Thursday 30 October 2008

Latest YouGov poll has Tory lead down to nine points

The Telegraph's monthly YouGov poll has the Conservatives on 42%, Labour on 33% and the Liberal Democrats on 15% - a Conservative lead of 9 points. For David Cameron, it is a far cry from the heady days of the summer, where the Conservatives recorded poll after poll of record leads over Labour.

The Liberal Democrats can take few crumbs of comfort from this or any of the other recent opinion polls. The third party is usually squeezed mid-term and relies on more balanced media coverage in the run up to the general election. However, I believe that Nick Clegg is failing to make any progress towards increasing the record number of Lib Dem MPs elected in 2005. In the south the Lib Dems are likely to be challenged strongly by the Tories and it remains to be seen whether the Lib Dems can mobilise sufficient disgruntled Labour voters for them to make any gains in Labour's traditional heartlands.

The Conservatives have been on a downward path since the rumbling credit crunch finally erupted. Gordon Brown's frenetic levels of activity - matched only by the levels of media coverage - have managed to turn around the Labour party's fortunes.

The seemingly sharp poll movements are a reflection not just of turbulent economic times, but of the volatility of the modern electorate. Over the past 12 months, Labour were ahead at the time of the 2007 conference season, leading to speculation that Gordon may go for an early election. A successful Conservative party conference, and in particular, George Osborne's inheritance tax proposals, and the probably more effective, but largely uncredited, proposed levy on non-doms, put an end to that. Brown decided it was too risky to hold an election and acquired a reputation as a ditherer. Since then, the government has been hit by anger over fuel prices, food prices and most damaging of all the 10p tax fiasco, and its poll ratings dived.

During the government's record unpopularity, the Tories recorded a string of electoral successes: in the local elections, the Crewe and Nantwich by-election, and most famously, Boris's triumph over Red Ken in London.

The pendulum has not swung entirely back to Brown, but the Conservative's prospects of an outright victory must look less likely than they were a couple of months ago.

In recent weeks, the Conservatives have been all-at-sea over "Yachtgate", but I still believe that this has been a trivial story, which has already sunk. And I don't think the public are either surprised or care that Osborne (and Mandelson) have been associating with rich Russians on yachts. I'd be very surprised if this has had any impact on the polls.

But unfortunately this isn't the Conservative's only problem. George Osborne, who I credit above, with having saved the Conservatives from having to face Brown's early election last autumn, has simply not been either sufficiently eloquent in his explanations as to what the Conservatives would do to deal with the recession.

Over the past few weeks, I've seen lots of Tory big beasts from the past offering their views on the crisis - from Nigel Lawson through to Ken Clarke and John Redwood. But where has Osborne been? Belatedly, the Shadow Chancellor has said that excessive goverment spending, and its likely depressing effect on the value of the pound and risks to future inflation, would hinder the Bank of England's attempts to fight the recession by lowering of interest rates.

But this doesn't play well with the media. Where's the simple message for the public?

Cameron has tried the simple approach to try and pin the blame on Brown by repeating his much repeated claim of there being "no return to boom and bust", and strategically, I believe this may work, if, people start losing their jobs and homes over the next twelve months. However, it is not without danger. If the recession proves to be more shallow than currently expected, then Gordon will be able to claim that he has steered the country through.

More than anything the Conservatives need to publish a clear set of policies to deal with the recession. Andrew Lilico outlined a series of options for the Tories over on Conservative Home. At the moment, the Conservatives appear to be following option 1 - Muddle along - let tax revenues fall, interest rates fall, and let borrowing to pay unemployment benefits rise.

This isn't a politically sustainable strategy. Cameron and Osborne must set out their own vision. They should be considering a series of limited duration tax cuts. Such cuts do not have to be significant in the overall scale of public spending - but something clear and simple which would benefit everyone. A simple increase in the personal allowance would do this. There will be plenty of opportunities in the future to reduce public debt - perhaps by looking at public sector pensions, which as I note in the previous posting are desperately in need of reform.

Simply shouting at the government from the sidelines is not going to win any converts back to the Cameron camp.

Wednesday 29 October 2008

Public Sector pensions

A lot of the debate over the past few weeks has centred on Britain's levels of debt and specifically, whether the Government can afford to borrow more in its Keynesian approach to getting the country out of recession.

Many have pointed out that PFI deals are not included in the official figures as the debt is held off-balance sheet. However, the real elephant in the room is the massive liability for public sector pensions.

An excellent piece of research has been published by the Pensions Policy Institute. I should add that the PPI is a non-partisan body.

