Left Foot Forward

Look Left – Beginning of the end on the NHS bill

Alex Hern — Fri, 10 Feb 2012 18:00:20 +0000

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• The coalition of support for the government’s NHS reforms is falling apart at an alarming rate. The health and social care bill, always contentious, has lost the support of the Financial Times, ConservativeHome, and three cabinet ministers this week alone.

On Tuesday, it became clear that the government was having real second thoughts about the legislation, as news came through that Number 10 was… well, upset.

The Times reports that a Downing Street source said:

“Andrew Lansley should be taken out and shot. He’s messed up both the communication and the substance of the policy.”

But as Shamik Das wrote, this scapegoating of Andrew Lansley is just an attempt by the prime minister to abdicate responsibility for a bill that has his fingerprints all over it:

• In July 2010, David Cameron, alongside Nick Clegg and Andrew Lansley, personally signed the foreword to the white paper – “Equity and Excellence: Liberating the NHS” (pdf) – which set out the government’s NHS reorganisation plans.

• In April 2011, Mr Cameron told Sky News’s Dermot Murnaghan he had “been involved in designing these changes way back into opposition” with Mr Lansley, and takes “absolute responsibility with him for all the changes we are making”

• The prime minister has regularly defended the reorganisation inside and outside Parliament.

• Cameron’s former No. 10 adviser James O’Shaughnessy recently revealed that during the “pause” last year “it did take the energy of Steve [Hilton] and the prime minister and Oliver Letwin and others to keep pushing it through”

• And just last week, at PMQs, David Cameron made it clear he would not back down – even citing Tony Blair in his support.’

And at the end of the week, the news went from bad to worse for the prime minister.

First, the Financial Times wrote that the bill was a “mess” and should be dropped:

The paper begins by attacking the prime minister for failing to live up to his manifesto pledge to avoid top-down reorganisations of the NHS, but then praises the ultimate objectives of the bill. It lays the blame for its failings squarely at the feet of the “political skill”, or lack thereof, of the government, and Andrew Lansley in particular.

The leader concludes (£):

There is no easy escape from the mess the government has created. But its objective should be to pursue the course that offers the best chance of securing the substance of the reforms.

Dropping the bill and pursuing change without omnibus legislation looks on balance the better bet, even if it comes at a cost. The NHS is already adapting to the new structures. Some bureaucratic machinery might have to be rebuilt. Mr Lansley’s position would be weakened – perhaps fatally.

Then Tim Montgomerie wrote today on ConservativeHome that the NHS bill was “potentially fatal to the Conservative Party’s electoral prospects”:

“The greatest mistake of his time as prime minister has been to put it [The NHS] back at the centre of political debate…

“Many Conservatives think that the NHS needs fundamental reform but for far-reaching reform to succeed certain pre-conditions must be met.

“The public needs to have been persuaded that substantial change is necessary.

“The government cannot be distracted by other consuming projects but its best brains must be focused and single-minded in ensuring the policy’s success. The Whitehall machine needs to be prepared and co-operative.

“The health secretary needs to enjoy significant goodwill amongst NHS staff and possess exceptional communication skills. Few – perhaps none – of those preconditions exist.”

As Dan Elton wrote this morning:

We know the health profession is against the bill. We know the public are suspicious. We know it will make more bureaucracy not less, and will probably push up costs.

It is bad policy and bad legislation. Time to put it out of its misery.

• The Bank of England has announced it will perform a third round of Quantitative Easing, pumping another £50 billion into the economy.

But as Josh Ryan-Collins of the New Economics Foundation pointed out, the risk is that that money will stay floating around the financial sector, rather than going where it’s needed:

The hard truth is that commercial banks are still in a process of ‘de-leveraging’, more keen on getting their loans repaid and building up their capital base than making new loans to productive businesses in what is perceived to be a risky real economy.

Evidence suggests the additional funds provided by QE are more likely to be used by banks to create more speculative credit, not least commodity speculation, that provides shorter term returns. As a result, the money supply in the real economy is contracting just at the point where new investment is most needed.

And Ben Fox agreed, writing today:

While the central banks have undoubtedly helped banks improve their balance sheets, these emergency measures are precisely that – emergency. They have done little to help the ailing economic situation. Instead, without lending requirements, the banks have continued their post-credit crunch over-reaction in refusing to lend.

The Bank has rightly argued that the scheme of printing new money and buying government assets with it has helped keep a lid on borrowing costs and inflation. But there is little evidence that banks have passed on the effects to businesses.

In fact, QE has actively hit pensioners’ incomes by depressing annuity rates by up to 25 per cent. What we have, is a situation where extra money worth around 20 per cent of our annual GDP has been printed, yet lending is stagnant as is the UK economy. The stand-off between government, the banks and customers continues.

The fact is, though, that while there may be better options than QE – from the green investment bank proposed by Ryan-Collins to the stronger lending targets Fox wants – it is still better than nothing, which is what some right wing commentators would want.

