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Tuesday, 11 October 2011

Europe's Banks May Get €200bn Bailout

A potential €200bn (£175bn) recapitalisation of the European banking sector loomed yesterday after the French and Belgian governments unveiled a rescue package for Dexia to stop the bank's woes from contaminating the wider financial system.

The planned boost to banks' capital reserves will see national governments in line to inject new cash if the lenders cannot raise the money in the market.

The urgency of increasing eurozone banks' buffers against losses was heightened by the near-failure of Dexia, the French-Belgian bank with big exposures to debt issues by Greece and other financially stretched countries.

The deal to bail out Dexia was designed to stop the bank's crisis spilling out into the rest of the banking sector. The fates of troubled eurozone countries and the region's banks are intertwined and threaten a vicious spiral of losses.

European leaders yesterday delayed by a week a meeting scheduled for next Monday to leave time to receive a definitive report on Greece's fiscal crisis.

Belgium will pay the Dexia Group €4bn for the Belgian retail banking business and provide 60 per cent of state guarantees for a "bad bank" to house Dexia's troubled assets. France will provide 36 per cent of the guarantees, which cover up to €90bn of funding, with Luxembourg supplying the rest.

Dexia's balance sheet of €518bn is bigger than the entire Greek banking sector and is a similar size to the total assets of institutions rescued in Ireland. The bank passed European "stress tests" in July that were meant to shore up confidence in the banking sector.

France and Germany have agreed that Europe's banks should be made to raise extra capital to cushion the impact of a Greek default. The International Monetary Fund has calculated that the region's banks need up to €200bn of extra cash to withstand losses.

Alistair Ryan, an analyst at UBS, said: "If capital is to have any chance of stabilising the banks, it will need to be large: we would start with the IMF's €200bn." He said eurozone governments could end up owning 40 per cent of the sector if they supply the capital.

Markets were calmed by hopes that France and Germany would finally come up with a plan big enough to support the eurozone's banks when Greek defaults – an event seen as inevitable.

The Eurostoxx 50 index closed up 2.3 per cent and the euro rose 1.9 per cent to $1.3648.

The cost of Dexia's bailout has raised questions about France's and Belgium's national credit ratings. France's Finance Minister, Francois Baroin, stressed that Dexia was a "unique" case and that other French banks would not need bailouts. However, many believe France's Société Générale and BNP Paribas would be part of the recapitalisation plan.

UK Economy Needs More Than Quantitative Easing To Recover

Britain's cycle of rising debt and dependence on consumption to drive growth make it unlikely to bounce back any time soon.

Britain has just been through what is now officially the deepest slump since the Great Depression – pictured, the unemployed marching in London in 1930.

Britain has just been through what is now officially the deepest slump since the Great Depression. Economic data from the pre-war era is not 100% reliable, but the drop in output after the sub-prime mortgage crisis appears to have been almost on a par with the contraction following the Wall Street crash. What's more, the recovery – such as it is – has been even slower than in the 1930s.

Talk of a lost decade is not misplaced. The economy is likely to grow by barely 1% this year and will struggle to do much better than that in 2012. At this rate of progress, it will be 2016 before output returns to its level when the recession started in early 2008.

This performance looks all the more miserable when you consider the amount of stimulus that has been thrown at the economy. Interest rates were cut to 0.5% in early 2009 and have remained there. The government has borrowed £390bn in total in the last three fiscal years. After printing £200bn of electronic money, the Bank has decided that is not enough and has announced plans to do a further £75bn of quantitative easing. The image that springs to mind is of John Cleese's response when Michael Palin's pet shop owner insists that were the Norwegian Blue not nailed to its perch "it would nuzzle up to those bars and 'voom'".

"Voom?! Listen mate, this bird wouldn't voom if you put 4 million volts through it. 'E's bleedin' demised."

This is not the view of George Osborne or Sir Mervyn King, although both admit it is taking a while for the dead parrot to awake. King said last week that the UK was in the grip of a financial crisis at least as severe as that in the 1930s and perhaps the worst ever. The chancellor has repeatedly warned that it will take a long time to recover from the debt binge of the last decade. Most post-war recessions were caused by a tightening of economic policy in response to inflation, but that of 2008-09 was the result of individuals and banks borrowing too much.

Still, the mainstream view is that sooner or later things will get back to normal. Over the past two centuries, western economies have always bounced back from economic traumas, no matter how severe. It is taken as read that industrial capitalism is inherently robust and adaptable. It is perhaps time to challenge this assumption.

The first piece of evidence comes from the Office for Budget Responsibility, the independent fiscal watchdog created by Osborne when he became chancellor. Forec asting has been outsourced to the OBR, which expects growth to be quite perky in the years ahead, leading to a fall in the UK's budget deficit. Crucially, though, this is only because the OBR expects household debt to rise in the years ahead, from £1.6tn in 2011 to £2.1tn in 2015.

Alert readers will spot the circular argument here. Britain has a personal debt bubble that goes pop. Government steps in to clear up the mess and ends up with record peacetime debts itself. The cure for this is to get individuals borrowing again. Well, maybe. All the signs are that this will prove harder than the OBR imagines, resulting in weaker growth and a higher budget deficit.

This leads on to a second point, which is whether the UK variant of modern industrial capitalism is really as robust and adaptable as our policymakers would have us believe. The story of the past 25 years and more has not been of a new model of sustainable growth emerging from the old. Not since the mid 1990s has there been a period where the motor of growth has been production rather than consumption. For the rest of the time it has been the tale of asset-price booms, the withering of the productive base and the onward march of big finance. Following the bubble to end all bubbles, the taxpayer had to dig deep to bail out the banks and prevent an even deeper recession, pauperising the state in the process. A model that relies on excessive personal indebtedness and ends with the innocent suffering from extreme austerity seems neither robust nor adaptable, just bankrupt.

Britain has not been alone in its long march down this dreary road, but it has travelled further down it than any other developed western country. King and Osborne agree something has to change. The upbeat vision of the future goes something like this: Britain, despite everything, has a sizeable manufacturing base and can enjoy the benefits of a 25% drop in sterling since 2007. The UK has top-notch scientists who will deliver a new wave of innovation. It has an independent central bank that knows what it is doing and a Treasury determined to keep interest rates low. The banking system is being repaired. Credit will eventually start to flow again, taxes will at some point come down, consumers will pay off their debts and firms will start investing.

The dystopian vision of the future sees Britain displaying many of the traits of a developing country. Here's what a typical developing country looks like. It is governed by an elite and there is a gulf between rich and poor. The elite extracts economic rents from the rest of the population, then salts them away in tax havens. Developing economies often rely heavily on one commodity, which crowds out activity in other sectors. To the extent that they have an industrial base, it is as an assembly plant for foreign-owned transnational corporations. The country tends to be deficient in physical infrastructure and human capital. All too often the best brains leave the country.Now consider Britain. The country is dominated by the City, which exerts an extraordinary amount of political power. There is a widening gap between rich and poor. The rich find ingenious ways to avoid paying taxes. Large parts of the country are dependent on the public sector, while the private sector is increasingly dominated by financial services. Industry makes up a smaller and smaller part of the economy and not one world-class manufacturing firm has been developed from scratch since the second world war. Firms complain they can't find skilled labour. The infrastructure is a joke – witness the lack of snowploughs to keep Heathrow open during last winter's snow. This is not an economy that is going places: it is going south.

Economic Crisis: What Is The End Game?

The cycle of woe and uncertainty surrounding the economic crisis continues, with gloomy surveys predicting a double dip, and even fears of a ‘Great Depression'. Sir Mervyn King, Governor of the Bank of England, believes this could be the worst financial crisis ever - even beating the 1930s for gloom - and the economy is in breakdown, so what we want to know is:

How grim are things going to get?

Yesterday various reports told us the UK was bottom of the global confidence league, 43% of finance directors were preparing for a second recession while companies had delayed or cancelled £4.7bn of spending, reports the Daily Telegraph. "Today we report the OECD's leading indicator falling for the seventh month in a row, pointing to a slowdown, and the British Chambers of Commerce warning on stagflation."

Mindful Money asks commentators what they think will happen:

While we don't know if the recent injection of more QE will do any good, we do know that it automatically invites stagflation into our economy by pushing the pound down, say commentators.

According to Mindful Money economist blogger Shaun Richards, the most likely outcome if both politicians and central banks continue with the policies that they have now is, indeed, stagflation.

But he adds: "Those who look at the past I think miss an important point which is that it doesn't have to be 10% inflation to hurt people. A continuation of 5% a year combined with wages only rising say 2% will gradually turn the screw. Let's face it this has been happening already for the last couple of years so in general people are poorer."

