There’s an excellent blog by our friends at the West Midlands NO! campaign, detailing exactly how poorly our regional bureaucrats are performing by the standards of the Department for Business, Enterprise and Regulatory Reform.
As already blogged, yesterday’s Treasury statement on the extended Northern Rock guarantee suggested taxpayers are now on the hook for all of the Crock’s borrowings, except for a few billion of subordinated debt: ie we are guaranteeing around £100bn.
Yet most of today’s headlines say the guarantee "only" covers around £56bn. So what’s going on?
The HMT press release yesterday morning said the guarantee covers retail deposits, wholesale deposits, unsecured borrowing, secured borrowing where the security actually turns out to be insufficient, collateralised and uncollaterised derivatives, onshore and offshore. Which is pretty well everything- hence the £100bn.
But when, a little later in the morning, the Bank of England Governor and Deputy Governor appeared before the Treasury Select Committee, they told a slightly different story:
"Essentially, this does widen the scope of the guarantee to pretty much the whole balance sheet excluding the capital and the Granite securitisation. All that guarantee is secured against the asset value of the company."
Mervyn King, governor of the Bank of England, said about 40 per cent of Northern Rock’s £114bn ($229bn) balance sheet related to the Granite programme, with a third covered by the extended guarantee.
A further 25 per cent was Bank of England and Treasury loans, "leaving a very small residual that is essentially capital".
So in terms of money, that means we’ve now lent c £29bn directly to NR (equals 25% of £114bn), and guaranteed a further c £38bn (equals 33% of £114bn). Which totals c £67bn.
So the origin of that quoted £56bn is mysterious.
And taxpayers should also remember that while the c £45bn of NR’s now notorious offshore Granite securitised borrowing is supposedly excluded from the guarantee, without it, Granite would soon unravel. That’s because although the Granite borrowings are secured against specific pools of NR mortgages, the Rock has continuing obligations to maintain those pools- the programme is not "fire and forget".
What’s more, Granite’s borrowings are essentially short-term. It is constantly needing to "roll-over" its maturing debt- ie redeeming existing borrowings and replacing them with new. Once Granite’s investors take fright at NR’s capacity to perform, roll-overs get very difficult, and the whole programme could collapse. And what gives it urgency is that the Granite borrowings are maturing fast, with £1.5bn due in January alone.
We stick to our view: the reality is that taxpayers are on the hook for the whole lot. Which according to the BoE is well over £100bn.
There are two points surrounding yesterday’s events at Northern Rock that really need to be cleared up.
First, the BBC’s Business Editor, Robert Peston, is very enthusiastic about Bradford & Bingley’s offer to help out at Northern Rock:
"In the worst case of the Rock being nationalised, it could take assets off the Treasury’s hands and lessen the very substantial burden and risks for all of us as taxpayers,"
So, Bradford & Bingley are going to take a load of the rather unreliable Northern Rock debt off the taxpayers’ hands? How good of them! Should Bradford & Bingley shareholders be up in arms about their company’s directors using company funds to bail out the Treasury?
Probably not. The truth is that Bradford & Bingley’s directors wouldn’t be looking at buying Northern Rock Assets if that move didn’t have the potential to be a good deal for the company. Not because they’re bad people but because they have a legal and moral duty to look out for the interests of their shareholders. So, unless we think the Treasury has somehow outwitted them – an idea so far fetched it would have to be retrieved from the moon – the proper question to ask is: how are Bradford & Bingley going to get value from a deal for Northern Rock assets?
The answer is obvious. They’ll take some of the best assets – the most reliable mortgages – at a low price. We’ll have a smaller liability but the range of assets that Northern Rock will be left with to pay off its massive debts to the taxpayer will be more than commensurately smaller.
This is particularly worrying thanks to the other big new Northern Rock story. We’ve now guaranteed to wholesale lenders that they won’t lose money on Northern Rock. There are two important things to notice here:
1) Taxpayers are now covering almost all the downside risk. This is so close to nationalisation that the final taking of the bank into public ownership is increasingly of totemic, rather than material, importance.
Research into privatisation (PDF) for the Competitive Enterprise Institute by Eli Lehrer and Iain Murray seeks to redefine the concept of privatisation and nationalisation in terms of who bears the downside risk as the question "who will lose money if it goes under" is often more important to incentives and real control than nominal ownership. If we accept Lehrer and Murray’s analysis then Northern Rock is already pretty much nationalised.
2) We’ve effectively been booted way down the queue of creditors looking to get paid in the event of Northern Rock going under. When its assets are sold the wholesale lenders will now need to be paid, in order to satisfy the new guarantee, before we are. With Northern Rock’s mortgage book in doubt and plenty of existing claims on its assets – even before any Bradford & Bingley stripping – we should have very little confidence it will be possible to get taxpayers all of their money back.
All in all, the last forty-eight hours have brought a lot of worrying news for taxpayers.