Today, Tony Dolphin was forced to defend the policy against one of them:

Fraser Nelson likes thought experiments: he starts his article with one. Here’s another one.

Imagine George Osborne were to stand up in the House of Commons and declare that, despite the risk of a new economic crisis, he had ordered the Bank of England to end its policy of quantitative easing because of its effect on annuity rates and the income of pensioners.

Furthermore, interest rates would in future always be maintained at a level of two per cent or above. And no, he would not be relaxing fiscal policy because maintaining the UK’s credibility and credit rating was still of primary importance.

As a result, he might add, business and consumer confidence was expected to collapse, there would be a sharp increase in mortgage rates and the Office for Budget Responsibility is now forecasting a deep recession and youth unemployment of 1.5 million in 2013.

This seems grossly unfair on the current generation of school and college leavers, but the alternative is poorer pensioners and that is unacceptable.

• With just 83 days until the London mayoral elections, the race is heating up, but it’s also getting dirty, with Ken being accused of homophobia and Boris of racism.

Both stories came from a pair of interviews by Jemima Khan of the New Statesman.

Ken, talking about the changing nature of political parties’ relationship to homosexuality, told Khan:

[The public] should be allowed to know everything, except the nature of private relationships – unless there is hypocrisy, like some Tory MP denouncing homosexuality while they are indulging in it…As soon as Blair got in, if you came out as lesbian or gay you immediately got a job. It was wonderful…you just knew the Tory party was riddled with it like everywhere else is.

The Boris machine jumped on Ken’s quote, pointing out, accurately, that ‘riddled’ means infested with sickness – but, as Dave Hill pointed out, cannily avoiding accusing Ken directly of homophobia:

That is probably wise. As Ken himself has remarked in the recent past, he was campaigning for gay rights when Tories were campaigning for Section 28. Some of us are old enough to recall the filth thrown at him by Tory newspapers and commentators for his trouble. I don’t recall the likes of Norman Tebbit rushing to his defence at the time.

Khan also reports her interview with Boris:

“I’ll tell you what makes me angry – lefty crap,” he thunders in response. Like? “Well, like spending £20,000 on a dinner at the Dorchester for Sinn Fein!”

That dinner was in fact the annual St Patrick’s day dinner. Which cost the taxpayer nothing. And garners enough profit each year to donate to an Irish community charity and the St Patrick’s day parade.

Hardly lefty crap.

Progressive of the week:

Up is down, black is white, and Tim Montgomerie is our progressive of the week. Not only for coming out against the NHS bill, but also for the strong support of gay marriage he gave on Monday, while very definitely maintaining a conservative case for it:

David Cameron has been right to support same-sex marriage from the first days of his leadership. If marriage is embraced as an institution of relevance to all people I hope we will begin to see the kind of pro-marriage public policy that exists in nearly all other developed countries.

By making social conservatism if not fashionable again, but certainly acceptable, I think, for example, it will be easier to see the kind of pro-marriage tax policies that exist in every other European state (and which, David Binder noted yesterday on ConHome, can be more pro-poor than raising the income tax threshold).

I hope, over time, we will get to a policy where we can combine gay rights with religious liberty. On occasions – such as with Catholic adoption agencies – religious liberty has been compromised in unacceptable ways.

The government has promised that any gay marriage bill will protect the rights of religious groups to hold firm to their view that marriage must remain between a man and a woman. I may no longer share other Christians’ opposition to this social reform but we should live in a society where the state guards freedom of religion and association.

Soon I hope we’ll get to that position which I described at the beginning of this blog. Gay people as full members of social institutions. Religious liberty protected. And public policy dedicated to building up the family and all of the benefits that it brings to society.

Regressive of the week:

Tory economist Andrew Lilico, less for his defence of parents’ right to hit their children (which has its defenders on the left as well) and more for his bizarre leaps of logic used to do so, as Daniel Elton reported:

His argument basically runs as follows:

1) Whether the evidence suggests smacking is good or bad for a child is irrelevant, as there’s no such thing as a perfect parent anyway, and evidence-based policy-making when it comes to smacking leads to a totalitarian state.

2) There may be no disciplinary alternative to smacking, so the choice for many is smacking or no discipline whatsoever

3) “Instinct, in all human societies, tells us that smacking delivers something.” [direct quotation]

4) “I smack my children as an expression of my special parent-child relationship of touch…Smacking, done properly, is an authentic expression of love in touch.” [direct quotation]

Evidence of the Week

The House of Commons Library (pdf) report on the currency of a future independent Scotland. Reporting on its release, Matthew Pitt wrote:

Salmond has been mistakenly pushing the argument that goes along the lines of:

‘The Bank of England has had independent control over monetary policy since 1998 and therefore will continue to take Scotland into account’.

Not so. The Bank of England is currently obliged to regard the effects its decisions will have on Scotland. Without Scotland being part of the UK and with no currency board, this will not apply. In other words, decisions that have an impact on Scotland will be taken in another country that is focused on stabilising the national economy, not the Scottish one.