Investors Chronicle says that Andrew Sentence, a former member of the BofE MPC believes that inflation is a bigger concern for the UK economy than a recession."High inflation and slow growth are inextricably linked."

What happens if stagflation hit?

Stagflation is a term which is formed by joining the words stagnation and inflation. It is used in modern macroeconomics to give a description of a period of uncontrollable price inflation combined with sluggish output growth. Stagflation raises unemployment.

The last time stagflation held the western world in a seemingly lethal grip was 30 years ago in the 70s and 80s, and it is threatening to emerge from the shadows again. Such fears are dismissed as irrelevant by those in favour of pumping money into the economy through quantative easing (QE), which they think will stimulate growth and avoid the dreaded ‘double-dip' recession. But so far, this policy has failed to prompt the necessary growth.

Thursday's announcement of another £75billion worth of QE played well with the stock market, but it is unlikely to cause much cheer for long. On the contrary it threatens to stoke inflation even higher, and meanwhile, there is the threat that growth stagnates.

"Stagflation" remains a word not uttered in the polite company of the financial world.

"But there remain only a few more tumblers to fall into place for a return to that awful word that conjures up images of the "malaise days" of the late 1970's and early ‘80s, where rising inflation and slumping employment tramped down economic growth," says CNBC,

However, some economists believe stagflation isn't something to fear at present.

Azad Zangana, European economist at Schroders, says: "While the current environment feels like a typical stagflationary environment, this is set to be temporary. The outlook is more positive as we expect inflation to fall from its current level back down to below 3%, mainly due to the passing of the VAT effect from the start of 2011.

"Meanwhile, we forecast growth to improve in the second half of 2012, and so the balance between real and nominal growth will improve. To conclude that we are entering a fully fledged stagflationary period, we would need to see significantly stronger inflation and wage inflation, and a continuation of weaker growth as seen in the 1970's. In our view, this is unlikely to occur."

What other threats may there be?

Another danger, however, is the rising threat of hyper-inflation. Shaun Richards says: "Whilst the self proclaimed "financial geniuses" persist in buying every gilt they can find there is a danger of this. Also it is the nature of things that when problems happen these days with the speed of trading it happens so fast that it is better not to run the risk at all. But I see this as rising but still low.

"So for now the danger is the silent drip drip of inflation and this is the enemy. The biggest problem of all is that as I keep pointing out it should not be a problem at this stage of the economic cycle and furthermore is being inflicted on us by individuals whose own contracts protect them against it.."

And if we're being warned that this crisis beats the 1930s, what happened then?

What happened in the 1930s, given the governor believes the gloom beats this decade? This was the ‘Great Depression', where in America millions were genuinely destitute, and unemployment hit a staggering 25%. Two million Americans tramped the country, sleeping rough as they looked for nonexistent work, and malnutrition was widespread.

Southern England escaped reasonably lightly, but in the North there were pockets of extreme hardship. On Tyneside the collapse of shipbuilding left unemployment standing at 70%, prompting the famous Jarrow march.

There were soup kitchens on the streets and millions of families were subsisting on bread and margarine. In Germany, economic misery that had begun with hyperinflation in 1923 helped another world leader to power in 1933: Adolf Hitler.

So is there any cause for hope with growth and falling inflation?

Henderson's chief economist Simon Ward gives his opinion: "Assuming that an EMU break-up is avoided, the global economy may start to regain momentum from early 2012. Such a scenario depends on the US economy doing better next year, as suggested by recent money supply strength...

"Another reason for thinking global growth could revive from early next year is a fall in headline inflation due to recent weakness in food and energy commodity prices. Rising inflation has been a major contributor to the recent economic slowdown by squeezing consumer spending power and forcing monetary policy restriction in emerging economies."

And anyway, nobody knows.

Mindful Money's resident psychologist Kim Stephenson says: "Let's assume that Shaun's right..

"Afterwards, lots of people who said that we wouldn't get stagflation but something else (hyperinflation or whatever) will say - "ah, well, it depends on how you define stagflation (or hyperinflation, or whatever)", they'll twist it round to show that they were right when they were actually wrong. Or they will point to some action or event - from the Bank of England, IMF, German Government, something, and say "if that hadn't happened, it would have gone the way I predicted". Human beings don't like being wrong and they will selectively remember what they want to remember to avoid having to admit they were wrong.

"Similarly, human beings like being able to predict and control their world . The economy isn't just out of our personal control, it's clearly out of control (or even prediction) of anybody like the Chancellor, the EU etc. that are supposed to be able to control it. That is very scary. It's like when you're a child and you realise for the first time that your parents don't know everything, can't solve every problem, can't ease the pain, stop the bully or get you on the team every time. It hurts and it makes us afraid, so we desperately cling to the belief that somebody can predict it (if not control it) and that we can have some measure of understanding of what is going on. To contemplate the fact that actually nobody controls it, nobody really understands it or can predict it and that most of our predictions are going to be wrong is simply too much to take."

Immigrants Must Pass History Test To Earn UK Passport: Exam Will Cover Everything From Boudica To Churchill

Migrants will have to pass a quiz on British history and culture to receive a UK passport, David Cameron announced yesterday.

In a wide-ranging plan to ‘get a grip’ on our borders, the Prime Minister also urged the public to report suspected illegal immigrants to Crimestoppers.

And he admitted there was ‘discomfort and tension’ in some communities over the levels of migration.

Crackdown: David Cameron urged the public to report suspected illegal immigrants to Crimestoppers in a wide-ranging plan to 'get a grip' on our borders.

Pledge: The speech contained a suggestion to consider making forced marriage illegal - an idea critics claim could leave victims less likely to come forward.

Foreign nationals wanting to settle in the UK permanently have been required to sit a multiple-choice ‘Life in the UK’ test for the past six years.

But, in a highly controversial move, Labour ministers ruled it should not include a history section because there was ‘too much and it would not be fair’.

Instead, migrants are grilled on the structure of the European Union, state benefits, equal rights and discrimination.

Yesterday, Mr Cameron said ministers would ‘revise the whole test to put British history and culture at the heart of it’.

Subjects to be covered include Roman Britain, Boudica, the Norman Conquest, Magna Carta, the Wars of the Roses, Elizabeth I, the Civil War, the Battle of Britain and Winston Churchill.

To make room, questions on the operation of the single market and on the differences between the Council of Europe, EU, European Commission and European Parliament will be dropped.

Making only his second major speech on immigration, Mr Cameron said he wanted to bring much-needed ‘fairness’ to the system.

‘While it’s crude and wrong to say immigrants come to Britain and take all our jobs, there’s no doubt that badly controlled immigration has compounded the failure of our welfare system and allowed governments and employers to carry on with the waste of people stuck on welfare when they should be working,’ he said.

The Prime Minister said that – in order to meet his promise to reduce net migration to the tens of thousands – the Government had to crack down on student visas, work visas, marriage, settlement and illegal immigration.

There were also proposals to make migrants pay a bond, possibly of thousands of pounds, before they are allowed to enter the UK. This would work to stop them disappearing into the black economy.

Plans were also unveiled to crack down on any migrant who owes the NHS £1,000 or more for non-emergency treatment.

They will either not be allowed a visa – preventing them from getting any follow-up treatment – or refused a renewal of their permission to stay.

Officials estimate the proposal to tackle ‘health tourism’ could save £20million over five years. The rules will not be applied retrospectively.

The speech contained a pledge to consider making forced marriage illegal – an idea critics claim could leave victims less likely to come forward.

A move to make firms count the number of foreign staff they employ was abandoned. Mr Cameron drew direct links between the culture of welfarism in Britain and the fact so many foreign workers, such as hard-working Poles, had secured jobs.

Shadow home secretary Yvette Cooper said: ‘Another week, another rewritten speech from the Prime Minister. Yesterday Downing Street said David Cameron would require companies to publish lists of foreign employees, and within 24 hours it has been dropped.

Will The Increased Offer Of Declining Pound Save British Economy?

Forex news. World economy is under the threat of crisis, which can become the most difficult ever and have more large-scale consequences than the Great Depression in the 20th century. This is how the current situation is viewed by Mervyn King, the Governor of the Bank of England.

The decision to expand the quantitative easing program, which was taken by the Bank of England on Thursday, is predetermined exclusively by the difficult economic situation worldwide, particularly in Britain.

Drawing historical parallels, Mr. King claimed that the current condition of world economy is characterized by the total deficit of money supply. Therefore, Central Bank emission is aimed at solving this problem, and the Bank of England decision to increase money supply is to be regarded exclusively from this point of view.

However, global crisis can only be overcome provided that there is a consensus at the highest level.