Several papers report comments made by Shadow Chancellor George Osborne. He said:
"I will approach each Budget thinking how I can reduce
taxes; how can I prepare Britain’s economy to compete with China in the
world economy. Lower taxes are good for people
and the economy. Next year I hope to set out plans for business
taxation so that Britain is competitive…
"My ambition is lower taxes. I would like to be the Chancellor that under-promises and over-delivers."
Quite right. It’s encouraging to hear positive words about reducing tax from the Shadow Chancellor. George Osborne’s inheritance tax announcement in October was so well received by voters, that further tax announcements will be extremely popular, not to mention being the right thing for the economy and hard-pressed families and businesses.
There are three further points to make:
1. We don’t yet know whether George Osborne is talking about reductions in the overall burden of tax (real tax cuts), or revenue-neutral simplifications that will allow headline rates to be reduced.
There is nothing wrong with a business tax simplification that removes allowances and exemptions and reduces the headline rate of corporation tax. It is quite likely that Mr Osborne will propose to align accounting profit with taxable profit for corporations, which will simplify the tax regime and allow a revenue-neutral 3p cut in the main corporation tax rate – this option was proposed by the Tax Reform Commission (although the Commission recommended a 5p cut in the main corporation tax rate) and PWC have been commissioned to produce a technical implementation plan.
But there are problems with simplifications that don’t reduce the overall burden of tax, as Alistair Darling discovered a couple of months ago. The losers will shout more loudly than the winners. To make simplification work, you have to reduce the overall tax burden.
Similarly, reductions in personal taxes that are offset by higher green taxes are unlikely to prove popular. Green taxes already more than cover the cost of Britain’s carbon footprint and, in an August YouGov poll, 63 per cent of the public said that "politicians are not serious about the environment and are using the issue as an excuse to raise more revenue from green taxes".
2. There really is no getting away from the fact that how much tax people and businesses are paying overall is what counts. The public are likely to see through attempts to give with one hand and take away with the other – witness the reaction to Gordon Brown’s Budget in March, which did precisely that.
It is true that Mr Osborne’s inheritance tax announcement in October was, at least on paper, revenue-neutral overall. But of course for voters in a general election, who are not non-doms, it wasn’t – hence its popularity. It would have been a different story had the Shadow Chancellor said that inheritance tax would be abolished for almost all estates but that, to maintain economic stability, taxes on cars and flights for ordinary people would go up.
The inheritance tax announcement was a genuine masterstroke. But there are few revenue-neutral tax changes that will have the same positive political impact. Green taxes are unlikely to be one of them – let us not forget that the Conservative Party’s pre-conference slump in the polls came after the Gummer-Goldsmith report, which recommended higher green taxes, including a possible tax on supermarket car parking.
There is a genuine political space for the Conservatives to move into if they choose. A YouGov poll in August asked the question: "Thinking about the present levels of tax on the one hand and the state of the public services (like health or education) on the other, do you think the party you support should pledge to increase taxes, hold taxes at their present level or to reduce taxes?" The results were: increase taxes – 6 per cent; hold at present level – 38 per cent; reduce taxes – 44 per cent; don’t know – 12 per cent.
3. The crucial factor in whether the Conservatives can either offer reductions in the overall burden of tax or revenue-neutral tax changes is how much the Party will spend. We know all this already but it’s worth repeating: George Osborne has made it clear that he will not borrow to fund tax reductions, nor will he rely on dynamic forecasting. Therefore, the only way that he can reduce the overall burden of tax is to increase public spending more slowly than economic growth.
The plans of both the Conservatives and the Government are to increase spending by 2 per cent per annum in real terms for the next three years. With economic growth at 2.5 per cent to 3 per cent, this would clearly allow small reductions in the overall burden of tax. 0.5 per cent of government spending is around £3 billion – or close to a 1p reduction in the basic rate of income tax per year, with no need for tax increases elsewhere.
It now looks, however, that economic growth will be significantly lower for the immediate future. Growth is likely to be below 2 per cent in 2008, while yesterday Dresdner Kleinwort put the chances of a recession next year at 50-50. In these cirmumctances, increasing public spending at 2 per cent in real terms is likely to mean higher taxes or higher borrowing.
Given that an election is unlikely before 2009 or even 2010, this will be Labour’s problem, rather than a Tory headache. But that’s not the end of the story. For there is nothing stopping Gordon Brown/Alistair Darling from publishing the Comprehensive Spending Review, for the following three years, before an election. The Government could easily make the public spending settlement more generous, say, 3 per cent a year in real terms, and dare the Tories to undercut them. If the Tories pledge to match the Government, then no cuts in the overall burden of tax for almost the whole of a first Tory Parliament. If the Tories don’t, then Brown can fight the election on "investment vs cuts" all over again.
If the Conservatives don’t make the argument now for tighter public spending and reductions in the overall burden of tax, they risk falling victim to precisely this sort of scenario. But here again, there is good news. A YouGov poll in August posed the question: "The money the government spends on public services and other things comes mainly from taxation. Do you think…" and the responses were: "The government spends too much and therefore taxes us too much" – 64 per cent; "The government has got the balance about right" – 18 per cent; "The government spends too little and therefore taxes us too little" – 4 per cent; "Don’t know" – 14 per cent. YouGov asked the same question in March 2005 and the responses were 49 per cent, 25 per cent, 11 per cent and 15 per cent, respectively. Voters are therefore more ready than ever for a party to make the case for spending restraint and reductions in the overall burden of tax.
