One of Labour's major achievements has been to remove nearly a million children from poverty. What a tragedy if goodwill from this highly significant gain were lost through the 10p tax debacle. The problem for Labour, facing an imminent rebellion, is how to turn this round, in a manner that not only restores respect, but solves the big problem of how to recoup lost potential revenue. It can be done.

The cost of restoring the 10p tax rate would be £6.6bn. To concentrate the gain on those in need, and particularly the 5.3 million losers, one obvious mechanism would be to limit the res toration to poorer taxpayers and those who pay the standard rate. Since about 12 per cent of taxpayers pay at the higher rate, this would recoup some £2.4bn. The problem then is to raise the further £4.2bn. There are ways to do it that would make the tax system a lot fairer.

It is little known that although UK-based individuals hold some £284bn in shares or UK-based unit and investment trusts, the total declared disposal value of quoted shares in 2004-2005, the last year for which data is available, was only £5.8bn - just 2 per cent of their shareholdings. That 2 per cent figure implies that on average their portfolios are changed once in every 50 years. However, it is known that the average market holding at the time was in fact only 14 months. So we should end what is clearly substantial undeclared share trading taking place on the London Stock Exchange. Even if individuals traded their portfolio only half as frequently as 14 months, it would still, if collected, raise the revenue take by some £4bn a year. And collection could be secured by requiring automatic declaration by the stockbroker of all such deals.

Another remarkable fact is that nearly half (45 per cent) of all commercial property in the UK is now owned by foreign nationals. Yet they are unlikely to pay UK tax on their UK property sales, in contrast to the practice in many other countries. In addition to the revenue loss, this distorts the market. Closing this gap by charging capital gains tax (CGT) on the sales of foreign holdings could well form the second strand of the strategy. Property disposal in 2004-2005 accounted for nearly a third of all reported capital gains and amounted to £5.3bn. That suggests that gains for foreign property owners totalled some £2.4bn, and with an 18 per cent CGT applied, it would yield about £430m.

It may also not be realised that a fifth of all financial assets sold and subject to CGT have been owned for less than a year. But gains are meant to arise on investments, which by definition should be long-term holdings. Those arising on short-term trades are likely not to have come from investments at all, and it is clearly right that the profit in that case should be subject to income tax. More than £1bn of chargeable gain was declared on these disposals, representing a profit rate of only 13 per cent. This is far lower than the rate for disposals as a whole, where the average is 52 per cent. Closing this anomaly would yield at least a further £500m a year.

These actions alone would be enough to recover the revenue loss resulting from restoring the 10p tax rate. But there are other options.

For example, recent research for the TUC by Richard Murphy, one of Britain's foremost tax experts, found that the 50 largest UK companies almost always pay 5 per cent less tax on average than they declare in their accounts. As such, the actual corporation tax rate paid by these firms in 2006 was 22.5 per cent, when the rate set by parliament was 30 per cent. By the end of 2006, the cumulative tax savings recorded in the accounts of these companies amounted to a staggering £47bn - which seems indefensible when people on £200 a week are required to pay more tax.

Or how about getting tougher on tax avoidance? A recent crackdown has already led to more than 60,000 people admitting substantial undeclared income in offshore bank accounts, with a prospect of a £500m tax recovery.

All this of course raises the spectre of redistribution from rich to poor, a politically taboo subject. But there has never been a time when this was more justified, and it would signify a Labour government that really meant business.

----Originally published in The New Statesman, 24 April 2008

With French and German companies lining up to build new nuclear power stations in Britain, the die now seems cast for nuclear. Or is it?

The Government’s goal is certainly ambitious. Ten countries – primarily the UK, USA, France and Canada, but also including Japan, Korea, Brazil, Argentina, South Africa and Switzerland – have set up a body called the Generation IV International Forum to develop a successor nuclear energy system to the previous Generations I (Magnox) and II (AGRs and the Sizewell B Light Water Reactor) and to follow the Generation III systems now being built. The latter includes the French Areva Evolutionary Pressure Reactor (EPR), the prototype of which is currently being constructed at Olkiluoto in Finland, with another being built in France. It is intended that these Generation III models plus (hopefully) improved versions in future will lead reactor orders through to 2030, after which it is hoped that Generation IV will kick in, the goal of which is nuclear sustainability.

However, the roadmap to get there is beset by profound practical problems which may well prove insurmountable. Generation II and III nuclear power plants operate in a ‘once-through’ mode, which means that only half of the 0.7% fissionable uranium U-235 content of natural uranium goes into the fuel while most of the heavy metal ends up in enrichment tails and in spent fuel as waste. This therefore requires a constant and increasing supply of natural uranium to meet the rising demand for electricity, while at the same time it intensifies the already unresolved problem of what to do with vast accumulations of radioactive waste.

Even the optimistic IAEA-OECD Red Book of world uranium reserves puts the total at 4.7 million tonnes, and that assumes a purchase price of at least $130/kg. In fact prices are currently nearly twice as high, yet primary uranium production is falling. But even if the Red Book figures were roughly correct and not significantly inflated, their total of known uranium resources is expected to be exhausted by 2030.

If fast reactors were to be introduced by then – which is the centrepiece of the strategy – a further 10 million tonnes, twice the known resources, would have to be ready for production, and this could only come from ‘speculative and undiscovered resources’. The nuclear power industry answers this by reference to the universality of uranium in the Earth’s crust and in seawater; but the enormous energy needed to extract it from these low concentration sources would actually exceed the energy output of the fission of the fuel thus provided, so in terms of net energy availability it is irrelevant.

These pressures are already being felt. The US gets half its nuclear fuel from diluted former nuclear weapons’ highly enriched uranium from Russia, and even Russia itself with its insufficient primary production will be forced to rely on ex-weapons material to power its planned expansion. The UK’s aim of security of energy supply will not be aided by 100% import of nuclear fuels on top of increased dependence on imported fossil fuels, notably gas. Japan has closed 7 nuclear power stations built on an earthquake fault line. Olkiluoto is already 2 years behind schedule after just 2 ½ years building and already has a £1bn cost overrun, and there can be no reliable evidence on the economics of nuclear power until the new designs of the Westinghouse AP1000 and European EPR water reactors have been fully tested over many years in service. Contrary to claims by the industry, unresolved questions of cost and the looming shortage of uranium are the biggest challenge to its revival.

To overcome the fragility of this recovery, the industry looks to Generation IV development of the fast reactor by 2030 as the key to ultimate nuclear sustainability. However if for this purpose the fast reactor were adopted in ‘breeder’ mode, an even greater quantity of highly radioactive actinides (plutonium, neptunium, americium and curium) would be generated, exacerbating still further the waste management problem. If on the other hand the fast reactor were adopted in ‘burner’ mode, as currently seems likely to prevail, the waste problem is alleviated, but there is no sustainability.

