-found freedom, the banks went off and did all the things that they had wanted to do but were stopped by the Bank of England.”

I listened – finally getting in with “so you support then the Conservative proposal to hand back regulation of the banks to the Bank of England?”

“Yes, but it’s not as simple as that. I’ve voted Labour in the past but I’m going to support you not because of the Bank of England but because the worst possible outcome for this country right now is a hung Parliament. I think you are the only party who can win outright and it’s important that we have a majority government for the sake of the economy. A hung parlimanent would be a disaster – the uncertainty could cost us our AAA credit rating, we wouldn’t be able to sell our guilts and bonds and repay the deficit. If that happens, we’ll be like Greece.”

It’s exchanges like this that make you think how important it is that we win this election. The Liberal Democrats want you to think that a hung parliament is a positive choice and will bring change. What it’ll actually bring is no change because the Civil Service will continue along the same course it’s been taking the country for years and the Lib Dems will run with it in order to stay in government. If anyone doubts this, look at what happened when the Lib Dems were in power in Scotland - not much.

If the Lib Dems go into coaltion, it will only be with Labour and Gordon Brown would remain as PM. Make no mistake, politics is a power game and all three parties are motivated by exactly the same desire for power and the enactment of their agenda, despite the ‘fresh approach’, the optimistic promises, the ‘plague on both your houses’ populism. Britain is in too fragile a place economically and socially to risk it on the Liberal Democrats.

Posted in Economy, elections, lib dems. Tags: , , , , . No Comments »

Gone to Iceland

January 5, 2010 — admin

Has the Icesave money been flushed down the waterfall?

Iceland is apparently a startling beautiful place. And up until quite recently, it was an attractive place to deposit money if you were a local authority. Indeed, the treasury included it on a list of, ahem, approved destinations for local authorities to save, such was the benefit of the interest rates on offer at places like Landsbanki.

Unsurprisingly, many local authorities did so – although not Woking – and when the whole thing went under in 2008, the price of local authorities’ silence on the Treasury’s advice was the government not blaming the councils themselves for incompetence. Many councils, in fact, sussed that there was something wrong in Iceland many months ahead of time but couldn’t get their money – tied in for periods of a year or more – out in time.

As well as councils, around 300,000 depositors in the UK, Netherlands and Germany had Icesave accounts that were guaranteed by the government – it is compensation for this bailout that is being questioned by Icelandic president Olafur Ragnar Grimsson. His government led by prime minister Johanna Sigurdardottir wants to do the right thing by paying back the British and Dutch governments nearly £3.1bn but he has decided the Icelandic people should have a say in a referendum instead.

They are likely to vote against because they believe that the country shouldn’t pay back the money to foreigners that its incompetent and dubiously run banks – the foreign debt of the biggest three was more than five times Iceland’s GDP – took from them in full understanding of their precarious position. The reducing value of the Icelandic currency was also to blame – somewhat more the fault of the people of Iceland than the people of Britain.

What this issue has to do with the people of Iceland is unclear. This is nothing less than nationalism being the last resort of a bankrupt nation and a president keen to gain some political capital out of his government’s stupid actions. Iceland has never been a centre of world finance and was scarcely able to sustain such highly leveraged financial devices – at least the City of London has that excuse.

If Iceland refuses to pay back what it owes to the people who lost out in Icesave, it will actually lose out further in the long term. It is difficult to see how it could ever enter the EU and investment in that country would be very, very hesitant in the future. Icelandic banks would remain a byword for loss and injustice along with the likes of BCCI and Barings.

Let us hope that the President and his people drop the patriotic ardour and start to understand the unfortunate consequences of neighbourly disputes.

Posted in Economy, Europe. Tags: , , , , . No Comments »

Debt? Darling can’t budge it

December 10, 2009 — admin
Your exchequer needs you...

Your exchequer needs you...

Looking at all the papers this morning, it seems that they are pretty unanimous in their distaste for the Pre Budget Report announced yesterday. Even the BBC led with a Conservative-slanted headline (the old “denies” trick frames the allegation neatly without defamatory undertones).

Labour has had a long time to think about this PBR. It has brought Alistair Campbell back onside to help Gordon overcome his daemons against DC and it was its own idea to have a PBR in the first place, presumably because simply having a full budget in the spring would have been disastrously downbeat so close to a “presumed” election.

Let’s look at some of the things we got -

  • Moving the tax ceiling for NI increases to £20,000 when the average wage is £22,000
  • Borrowing from 2011′s budget to fund an increase in pensions and benefits
  • An expedient tax on bankers that while morally justified will achieve little
  • Moving more people into the 40% tax rate
  • Freezing on Inheritance tax threshold when a raising was promised
  • A reduction in Bingo duty to favour Labour’s core vote in the north
  • VAT increase to go ahead

Budgets have always been political so I’m not going to complain about that – Ken Clarke reduced income tax in the run-up to the 1997 election. All’s fair in politics and all that. But what this is goes beyond that – Labour’s umpteenth NI fiddle is a tax that is going to make employing people less attractive.

Their borrowing from 2011 to fund pensions and benefits is going to have to be clawed back after the election by whoever wins it. It’s a shameless, reckless action that goes against everything the past 2 years has taught us – just as world leaders meet in Copenhagen in an attempt to stop us borrowing global resources from the future, so Alistair Darling is borrowing money he doesn’t have from a point in time where he doesn’t have it either.

There’s a fair bit in there about bankers and rich people who earn more than £150,000 etc and I’m sure the Conservatives will be arguing that this is taxation against aspiration just as I thought they should in my previous post but one. I don’t oppose progressive taxation in principle but in practise it’s just posturing.

Barely anyone will pay any more tax than they do now and a good many will leave the country altogether, thereby reducing the tax take.

Many socialists insist that the country would be better without them. That is a petulant view that fails to understand this recession is not just the bankers’ fault; it is pretty much everyone’s fault. If you have borrowed on the value of your house, if you took advantage of cheap credit or if you drove demand on a product so its price increased and people had to borrow to purchase it, you played a part in the recession. I know I did.

The point is that blaming it all on the bankers is a government smokescreen to cover up its own failure properly regulating what was going on. Bankers are to blame, yes, but they are not by any means the only ones.

Nor in this budget is there any evidence that Alistair Darling has a clue where he will cut services in order to pay off our debt. My feeling is that he has given up on that one and is just going to leave it to the Conservatives to sort out. But it’s more important than that.

Our economy won’t be able to grow, our services won’t improve and we won’t see government action while this massive, crushing debt is hanging over us. From £1,000 per taxpayer in 2003-4, it’s now £6,000 per taxpayer today. The shackling effect of debt will spell the end of our economic pre-eminence unless we tackle it as soon as we can.

Thousands of families from all backgrounds have been forced into this during the past two years. Shocked into action and thoughts of savings, they have realised that in order to build reserves and invest properly (rather than through PFI-like schemes), they have to pay off their debts before they save. So they’ve cut their costs to do that.

The government’s idea is to keep spending in order that their income might increase and that money be used to pay off debt. But all the time that debt is increasing and any new income goes straight on trying to keep yourself straight and level.

Yes, there will be short-term pain for long-term gain from DC. But Labour’s Carry On Spending narrative is no comedy – it is a dangerous tactic that could lead to irreparable harm.

Posted in Economy, Tax, news. Tags: , , , , , , . No Comments »
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