Instead of actually attaining independence, a separate Scotland will ironically tie itself to the rest of the UK through the importation of the effects of monetary policies conducted by the Bank of England.

The independent Library research paper states that it is thereby “more directly and irrevocably exposed to instability in [the rest of the UK]” by sharing a currency and adhering to the decisions by the central bank on matters of inflation and interest rates.

This week’s most read:

1. The DWP’s ‘scrounger’ rhetoric is causing real harm – Alex Hern

2. The government’s drug policy favours dogma over harm reduction – Mark Thompson

3. Climate change sceptics and rural romantics – the Tories are a shambles on renewable energy – Kevin Meagher

4. Polls apart? The news for the SNP might not be as good as it looks – Ed Jacobs

5. Amidst the burning flesh of Homs, Syrians plead: “We are getting slaughtered, save us” – Shamik Das

Public sector outsourcing is a mess – and it’s the taxpayer picking up the tab

Daniel Elton — Fri, 10 Feb 2012 17:33:26 +0000

From this morning’s Daily Mail, is the story that the head of A4E, which delivers the government’s work programme, was rewarded with a 300 per cent pay rise, despite the company failing its targets.

The newspaper reports:

“Details of the massive payment were revealed during a hearing of the Commons public accounts committee into the Government’s flagship Work Programme.

“A4e is one of the main contractors and receives payments for helping the long-term unemployed find a job. Half of its work is subcontracted to charities, generating millions in management fees.

“MPs voiced astonishment at the size of the payment to Mrs Harrison, and questioned why the firm had continued to win contracts despite the ‘abysmal’ record.

“The company even received a share of £63million in ‘termination fees’ when the DWP ended a previous back-to-work programme in which the firm was involved and replaced it with a new one.

“MPs were told that A4e had missed its target of getting 30 per cent of people on the previous ‘Pathways to Work’ programme into a job. The committee heard the success rate was 9 per cent.

Across the outsourced sector, we have seen problems in getting value for money for taxpayers and the delivery of poor sources:

The failure of the Care Quality Commission to monitor state-funded private home cares adequately, as shown up by the routine abuse uncovered at Castlebecks’ Winterbourne View by Panorama.
That in the Conservatives’ flagship borough of Barnet, the so called ‘EasyCouncil’ where a maximum-outsourcing strategy was adopted, a private security firm was hired without a contract. MetPro, that secretly filmed members of the public in council meetings, hired employees without the necessary authorisation.
The ongoing scandal, being investigated by Stella Creasy MP, of companies who bid for PFI contracts as part of a process that assumes they will pay taxes under normal arrangements, enabling them to charge more, but then go to extraordinary lengths to avoid paying that tax.

This is all at a time when the government intends to vastly extends the amount of outsourcing in the NHS. Left Foot Forward has argued before that Cameronism is essentaiily about championing taxpayer-funding big business.

With transparency desperately needed for the outsourced sector, surely the time has come for the Freedom of Information Act to cover these companies?

Glasman calls for a break from ‘viagra or vivisection’ (that’s growth or cuts, to you)

Carl Packman — Fri, 10 Feb 2012 14:15:54 +0000

Lord (Maurice) Glasman promised us a more academic talk than one fit for policy, when he addressed a small audience in Westminster and academic it was, writes Carl Packman.

Not academic, however, like data-heavy, laden with field reports and case studies, but academic in the nouveau sense, flitting between history, economics, geography and political philosophy; unstructured and unkempt.

The subject of the talk, unsurprisingly, was about Blue Labour, and how it reconstructs and revisits the local, big society, responsible capitalism and community growth streams.

Glasman, in his inimitably tart fashion – looking like Buster Keaton’s GP cousin – explored the deficit of real democratic politics today, the grossly vague answers we have on political economy, the sum total of our political problems, and his timely solutions.

He noted that for the Blue Labourite, seemingly a new creature in town – the answers to what constitute democratic politics comes straight from the rulebook of Aristotle. Once history and geography are removed from the political, he reminds us, democratic politics is reduced to nothing, thus necessitating the traditional and the local in today’s political sphere.

Moreover, a concern of Glasman’s is that citizenship has ceased to be a political category. It is less clear when it ever was in the history of conservative and/or Conservative party politics, but in the Labour tradition, as Glasman would observe, the civic and the relational were cornerstones, and politics today is at risk of losing this to the financial and multinational.

Though Glasman is not pursuing an anti-capitalist politics, not even a conservative anti-capitalism, predicated on fear of the modern, and loathing of change (for the sake of it). His is a dry conservatism comfortable with free trade as a means of keeping check on autocratic hubris.

Something that should keep the left up tossing and turning is that Glasman is conservative in the sense that tradition is preferable because it has sustained the test of time (this is good old-fashioned anti-liberalism), whereas his appeal to radical politics extends only to allow for free trade economics to stop leaders from getting above their stations. He is no disavowed Fabian socialist to be sure.

