THE RAPIDLY APPROACHING GLOBAL OIL SUPPLY CRUNCH
A snip at $48.50. Now that the price of a barrel of benchmark Brent crude continues to fall like a stone in the global recession, a drop of no less than two-thirds since the high point of £147.50 just four months ago, the relief is huge among motorists and hard-pressed consumers. Conversely, for the oil-producing countries (especially Russia, Iran, Saudi Arabia, the UAE and Venezuela) it is potentially cataclysmic, though some like the US may rejoice at that. But there is another dimension to this oil price slide which has been little noticed, but which long-term is extremely serious.
If oil prices remain well below a certain critical level for any significant period of time, large amounts of investment in expected oil production capacity will simply be written off, and the consequence could then be a recovery-stopping supply-side crunch within little more than 2 years. That critical level is widely reckoned within the oil industry to be $90 a barrel. A current price as low as half that critical level is already forcing many companies to drop oil projects, and the banking crisis is also squeezing project financing for foreign oil companies operating in OPEC and outside.
Russia’s Big Four energy companies – Gazprom, LUKoil, Rosneft, and TNK-BP – depend heavily on debt to finance operations and are scaling down their investments. They have already been forced to seek an allocation of more credit to refinance their external debts. But with Russia now facing a $150bn shortfall in its spending plans for 2009 and where Russian markets have lost a stunning 70% of their value in just 6 months since May, it is all too likely they will be forced to slash their investments further.
The consequences of this for the EU and the UK are very serious. Since the EU gets 40% of its gas from Russia where 70% of the gas fields are already in decline, any further major cutting back in future oil and gas investments could act as a pincer on EU and UK energy supply. Indeed the Russian Energy Industry has warned that if the decline continues, Russia may not be able to service even its own domestic gas needs by 2010 – this from a country where Gazprom if the largest extractor of gas in the world.
A prolonged slump in the oil price at below $50 a barrel will thus inevitably lead to another cycle of shortages and soaring prices. This intense price volatility is the first stage of the Devil’s See-saw that is likely to accompany the coming of Peak Oil which is widely expected within the next 5 years. These very sharp boom and bust capitalist cycles in oil may well turn out to be even more globally destabilising than the financial crunch. What is clearly needed, though sadly highly unlikely, is an international conference (perhaps as a serious offshoot from the lightweight G20 conference a week ago?) to reach a binding agreement on the oil price for a 5 year period rolled forward which might then avoid the massive overshoot in prices at both peak and nadir which we are seeing at the present time, with potentially calamitous consequences.
THE RAPIDLY APPROACHING GLOBAL OIL SUPPLY CRUNCH
THE P.B.R. NEED NOT HAVE INVOLVED EXTRA BORROWING
The PBR is the least worst option – a considerable gamble, at the limit of affordability, but much better than letting the recession take its course without significant intervention. If we can afford £500bn to bail out the banks which are the root cause of the problem, we can certainly afford £21bn to protect businesses and householders, who are the victims, from suffering the full weight of the downturn.
My one concern with the PBR is that far more could have been done to pay for these necessary measures without either unfunded tax cuts or open-ended borrowing. As a way of reducing the public accounts deficit, we should still be adopting all or most of the following measures –
* making the biggest polluters pay by auction for their carbon permits (which could raise £20-30bn a year),
* substantially reducing the current £25bn a year haemorrhage from tax avoidance and evasion,
* closing down at least the most flagrant tax havens,
* phasing out the £8bn a year now granted to the 2.1% of the population paid more than £100,000 a year,
* aligning capital gains tax rates with income tax rates,
* a Tobin tax of 0.015% on currency transactions which could raise £10bn a year.
The new 45% rate on those paid over £150,000 a year, whilst welcome, is little more than window-dressing. It will only raise £1.6bn a year, and not till 2011, when the money is needed now.
OLDHAM SHOWS SOCIAL HOUSING IS THE MOST NEGLECTED ISSUE TODAY
Today’s news that court applications in Oldham for repossession are now 31% higher than a year ago pinpoint the savagery of the deepening recession. Not all of these applications will of course lead to eviction, but it is likely that at least half will. And then there is nowhere else to go. Oldham Council already has 12,000 households on the waiting list, which compares today with its total housing stock of 12,500. A third of all those who come to my constituency surgeries are desperately searching for housing, often telling the most heart-breaking stories and saying that I am their last resort. It is agonising having to explain that the options available are so appallingly restricted.
