Cadbury cremed by bad law

February 2, 2010 — admin

I’ve always been partial to Cadbury’s Creme Eggs and for the past two weeks, I’ve been buying boxes and bringing them into the office, exhorting my colleagues to “eat them while they are still British”. Alas, no more. At 1pm today, the iconic British company became the plaything of an American conglomerate whose trademark cheese products are, astonishingly, even less related to actual cheese than Creme Eggs are to eggs.

PM has been busy lately, launching a attempted decapitation strategy on DC yesterday in a speech filled with more chutzpah than a New York second-hand car dealership. Now he’s been to meet the Kraft CEO, who’s not averse to audacity herself on the evidence of this takeover, he is sagely warning that he’ll be looking for more detailed assurances in the coming months. I don’t think that’s going to worry Irene Rosenfeld much – she’s only 4% short of the shares she needs to take Cadburyoff the stock exchange altogether.

And what PM is less keen to let you know is that it was Labour, through the Companies Act 2006 that effectively removed the right of government to protect our long-established businesses from takeover. The act implemented the EU’s Takeover and Transparency Obligations Directives, which harmonise takeover law throughout the EU and prevent company boards from doing anything to frustrate takeover bids. But surprisingly, it’s not the EU’s fault.

Despite the obvious agenda of EU member states to fix takeover legislation to favour their own subsidised corporate environment (ever wondered why so many German, French and Spanish firms can afford to buy British companies and infrastructure?) the directive did leave EU governments free to restrict takeoever law in their states. Labour didn’t take that opportunity and so the government is now in a very weak position to do anything about Kraft or dictate terms to it once Cadbury is bought.

There’s nothing intrisically bad about large British companies getting taken over. It puts money into shareholders’ pockets and since many shareholders are pension schemes, it helps to boost flagging pension values. Certainly Kraft has chosen to pay well over the odds for Cadbury. But it is important that we have British companies continuing to develop and emerge on the global market as players.

And with little or no protection from foreign predators, that is less, not more, likely to happen.

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BBC – Broadly Bashing Cameron

January 27, 2010 — admin

In the dark - Broadcasting House seems to have its own view on economics

Apparently two separate blog entries in lightning succession trying to make hay out of the Hatfield House meetings clearly wasn’t enough for Nick Robinson, who surely won’t still be BBC Political Editor by the end of the year. The fact that no other media saw fit to run with this story in a big way shows how isolated he is, how drawn into the Labour spin trap.

We now have another blog post on Tory cuts that tries to have it all ways – saying the Conservatives will cut and if they don’t painting that as a U-turn and another slight on DC. He then helps perpetuate the myth that government spending boosts growth and will therefore aid a recovery. Government spending doesn’t boost growth - it creates its own growth, which then disappears once the subsidy is withdrawn. The UK would still be in recession without the Car Scrappage Scheme – with that scheme over, the car industry can expect a significant downturn in the months ahead.

Today, the Labour group on the LGA announced it would push for a 1% pay increase for the least well paid rather than exercise restraint. Again, the money that goes into propping up more and more public sector wages is a massive ongoing subsidy and one that cannot be withdrawn now it has been enacted without devastating unemployment. The reduction of the public sector headcount must be a target of a Conservative government because it is not healthy for our economy, society or democracy for such a large proportion of the population to be employed by the government.

But now so many are, reducing that number is a hugely painful and expensive thing to do. We mustn’t make the same mistake with the economy by using more government money to prop it up – it needs to be nurtured and kicked into a recovery of its own and the only way to do that is to reduce our debt. Yesterday Bill Gross told investors across the world to avoid the UK because of our huge debts, weak currency and fragile recovery. Like George Osborne, he sees that debt reduction – preferably quickly – is the only way to restore confidence, maintain our credit rating and keep interest rates down.

It’s all very well pumping money into the economy – even if it doesn’t actually promote sustainable growth. But if people’s mortgage rates go from 2.5% up to 6% within 12 months, it isn’t going to leave them with much money to aid the recovery; in fact, many of them will be worse off than they were while we were in recession.