The Generation IV fuel systems offer at present 6 types, of which two are emerging as likely candidates. One is the very-high-temperature gas-cooled thermal reactor (VHTR) which can be used for coal gasification as well as thermo-chemical hydrogen production. The US Government favours this because a hydrogen economy is seen as the solution to the exhaustion of oil reserves and the petrol (gasoline) derived from it. The main problem with the VHTR, which has a coolant system outlet temperature of about 1,000ºC, is likely to arise from irradiation characterised by the Wigner Effect and from progressive disintegration by neutron bombardment.

Indeed a similar problem with the Wigner energy in pile 1 at Windscale (now Sellafield) caused the fire and melted the fuel elements. Given the very high temperatures needed for this complex and quite likely unstable process, its viability would need rigorous and exhaustive testing before such a problematic reactor were ever adopted.

The second favoured Generation IV candidate is the sodium-cooled fast reactor system (SFR). The idea here is that as supplies of natural uranium decline, it is replaced by a plutonium-based fuel which is incrementally augmented by fresh plutonium in a repetitive cycle, providing claims of sustainability. It is envisaged that there is a gain in the plutonium in a surrounding ‘blanket’ of uranium 238 over and above the plutoniun consumed in the reaction, with a doubling time of 15-20 years. But again there are two key problems. It is a burner reactor, not a breeder, so that whilst reducing waste management problems it does not provide for sustainability.

Secondly, even if fast reactors of this kind could be successfully deployed – a big if – the doubling time of 15-20 years would require supplies of natural uranium to be maintained for decades, if not centuries, until the fleet of ‘once-through’ reactors can be progressively replaced. And the uranium simply isn’t available for that timespan. So, a nuclear renaissance? Forget it.

Is this Government really serious about climate change? We’ve just learnt that it is now lining up behind BP to get a decent-sized chunk of the oil-drilling licences soon to be issued in Iraq. That’s in line with the discovery that Britain is also planning to lay claim to over 1/3 rd million square miles of the seabed off Antarctica because of its oil potential. And the UK is also already developing sub-sea claims on Atlantic oilfields around the Falklands, off Ascension Island, and in the Rockall basin, as well as large tracts in the Bay of Biscay.

Tony Blair’s visit to Gadaffi in 2004 was prompted less by concern about Libyan WMD than by the goal of prising open the huge Libyan oil market. Blair’s red-carpet welcome in Downing Street in 1998 for Haydar Aliyev, the ex-KGB President of Azerbaijan, was designed to secure a £5 billion oil deal for BP, which it duly did. The Government also strongly backed the construction of BP’s $4bn Baku-Tbilisi-Ceyhan 1,000 mile oil pipeline which is now transporting a million barrels of oil a day of Caspian oil to the UK and the West. Again, Government support lay behind Shell’s massive $20bn Sakhalin Energy gas and oil project in Eastern Siberia (till Russia muscled its way into taking it over in 2006) and Shell’s equally costly Athabascan tar sands project in Alberta, Canada, to extract synthetic oil from oil shales even though extracting it generates twice as much C0² as conventional oil. And of course UK participation in the American invasion of Iraq was at least partly motivated by the goal of securing for BP some significant share in Iraq’s huge still-unexplored oilfields.

This policy of relentless – and extraordinarily expensive – pursuit of the remaining hydrocarbon supplies wherever they may be found across the world is both shortsighted and wholly contrary to any pretensions to be tackling climate change as being the greatest threat facing the planet. It is shortsighted because peak oil – the point at which oil production reaches its global peak before it then steadily declines – is widely expected to be reached some time between 2010-2015. At the same time the global demand for oil, driven mainly by the frenetic growth rate of the Chinese and Indian economies over the last decade and into the future, will continue to rise inexorably and the 1-1.5 trillion barrels of conventional oil that remain will be consumed in some 40 years and perhaps less. Even if the UK could secure a significant slice of the remaining hydrocarbon deposits across the world which, given that the intense competition between the US and China for the same supplies is the biggest struggle driving geopolitics today, must at best be highly optimistic, it is a policy which is absurdly short-term. Oil has no long-term future, and it is madness that so close to its demise we are not at this stage planning much more systematically for a post-oil world.

The policy also ruthlessly exposes the proud boasts that the UK is leading the world in the fight against climate change. While Government is telling people (rightly) to turn off their electronic stand-by buttons and to recycle more, which will have a useful but small effect, it is still cranking up the last enormous reserves of the fossil fuel mania
which will have a vastly greater and negative effect. While 10-25% of electricity generation in Europe is derived from renewable sources of energy, and 35-50% in Scandinavia, in Britain – which as an offshore island has more windpower capacity than most of the rest of Europe put together – it is a pitiful 4%.

Still today almost every aspect of energy policy in Britain is driven by the dominating influence of the old fossil fuel industries. The Government is proposing to triple airport capacity by 2030 even though on current trends air travel emissions may well by 2050 equal emissions from all other sectors combined so that even if all the latter were reduced to zero (which is fanciful), there would still be no reduction at all in the hugely excess level of total emissions that already exists today. And since the abolition of the fuel duty escalator in 2000, there has been no policy to discourage use of gas-guzzling and emissions-inflating SUVs except the mild differential in annual car tax between small and large cars which a recent budget increased for SUVs by 80p a week – which is a joke.

Nor has industry, or at least the largest firms, been required to report annually on their greenhouse gas emissions so that the public can see whether they, and particularly the most polluting industries, are making their due and proper contribution to cutting emissions by at least 60% by 2050, as the scientists say is necessary. There was indeed a Government legislative measure to do just that in 2002, but it was dropped at the last moment in order to burnish the Chancellor’s deregulatory credentials with the CBI. Nor, to cut food air miles when produce can be grown locally, are food products required to be labelled with the country of origin and the distance they have travelled to be sold.

There are however two areas where the Government is certainly headed in the right direction. One is the proposal that all new house-building by 2016 should be emissions zero-rated. This is a bold initiative, though it needs to be supplemented with measures to reduce the carbon-rating of existing buildings progressively towards zero. The second is the proposal to introduce a carbon allowance for each family, depending on its size, which will then gradually be reduced year by year, though its date of introduction should be brought forward from 2012.

The ongoing love affair with oil has got to be broken. In 1990, taken as the baseline date for climate change purposes, Britain generated about 160 million net tons of carbon a year. If we are to cut emissions by at least 60% by 2050 (though the scientists are now saying 80% will be necessary), we will have to reduce that to no more than 60 million tons – a reduction of around 2 million tons of carbon every year right through to 2050. On that basis the total should by now have reduced by some 35 million tonnes compared with 1990. In fact it has reduced by only about 5 million tons. There could be no starker reminder that if we are really serious about stopping catastrophic climate change – in reality, not just in words – then we need as a top priority a blueprint for a zero-carbon post-oil Britain, and we then need to enforce it.