Oldham, like so many other towns, has built hardly any houses since the mid-1980s. Last year however it did build 69 social housing units, but in the same year it was also obliged to sell off 250 houses under the Right to Buy and a further 300 were also demolished. So there was still a net loss of nearly 500.
Worse, the quality of Oldham’s social housing continues to slip steadily. The Council/ALMO needs an additional £9 million a year, over and above the Housing Revenue Account flow of revenues, to maintain homes brought up to the Decent Homes standard (a minimum standard that refers only to the external structure, roof, windows and insulation, not to the kitchen, bathroom or environment). The Housing Options review of all Oldham Council’s properties just completed revealed that on average £8,500 was required per property simply to bring them up to an adequate standard, at a total cost of some £100 millions To bring them up to a good standard would cost £11,000 per property (total cost £130 millions). And as a comparison, the PFI sheltered housing scheme in Oldham is providing £80,000 per property in order to modernise to a high standard.
So what should be done? The root of the problem is that Government expenditure on social housing nationally has plummeted from 6.1% of GDP in 1981 to 1.6% in 2005. What this means is that if the Government today were spending the same proportion of GDP on social housing as it was in the late 1970s, it would be spending no less than £22bn extra on housing for low-income families. In 1990, even at the end of Thatcher’s premiership, Britain was still building 13,000 Council houses a year. Last year it was just 200! New Labour has been as ideologically indifferent, or even more hostile, than Thatcher to the public rented sector. The inevitable result has been the misery and deprivation and anger spilling out at every surgery I hold in Oldham.
What is needed is a major national switch of resources back into housing, with the emphasis heavily targeted on building more and better social housing. Local Authority and Housing Association housing uniquely caters for about a quarter of the population, and the objectives in terms of adequate supply and high standards should match the owner-occupied sector. Nor is this a pipe-dream when what is chiefly needed in a severe economic downturn like this one is a major increase in public works, and house-building is the prime candidate for this role both because it meets a desperate social need and because it has a widespread multiplier effect in generating activity across the whole economy.
HOW TOMORROW’S P.B.R. SHOULD CUT BACK POVERTY
Whatever other help to people on low incomes Alistair Darling may have in mind for tomorrow’s Pre-Budget Report, he should focus on two key objectives.
1 Whilst his raising the personal allowance to £6,035 per year compensated the great majority of 10% tax rate losers, it still left around one million people losing out. These are largely people on the lowest incomes who are neither tax credit claimants nor pensioners over 65, and they are some of the most vulnerable in the current economic downturn. They are still worse off than in the last tax year, and should as a priority be fully compensated now.
2 Tax credits have helped a great many out of poverty, but they can still often trap many who do not take quick enough action to a void being overpaid. There are three areas where alleviation of tax credits debt is now urgently needed from the Chancellor:
(i) Working tax credits are currently lost whenever a person in receipt loses their job or if their hours are reduced. Where the Revenue has hitherto been recovering an overpayment by regular reductions from a person’s continuing award, the claimant is now required to repay within 30 days or reach a deal with the Revenue about the repayment period. The Chancellor should now suspend the requirement to repay in such circumstances when the claimant loses his job until such time that he can start repaying again.
(ii) When a person starts or ends a relationship, they have to make a new claim to align with their new circumstances. If they fail to do so, or do not do so in time, they are currently obliged to pay back all the credit paid to them after their relationship changed. Worse, the overpayment is not reduced by the amount of credit which they would have received if they had made a new claim in time. Until May 2007 the Revenue did permit the setting-off of this amount of credit, and the Chancellor should now use this opportunity to reinstate it.
(iii) A very large number of tax credit claimants are still being penalised by disputed overpayments from the period when the tax credits system began, when overpayments of thousands of pounds were caused by the Revenue’s own mistakes. The Chancellor should now pragmatically write off all outstanding overpayment debt from the first 4 years of tax credits which was caused or exacerbated by official error.
I have written to the Chancellor asking for these changes to be made as a priority in tomorrow’s Pre-Budget Report.
