So why is UK growth so sluggish?

Well, that is a whole matter of debate, but what I can say is this: Birmingham is no longer quite the industrial hub it once was.

The problem is this: A lot of our industrial output, like cars particularly (but not exclusively) Nissan (capacity 340,00 cars per year), Honda (250,000 per year) and Toyota (137,000 per year) are reliant on parts made in Japan. UK manufacturers have also been affected as they are also reliant upon Japanese imports which have been cut short by the tsunami. In short, 0.2% growth is fantastic under the circumstances.

Now lets get back to the phrase "under the circumstances". It's actually quite important. Making cars in the UK is quite cheap particularly if you only have to deal with one union but making components here is less so when you have to deal with the tax office who want you to write off plant long after you have had to scrap it because it is cost-efficient. This is something for which the whining Ed Balls was responsible when he was telling Gordon what to do, but it was also the case before Labour got into power in 1997.

The boss of Nissan UK thinks he wants to buy more parts in the UK. Good. Get that past the Treasury and we are in a win win situation.

Meanwhile, Japan is recovering from the tsunami and so will our production. Growth next quarter will be 0.6 to 0.9% of GDP which will make Ed Balls look a bit silly.

That said, looking at tax rules on plant would seriously help in growth without being too costly.

The BBC has this.

Gordon Brown warned on banking collapse in 1997

Gordon Brown was warned that the changes to the banking system he was bringing in, in particular removing the role of bank regulator from the Bank of England and putting it into the hands of the FSA would lead to a systemic banking failure.

When discussing the bill that passed the changes to the banking system the Conservative Shadow Chancellor, Peter Lilley said:

With the removal of banking control to the Financial Services Authority--the "super-SIB"--it is difficult to see how and whether the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.

And further:

We have no objection to the objective of trying to bring greater simplicity and one-stop shopping to the business of financial regulation, but we fear that the Government may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day. We shall observe closely what is going on in the development of the proposed legislation.

You can read the whole section of the debate here (several pages), the quotes were drawn from here.

Now that Gordon Brown has admitted some liability for the banking collapse it is interesting to see Labour spinners, and indeed Gordon Brown lying about how the banks were run before his disastrous changes. They allege that the banks were self regulated before Labour came into power. This is, of course wrong. Barclay's did not regulate Barclay's, nor did Lloyd's regulate Lloyd's, the Bank of England supervised them all, keeping a close eye on balance sheets and risk which as we know is a movable feast. Previously they had taken failing banks over and had them restructured in a weekend.

You can read more articles on the Bank of England here.

I would seriously recommend reading the whole debate. Robert Chote gets quoted quite a lot!

Government to regulate irresponsible lending!

The news this morning, pre announced as usual is that the government is to regulate against irresponsible lending.

If ever there was a case of bolting the stable door after the horse has bolted, left the farm, and been sold off at market by someone else this is it because lenders are now being very very tight on their own lending anyway. What is more, adding regulation to the situation now may make things worse.

These regulations will not help the many thousands who have been irresponsibly lent to in the past and have either committed suicide or gone bankrupt as a result.

The curious thing is though, that this is a return to how things used to be. It used to be a principle of common law that lenders who lend to people who could not pay it back, and the lender ought to have known that they could not pay it back, lost their money, and quite possibly had to pay compensation as a result. I remember some cases making the news in the 1980's and early 1990's. I wonder which bunch friendly to the banks got rid of that, or if its lack of use is due to the fact that you can't get legal aid anymore.

The BBC has this.

A long slow fragile recovery

So says Mervyn King the Governor of The Bank of England.

Why?

Well mostly because of the effects of massive public and private and corporate debt.

Well, government debt is getting larger by the minute and even if a government with some sense of fiscal control took over in the morning it would still be cataclysmically bad.

Labour now insist that they can't be responsible now because taking money out of the economy would lead to a worse recession.

The problem is that government spending is taking money out of the economy because money that the government has borrowed is not available for private industry or indeed consumers, to borrow.

Meanwhile whilst politicians are insisting that banks should lend more, including government ones, government is telling (via the FSA) banks to lend less to private individuals and to hold more government debt.

Labour tell an interesting lie about government debt. That is that is was lower when the recession started than when Labour took power in 1997. It is an interesting lie because it is absolutely true. We started the recession with government debt at 38% and in May 1997 it was 40% of GDP. It is a lie because it is used to hide a startling truth and that is that government debt going into the 1990/1991 recession was 20% of GDP, and paying for that recession added the extra 20%.