---Originally published in Compassonline.com, first week of April 2008

Nigel Lawson, the former Tory Chancellor of the Exchequer under Thatcher, never known for modesty, has taken it upon himself to write what he sees as the definitive tract in denial of climate change. Despite the polemics, it is well enough documented to be worth taking him on.

He rightly rejects the easy assumption that every major catastrophe, like Hurricane Katrina, is simply due to climate change. It is more complex than that, and whilst global warming may make such events more likely, other factors may well play a significant role. He is right that the science of the immense inter-connectedness of climatic phenomena, both within the Earth’s atmosphere as well as solar activity and cosmic rays, still has many uncertainties, and that disentangling the natural variability of the climate which has always existed from that which is new and man-made is fraught with difficulty.

He is right too to mock at some of the solutions that have been all too readily peddled. The EU Emissions Trading Scheme, so favoured by the marketers, has, as he admits, turned out to be a gigantic scam allowing businesses to invent a host of devices to cream off billions of pounds from making imaginary carbon reductions. He is right that the current stampede into biofuels is hugely counter-productive both in leading to the destruction of rain-forests and in competing for land with food crops, thus forcing up world food prices. And he is right too that carbon offsets, so beloved of today’s political and business jet-setting classes, are no better than the sale of indulgences by the mediaeval church which allowed the sinner to go on sinning so long as he paid the going price for it.

But Lawson wants to go further than tilting his lance at the sillier eccentricities of what he sees as the climate change establishment. He wants to demolish the entire infrastructure of climate change theory. But here his arguments are badly flawed.

His attack centres on three main contentions. First he argues that greenhouse gas concentrations in the atmosphere do not automatically translate into rising average global temperatures, since there was a pause in the latter between 1940-1975 and again between 2001-2007, and therefore the basic theory fails. However, what he neglects is the much bigger picture provided by the Antarctica Vostok Station’s deep drilling which has found that carbon dioxide and methane, the two main greenhouse gases, rose and fell in near-lockstep with average global temperatures over the last half-million years. Thus the basic theory holds, even if the factors that cause short intermittent fluctuations are not yet fully understood.

Second, he contends that even on the most pessimistic economic scenario – that global warming will cut world GDP by 5% by 2100 – people will still be greatly better off by then and global warming will reduce that only very slightly per person, so we shouldn’t be too bothered about it. But averaging it out across the planet gives a very false impression. Whilst most people may be not greatly affected, hundreds of millions of others may die. It’s like saying that the Asian flu pandemic of 1918 may have killed 40 millions and the Second World War 60 millions, but when the global population was 2 billion, we can live with that because world economic growth per capita was only slightly interrupted. Not an argument that will I think appeal to most people, especially when we cannot tell in advance who will get through in a much more dangerous world and who will die.

His third contention is that the authoritative Stern Review, published last year, understates the economic costs of taking early action now to head off a potential future global catastrophe and overstates the benefits for future generations. He may well be right that Stern has taken too low a discount rate for his calculations, but in one important sense Stern may actually be underestimating future climatic and economic costs. This is because global climate change is not a linear process where warming grows smoothly and proportionately, but rather is beset by feedback mechanisms which abruptly, and maybe uncontrollably, magnify the climatic change with unpredictable consequences. Scientists are still uncertain whether some of the known mass extinctions in the Earth’s history of the last half-billion years may have happened for these reasons. Such mechanisms might include the melting of the Antarctic and Greenland ice-sheets, the die-back of the world’s rainforests, and the mass release of methane hydrates from the ocean seabed.

When we may still be only in the early stages of climate change with very much worse to come and when the delay in the dissipation of greenhouse gases in the atmosphere may take centuries, a precautionary policy is the only sensible course. That should include switching out of fossil fuels into renewable sources of energy at the fastest practicable pace, a high carbon price to incentivise decarbonisation, and carbon capture and storage when developing countries insist on large-scale coal-burning.

THE biggest question about Northern Rock is still not being asked. It’s not just about billions in loans and in guarantees from British taxpayers and how they can be redeemed. It’s not even about whether temporary public ownership at the outset would have been a better solution. It’s about what caused this systemic failure in international financial markets and how it cam now be put right.

The breakdown of financial market operations has become systematic. First, the new exotic securities in bonds and derivatives were generated because they offered the prospect of turning property lending, previously seen as a long-term business, into a short-term one with instant profits. Instead of waiting up to 25 years to recoup the loans, “structured investment vehicles” enabled banks to regain their funds straightaway so that they could lend them out again and make even more money. This process was repeated endlessly, with hedge funds, pension funds and insurance companies joining in frenzied rounds of buying and selling re-bundled mortgages and thus widening the repercussions of the crisis when it finally broke. SIVs and the labyrinthine “collateralised debt obligations” – the pooling structures which contained them – were not understood even by those who dealt in them. Repeated repackagings left what were always complex instruments bearing little or no value comparable with the original asset taken as collateral.

Moreover, many SIVs have been set in offshore financial havens with a reputation for secrecy and light controls. In fact, no regulatory agency demanded transparency and no auditor condemned the securitisation process on the grounds that it confounded the valuation of risk.

The crisis has also exposed the financial industry’s relentless drive for quick profits, irrespective of long-term security, in an environment woefully lacking in public accountability. The present dominant enterprise culture locks remuneration for chief executives, directors, markets and investors to short-term gains and creates perverse incentives for reckless behaviour. The rewards of Northern Rock’s directors over the past five years are a case in point: the £30 million they made in salaries, share incentives and bonuses were profit-driven, although the losses are now accruing to the taxpayer. This crisis is not a temporary glitch which can be got over as soon as a satisfactory buyer for Northern Rock can be found. The monumental scale of the losses – present and future – belies that.

Ben Bernanke, the chairman of the United States Federal Reserve, has already estimated the losses from bad mortgage loans at $150 billion. And that may grow, given that a staggering $1.3 trillion of sub-prime loans were set up in the two years to 2006 – of which nearly half may be unrecoverable.

In Britain, HSBC has already announced losses from its sub-prime business of nearly £1 billion, while other British banks have yet to make clear their write-downs, which must foretell a tightening of credit. When the British economy has long been kept afloat by easy credit – mortgage and credit card debt now amounting to some £1.35 trillion, which is greater than the country’s entire gross national product – the knock-on effects of this crisis will stretch far beyond the perpetrators in the financial sector.

