CentreRight

Home ownership should not be rationed by the Bank of England

Charlie Bean, Deputy Governor of the Bank of England, wants to cap mortgages to value.  By the Bank’s diktat borrowers would have to put down a deposit of between 10% and 25% when they buy a house.

Perhaps this is to distract us from from the fact that both the Labour government and the Bank of England were directly responsible for the housing bubble?  Following on from Alan Greenspan’s American policies (started under Clinton) both the Labour government and the Bank of England jointly caused the housing bubble.  They increased the money supply twice; first by allowing a loosening of the inflation target, and then by switching from RPI to CPI – an inflation index whose basket does not include mortgage payments.  The market was flush with cash – resulting in 125 % mortgages being offered by banks.  And, presto, a bubble.

Banks have already become more careful in granting mortgages – in fact I wonder who out there nowadays receives a mortgage without forking out a 25 % deposit first.  Mr. Bean’s measure is therefore unnecessary – the banks limit mortgages already, out of prudence.  The 125 % mortgages were an aberration resulting from the Labour government’s money mirage.

Secondly, a loan to value ratio policy does not take into account other risk factors associated with the loan, such as the borrower's credit history and their other assets.  That is downright silly.  But then perhaps this is the thin end of the wedge and the Bank wants to regulate all aspects of a mortgage lending decision.

Thirdly, the measure is a cap on aspiration.  It is especially first-time buyers who would suffer.  Those who have owned property for several years are more likely to have built up positive equity.  Not quite a policy I, as a Conservative, would want to be associated with.  It was The Great Lady herself who abolished mortgage rationing the the eighties.

In fact the only parties which benefit from a compulsory deposit are the banks themselves. Ultimately when the borrower can’t pay back his mortgage the bank reposesses the property and sells to somebody else.  If house prices have gone down in the meantime a 25 % cushion guarantees that the bank is far less likely to suffer any loss at all.  For the mortgagee it makes no difference whatsoever.  I bet the banks are thrilled with the proposals.

Before the Bank of England starts contemplating the rationing of house ownership, perhaps it should apologise for creating the housing boom in the first place.

Some more detail on the outlook for interest rates and inflation

Andrew Lilico is Policy Exchange's Chief Economist.

My previous blogpost attracted quite a bit of attention (probably more than it deserved).  Curiously, attention focused on those parts of the post in which I was repeating opinions I’ve expressed since early 2009 (indeed, have argued in a more general form since 2002, as for example here), and hence that I didn’t defend in any detail.  As a consequence, much of the subsequent press discussion seems to me to have missed a number of important points, which I propose to explore a little more now.

1)      In my view there are three broadly plausible paths for the UK economy from here over the next few years: deflationary slump (let’s call this the “US 1930s” scenario); robust sustainable recovery (let’s call this the “UK 1990s” scenario); unsustainable nominal boom followed by bust (let’s call this the “UK 1970s” scenario).  The scenario I don’t consider plausible is what we might call the “Japan 1990s” scenario — the scenario widely covered in the press and City circles, in which the economy suffers an extended period of very low nominal growth, with growth rates consistently at about 1% and enduring risk of deflation that never quite materialises.

The reason I don’t consider this plausible is that I don’t believe it could constitute an equilibrium.  Specifically, Japan was able to sustain this scenario in the 1990s because it entered the scenario with very high levels of household savings.  That meant that households were able to endure an extended period of low growth with relatively little proximate impact — the Japanese losses were mainly in output foregone (and of course lost asset valuations and huge rises in government debt).

By contrast, the UK entered the post-2007 crisis with very high levels of household indebtedness.  UK households have gambled on obtaining very high levels of nominal wage growth in order to be able to service their debts.  Without that wage growth, the burden of servicing those debts will start to drive widespread defaulting, leading to a snowball effect driving down prices, triggering nominal wage deflation, more rapid defaulting and further financial sector problems, dragging the economy into the deflationary slump scenario (the US 1930s scenario).  Unless we want deflationary slump, then there has to be nominal wage growth — simple stagnation is not an option; our households are too heavily indebted to tough this out.  (For more detail on UK household indebtedness, see this report, especially Figure 2.)

Do we need a History of the English-Speaking Women?