This is important, because that Labour lie covers up another big issue which is that Gordon Brown has been borrowing massive amounts of money whilst the economy has been growing, not saving up for what is now a very rainy day.

So much for prudence and no more boom and bust!

The BBC has this.

The truth about Bank interest rates.

Some people are having a go at the banks for the interest rates they charge, particularly as the Bank of England base rate is at 0.5%.

People claim that the banks are making a big profit by charging interest rates of 4.5% and above when the Bank of England rate is so low.

The problem is, as I have said before, that no one cares what the dreamers in the Bank of England set interest rates at, no one is lending at that rate, particularly to banks. They are not even close to that rate to the government. Banks are paying much higher rates for the money they buy in to lend so are charging more for it. It is as simple as that.

The fact that the Bank of England is in cloud cuckoo land will however cause real long term problems.

The BBC has this.

Ed Balls is a liar!

There is no charitable way to put this, Ed Balls has been on the airwaves lying like there is no tomorrow.

Sue me Ed, if you dare.

As Fraser Nelson notes here, and then after the angry phone call here, Ed Balls has claimed that Alistair Darling's 2009 budget laid down plans to reduce the public debt.

Ed Ball's lied thus:

Alistair Darling in the budget set out plans which show the deficit coming down, national debt coming down.

The problem is that he is using a measure of debt most people would not use, and measured on a basis no serious economist believes.

The statement is true if you think reducing borrowing growth to a level where the economy is growing faster is reducing national debt. Basically if you imagine a household budget, you are still increasing your overdraft every year till 2017, but you will get pay rises every year till then of 3.5% and in 2017, the accumulated debt will look like less in percentage terms against your wages.

The problem is that this is still increasing debt in net terms, and the supposed real terms decrease on which the lie is based is founded on the idea that economic growth will start right now, be sustained, (no double dip recession) and then go on the serial above trend growth over several years of 3.5%.

It all comes unstuck there for two reasons. First of all most people would still regard continued borrowing as increasing rather than decreasing debt, but secondly and most importantly it relies on amazing growth figures for years to come.

That is not going to happen because overall debt (government, household and corporate debt combined) is running at 400% of GDP whilst real interest rates are near 5% (not what the Bank of England base rate actually is, but what lenders are actually charging for new loans) which means that this lot could cost us 20% of GDP every year. Quite a lot of that money is going abroad to foreign lenders. It drains money from the economy.

Whilst it is possible that there may be a strong bounce back in growth after a recession as inventories are built up, it seems utter fantasy land that such a bounce would last several years with this much debt.

Hat tip to Manwiddicombe for the links to Fraser's article.

Banking regulation

I was quite interested in the reports of the Mansion house speeches by Mervin King, the Governor of the Bank of England, and Alistair Darling the alleged Chancellor of the Exchequer.

The bottom line appears to be this:

Alistair says that his predecessor is not the bringer of doom, and there is nothing wrong with the current regime, though obviously the Bank of England has to take responsibility to make the system stable.

Mervin says that's all well and good, but if you want us to make the system stable, is there any chance we could have the powers back that the bringer of doom took away from us when he created the ridiculous tri partite system back in 1997.

Needless to say Alistair is in a difficult position, because his boss is Gordon Brown, the bringer of doom.

The BBC has this as a report and this from Robert Peston.

Cutting Public Spending by £90 billion!

If UK PLC popped along to see its bank manager, around about now, and asked to extend its overdraft by £606 billion over 5 years plus no date for the start of repayments he would say No! In fact, were it not for the bank of England printing money to buy gilts back, there is quite a high likelihood of a gilt strike. That is where the normal gilt buyers refuse to buy, leaving the government high and dry.

The bank manager would be looking for cuts in expenditure of at least £50 billion. The problem is that would be drastic. With that in mind I read the following email from A Ferrand Stobart & Associates:

Could someone please recognise that to economise in any service, public or private,one does not cut the service, one cuts out the current waste in providing that service which often actually improves the service

£15bn of economies are proposed in the Budget in the Public Services, about 2% of total expenditure, Reform says £30bn is possible 4%,. The Taxpayers Alliance has quoted £80bn, 10.5%, In 20 years of work in the field of operational improvements leading to cost reductions I have never found less that 12% and often up to 15% of benefits [cost reductions] achievable in the 12-18 months after revised system installations, £90 - £112bn. per annum in the Public Services possibly !! The Government/Chancellor are setting a very low target for economies which are quite certainly there to be had.

