ja_mageia

Commons to vote on electoral reform

You've really got to hand it to Gordon Brown. After nearly 13 years in government, and just a few weeks left until a general election he looks set to lose, he's suddenly decided we need to change Britain's electoral system. And yet he chooses to champion a reform that (a) won't win him any more seats, (b) won't persuade the Lib Dems to go into coalition with him, and (c) will do precisely nothing to 'restore trust in politics'. Indeed, by forcing politicians to stick even more closely to the centre ground than before, the alternative vote's main effect would be to empower the party machines and give people even less reason to care about who represents them.

MPs say the banks aren't lending enough

But why do we want bank lending to return to pre-crunch levels? Don't we all agree that that was an unsustainable credit boom, and that Britain has far too much debt as it is? Indeed, McKinsey say we are now the second most indebted industrial nation in the world – turning Japanese, if you like. And of course, isn't it funny how the government always forgets that it is discouraging lending by forcing the banks to increase their capital ratios by buying up lots of government bonds? They really can't have it both ways. Speaking of debt...

Stiglitz says keep on spending

But what does all this 'stimulus' actually achieve? The money has to come from somewhere, and whether it's taxes or government borrowing, that's cash that's being taken out of the productive private sector to fuel the unsustainable growth of a parasitic public sector. That may appear to boost 'growth' in the short term (hardly surprising when government spending is included in GDP stats) but in the long term it will land us with higher taxes, a sclerotic, imbalanced economy, and lower living standards.

The Conservatives' fall in the polls continues

I wonder if anyone at Conservative Headquarters has noticed that their decline in popularity has coincided with David Cameron's declaration that he wouldn't cut spending right away after all, thus leaving people with no real reason to vote for him? Let's face it: unless you are a corrupt African politician or an overpaid NHS bureaucrat, it really is becoming quite difficult to answer the question "what would the Tories do for me?"

And in other news...

Harriet Harman looks set to be nominated for The Sun's prestigious 'rear of the year' award. Well, she certainly has my vote – I'm just desperate to see the back of her.

The government has struck a clear line on the economy heading into the election, vowing that it will be the party to guide Britain tenderly through the steps of recovery, nurturing new jobs and fostering enterprise. Nothing could be further from the truth.

In contrast to this rhetoric, the latest research from the British Chambers of Commerce shows that proposed employment legislation would cost businesses £25.6bn in new taxes and regulations if they are but into effect. ‘Employment legislation: holding back recovery?’ is a timeline that breaks down the plethora of the costs of proposed regulations between 2010 and 2014. Amazingly, these estimates are lifted straight from the government’s own Impact Assessments, so in all likelihood the unintended financial consequences would prove to be even higher.

What is interesting is that only two of the new proposals will be EU legislation; sixteen will be coming directly from the UK government. While the EU-enforced Agency Workers Directive is set to cost business nearly 1.5bn a year, the rise in NI contributions will cost a staggering 4.7bn a year, and the Pensions Reforms in 2010 4.8bn. None of these regulations are even attempts to make British firms more productive, competitive or attractive; not a good idea and at a time when the private sector doesn't need it.

This £25bn won't even be reaching the treasury to fix the gaping hole in our nation’s finances. Much of the estimated cost represents lost opportunities, such as the closing down of a venture and the decision not to expand or start one up to begin with. Given the colossal national debt, the government shouldn’t be wasting our money dreaming up wasteful Keynesian initiatives and adding ever more regulation to an already fragile economy.

At the World Economic Forum in Davos recently, Lord Mandleson of The 32-Word Title criticised Tory leader David Cameron for 'talking down Britain'. Well, it's hard to talk up Britain when you see what a pickle Lord M and his colleagues have got us into. The huge, debt- fuelled, public-spending-powered boom inevitably had to end in bust, and it did. Both households and the government found themselves broke and overstretched.

Private households have done the right thing – cutting back on their spending and reducing their debt. The government, of course, keeps adding to its debt stockpile. This year alone it will increase its debt by an amount equal to £3,000 for every man, woman, child and infant in Britain, and it plans to do exactly the same again this year. Like the government, many households have found themselves unable to make ends meet, but do not have the same happy option of forcing taxpayers to bail them out. Last year there were 134,000 personal insolvencies in England & Wales, up a quarter on 2008. The more insolvencies there are, the more suppliers there are whose bills don't get paid, and the more loans and credit-card debts have to be written off by the banks. Really, it is bad business all round.