The problems of politics today, as he sees them, is that policymakers don’t seem to be able to translate the politics of “reciprocity” into something that promotes “prosperity and growth”.

This is a tough point to unpack, but one can only imagine Glasman means that government and local authorities are ill at ease promoting the kind of mutual politics that accepts that state intervention and market solutions are dead ducks.

Of all the ways in which it has been explained how stale politics is today, and how immature politicians and policymakers are at finding solutions, seldom has anyone tried to use such obscure figures for illustration as the ones Glasman uses. He notes that before we can ask Lenin’s question “what is to be done,” we must first grapple with Marvin Gaye’s question “what’s going on?”

In an analogy that breaks it to us gently that neither the state, nor the market, can help us now, opening up a nauseating, almost Sartrean, sense of freedom, Glasman points out that the “problem is not that we’re neither here nor there, but that we’re all at sea”. In other words, we need to embrace being communities and not state subjects or market players.

What does this mean? For Glasman it is trying to break free from today’s limiting politics of “viagra or vivisection,” that is to say growth or cuts. This political limitation is holding back radicalism. It is about promoting regional diversity, where the East Midlands becomes a hub for transport, and where the South West becomes a hub for fishing (and, as Glasman noted, to comic effect, cheese).

In a sense he is calling for regional divisions of labour, rather than too much focus on one financial centre point in the East of London for our prosperity.

Glasman wants us to look back at London’s inheritance, when the City of London was born as a commune in 1191, and not as a “well-endowed lobbyist for the financial sector”. He wants us to learn from this time and renew the vocational economy, institute leadership academies to challenge managerialism, and replace 50 per cent of all existing universities with vocational colleges.

Glasman is nothing if not insanely idealistic.

The outcome of his talk was to demonstrate that community politics, for all the vacuous talk of it for years, from David Miliband’s double
devolution of power to “earned autonomy”, is really coming. And government can even help it along the way. But first policymakers have to think beyond simple binary politics (cuts versus no cuts, Labour versus Tories, states versus markets).

However the headlines, if any at all for this speech, will be on Glasman’s reassurance that he is a committed Ed Miliband supporter.

During the question and answer session an ITN reporter, clearly planning her question rather than listening to what Maurice had just been speaking about, asked whether he felt Ed had broken through yet and proven his leadership and action for 2012 (referring to Glasman’s contentious New Statesman article in January).

He responded by saying he was “really pleased with how it’s going” and that actually he was “a bit surprised by how much leadership Ed has shown”. So there you have it. Political theorists can advance radical ideas until they’re blue (pun intended) in the face, but journalists just want gossip. Will this speech amount to much? Probably not.

See also:

• Glasman is battling over postage stamps, but growth is the priority – Cormac Hollingsworth, January 9th 2012

• Blue Labour exclusive: David, Ed, Glasman and community organising – Rowenna Davis, September 25th 2011

• Nomination for most influential left-wing thinker of 2010/11: Maurice Glasman – Daniel Elton, September 22nd 2011

• Glasman: Businesses want Labour and the unions to be “partners in growth” – Shamik Das, September 7th 2011

• It may soon be time ‘to draw the line’ on Glasman – Daniel Elton, July 18th 2011

Sinn Féin plans next moves towards Irish unity

Kevin Meagher — Fri, 10 Feb 2012 13:00:23 +0000

The leadership of Sinn Féin will meet today to take stock of the party’s historic mission to unify the island of Ireland.

90 years after the partition of the country, following Ireland’s War of Independence and the subsequent treaty with Britain, 100 key party figures will gather at a hotel in Drogheda Co Louth in the Irish Republic to plot their next moves in turning a long-cherished dream into reality.

This gathering of the republican elite follows a series of mass meetings across Ireland – both North and South – in a bid to begin the process of building a consensus around unifying the country. There have also been events in London, the US and Canada involving the Irish Diaspora.

Last month Derry’s Millennium Fort was host to 1000 people at a Uniting Ireland conference which included protestant ministers and even Ulster Unionist Party MLA, Basil McRae.

This kind of involvement – even when restating established political differences – would have been utterly unthinkable just a handful of years ago. Now, Northern Ireland’s fast-evolving political dispensation is making dialogue – if not always agreement – possible.

Such is the change in atmosphere that a joint call was made earlier this week from Northern Ireland’s first minister and Democratic Unionist Party leader Peter Robinson and deputy first minister, Sinn Féin’s Martin McGuinness, for prayers to be offered-up for the recovery of one-time unionist hardliner, the Rev Ian Paisley – who remains in intensive care following heart problems.

Speaking ahead of today’s meeting, Sinn Féin’s president, Gerry Adams TD, said that Irish unity remained his movement’s “key political objective”.

He added:

“Making progress on this involves building political strength, developing strategies, challenging partitionism, engaging with other political parties and society, reaching out to the diaspora and taking part in a dialogue with our unionist neighbours.”