Here is a summary of some of the findings:
  • On average public sector pensions are now worth 21% of salary compared to a typical private sector defined benefit scheme worth 20% of salary and a typical private sector defined contribution pension worth 7%.
  • Employers contribute around £4,000 per year per employee in the public sector, compared to £1,600 per employee in the private sector. However, employees in the public sector also contribute more than their counterparts in the private sector.
Ah but, public sector workers don't get paid as much as their private sector counterparts, you say. Apparently not:
  • Pay is higher in the public sector than the private sector at all but the highest pay levels based on observed annual gross pay for full-time employee jobs by sector and percentile, not controlling for occupation and individual characteristics.
Basically, if you are in the top 10% pay bracket in the public sector, then your average gross pay is £41,000 per year versus £53,000 in the private sector's top 10%. But at all other pay levels, the public sector pays more. And when you add into the mix issue of job security, probably especially relevant in current times, it would appear that public sector workers are on to a pretty good thing.

Aside from the issue of whether these generous feather-bedded pensions are affordable in the long-term, with average life expectancy increasing with a corresponding rise in the number of pensioners, the overriding question should be, 'is this fair?'

Why should low and middle-paid workers in the private sector be effectively subsidising their co-workers in the public sector?

When Gordon famously raided pension funds, by abolishing the tax credit on dividends, public sector workers were unaffected as they receive their pensions based on final salaries, rather than having to build up a fund to buy an annuity on retirement.

Pension reform in the public sector needs to go much further. This is a key issue for the next Conservative government to deal with when it comes to office. Clearly it is going to be unpalatable given the massive increase in the client state over the last ten years, but someone is going to have to grasp the nettle.

US interest rate decision due

The Fed are expected to reduce their base rate from 1.5% today. Markets rallied on Wall Street yesterday and have opened up sharply across Europe.

The ECB and the BoE meet next week to decide on interest rates. Will there be another co-ordinated rate move today? Expect to see it announced at PM's questions if it is happening. Not that it is a political decision of course.

Hedge funds hammered by short-selling VW shares




Betting that VW shares are likely to fall given the global economic downturn must have seemed like a cert for the short-selling hedge funds.

Unfortunately, Porsche, which has been gradually increasing its stake in VW over the past year or so announced on Sunday that it held options over an additional 30% of VW's shares, which would take their holding to 74% of VW's equity. With the other 20% held by the Lower Saxony regional government, that meant only 6% of their shares were available to be purchased...

The news came as a shock to the hedge funds, forcing them desperately to buy shares in the open market to cover the shares that they had loaned. Panic buying saw the VW share price rise 350% on Monday and Tuesday, and it is estimated that 22bn Euros have been lost by the hedge funds. Which funds are exposed to this have not yet been revealed.


The big bonus may be slightly smaller this year, but I'm guessing that a Porsche is not going to be on the wish-list.

Bank of England: Mortgage approvals up in September

Mortgage approvals increased in September, up from August's record lows. Approvals were around 33,000 up 1,000 on the previous month. A fair amount of this can be attributed to the Government's dithering over stamp duty, which led to many prospective buyers waiting until the situation was clearer.

And net lending by building societies was still down around 50% on last year's September figures suggesting that there remains little desire among homebuyers to get either trade-up or get into the market - assuming that they can even raise the finance of course.

Tuesday 28 October 2008

McCain - gaffe

McCain - not having his best moment...

Brand Ross

Jonathan Ross and Russell Brand are under fire after making offensive phone calls to Andrew Sachs - better known as Manuel from Fawlty Towers.

The BBC has a transcript here if you want to see what the fuss is about.

Initially after broadcast on the 18th October (this was a recorded show rather than a live programme), the BBC received two complaints. However this had reached 1,500 yesterday and then passed over 10,000 today. Presumably, the listeners to the show, who probably expect such antics, were less bothered than the general public, who following the extensive coverage in several tabloids, have driven the number of complaints to the level it is now.

Now Ofcom is investigating the issue as well as the BBC, who in an interview (with themselves) said that it was too early to speculate on whether any action would be taken against Brand or Ross.

And it has, during the day, attracted more and more political attention. Nigel Evans for the Tories started the ball rolling, and was joined by James Purnell and finally even Dave and Gordon joined in - Gordon describing it as "clearly inappopriate and unacceptable behaviour", and Dave insisting on "transparency... in understanding how this came to be broadcast."