As the enumeration of actual and potential losses reveals, the deregulatory, light-touch markets regime underpinning the neo-liberal ideology that has dominated the international economy since the 1980s has sustained a severe reverse from which it will take a very long time to recover – if it ever does. This may be seen as a repetition of the secondary banking crisis of 1974. The lessons of that time have clearly not been learned and an economic crisis has now returned with a vengeance: lack of prudential controls, regulatory capture, obscure accounting, absence of auditor independence and an economic elite driven by reckless short-term profit-making at the expense of the taxpayers who have to bail them out.

The risks of unregulated markets have now been shown to be far too great and it is clear the market on its own cannot establish the necessary supervision. Investors in loan-backed securities have not sought tougher monitoring because they were captured by the allure of the yields on offer, which Alan Greenspan, the former chairman of the US Federal Reserve, has compared to cocaine abuse. Auditors have been only too happy to offer a clean bill of health to companies in which they may have an interest. The Financial Services Authority, it has emerged, does not have inspectors dedicated to the regulation of banks or to monitor potentially worrying investments or to test financial products against risk of public detriment.

In view of this systemic failure in the financial sector and its kickback across the whole economy, what is now needed is a committee of inquiry into the governance, accounting and auditing of the banks. This should investigate offshore structures, complex derivatives, the lack of accounting transparency and the overriding need to align commercial incentives with public accountability. Otherwise the same problems will recur again – only worse.

With the latest action on Bear Stearns the most serious financial news yet, it is not too soon to envisage a new era.

The quarter century dominance of Keynesianism was overturned by the oil price-induced hyper-inflation of the 1970s, which paved the way initially for the rise of monetarism and thence the quarter century ascendancy of the Washington neo-liberal consensus. The sub-prime housing fiasco and the subsequent banking credit crunch, the results of which are still being felt across the international economy, are now bringing this period of hegemony to a close, not only because of western banks having to be bailed out by sovereign funds from China, Asia and the Middle East, but mainly because of systemic failure which is at risk of precipitating collapse.

The problems go far deeper than the demise of Northern Rock or the activities of a single rogue trader at Societe Generale. These were dealt with by the authorities as though they were isolated aberrations of a basically sound financial system, by trying in the former case to manipulate an alternative private takeover and in the latter to tighten the internal trader rules. This is like taping the fences to hold back the tsunami. The Treasury's recent proposals to allow the Bank of England to carry out secret rescue operations or the Financial Services Authority to seize the deposits of savers if a bank is in trouble, are scarcely any more useful. All these measures simply do not recognise the scale of the challenge that now confronts financial markets.

The whole nature of the global financial system has altered drastically in ways that the International Monetary Fund (IMF) can no longer control. The investment managers of private equity funds and major banks have displaced national banks and international bodies and extended their power far outside existing regulatory structures by "reintermediating" themselves between national and individual traditional borrowers on the one hand and the markets on the other. They have deregulated the world financial structure, making it far more unpredictable and liable to crises. Their business is to generate out-of-the-ordinary investment returns, which governs their reward, and it drives them to take ever-mounting risks.

It is ironic that the deregulation and liberalisation, which the IMF and the Washington consensus advocates championed so aggressively through the last three decades, have now spiralled out of control. That is the result of a conjunction of factors which has created hugely greater risk than they ever conceived. One is the entwining with the US fiscal and trade deficit which is still rising fast. The Bush administration has added over $4tn to the federal borrowing limit, which now stands at $9.8tn. The continuing devaluation of the US dollar has then driven banks and funds to see increasing financial risktaking as worthwhile.

Second is the rise of hedge funds, which now control assets worth $1.5tn worldwide, with the top 10 alone controlling $250bn. They are often highly profitable, but at the same time increasingly dangerous. Their reward structure encourages recklessness: the 26 leading hedge fund managers in 2005 earned on average $363m each. Altogether, hedge fund managers in the City and Wall Street took home $50bn last year. They depend on a constantly rising stock market, and current conditions expose their fragility. Even the Long-Term Capital Management hedge fund meltdown in 1998 showed that banks simply do not understand the chain of exposure, yet today the financial network is much larger and more complex.

Third, hedge funds now deal in credit derivatives and a variety of other arcane financial instruments. The credit derivative market barely existed in 2001, and grew quite slowly until 2004, when it really took off, exceeding $17tn by the end of 2005. Their sheer complexity was designed partly to prevent their being copied, but mainly to package a seemingly attractive product which could generate enormous short-term gains. The downside, ignored while profits remained high, was the potential for unleashing a chain reaction of losses that could engulf the hedge funds that had jumped on the bandwagon. In the event the sub-prime market debacle provided the trigger. However, other devices, even more opaque, such as split capital trusts, collateralised debt obligations and market credit default swaps, have caused the IMF and senior financial regulators even more worry.

As these risks and problems have mounted inexorably, the IMF has undergone a structural and ideological crisis. Its outstanding credit and loans diminished sharply from $70bn in 2003 to less than $20bn now, drastically cutting its leverage over economic policy across the world. It is now actually in deficit. This trend has become even more pronounced as developing countries, mainly China provide even more foreign direct investment in other developing nations. That has now been extended further by the partial takeover of the western banking system - Citigroup, Barclays, UBS to name but a few - by Arab and Asian governments.

There are at least two other sides to this financial maelstrom. Both are again structural. One is the greatly increasing ratio of corporate debt loads to core earnings. Whilst interest rates remained low, leveraged loans provided a solution for firms that should have gone bankrupt, and now too often incompetent, debt-ridden firms find a market with hedge funds and other financial instruments. Another issue is that the speed and complexity of the deregulated market has generated widespread errors on a disturbing scale. The International Swaps and Derivatives Association recently found that 20% of deals, many involving billions of dollars, were subject to major errors.

The dangers that all these factors are exposing are slowly accumulating. The ticking time-bomb in the US banking system is not resetting sub-prime mortgage rates; it is the contractual ability of investors in mortgagee bonds to require banks to buy back the loans at face value - at present almost 10 times their market worth. In the UK the contagion affecting the banks is beginning to seep into other areas, notably the monoline insurers (who provide the insurance for bonds), and could well threaten the market for credit default swaps which, given its size - $45tn - could prove catastrophic.

The central banking and governmental response to the crisis - showering unlimited liquidity and huge tax cuts onto the markets - is no solution if, quite apart from exacerbating moral hazard, it leads to higher inflation, a falling dollar and higher long-term interest rates. On the other hand, for the authorities to be blackmailed into saving the current international financial structure at any price is simply to invite the next crisis, only sooner and worse. If we are to escape this situation being repeated again and again, what is needed is a frank recognition, however painful, that self-regulation has failed spectacularly and that a new system of international financial governance is now urgently needed in which the re-regulation of banking must be the least requirement if government and taxpayers are to be expected to guarantee deposits.