It means, of course, that potential investors have become more wary too. They are demanding bigger returns and higher interest to cushion them against the threat of their borrowers not being able to pay them back. Indeed, some investors even worry that the UK government might not be able to pay its debts. The markets have the jitters about Greece, and indeed Portugal. Britain of course has the benefit of not being in the Euro, and its falling exchange rate has at least kept its export trade alive. When trade is down all over the Western world though, the boost we get from that is limited. Yes, it's hard to talk up Britain, and it will remain so, until politicians realise that they have to do what households are already doing – cut their spending and their borrowing, and balance their budget, fast.

Dr Butler's new book The Alternative Manifesto (Gibson Square Books) is out now.

Getting the wrong end of the stick would seem to be the correct answer. In his column in the New York Times, Thomas "Airmiles" Friedman, tells us that:

Banks, multinationals and hedge funds often hire foreign policy experts to do “political risk analysis” before they invest in places like, say, Kazakhstan or Argentina. They may soon have to add the United States to their watch lists.

He then goes on to say that this political risk analysis is all about how inflation might return, the currency crash, competitiveness erode....no Tom, that's not political risk, that's economic risk. Political risk is something entirely different.

Say, you invest in an oil and gas project in the Far East of Siberia, billions upon billion of dollars worth, and when you've started to pump out the fuels which will pay for it all then the government comes along and changes the rules on you. As happened to Shell on Sakhalin. Or similarly to BP with TNK. You sink hundreds of millions into a copper mining project having agreed the royalties you will pay and then when you've spent the money, when you're committed, the government decides to tear up the contract and impose higher royalties. As recently happened in Zambia. Or you spend $80 million prospecting for gold and are then told you can't lift it for "environmental reasons"....and when you try to claim back your $80 million under the original contract the government reneges. As is happening in El Salvador now.

That's political risk: that politicians will abrogate the rule of law, will violate the contracts they themselves signed.

As to why people might add the US to lists where they have to worry about such things how about this?

In 1995, when oil prices were very low, Congress tried to encourage deep-water drilling in the Gulf of Mexico by giving oil companies relief from some of the royalties they incur for producing oil and gas on public land.......Representative Edward Markey of Massachusetts hopes to put things right with a bill that would clarify the law and prevent companies from signing new leases in the gulf until they renegotiate the old ones and pay royalties that are due.

Now that BP has spent those billions and found oil 6 miles deep the politicians have them over a barrel (umm, sorry) and wish to renege on the deal. Or in our own sweet England, where we invented the very concept of the rule of law:

In an extraordinary ultimatum that has shocked some of the City's biggest companies, the Financial Services Authority (FSA) told bank bosses that 60pc of all pay must be deferred, with no exceptions, even for those whose contracts conflicting with the edict.

We're not even bothering with Parliament, just allowing a bureaucrat to provide that political risk.

Why might people be considering the political risk of investing in the US or the UK? Because the politicians in both countries have recently shown that political risk is something that has to be considered in those countries. The result being that just like every other country where there are such risks incoming investment will be lower and thus the people poorer.

First is the tendency of idealists to confuse their own ideal world with their opponents' real one. They are driven to socialism by iniquities of the real world, like the huge wealth of the Duke of Westminster, the existence of monopolies, unemployment, and wasted resources like boarded-up houses. But you can't blame capitalism for creating these things. The Duke's wealth came from historic privilege, monopolies are bolstered by regulation, and human and physical capital are allowed to go to waste only because competition is not active enough.

Second, I just could not get my socialist friends to understand the knowledge problem. They need to read their Hayek. There are millions of production possibilities and millions of ways of producing. Capitalism is a daily referendum on what should be produced: people 'vote' with their cash for the goods and services they prefer – encouraging entrepreneurs to produce more of them. In agrarian societies, the production possibilities are limited, and in small groups, sharing is easily managed. In a technologically advanced world of endless innovation and six billion people, knowing what to produce and how to produce it leaves socialists with a real problem. There will be disagreements: so there will have to be power, and coercion, to resolve them.

Third, while we share many of the same ideals, I think the prospect of personal gain is a more powerful driver of co-operation than the idea of the general good. In exchange, both sides benefit – or they would not do it. We only gain personally if we can make someone else better off too. Exchange, though motivated by self-regard, spreads benefit far and fast across the planet. It encourages people to build up and look after their productive resources, allowing goods and services to be produced ever more cost-effectively. It works, even despite the best efforts of politicians to divert it for their own ends. Plumbers get up at three in the morning to fix people's blocked drains because they get a direct personal benefit from doing it. Would they get up at three out of the goodness of their hearts?