IT’S NOT ONLY THE BANKS THAT SOCIALISE THEIR LOSSES
There is, unsurprisingly, outrage that the banks engaged in reckless trading on a massive scale to maximize their profits and then when the worldwide scam collapsed and their own market value shrunk dramatically, that they demanded that the taxpayer bail them out to the colossal tune of at least £37bn. But this convenient capitalist device of privatising the gains when times are good and then socialising the losses when times turn sour isn’t confined to the banks.
The nuclear industry has just concluded a secret deal with the Government for exactly the same purpose. Three companies awarded the contract to decommission Sellafield – URS Washington (American), Areva (French) and Amec (British) – have just got the UK government to agree that they are indemnified from any liability if anything goes wrong in the 17 years of the contract. This means that if a leak or accident occurs, however serious, and even if caused by management failure of the companies themselves, the taxpayer will be required to meet the full cost.
So why did Parliament let it through? Because Parliament was never informed until it was too late to force a debate and a vote. The Government used a subterfuge: it used emergency procedures to push through the indemnity quickly just as Parliament went into the summer recess. It even went as far as to scrap rules that would have made the private consortium liable for the first £140 millions of costs. This also had the effect of shortening any time available for consultation.
DBERR were craftier still. The Minister and Departmental officials failed to put notification of the deal in the Commons Library, which was a clear breach of House rules. Consequently no MP saw it and was able to object by calling for a debate. The pdf document only finally reached the Library, and thus came to the attention of MPs, on 1st October , seven weeks ago, which was nearly 11 weeks after the consultation closed and, most significantly of all, a week after Ministers had signed the deal with the consortium.
This is a dreadful story of Departmental malfeasance which exposes yet again how accountability to Parliament is becoming little more than a charade. I have now put down a PQ demanding that since the correct procedure was not followed (indeed repeatedly circumvented), it should be reopened until it is correctly carried out, thus allowing a debate to be held if objections are made, which they certainly will be. I have also asked that there should be an inquiry and that any officials found to be responsible should be disciplined, and if necessary sacked. I am also raising the matter with the Commons Select Committee on Procedure, asking that they hold a hearing into what went wrong and to make recommendations to stop this in future.
THE GOVERNMENT IS NOW AT LAST IN LISTENING MODE
The announcement that the £1bn post office card account (Poca) is to retained by the Post Office and not handed over to the private company PayPoint is extremely welcome on several grounds. It will save some 3,000 post offices from being closed, it will continue to offer services provided by an organisation uniquely trusted by its 4.3 million users half of them pensioners, and it will service rural areas to a degree that PayPoint is not equipped to do.
But there can be little doubt that this has only been secured as a result of the massive public campaign mobilised across the whole country – from the 2 million signatures on the nation petition to widespread campaigning by pensioners’ organisations, trade unions, voluntary and industrial groups, and in Parliament where 250 MPs (including 100 Labour MPs) signed an EDM to keep Poca with the Post Office.
All the signs until very recently were that the Government intended to privatise Poca. But it is the combination of this enormous organisational effort with the pressure exerted on the Government by the deep economic downturn and daunting electoral prospects which have brought about this re-think.
Nor is this a unique event. The highly significant improvements brought about in the Climate Change Bill – increasing the carbon reduction target from 60% to 80% and including aviation and shipping emissions within the carbon budgets – also mark a major change of mind, and a very welcome one, on the part of Government. Equally important is the recent reversal of policy on feed-in tariffs as a way of decentralising energy supply to the considerable advantage, and indeed profit, for consumers. John Hutton turned them down flat six months ago; Ed Miliband to his credit has now accepted them.
This now begins to herald a significantly new atmosphere in current politics. The Government is now clearly listening seriously in a manner that has not been true previously over the last decade. The opportunities that this opens up need to be grasped, to the benefit of people effectively organised around a cause as well as to the Government. Might the next re-think, announced before Christmas, be a reprieve for the long-suffering people of west London from the BAA-imposed calamity of a third runway at Heathrow? If so, we really are in new territory, and the Government’s electoral prospects will begin to look up markedly.
This article first appeared in The Guardian in Commentisfree on 14 November 2008.
