10 YEARS AND STILL COUNTING THE COST

 

On the tenth anniversary of the start of the economic crash, I thought it would be good to get an assessment of past and current consequences from people able to make unbiased assessments of the damage inflicted by the bankers’ and regulators’ irresponsibility in the early years of this century for which we mere mortals continue to pay.

The greatest financial crisis since 1929 not only caused major economic disruption, it has also considerably weakened political parties of the centre in Europe and America. People lost faith in politicians who had no idea about the casino practices of young city traders working for bank bosses asleep on the job.

The Institute for Fiscal Studies and the Institute for Government came together recently to assess the current climate in which people are trying to do business whilst still faced with the overhang from the 2007/8 crash. Gross Domestic Product is little better than in 2008. We are 15% poorer than if a 2% growth rate had been maintained since 2008.  The tax burden is now at its highest since 1986.

The bankers’ folly has been paid for substantially through massive cuts in local government grant with the promise of 100% business rate retention now withdrawn. One interesting suggestion made at the seminar I attended was that local government was easy prey for ministers because a lower tier of politicians took the blame. Will elected city region mayors make a difference here? Then there are the benefit reductions. They will have led to eleven billion pounds of savings by 2022.

What about the headwinds? The growing and ageing population will absorb 1% of GDP by 2026 and Brexit could cost over three billion pounds a year according to the Institute for Fiscal Studies Deputy Director Carl Emmerson.

We have had sluggish growth rates since 2008 due to poor productivity. Would easing the 1% public sector pay limit help? It might, the 1% pay rise policy is now causing huge retention problems in prisons, hospitals and teaching. 

The election taught us that the need for continued austerity is under challenge. The low hanging fruit of efficiency savings has long been plucked. The government appears to have no strategy for sorting out the public finances in the long term. A full review is needed with some courageous thinking.

So here we are 10 years after the financial merry-go-round came to a crashing halt. We are still paying for it and some of the old practices are creeping back in.

The crash of 2007/8 was substantially triggered by companies giving mortgages to people who couldn’t afford them. The 2017 equivalent is car loans using the very popular personal contract purchase method. Experts fear many people are using this method to lease cars they can’t afford. Overall £200bn is now owed on credit cards, overdrafts and personal loans. What happens when interest rates rise, which they will have to, someday?

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HAMMOND’S WARNING

 

SOUND CHANCELLOR

We would not be able to repeat the 2008 rescue of the banks because our debt and deficit is too high. That was the stark, and under reported, comment from Chancellor Phil Hammond in a recent TV interview.

It didn’t get much attention because Hammond went on to call for an end to Cabinet leaks against him. A bunch of extreme Brexiteers and people measuring up the curtains in No 10 are letting their teenage special advisers loose to brief the media against the Chancellor.

His crimes? Calling for a transitional phase as we leave the EU and opposing a wholesale relaxation of the government’s pay policy. The former suggestion outrages extreme Brexiteers who want to leave the EU as fast as possible and hang the consequences. The latter view frustrates those with an eye on succeeding Theresa May because they believe the best hope for the Tories remaining in power, and them becoming Prime Minister, rests with a Corbyn lite approach to austerity.

In relation to the EU exit bill, Mr Hammond also said that we are not a country that welches on our responsibilities. That is the honourable position we should all support. Unfortunately, Boris Johnson says the EU can “go whistle” for their money. The clown demeans the office of Foreign Secretary.

It might be useful to spell out exactly why the gung ho approach of Johnson is as ill-informed as usual. For those that believe we can exit the EU without a bill, these are some of the facts. We have made EU budget and foreign aid commitments until 2020. We have made loan promises to the Irish and Portuguese governments. We are on the hook for the pensions of EU staff and even for keeping European satellites orbiting. What needs to be determined is our actual share, whether spending can be reprofiled, what’s actually involved and the method of calculation. Only then will we get the bill, but get the bill we will.

If the Chancellor said public sector staff were overpaid, he was wrong but he is right to have a cautious attitude to a pay explosion. He is also right on his approach to Europe. So, he should be supported not undermined by his colleagues. He is a friend of business.

BBC PAY.

Some of the salaries of BBC stars revealed this week are excessive. This is particularly so in the case of people like John Humphrys who gets £600,000 for presenting Today and plenty more hosting conferences. He has admitted he wouldn’t work anywhere else which is just as well as there is no equivalent job in commercial radio really. I certainly can’t see LBC forking out that figure when they have Nick Ferrari. So, the argument that they have to pay him the market rate or lose him doesn’t apply. It is different for the likes of Gary Linaker.

I look forward to other broadcasting channels and companies subjecting themselves to equal transparency in respect of the gender pay gap which has been shown up at the BBC and no doubt applies elsewhere.

One thing I will say for the BBC, their coverage of this awkward subject for them was extensive and balanced.

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WILL CHANCELLOR HOLD HIS NERVE ON PAY?

 

LISTEN TO THE GREY BEARDS.

The minority Labour governments of the late 1970s were plagued with disputes with the unions over public sector pay. This Tory minority administration is facing the same problem. It seems that those who want to spend money the nation hasn’t got can sense the weakness and put pressure on the politicians.