In the midst of the festive season, as we all splash our hard-earned cash on our nearest and dearest, it’s interesting to see what our local councils are choosing to do with our money…
The Family Group Conference Service is a county wide service and is looking to recruit casual conveners to organise and facilitate family group conferences. A Family Group Conference is a family-led, decision-making meeting, which takes place when families need to take decisions and make plans to address concerns about the safety, well-being or behaviour of their child/ren.
The role of the convener is to help the family, and those who work with the family, to engage in the process and to help the family arrange the meeting. Family Group Conference Conveners need to have a proven ability to relate to people in a non- judgmental way. Good communication skills are essential.
We are looking for applicants who are committed to involving families in decision making, listening to children and young people’s wishes and feelings.
Perhaps one we could all do with at Christmas time, someone to mediate between various family members and help us come to decisions, like what to watch on television perhaps?
In all seriousness, we are all aware that some families need real help, and this is why we have an army of social workers employed by local councils to deal with vulnerable family members in the way they judge best, restoring some harmony to ‘challenging’ households. We also have a police force for when communication completely breaks down.
What we have here seems to be another animal entirely, dedicated solely to the art of conversation and ‘decision making’ between family members. The job description is typically vague and one-dimensional psycho-babble, and yet the accompanying salary is well above the national average.
And is a family discussion really a ‘conference’ requiring a ‘convener’? It seems that Staffordshire County Council is taking their intervention to needless lengths, and unfortunately we are called to pay for the council’s insistence upon being involved in every angle of family life, including actively discouraging families from working through problems between themselves.
We are looking for an enthusiastic project leader to enable us to develop the Bedworth Heath and Keresley reminiscence project: New Neighbours: Crossing the Divide.
The project leader will be working closely with Nuneaton and Bedworth Neighbourhood Watch Association and other partner agencies. You will take the lead in organising groups and individual young people to engage in oral history / reminiscence work in their community.
The job description goes on to elaborate; describing how this ‘Project Leader’ will facilitate conversations between the old and the young, something that clearly can’t be done without state intervention (do none of these children have grandparents?).
The fact is that both local history and folklore are passed on, and always have been, without the need of any council coordinated projects. For hundreds of years enthusiasts, historians and the older generation (particularly after a few Christmas Day sherries…) have successfully retold and catalogued the important events in each city, each town, each street, each household of the United Kingdom. What is more, much of this information is freely available in local libraries and bookshops to those who have an interest. If young people want primary sources, then they are more than able to engage with older people without state-paid officials mediating the process.
Terms like ‘crossing the divide” only serve to highlight the difference between the generations, and projects like this seem to contradict their own purpose by treating the old and the young as though they were different species or tribes at war who need to be tentatively introduced to one another.
Of course young people should learn about their responsibilities towards their community, but half-baked projects fleetingly exposing them to local ‘oral history’ and the reminiscing of local elders seem a lot less worthy of taxpayers’ money than our faltering education system.
Dancescape is the dance development project for the sub region of Coventry, Solihull and Warwickshire.
The Sub Regional Dance Development Officer works with partners, dance practitioners and organisations to strategically promote and develop all forms of dance practice across the sub region, acting as a focal point for dance development and information and managing a range of projects and programmed events.
£30K well spent? We’ve had officers paid to help families talk to each other, officers paid to make sure that the old and the young communicate, and now we have an officer paid to make sure we’re all dancing (or watching it at the very least). Although there doesn’t seem to be much to dance about with Solihull pleading poverty once again over government funding, and warnings in the local press about severe council tax hikes next spring.
Solihull Council may very well justify this post by having us believe that dance is something that would be wiped of the face of the planet were it not for the state funding/meddling that keeps this delicate and dying art form alive. Unfortunately Solihull Council would be flying in the face of thousands of years of evidence that proves that, much like most forms of artistry, people like to dance, and it is a primal enough urge to ensure that they always will – even without Solihull Council’s Sub Regional Dance Development Officer at the helm. If there is enough interest in dance around the Coventry, Solihull and Warwickshire area then dance schools and dance performances will soldier on independently, just like they always have.
The great thing about ‘dance development’ is that it needn’t cost the taxpayer a penny. Those who like to dance often like to teach it too (and usually for only a nominal fee), and that is why every week night after school/work and on every Saturday afternoon community centres, church halls and school gymnasiums are full of people enjoying learning to dance. At the opposite end of the scale, many quality professional companies run like a business, keeping themselves afloat by the patronage of their loyal audiences and topping up their coffers by appealing to donors.
Regardless of the future of dance development in Solihull, it is absolutely plain that the money spent on this post would be better spent on frontline services and necessities, rather than flights of fancy that stop well short of benefiting the community at large.