I have personally examined several Public Services in my time, and worked in a few of them. The most interesting reaction to what was called "analysis", establishing whether there was potential for improvement before offering to deal with it, was from a large department in constant touch with the public. [I shall not name names and it was some time back]. The problems, waste and frustrations at "shop floor" level were the same as at any other clerical operation that I had looked at. Plenty of opportunity for improvement, and I had an enthusiastic talk with a union shop steward on the possibilities !

But when I presented my findings to the top civil servant in charge, he was not pleased. He had wanted a report that his department was working well !! I do not think that he went "out on the floor " much.

If a way could be devised that the staff in a Public Service were rewarded by part of the cost of the waste they stopped, one might get somewhere. This has now been suggested by Conservatives ?

As Lord Digby Jones said recently "the work could be done by half the people", as the Book of Common Prayer says "There never was any thing by the wit of man so well devised or so sure established which hath not in the continuance of time become corrupted", and as Cicero said "Men do not realise that a great revenue may be had from economy"

Now, that is quite some savings, particularly from a relatively simple change. That said they could also scrap the stupid accounting rule that all budgets must be spent by year end or else you lose the balance and have it removed from your next years budget. With that sort of threat of punishment is it any surprise that budgets are pretty much always spent in full whether what it is spent on is worth while?

UK economy takes a nose dive.

Well, the economic figures issued by the ONS today are grim, showing economic shrinkage of 1.9%, far worse than expected and indeed worse than government forecasts. So far, on aggregate, the economy has so far shrunk by 4.1%, and there is yet more to come.

Alistair Darling looks like he is living in cloud cuckoo land.

What is of more concern is that unemployment lags in a recession, so the numbers of unemployed will go up from here, quite a lot. 3 million unemployed could look optimistic soon. It is certainly the case that the growth figures in the budget are shot below the water line. I could accept that there might be 1 year of growth at 3.5% the year after next, but not for three consecutive years.

It is clear therefore that public spending needs to be reduced further than even Labour are considering and as I have already said, that is harsher than Thatcher's cuts.

The BBC has this.

Labour to slash spending by £15 billion!

Well, they call them efficiency savings, but were it the Conservatives proposing exactly the same thing, Labour would call them cuts.

How much they will affect front line services is difficult to say. You could cut public spending by the actually required £40 billion without affecting public services, the problem is that you would be reliant on those currently wasting money to cut the fat rather than the muscle, and if the could do that, they would be already.

However, there are many points to make about these much heralded ¨efficiency savings¨.

The first is this is a budget announcement, it has been leaked, ergo the chancellor should resign. That is what has happened pre New Labour.

The problem is that New Labour have so cheapened politics that they can get away with leaking budget sensitive information on a regular basis and the client media (yes, the same ones who have now turned on Damian McBride) just lap it up.

The second thing to say is: why have we been tipping £15 billion a year down the toilet? If we assume that this had been going on for 5 years, then had Labour acted sooner, we could have £75 billion more in the bank. Wow, that would come in handy right now.

The third thing to say is that the problem with these cuts is how they are delivered, and more importantly who sets the accounting rules. Government still works on the daft rule that if you do not spend all your budget this year then you lose the money, and you lose the same from next years budget. This is a bean counter rule, and what is more it is a stupid one. If you make reasonable budget assumptions, and beat them you are punished, not only this year but next.

Changing that one rule would dramatically help the public finances. For a start it would mean that there would be budget surpluses.

The last thing to say is that these public spending reductions will not go any where near far enough to reduce public debt. Remember that almost every pound borrowed by the state is a pound less available to the market for every one else.

The BBC has this.

Labour just don´t get the banking crisis

It is fascinating to note how Labour just do not get the banking crisis.

This is all exemplified by an interview with John Redwood and Derek Draper, on the Nolan show. You can download the MP3 here, or read a partial transcript here, thanks to the University of Manchester Conservative Future, via Iain Dale´s Daily Dozen.