ANOTHER WORLD IS WITHIN REACH
There is a silver lining in the economic and financial turmoil. The so-called Bretton Woods II conference, called by President Bush for Saturday week (15th) at Washington, was clearly intended by the US and the other lead capitalist nations to make the minimalist changes necessary to return the world to the 2007 status quo ante. The election of Obama however has changed all that.
Fundamental geopolitical change occurs when the shifting tectonic plates underpinning the balance of power abruptly reach a tipping point which opens up a profoundly new landscape. Thus the uneasy partnership between the State and private markets which managed capitalism between 1945 and 1973 was upended by the world-wide inflation from the OPEC quadrupling of oil prices, by the increasing confidence of the capitalist class emboldened by a monetarist ideology to face down trade union resistance, and by persistent tabloid sniping at the welfare state foundations of social democracy. The resulting Reagan-Thatcher counter-revolution between 1979 and 2008 unleashed the neo-liberal triumph of private markets through deregulation and privatisation, a ballooning of inequality, and the undermining of democratic accountability by a marked centralisation of State power. That system is now irrevocably broken by the excesses of its own internal dynamics. Once broken to that degree, a system never recovers in anything like the same form. It morphs into wholly different formations.
What determines those formations is the shifting contours of geopolitical power. The IMF, World Bank, GATT/WTO, and the Washington Consensus did not arise from contemporary theories of economic enlightenment, but from calculation of what best suited the interests of the US, their creator. That hegemony is now threatened on all sides. The US economy is dangerously over-dependent on imported oil, when over 90% of exported oil will by 2020 be concentrated in Muslim countries. US attempts to control this dependence by domination of the Middle East and Caspian Basin have led to imperial over-reach in Iraq and Afghanistan, which threatens a US humiliation and enforced withdrawal (even when it is dubbed a victory).
But the long-term threat to US hegemony now comes from the seemingly unstoppable rise of China. With a breakneck rate of growth of 7-10% over the last decade and a GDP of over $8 trillions, twice as large as Japan’s, China is now challenging the US over trade, financial imbalances, the struggle for oil and natural resources in Africa, Latin America and the Middle East, as well as regional dominance in East Asia. Indeed a new superpower coalition of China, Russia, India and Brazil, covering 75% of the world’s population and 80% of its natural resources, is now emerging and attracting the close interest of major oil producers such as Iran and Venezuela, as a counterweight to American power.
This precariousness of the current world order is exacerbated by three massive underlying pressures – over-exploitation of natural resources, over-population of a finite planet, and over-warming of the global atmosphere by greenhouse gases. Not only is the availability of oil likely to begin to dry up within some 40 years, water scarcity also already affects half a billion people living in regions prone to chronic drought. The UN expects this number to increase 5-fold to around 3 billions within just two decades, nearly half the entire world, with unprecedented implications for population displacement and refugee flows. And so great is the over-use of the Earth’s natural capital stock that is has been estimated that in 50 years’ time on current trends we will be exploiting natural resources equal to two Earths when, as some have percipiently observed, we only have one.
The new world order will be formed as a compromise between the interests of the new global power-brokers, the requirements of a more regulated capitalism, and the exigencies of the rapidly changing resource base of the planet. It will reflect the switch, which is now irreversible, from uni-polar US power to a much more fragmented and uncertain multi-polar system of shifting alliances. It will require new global institutions, not merely a limited re-writing of the remits of the IMF and its sister bodies.
It will also become in many ways a more dangerous world. The gradual proliferation of nuclear weapons is probably unstoppable once Iran is nuclear-armed within the combustible Middle East, while at the same time a revived Russia now and probably China later stokes a new nuclear arms race. A generations-long ‘war on terror’, as a cover for continuing US imperialism, threatens to set the post-Cold War world, if maintained, on a self-destruct course towards conflict between civilisations. Resource wars around oil, water and minerals will intensify. A human race that took 150,000 years to reach 1bn population and is now likely to take less than 250 years to reach 10bn faces the dark underside of globalisation in growing famine, increased transmission of disease, and unprecedented environmental refugee movements.
Given this impasse to which the world is now heading on several fronts, the Washington conference in December offers a once-in-a-lifetime escape route. But it will have to meet several conditions, most of which are potentially treacherous.