“The Good Friday Agreement and the all-Ireland political institutions are an important step in this direction, but more effort is needed.”

He argued that the party needed to focus on popularising Irish re-unification while building “structures and policies which transcend the border and engage with unionist opinion” saying that “their identity, self-interest and quality of life will be best served in a new Ireland, a new republic for the 21st century.”

Today’s event follows a call last week from Martin McGuinness for a referendum on Irish unity sometime after 2016.

See also:

• The Week Outside Westminster – UUP down, Leanne Wood up, and Miliband in Scotland – Ed Jacobs, February 4th 2012

• McGuinness in Irish unity poll call – Kevin Meagher, January 31st 2012

• UUP infighting as McNarry says he feels “abused” and has been “kicked in the teeth” – Ed Jacobs, January 31st 2012

• The Week Outside Westminster – Leading questions and questioning leaders – Ed Jacobs, January 28th 2012

• What’s the point of the UUP? – Ed Jacobs, January 19th 2012

What does QE3 mean for the real economy?

Ben Fox — Fri, 10 Feb 2012 11:30:43 +0000

So QE3 here we come. The Bank of England is going to pump another £50 billion into the economy, taking the total amount of extra liquidity since 2009 to £325 billion.

It’s not a surprise, and neither should anybody be shocked that interest rates will remain at 0.5 per cent. Everybody was expecting the Bank to engage in another round of money printing. But will it make any difference?

The measures taken by the Bank of England and the European Central Bank over the past year to ease credit conditions have had little positive effect. The ECB’s programme of reducing the cost of its loans to banks has led to banks borrowing £500 billion from the ECB since the start of the year.

But while the central banks have undoubtedly helped banks improve their balance sheets, these emergency measures are precisely that – emergency. They have done little to help the ailing economic situation. Instead, without lending requirements, the banks have continued their post-credit crunch over-reaction in refusing to lend.

The Bank has rightly argued that the scheme of printing new money and buying government assets with it has helped keep a lid on borrowing costs and inflation. But there is little evidence that banks have passed on the effects to businesses.

In fact, QE has actively hit pensioners’ incomes by depressing annuity rates by up to 25 per cent. What we have, is a situation where extra money worth around 20 per cent of our annual GDP has been printed, yet lending is stagnant as is the UK economy. The stand-off between government, the banks and customers continues.

Stimulating lending is one of the most important tasks in staving off a prolonged double-dip recession. Many businesses are already feeling the pinch, with the likes of clothing-chain Peacocks just the latest high-street shop to close down. Without sustained bank lending, more will have to close their doors.

In fact, Ernst and Young’s Item Club has actually forecast total bank loans to reduce by 2.2 per cent in 2012, with just a marginal improvement of 0.9 per cent in 2013, having increased by an estimated 4.3 per cent in 2011.

The Item Club’s Neil Blake said that 2012 will see:

“The first time there will be an annual contraction in total loans since 2009, when the UK economy was still suffering from the immediate effects of the global financial crisis.”

Rather than rely that enough money will be printed to keep the economic wheels turning, the government or Bank of England should insist that lending targets to small businesses are kept to. There is no excuse for failure, particularly from RBS and Lloyd’s where the taxpayer is the largest shareholder. If necessary, failure to hit the ‘Project Merlin’ targets should result in fines.

Indeed, the reaction of TUC general secretary Brendan Barber to today’s announcement is bang on the money, arguing that the new liquidity must get through to companies if it is to have a positive impact.

Barber commented that:

“More needs to be done to ensure that this latest injection of cash actually reaches the businesses that need it, rather than just gathering dust on banks’ balance sheets. The failure of banks to increase net lending to businesses, despite £275bn of quantitative easing, is holding back growth in the real economy.”

The government and the Bank of England must make sure that the extra liquidity announced today benefits the real economy. There is no value in allowing it to slosh around on the banks’ balance sheets.

See also:

• ConHome: Neuter the Health Bill – Daniel Elton, February 10th, 2012

• The Financial Times comes out against the NHS bill – Alex Hern, February 9th 2012

• Don’t believe the spin – the health reforms are Cameron’s just as much as Lansley’s – Shamik Das, February 8th 2012

• Miliband goes on attack as fight to save the NHS stepped up – Shamik Das, February 6th 2012

• Sign my petition to drop Lansley’s monster – Dr Kailash Chand OBE, November 24th 2011

ConHome: Neuter the Health Bill

Daniel Elton — Fri, 10 Feb 2012 08:35:48 +0000

It appears the health bill, which has been teetering on the edge of collapse for months, is now crumbling to pieces.

The Guardian reported last night that the ConservativeHome website “have almost been instructed to write” an editorial against the bill by three cabinet members who have clued up to what a mess it is.

And sure enough, the website Fleet Street loves to call the ‘Voice of the grassroots’ proclaimed this morning:

“The greatest mistake of his time as prime minister has been to put it [The NHS] back at the centre of political debate…

“Many Conservatives think that the NHS needs fundamental reform but for far-reaching reform to succeed certain pre-conditions must be met.