It is predicted that the entire sum of emission, ₤75 bln., will be directed at stimulating economy and increasing money offer. At the same time, Mr. King assured that inflation is unlikely to result from held recession. In general, he predicts that inflation will increase up to 5 percent in the nearest future; however, next year it will stop increasing and start declining rapidly.

Meanwhile, the rate of British pound has stopped forming long-term wave А(С) or reduced wave С(С) within long-term bear motion, which will be proved by passing pivot Mf at the point of 1.5665. Experts of the Department of Masterforex-V Trading System claim that subsequent FZR will start long-term correction wave В(С). Passing the bottom line of 1.5271 will continue long-term decline; however, before this happens GBPUSD pair will meet support at the points, where pivots MF are placed, namely, 1.5468 and 1.5296.

For Fox Sake, Call This Politics? That's Scandalous

Neither the idiot-abroad UK defence secretary nor scandal-mongering critics seem able to separate important public issues from personal sleaze.

There are, apparently, still a lot of ‘unanswered questions’ about the precise details of the Fox affair, involving UK defence secretary Liam Fox, his man-friend Adam Werritty and some murky meetings at the ministry and with foreign dignitaries. So, here are a few more to add to the list.

How could an allegedly senior Tory statesman be so unworldly and moronic as to imagine that it would be alright to take his bestest friend along on diplomatic jaunts pretending to be an official adviser, as if they were two little boys playing ministers and aides? And then to imagine, rather like that rugby-playing royal lackey, that if he simply denied it all, the video evidence would just go away?

On the other hand, the question is: how could the Labour opposition be so pathetic as to imagine that the way to criticise the Tory defence secretary is not to attack the international policies he is pursuing, but to trawl through his diary and Google photos for evidence of meetings with his chum at the MoD and elsewhere? Don’t they know there’s a directionless, disastrous war on – in fact two, in Afghanistan and Libya – with Fox as defence secretary in the political frontline? Did it never occur to the spineless Labour Fox-hunters that attacking the conduct of those foreign adventures might be more important than tracking his jollies around the world?

One possible answer for all these questions emerged when Fox, having insisted that he had done nothing wrong, came forward over the weekend to issue a half-hearted apology for, umm, doing nothing wrong but allowing others to imagine that he might have done. The defence secretary’s statement began by acknowledging that he had mistakenly allowed ‘distinctions to be blurred’ between his professional and personal affairs. Or as Conservative prime minister David Cameron put it, in attempting to defend his defence secretary on the TV news yesterday morning, ‘the personal and the political had become too entwined’.

Truer than they imagine, those statements describe not just Fox and his shenanigans with Werritty, but the entire British political class and its conduct today. Across the board, the line has become blurred between the proper public-political sphere and the sphere where things are private and personal, with damaging effects for both. This can help to explain both Fox’s bizarre antics and the opposition’s shrill reactions to them.

Spiked has often commented on the trend for public bodies and authorities to interfere in private matters, most recently through the politics of ‘nudge’. The flipside of this is the way that private and personal concerns have often come to dominate public debate.

As the horizons of political vision and debate have shrunk, public figures have come to stand not on their beliefs, but on their personal behaviour, PR image and ‘character’. Sleaze and scandal have replaced politics, with politicians more likely to be judged on their expense returns and mortgage applications than election manifestoes. The slogan ‘the personal is political’, once the preserve of the feminist fringe, has gone mainstream. All parties and leaders now try to give the personal touch (whether we want it or not) and sell themselves on their alleged integrity rather than their ideas.

The Tories are far from immune from this erosion of the distinction between the public and the private. Even the death of Cameron’s disabled young son in 2009, a personal tragedy, was turned into a public event with political consequences. Parliamentary democracy was suspended for the day, some Tory commentators claimed that this experience would give opposition leader Cameron a special insight into running the health service, and the New Labour government worried over whether the media coverage of his bereavement might boost the Tories.

So perhaps it is not surprising that even somebody like Fox, supposedly a traditional Tory right-winger, should apparently have lost his bearings and all sense of where the public stops and the personal starts. His admitted failure to distinguish between his personal relationships and professional responsibilities is symptomatic of a wider loss of a proper sense of statesmanship in Whitehall, where British leaders these days seem to have trouble understanding that they are supposed to be serving a greater cause than their own advancement.

Of course past statesmen and diplomats have been involved in far bigger scandals than Fox’s mundane meetings with his best man, but they still tended to retain more of a sense of who and where they were in the world. In 1963 John Profumo, the Tory secretary of state for war (the equivalent of Fox’s post today), was infamously forced to resign after he was revealed to have lied about his relationship with a call girl who also had an affair with a Russian attaché. But one cannot quite imagine Profumo thinking it was reasonable to carry on his private liaisons over his desk at the ministry. Yet Fox imagined it would be okay for his chum to drop in at the MoD without security clearance when he liked, and tag along to meetings with foreign dignitaries and businessmen at home and abroad, as if the secretary of state were a parish councillor visiting old dears in draughty church halls.

So Fox looks like an idiot abroad who apparently does not know the difference between a former flatmate and a serving official. However, the way that this less-than-earth-shattering idiocy has been turned into the biggest story in politics is a sign that the opposition has little more idea of the proper relationship between the public and the personal.

Ever since Tony Blair launched New Labour on a crusade against Tory government sleaze in the mid-1990s, scandals and issues of personal probity have become the basic stuff of opposition politics in the UK. Lacking any political alternatives, opposition parties have retreated to personalised scandals. This culminated in the all-consuming scandal over MPs’ expenses, which benefited no party and should have taught them all that democratic politics will be the loser when debate is reduced to the swapping of scandalous and sordid allegations.

Yet here is Labour, having learnt nothing, trying to make allegations of personal sleaze a main plank of its attack on the Lib-Con coalition government. If the left wants to get Fox – widely seen as a standard-bearer for Thatcherism – there is no shortage of weapons to use against the defence secretary. Apart from the mishandling of the defence cuts, there is the small matter of two wars that should be opposed. Afghanistan has been a 10-year disaster, going nowhere slowly. Libya, despite the government’s recent bravado over its ‘triumph’, is a misguided mission that should never have been started and the end result of which remains unclear (see The barbarism of buffoons).

Yet this week, on the tenth anniversary of the launch of the failed US-UK Afghan invasion, Fox was having to dodge questions, not about all of the spurious justifications governments have offered for the war, but about his pal’s bogus business cards.

Of course Afghanistan was New Labour’s war in the first place. And in opposition the party has backed Cameron over Libya, sharing the government’s delusions in the ability of Western intervention to save the world. With a stale consensus on such big issues, political conflict can be reduced to the relatively petty public-personal morass.

Hence for the Fox-hunters, it’s a case of ‘Don’t mention the wars – take aim at his appointment books and wedding photos’.

The end game for Fox remains uncertain, and who cares either way? In proper political terms it does not matter much whether he stays or goes. The more important damage has been done by the elevation of this petty scandal into a national furore, reducing the scope and scale of public debate still further, and further blurring the political line between important public issues and inconsequential personal affairs.

This sort of thing can no longer be seen as a distraction from parliamentary politics. In the absence of anything of more substantial, scandals and scandal-mongering have become the real stuff of British political life. If this is allowed to carry on, the writing is surely on the fake business card for the future of meaningful democratic debate. Shoot the Fox if you want, but haven’t we got bigger wars to fight?

Third Of Tenants Face Underoccupancy Cut

Cutting housing benefit for working-age tenants who underoccupy their homes will affect around a third of those living in social housing, the government has revealed.

An impact assessment from the Department for Work and Pensions estimates that limiting housing benefit payments to the number of bedrooms that a social tenant actually needs will affect 670,000 people living in social housing.

The report, released yesterday as part of the government’s Welfare Reform Bill, says most tenants only underoccupy by one bedroom, and will lose around £11 a week in 2013/14, when the change comes into play.

Those with two or more bedrooms that they do not use will lose an average of £20 per week, the assessment says. It also found that tenants in the north, east midlands and Wales were more likely to be affected than those living in London and the south east.

Around 46 per cent of social tenants in the north east will see their housing benefit cut by around £12 a week, while only 19 per cent of London tenants will be affected.

The National Housing Federation condemned the plans. David Orr, chief executive, said: ‘Ministers have long promised to protect the vulnerable and yet these plans could force thousands of people to move out of homes they have lived in for many years.

‘As a result of these changes, thousands of couples are no longer able to offer their grown-up children a room to stay in should their circumstances change, and many single parents will be pushed away from friends, relatives and support networks.’

Under occupancy penalty could force struggling families into hands of loan shark.

Plans to slash housing benefit for hundreds of thousands of low income families could lead to a huge surge in the number of people turning to loan sharks and doorstep lenders as they struggle to pay their bills, campaigners warned today.