So Tony Blair wants to rescue religion from extremism and irrelevance. He certainly is brazen. You really cannot make yourself the obedient servant of Bush, the neo-conservative face of Christian fundamentalism, and then expect to be taken seriously as a voice of moderation. You cannot seduce people into an illegal war in Iraq through a systematic misrepresentation of the facts, and then expect to be accepted as a faith-driven messenger of peace in the cauldron of hatred in the Middle East which he has himself helped to exacerbate. You cannot ruthlessly centralise power and undermine accountability at every point in a decade of rule, and then expect credibility when claiming to be guided by a faith motivation for the last 25 years. As someone once said, ye shall judge them, not by what they say, but by what they do.

He is quite right in my view that religion has a major role to play in world affairs, but not as a convenient adjunct to help solve the political and economic problems of globalisation. He needs to learn that religion is not the servant of politics, even less of particular politicians, but rather an appeal for justice and peace to the world’s people which demands humility, not arrogance, serving others, not dominating them.

We should be very wary of those who claim a close link to God in pursuit of their own ambitious purposes. Bush claims it in pursuit of extending the American empire. Saddam Hussein claimed it in defence of his own tyranny. The Islamic jihadists claim it for the use of terrorist tactics in resisting Western domination. The Jewish settlers’ movement use it in claiming their God-given right to the land of Palestine. Tony Blair is right that there is a fundamentalist face to religion today that has done fearful damage across the world, but he should recognise that it is not confined to Islam or the Middle East.

The consultation document launched on 22 November last year reached an absurd conclusion – that a new airport the size of Gatwick could be bolted on to Heathrow without any adverse environmental effect. It never commanded any credibility and has often been the object of derision. But what is so disturbing about the Sunday Times revelations of 9 March is the exposure, based on documents uncovered by FOI requests, of just how deceptive and manipulative Government Departments can be in pursuit of a pre-determined objective and how far they are prepared to collude with corporate interests in defiance of any objective standards of integrity and honesty.

What these FOI documents reveal (to be found at extra.timesonline.co.uk/heathrow/foi1,2,3,4) is that BAA gave directions to DfT officials on how to strip out data in the consultative documents which showed that the expansion would cause unlawful levels of pollution and extra noise. They show that BAA repeatedly selected alternative data for the consultation devised in order to ensure that the final results showed an insignificant impact on noise and pollution.

They also show that BAA gave unprecedented access to confidential papers and allowed the company to help to rewrite the consultative document. And they show that the final document significantly reduces the third runway emissions by simply excluding incoming international flights. We also know that one official involved in Project Heathrow which researched the environmental impact of the runway said: “It’s a classic case of reverse engineering. They knew exactly what results they wanted and fixed the inputs to get there. It’s appalling”.

Now if all this is true – and none of it has been denied – it indicates that a line has been crossed which is wholly unacceptable. Irrespective of the issue, the people of this country expect the Government, of whichever party, to produce a case, for whatever policy they may choose, which is fair, balanced and to the fullest possible degree accurate and honest. The era of spin and manipulation has done fearful damage to the political culture of this country, and politics will not recover until the public becomes confident that they are being told the truth, however hard the truth may be, and not simply a massaged version to suit the interests of the powers-that-be.

Several implications follow. The consultation document should be withdrawn and replaced by a much more honest and accurate one before it is legally challenged in court and before a judge requires it to be withdrawn. There must be accountability for this episode and – assuming no Ministers were involved in the massaging of the data – the leading civil servants involved, including David Gray who is named as leader in all the FOI documents released, should be disciplined and if necessary removed as would occur in any other sector of employment.

And in addition the Government really must stop going through the formalities of a consultation where it is clear to everyone that they have already made up their mind. It happened over GM foods, nuclear power, Trident, and now it’s happening over the third runway. The Government must listen more to the people’s voice, in this case the long-suffering and much put-upon people of West London, and listen less exclusively to the big industrial and finance barons. What is good for BA and BAA is not necessarily good for the UK. This Government is there to support the people of this country, not a corporate State.

Today the House of Commons debated housing, and in particular the acute lack of social affordable housing almost everywhere in the country. There are three main problems. One is that the demand for such housing far exceeds the Government’s present plans to provide it. Second, it is unrealistic to rely on the private sector to provide the decent, secure homes that people on lower incomes need at prices they can afford, nor is there evidence that the Housing Associations are rising to the challenge to fill the gap. And thirdly, there is nowhere near enough funding for local authorities to maintain and repair their existing stock, let alone build the new houses desperately needed.

It is good that the Government is proposing to raise the number of houses built per year from 200,000 to 240,000, to reach a total of 3 million new houses built by 2020. But the current baseline is only around 170,000 a year, and that number is anyway likely to fall for some years ahead because of the sub-prime market crisis and the credit crunch. Moreover, the numbers of specifically social and affordable houses needed is estimated to be an extra 50-70,000 a year, rather more than the 30,000 proposed by the Government, if the large backlog of homelessness and poor or unsatisfactory housing for low-income households is to be cleared within a reasonable period.

In the current economic climate there is no way that the private sector can remotely fill the gap. Nor indeed would it be wise for them to try to do so anyway. A Parliamentary Answer I received in November revealed that there are already more than 200,000 households who have taken out mortgages with a house price-to-income ratio in excess of 6:1, including 38,000 in excess of 10:1. We are already in danger of generating our own sub-prime market disaster in this country too, not just in the US, and we should certainly not risk making the present downturn any worse. Besides, there is probably a fifth of the population who have such low incomes and such uncertain employment prospects that they will never be able under present circumstances reliably to afford to buy and maintain a home.

For them what is clearly needed is good-quality secure public housing at rents which they can genuinely afford. And that is the message which the current levels of unmet housing demand are crying out to be heard. There were 1.6 million households on Council waiting lists in 2006, and the number is probably nearer 2 million today. In Oldham the number on the Council waiting list is now 12,000; yet the total Council housing stock in Oldham is now only about 12,500 – down from some 27,000 homes twenty years ago. In addition, across the country there are nearly 100,000 households who are homeless in temporary accommodation, including several hundred in Oldham.

Yet despite the pressure cooker conditions now prevailing in public rented housing, the demand to stay in Council housing, and to have more Council housing, could not be clearer. No less than 2 ½ million existing Council tenants in nearly 200 areas across the country have still opted in transfer ballots to remain as Council tenants even though they have been told that if they don’t vote for either stock transfer to a private landlord or to a housing association or to an arm’s length management organisation (First Choice Homes in Oldham), they will be denied funding for proper repairs and maintenance. Tenants know they will not get from private landlords or even housing associations the same security, socially affordable rents (at least till now) and a publicly accountable Council to complain to if things go wrong.