At 2pm today in Sennen Parish Church, a mile from Land's End, flowers will be laid on the grave of a remarkable woman, and there will be a fly-past, hinting at what the commemoration is for. We are very familiar with 'firsts' in history; the first circumnavigation of the globe; the first landing on the moon; the first to invent a light-bulb or discover the cure for smallpox. However what comes afterwards is often as impressive, as the achievement is copied or refined or bettered, not least when done so against the odds.

Seven years after the Wright Brother's invented, built and flew first plane, the first woman  to gain her 'wings' was Elise Daroche, a frenchwoman in March 1910. However for the previous six months, Lilian Bland, Kent-born but of Irish descent, had been toiling in a workshop at her aunt's house north of Belfast. She had been inspired by her experiences watching birds as a photographer and from a post-card of Louis Bleriot's plane that had crossed the English channel in July 1909, she had convinced herself that she too could fly. But she had no interest in simply flying; she wanted to build her own plane.

Visiting the first ever Blackpool Aviation Meet in October 1909, she took detailed notes of all the crafts on display, many of which couldn't actually take off, and from these made a 6ft span model biplane glider back in her workshop, which flew when towed. From gelatin and formalin coated calico to cover the wire and wood wing structure, to a custom-made A.V.Roe engine that she ordered and collected in person from Manchester, the full-size bi-plane then came together and was christened the Mayfly. It may fly, she reasoned, it may not. So excited was she at the arrival of the engine, that the need for a fuel tank had been overlooked, and in true Apollo 13 style, a whiskey bottle and ear trumpet belonging to her deaf aunt became temporarily seconded to do the job.

After months of testing and refinement, on August 31st 1910, the Mayfly took off with Lilian at the controls. Her achievement was recorded in the Belfast Telegraph a few days later. Although she was only five days ahead of the first American woman to fly, she was exceptional as a pioneer in aviation having constructed her own aeroplane and shared much of her learning, not least through two years worth of letters to ‘Flight Journal’. Yet the only reason I know about her is that she was my great, great aunt who died when I was three and one of those laying flowers on her grave will be my dad. Her story has made me wonder at the untold stories of women, who have been inspired by challenges and made significant advances in history. Is it because they were refining the ‘firsts’ of men that they are neglected in our history books, and/or because like Lilian, they were considered unladylike and rebellious? Are they really few and far between, or are there many unknown knowns out there, waiting for their stories to be told and the chance to rebalance the gender bias of our history books?

Reflections on Glenn Beck’s rally

Donal Blaney is the Chief Executive of the Young Britons’ Foundation.

Barack Obama took time off the golf course this weekend to reveal that he missed Glenn Beck’s historic Restoring Honor Rally in Washington DC this past weekend. If he wishes to watch this remarkable gathering of conservatives, independents, monotheists and patriots, the good news is he can do so online. He will be joining 669,838 others who watched the rally online, and the estimated 200,000+ who came to the Mall and who helped to raise $5m for the Special Operations Warrior Foundation, a charity for war veterans akin to Help for Heroes. Poor Al Sharpton must have wished for a fraction of that number of people at his rally that same day.

Beck received criticism from many in the mainstream media for daring to host his rally on the 47th anniversary of Martin Luther King’s memorable “I Have A Dream” speech. And yet King’s niece, Dr Alveda King, proudly spoke alongside Beck and former Alaska Governor, Sarah Palin, in an event that also saw prayers from evangelist preachers, hymns sung by gospel choirs accompanied by bagpipes and the remarkable and moving sight of priests, rabbis and imams joining hands in front of the Lincoln Memorial to proclaim the need to put God at the centre of American renewal.

Received wisdom is that such a message communicated through such a medium and in such a manner by Beck simply would not work in Britain, and that is doubtless correct. The muscular Christianity of so many on the right in the US hardly chimes with many Conservatives in the UK, let alone the broader electorate. And yet Beck’s efforts this weekend cannot simply be ignored, derided or sneered at by bien pensant liberals and self-appointed elites. Beck speaks for many in the US who feel badly let down by their leaders, while Sarah Palin has tapped into the hearts and minds of many, especially women, who had no interest in politics until her arrival on the national scene two years ago next month. Would that the right had regrouped so quickly in Britain after 1997 as has occurred in the US.

The displaced Chagos islanders' plight should be reconsidered

By Charles Tannock MEP.