I'm not sure this is of sufficient importance for the Prime Minister and Leader of the Opposition to worry over, but I wouldn't be at all surprised to see it come up in PM's questions tomorrow.


While I don't find either Brand or Ross at all funny, and agree that leaving abusive messages on someone's voicemail concerning their grandaugher is clearly not acceptable, I can't help but think that this is one of those issues that has been whipped into a frenzy by the media - especially those who are political enemies of the BBC.

The BBC, for their part, do themselves no favours by broadcasting the show in the first place, and in taking too long to deal with the aftermath. The BBC's mission is to inform, to educate and to entertain. It is difficult to see in which category this sorry episode falls.

The BBC is in a privileged position financed by a tax on all households with a television. I think that it is very important for it to use this money to deliver quality programmes which may not be available elsewhere in the commercial sector. Jonathan Ross's alleged £18m salary over three years, is not good value for the tax you pay on your television. If that's his going rate, fine, let Ross get it from a private company, and those who wish to hear him can continue to do so, but not at licence payers' expense.

Friday 24 October 2008

GDP growth in the third quarter down 0.5%

Worse than expected growth figures out today show the economy contracted 0.5% in the third quarter sending a shudder through the markets. This is the first contraction since the second quarter of 1992.

16 years of growth have ended.

Analysts were broadly expecting a fall in GDP - but one of 0.2%. 0.5% is not as bad as when the UK entered its last recession in 1990 - then collapsing by 1.2%.

The reasons for the last recession in the 90s was that inflation had started getting out of control necessitating sharp rises in interest rates to slow the economy. This time the reasons are different.

Yes inflation has been high, but inflationary pressures are rapidly dissipating. Oil prices have fallen from their peak of $146 a barrel and food prices are falling. Actual food volume sales fell in September - the first time since the 80s.

The causes of this recession are simple - growth has collapsed owing to the lack of availability of further credit. Government, businesses and consumers have embarked on a debt-fuelled binge over the past 10 years aided by readily available money. You only have to look at the amount of equity withdrawal from people's homes that has taken place over the last 5 years. People were using their houses, increasing in value seemingly every month, as cashpoints, financing a lavish lifestyle way in excess of their earnings.




Now the party is over. House prices are falling having grown to truly unaffordable levels, leaving the very real prospect of negative equity for many. Equity withdrawal is no longer an option and people up and down the country are having to face the new economic reality.

The UK is heavily reliant on the housing market - it is a totem of confidence. The first signs emerged as housebuilders and estate agents started reporting they were struggling to shift houses. That moved on to retailers who specialise on big-ticket items - often purchased when people move house.

And from there, it has spread to the financial services sector. The US started their correction in the housing market before the UK and the big banks realised that all the mortgages that they had advanced for commercial and residential property were secured against assets that were rapidly losing their value. Worried by the state of their balance sheets, and fearing banking collapse, banks stopped lending to each other, and so the credit crunch begun.

Now small businesses, reliant on flexible banking facilities to manage their cashflow, are starting to struggle as banks become ever more risk adverse. Manufacturers of everything from cars to double glazing windows are finding that consumers no longer have the money, or fear about spending their money in case they need it tomorrow, to purchase their products.

With a drop in demand, unemployment is sure to rise furthering the cycle.


The Bank of England needs to urgently and aggressively cut interest rates. By reducing the monthly cost of people's mortgages they will hopefully have more money to be able to spend their way out of the recession.

The recapitalisation of the banks will gradually ease the availability of credit although we will probably never see the availability of cheap finance that has been a hallmark of the last five years.

Government too should continue its level of public spending. This is no time to cut public expenditure - however, it should be on infrastructure projects and capital expenditure rather than wasted on operating expenditure.

Investment should take place in the technologies of the future. Clean coal, renewables and nuclear power must be part of the equation to reduce the UK's reliance on oil and gas from unstable regimes. Tax breaks for investment in these technologies need to be introduced.




Once the economy starts expanding again, public spending should be reduced. It has grown to an unsustainable level over the past 10 years. The country's debts will need to be repaid. Although it pains me to say so, tax cuts will have to wait until the country's finances are in a better state. David Cameron's plans to share the proceeds of growth urgently need revision.

Thursday 23 October 2008

How will the new economy survive a downturn in the real economy?

Amazon published their fourth quarter forecasts in the US last night predicting growth of between 6% and 23%. Most companies would doubtless kill for such figures in current times, but it nevertheless sent share prices in Amazon falling in after hours trading.

Investors were apparently disappointed by the wide range of the growth forecast and the fact that it wasn't as bullish as that predicted by the analysts.