So the BBC needs to stop chucking the last dice all over the place in support of Labour and start understanding that more borrowing and spending in the short-term is going to make the problem far, far worse. If they leave everything as it is, we will fingernail into a slow and drawn out recovery process during which many people will be worse off than they have been for the past two years.

Only by committing to reduce the deficit can we carry the confidence of the markets, which are the real force behind recovery. We need to cut public spending while keeping as many people as possible employed, to raise taxes for those that can afford it most and keep interest rates down while selling on as much of our debt as we can. It’s not going to be easy.

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Economy’s off the scale

January 26, 2010 — admin

Well, don’t you feel better now? The UK is officially out of recession (link to The Times because the BBC’s coverage reads like a Treasury press release), so we can all get back in our cars, go back to shopping in Waitrose and start thinking about re-mortgaging the house. Not quite. Because the government has been pumping so, so much money into our economy during the past 12 months that anything other than growth – however pitifully small – would have been utter humiliation. It’s also worth pointing out that we still have January and February’s figures to come before Q4 2009 growth is confirmed.

I believe that 0.1% is rather convenient for Gordon Brown and will be revised downwards in a few weeks when the fuss has died down. But there is a fundamental distinction between the two parties on how to maintain recovery – and remember that a second “after-slump” in the face of first recovery is something that has characterised nearly all the post-war recession. Labour wants to continue to prop up the economy with taxpayers’ money and there’s nothing particularly wrong with that in such dire circumstances.

The BBC's graph is stastically nonsense

But at some point, the props have to be taken away – and at the moment, the whole thing would come crashing down if that were the case. This is the graph that the Treasury and the BBC wants people in Britain to see. It looks like we are out of the woods. With another 18 months of quantative easing and borrowing, the figure could quite easily be pushed up to 2 or 3 percent and the government given credit for not just a full recovery but a new boom.

The Guardian's graph not only shows us where we actually are but compares with other recessions

This, though, is the Grauniad’s somewhat more realistic assessment of the situation that shows the recession has wiped out all the growth in the British economy since 2005. I have heard both George Osborne and Phillip Hammond in the media today say that the only thing that will keep us out of recession is the private sector’s profits, jobs and tax revenues and that interest rates must stay low to stimulate that growth. We need to cut the defecit to bolster our credit rating and boost our floundering currency.

A rise in interest rates, which would have an adverse affect on people’s spending power, is the most serious threat to our sustained economic recovery – apart from a fourth term for Labour. More borrowing could mean a softening of Britain’s credit rating and devaluing of the pound, which would make government guilts and bonds less attractive to investors. The government desperately needs to harden these investments to pass Britain’s debt onto those with the money to buy it; cuts in spending alone coupled with tax increases will not be enough to pay off our borrowings.

I want to see Ken Clarke and Phillip Hammond blast through Labour bluster about recovery and remind people that whatever Labour has done to bring us out of recession – and you can argue about the effectiveness vs cost of that – it’s nothing compared to the damage they have done to British business and trade, as well as landing us with a huge debt to pay off. I want to see people reminded about this until Gordon Brown doesn’t want to talk about the economy anymore. Brown’s plans to continue to spend his way out of recession and worry about the economic consequences later should convince that he can’t be trusted on this.

He’s been saying for ages that the Conservatives have made the wrong call on the economy every time. It’s not true and it’s time we hit back. He wants to continue to mollycoddle the nation and extend the pain for longer. The Conservative approach is not just a self-flagellating short, sharp shock; it makes absolute economic sense and it’s about time we said so.

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I should hope not

January 3, 2010 — admin

The man who nose - Ken Clarke

As well as spinning madly about security, Labour’s press team has also been trying to get stuff into the paper along the lines that the Conservative will be cutting spending and raising taxes after Ken Clarke said it would be “folly” to rule out tax increases. The BBC has dutifully responded with just such a story.