And yes, it's stupidity about climate change again. Last week the Government released the subsidies that will be paid on feed in tariffs. The basic idea isn't silly at all. If people are going to use various forms of microgeneration then it does make (some) sense that they should be able to sell this to the grid. Storage technology for electricity is woefully inadequate, after all, so if some is generated it should be used.

It's also not silly that this price be higher than that for more conventionally generated electricity. Not entirely silly, at least: if we are trying to subsidise R&D into these new methods then there might be better ways of doing it and there might not, but the idea of a subsidy through price supports is not entirely insane.

The next step though can fairly be considered to be insane: for we've our old enemy government picking losers again. For they're offering different subsidies for each different form of microgeneration. And they've decided to calculate such subsidies so as to provide a guaranteed return on investment for each different type:

The tariff levels for the electricity financial incentives (pence), calculated to offer between 5-8% return on initial investment in the technology are:

Aaaargh! No! Our aim is not to subsidise all and every attempt to generate electricity locally. It's to find out which is the best method of generating electricity locally! Thus whatever the subsidy is it should be uniform. So that those who generate at the lowest cost get the highest profit, leading to more installation of this lowest cost method.

For example, if medium scale hydro requires 4.5 p (per whatever unit) of subsidy and solar PV requires 41 p to make a 5-8% return then we absolutely do not want to be doling out 41 p to all those with solar cells. We want people to go build medium scale hydro instead. Perhaps the subsidy should be 4.5 p so that only hydro gets built, or 41p so that those building hydro make huge profits and thus resources flood into the most efficient method of doing this.

But to say to the solar PV folks, yes, we know your technology is wildly useless but here have lots of money anyway, so that resources are ploughed into this wildly useless technology, is simply nonsense.

Is there anything that politicians cannot make worse?

So powerful is Dickens's writing that even historians have come to accept this description as objective fact. But we have to remember that Dickens was a social campaigner as well as a great wordsmith. He used his literary talents to highlight the problems of industrialisation through emotion and exaggeration. Indeed, he was brilliant at it, and his writings did actually change the Victorians' attitudes on issues such as poverty and class inequalities, which most thinking people at the time believed were the immutable condition of humanity and the working out of God's plan.

In fact, though, the factories, for all their ills, represented a step up for the working poor. The alternative was a life of equally long hours and backbreaking physical labour on the land in rain, sleet, snow or baking heat, a life made worse by the certainty of periodic crop failure, starvation and disease. The poor were not forced into urban factories: rather, they knew (in the words of William Barnes's poem) that they could 'make money faster, in the air of darkened towns' and that Linden Lea was not the rural idyll that it was painted. It was, of course, a revolution, an industrial revolution, in which things changed rapidly: with shoddy, functional buildings thrown up with little knowledge or understanding of the social consequences. How could anyone know? But before long, standards improved, hygiene and sanitation became standard, and the wealth generated by the new industries allowed even the poorest to rise out of the 'Dickensian' world.

Home Office remedial action? More of the same. They make no attempt to discover why ASBOs don't work or find a better solution to teenage misbehaviour. Their answer is this regulation which requires a "Mandatory parenting needs assessment." In other words, a council official will turn up at the naughty teenager's home and explain to mum and dad how the local agencies will identify their failings. This should be welcome news in most run down estates, but that is as far as it goes. There is nothing in this regulation on how these needs would be fulfilled once assessed? What happens if, as seems likely, the parents don't want to have their habits changed by the visiting do-gooders?

Being imaginative people, the Home Office considered three options to deal with this unruly teenager problem: do nothing; require parenting needs assessment through "non-statutory guidance"; or make it mandatory for the agency concerned. Apparently this third option is "is the only one that will ensure compliance". The implementation date is after Royal Assent (amazing!) and the Home Office states that the costs and benefits are "unknown". "Parenting assessments should ......theoretically lead to fewer ASBO breaches if parents are better equipped to care for their children." The Home Office suggests that a reduction in ASBOs would be an indicator of success. It might also be an indicator that everyone considers them to be a waste of time. Was this stupid regulation tested in a small part of the country? Of course not. There were no "specific impact tests".

This blog is part of the ongoing series: Daft regulation of the month. The first port of call for any government that is really committed to cutting useless red tape. Click here to find out more.

I think we all know that I'm slightly out of step with many of you: I think climate change is happening and that we ought to do something about it. However, when I watch the politicians stumbling in the dark as they attempt to do something I'm quickly reminded that it's normal for the political process to produce something which is worse than doing nothing.