“The public needs to have been persuaded that substantial change is necessary.

“The government cannot be distracted by other consuming projects but its best brains must be focused and single-minded in ensuring the policy’s success. The Whitehall machine needs to be prepared and co-operative.

“The health secretary needs to enjoy significant goodwill amongst NHS staff and possess exceptional communication skills. Few – perhaps none – of those preconditions exist.”

We know the health profession is against the bill. We know the public are suspicious. We know it will make more bureaucracy not less, and will probably push up costs.

It is bad policy and bad legislation. Time to put it out of its misery

Update: As we should have made clear, ConservativeHome are specifically calling for the government to “[remove] all contentious components of the Bill”.

See also:

• The Financial Times comes out against the NHS bill – Alex Hern, February 9th 2012

• Ten reasons peers should vote against Lansley’s anti-NHS bill – Shamik Das, October 12th 2011

• Miliband goes on attack as fight to save the NHS stepped up – Shamik Das, February 6th 2012

• Sign my petition to drop Lansley’s monster – Dr Kailash Chand OBE, November 24th 2011

• Don’t believe the spin – the health reforms are Cameron’s just as much as Lansley’s – Shamik Das, February 8th 2012

A separate Scotland will be worse off if it keeps the pound

Matthew Pitt — Fri, 10 Feb 2012 08:00:31 +0000

By Matthew Pitt

The political heavyweights in Westminster are beginning to fathom the dire consequences of letting Alex Salmond build up unhindered his own arguments for Scottish separation.

His vision for Scotland’s future are rather catching and seem to hail in a new era of prosperity, growth and power for everyone. But pierce through the superficial shell of Salmond’s broad assertions and you quickly begin to realise that it rings rather hollow and is missing something fundamental. In other words, it lacks substance.

Take Scotland’s currency. The House of Commons Library has just published independent research (pdf) on the issue, which is published alongside this article for the first time and will be quoted throughout.

The SNP have moved in favour of keeping the sterling, with or without an agreement with the remnants of the UK, instead of issuing its own currency or using the euro. Known as the process of dollarization – or sterlingisation in this case – a separate Scotland would retain the pound either by way of a currency union or unilaterally. For now, I will focus on the latter option.

The most crucial part to understand about sterlingisation is that a separate Scotland, without a currency board, will have no control whatsoever over monetary and exchange rate policy. Salmond has been mistakenly pushing the argument that goes along the lines of:

‘The Bank of England has had independent control over monetary policy since 1998 and therefore will continue to take Scotland into account’.

Not so. The Bank of England is currently obliged to regard the effects its decisions will have on Scotland. Without Scotland being part of the UK and with no currency board, this will not apply. In other words, decisions that have an impact on Scotland will be taken in another country that is focused on stabilising the national economy, not the Scottish one.

Instead of actually attaining independence, a separate Scotland will ironically tie itself to the rest of the UK through the importation of the effects of monetary policies conducted by the Bank of England.

The independent Library research paper states that it is thereby “more directly and irrevocably exposed to instability in [the rest of the UK]” by sharing a currency and adhering to the decisions by the central bank on matters of inflation and interest rates.

One of the many issues that slippery Salmond continues to dodge that I wish to address is that of Scotland being left with no lender of last resort.

To take just one example, the Bank of England presently oversees the provision of short-term liquidity to failing banks – logically a rule that will not apply to banks in a State of Scotland. Acting as a poor replacement for a central bank, the only entity able to step in and rescue the banks from collapsing is the Scottish government itself.

Added to this, the financial services bill that is going through Parliament will allow the chancellor, under clause 57, to give directions to the Bank of England governor on matters of support for the financial system or companies where there is the potential involvement of public funds. Still think the Bank of England will step in?

Without power over monetary policy, the Library research paper points out that any such institution would be:

“Unable to respond to a crisis affecting the entire banking system because its inability to print money”.

Vitally, this obviously:

“Means [Scotland] cannot guarantee the whole payments system, or fully back bank deposits.”

Such impotence is underlined further by the report stating that the Government acting as the central bank:

“cannot be an unlimited lender of last resort and it can literally ‘run out of money’ to respond to crises”.

What this entails is that the absence of any lender of last resort will actually:

“in itself make a crisis more likely.”

It is almost unnecessary to point out that Scotland would be unable to bail out its banks, even if a minor financial crisis occurred – as was admitted by Salmond.

The Edinburgh-based Royal Bank of Scotland, an entity that Salmond actively encouraged to make the disastrous takeover of ABN Amro a reality, had to be bailed out during the financial crisis and exposed the UK government to a total of £187 billion, of which £129bn are toxic assets.

To make sense of this, the nominal GDP of Scotland in 2010 was about £111bn.

As Alistair Darling pointed out:

“The disaster that overtook the bank was made in Edinburgh not London”.