Amazon has seen phenomenal growth over the past 10 years and it's not difficult to see why. Its website is easy to navigate, it 'learns' things that you might be interested in buying, is generally competitive price-wise, and you can read other customers reviews of products. I've never had a bad customer experience with Amazon, and it will probably continue to do well, even considering the coming recession.


Meanwhile Apple, with its iconic iPod and iPhone products, recently announced its very successful Q03 results with a 26 percent rise in profits on the back of selling 6.89m iPhones and 2.6m Macs. It has already met its target of selling 10m iPhones in 2008, but it too is relatively cautious about the next three months.


No one really knows how the downturn will affect these companies, as the last recession was before the internet existed and computers had nowhere near the penetration that they have now.

How this sector will perform over the next 12 months will depend to the extent to which customers judge that these consumer goods are now essentials.

Getting a DVD from Amazon makes for a fairly cheap night-in. Similarly I think that the computer games market will be relatively unaffected. While the price of new games can be eye-watering, there's little doubt that it makes for a good few hours of cheap leisure time. It's the same as Dominos Pizza - which believes it will be relatively unaffected by a downturn as getting a takeaway pizza in is a cheap option compared with going out to eat.

I am less bullish about the prospects for Apple et al. If customers are feeling squeezed, they can probably easily go without the latest high-tech must-have gadget from Apple.

This has already been partly shown in Nokia's Q03 results. The seemingly unstoppable mobile giant reported a 30% fall in profits and a 5.1% fall in sales. Competitive pressures in emerging markets and fierce competition (notably from Apple and RIM) in the high-end market led the average cost of a handset to fall €10 in the past year. Feeling squeezed many consumers are extending their replacement cycles making their existing phone last another six months, rather than upgrading every twelve months.


Ultimately, as ever, those companies with compelling and innovative products and services will weather the economic storms ahead.

Wednesday 22 October 2008

PMs questions

A rather earnest PMs questions, with most of the questions from MPs focussing on how the credit crunch is going to impact on their constituents.

A recurring them was the issue of energy prices for the vulnerable to which the PM repeated his much favoured winter fuel allowances (probably not needed for those who spend the Summer somewhere warm).

Cameron tried again and again unsucessfully to try to and get GB to admit that he had not abolished boom and bust. I'm not sure what the strategy was here - it wasn't going to work, and Brown managed to weather the storm with one of his lists and even couldn't resist saying that we hadn't got 15% interest rates like in the Tory busts.

The minute Dennis Skinner got up, I knew that Osborne was in for a hit. Previously he had been was the victim of a shot across the bows from Clegg - a reference to the PM being "All at sea" quickly followed by "... but not on a luxury yacht"

Interesting that the Speaker chose Dennis Skinner to ask the PM a question - especially given his previous exocets launched against Osborne.

Skinner directed his main guns at the good ship Osborne, by asking Gordon for a rock solid assurance that whatever he has to do to clear the nation's debt, he would never ever meet a Russian billionaire to cadge the money.

Cameron tried to laugh it off, while Osborne looked as though he may have sprung a leak.

Altogether unsurprising from Skinner. But Gordon Brown responded by saying that it was a very serious matter and that he hoped it would be investigated.

Is there anything actually to investigate on Osborne? I don't think so. No money changed hands. He denies it. I still think that this will blow over and that Osborne will finish repairs to the hull in the next few days.

Tuesday 21 October 2008

Newsnight on Gideon's day of woe

The lead item on Newsnight was predictably George Osborne's troubled day concerning yachts, donations and the like. A fairly accurate VT report then turned to a debate in the studio with Paxman and a trio of MPs from the main parties.

A complete waste of time. Paxman started by asking the panel whether they would have accepted hospitality aboard a yacht and it really didn't get much better than that...

Peter Lilley consistently - and correctly - maintained that Osborne had not done anything wrong and had denied the allegations. Norman Baker took a rather pious view of the whole situation and the Labour MP - whose name escapes me - spent most of the time rather smugly pointing out that this mess was Osborne's own fault for blabbing about Peter Mandelson in the first place...

An amazing 10 or so minutes was devoted to this non-discussion about what is, in all reality, a rather thin story. Even Jeremy declared "Well let's move on because we aren't getting anywhere here"


Next up was the coverage of Mervyn King's speech in Leeds. Paul Mason filed a decent report and then there was another panel discussion with Newsnight's shadow MPC. Ken Clarke spoke almost so much that Ruth Lea had little chance of getting a word in and seemed quite frustrated at some points by this. Jeremy seemed disinterested in chairing effectively. On the whole, too little time was given to the thoughts of the panel.