The Department of Work and Pensions (DWP) intends to use the Welfare Reform Bill to slash housing benefit for tenants living in homes deemed too large for their needs - even if they have lived there for decades.

The measure will hit 670,000 council and housing association tenants - a third of all working-age housing benefit claimants in the social rented sector across Great Britain.

The DWP has suggested that households seeing their benefit reduced - by 13% for those with one 'spare' room and 23% for two or more 'spare' rooms - should 'move to accommodation which better reflects the size and composition of their household' - or make up the shortfall from other income sources.

Each claimant is expected to lose an average of £676 a year if the Government succeeds in introducing the measure in 2013. Tenants will face a tough choice of either downsizing to a smaller home to avoid the penalty or staying put and paying a much higher level of rent from their own resources.

But even for those who do look to downsize there is by no means any guarantee they will find a smaller social home to move into. Around 180,000 social tenants in England are 'under-occupying' two-bedroom homes, but just 68,000 one bedroom social homes became available for letting in a single year (2009/10).

The average social housing household in receipt of housing benefit has an annual income of just £8,320 a year. The proposed 'under occupation' penalty will leave vulnerable families with a shortfall of £676 to make up from their savings or other allowances. Many are at risk of falling into debt because they simply would not have the money to pay all their bills.

Currently, around 2.5m people borrow from doorstep lenders at rates often in the region of 272% APR for new customers. A further 200,000 are estimated to borrow from loan sharks, who can charge anything up to 2,000% APR. A majority of those financially excluded are social housing tenants.

If a tenant took out a £700 loan to cover the under occupation penalty with the doorstep lender Provident, they would pay an APR of 272.2% on the loan, according to a typical example given on their website. That would mean repaying £1,274 back over the course of a year. For people going to illegal loan sharks the rate could be ten times as much.

Federation chief executive David Orr said: "The Government's plans to penalise hundreds of thousands of low income families who are adjudged to be 'under occupying' their property is harsh and regressive.

"In the vast majority of cases, people will simply not be able to make up the shortfall themselves and could end up being sucked into poverty and spiralling levels of debt.

"The Government has repeatedly said that it will look after the most vulnerable, but pushing thousands of people into the arms of doorstep lenders and illegal loan sharks is wrong and will lead to a huge degree anxiety for many of the poorest in our society."

Niall Cooper, National Coordinator of Church Action on Poverty said: "There is a real danger that people will be pushed into the hands of loan sharks by the housing benefit cuts.

"Many tenants are already struggling to make ends meet, and can ill afford the cost of borrowing from high cost lenders who routinely charge anywhere between 200%-2,000% APR for loans.

"For some, this will push them over the edge - into a spiral of debt, or even homelessness."

Dustbowl Britain: The New Depression

YES, it’s official: this could be worse than the Great Depression of the 1930s – men slumped on street corners and kids with bare feet.

Inflation, fascism and economic war in Europe. “This is the most serious financial crisis we’ve seen at least since the 1930s, if not ever,” says Sir Mervyn King, governor of the Bank of England.

Now, I may be missing something, but isn’t this just the kind of alarmist headline-grabbing remark that central bankers are supposed NOT to make in case it spooks the markets? It’s people like me who are usually criticised for resorting to sensational forecasts about Great Depressions and the like. The commentariat is being done out of a job by the godfather of prudence. Whatever happened to “Keep Calm And Carry On”?

The Prime Minister, David Cameron, is said to be livid. Only 24 hours before King forecast the end of civilisation as we know it, Cameron had told the country to “bring on the can-do optimism”. Well, not in the Bank of England, clearly.

It’s hard not to read this as an implicit condemnation of government economic policy. At the very least, the PM and his Chancellor look as out of touch as the Labour PM, Jim Callaghan, when he said “crisis, what crisis”, just as the International Monetary Fund was about to take over the reins of the British economy in 1976.

So what has spooked Mervyn? Well, it’s the Greeks isn’t it, stupid? Actually, it isn’t the Greek default – it’s us. Mervyn’s panic attack coincided with the news that ratings agency Moody’s had downgraded the status of a raft of British banks just as inter-bank lending was seizing up.

Essentially, Moody’s is warning people with money in banks including Royal Bank of Scotland, Santander, Lloyds and so on that they might not get it all back. Why? Because the banks are becoming stressed again, just like 2008, and there is no chance that this time the Government will have the will or the means to bail them out. There’s very little public money left and the economy is slowing to a halt, which will make it hard for the Government to pay its own debts, let alone that of the banks.

The bailout of the UK banks in 2008-09 required £1.3 trillion, according to Mervyn King’s own figures. And what did we get for putting up all that money? Well, Stephen Hester of RBS got £11 million last year. Bank bonuses accounted for another £13 billion. The rest disappeared into the bowels of our rapacious financial institutions.

So what now? Well, if there isn’t any public money, let’s just print some. The last round of quantitative easing – creating more money – placed £200bn in the banks’ accounts in 2009.

What happens is this: the Bank of England electronically creates money, which it uses to buy bonds from the banks. This injects funds directly into the banks’ balance sheets, wiping out their losses and “restoring the health of the financial system”. The money is supposed then to be loaned to small businesses and people wanting mortgages, thus boosting economic growth.

Except that this didn’t happen. The banks hoarded it instead and paid themselves huge bonuses. All QE1 really succeeded in doing was increase inflation to 5%, which is generally what happens when governments print money. This has eroded people’s savings, pensions and salaries, meaning that they haven’t been buying much in the shops. Which in turn is why the economy is sliding back into recession. Britain has one of the lowest growth rates in the OECD and has one of the highest fiscal deficits. Stick that in your budget, Mr Osborne.

So why on earth is the governor printing another £75bn of QE? It looks like the economic equivalent of blood-letting: a pointless medical procedure that only weakens the patient. This is the great unanswered question of the age: why are policy-makers unable to see any solution to economic crisis that doesn’t involve stuffing the mouths of bankers with gold?

When historians look back at this period they will criticise governments for inactivity, short-termism and denial. But they will condemn them utterly for throwing oceans of public money at the very people who caused the crisis and were least to be relied upon to resolve it.

Instead of handing money to banks, in the vain hope that it will boost economic activity, why doesn’t the government hand it to poor people?

I’m not joking. At least lower-income groups can be relied upon to spend the cash in the high streets – in shops like Tesco, which has just announced its worst sales figures for 20 years. Give them VAT rebates, interest-free loans, tax “holidays”, elderly care grants, home improvement loans – anything to get money into the system.

Giving liquidity to people who don’t have it is the surest possible way of boosting economic activity. QE is like trying to get the car started by giving money to oil sheiks in Saudi Arabia.

Of course, the bankers would respond that, yes it’s all very well giving money to people other than us. But if you don’t hand over your cash, we’ll just go bust like Lehman Brothers, and that will cause a global financial and economic collapse. Ha ha.

And of course, they’re right – they are too big to fail. If, say, RBS went under, the shockwaves would be so great that bank lending would halt overnight. This means that companies which depend on short-term loans from banks to manage their accounts would go under too. International trade would freeze because there would be no credit for exporters.

There would also be a run on the banks, as happened in October 2008, when people and businesses withdrew their cash from banks like Northern Rock and HBOS because they didn’t believe their funds were safe. In 2008, according to the then chancellor, Alistair Darling, Britain was 24 hours away from the ATMs closing and people being denied even cash withdrawals.

Could we really be going back to all that? Well, yes – the Belgian-French bank, Dexia, has just gone bust for the second time in three years because people started withdrawing funds at an unsustainable rate and its share price collapsed. It could be the first of many, and governments cannot bail them all out.

Which means that if you are lucky enough to have more than £85,000 in any one bank – the limit of the deposits guaranteed by the government’s deposit insurance scheme – then you’d be well advised to get it out sooner rather than later.

I know that sounds alarmist,

inflammatory, but listen closely, and that’s what the Guv’nor is saying.

But there is an alternative. Instead of pouring more printed money into the banks, why not nationalise them completely? We already own RBS and most of Lloyds. The nationalised banks could be used to set up smaller, more responsible banks with a remit to lend to industry rather than speculate on derivatives and the commodities market, which is what they have been doing since 2009.

If the financial crisis really is as bad as King says it is, and we are about to drown in a hyperinflationary sovereign debt crisis, then the Government would be able to freeze asset deposited in the banks and conduct a kind of debt “triage”.

Those with more than £85,000 in deposits would be required to accept a proportionate reduction in the value of their deposits in order to stabilise the financial system and remove the debt burden on the state. This could be done by converting bank deposits into government bonds, redeemable at a later date. This is rather like QE in reverse. Needless to say, all bank bonuses would be scrapped, and bankers put on civil servants’ salaries.