That’s why it’s now so vital that the Management and Maintenance Allowances and the Major Repairs Allowances which Councils get from the Government should be paid to all Councils (even where the tenants in a ballot have declined to shift) and that they are pitched at an adequate level. At present they are fixed far below this level. A report from the Government itself, issued this month, says that current allowances “undercut basic investment needs by 43% over 30 years”. That is a staggering admission – that the funding provided for Council housing is little more than half of what is basically needed.

It is this huge shortfall in allowances which is driving Councils to privatise their homes, even against the wishes of their tenants. It means also of course that many local authorities can’t meet the Government’s Decent Homes Standard and that many others who may be meeting it now will be unable to sustain this standard in the longer term.

At present, the net funding trail is, perversely, going in the opposite direction. Council rents are actually rising faster in order to close the gap with private rents in the locality, though ideologically that seems to be turning the whole purpose of Council housing on its head. And Council rents are even rising higher than expenditure so that tenants will actually be paying a tax to the Treasury this year of some £180 millions, and a Parliamentary Answer of 18 December even suggested that this would rise to nearly £1 billion by 2022. This is on top of the £1.5 billions already being taken each year from Council Housing Revenue Accounts, ostensibly to repay historic debt, though since tenants don’t own the asset, it is difficult to see why they should be burdened with servicing the debt.

The amendment to the Housing Bill I moved tonight in the Commons is about justice for tenants which is long overdue. I moved it because at every surgery I hold in Oldham I am distressed, hurt and angry that usually half the constituents attending have come because their housing situation has become intolerable, and yet I know that in current circumstances I can do nothing. What is desperately needed is that a major Council house-building programme should now urgently be re-started, and if the Government cannot afford that in the present financial climate, then local authorities should be permitted to borrow the necessary funds on the open market against the collateral of their existing housing stock. It is because I believe this so passionately that I voted against the Government tonight along with 27 other Labour colleagues.

Some people must wonder what party John Hutton thinks he’s a member of, after his saying that we should celebrate and enhance wealth and inequality. Now he’s off on another fantasy that takes him even beyond Thatcher’s nuclear pretensions.

Yesterday he proclaimed that a UK nuclear revival would produce a £20bn economic bonanza, create 100,000 new jobs, and benefit the economy as much as North Sea oil. This is worse than delusional; it’s just plain silly.

The nuclear record so far is that it’s costing the taxpayer £72bn – that is £1,200 for every many, woman and child in the UK – to decommission worn-out nuclear plants. It’s costing a further £20bn to deal with the nuclear waste left behind, which will remain toxic and hazardous for 100,000 years or more. In addition, British Energy, the holding company for Britain’s nuclear reactors, went bankrupt and had to be bailed by the taxpayer at a cost of £5.3bn. Some bonanza!

The Government gives four reasons for supporting nuclear. None of them stands up.

First, they say it’s needed to keep the lights on. It takes at least 13-15 years to build a nuclear power station, but by 2020 – and no new nuclear power station will be ready by then – there will already be a huge energy gap of 20GW. So nuclear will be far too late to keep the lights on.

Second, the Government says nuclear is necessary to help meet our climate change requirements. But because half our energy demand is for heat (mainly gas-based) and the next biggest energy demand is for transport (oil-based), and because electricity generation, for which nuclear provides less than one-fifth, is the smallest part of energy demand, nuclear actually provides only 3 ½ % of total energy demand, and falling. So overall nuclear’s contribution to cutting carbon emissions is vanishingly small.

Third, Hutton says no public subsidies will be necessary. This is another bit of spin since his own DBERR White Paper says (para. 3.73) that the Government intends to put a cap on the costs of decommissioning for nuclear operators and then make taxpayers pick up the bill. There is also the obligation on the Government, aka the taxpayer, that if a nuclear company goes bust, as the British Energy nuclear company went belly-up in 2003, it has to be bailed out by the public sector. And there are always in the background the incalculable costs of a nuclear accident, which the Government White Paper itself is not negligible and cannot be dismissed.

Fourth, the nuclear waste problem is unsolved and nowhere near solution. Already there 10,000 tonnes of long-life highly toxic intermediate and high-level waste in the UK, including much radioactive material with a half-life in excess of 100,000 years, and according to the Government’s own figures this will rise to half a million tonnes by the end of this century, even with no new nuclear build. The only place in the country where the local population will probably accept a nuclear dump near them is Sellafield, and in 1997 that failed to pass the nuclear inspectors’ safety case. So how can it be justified to generate a whole lot more extremely dangerous nuclear waste when after 50 years of nuclear we still have no idea where to put the existing huge stockpiles which in any case are due to expand 50-fold during this century?

What Hutton fails to recognise is that nuclear is not the solution to the problem, but part of the problem. The nuclear industry may not be very good at producing low-cost sustainable energy, but they certainly know how to manipulate weak, disingenuous and badly-advised ministers.

There will be no settlement in Iraq without a resolution of the Israeli-Palestinian conflict and without talking to Syria and Iran, so there needs to be a whole Middle East peace settlement. It is perfectly possible to see the key outlines of such a grand bargain.

One aim should be the establishment of a federal Iraq, not imposed by the West, but facilitating efforts by the Iraqis themselves to find it. Though federation has been scouted as a Western idea, it is in fact a development of the originally separate Ottoman provinces of Mosul, Baghdad and Basra which prevailed for centuries before the Baathist dictatorship of Saddam was forced on the country in the 1960s.

The Israeli-Patestinian conflict has to be ended by establishing a fully independent Palestinian state within approximately the 1967 borders, together with a guarantee of Israel’s frontiers and an internationally patrolled demilitarised zone along its borders with Palestine and Lebanon for a lengthy period (maybe 15-20 years).

All Western forces have to be withdrawn from the Middle East over a 5-10 year period, in return for a guarantee by the oil-producing states of an uninterrupted supply of oil. At present, the US-UK occupation is actually fuelling the insurgency and driving the suicide bombing, which was unknown in Iraq before the occupation. It will require both a political turnaround by a new US Democratic President in 2009 and a major switch in the West away from fossil fuels.

The most difficult part of an overall settlement is the negotiation of a nuclear-free zone in the Middle East. This would require the nuclear disarmament of Israel in return for Iran (and other Middle East countries in its wake) giving up its nuclear weapons programmes. This would require close supervision by the International Atomic Energy Authority, armed with intrusive powers of inspection and back ed by sanctions. If Israel categorically rejects such a bargain, it is difficult for the international community to deny Iran the right to develop its own nuclear weapons, and nuclear proliferation cannot be prevented. The Middle East is the test case for the deal at the heart of the Nuclear Non-Proliferation Treaty, that in return for pledges (enforced by open inspections) by the non-nuclear powers not to develop nuclear weapons, the existing nuclear powers would dismantle theirs.