First of all, I should hope that no promises whatsoever will be made on tax increases or otherwise until George Osborne is able to see the proper and full government account – including all the off balance sheet PFI liabilities. It would be totally stupid to make any pledges on the overall tax burden until the Conservatives know just what a state the country is in. Ken Clarke is absolutely right and I hope that even tax-cutting Tories can see the logic in that position – or at least appreciate the total illogicality of promising to maintain or cut tax rates at this stage.

Secondly, the BBC has a long memory when it comes to Mrs Thatcher and the poll tax or John Major and sleaze but a very short one when it comes to recalling just who on earth plunged this country into near-bankruptcy to begin with. Every economically active person played a small part, certain larger players in the economy such as the banks and the regulators played a far more significant role but the one institution that has to carry the can for such throwaway mismanagement is HM Government.

For two years, Labour has spun that the banks were to blame and the price of the banks readily shouldering that blame has been £60bn of taxpayers’ money to make them competitive again. Those that wouldn’t play ball, like Sir Fred Goodwin, were fed to the media in a frenzy of inflammatory briefings that if they had been conducted by a private citizen on another private citizen would have been on the edge of legality.

The BBC, Grauniad and others have happily swallowed that line to the point where most of the British public believe that the banks were more or just as responsible as the government for the recession. Rubbish.

A few banks don’t make a recession, no matter how dodgy the loans. The recession was caused by a framework of poor decisions, insufficient regulation, faulty economic plans and over-optimistic projections. It was also caused because western governments were too complacent and arrogant to understand that their economies must shift to work around the emerging markets of the East rather than just continuing as per the past 50 years. The person responsible for the poor economic planning, the lack of realpolitick, the poor regulation and stoking up of the boom was not Sir Fred or any other banker. It was Gordon Brown the chancellor and Gordon Brown the PM.

Yet somehow it will be the fault of the Conservative Party if, after the next election, taxes need to rise and spending be cut. Well, spending will be cut after the next election because our national debt needs to be controlled. And taxes will rise as well because cuts alone won’t deliver the massive amounts of money that need to be raised.

DC is concerned that people will see the Conservatives offering only a decade of downbeat austerity and vote for Gordon who wants more borrowing to keep spending. It is a worry but in the end you have to trust the electorate to do what is right. And I think they will understand that a decade of different economic behaviour – most of it bearable, much of it positive but some of it unwelcome – is the price of the Noughties Boom.

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BA humbug

December 16, 2009 — admin
A sad tail: BA's staff and pensions have become more powerful than it's airline function

A sad tail: BA's staff and pensions have become more powerful than it's airline function

I’ve never been very good on aeroplanes, as my family will attest. I don’t how it came about but I have suffered a deep-rooted fear of flying for as long as I can remember and it’s got worse as I’ve got older. The one airline that I felt some degree of safety on, some gamut of re-assurance with, was British Airways. Not sure why, it was just familiar, consistent – there didn’t seem to be any nasty surprises and it had (and still has) an excellent safety record.

It is fair to say that during the last 10 years it has become something quite different to what it was. The level of service is meagre and customers are generally treated as a bit of a nuisance in an airline run by and for the convenience of BA staff. It is quite a tragedy to see such a great institution indulge itself into oblivion – but that is the way it is going. The cabin crew decision to strike over Christmas is the latest two-fingered salute to the paying British public – and possibly the greatest since Gerald Ratner insulted his clientele by admitting his products were “crap”.

It could also go down – at 92.4% as Unite leaders keep telling us - as the most decisive corporate suicide note in history.

Don’t get me wrong, I’m not a strike-breaking Tory. I believe people have the right to withhold their Labour – more than that, I believe it is an essential buffer between extreme grievance and revolution. But I don’t understand what this strike is for – cabin staff are not taking a pay cut, they are not being made redundant, they are not even working extra hours (although they may have to do more in those hours; but at the moment, who doesn’t?) It seems to me that this grotesque posturing is more about Len McLuskey and his place in the Unite union than any genuine grievance cabin staff have. They earn twice as much at BA than elsewhere – senior staff earn more than £50k for goodness’ sake – and if you like flying, I would have thought that being cabin crew is a great job.