You see, in Draper world, and from having talked to real world New Labour supporters, New Labour world, this is a combination of American bankers, and greedy bankers here, and if there was any fault here, it was not enough regulation but Labour would have regulated more than any one else as everyone else wanted more regulation.

Well I have news for people who live in Draper world or indeed New Labour world, and it is this.

It does not matter how much regulation you have, if you are regulating the wrong things, with the wrong people who don´t know what they are looking at.

There is no sensible way that a regulator could decide what sort of mortgages a bank should offer to an individual. There is every way that a regulator could supervise a banks balance sheet and its spread of risk verses it capital and cash.

It is true that the Conservative party does want less regulation, in the sense of less looking at each individual deal. What we do want is to get a tighter control of the bigger picture. That is the way it used to be done, before Gordon Brown, and it is the way it will be done after him.

UK bond sale fails

The sale of gilts, to cover government debt failed yesterday, in that the sale did not raise all of the money it was intended to raise.

To be fair, it was for a 40 year bond, and this sort of thing has happened before, so there is no intrinsic reason to panic.

However the next bind sale occurs during the G20 summit. If that fails, we have huge problems.

The BBC has this, the Daily Telegraph has this.

Unemployment hits 2 million

Or at least that is the official number by the governments preferred measure, as per the ILO (International Labour Organisation).

Well, the thing about that number is it does not include the numbers on incapacity benefit, a wheeze dreamt up in the 1980´s to make the numbers look better, and still working well to massage the numbers for this government.

What is of great concern though is the rate of rise in benefit claimants, up by the highest monthly rate since records began in 1971. Now that is grim.

Still, its alright if you work in the public sector, where jobs are still being ¨created¨ and where wages are going up faster than the private sector.

The BBC has this.

The Global Banking Crisis

It is interesting to note that Gordon Brown and his merry band of spinners, including John McFall (chairman of the treasury select committee) keep saying that the banking crisis is global.

Well, it is, in the sense that if American and British banks go to the wall, the globe is truly screwed. It does not mean that every bank in the USA or UK were or are on the brink of going to the wall, but enough are.

What it isn´t though is a global banking crisis if you mean everyone´s banks were all at it. They were not. As an example, Spain´s central bank, when asked by its banks if they could get into buying securitised debt said yes, but you will need more share holder capital. Needless to say they did not bother. Lebanon´s central bank just said no. Not only that it told its banks to get out of a number of American banks with so much advance notice that the net loss to them has been $20 million, which is peanuts.

That is a crucial difference. Those central banks were not regulating their banks but supervising them, much as the Bank of England did prior to Gordon Brown taking over and hoarding power to the Treasury, whilst giving away the fig leaf of independence to set interest rates with a government appointed committee to government set targets on what inflation is.

So the banking problem is global in its fallout, but make no mistake, it is not global in its causes. They were for the most part authored in London and Washington.

The Pension of Sir Fred the Shred Goodwin

Firstly the idea that the man who drove a well respected and solid bank straight into the ground should walk away with anything is obviously wrong. It seems reward for failure at almost its most grotesque. It seems that he gets to retire early on £693,000 per year. His pension pot is reputed to be worth £16 million though I have heard some say it may be worth as much as £24 million as it is both indexed linked and presumably would benefit his widow.

Now, as I said it is very very wrong that he should have been given this pension, or quite possibly given a contract of employment that would give rise to such a pension even if he trashed the bank.

Thing is though, he was and he has. However wrong that is, that is it.

Harriet Harman has made much of how wrong it is, and implied that it is wrong in the court of public opinion, as if that counts over the rule of law.

It does not. That was lies mob rule and a very dark place where paediatricians get their homes burnt down because some mobs are to thick to understand the difference.

What is more, parliament could not pass a law to now strip him of his pension no matter how much people hate it, nor should parliament do so. What would you call such a bill? The ¨we all hate Sir Fred bill¨? Or perhaps the ¨removal of unjust rewards bill¨? If the latter who decides what an unjust reward is?

Even if parliament did pass such an act then it would be remarkable if it was retrospectively active as in affect past deeds. Obviously it would have to be so, which is very very rare indeed. Then of course such a law would get thrown out as being incompatible with the Human Rights act, as an unjustified interference with property.

This all goes to show just how ridiculous Labour´s and in particular Harriet Harman´s position is.