Perhaps they should have cut the Osborne story and just had the facts (as currently known) of the matter and left out the ridiculous panel discussion altogether.

Oligarchs, Osborne and a yacht

And just for added spice, Peter Mandelson is thrown into the mix.

This has all erupted today - in a letter to the Times from Nathaniel Rothschild. The letter alleges that George Osborne and a senior Conservative party fundraiser, Andrew Feldman, met with Oleg Deripaska - a Russian oligarch, and that the possibility of a £50,000 donation to the Conservative party was discussed.

This is a problem as it is illegal for political parties to take donations from non-UK citizens. George Osborne has today made a statement, "A very specific allegation has been made that we solicited a donation from Mr Deripaska and I want to make it absolutely clear that we neither asked for money nor did we receive money."



So what does Mandelson have to do with it?

A few weeks ago, there was some media interest in Mandelson accepting the hospitality of Deripaska on his yacht in Corfu. This was leaked to the press and there was a suggestion of a conflict of interest given Mandelson's role as EU trade commissioner.

What has also been doing the rounds is that Mandelson "dripped pure poison" to a senior member of the shadow cabinet about Gordon Brown. While Mandelson was EU trade commissioner, the papers treated it as interesting tittle-tattle. Only with his dramatic return to the cabinet and rapprochement with Brown did this then become newsworthy.

Nathaniel Rothschild has now written his very angry letter to the Times suggesting the paper concentrate on Osborne's activities rather than the paper's 'trivial obsession' with Mr Mandelson. It appears as though Rothschild is unhappy and believes that Osborne was responsible for the stories about Peter Mandelson.

So currently, Osborne is claiming one thing and Rothschild claiming another. I can see the lawyers doing well out of this if it carries on this way.


Perhaps Osborne should have joined Dave on his bucket and spade holiday in Cornwall?

Monday 20 October 2008

Glenrothes by-election

So the next challenge for Gordon Brown is defending Glenrothes in the by-election on November 6th. Gordon has done enough for now to prevent a leadership contest which might have been precipitated by a failure to win 'in his backyard'.

So what do we know about Glenrothes? It's a new seat created in 2005 when the number of Scottish constituencies was reduced. It is mostly made up of the former Fife Central constituency. In 2005, Labour polled 19,395 votes on a turnout of 56.1% with a majority of 10,664 over the SNP - who were in second place. In otherwords - it is a solid Labour area focussed on the New Town of Glenrothes.

The constituency borders Gordon Brown's own fiefdom in Kirkcaldy and Cowdenbeath.

In any normal times, anything other than a clear victory for Labour here would be inconceivable. However that has all changed following the SNP's recent success in the Glasgow East by-election, building on their success in the Scottish Parliament elections in 2007. Paddy Power currently has the SNP odds-on favourites to win at 2:5.

The question is - have Labour's fortunes changed following the Glasgow East disaster?

I think that they may have. The Glasgow East by-election campaign by Labour was a shambles. First there was the problems over finding a candidate (amazing given the seat was a rock-solid prospect). Second there was the refusal of Gordon to campaign in the constituency. Third - and most significantly - economic gloom was high. Petrol and food prices had risen astronomically. There had been the fiasco over the 10p tax rate which would have affected many in this constituency (even though it was resolved prior to this by-election).

There was a general view that Labour was not listening. Gordon was busily 'getting on with the job' which to most of the public appeared to be producing very little output. They felt as though their personal financial situation was declining, the Government was doing little to help and they wanted to 'send a message'.

So what has changed since?

The economic gloom has increased: Two of Scotland's leading companies, HBOS and RBS have required a bail-out from UK plc. Predictions of recession are widespread. House prices are falling.

On the surface, this doesn't look as though Labour's chances of holding on have improved.

However, I think that the key change is that Gordon Brown has been attracting far more positive media coverage. Rescuing the banks, striding the world stage - he now looks more as though he has a grip on events, rather than being buffeted by them.

I also think that Alex Salmond - while a very canny and shrewd operator who shouldn't be written off - has had part of his sheen removed by the fact that two Scottish banks were effectively rescued by the UK taxpayer. Would his cherished Independent Scotland have been able to perform such a rescue? Previous suggestions that Scotland could join an arc of prosperity including Ireland (in recession already), Iceland (bankrupt) and Norway (in economic difficulties) now sound less reassuring to voters.