I have nothing against BA staff - a lot of them are great people and without the special attention of one or two, it is no exaggeration to say that there are some flights that I just wouldn’t have got on. BA management too seems hell-bent on learning absolutely nothing from past experience.

But there are some very pertinent letter in the Daily Telegraph that sum everything up nicely. If the cabin crew strike over Christmas, they may all be out of a job within six months because BA could quite easily fold and a government bail-out would be tricky – can we really argue that a flag-carrying airline is as important as the banking system? And if the unions win their battle, how else is the company going to cut costs to pull itself back from losses of £400million?

The “plane fact” is that unless BA cuts its costs without being seen to cut its quality, it’s future looks very bleak indeed. It’s time that its staff – all of them – brought their heads back down out of the clouds and understood the bigger picture. If they choose to bring the company crashing down around them for the sake of their own personal comfort, I don’t see how that is different behaviour from the bankers we’ve all been told to despise so much.

Update 17/12: It is difficult not to feel that poetic as well as judicial justice has been done today.

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Halving the deficit

December 15, 2009 — admin

moneyOne of the key things in the the Pre-Budget Report was the headline to “halve Britain’s deficit” during the next four years, bringing this down from 12% of GDP where it currently stands (up from 2% in 2007) to 6.5%. In other words we are going to reduce the £180bn-a-year borrowing levels to something more “manageable”.

But this is not the same as reducing the deficit ie paying back what we owe – it simply indicates that the government, over the next four years, wants to reduce borrowing to £90bn a year, adjusting for inflation. During that time, of course, they could have borrowed the best part of £600bn more.

It doesn’t pay off the amount borrowed – it doesn’t even pay off the interest – it is simply a commitment to reduce the future levels at which we borrow. Strangely, this distinction doesn’t seem to have made it past Tom Clark in The Grauniad, as the paper happily swallows the government lines that Labour is to “halve the deficit”.

The total figure for what Britain owes is not easy to find but one must assume it is heading towards £1trillion. In addition, the nation has promised £2trillion in public pensions that it doesn’t have.

What the government is actually doing is spending £100 on a credit card every month. It used to spend £20, but the recession meant it needed to borrow more. It has not paid any of the money back and is intermittently paying back bits of interest. The bank is watching closely to see if the credit limit should be reduced. So the government is now looking to reduce its spending to £50 within four years. It is not saying that half the total amount on the card will be repaid.

That isn’t the impression left by James Lansdale on the “full story of the pre-Budget report” on the BBC, or even by the Daily Telegraph, who also seem happy to take the government’s suggested wording.

What the government is seeking to do is halve year-on-year borrowing, nothing else. It might help if journalists read the report itself rather than the Treasury’s press release, or even understood a little bit about how the economy works.

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Tracking the story

December 8, 2009 — admin

There’s been quite a bit in the nationals recently about the narrowing of the polls, with some putting the Labour lead in single figures. It’s not hugely surprising, I think we are see the Eurosceptic Conservative contingent flipping over to UKIP, which are votes I don’t necessarily think will stay there at the polling booth. In addition, I think there are a couple of other things happening.

People forget that polling is a highly subjective craft that can be made to go one way or the other. Back in the summer of 2008, DC was regularly polling 15 to 19 point leads and the race was on in the press to rubbish the PM and publish the poll with the most ridiculous possible lead. Now the race is on – led by the Observer a couple of weeks ago, to follow the line that the general election is going to be a very close-run thing and publish the “breakthrough” poll that suggests a hung parliament is more or less certain.

I don’t think that’s necessarily a bad thing for the Conservatives – people will shy away from a hung parliament and where they shy to will more likely be David Cameron than Gordon Brown. These polls are focussing activists and reminding them success is not, nor ever has been, certain. We’ve been here before during the Brown bounce, during the weeks following the collapse of Lehman Bros (about this time last year) and yet the PM has been hammered in subsequent local and Euro elections.