Unlike Bretton Woods I when a tiny elite of war victors could carve up the political, economic, financial and trade systems to suit their own interests, this time if the conference is to get anywhere it will have to be open not only to the old capitalist powers of the US, EU and Japan, but also to the emerging superpowers of China, Russia, India and Brazil as well as to regional representatives from Africa, the Middle East and southern Asia. Getting agreement on a multi-faceted new order, as the successive collapses of the Doha Round has shown, will be fraught.
The immediate requirement will be to replace a free-wheeling, no-holds-barred capitalism with a more stable, better regulated capitalism but without extinguishing its inbuilt innovativeness and dynamism. That is a very hard call. It means fixing the banking system’s appetite for speculative trading, hedge fund instability, derivatives, offshore accounting and securitisation, as well as the obscure reporting of corporate risk and sometimes dodgy auditing. Capitalism is not capable of mutual co-operation, but it has to be shed of its proclivity for the extremes of competitive recklessness, driven by greed for astronomic bonuses.
The conference offers too the best chance yet to align the global economic track to the carrying capacity of the planetary eco-system. Yet the response of governments worldwide to increasing climatic devastation and the risk of an irreversible tipping point this century, which could threaten human survival, has been glacial. Never has a global Green New Deal been more imperative, yet still widely resisted, but this conference might just offer the breakthrough so desperately needed.
A new world order will only be sustainable if, lastly, it is seen as more mutually beneficial and less greedily exploitative as this one is. A rather more equal balance of power across the world should make this more achievable. But the inequalities are now so staggeringly huge and the unwillingness of the rich hemisphere to face up to its Millennium Development Goals so great that it will require much more aggressive alliances between the poorer nations than simple reliance on Western altruism. At least the hope and opportunity is there which hitherto has not existed.
This article first appeared in Tribune on 14 November 2008.
WE NEED, NOT THE THIRD RUNWAY, BUT A COMPLETE RETHINK OF THE ROLE OF AVIATION
The third runway at Heathrow, where the Government is due to make a decision soon, raises three key issues: how important it is to the national economy, how far it would wreck the quality of life of people in west London and beyond, and how it can be compatible with the Government’s commitment now to reduce Britain’s greenhouse gas emissions by 80% by 2050 below the 1990 baseline.
On the first point, the airline industry has staked its demand for continued expansion on claiming that it is central to the national economy. But it isn’t. Of course it has an important role, but the aviation industry is only the 26th largest industry, it is half the size of the computer industry, and just a tenth of what was, until a few months ago, the size of banking and finance. So far from being key to the balance of payments, it actually helps to create a tourism deficit of £17bn a year – that is the excess spent by British tourists abroad over what visitors to Britain spend here. The UK airlines also receive a £10bn a year subsidy in the shape of tax-free fuel and VAT-free tickets and planes. That is taxpayers’ money that could be far better spent on promoting sustainable transport systems as a substitute for domestic short-haul flights, particularly when in the last decade subsidies have enabled air fares to plummet by 40% on average while rail fares have rocketed by 70%. The economic case for a third runway has certainly not been made out.
The second point, the local environmental impact on 2 million hard-put-upon west Londoners, is truly damning. Jets roaring over densely populated areas every 30 seconds at some periods, bad air quality hot spots, traffic snarl-ups, disturbance of sleep late at night and in the early morning, and constant disruption of daily life at homes and hospitals – hundreds of thousands have now reached the limits of their endurance.
The third point is equally decisive. Tripling Britain’s airport capacity, including the expansion at Heathrow, is irreconcilable with meeting Britain’s mandatory climate change targets. Aviation already accounts for 13% of the UK’s total climate impact, and is now the fastest rising cause of greenhouse gas emissions in the UK. The Tyndale Centre at Norwich is now predicting that aviation emissions on their current trajectory will actually account for up to 100% of the Government’s carbon budget by 2050. In other words, even if we retired every car from the roads, unplugged every electronic device, and closed every factory, we would still not meet our climate change targets because of aviation.
But there is one environmental constraint which will apply very quickly, which is mandatory under EU law, and which cannot be circumvented. That is the mandatory EU targets on nitrogen oxide which come into force in 2010, just over a year away. Nox limits are already being breached in London now, and frankly it is ridiculous to pretend, as the Government seems to, that increasing by 50% the number of flight movements at Heathrow from 480,000 a year to 720,000 – equivalent to bolting on to Heathrow another airport the size of Gatwick – will not push Nox and noise levels sky-high above what is lawfully permitted.
