I demand to have some booze


I am not one for being sentimental about the past, but staring into the bottom of my pint, memories flow of a time when things were better than this.

Of course the world has changed somewhat since we had the social divide of a woman’s place in the home and pubs exclusively the domain men. This is no bad thing, and the ready availability of other forms of entertainment from the Internet, DVD Players and affordable televisions the size of children. Vast swathes of the population now prefer watching the latest blockbuster movie with a bottle of wine to going to the pub. Fair enough.

The Campaign for Real Ale (CAMRA) are trying to fight back. They are petitioning the government to limit the ability of supermarkets to make a loss on selling alchol. This is esentially a request for a subsidy and should not be supported. But what can be done to save the great British pub?

A good place to start is reversing the government’s blanket ban on smoking in pubs. At the very least pubs should be able to apply for a license to permit smoking. As well as being a highly illiberal act, the smoking ban has hit pubs hard; with the holy trinity of glorious vices – pint, cigarette and crisps – now one man down.

Tax is another problem. The Government takes over 80 pence in tax for every pint sold in a pub. This is a hefty chunk for the treasury that should be drastically reduced. Why not also lower the drinking age to sixteen at pubs. This would take youth binge drinking out of the private sphere, educating them in the finer points of drinking.

I spent much of my youth in pubs and beer festivals drinking real ale. I have no doubt that if the government simply backed off most pubs would survive. They offer something unique to offer that are being undermined by the public health agenda, obsessive regulation and indefensible taxes.

Blog Review 765


Now here's a surprise. The OECD tells us that the USA has a progressive tax system, in fact, one of the most progressive amongst the industrialised nations.

Will we see deflation? In the end, it depends upon the authorities continuing to do the right things.

Those authorities seem to be doing so many different things that it's difficult for everyone to keep up.

Using the back of the fag packet supercomputer to work out how much the PSBR is going to be over the next few years.

A more formal method of trying to work out what the reduction in GDP will be, the rise in unemployment.

If Iceland really is bankrupt, does that mean someone can go and buy it?

And finally, why we need to control the menace of romance novels.

The vice of success


Criticism of British Petroleum (BP) is coming thick and fast from all side of the political spectrum following the announcement that it made £6.4 billion profits in the financial third quarter. You would think we would hear the collective sigh of relief from the mouths of politicians at the rare sight of some positive news; but alas, no. Instead, populist diatribe is the order of the day.

Unite’s reaction is unsurprising, but those in Westminster should know better. Prime Minister Brown is calling on BP to lower its prices while across the House, Shadow Chancellor George Osborne has said: "BP have absolutely no excuse for not passing on any fuel price falls to customers. It would be a scandal if they do not."

John McDonnell, Labour MP for Hayes and Harlington, has stated, “At a time when many people are struggling to cope with high fuel costs just to keep warm this winter, this is grotesquely obscene profiteering by BP". Going on to call for the introduction of a windfall tax.

In truth, BP is the single biggest taxpayer in the country, while its dividend payout was more than 10% of the total dividend income paid to pension funds by FTSE-100 companies. And as well as making big profits, they are also investing huge sums in new technologies – something the government purports to be encouraging. As such politicians should leave them well alone. Instead, the likes of John McDougal are calling for the “public ownership and control of irresponsible energy companies".

If he really cares about the cost of fuel, McDougal should instead be looking into ways the government can convince OPEC to break its cartel, persuade Saudi Arabia and Russian to privatize the government controlled oil companies Aramco and Gazprom, and get the EU to liberalise its energy market. More simply, he could just support lowering UK fuel taxes.

Winston Churchill once said that “It is a socialist idea that making profits is a vice; I consider the real vice is making losses". Quite right.

Positive polling


Yesterday saw the publication of a very interesting new poll from the Taxpayers' Alliance. It found that:

  • 67 percent of people now think we are paying the price for government overspending.
  • 59 percent of people agree tax cuts would be a better response to the downturn than increased public spending. Only 18 percent disagree.
  • 68 percent supported an immediate and substantial cut in interest rates.
  • 67 percent agreed that Gordon Brown should take a 10 percent pay cut.

Interesting stuff. We all know that politicians rarely listen to good sense, but are more than happy to be blown by the wind of public opinion. Perhaps this is one of those rare occasions when both things are pointing in the same direction.

Whither Regulation?