Instead of standing truly on its own two feet and forming its own destiny, a separate Scotland under Salmond will give up many powers that a ‘normal’ State enjoys.

It will put the country in danger of being incapable of responding to another financial crisis and being tied to monetary decisions made in another country that will have a direct effect on pensions, mortgages and savings.

See also:

• Credit rating agencies weigh in on independent Scotland – Alex Hern, February 6th 2012

• Polls apart? The news for the SNP might not be as good as it looks – Ed Jacobs, February 6th 2012

• Swinney on Scotland currency – more questions than he answers? – Ed Jacobs, February 2nd 2012

• Salmond’s Scottish referendum is a textbook example of a leading question – Alex Hern, January 27th 2012

• Questions multiply over financial status of an independent Scotland – Alex Hern, January 20th 2012

Quantitative Easing is stimulating commodity trading, not the real economy

Guest — Thu, 09 Feb 2012 17:39:11 +0000

Josh Ryan-Collins is senior researcher on monetary reform at the New Economics Foundation

As the economy slides towards recession, the Bank of England today announced today it was creating a further £50bn worth of ‘quantitative easing’ (QE).

If you read articles on the topic in the media, you will see statements like “the Bank is ‘printing’ money” or the Bank will “pump a further £50 billion in to the economy”. Both these statements are misleading.

QE actually involves the Bank of England buying financial assets – usually government bonds – belonging to institutional investors and sitting in Banks. The Bank buys these assets with newly created central bank reserves. These reserves can only be held by banks – they do not and cannot go to businesses the real economy.

As explained in nef’s Where Does Money Come From?, central bank reserves are used by commercial banks to settle payments with each other.

By ‘pumping’ more reserves in to the intra-bank clearing system the idea is that banks will feel more confident about making loans to the real economy because they will know that other banks are in a stronger position to settle with them.

In addition, by buying up ultra-safe government bonds in vast quantities and thus pushing down the yield (the interest received on holding) on these assets, the central bank hopes to encourage investors to buy higher yielding corporate bonds – which again provides money for real businesses.

QE may reduce long-term interest rates, but there is little evidence it has stimulated commercial banks to start lending more to businesses, in particular small businesses, or soften the conditions banks are attaching to loans.

In fact the most recent figures published by the Bank show that net lending – the amount of loans minus the amount repaid – to small businesses has contracted by six per cent in the year to November 2011. And this despite the banks being given small business lending targets by the government through ‘Project Merlin’. Not much wizardry there then.

The hard truth is that commercial banks are still in a process of ‘de-leveraging’, more keen on getting their loans repaid and building up their capital base than making new loans to productive businesses in what is perceived to be a risky real economy.

Evidence suggests the additional funds provided by QE are more likely to be used by banks to create more speculative credit, not least commodity speculation, that provides shorter term returns. As a result, the money supply in the real economy is contracting just at the point where new investment is most needed.

But there are alternatives. The central bank, working with the government, could find ways of channelling newly created central bank money more directly in to the economy.

In a pamphlet released today, economist Richard Werner, who coined the term quantitative easing whilst commentating on the Japanese economy in the 1990s, and Green Party leader Caroline Lucas, argue that the Bank of England needs to rethink its strategy.

They suggest a massive ‘green quantitative easing’ program, involving the creation of a new entity – or a beefed up green investment bank perhaps – that could issue corporate equity or bonds purchased by the Bank of England and then use the funds to embark on a £70 billion green QE program for solar PV and energy efficiency in homes.

According to the calculations in the report, this would create 200,000 jobs and save households up to £250 per annum in reduced electricity bills. On top of this, green QE could finance the £16 billion green deal energy efficiency program for homes the government is planning, creating 65,000 jobs in insulation and construction by 2015.

If the Bank of England objected to buying corporate instead of government assets, the Treasury could guarantee them much as Obama’s administration guaranteed green loans in the United States to help kick-start the economy following the financial crisis.

Pension funds should also be happy to buy up such assets given the long term (25 year) secure returns generated through the Feed-in-Tariff and household repayment of energy efficiency loans by households met through the savings on heating bills.

The government and Bank of England needs to accept the fact that our banking system is not currently longer fit for purpose – assuming the purpose is getting money in to the real, productive economy. It could take decades to restructure our banks so that they become functional again.

In the meantime, we should abandon ‘orthodox’ QE and find better ways of exploiting the Bank of England’s power of money creation. Creating hundreds of thousands of jobs, tackling climate change and fuel poverty and improving energy security seems like a reasonable place to start.

See also:

• We’re all economists now, part one – Ben Mitchell, February 4th 2012

• Will quantitative easing work this time? – George Irvin, October 9th 2011

• Quantitative easing: The latest windfall from us all to “country London” – Ranjit Sidhu, October 8th 2011

• Could earnings-based rent-control replace quantitative easing? – Peter Morgan, September 26th 2011

• Osborne set to U-turn on QE – so why not on Plan B? – Shamik Das, September 12th 2011

New growth figures point to 2012/3 deficit 50 per cent bigger than originally projected

Daniel Elton — Thu, 09 Feb 2012 15:01:43 +0000

The National Institute of Economic and Social Research’s latest growth predictions are certainly grim: the think tank projects that the economy will shrink by 0.1 per cent in 2012. That means, fewer jobs, smaller wages, and a harder economic time for most UK citizens.