There would be howls of anguish from the rich at their wealth being hijacked in this way. But they should be told that the alternatives are much worse: a run of bank failures, which means they would lose ALL their funds over £85,000. Bondholders would not just have a haircut – they would be decapitated by default or by hyperinflation.

There is still a great deal of wealth in Britain – £7 trillion in household assets alone, according to the Office for Budget Responsibility – but this is largely held by the very wealthy and “sterilised” in property and other assets. If we are facing the ultimate crash, the Government will have no choice but to commandeer these resources and use them constructively to manage the national finances. President Franklin D Roosevelt did something similar in 1933 when he ordered all the gold held by individuals to be deposited with the government.

I doubt if any politician has the cojones to put this kind of scheme forward right now – most of them are intellectually in hock to the City of London anyway. But what is not in doubt is that the Bank of England is already thinking the unthinkable.

Various schemes for crisis debt restructuring are surely already being run through the Bank of England’s computer models, and though they can’t admit it, this will inevitably involve some control of bank deposits and an orderly run down of debt. The Government will probably opt to raid pension funds first, because they are harder to move offshore. This is what the Argentine government did in 2001 when it defaulted.

What the Bank of England governor is warning of is a truly apocalyptic financial event. The Government has already seized large parts of the banking system and resorted to money printing. It may not be long before it breaks into people’s accounts directly. You have been warned.

Friday, 30 September 2011

Ed Miliband Has Offered An Alternative – But Will Anyone Vote For It?

Miliband's indisputable leftward shift has put Labour at ease with itself but risks making the party less relevant than ever.

Ed Miliband hopes his vision, that he set out at conference, will connect with 'the country's wider shared values'.

Many years ago, I was walking down a street in London with a rising Labour politician. On a lamppost we caught sight of a poster advertising a SWP meeting. "Is there a socialist alternative to Kinnock?" the poster asked. "Yes, there is a socialist alternative," laughed Gordon Brown. "But the problem is that no one will vote for it."

Ed Miliband is certainly no Trotskyist. But his speech to the Labour conference in Liverpool this week is already raising some of the same questions that the old SWP poster did. For Miliband is gambling that there is an alternative to contemporary orthodoxy. He believes that the experience of financial collapse, public spending cuts and recessionary inequalities requires a resetting of the collective moral and economic compass. Crucially, he believes that the electorate can be persuaded to embrace it.

Miliband chose his words very carefully. Terms like socialism and capitalism do not appear in his speech. But they were implicit in it. Read in conjunction with the recent New Statesman article by Miliband's strategist Stewart Wood, this week's speech adds up to an attempt to reclaim social democracy as Labour's core route-finding principle. Cautious it may be – Wood sees Labour's aim as the creation of "a better capitalism", which won't please everyone in the Labour ranks – but the argument is put with clarity. It is indisputably a leftward shift from the New Labour years. It is also what Miliband has always wanted, which helps, sort of.

The large question now is whether Labour will succeed in shifting the national argument so that his version of social democracy stands at the centre of public debate. Miliband's conviction that it can is central to his entire leadership. It was embodied in the many sections of this week's speech that tried to connect Miliband's own vision with the country's wider shared values. If he succeeds in setting an agenda of market, welfare and community reforms that voters really want to and do believe in, then he may indeed reshape British politics. But if he fails, Labour's slide to the political margins will continue.

Less than three days after the speech, most of the reaction to it has already fallen into one of two camps. These strike me as too crude in both cases. On the one side there are those who welcome Miliband's commitment and think he can succeed – this was the general mood at Liverpool. On the other there are those who dismiss what Miliband said and think his approach is doomed to failure – which is what the Conservatives will undoubtedly say next week in Manchester.

In fact, the impact of Miliband's speech could be less straightforward than that. This is not an argument between a wholly laissez-faire approach and a wholly dirigiste one. In reality it is an argument about shifting the balance within a narrower set of priorities than those who insist on talking about the end of neoliberalism ever admit. Even so, this was one of the few party leader's speeches that may be remembered for longer than a week after it was given. Most of its actual phrases may already have gone down our mental chutes into the waters of oblivion. But it is quite likely that a lot of people will remember this as the moment when Miliband turned the party away from the New Labour orthodoxy that compromise with global markets is inevitable.

But there are turns and turns. To take an obvious example, which Miliband will have to address eventually, there is all the difference in the world between maintaining the coalition's tax and spending levels and committing to raise them. There is also a gulf between attacking economic predators and extolling producers, as Miliband did this week, and putting strict regulations in place to deny the former and promote the latter. And there is a massive difference between being a party of free trade, a principal that the left has always managed to embrace, and being a party of protection.

If he is dumb, Miliband may be tempted to do what the Tories would love him to do and promise to clamp down directly, almost certainly ineffectively and in all probability with unintended consequences, on morally indefensible excessive pay and bonuses. If he is smart, he will use the bully pulpit, as he did on Tuesday, at least as much as the tax system to encourage the better capitalism, and the better companies, to which he aspires.

The idea that there might be a workforce representative on remuneration committees caused outrage in the rightwing press this week, but it ought to be just the start, not to an expanded role for the unions, but for well-argued and flexible new models of workplace co-determination of the kind that have done so much for German companies.

The best news for Labour I heard in Liverpool is that Andrew Adonis is planning to focus on new thinking about industrial policy, a subject riddled with old ideas, especially in the unions, but which is crucial to any long-term reimagining of the UK economy. It does not follow that the left's traditional state-centred responses are the new centre ground just because people are outraged by the bankers and by indefensible wealth.

The experience of the last three years suggests public opinion has moved to the view that government deficits are part of the problem, rather than the solution. Thursday's vote in Germany and this week's budget in France were the latest reminders of that. Labour was canny about the economy this week: Ed Balls got the balance right in his speech. But parties of the left are losing ground across the world right now and Labour shouldn't imagine there is a magic moral bullet that will enable it to buck that trend.

Labour's move to the left can be, and has already been, exaggerated – by friend and foe alike. Yet it has been a significant declaration by the party nonetheless. The coalition parties will undoubtedly respond, and not merely with abuse and caricature. Expect surprise moves that try to undermine Labour claims to ethical uniqueness.

Electorally, the danger for Labour is that the party will have convinced itself that it has rediscovered its own sense of ethical virtue without persuading sceptical voters that it can run the economy. The party may be more at ease with itself but less relevant than ever. Miliband may want to see himself as the new Clem Attlee. But his ratings suggest that the voters still see him as the new George Lansbury – an unworldly leader and an electoral failure.

Thursday, 29 September 2011

Wrongful Arrest Robbed Me Of Chance To Grieve For 3-Year-Old Son, Says Mum

A grieving mother has told of her agony when she was wrongly arrested on suspicion of murder after her three-year-old son died of a chest infection.

Alfie died of a chest infection aged three.

Abby Podmore says she was robbed of the chance to say goodbye.

Abby Podmore described how her ‘horrifying’ ordeal had robbed her of the chance to grieve for Alfie, who passed away in his sleep.

An investigation has now been launched by the Independent Police Complaints Committee.

The 20-year-old dental nurse has also received an apology from the hospital which mistakenly sent Alfie home after failing to spot the serious lung infection that killed him.

Ms Podmore told an inquest: ‘I couldn’t believe what was happening – my son had just died and I was being treated like a criminal. Looking back, I feel like I was robbed of a chance to say goodbye to Alfie.

‘I wanted to be with his body, just wanted to be with him.’

The boy was taken ill at nursery on February 2 and seen at Birmingham Children’s Hospital the following day but was discharged after medics said he was only suffering from a gastric virus.

They prescribed antacid medication rather than antibiotics that might have saved him from an ‘aggressive’ bacterial infection of pneumonia.

Alfie died at home on February 6 despite his mother’s attempts to revive him.

But when an ambulance arrived, it was joined by 15 police officers in two riot vans to detain Ms Podmore and her partner.

At Birmingham coroners’ court, Judge Aidan Cotter condemned police for the way in which they showed ‘no compassion’ and that, in her shoes, he ‘probably would have gone round and thumped a police officer’.

Det Insp Moira Blackburn said police arrested Ms Podmore after a neighbour falsely claimed the mother and her partner had been heard arguing.

Recording a narrative verdict, Mr Cotter said Alfie died as a result of failings by the hospital – and that doctors had made a clinical misjudgment.

Hospital bosses accepted liability and apologised to Ms Podmore, insisting lessons had been learnt.

Friday, 23 September 2011

Planning Reforms: Greg Clark Admits Changes 'Could Have Been Clearer'

Greg Clark has admitted that there are flaws in the Government’s controversial proposals to reform the planning system.