There is no doubt that a sense of optimism about the economy is helping Gordon Brown. But that sense of optimism is totally misplaced because the truth is that he hasn’t been straight with people in this country about how hard it will be after the election to pay off the cost of recession.

And I think that is where DC needs to go next. The economy may feel better, but it’s going to get worse again once those votes in 2010 have been cast. While Labour patters on about Eton and tried to get everyone interested in class warfare, the Conservatives should be sticking with the change argument and the feeling that whatever the apparent green shoots, the party to deliver change and steer the recovery competently is the Conservatives. I think that message will stick.

We also need to take on Labour about it’s appaling record on poverty and wealth creation. A Conservative strategy for poverty alleviation is a vital tool in the governmental box. By getting people into work, we lower the welfare bill and get debt paid off quicker. On the other hand, Labour’s attempts to get people into work have been spectacular failures because they aren’t serious. Far better to leave people on benefit and voting Labour for fear of the Conservatives, they reason.

By taking on Labour over poverty, aspiration and the real cost of recession, we’ll get them busy clearing up after us rather than standing still while Labour plays dirty with the politics of envy. It’s positive message from us about change; and a negative one from them about fear of change.

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Don’t Mansion It

November 30, 2009 — admin
The nation's favourite bean-counter - pity his idealogy isn't as good as his maths

The nation's favourite bean-counter - pity his idealogy isn't as good as his maths

I wouldn’t like to buy a mansion from the Liberal Democrats because they only seem to price them in increments of £1million. Back in conference season, just after Nick Clegg promised “savage cuts” to assauge the thirst of the Orange Book brigade, the nation’s favourite economist Vince Cable stepped forward with a plan to surcharge people with homes worth more than £1million 0.5% of the value above the £1m threshold.

Unfortunately, the Liberals forgot that, somehow, they hold seats in places likes Winchester, Lewes, Oxford West and Abingdon, Richmond and Kingston. Many of the MPs in those areas, almost all of whom face a serious Conservative challenge at the next election, came forward to say that they didn’t like the policy much. Today, Nick Clegg made appearances on a number of popular news outlets announcing a re-think. Otherwise known as an admission that the policy was a silly idea.

Instead, they are going to charge people with homes worth more than £2million a whole 1% in tax above the £2m threshold. I can’t think of many people in Woking with houses worth that much, although I know there are a very few. This copious nonsense of a policy will affect just 70,000 households in the UK and raise just £1.7billion a year. Not only is this a paltry sum compared with the £175bn the government will borrow over the next two years but Mr Clegg is not even proposing to use this money to pay off the debt.

Instead it is part of a muddled package to increase the income tax allowance to £10,000 taking four million people out of income tax - but also giving £700 to every taxpayer, including the super-earners, each year. To counteract this, he wants to reduce the tax relief on pensions for higher earners. Fine. If you want higher taxes for the rich, you can try – but you’ll always end up paying more to get the money from them than you’ll recover in tax, which is why the 50% tax band is nothing more than classist posturing. The best way to raise the tax take is to solve our economic problems, get business booming and increase people’s incomes. When they earn more money, they pay more tax.

So not for the first time, the Lib Dems have a credibility gap on tax. I understand they want the rich to pay proportionally more tax. Yes, so do I. But the way to do that is not to single out the rich, or even “super-rich” for special treatment because wealth has its own way of avoiding penalty. You have to engage the economy, make everyone richer and give the rich a reason to stay in the country - a favourable business and earning environment – to contribute a fair share. I don’t think that 50% is too high a figure – but doing it as Labour have done will not produce anything.

Nor this shambles of a Lib Dem policy on mansions. Nick Clegg says that the changearound is not a U-turn and that the policy does “exactly what it says on the tin“. To me, the tin appears to be saying that the Lib Dems have very little idea how to get the government’s revenues flowing again.