As Lexington in The Economist notes there's a new suggestion in the US about what to do. Sensibly the idea is to do away with the entirely pork laden and counter-productive measures that have already passed the House and do something more sensible. Instead of cap and subsidise, have cap and dividend. This raises the price of carbon emissions, yes (which is the whole point) but returns the money raised by auctioning them all to consumers in the form of a dividend.

It would be simpler and easier to do this by imposing a carbon tax but that is regarded as a political non-flyer, sadly.

Then we're told about the details. In the trade part of the cap and trade thing (trade being an essential part of a cap and trade system, as the phrase indicates) the legislation would deny most opportunities to trade. More specifically, it would deny speculators from trading the permits (seemingly entirely unaware that speculators both provide liquidity and accept risk): and yet there could still be speculation but it would be pure speculation, without either providing liquidity in the real market nor accepting risk.

Some time ago some of us at the ASI (in our secret underground lair at which we sacrifice socialists and statists to our statues of Adam Himself, Bastiat and Hayek, as you know) were pondering this very point. A properly designed cap and trade system would be the best solution. Then we pondered on the politicians we actually have, rather than those we would like to have, and quickly concluded that a carbon tax would be better, giving less opportunity for said politicans to get it wrong: and in the absence of that perhaps nothing was better than whatever we would get.

Can't say there's been all that much to change that conclusion as yet.

In September, Power2010 asked the public to come forth with the democratic reforms they wanted to see at the next parliament. The response was huge; over 4,000 proposals were put forward. These ideas were whittled down by a representative sample of the population, and any securing above 50% support are now up as a shortlist of proposals on their website. Until 22nd February, you can vote for the changes that mean the most to you. Following this, the 5 most popular demands will form the Power2010 Pledge. This will be taken to all those standing for election, with a request for their own pledge to clear up politics.

There are some great suggestions on the shortlist such as 'Scrap ID cards and roll back the database state', 'English Votes on English Laws' and 'Expand the Freedom of Information Act'. The only way to ensure that the ideas that appeal to you make the final pledge is to vote for them. The campaign has brought about ideas from people across all backgrounds and party ties, and by keeping the suggestions limited to ways of enhancing democracy there is little political bias.

The number of parliamentary candidates that will take up the Power Pledge remains to be seen, but the more that those who care about parliament's health support the campaign, the better. Making it clear to parties where the public stands on civil liberties and transparent government is perhaps one of the best safeguards against the situation disintegrating further.

Click here to find out more.

At first, of course, they were intended to protect us from the power of absolute monarchs. In time, though, Parliament replaced the monarch as sovereign; but these same rules worked equally well at restraining politicians too. Ministers knew that they were only the temporary custodians of the public trust; and that their power was checked and balanced by MPs, the civil service, and the courts.

Indeed, the monarchy itself became one of these balancing institutions. It may seem bizarre in a democracy that the monarch is notionally the head of the government, the church, the peerage and the army; but the reason we keep it that way is not so that monarchs can wield power, but so as to keep unlimited power out of the hands of politicians. For most of the time, our monarchs have had a better grasp of the mood of the people, and of the importance of their rights and freedoms, than have ministers: so this has proved a useful arrangement.

The key constitutional role of monarchs today, then, is to stop politicians from usurping power and turning themselves into an elected dictatorship. But the Queen – perhaps confusing the exercise of this role with political interference – has allowed precisely that to happen. With Magna Carta, the Queen’s distant ancestor agreed to fundamental principles such as our right not to be held without trial, and to be tried by a jury. Yet in her own reign (starting perhaps in 1971 with internment in Northern Ireland, but escalating fast in the last dozen years) these rights, and more, have simply been signed away.

The constitutional role of an unelected, hereditary monarchy must be limited. But it does have a constitutional role, and must exercise that role as a necessary counterweight to the otherwise unbridled power of an executive that – through its majority and its patronage – is in complete control of Parliament. It is time for both Palace and Parliament to initiate a genuine public debate on that role, and on when and how the monarchy should legitimately intervene to ensure that the rights and civil liberties of the people are preserved.

Reprinted from Dr Butler's new book The Alternative Manifesto (Gibson Square Books).

Although two thirds of the regulatory burden in money terms arises from EU-sourced regulations, less than one third of the number of regulations are due to the EU. In other words, the UK afflicts about 200 regulations on itself which the rest of the EU consider unnecessary.