Andrew Graham followed with the proposal that private equity is one of the keys to recovery from the credit crisis. As Chief Operation Officer at the British Private Equity and Venture Capital Association, Graham emphasized the importance of competition and free markets in generating economic growth. Regulation leads to high costs and a proliferation insignificant rules that only hinder development, rather than really doing anything to ensure stability. This, he argued, can be seen in the United States as well. He argued that the key to getting through our current economic woes was to get wealth creation going again. So long as companies are not heavily taxed or run out of business, and are free from the micromanagement regulations of both the UK and the EU, private equity, said Graham, will help set the path for recovery and allow firms to look ahead to more prosperous days.

The presentations concluded with Edward Nalbantian, the Head of Banking & Finance at Jones Day. Unlike the first two speakers, Nalbantian suggested that our regulatory approach has been a pragmatic one, despite the current problems in the market.  The troubles that we face today are due to problems such as liquidity and asset valuation.  He though regulation should not be written off as a possible way to mend this situation.  For instance, in the current US president election, Nalbantian said that any administration (Democrat or Republican) would institute regulatory practices to measure risk exposure, leverage capital and create some international uniformity in the market. Banks should rely on their internal economic models, but must be in sync with general regulatory objectives for efficient market operations. Limited regulation, therefore, can provide uniform goals for firms – primarily transparency and stability – while still allowing for financial innovations and incentives.

The speakers’ different approaches to the credit crisis allowed for an enlightening evening of economic debate, and were followed by a very lively question and answer session. It is clear that there are several ways the British government could respond the chaos in the market, yet each speaker – albeit to differing degrees – emphasised the importance free market principles and light-touch government regulation.  All three agreed that now is the time to stop living in the past and start working towards a new era of prosperity and growth.


Wednesday night, ASI hosted a meeting in the Quadrant Chambers' Library to discuss the future of regulation in international capital markets. Keith Boyfield, chairman of our Regulatory Evaluation Group (REG), served as moderator of the event, which was titled Whither Regulation? Each of our three guests speakers had ten minutes to argue his position on how the UK can best respond to the US bailout and current credit crisis.

Richard Jeffrey, the Director of Economics & Strategy at Cazenove Capital Management, started off the discussion with the failures of regulation. His main issue was that current regulatory practices focus too much on micromanagement.  Regulators are more concerned with establishing common procedures among companies than they are with achieving regulation's main objectives, namely a stable financial system. To put it another way, our regulators do so much legalistic box ticking that they get distracted from the bigger issues at hand. At the same time, this approach stifles innovation and creates barriers to progress and growth in the market. Jeffrey argued that in future regulation needs to focus on basic principles and outcomes, not complex processes. Such a system would allow both financial institutions and regulators to do their respective jobs better. [Click 'read more' to continue...]

Blog Review 764


What we're all really concerned about is the real economy and that looks very like....1996.

Others think differently: has the drying up of LCs led to a crash in world trade volumes?

Don't believe the numbers you've seen on how Porsche has bankrupted all the hedge funds.

Accounting fraud may not be punished all that strongly by the law but that doesn't mean that it's not punished heavily by the markets.

Discovering a new irregular verb. I yearn for social justice, you fancy a pay-rise, he is greedy.

No, a private company refusing to take your advertisement is not censorship.

And finally, who to call for a good time.

BBC: Bland Boring Codswallop


Following the now infamous prank telephone call by Russell Brand and Jonathan Ross to the actor Andrew Sachs of Faulty Towers fame, it is worth considering the future of the BBC. The public is rightly outraged and as such it is the perfect time to consider reform.

Firstly, the incident itself was utterly perverse. Such harassment is possibly a matter for the police to investigate. If the police are unconcerned, under normal circumstances I would suggest that it is up to the company to decide whether or not to discipline their employees. However, given the fact that we are forced to pay for BBC broadcasts, on this occasion the shareholders -  that's you and me if you have a licence - should decide the fate of Ross (Brand has now stepped down). A simple poll on their bloated website would suffice.

Those that defend the BBC as an institution that does things others won’t or can’t are wrong. A visit to the website of the subscription run HBO will suffice to dispell this illusion. Such innovative programming could be possible in this country, if only the BBC and regulations were not holding back competition.

So how should we proceed? In fact the solution is very simple and it goes by the name BBC Worldwide. BBC Worldwide is a subsidiary of the BBC whose profits are delivered back to the BBC, supplementing the Corporation's licence fee funding. During 2007/08 BBC Worldwide achieved sales of £916 million.