I don’t envy Philip Hammond. It is an open secret Mrs May wanted to sack him. Now he is being publicly undermined by flaky Cabinet Ministers hinting that they favour easing up on austerity for nurses and council staff. One would expect the Health Secretary Jeremy Hunt to be in favour of higher pay for NHS staff, but other ministers who’ve sought to pull the rug out from under the Chancellor include right wingers like Defence Secretary Michael Fallon and Transport Secretary Chris Grayling.

Those coming to the aid of Spreadsheet Phil are largely from the elder statesmen category. They include former Chancellors Norman “je regrette rien” Lamont and Ken Clarke. They know what they are talking about but don’t need the assistance of Call Me Dave. The ex-Prime Minister David Cameron’s demand for pay restraint whilst picking up a tidy sum for a speech in Seoul was unconvincing to say the least.

So, let’s consider what the former Tory Chancellors say. They point to the continuing deficit and to the fact that increasing public sector pay even by an extra 1% is very costly. They also have their eye on the politics. Cabinet Ministers calling for an easing of the purse strings are panicking in the presence of Jeremy Money Tree Corbyn. The Labour leader has skilfully captured the public mood for a splurge after years of austerity. But he’s at least 60 seats short of ever being able to do anything about it. Jez we can. Now we can’t. Lest we forget the Tories remain in power.

What will happen if Phil gives in to the pay review bodies who will now all recommend hefty increases? The Tories will avoid some criticism for being stony hearted but could lose their reputation for economic stability.

Public sector workers are suffering from rising inflation and economic uncertainty, both caused by Brexit which brings me to my second topic….

LABOUR EURO REBELS MAY BE DOOMED.

Seven North West Labour MPs defied the whip last week to support our continued membership of the Single Market. They were Luciana Berger (Wavertree), Ann Coffey (Stockport), Maria Eagle (Garston), Louise Ellman (Riverside), Kate Green (Stretford), Alison McGovern (Wirral South) and Barrow’s John Woodcock.

They moved too soon. They made themselves vulnerable to the charge that they had reopened the split between Corbyn and the Parliamentary Party in the hour of Labour’s election success. But more importantly they needed to wait till public opinion swings more clearly in favour of having second thoughts about the whole Brexit project.

What they have done is expose the euro sceptic credentials of Jeremy Corbyn. Sacking members of his shadow ministerial team for their pro-European views is far more honest than last year when he masqueraded as a Remainer heading Labour’s half-hearted campaign to stay in the EU.

The problem for the North West Seven and the forty other colleagues who rebelled is that they are in a party whose formal position on leaving the Single Market is the same as the Tories. All the stuff about a jobs led strategy and staying as close to Europe as possible is for the birds.

We need an opposition party that wants to stop the Brexit madness. I’m having lunch with Vince The Cable next Tuesday and I’ll tell you what he thinks in my next blog here.

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REMEMBER THE ROCHDALE CHIPPY CHANCELLOR!

 

THE BUDGET AND BUSINESS RATES.

The coverage of the row over the hike in business rates has shown once again that the media generally sees things from a London and south of England perspective.

There are rumours that the Chancellor is going to take steps to soften the blow of this overdue review of business rates. If he does, it will mean he is not listening to the wise and under reported views of the leader of Rochdale Council. Richard Farnell has pointed out that he knows a chippy in Rochdale that is paying more per square metre than Harrods and says the south is squealing because it is being asked to pay its fair share. Farnell claims that most businesses in greater Manchester will be better off. Spot on Richard. Not before time this review is reflecting the soaring value of property in the overheated south eastern economy whereas some parts of the North have seen property values decrease. That should be reflected in what firms have to pay.

It is true that southern businesses shouldn’t be subjected to huge rises all at once, but the answer to that is for gutless politicians to review business rates more regularly irrespective of whether there is an election on the horizon. It is also true that we need to review the whole system to reflect the growth of on-line businesses that pay nothing, but that is for the future. If the Chancellor gives concessions next week it will be a victory for the effective southern Tory lobbying exercise and for south centric reporting by the media.

MAJOR BUDGET TASKS.

As we saw in his first autumn statement, Chancellor Philip Hammond is not inclined to dramatic and colourful gestures. Indeed, his most surprising announcement in November was to say that this will be the last spring Budget. Signals have been sent out that rebadged austerity is to continue with departments told to find savings in the run up to the next election.

It is true that the national debt stands at £1.8 trillion and the deficit is on track to be £68bn this year, but if this means we are set for a cautious budget then major problems facing the nation will continue to get worse.

Leaving the enormous uncertainties of the Brexit negotiations to one side there is a widespread belief that the government’s recent announcements on housing and skills are not adequate. The crisis in the NHS and particularly social care are laid bare on a daily basis. On the latter point, will we see the Chancellor break with caution and raise the possibility of dipping into people’s assets after they die to fund the rising cost of social care? The political problem is that, in opposition in 2007, the Tories denounced the suggestion, proposed by Labour, as a “death tax” and unveiled posters with the slogan “RIP OFF”.

However, some courage is required and with all the opposition parties so weak at the moment, there is no excuse for a lack of political courage in the budget.

GORTON PARLIAMENTARY SELECTION.

If Labour is serious about having MPs who reflect the area, then an Asian candidate should be chosen for the Gorton seat left vacant by the death of Sir Gerald Kaufman.

Although North West MEP, Afzal Khan, is the frontrunner, don’t be surprised if someone from outside that constituency or even Greater Manchester is chosen to avoid internal rivalries.

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