In his book Freedom Next Time the journalist John Pilger paints a harrowing and disturbing picture of the fate of the Chagossians, the former residents of the Chagos Islands. I don't often see eye to eye with Pilger but reading his description of the way in which the inhabitants of this archipelago were systematically dispossessed and thrown off their land is deeply moving.

Between 1968 and 1973, Labour and Tory governments organised the removal of everyone living on the 55 islands that constitute the British Indian Ocean Territory (BIOT). This was done at the behest of the United States, which at the time was embroiled in the Vietnam war and required for understandable security reasons the use of the island of Diego Garcia as an air and naval base. The narrative employed at the time by the Foreign Office was that the Chagos Islands had no settled population.

The Chagossians were shipped off to the Seychelles and Mauritius, where they were deposited and left to fend for themselves. They were ostracised and isolated, and many succumbed to mental illness, drug addiction and alcoholism. Pilger's book contains distressing passages in which Chagossians recount their deceased relatives 'dying of sadness' at having to leave their homes.

Despite the tragic impact of this compulsory removal, the islanders never gave up their campaign to win the right to return home. Many Chagossians eventually moved away from the Seychelles and Mauritius, and some have settled in London, my constituency. They have been a persistent thorn in the side of successive British governments, and it would seem right now that the coalition government seeks to conclude this matter in a fair, humane and just way.

Lefties are messier than conservatives!

Washington's Mall after Obama's inauguration...

...and after Saturday's 'Restoring Honor' rally where tens of thousands (perhaps as many as 300,000) conservatives gathered:

Hat tip to Andrew Bolt (essential reading for every clean living conservative).

On reasons for believing

In his programme attacking faith schools recently, Richard Dawkins had some fun at the expense of a Muslim girl who believed that fresh and salt water don't mix (though he didn't show us all the atheists who don't know that the earth goes round the sun once per year), and struggled with a Catholic teacher's challenge that it was the human right of parents to raise their children in knowledge of their faith.  He provided a veritable cornucopia of confusion and error for one to attack - that is of course part of what is attractive about him: in the best Popperian tradition, he's not afraid to say things that actually have some significance, so he provides much more to disagree with (as everyone does who says anything worthwhile) than so much cowardly watery obfuscation out there.

What I fancied disagreeing with him about was his model for what children should be taught, provided by his touching letter to his daughter.  In it, he told her of three bad bases on which to believe anything: tradition; authority; and revelation.  But, in fact, these are excellent bases for belief - indeed the main bases on which all of us (including Dawkins) believe anything.

Robin Simcox: Gordon Brown's immigration incompetence

Does anyone else remember the following quote from Gordon Brown in the first televised debate back in April?

Net inward migration will continue to fall under our policies.

From the figures released yesterday by the government's Office for National Statistics:

Estimated net long-term migration to the UK in the year to December 2009 was 196,000. This compares with the final estimate of 163,000 in the year to December 2008

I know Brown was not afraid to get, shall we say, 'creative' with his statistics, but I don't think even he could claim that 196,000 is lower than 163,000.

In the next sentence, from the same debate:

40,000 less students, I suspect, this year, because of our tightening of visa controls.

Can you guess what's coming? From the ONS yesterday:

There were 362,015 visas issued for the purposes of study including Tier 4 (students), up 35 per cent on the year to June 2009.

Rarely in British history can we have had a Prime Minster quite so incompetent.

Charles Tannock MEP: Salary and political influence in the EU

William Hague has recently admirably said that he wants to see more British nationals working in the EU institutions. This may mean sacrificing some of the best and brightest working in the Foreign Office because the new European External Action Service (EEAS) will need to call upon the renowned experience, excellence and respected pragmatism of British diplomats, some of whom will be seconded to the EEAS.

Conservative MEPs were opposed in principle to the creation of the EEAS but now that it is a reality we can't continue to be churlish about it and we must move on. We must ensure that our country secures as much influence as possible in the EEAS, because we can be sure that other key powers will be trying to shape it in their own image. To do this, we need the most able and talented diplomats working in it.

I was surprised to read an article in the Daily Telegraph recently that discussed the salaries of senior EEAS staff. Douglas Carswell MP (who often makes valuable contributions to political debate) was quoted, arguing that that the fact that some senior EU diplomats will be paid more than the foreign secretary, who earns £134,565 a year, is an illustration of how the Lisbon treaty reduces Britain's sovereignty over foreign policy. He was quoted thus:

"The reason more than one hundred EU diplomats earn more than the British foreign secretary is because they have more say than him on foreign policy."