The Sunday Times revealed in March this year how the Government reached this canard. It allowed senior BAA executives to select alternate input data for the environmental predictions till they got the ‘right’ answers, it removed international flight arrivals from the calculations, and it invented fantasy planes with miraculous new technology (not built or even planned anywhere) to square their expansion ambitions with the EU targets. I contacted Stavros Dimas, the EU Commissioner for the Environment, to ask him to investigate. He wrote back to me last July saying: “Technical reports underpinning the Heathrow expansion suggest that nitrogen limit values near Heathrow will be significantly exceeded in 2010, the year in which those limit values become mandatory, and that this will be the case even after 2015”.
That really settles the argument. If the Government still, recklessly, pushes ahead with approving the third runway, the EU is bound to block it. But no Government decision should be made anyway without submitting it to a vote on the floor of the House of Commons, and only after it has obtained an independent review of whether the air quality targets demanded by the EU can genuinely be met. But more than that, what is really needed now is a full-scale review of what we want the role of aviation to be in our economy and in our society. So much has happened since the 2003 Aviation White Paper – the enormous volatility in oil prices, the approach of peak oil within the next 5 years, the tightening of carbon budgets worldwide, and perhaps even the beginning of a gradual but fundamental change in consumer attitudes to air travel – that a new world is emerging against which the Heathrow expansion should be assessed afresh. The answers will not the same as 5 years ago.
This article first appeared in The Guardian at Commentisfree on 12 November 2008.
WHAT CAN WE HOPE FOR FROM OBAMA?
It isn’t only hopes of a US about-turn on climate change, the deregulated neoliberal economy, the Iraq and Afghanistan occupations, and a unilateralist foreign policy that is exciting passions after the Obama landslide. There are many other little-noticed areas of policy where there is good reason to believe the Obama presidency could transform the international climate.
Both his voting record (notably over the Iraq war where he was in a tiny minority opposing his own party’s overwhelming support) and many of his pronouncements suggest he is an instinctive radical. He has for example strongly defended trade union rights – a position well to the Left of Britain’s Labour Government which only this week rejected such reforms in the Local Employment Bill. He has also signed up to a Bill requiring vigorous action against international tax havens, the opposite of New Labour’s granting massive tax concessions to the City of London to make into a gigantic tax haven in its own right.
Nor is that radicalism simply the inspirational lead of one man. What is so remarkable about the Obama victory is that it has exposed that there is an America quite different from the one we had always assumed, and one that is more compatible than we thought with European ideals.
Of course there remain many murky areas of American policy where it may take some time for Obama to show his hand. They certainly include Guantanamo, extraordinary rendition, and the whole global network of ghost prisons embracing endless detention without charge, torture and extra-judicial execution. Britain’s connivance in this is denied, but uncertain.
The case this week of Binyam Mohamed, now held in Guantanamo but who previously worked in London, illustrates both US involvement in torture and inhuman treatment and British complicity in concealing the evidence. Mohamed was, according to a High Court judgement, unlawfully interrogated by an MI5 officer in Pakistan, then secretly rendered by the CIA to Morocco where he claims his penis was sliced by a razor, then rendered to Afghanistan and finally to the US base in Cuba. When in the light of the High Court evidence of torture the Home Office asked the Attorney General to investigate ‘possible criminal wrongdoing’ by MI5 and the CIA, the US sought gagging orders to suppress the evidence and the Foreign Office complied once the US indicated it might stop the exchange of intelligence with Britain if the documents were released. Last month the High Court strongly censured the US when they refused to disclose the evidence because ‘torturers do not readily hand over evidence of their conduct’.
This is a classic example of the overweening disregard for human rights so characteristic of the Bush imperial regime, as well as of British weakness in succumbing to pressure because of over-dependency on the US. An early statement by President-elect Obama that the US will abandon such extra-constitutional and illegal actions in defiance of international treaties on human rights would powerfully confirm expectations that a new world order was in the course of construction. But even in the absence of that, the degree to which Britain is prepared to go in sacrificing morality and individual human rights in the interests of a highly dubious political or military advantage urgently needs to be examined.