Greg Clark MP, planning minister, signalled there would be changes to the National Planning Policy Framework.

In the first public debate since Prime Minister David Cameron intervened in the row earlier this week, the planning minister said that some of the proposals on brownfield land, housing targets and "sustainable development" could have been clearer.

The comments provide clues to how ministers are likely to amend the controversial National draft Planning Policy Framework, which has attracted fierce criticism from countryside campaigners, after a consultation closes in the middle of next month.

Mr Clark told a seminar at a London law firm organised by the British Property Federation that it was difficult to express the Government's intentions at the same time as reducing bureaucracy.

He said: “When you distil more than 1,000 pages to around 50 ... Inevitably it is the case not every thing is expressed in the clearest way possible but that does not signal malign intent or an intention to subvert the process."

Protesters have accused the Government of trying to rip up the planning system by removing protections for the countryside in favour of development.

Mr Clark strongly denied this suggestion and said that the Government was willing to listen to critics. He said: “This is a genuine consultation. It does not imply any agenda of the Government to change the nature of planning.”

Afterwards, Mr Clark told The Daily Telegraph: “Any consultation wants to make sure that everything are expressed more clearly. My view is that these safeguards are there and are clear to all, but if people think they are not we will respond to them.”

Mr Clark is pushing through plans to replace 1,300 pages of planning regulations in England with just 52 pages in the new NPPF.

The framework writes into the rules a new “presumption in favour of sustainable development”, without defining clearly what it means, leading campaigners to fear that large areas of England will be concreted over.

Mr Clark added: "The intention of the presumption in favour of sustainable development is not to provide a loophole where alien developments will be imposed on the community rather the NPPF wants to replicate the kind of policies a reasonable local authority would put in place."

Campaigners, led by the National Trust, have suggested the Government has tried to change the planning system so that it is biased in favour of promoting growth, rather than the environment.

The Daily Telegraph is also running a campaign called Hands Off Our Land urging the Government to reconsider its plans.

There was a breakthrough this week when Mr Cameron personally assured the Trust in a letter to its director general Dame Fiona Reynolds that the environmental benefits of developments would be assessed before new projects were given permission.

Mr Clark hinted at some of the clarifications that he was planning as part of the Government’s response to the consultation, which ends on Oct 17.

He suggested that a presumption to build on previously developed areas or “brownfield” sites, which is in current rules, would be written back into the guidance.

He said: “It was never my intention, and it certainly was not the Government’s intention, to depart from the obviously desirable situation in which derelict land should be brought back into use. That is always the intention.”

“If not mentioning brownfield at all leads people to conclude there is a different intention, then without pre-empting the consultation, that is something that I am hearing being said.”

Mr Clark also said he had been misunderstood over targets for local authorities to provide 20 per cent more land for building.

He said that this does not necessarily mean that more houses will be built, but simply that more options for development are made available. The intention was “not to have more homes built than the locality needs”, he said.

Mr Clark added: “Not every site that is earmarked for development turns out in practice to be developable. Problems arise. So you always need to have something of a buffer to make sure that the number you plan for is developable.”

He also admitted the “presumption in favour of sustainable development” was open to interpretation and needed further work.

He said: “I think the presumption in favour of sustainable development requires sustainability to be there, to be guaranteed but we will listen (to the consultation).”

Campaigners welcomed the softening in tone in the minister’s comments. Shaun Spiers, chief executive of the Campaign to Protect Rural England, said: “Mr Clark was acknowledging that there are clearly huge parts that can be improved. It helps the tone of the debate and it has good to feel that the minister is listening.”

Dame Fiona Reynolds, director general of the National Trust, told the meeting that she had been "horrified by the draft" because the document focused on promoting the economy over environmental concerns.

She added: "It’s good to hear Greg Clark's confirmation of the goal of balance and his warm words about genuine consultation. I now look forward to seeing amendments to the draft NPPF which deliver balance - this is what's now needed.”

Students End Stage Sit-In Over Fees

A group of students protesting against Scotland's leading arts academy's decision to charge fees of £9,000 to students from England, Wales and Northern Ireland ended their sit-in this afternoon.

A spokeswoman for the group said it was "neither practical nor effective" to stay in the foyer of the Royal Conservatoire of Scotland overnight.

Around 30 students started occupying the building at around 11.30 this morning.

They said the protest was part of a rolling programme of "wildcat" occupations over Scottish universities' plans to charge fees to students from the rest of the UK (RUK).

The RCS, which recently changed its name from the Royal Scottish Academy of Music and Drama, is to charge students from elsewhere in the UK £36,000 for four-year degree courses and £27,000 for three-year courses from 2012/13.

The Glasgow-based institution has said the charge reflects the exceptionally high cost of programme delivery in conservatoires, which substantially exceeds the £9,000 fee.

The sit-in at the conservatoire ended shortly after 3pm.

A spokeswoman for the protesters said: "By facilitating fee increases for RUK students the RCS is setting a dangerous precedent in Scotland.

"Despite promises from the SNP Government that Scottish students will not pay fees, we believe that the huge disparity in fees between Scottish and RUK students will become intolerable and will inevitably result in fees for all students.

"Whatever tokenistic measures are introduced, a financial market in education will always result in discrimination against those unable to afford fees, whatever the level.

"Education is a right, and must be free, as it was for generations.

"The Conservatoire's Student Union has abandoned its responsibilities by backing the decision by management."

Robert Gordon University (RGU) in Aberdeen and the Scottish Agricultural College (SAC) also made announcements on fees for RUK students today.

RGU adopted a "tiered approach", with three bands of undergraduate fees.

Business, management and social science courses will cost £5,000 a year, fees for art and design, architecture and built environment, computing, engineering, health and science courses will be set at £6,750 a year, while the master of pharmacy course will be the most expensive at £8,500 a year.

The Scottish Agricultural College (SAC) said fees for RUK students would be £27,000 for a four-year degree, with fees set at £6,750 a year.

The announcements came after St Andrews and Edinburgh universities set fees at the maximum level of £9,000 per year for students from the rest of the UK, meaning that a four-year honours degree at the universities will cost £36,000.

Aberdeen and Heriot-Watt universities also announced £9,000 yearly fees, although both have capped the cost of a degree at £27,000.

Glasgow School of Art also capped fees at £27,000 for a four-year course.

Currently, no full-time undergraduates domiciled in Scotland pay tuition fees at Scottish universities.

The conservatoire said the fee its board of governors has agreed is exactly the same as that charged by comparable conservatoires in England which offer four-year undergraduate degree courses in music and three-year undergraduate degree courses in drama and dance.

The conservatoire, whose alumni include James McAvoy, Robert Carlyle, Billy Boyd and Tom Conti, already operates an extensive scholarship programme.

It said that from 2012/13 it will introduce additional scholarships, which will be means-tested, for new undergraduate students from the rest of the UK to partly offset the introduction of increased tuition fees for that group of students.

Scholarships of £3,000 a year will be available for students from a household whose income is less than £25,000 per annum.

The RCS was not immediately available for comment.

What Ed Miliband Should Say At Labour Conference, But Won’t

It is now beyond question that Ed Miliband is moving his party to the left, or redefining the centre ground if you prefer, or drawing a line under the New Labour era. Or whatever.

The latest symbolic move has been to back Palestinian statehood in advance of a vote at the UN. This is a peculiar decision that makes no real sense before knowing what the Palestinians are putting on the table, except to send a strong message to the party faithful that Ed Miliband is shifting policy on the Middle East. This line on Israel/Palestine is one that Tony Blair and Gordon Brown would never have countenanced and that is the whole point.

Ed Miliband is determined to ditch the legacy of the Blair-Brown era (which is odd considering that he is its creature) and I can’t help thinking this is a terrible strategic error.

The opposition is hamstrung by the fact that it still hasn’t found the right language to take on the government. Miliband has squeezed himself into a tiny ideological sliver, where he can’t move any further to the left for fear of inviting ridicule, but can’t entirely embrace the achievements of the Blair-Brown years either.

In welfare to work, education and health, the Cameroons are engaged in implementing the Blairite reform agenda. The logic of Ed Miliband in the new post-New Labour era should make it possible to oppose this from the Left. But there are still too many Blairites around him to quite pull this off. With Liam Byrne in charge of the policy review it will be impossible to dump the New Labour policy agenda in its entirety.

Instead of trying to persuade people that Cameron is a Thatcherite in disguise, Labour should concentrate on questioning the Tories’ competence in government. Ed Miliband’s conference speech should recognise that all the most adventurous ideas of the new government are stolen from New Labour and give them a cautious welcome. He should then say that the job of opposition is to forensically examine the government’s record on delivery and stand back.