I was bewildered by the inference that a civil servant would be more powerful than a politician by virtue of being paid more. Take the example of the UK: dozens of public servants earn more than David Cameron but it is patently absurd to suggest that by virtue of their salaries they have more say than he does in running the country – especially since the PM personally appoints many of these people to their jobs and approves their salaries. Indeed, if salary or wealth was the only benchmark for influence and power the country would be run by footballers and pop stars, and Who's Who would look very different from its current composition.

Conservative members attack Osborne budget...Labour ones support it

By Paul Goodman

They don't, of course - at least, not usually.

But they would have done, had the budget been presented by, say, Ed Balls, and the Government been led by Gordon Brown rather than David Cameron.

That, at least, is the suggestion of a compelling piece on the blog of www.neurosciencemarketing.com, called Why Politics is Hard, twittered out by an "eternal student" called Anibal Astobiza, and re-twittered out by Stephan Shakespeare under the more punchy title "How political party identification can turn us into idiots".

The piece describes how a social psychologist took -

"...two groups of subjects, one composed of liberal Democrats, the other of conservative Republicans. Then, he showed them very different proposals on the topic of welfare. One policy proposal was very liberal, and involved large expenditures of tax money. The other was harshly conservative, and proposed far lower levels of assistance and expense. As you might expect, the liberal subjects preferred the free-spending plan while the conservatives liked the restrictive plan.

Here’s the bizarre twist: when the subjects were told that the plan they didn’t like had been proposed by their own party, their attitudes changed and they favored the plan they had initially opposed. Liberals thought that cracking down on welfare was a good idea, while conservatives found they could justify opening the coffers for this important social purpose. They even wrote essays explaining why the policy they now favored was appropriate.

And, as Neuromarketing readers could anticipate, the subjects were unaware of this influence. They did think that other people were influenced by party beliefs, but considered their own decision-making to be rational and not tainted by politics.

This is another example of why getting votes from opposing party members is so difficult. One’s political affiliation can trump everything, including logic and common sense".

Discuss.

Preferential voting in all its glory Down Under

Those advocates of preferential voting for UK General Elections should take note of what is going on Down Under in the previously safe Tasmanian Labor seat of Denison.

It's a simple point: the independent candidate Andrew Wilkie who came THIRD in terms of share of the vote, actually looks likely to WIN the seat based on the counting-up of the second preferences from the fourth and fifth candidates which propels him into second place - and then the counting-up of the second preferences of the previously-second (Liberal) candidate.

There is a succinct analysis from Antony Green here.

Or, to put it another way, is the best way to reinvigorate our "Broken Politics" to ensure that the winning MP is the "least disliked" option? It seems just a touch uninspiring to me.

[Hat Tip: MS]

We can't allow Government decisions to be dictated by IFS graphs

There has been a lot of media coverage today for a new IFS report claiming that the Government's fiscal adjustment is regressive.  Unfortunately, it is going to be difficult for the coalition to shake this one off, given how much weight they placed on Chart A1 in the Emergency Budget report, which they used to bolster a claim to be making "progressive" cuts.

But that chart and the findings announced by the IFS this morning are actually far less significant than they have been made out to be.  The IFS report is based on an assumption that the fortunes of the poor add up to the amount of Government money spent on them.  In a blog for the TaxPayers' Alliance, I raised a hypothetical example to show how that could produce absurd results:

"Suppose you invented a policy, some kind of economic miracle, which doubled the incomes of the poorest ten per cent of families without the Government spending a pound.  That would reduce benefit spending.  It would also increase tax revenues from the poorest.  The same method that the IFS are using in their reports would show the effects of that policy as horribly regressive, cutting spending on the poor and shifting the fiscal scales against them."

Of course, that example is an extreme one.  But the IFS method does mean recording dependence on government as success.  Allowing it to dictate policy would lead to disaster as it would stop us dealing with the problems created for the poor, and poor areas, by too much government.

There are more practical examples of how this sort of distributional analysis could lead to policy choices that actually hurt the poor.  In my blog, I gave the example of regions where the state dominates the economy, with state spending in the North East over 60% of GDP, crowding out private enterprise and locking in economic stagnation:

"On that measure at least, parts of the country are closer to the Soviet Union than the South of England.  An economy so dominated by government spending always tends to economic stagnation which ultimately means misery for the people who live there."