This article first appeared in the Guardian on Commentisfree on 8 November 2008
Is it really credible that the Monetary Policy Committe which in September was even contemplating raising interest rates should just two months later decide on the biggest cut in interest rates for 25 years, bringing their level to the lowest since the 1950s? Either they suffered a change of mind so dramatic as to call into doubt any confidence in their judgement in future, or they were leaned on very heavily. The latter seems more likely, the more so since the simultaneous EDM calling on the Government to take drastic, even legislative, action to compel the banks to pass on the cut in full to hard-pressed small businesses and home-owners fits well the scenario of a carefully orchestrated move to kick the real economy into an earlier recovery whatever the resistance from the MPC or the banks.
If so, it is certainly the right policy, and should be pushed further in the next few months if necessary to a level of 1% or even lower. But it does raise rather starkly what is the point of having an independent Monetary Policy Committee created by Gordon Brown in 1997 and widely feted as New Labour’s greatest achievement, if it is such an impediment when it faces its first real test that it has to be overridden from above and foced to act obviously contrary to its own instincts? Sadly, the 1997 financial reforms are beginning to look a little ragged, with the Financial Services Authority, also created then, found to be ‘asleep on the job’ when it failed to see the Northern Rock collapse coming, and now the MPC treated as a mere political bauble when the going gets tough. So much for setting it free from political interference. Of course there is a good case for taking the power to enforce the popular will in matters of the highest strategic importance, as in this case, but it should be acclaimed for what it is – a return to democratic control over the nation’s key decisions – not undertaken by stealth to conceal the U-turn of which we should be proud.
WHAT CONTINUING PAYMENT OF BONUSES REALLY SAYS
Vince Cable said that the defiant payment of huge bonuses by some of the banks was ‘making monkeys’ out of the Government. Sadly, the truth is more sobering and unpleasant. The Government, for which read Gordon Brown, never had any intention of imposing any limitations on the banks beyond what was politically unavoidable.
The scale of this scandal is truly phenomenal. Taxpayers, facing the biggest collapse in jobs, income and housing since perhaps the 1930s, have seen £37bn of their money committed to rescue the banks, yet the colossal bonuses that drove the reckless trading that nearly brought down the financial system and now threatens major swaths of the real economy are being allowed to continue with impunity. RBS, subsidised to the eyeballs with £20bn of public money, is still planning to pay out £1.8bn in staff bonuses for the current 6-month period. For the same period and for the same purpose Barclays Capital has laid aside £1.2bn, and European banks with big investment operations in Britain have gone even further – Credit Suisse proposing to pay out £2.3bn, Deutsche Bank £2.1bn, and UBS £1.9bn.
The Government could perfectly well stop this if it wanted to, by making resort to public funds strictly conditional on bonuses being ended. It would be extremely popular and would be seen as a fair and proper measure to deal with a major cause of the present turmoil. So why isn’t the Government doing this? Because New Labour has never seen the current crisis as an opportunity to transform the banking system, but rather as a temporary breakdown which needed to be remedied at any cost in order to return as far as possible to the status quo ante.
The evidence is unmistakeable – the refusal to nationalise Northern Rock till every other avenue was completely exhausted, the determination to return it and other banks to the private sector at the earliest possible moment, a Banking Bill currently going through Parliament which is a technocrat’s charter and ignores any significant reform, a failure to take any action to deal with the roots of the crisis arising from toxic derivatives, speculative trading and offshore operations, and no commitment whatever to rebalance the economy between finance and industry which is now so drastically out of kilter.
Of course, the excuse for allowing the bonuses to let rip is that if a bank declined to pay enormous bonuses, key staff would simply switch to other banks which did gratify their demands. No Government that was determined to enforce its will would bow to such blackmail. Rather it would drop any reliance on voluntary guidelines, it would apply strict conditionality to any public assistance, and if need be it would regulate by a Bill or Statutory Instrument the payment of bonuses across the whole banking sector.
What is so distressing about this whole issue is how it exposes quite clearly that the Government has little or no ambition to change any of the fundamentals of out-of-control finance capitalism that is in the course of wreaking such unprecedented havoc on people’s lives. Even defenders of capitalism like FT columnists recognise that profound change in the underlying economic model is now unavoidable. What is the point of a two-party system if politically the case for this is not even being made?