He won’t do this, of course, because to embrace the Blairite legacy would mean immediate death within the party.

David Cameron: 'Recovery Out Of Recession Will Be Difficult'

Prime Minister David Cameron has warned that the recovery from the recession will be ''difficult'' as shares continue to fall and investors worry about the global economic outlook.

Addressing the Canadian parliament in Ottawa, Mr Cameron said the economy was still suffering from the economic collapse of 2008.

Finance ministers and central bankers from the G20 group of countries have promised a "strong and co-ordinated response" to the problem.

Thursday, 22 September 2011

Lid Dem Conference: Portait Of A Party In Denial

Facing disastrous polls, stuck with an unpopular leader and short of star names, the Lib Dems should be panicking at their conference. So why does it feel like a holiday camp?

Nick Clegg on stage at the party conference.

Arriving at the Liberal Democrat conference at Birmingham's ICC on Monday, I'm confronted with a strange, becalmed atmosphere. At first I think everyone present is still in a state of shock, reeling from the double-pronged assault on the senses presented over the weekend by Hugh Grant's appearance and the minister of state for children and families' attempt at standup comedy, but it appears to be something else, a sort of blithe cheeriness.

I've never been to a party conference before and I've come expecting dissent. But apparently I've missed the boat: I should have been at the spring conference in Sheffield, when there were "a lot of angry people inside the conference and out", the latter group including 4,000 people marching in protest at the cuts. Now, the delegates at least are all pacified, convinced that a corner has been turned, that a line has been drawn under the tuition fees debacle, that public anger at the cuts is due to subside. The spirit of the party who in 1981 leapt to their feet, fleetingly convinced by David Steel's line about going home to their constituencies and preparing for government, is very much abroad.

The moment when a lone voice shouts: "Rubbish!" as Danny Alexander suggests Gordon Brown spent too much money turns out to be a dizzying pinnacle of insurrectionary excitement that the conference will never scale again. It's all glossy optimism, and woe betide anyone who attempts to suggest that said glossy optimism might be bordering on the delusional. A man from the BBC quotes a few poll figures at a Guardian Q&A panel, but no one wants to know. Someone bellows: "Did Miliband send you?" A woman seated behind me starts pretending to snore. "You're a miserable sod," snaps Lynne Featherstone, the equalities minister. Everyone cheers. The BBC man leaves.

My own search for dissent is equally fruitless. You would think that somewhere within the ICC lurked hand-wringing angst at the ongoing state of affairs, desperate to unburden itself to a representative of the press, but if it's there, I can't find it. I try Liberal Youth, surely at the sharp end of public displeasure thanks to the the spectre of tuition fees, something they continue to oppose. Nothing but visions of a bright future, in which Britain suddenly wakes up to the brakes put on Tory policy by the presence of the Lib Dems in the coalition and flocks to their bonded side.

So I try the people who look like party traditionalists, who are substantially easier to spot than some reports have suggested. One idea posited in the papers is that the very fabric of the party has changed, that the traditional beards-and-sandals Lib Dems have been displaced by the hard-nosed political operators in Heston Blumenthal specs. If you wanted to prove it, you could certainly get a shot of the delegates that doesn't feature anyone who looks like a Daily Telegraph cartoonist's idea of what a Lib Dems looks like, but you couldn't take it with a wide-angle lens, and you might have to crop it in Photoshop later. They're everywhere, the beards ranging from 50s jazz enthusiast to competitor in The Great Egg Race. Perhaps somewhere behind them lurks the simmering discontent conspicuous by its absence elsewhere. Perhaps not. They clearly like power – "before, you'd debate a policy at conference and think, well, the absolute best that's going to happen is that another party's going to nick that idea," offers one local councillor – and its trappings, or at least some of them. "There are a lot more lobbyists around conference these days," shudders one delegate, principles being something that are noticeably easier to keep when no one's interested in buying them. But for most part, even the lobbyists' baleful presence seems to be cancelled out by the positives, high among which ranks the preponderance of TV cameras and microphones. You can't walk far without overhearing someone expressing astonished delight at being canvassed for their opinions by the media: "I've been waylaid by Anglia TV!" cries one elderly gentleman.

The mood even seems to surprise Nick Clegg. "Heavens! What docility!" he says during a Q&A on Monday afternoon. "It's like a North Korean party conference." One theory is that it's all evidence of the redoubtable Lib Dem character, forged in endless adversity. You hear a lot about the time under Paddy Ashdown when Lib Dems were represented by an asterisk in the opinion polls: after taking into account the 3% margin of error, they were unable to say that the party had any discernible support at all. However bad the polls get, they've seen worse, even when the polls strongly suggest they haven't. Another is that they realise power is a temporary blip in a life of opposition and they're trying their best to relish it, which necessarily involves ignoring what's going to happen in three-and-a-half years' time.

The most prosaic answer is that a lot of delegates seem to view the conference as a kind of holiday. Like holidaymakers who've paid a lot of money to get away from it all – "more than £1,000, less than £2,000", suggests one delegate when I ask him how much it's cost him to be here; "more than a week in the south of France", offers another – they don't really care to be reminded of what's going on back home. "Do I wish that there was more robust debate?" frowns one local councillor. "No. I get enough of that on the doorstep."

And, if you wanted to relax, there are worse places to come than the Lib Dem conference, where it's frequently hard not to be lulled into a torpor by what's going on onstage. Part of the problem is that the Lib Dems are evidently in desperately short supply of stars. On Monday night, Vince Cable is booked to speak at three fringe meetings at exactly the same time. Outside, a jovial Brummie police officer approaches a gaggle of press photographers, apparently baffled at how they prosecute their business: "Have you lot got a Who's Who or something? I haven't got a clue who any of them are." His theory seems to be borne out when you visit the Liberal Image stall, where a Lib Dem hi-visibility jacket – something a cautious man might think twice about wearing in public – will set you back £14.50. There's a selection of badges available featuring the faces of the party's MPs: they seem to be doing a brisk trade in Welsh Lib Dem leader Kirsty Williams – "we've sold about 12" – but you'd defy anyone other than a party wonk to recognise most of the others.

But the real problem is that what stars they have are hopeless at public speaking. It's hard not to feel that party president Tim Farron's rise is predicated on possessing an identifiable personality, something almost everyone else who gets in front of a microphone seems to have been surgically deprived of. You can mock Nick Clegg's closing speech all you like, but it's like Alexander the Great's address at the battle of Issus next to the orations of Chris Huhne, a man who sounds like he's reading out the building's fire regulations even when he's quoting John Donne (he gives a speech quoting John Donne for the specific purpose of proving this). He gets a standing ovation at the end of it, which makes you marvel afresh at the dogged resilience of your average Lib Dem delegate. They're determined to be roused regardless of whether what's on offer is rousing or lethal.

Given the climate, you start to find yourself baffled as to why Sarah Teather's standup routine went down so badly. In fairness, her awful jokes were no more awful than anyone else's, and everybody else's seem to be greeted with widespread hysteria. Vince Cable tells one about bankers having their pants around their ankles, "showing us their assets – if they've got any". A woman two rows in front of me nearly dies laughing. Perhaps what Teather should have done was mention the bankers, which it quickly becomes apparent is the Lib Dem politician's equivalent of Peter Kaye saying "GARLIC BREAD?": no matter how many times you hear it, it always seems to get a round of applause.

The reliable arrival of banker gags aside nothing really seems to be happening. Journalists looking for something to report are reduced to making headlines out of the fact that Huhne is sorry about the effect that his affair had on his wife. But even at a Lib Dem conference where nothing appears to be happening, there's always the Glee Club, the ritual last night of conference knees-up. It's existence is – at last! – a matter of some controversy within the party. There are those who think it's part of a rich, glorious and idiosyncratic tribal tradition. There are those who clearly view its existence with profound embarrassment: "Lembit often MCs," says one local councillor, darkly. To the impartial observer, however, it simply represents an opportunity to have your mind repeatedly blown: if you thought the general air of positivity at the conference was a bit unreal, then the Glee Club is on hand to teach you that "unreal" is very much a relative concept. You don't even have to go to get the effect of being subject to an intense hallucinogenic experience. You just have to pick up the songbook, which is the best £3.50 you could spend at the Lib Dem conference, Liberal Image's enticing selection of badges featuring MPs notwithstanding.

For some reason, I'd expected it to largely consist of 19th-century political songs: The Land, stirring stuff about free trade and Gladstone. They're certainly present, but they're pretty much dealt with by page six. It's what's in the remaining 52 pages that knocks you sideways, not least when you get to the song about the coalition set to the tune of Making Your Mind Up by Bucks Fizz: "You gotta Lib it up and then you gotta Con it down, coz if you believe that our coalition can hit the top you've gotta play around."