But voters are not voting for a General Election or indeed for the Scottish Parliament. This is a by-election - and traditionally voters take the opportunity to 'kick' the ruling party. The SNP are the ruling party in Scotland, but have been enjoying the longest political honeymoon in history, and it is the Westminster party that will receive the 'kicking'.

I think that will be a lot closer than the bookies suggest.

Saturday 18 October 2008

Are you thinking what we're thinking?

"If people are being made unemployed, the question of immigration becomes extremely thorny . . . It’s been too easy to get into this country in the past and it’s going to get harder."

No - not Michael Howard's 2005 General Election manifesto pledge, but a quote from Phil Woolas the new immigration minister in an interview with the Times.

In a seeming change of policy on this issue, the minister suggested that limits are to be imposed on immigration to prevent immigrants from competing for jobs with existing residents. The Government had already announced its new points system, based on the Australian model, which seeks to permit entry only to immigrants with particular skills that the economy needs, although at the time, it did not go as far as to suggest that there was an actual cap on immigrant numbers.

However, Woolas offered "This Government isn’t going to allow the population to go up to 70 million. There has to be a balance between the number of people coming in and the number of people leaving."

The Conservative's position has been fairly clear for sometime. An annual limit dependent upon economic necessity. Dominic Grieve, the shadow Home Secretary, has responded by saying that "We have an extra large pool of labour in this country who are not working, it's actually a national scandal, and who out to be brought into employment through welfare reform... These islands do have a finite capacity and as population increases so quality of life will be diminished... People complain that the Underground is too crowded and there are now 800,000 more people living in London than there were ten years ago."

Frank Field, the Labour MP for Birkenhead, has for a long time been warning of the sustainability of the levels of migration into the UK. He today welcomed the Government's change of policy, saying "There is much rejoicing in heaven for one sinner that repents and the government is repenting"

At last there seems to be some consensus that UK plc cannot absorb ever increasing numbers of people, straining public services and putting pressure on housing availability.

Immigration impacts much more strongly on the poorer members of society. While immigration has been a short-term benefit to the economy, it has done little to help the long-term unemployed. Companies take the easy option and recruit overseas rather than training potential employees who are already here in need of work.

Ken Livingstone famously said "Up until last year, I was able to say that in my entire time as mayor I had never been served coffee by an English person in a Costa or Starbucks or anywhere, and yet these are all jobs that presumably anyone who’s out of work could have got"

So why couldn't some of the 11.7% of persons unemployed in Tower Hamlets have gone for one of these jobs? How much do Pret a Manger pay? Between £7 and £8 an hour, so markedly above the minimum wage. The Government have failed to address the issues of unemployment by making it too fruitful to be on benefits, and filled the gaps in the employment market with their open-door policy.

Cameron calls off truce

As expected, David Cameron ended his truce with Gordon Brown yesterday and launched an outspoken attack, claiming Gordon Brown's strategy had 'fundamentally failed'.



The attack came a few hours before an opinion poll for the BBC's Daily Politics show, which showed Gordon Brown and Alistair Darling extending their lead over who the public most trusted to tackle the economic problems.

Brown and Darling were on 42%, up two points in two weeks, and Cameron and Osborne were on 31% down 3 points. Clegg and Cable were on 7% - up, although given the ubiquity of Vince Cable on all forms of media over the past several weeks, one might have expected more traction.

While highly critical of Brown's record - notably the failure to ensure effective regulation of the banking sector (one charge to which I believe he is particularly vulnerable) - Cameron's speech offered little in solutions to the current crisis.

Taking what has been announced so far the Conservative's plan includes the following:

a: Support the recapitalisation of the banks,
b: They propose freezing council tax for two years (paid for by reducing spending on advertising and consultancy at central government level).
c: Reformation of insolvency law to give companies breathing space when facing credit problems.
d: Suspension of the annuities rule (stopping the mandatory purchasing of annuities at retirement or at age 75).


I would hope that the next phase of the fight-back will include some more detailed announcements over the next few weeks.


One thing is certain - we can expect to see frequent repeats of Gordon's "No more boom and bust" being used in party political broadcasts up to the next general election.

Thursday 16 October 2008

Tory High-Speed rail plans

One of the few policy announcements to come out of the Conservative party conference was David Cameron's pledge not to build a third runway at Heathrow airport and instead to build a high-speed rail network between Heathrow and London and then on to Birmingham, Manchester and Leeds.