The suspended customs union between Israel and Palestine should be re-activated and extended to Jordan and Lebanon, in order to establish a Middle Eastern common market. Part of a grand political bargain would be the provision of extensive reconstruction funding.

These may seem giant, unreachable steps, but at this point 5 years on from the invasion the impasse in Iraq plus the real negotiation of a multilaterally owned settlement for the whole Middle East make these steps not only realistic, but the only practicable way forward.

There is something really surreal about the current political scene. As the position of the two main parties becomes increasingly intertwined and the differences between the Blairite and Brownite variations of neo-liberalism become increasingly difficult to detect, the debate about the political fundamentals has dwindled almost to invisibility. Never was ideology more needed, and never was it more lacking.

It isn’t as though there’s little to debate. The free-market Washington consensus, which has governed the global economy for the past quarter century, is in crisis as a result of the sub-prime market fiasco and other excesses of two or more decades of deregulated markets. Yet neither in Parliament nor in the media is there any serious debate of long-term reform. The power structure in Britain has dramatically altered over the same period with the growing centralisation of power around No.10 balanced by the downgrading of Parliament, and linked to the dominance (till now) of the City, big business and increasingly the media. But nowhere is the loss of democratic accountability even discussed, let alone remedied. And since the Iraq war ended nearly five years ago, there has still not been a Parliamentary debate with a vote on the causes, handling and aftermath of the war.

In the absence of discussion about the real big issues, politics has become a matter of narrow positioning, re-positioning and counter-positioning between political elites round daily issues as they arise. Of course these issues have to be addressed, but addressed in terms of an overarching philosophy with which people can identify. The Progress think-tank talk of “a future agenda which is post-Blair, but not anti-Blair; building on the achievements of the past decade, not running away from them” is simply not fit for purpose.

Labour will only make a major and sustained recovery when it stands up for its natural supporters – potentially more than half the population – against the forces of the market which always favour the wealthy over the powerless. The new ultra-wealthy, epitomised by the £27m (£519,230 a week) paid to Bob Diamond of Barclays Capital, are seen by many as greed incorporated when living in the same society as those on a minimum wage of £200 a week. A ratio between top and bottom incomes, which was less than 50:1 only thirty years ago, has now risen to 2,600:1. Labour voters expect their Government to fight inequality, not side with it.

What Labour needs to do, to inspire its potential supporters that they have a Government on their side, is to change the power structure in the manifold different ways that will strengthen the hand of those at present with little or no power. It means implementing the Charter of Fundamental Rights which the other 26 EU States have all accepted without demur. It means restoring the same employment protection rights as are enjoyed elsewhere throughout Europe, particularly for temporary and agency workers. And it must involve protecting individual freedoms from being eroded by cutbacks in legal aid, restrictions on jury trials, limits on the right to protest, and undue detention without charge.

Money is power too, so raising the minimum wage, currently just £5.52 an hour, to at least £7 in the first instance, would empower many with little opportunities. Equally, ensuring through greater transparency in wage and salary determination that representatives of all the main grades in an organisation share a much bigger say in the allocation of annual pay increases would radically change perceptions about rights and power. And it means taking redistribution out of its taboo seclusion – reclaiming a good chunk of the £25bn a year identified by the Institute of Fiscal Studies as tax avoided or evaded by large corporations or very rich individuals (including the hyper-rich non-doms who pay no tax at all) and using it par excellence to provide decent social care for the most vulnerable elderly.

Labour is expected too to ensure that the market is kept in its proper place and not allowed to subvert the public values which give protection and rights and meaning to citizenship. The concept of ‘choice’ in the health services and education has been largely a pretext to open them up to the private sector, without any firm evidence of better outcomes and leading bizarrely to the Tories being poll-rated on health as better than Labour. This aberration should now be stopped if Labour’s reputation as the party of the universality, equity and accountability of public service is to be retrieved. There are other reasons too for a major change of direction here. PFI has proved enormously wasteful, over-extended IT projects have cost billions and still failed, and consultants have enriched themselves at taxpayers’ expense out of all proportion to public benefit. Yet preventive health services, where both better health and much greater cost-effectiveness could be secured, remain hugely under-subscribed. A change here could bring enormous dividends.

Above all, electors want a Labour Government dealing effectively with market failures and excesses. They would prefer temporary public ownership for Northern Rock if that avoids £56bn of loans and guarantees at their expense. Where privatisation has led to hospital infection and overcrowded trains, which they feel strongly about, they look to the State to reverse it if that is necessary. They want a changed relationship with the market which allows the private company brought in to upgrade the London Underground, Metronet, to walk away leaving the public to pick up their £2bn debts. And they expect a Labour Government to tackle Big Business on their behalf where that is necessary – the food industry over unhealthy food and obesity, the gaming industry over casinos, the drinks industry over alcohol-fuelled violence and anti-social behaviour, and the airlines over climate change.

It will not be easy for any Government to begin to move away from the privatisation, deregulation, unfettered market tenets of neo-liberalism which have governed Western political economy for the last three decades and to establish again a much more healthy relationship between the market and society. But the gathering international crisis where money and power have so clearly over-reached themselves offers a real chance. And re-inspiring the Labour project in the run-up to the next election may leave little choice.

Darling's problem is that he has inherited an economy facing perhaps the worst downturn for decades, but given the Government's neo-liberal monetarist agenda can do little about it when public borrowing is already at £40bn. The Budget is therefore a deflection of attention to other more innocuous areas.

There are small, but welcome, measures to reduce child poverty. But the reduction in the number of children living in households with incomes below 60% of the median (the conventional definition of poverty) is only from 2.2 million to 2.1 million. Pensioners will get a higher winter fuel allowance, but nowhere near enough to compensate for the 50% rise in energy prices for the poorest households over this last year.

Over climate change the Chancellor is full of good intentions, but there is no smack of firm action. He is 'examining proposals' for an 80% carbon reduction target, yet the evidence is overwhelming that this is necessary - so why doesn't he say he'll do it, especially since it would win him billions in extra revenues which at this moment he desperately needs? And plastic bags are going to come under the cosh if the retail industry doesn't deliver reductions in use within a year. But why pussycat around when we already use a staggering 13 billion a year and when voluntary action will never deliver the 90% cut needed?

And high-polluting cars (Whitehallese for gas-guzzlers) will be dealt with - but only with higher rates of road tax unspecified and not until 2010. Why not in 2008, and why not £1,000 for the SUVs if he really intends to discourage their use, not merely make a gesture?