By the time I arrive, Lembit Opik is very much in evidence, playing his mouth organ to a less dismayed reaction than you might expect. Some Welsh delegates favour the room with a rendition of Cwn Rhondda: if nothing else, it permanently punctures the myth of Wales as the land of song. Paddy Ashdown does a little standup routine. Tim Farron takes the stage and performs a comical version of That's Not My Name by the Ting Tings: "They call me Shirley, but I'm not a girlie." There has been some discussion at conference about the necessity for the Liberal Democrats to convince the British public that they're different from the other parties. If all else fails, they could always show them this. In the corner, a lobbyist looks on, wearing the kind of frozen, aghast expression that makes me think of the first-night audience at Springtime for Hitler in The Producers.

The next day, at a fringe meeting just before Nick Clegg's speech, the guy from Ipsos Mori lets them have it with both barrels. His Powerpoint presentation opens with a slide reading HOW DEEP IS THE HOLE?, but not all of it is as upbeat as that: if his news was any worse, he'd be wreathed in smoke and glowing green. Fifty-eight per cent of people who voted Liberal Democrat at the last election wouldn't again. A quarter of former supporters have swung to Labour. The Lib Dem voters that are left admire Margaret Thatcher. And, for the benefit of anyone who tends to the view that they've had worse, Nick Clegg is the least popular Lib Dem leader ever, beating a record David Steel has held since 1988 by 4%.

On and on it goes, until you wonder what Clegg can possibly say to lift their spirits – what price a new summer schools initiative and a few swings at Labour against the news that more than half your voters have deserted? – but they go bananas. Afterwards, I see one of the Liberal Youth activists, who's eager to tell me how encouraged he feels. The councillor who had more than enough robust debate on the doorstep is bucked, ready to face as much robust debate as the world can throw at her. Off they go, boundless optimism and Lembit's harmonica ringing in their ears.

Let’s Get A Tighter Grip On Defence Spending

Britain’s performance on defence procurement is poor – it’s time to make those responsible face the consequences.

Equipped to do the job: British armoured forces in action in Afghanistan.

The history of defence procurement is not a happy one. Ensuring that our Armed Forces get the best possible equipment they need, when they need it, is easier said than done. Today, Labour will publish the findings of a comprehensive 10-month study into defence acquisition policy that will inform a wholesale review of party policy launched by Ed Miliband last year. There are few benefits of being in opposition, but being able to take a step back and reflect is one.

Labour can be proud of the fact that we increased the defence budget by 10 per cent in real terms during our years in power. Defence procurement was reformed and equipment, from drones to personal kit, was transformed – so much so that, by 2009, the last chief of the defence staff, Air Chief Marshal Sir Jock Stirrup, remarked that our troops had never been so well equipped. The welfare of our forces, and crucially that of their families, was also improved.

But defence procurement is a complex and challenging activity. The lead times are enormous and technology changes So what is to be done? It is often said that there is a “conspiracy of optimism” in defence procurement. At best, there is a tendency to muddle through in the hope that both the customer and supplier “get there in the end”. At worst, defence procurement has been based on unrealistic assumptions and over-ambitious plans that balloon beyond all recognition, along with the costs. This conspiracy of optimism has to be replaced by a culture of consequences.

This must apply to the defence industry. In the past, the taxpayer has been left carrying the can for some of its lamentable failings, with some suppliers seeing the UK government as little more than a cash cow. Too many times, once a company or consortia has been awarded a contract, the price begins to ramp up.

First, we need firmer and fairer contracts that incentivise good performance, with industry asked to provide higher warranties for performance. There should be far greater penalties for those that fail to deliver on time and on cost, and the MoD should not be afraid of taking companies back to the initial approval stage, or indeed calling time on contracts that are simply not working. Experience should triumph over hope.

Second, in the case of de facto and actual monopoly suppliers to the MoD, there should be what is known as “open book” contracting once a contract is let. This means far greater transparency of costs and profits in a long-term partnering approach. Within such an approach, there should be not just an agreed price but an agreed target level of profit, too. If the MoD’s requirements change due to operational imperatives – where, say, our Armed Forces need something extra on top of the original specifications – industry must not be allowed to cash in and make super-normal profits on the change in price.

And third, we need shorter, less complex projects with streamlined processes and decision-making. In defence procurement, time is money.

But we also need that same culture of consequences inside the MoD. In the commercial world, promotion and bonuses are based on performance. But in the MoD, there is little sense that poorer performing individuals in very senior roles are ever held accountable. The people leading Integrated Project Teams (IPTs), who manage major procurement programmes, should have the authority, accountability and responsibility for project execution. Currently, they are given as little as four or five days’ training and tend to come from either the Civil Service or from the military – this does not always make them best able to manage hugely challenging commercial contracts.

These problems are compounded by the frequent changes in project managers. The norm in the MoD is to move jobs every two years. This leads to constant changes of strategy and emphasis, which are not helpful and avoid the need for managers to live with the consequences of their actions.

This autumn, the Government will publish its White Paper on the defence industry, but all the signs are that it will have little to say except – as is the case with the Bombardier contract for new trains – that we should give up at home and simply “buy off the shelf” from abroad. Today, Labour will present a host of ideas to reform defence procurement. But in beginning to shape policy for the future, all parties need to be honest about the past and learn from their mistakes.

Michael Dugher MP is shadow minister for defence equipment rapidly, as do our requirements, with the enemy having a say in all of this. And despite all the investment and improvements, we made mistakes. The problems of defence procurement have plagued all governments, but the huge delays and massive cost overruns continued on our watch.

That is why Labour in government commissioned the Gray Report in 2009 to identify the serious failures in acquisition. The current Government liked the report so much that it hired the author, Bernard Gray, to head up defence equipment and support at the Ministry of Defence.

The fact is Britain’s record is poor. Over the period for which there is consistent data (2003-2010), major projects costing the taxpayer in excess of £200 million, and those that were planned to take four to five years between “Main Gate” decision and entry into service, exceeded their most likely out-turn estimate of costs by more than 10 per cent on average – with extremes of up to 40 per cent. These programmes also slipped by 40-50 per cent – some by as much as 250 per cent – from their expected schedule.

So what is to be done? It is often said that there is a “conspiracy of optimism” in defence procurement. At best, there is a tendency to muddle through in the hope that both the customer and supplier “get there in the end”. At worst, defence procurement has been based on unrealistic assumptions and over-ambitious plans that balloon beyond all recognition, along with the costs. This conspiracy of optimism has to be replaced by a culture of consequences.

This must apply to the defence industry. In the past, the taxpayer has been left carrying the can for some of its lamentable failings, with some suppliers seeing the UK government as little more than a cash cow. Too many times, once a company or consortia has been awarded a contract, the price begins to ramp up.

First, we need firmer and fairer contracts that incentivise good performance, with industry asked to provide higher warranties for performance. There should be far greater penalties for those that fail to deliver on time and on cost, and the MoD should not be afraid of taking companies back to the initial approval stage, or indeed calling time on contracts that are simply not working. Experience should triumph over hope.

Second, in the case of de facto and actual monopoly suppliers to the MoD, there should be what is known as “open book” contracting once a contract is let. This means far greater transparency of costs and profits in a long-term partnering approach. Within such an approach, there should be not just an agreed price but an agreed target level of profit, too. If the MoD’s requirements change due to operational imperatives – where, say, our Armed Forces need something extra on top of the original specifications – industry must not be allowed to cash in and make super-normal profits on the change in price.

And third, we need shorter, less complex projects with streamlined processes and decision-making. In defence procurement, time is money.

But we also need that same culture of consequences inside the MoD. In the commercial world, promotion and bonuses are based on performance. But in the MoD, there is little sense that poorer performing individuals in very senior roles are ever held accountable. The people leading Integrated Project Teams (IPTs), who manage major procurement programmes, should have the authority, accountability and responsibility for project execution. Currently, they are given as little as four or five days’ training and tend to come from either the Civil Service or from the military – this does not always make them best able to manage hugely challenging commercial contracts.

These problems are compounded by the frequent changes in project managers. The norm in the MoD is to move jobs every two years. This leads to constant changes of strategy and emphasis, which are not helpful and avoid the need for managers to live with the consequences of their actions.

This autumn, the Government will publish its White Paper on the defence industry, but all the signs are that it will have little to say except – as is the case with the Bombardier contract for new trains – that we should give up at home and simply “buy off the shelf” from abroad. Today, Labour will present a host of ideas to reform defence procurement. But in beginning to shape policy for the future, all parties need to be honest about the past and learn from their mistakes.

Michael Dugher MP is shadow minister for defence equipment.