Channel 4 news this evening had an interesting report in which several backbenchers (David Wilshire, Ian Taylor and John Redwood) appeared at odds with the leadership over these plans - they supported the third runway at Heathrow.

I trust that Cameron will not be dissuaded by rumblings on the backbenches over this. Obviously the two projects are not mutually exclusive, although I agree with Boris's sentiments that Heathrow is poorly positioned, hemmed in on all sides by settlement and probably should have been relocated in the 70s to the Thames estuary.

A high-speed rail line connecting Birmingham, Manchester and Leeds with London and Heathrow airport would bring far wider economic benefits to much of the country and free-up rail capacity on the existing network. With the public finances likely to be in a parlous state when the Tories gain power, it may well be that the £16bn of public money required to build such a network would require financing by further public borrowing. Keynesian economics appears to be very much in favour given the current bonanza of public money being spent on bailing out the banks.

The use of public money for major construction projects in the past has delivered many benefits. Much of London's underground network was built during times of economic hardship. Much of the 30s expansion of the Piccadilly line was a result of Government spending to offset the Depression of the 30s and then later fearing rising unemployment, the Victoria line was built during the 60s. The Jubilee line's extension, and the Docklands Light Railway, did much to regenerate the Docklands. (Although arguably, some may point out that the residents of the Canary Wharf skyline share some of the blame for the current economic woes). While little-loved by the daily commuter, these lines contributed to the expansion of the network and there is little doubt that the Underground is of critical importance to London's economic success.

The Government is already committed to the Crossrail project to build a new twin-bore tunnel through the centre of London linking Maidenhead in the West and Shenfield in the East taking in Canary Wharf and Heathrow Airport, and the Thames Gateway.

Cameron should go further. He should commit the Conservatives, as well as to building HS-2 and Crossrail, to building the other long-shelved tube plan being the Chelsea/Hackney line, a new Underground line through the capital from Wimbledon in the South West to Epping in the wilds of Essex. This would relieve pressure on the District and Victoria lines. Public transport in London is crucial to the success of the private sector in London and by investing wisely, it will help to guarantee London's pre-eminence for years to come.

Tuesday 14 October 2008

Inflation now at 5.2%

Inflation figures due out today show a rise to 5.2% on the back of rising prices of gas and electricity.

Soaring food prices and the cost of filling up the family car have contributed to the rise in inflation over the past year although there are signs both that with the fall in oil prices and easing of food prices - for the first time since March 08 - that this represents the peak.

The worsening world economy will undoubtedly bring downward pressure on inflation in the next 12 months which is why the Bank of England, despite being tasked with keeping inflation low, felt able to reduce interest rates last week by 0.5%. In fact, I would expect to see further reductions over the next six months.

Commentators are suggesting that we could see interest rates even as low as 2.0% as the Bank desperately tries to offset the effects of a deep recession, although this would be an error, and would simply stoke up inflationary pressures in the future.

Traditionally, low interest rates allow mortgage holders to spend less of their money servicing debt and facilitates the availability of credit for businesses to expand and invest. However, it is uncertain how much reducing the headline bank rate is feeding through positively into the general economy. Many of the big lenders have not yet reduced their rates, and the general mortgage market is not as competitive as it was even just 12 months ago.

Monday 13 October 2008

Get a little Xtra help...

... from the UK taxpayer.

So £37bn in total is to be invested in three of the UK's largest banks. The Royal Bank of Scotland is receiving £5bn from the Government in exchange for preference shares, and the Government is underwriting a rights issue for new ordinary share capital totalling £15bn. So £20bn in all for RBS.

Next up comes HBOS - £8.5bn of ordinary share capital and £3.5bn prefs.

Last in line - Lloyds TSB - raising £5bn.

Barclays has decided to go it alone raising money directly from the market, side-stepping the Government option. It will be interesting to see how this pans out for Barclays. Both HSBC and Barclays are thus emerging from the storm with their businesses still intact. Will they be at a competitive advantage over the other banks in the UK who will be restrained by the need to have to repay the UK taxpayer?


George Osbourne has signalled a change in the Conservative's strategy in how to position themselves over the banking crisis by saying, "To regard today as a triumph, as some in Government seem to do, is bizarre," Mr Osborne said, adding: "It misjudges the public mood. For this is no triumph"

Osbourne followed this up with an attack in the London Evening Standard suggesting that the bank bail-out was a consequence of the 10 year boom fuelled all on debt.