In an excellent blog this morning for the Telegraph, Neil O'Brien - Director of Policy Exchange - provides another example:

"A couple of years ago I found that between the mid 1990s and the mid-2000s, the incomes of the poorest 10% of the population had grown eight times faster in Ireland than in Sweden (and six times faster in Britain) – mainly the result of faster growth overall. As a result, so-called Anglo-Saxon economies like Ireland and the UK had a smaller proportion of their population below the absolute poverty line than Sweden. Growing the pie matters as much as how you slice it, and equality doesn’t really capture everything we mean by fairness."

The IFS do some very important statistical legwork.  They have exposed some egregious claims made by politicians over the years.  But there is no simple graph which will tell you if a Government is doing the right thing for ordinary Britons, or the poorest.  It is dangerous for politicians to show too much respect to such a simplistic analysis.

Dealing with a fiscal crisis brought on by a decade of irresponsibility will be difficult.  But the way to help the poor is to embrace radical reforms in areas like welfare and education that will allow them and their children to better stand on their own two feet.  Not making more vain attempts to bury deep seated problems in piles of taxpayers' money.

Cousin marriage is an issue all politicians should want to tackle

For those Conservative Home readers who did not get chance to see this week's Dispatches, it is well worth 45 minutes of your time (it can be viewed here).

The subject was the often disastrous consequences of first cousin marriage. The statistics are shocking - children of first cousins are over ten times more likely to be born with recessive genetic disorders, and a third of children born in this country with such genetic disorders are British Pakistani. Yet despite this, cousin marriage is on the rise. Over 50% of British Pakistanis marry their first cousin, with 75% of ethnic Pakistanis doing so in Bradford.

This is clearly a hugely sensitive subject. However, it was disheartening to see 16 MPs in constituencies where this is a problem refuse to appear on the show. This was apparently out of a fear that taking a stand on this issue would lose votes, cause offence, or lead to accusations of racism. Ann Cryer, former Labour MP for Keighley and who has long campaigned on these issues, did appear - yet not a single representative asked from the current House thought it an issue worth discussing. How depressing an indictment that is on our elected officials.

First cousin marriage is exactly the sort of problem that politicians of substance should want to resolve - something of public importance that offers a clear possibility of affecting worthwhile change. Furthermore, there is no reason why topics such as this should be the preserve of  Labour. This is both a public health and a moral issue - so it should be a Conservative issue as well. It would be encouraging to see someone within the party take it problem on.

I'm a Conservative and I believe in Equality

Tim Montgomerie, Editor of ConservativeHome, recently questioned the decision of eleven Tory MPs to sign 'The Equality Pledge'. The Pledge stated that "more equal societies – those with a narrower gap between rich and poor – are more cohesive, healthier, suffer fewer social problems and are more environmentally sustainable."

One of those signatories the MP for Enfield North, Nick de Bois, defends his decision below.

To object to the statement, "I will therefore actively support the case for policies designed to narrow the gap between rich and poor", is odd. Those on the Left and the Right would mostly agree that a widening gap between rich and poor is a bad thing. What we disagree about is what to do about it.

In 25 years of running my own company, we helped create wealth for employees and their families, paid substantial tax and generated personal wealth. Policies that encourage economic expansion help create wealth, because more people earn money, gain jobs and by extension this helps reduce the gap between rich and poor over time. The coalition government has that agenda.

By supporting Grant Shapp's Right To Move policy, Iain Duncan Smith's proposals to end welfare dependency, George Osborne's raising of the personal allowance threshold, and Michael Gove's free schools - am I not supporting policies that will narrow the gap between rich and poor?

Those of us on the Right should not shy away from the debate about equality simply because it is couched in the language of the Left. Indeed, it's because the Left think they own the debate that we need to get stuck in and argue that Conservative policies are the way forward. By signing the Equality Pledge, I'm sticking a flag in the ground and saying, "The Conservatives are here, too".

There are very different purposes to GCSEs and driving tests

Policy's all back to front in certain areas: where things should be relative, they're absolute; and where they should be absolute, they're relative.

Consider two cases: GCSEs and alcohol limits for driving.

England hosting the World Cup would be a £3bn boost for the nation

Jeremy Hunt MP, Secretary of State for Culture, Media and Sport, on England's bid to host the World Cup in 2018.