However, we knew that these would be difficult times. What was meant to act as consolation was that we would be reducing the deficit and ensuring our long-term financial health.

But, as we know from the correlation between growth and the deficit using the Office for Budget Responsibility’s (OBR) own figures, such a contraction will increase the deficit.

Using George’s Marvellous Deficit Calculator, an economic contraction of 0.1 per cent relates to a deficit of 8.4 per cent in 2012/3 - missing Osborne’s initial projection of 5.5 per cent - half as much again.

It is around one quarter larger than 6.6 per cent deficit projected under the Darling plan by the OBR.

And as Will Straw and Guido Fawkes have pointed out this, he can’t blame the poor performance on the Eurozone crisis as the trade deficit with the continent continues to shrink.

“Contractionary Fiscal Expansion” isn’t working. What we have, some people might say unsuprisingly, is “contractionary fiscal contraction”. The game is up, and it is time for the government to put the economy before its pride and admitted it is so.

See also:

• Positive trade figures undermine Osborne’s claim that Eurozone is to blame for negative growth – Will Straw, February 9th 2012

• Economic Update – February 2012: Double dipped – Tony Dolphin, February 7th 2012

• US grew almost twice as fast as UK in 2011 – Will Straw, January 27th 2012

• The double-dip begins – Tony Dolphin, January 25th 2012

• Hopes of an export and manufacturing-led recovery recede – Tony Dolphin, August 9th 2011

“No one uses TfL” Tory: Users should pay, except when they are my voters

Alex Hern — Thu, 09 Feb 2012 14:41:27 +0000

Adam Bienkov noted this afternoon the jaw dropping claim by a Tory member of the London Assembly that most Londoners don’t use public transport.

Bienkov reports:

Speaking at a City Hall debate on Boris Johnson’s budget, Tony Arbour claimed that:

“It is a fact is it not that relatively few Londoners use London transport in any way. Most people don’t use London transport with any sense of regularity.”

He went on to tell the Mayor that it was a “principal of conservatism” that “those [people] who receive a service are those who should pay for it.”

Boris Johnson replied that he would “need to get the figures” Arbour was referring to.

As both Bienkov and Mark Ferguson at LabourList have pointed out, Arbour is hopelessly wrong. With 1.1 billion tube journeys a year, 8.4 million combined daily trips on rail, underground, DLR, bus, tram and taxis, and all methods of transport except car drivers and motorcyclists increasing in the last ten years, it is not a fact that “few Londoners use London transport in any way”.

While his facts need a thorough going over, we at Left Foot Forward are always happy to see politicians staking out their principles, so Arbour’s ‘principle of conservatism’ that ‘those [people] who receive a service are those who should pay for it’, while wrong, could mark him out as a better type of politician.

Except when it comes to his own interests, he’s quite happy to treat principles with the same reckless abandon as facts.

In November 2009, the GLA reported that:

Tony Arbour has welcomed yesterday’s definitive assurance from the Mayor of London that the 24-hour Freedom Pass shall remain.

Commenting after Mayor Questions at City Hall during which Boris Johnson gave an assurance that the Pass would continue, Mr Arbour, the Assembly Member for South West London said:

“Boris delivered his promise for a round the clock Freedom Pass; who can doubt his commitment to keep it?”

And in January 2010, they wrote:

Tony Arbour, Richmond and Kingston’s GLA Member has called on the Royal Parks Agency to concentrate on repairing Richmond Park’s roads rather than attempting to turn its car parks into revenue-raising machines.

Tony said:

“Much of Richmond Park’s perimeter road is in a terrible state. The new aggregate used to resurface the road during the summer has dislodged and is now lying in the road. This has left patches of exposed tar that is being flicked up by passing cars and bikes getting only bodywork, clothes and skin, which is proving very difficult to clean off.

“I call on the Parks agency to deal with this serious problem as a matter of urgency instead of focusing on imposing car parking charges on Park visitors.”

Arbour may have raised the flag of conservative principles in City Hall, but in the end he’s just chasing re-election.

See also:

• Fact Check fact checked: London’s fares CAN be cut – Tom Copley, January 25th 2012

• The environment trumps the debate between a tunnel or a bridge – Darren Johnson AM, January 21st 2012

• Boris’s electric vehicle boasts are an inverted pyramid of piffle – Darren Johnson AM, January 10th 2012

• Boris fiddles as London prepares for transport chaos – Alex Hern, October 19th 2011

• Boris’s backward steps for London on pollution and traffic congestion – Eleanor Besley, June 3rd 2011