David Cameron, during the Tory party conference, stressed that the Conservatives were willing to work with the Government and would be 'non-partisan'. In times of national crisis, the adversarial business of Parliament is often suspended. However, while the public expect all politicians to work together to get the economy through this crisis, I also think that they expect the Opposition to carefully scrutinise the spending of so much taxpayers' money.

Politically too, the Conservatives realised that they were aligning themselves too closely to the Government. It is crucial for the Tories that Brown comes out of the end of it with the blame for the crisis. Brown is persistent in blaming both the sub-prime mortgage crisis in the US and the 'Age of Irresponsibility' in the banking sector. Once the immediate storm has passed, you can expect the Tories to keep reminding voters that it was Brown as Chancellor, who presided over this crisis, as Labour did (and still do) over the Tories' ERM crisis.

Sunday 12 October 2008

Brown's Stock

So how does the collapsing markets impact on the stock of Gordon Brown? Watching him recently, joking about collapsed banks, he seems to have almost a spring in his step. It is as though he's found his purpose as prime minister.



I think his mood has improved for a number of key reasons. First, he's seen off the Blairite challenge, and I believe that he's now safe until the General Election, whenever that is. His conference speech, in which he declared that "It's no time for a novice", was relatively successful. While it did little to outline his vision for the future, it did effectively slap-down both Miliband and Cameron simultaneously.

But this was only the first element of his strategy to see off the Blairites. The third-coming of ultra Blairite, Peter Mandelson - back in the cabinet for a third time - effectively neutralised the possibility of a Blairite plot. Brown clearly believes in keeping your friends close and your enemies even closer.

Second, the media control the agenda far more than politicians like to think. With the growing crisis in the financial sector, the media have a new story to focus on. August is well-known as the 'Silly Season' for the media, and with a lack of other stories to focus upon, "Brown bashing" became the daily sport.

Third - and probably the most important of all - Brown actually is now doing something. The 24 hour news channels are full to bursting of Brown dealing with the banking crisis. He's making regular press conferences where he actually appears to be dealing with the crisis.

It is a marked contrast from the previous six months as the Credit Crunch gloom descended over the country. All of those repeated chants we heard about him "getting on with the job" and "focussing on taking the right decisions for the long term", which seemed to infuriate voters who were struggling with high fuel prices and soaring inflation in everyday essentials - like food, have been replaced by him actually having something new to say.

And with something new to say, people are once more prepared to listen.


So does this leave us in a Bear market or Bull market for Brown plc?


Some commentators will have us believe that this is Brown's "Falkland's Factor" and others believe it is his ERM moment. I don't believe that either of these are applicable. Assuming his bail-out plan for the banks restores some stability and the UK avoids a deep recession, he can in General Election 2010 present himself as the man who got us through the bad times. In this case, I still think that David Cameron will win, as the "Time for a Change" argument can be very overwhelming and difficult to counter. By 2010 - the Labour party - and Brown himself - will have been in power for 13 years. Labour will lose - but it won't be a landslide loss.

It the bail-out doesn't work, and if the public conclude after a long period of recession, that it is all Brown's fault, as Chancellor / PM for the last 13 years, then I think we could be looking at a Conservative victory on the scale of Labour's in 1997.

The next upcoming hurdle for Brown - other than the markets opening tomorrow morning - will be the Glenrothes by-election in Scotland. Convention has it that the PM does not campaign in by-elections (although this convention was broken by TB), but as the MP in the neighbouring constituency (Kirkcaldy), I forecast that Brown will campaign. The bookies are still pointing to an SNP gain in Glenrothers, but I think that Brown may surprise us all. With effective campaigning, including Brown engaging in a copy of Blair's masochism strategy, I think Labour may just hang on.

At that point, I think Labour will be able to say that they have turned the corner.

Ban for Marmite AND now ketchup


Hot on the heels of the ban on Marmite being served at 'breakfast clubs' in Ceredigion's schools in Wales, not to be outdone, the Vale of Glamorgan council has now turned its attention to the perils of tomato ketchup.

Apparently, they are serving up their own school-made version so that they can control its nutritional content.

Friday 10 October 2008

Councils and now Cats Protection

Is there no end to the number of public and not-for-profit bodies that appear to have been caught up in the Icelandic banking fiasco?

Sky News were persistent in their questioning of council leaders as to whether the Icelandic banks were the right place for councils to place funds. A more pertinent question might be why these councils have so much of our money in the first place.

Reports have suggested that between some £700m and £1bn of council money invested in Iceland banks is potentially at risk. We have been reassured that this only represents a small portion of their total funds... so just how much do these councils have on deposit?