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Scant consolation

November 13, 2009 — admin
Labour's Willie Bain, the new MP for Glasgow NE

Labour's Willie Bain, the new MP for Glasgow NE

In case you missed it, there was a Scottish by-election yesterday that Labour won. Rather interesting actually – having tasted the Scottish National Party in government at Holyrood, the voters of Glasgow North East seem to approve of that party even less than Labour. But let’s be honest here – the seven, yes seven, seats in Glasgow are staunch and natural Labour heartland and frankly it’s a disaster that they don’t hold all seven (the SNP won Glasgow East back in July last year).

The idea that an unpopular party of government in Scotland (the SNP) being beaten soundly by a slightly less unpopular Labour government in Westminster (Labour) is somehow a resounding endorsement of Gordon Brown is total rubbish. And the fact the Conservatives even managed 1,075 votes in Glasgow North East is completely hilarious – I can’t imagine how there are that many Conservatives in north east Glasgow but it’s heartening to learn that there are.

If Labour hadn’t won this by-election, Gordon Brown’s job would have been under serious threat. That they have – and that they have held onto other safe seats such as Sedgefield and Glenrothes – means he can sleep a bit easier at least until after Christmas. I don’t expect that his leadership will be challenged before the next election now for the simple reason that anyone taking over would have a very difficult job turning everything around.

In a sense, this is actually a good result for the Conservatives. If the SNP had won, a leadership challenge in the next two months – followed by a snap election in March with a long campaign – would have been a possibility. I don’t think that this will happen now as Gordon Brown’s “endorsement” in Glasgow NE will cement him where he is. But this is no more an endorsement of him than holding onto Surrey Heath or Sussex Mid would be to DC. It tells us nothing except that core supporters are still prepared to vote for him; but we know that already as 25% of people still say that they vote Labour.

I anticipate that this could rise during the next few months to around 30% as the signs for economic recovery improve. It is up to DC now to show that a) the underlying financial situation in the this country, despite moving back into overall growth, is still dire and that b) the Conservatives are the party who will manage this underlying recovery best.

If they can continue to move in this direction in a convincing way, Gordon’s reprieve in number 10 will be shortlived and the Glasgow NE will seem very scant consolation.

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Turquiose credentials

October 17, 2009 — admin

If my blogging gets a little thin over the next couple of days, I apologise – there are a few things at work that need sorting out and as you can imagine in this climate, it’s not all as good as it could be.

Anyway, I thought the DC’s keynote speech on harnessing the power of profit and the conscience of the consumer to create a ”green consumerism” was the first significant environmental contribution from his since the “Vote Blue, Go Green” strapline was quietly dropped a few years ago. Undoubtedly, DC knows that his environmental credentials might just be enough to swing some ex-Conservative Lib Dem voters who can put up with no electoral reform if the Conservatives can show a genuine desire to help the less well-off and a commitment to environmental action.

But it  has to be credible. And I think this is – there’s no point setting out a vision for an economy run along green lines. The economy will always win over environmental considerations if allowed to go unchecked. What you need to do is use economic imperatives such as profit and efficiency to drive the environmental agenda forward. I don’t think the Liberal Democrats have demonstrated that they understand that in practical sense – for them, business behaviour must be re-built around environmental concerns.

DC knows that business behaviour revolves around money and believes that he can channel that motivation for the benefit of all of us. I hope he’s prepared to take it forward with gusto and resist the inevitable pressure that will come from the most unsustainable parts of the economy. They are also some of the largest and loudest parts – but he needs to make them understand that size and volume will not redress the planet’s problems. It is often those without a voice who are pointing to the moral path.

Update: A quick peak at Tim Dodds’s blog has revealed this article by the BBC News Climate Correspondent. I subscribe to environmental action because of the problems of a growing population and the potential for conflict as well as the unpleasant effects of unfettered industrial expansion and ecological decline. But it makes you think…

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