Both the Major and Blair governments claimed they would reduce the stock of existing regulations. In both cases, the Whitehall machine ground down the suggestions to the point where some administrative simplification was achieved, some groups were consolidated (e.g. fire regulations) and a very few regulations were nullified, perhaps five a year compared with the 250-300 new ones. Both governments emitted positive noises about deregulation and called for suggestions. The IoD was one of the organisations that responded with a list, a little list, of regulations that would not be missed, that never would be missed. 258 of the IoD’s suggestions were, in October 2009, batted into the long grass. Just 11 would be “taken forward”. And I wouldn’t hold your breath on those.

The government claims that regulation is a net benefit but their numbers take alleged benefits for the voting public and then subtract the costs to business. Having business pay for welfare is attractive to the Chancellor but it is covert taxation. Business, in bearing the cost, becomes less competitive and less productive. The unions are happy in the short-term but they have learned nothing from the London and Liverpool docks.

As regulation drags Britain down we can at least have a little fun at Whitehall’s expense. Each month ASI will publish a recent daft regulation which we do not need even if the mandarins think we do. Watch this space.

Other Euro members, especially those in the Mediterranean region, are seeking to distance themselves from Greece. The quaintly-named Socrates – not the moody Brazilian football star of the 1980s but Portugal’s current Prime Minister - has sought to differentiate his country from Greece. Not surprisingly, Spain is also getting very edgy. Given that its economy is more than four times the size of Greece’s, any serious weakening in its bond yields would be a profound worry.

There is an element of déjà vue here. After all, the shares of virtually every quoted UK bank, except HSBC and Barclays, were persistently undermined by sellers over a period of months; subsequently, these banks were bailed out by the Government. And in Barclays’ case, as Wellington said at Waterloo, ‘it was a damned near-run thing’.

For the UK, of course, memories abound of its humiliating – and forced - withdrawal from the ERM in 1992. Having prudently remained outside the Euro, the UK’s role is now more passive. Instead the focus will be on Germany’s Bundeskanzlerin, Angela Merkel, and France’s Finance Minister, Christine Lagarde. They may need to sanction substantial financial support if the Greece crisis worsens – or if Euro contagion occurs. Furthermore, the IMF may intervene.

Worrying times certainly. But is there not a loud message here for the UK whose Public Sector Net Borrowing is due to be £178 billion this year – with a similar figure for 2010/11?

Although many make the case that poorer people can’t afford a place at university under the current system, they seem to overlook the other ways in which university could be paid for. To answer this question we need only look overseas.

Through a combination of higher fees, loans and philanthropy, American universities are able to offer poorer students the opportunities within a system of private universities. For example, a student whose parents earn under £30,000 would find themselves fully funded at Harvard. Even those with a family income of £90,000 would only pay £9,000 per year in tuition.

This goes some way to explaining why so many intelligent British students are crossing the pond in search of a superior, cheaper degree. The British university system has a lot to learn. If universities were delinked from state subsidies they could become more dynamic and student focused, forced to improve or face a loss of students, and eventual closure. Given that students already want be treated as consumers – protesting at places like Manchester University when they feel they aren’t being given value for money – the time is right for change.

Students that complain about having to pay for degrees have a very shortsighted view. Their argument that they don’t want to come out of University with £20,000 of debt seems to pale into insignificance when the education received could result in significant future earning. Yet the students are asking for those without this future privilege to pay for their education. It is time they stopped eating from their table.

The ASI hears the same story from accountants and wealth managers who come to our Power Lunches. People were prepared to pay 40 percent, but the 50 percent rate has crossed a tipping point, and people regard it is unfair and unacceptable. Mike Warburton, senior tax adviser at Grant Thornton, says that, "People are taking obvious avoidance measures because they are not prepared to pay 50 per cent tax.... People were prepared to pay 40 per cent but the Treasury don't seem to understand what drives people."

He says that some are taking pay early, before the new rate cuts in, while others are deferring reward into the future. Still others are leaving the country, and some are giving it instead to the charity of their choice. Considering that those earning £100,000+ also lose their personal tax-free allowance, the new rate will hit some earners ever harder.

The Treasury had earmarked revenue from the increase of £1.13bn in 2010, and £2.5bn in 2011. Now they have "significantly reduced" these expectations, and will undoubtedly have to reduce them again. I predict once again that the actual yield will be below zero in both years, as the new rate will raise less money than the 40 percent rate did.

What, then, is gained? A few diehard class warriors will be pleased to see those with talent and enterprise suffer, and Lord Mandelson's attempt to have Labour campaign as "the party of opportunity" will be undermined. George Osborne said at one stage that he, as Chancellor, would leave the 50 percent rate in place for the time being. It is time for that pledge to be revisited before this ill-conceived and foolish measure does any more damage.