So who is to blame? Well clearly if there was any legal discretion in the award the people who failed to exercise it including government ministers and board members of RBS and the UK investment authority. If there was none, then we have to blame those who drew up Sir Fred Goodwin´s original contract.

The BBC has this.

Gordon Brown to ban 100% mortgages!

According to various papers, including the Sunday Telegraph, Gordon Brown is to ban 100% mortgages.

There are of course a number of observations you could make.

Firstly its too late in many ways. The horse has not so much as just bolted but to quote David Cameron, has in fact gone on to win the 3:30 at Utoxiter.

It gets worse though. Gordon Brown is saying he knows more about banking. Clearly he doesn't.

The banks have for now at least already stopped lending 100% loan to value mortgages.

The really big problem though is that Gordon has in one stroke ensured that first time buyers will for quite some time, be barred from the housing market. This is of course exactly the reverse of what needs to happen.

The real problem has not been 100% mortgages, it has been the multiplier applied to them and self certification of earnings, as in a complete lack of due diligence on behalf of the banks.

What is even more ironic is that Gordon Brown is talking about prudent lending. Presumably prudent borrowing also. This idiot borrowed well up to the so called golden rule 40% and so had to ditch it at the first sign of trouble.

We hear Labour ministers saying they have "paid off Tory debts". Well that is true, but also obscures the bigger truth. Before the 1991 recession the Conservative government had debts of 20% of GDP. After it it was over 40%. It is true that following Ken Clarke's future budgets Labour paid a bit of that off, but it started this recession with a massive budget deficit and debt rapidly approaching 40% (excluding Northern Rock and public sector pension liabilities).

Whistle blowers revenge on Gordon Brown

You will no doubt have heard the controversy over Paul Moore's allegations which caused Sir James Crosby to resign as vice chairman of the FSA. This stems from Paul Moore being sacked for the heinous crime of pointing out, in his capacity as a risk manager that the bank was being driven to the wall.

Well, in today's Independent on Sunday he fires off both barrels at Gordon Brown, blaming him for our banking collapse. He will, according to the article, send a dossier of further documents to the Treasury select committee which he says shows the regulatory failure.

The interesting thing in all this is that it was Gordon Brown who changed a regulatory regime that had worked for a very long time for one that has failed at its first test. What is more, he was told at the time that the system he was implementing would lead to failure.

Before anyone carps on about more or less regulation, let me say that the USA has a very large regulatory regime. It did not work either. The fact that lots of boxes have been ticked does not mean everything is tickety boo.

I wonder what the select committee will make of the evidence they will see next week. John McFall, Gordon Brown's lapdog on the committee and also its chairman is unlikely to be a happy bunny.

Economy to be worst in 100 years!

It is not a pleasing thought, but that is apparently Ed Balls' view of the economy.

So much for an end to boom and bust, or indeed how well placed we are to deal with it.

The BBC has this.

The Bank Bailout II: The Sequel!

To hit your taxes soon, The Bank Bailout II: The Sequel!

The last one was so popular that producer Gordon Brown thought he would bring the sequel out quickly to capitalise on the originals reception.

Details are still sketchy, but it appears that the horror theme is continued, with poor ordinary folk being robbed to pay for the hideous mistakes of some bankers, and crucially a complete failure to organise regulation.

Curiously enough when the original was released to much fanfare we were promised that it was a one off work of art, carefully crafted so that there would be no need of a sequel.

Movie goers will cower in fear as they try and hide from the very realistic prospect of having all their money frittered away by an incompetent pair if pillocks.

The BBC has this here.

Gordon Brown out of touch on VAT!

Gordon Brown is totally out of touch with what hard pressed people are actually spending their money on.

At today's Prime ministers questions he said that the VAT cut was saving the average family £5 per week. If you calculate that you would need to spend £235 per week on goods and services which attract VAT. (£1,018 per calender month or £12,220 per year).

So, after you have paid for all those things that do not have VAT on them, like rent/mortgage, council tax, food, domestic gas those things that do attract VAT but have had their duty raised, like cigarettes, beer and petrol, do you have £235 left? I don't. Neither does anyone I know.

Which planet is he living on? On the other hand for the same money he could have raised personal income tax allowances to £10,000 thus putting £67 per calender month in my pocket, or about £15 per week! Three times as much as the government claim and much much more than that over what benefit I get from the VAT cut.