At least Darling has kept to his annual £30,000 fee for non-doms, but again not till they've been staying in Britain for 7 years. Why wait 7 years rather than, say, 3 years, and why not a 2-tier rate with a higher rate of perhaps £100,000 per year for the really big boys, the multi-millionaires and billionaires? That's still a snip for the ex-pats in Monaco.

One of the biggest indictments of Britain today is that inequality has grown hugely under New Labour and we are now the most unequal society in the Western world apart from the US. Not much change then in this budget.

- Published on The Independent's Open House forum 12 March 2008

I made the following comments in the House of Commons on 5 February 2008:

It is shameful that we are not proud to welcome the charter of fundamental rights into our own legislation, which every other nation in Europe has taken in its stride as the foundation of a civilised society. I cannot see what the problem is. We have continual discussions about whether it will make a difference, and I am not sure that it would, but I cannot see why we object to implementing it.

It will presumably be left for the European Court of Justice to decide for itself whether the UK has attempted to provide for such rights in its national law and to decide whether the attempt to provide such rights is adequate in the light of the charter. Indeed, it is very difficult to see how this discrete carve-out, so methodically prepared, can work in practice. Firms operating in one member state will be affected, but if they operate in more than one member state, the charter will clearly apply. Migrants coming from another member state to the UK would presumably still be covered. Anyone who travelled to another member state from this country—for health services, for example—would presumably be able to use the charter. Moreover, there are 30 years of EU jurisprudence to say that there can be no two-tier system of European rights.

What I find most sad and perverse about this whole sorry saga is that, over time, this claimed uniqueness for the UK will almost certainly increasingly unravel. It will be eroded by ECJ judgments, which are quite likely to happen, and also by the interactive knock-on effects between title IV and the other parts of the protocol. It seems to me tragic that the Government are investing such enormous legal and logistical resources in resisting something on which they are all too likely to lose in the end, yet which every other country in Europe has decided is practical and desirable.

I simply do not understand why the Government have got themselves into that position unless it is fear of the Eurosceptic press. That is the only other consideration that I can think of, but I hope that that is not the case.
For any Labour Government, enforcing a justiciable charter of fundamental rights should be integral to securing a social Europe to counter the neo-liberal orientations of the EU treaties.

That is starkly illustrated by the Viking and Vaxholm cases, which were mentioned earlier. Two months ago, the Swedish and Finnish unions sought to prevent companies from massively undercutting pay rates by paying foreign workers up to 60 per cent. lower wage rates. However, the ruling was—this makes it so interesting and important—that although there was a fundamental right to take collective industrial action, such action represents a restriction on the employer’s right of freedom of establishment. Of course, industrial action by its very nature will be an obstacle on the activities and freedom of the company. In other words, an employer’s right to freedom of establishment trumps the union’s right to strike.

That is worryingly reminiscent, if I may say so, of the infamous judgment in the Taff Vale case of 1901. The Taff Vale railway took the Amalgamated Society of Railway Servants to court for having the audacity to go on strike. The crime was known then as being “in restraint of trade”. Perhaps all that has changed is the terminology, because we are now talking about exactly the same point but it is now called freedom of establishment.

Nor is that an isolated example of the neo-liberal propensities within the EU treaties. The Lisbon treaty adopted the curious word—I had never heard it before—“flexicurity” – to give the wholly false impression that if workers embrace flexibility, job security will automatically follow. Some of us might regard that as a contradiction in terms.
I conclude that this abundant evidence of the neo-liberal underpinning of the EU treaties is the overwhelming reason why we need a balance to secure a social Europe, not just a market Europe, and why a charter for fundamental human rights is crucial to achieve that balance.

We have just had one of those surreal debates in the Commons where one side said that the only words in the Lisbon Treaty on climate change, all 6 of them – “and in particular combating climate change” – represented a useful advance since previous EU treaties didn’t mention it at all, whilst the other said it was empty rhetoric amounting to nothing in practice at all. A usual, the real problem is quite different.

The problem is that the EU, despite taking the world lead in tackling climate change, is not delivering. The EU Emissions Trading Scheme (ETS) has so far been an abject failure, the regulation of car emissions has been voluntary and therefore ineffective, aircraft emissions have been omitted from any regulatory scheme so that airline emissions are now rising extremely fast, and EU Member States have a burden-sharing arrangement for reducing greenhouse gas emissions in which only 3 of the original EU15 are on track to meet their targets by 2010.

In phase 1 of the ETS more permits to pollute have been issued than there is pollution so that emissions have actually risen, not fallen at all. But now that over-allocation is being stopped, another even bigger loophole is being opened up in phase 2. Member States will be permitted to ‘import’ Kyoto credits from developing countries to meet their carbon reduction targets. The problem is that many of these projects would have gone ahead anyway, so there is no additionality, and the credits will again actually increase pollution.

The Government have admitted that they are allowing for, and indeed expecting, two-thirds of the headline carbon emissions that they have announced as resulting from phase 2 in 2008-10 to occur outside the UK, and outside the EU as well. Worse, other Member States have set even higher import quotas than we have, so they will be able to import more than enough to meet their requirements and then to sell the rest on to the UK, no doubt at a nice profit. So phase 2 of the ETS may well not lead to any cut in emissions in the UK at all.

The truth is that the EU-ETS has been distorted into a massive scam. In phase 1, the power generators made more than £2 billions in windfall profits in the UK alone, by passing on the notional cost of carbon to consumers, even though they had been given permits for free. In phase 2, it is likely that the Kyoto mechanisms will be swamped by a huge over-supply of permits that will again lead to very low carbon prices and therefore little or no effect in cutting emissions.

The problem for the UK is that, despite all the anti-climate change efforts of DEFRA, other Government Departments continue to pursue distinctly pro-climate change policies – the tripling of airport capacity and the huge expansion of Heathrow, the virtual absence of any controls over vehicle emissions, the dropping of the requirement on the UK’s biggest companies to report annually on their plans to cut carbon emissions, the failure to give a lead to the wider population through the introduction of household carbon allowances, the depressingly weak policy on promoting renewables, and most perversely of all the continuing relentless drive to corner the remaining repositories of oil around the world even going so far as annexing 1/3rd million square miles of the sea-bed off Antarctica in hope of mineral and oil deposits.
The Climate Change Bill is fine, but it must be followed up by action in all other Government Departments that is consistent with its goals.

If we are going to lecture other countries at international gatherings about going low-carbon, why do we continue to allow one single power station – Drax in Yorkshire – to emit from a single chimney more CO2 than is emitted by 100 small countries around the world? Why are the Government poised to begin a new round of coal-fired generation, the most polluting form of energy? And if the proposed new Kingsnorth coal-fired plant in Kent was originally justified on the grounds that it offered the opportunity for a breakthrough demonstration carbon capture and storage (CCS) project, why is the Government now moving away from this conditional requirement?