The current licence fee of £139.50 needs to be phased out. BBC Worldwide should be given more control over the BBC’s assets, competing on equal terms with its competitors. Within ten years the licence fee should be scrapped completely, with BBC Worldwide managing all of the BBC’s interests and the public liberated from paying for the abuses of oddities such as Brand and Ross.

What politicians should be focusing on


There was an excellent article by Hamish McRae in yesterday's Independent, arguing that Britain needs to learn from the mistakes Japan made in the wake of its financial crisis in the early 1990s. The relevance is easy to spot:

It had experienced a huge speculative property bubble, built on borrowed money... Then the boom collapsed.

The result is that average Japanese living standards have barely risen for 20 years, while inequality has risen sharply. And this is despite them adopting the policies our government are now touting: low interest rates, increased government borrowing, and higher public spending to "prime the pump". If it didn't work for Japan, are we really to believe it will work for us?

Instead of simply attempting to re-inflate the economy, it would be much better to take a long-term approach, improving our economic fundamentals so that we come out of the crisis stronger than we went in. The key issue, ultimately, is getting our economy to generate wealth again. In policy terms, that means we should focus on increasing productivity. We need:

More competition. Rather than closing our markets to foreign competition (which seems to be on the cards in the US and EU) we should embrace it. Reducing regulation – particularly for small firms – also helps by making market entry easier.

More capital investment. One of the reasons we have traditionally lagged behind the US, France and Germany on productivity is a lack of capital investment. We should: (1) eliminate double taxation by abolishing tax on capital gains, dividends and so on; (2) let companies immediately expense capital spending against their corporation tax liabilities.

Less public sector. The public sector is less productive than the private sector and acts as a drag on the economy. Public spending needs to be brought under control and the state needs to be streamlined.

Better skills. Britain's workforce is less skilled than those of its competitors. More government programmes are not the answer. Injecting market forces into education is.

More innovation. This would be one of the main results of doing the things suggested above.

Blog Review 763


I can't improve upon the title of this post: Bonkers Hippies Demand £ 57 Trillion.

Explaining what's been going on between VW and Porsche and those who don't know their history...

Ask Gordon a question and win something from Guido.

All these calls for new regulations: might we actually wait and see which parts of the financial system still work first? So that we know what we need to regulate?

Schadenfreude from the Fens.

It's volatility that's the thing to keep an eye on now.

And finally, nice job you've got there, be a shame if anything happened to it Guv'nor.

Transport failings


According to the BBC, a team of academics from Glasgow and Plymouth universities has declared the Labour government's record on transport "a big disappointment".

The reasons were as follows:

  • Traffic congestion is worse than a decade ago.
  • The investment needs of the railways have been almost completely ignored, in particular to increase capacity.
  • Bus services in most of the UK have remained poor, especially in comparison with European rivals.
  • Tram schemes have been abandoned, despite proving effective at getting motorists out of their cars.
  • Walking and cycling have been largely neglected.
  • The government is afraid of addressing the environmental impact of aviation.
  • Transport carbon emissions continue to rise.

My thoughts:

  • The environmental impact of aviation is more of a symbolic problem than an actual one. Aviation accounts for just 1.5 percent of total CO2 emissions and is unlikely to contribute more than 3 percent by the mid-century.
  • Tram schemes have been abandoned because they're very expensive and there's little demand for them. Where there is demand for public transport, buses are a much more sensible option.
  • Bus services in most of the UK have remained 'poor' for an entirely rational reason – there isn't much demand for bus services. Even in London, most drive around half-empty.
  • Traffic congestion has worsened because we don’t have enough road-space. The government collects £32bn in transport taxes, but only spends £8bn on roads, most of which goes on maintenance. The M6 Toll road offers an example of what we should be doing: getting the private sector to build and operate new roads to take the strain off congested bits of the existing network.
  • The investment needs of the railways have been ignored because, despite privatization, the railway companies continue to rely heavily on taxpayer funding and central planning. If they were free to set ticket prices and direct investment, they could make profits and plough them back into increased capacity (rather than relying on a £6.5bn subsidy).
  • It's hard to see what government could do to encourage walking and most towns already seem to have more cycle-lanes than cyclists.
  • In the short term, rising transport emissions are more or less inevitable. In the long run though, technology will solve the problem, not government.