FIFA, football’s global governing body, arrived in England yesterday for a four day visit to hear why we should be picked to host the biggest football show on earth.

After the highs and lows of South Africa, you might have thought Wembley would have been dead for the friendly against Hungary. But over 70,000 turned out with the vast majority right behind our team, comfortably drowning out the boo boys.

But it isn't just what happens at the top of the game - over a million people watch or play football every week. So FIFA can be sure that a World Cup in England would be embraced by the whole nation with sold-out grounds for every game and fans from around the globe welcomed with open arms.

We have world class stadiums - the likes of Wembley, the Emirates, Anfield and St James Park to name but a few - and the transport infrastructure to cope with putting on a tournament the size of this.

England is easy to get to and easy to get around. Our transport system gets hundreds of thousands of fans to games every weekend of the season and all of our proposed host stadiums are no more than three hours by train from London.

A World Cup here would also be an economic winner for both FIFA and the country’s coffers. Estimates from accountants PriceWaterHouse Coopers put the windfall to the nation at £3 billion. This would help us build a lasting legacy from the tournament - using football as a force for good around the world that would build on the work the FA does on international development.

It would also, of course, boost football on the home front, inspiring a new generation of players and coaches to help unearth the new talent we need. And who knows what that could lead to, half a century on from that magic moment in 1966?

Will the spending review be bold enough?

Today is already the tomorrow which the bad economist yesterday urged us to ignore. – Hazlitt, Economics in One Lesson

As the Telegraph reported on Friday, the Institute of Economic Affairs "has calculated that the national debt is £4.8 trillion once state and public sector pension liabilities are included, or £78,000 for every person in the UK." 

I referred to their paper - A Bankruptcy Foretold - in my Commons speech of 22 June before turning to the Bank for International Settlements' The future of public debt: prospects and implications. That paper calls for "drastic measures" to reduce government liabilities. I said that the implications of our debts were profound and that we risked social catastrophe long before our levels of debt interest reached those projected by the BIS for 2040.

Independently, the theme is gaining currency.

On 11 August, Professor Laurence Kotlikoff of Boston University wrote an article for Bloomberg, U.S. Is Bankrupt and We Don't Even Know It. I recommend the full article, but here is a flavour. He wrote:

[...] the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.

Further, after explaining that the US fiscal gap is more than 15 times the official US debt, he writes:

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Kotlikoff estimates this Ponzi scheme liability at $202 trillion, which dwarfs the recent US bailouts at $12 trillion. Even the scale of the bailouts is beyond imagination, but stopspendingourfuture.org have produced the following visualisation (and remember this video illustrates about 1/17 of the US problem):

On 21 August, Sean Corrigan, Chief Investment Strategist at Diapason Commodities Management, wrote for The Cobden Centre, saying that Hannibal is at the gates:

Unsound money and unrestrained credit combines far too readily with Man’s inherent disinclination to live off the sweat of his brow to make him an easy mark for every smooth-tongued, silk-suited chancer who promises him a ticket out of the Land of Nod and, once, again, this fatal weakness has led us to a ruin which has engulfed the innocent along with the guilty.

...

The first thing to realise is that the caterer’s bill for our Banquet of Fools cannot possibly be paid, that our debts are already too high and our promises cannot be redeemed in full.

Today, Professor Kevin Dowd declares the UK bankrupt. He picks up the IEA's theme:

The Government’s true debt is the present value of all the commitments it has entered into, on the expectation that these commitments will be paid for by future taxpayers. Some prominent examples are the commitments implied by the public sector pension system, the state pension system, the health system and PFI. The costs of these commitments are staggering.

...

One recent estimate suggested that a UK citizen born in 2011 will inherit, on birth, a debt of perhaps £200,000, and it could easily be much more.

It is simply inconceivable that debts on this scale will be paid off in full.

Dowd explains the moral as well as fiscal bankruptcy of our present system. He paints a potential future which we would be well-advised to avoid. As I said in my 22 June speech:

If Members on both sides of the House are serious about building a better society, we have no choice but to reform radically the size, scope and role of the state.

David Cameron is correct when he says, "The era of big government has run its course." The questions now are whether the spending review and our subsequent reforms will be bold enough to deal with the world as it is and whether we shall win the argument for change. 

Thoughts on the Australian election

A gripping election in Australia over the weekend, in which I immediately declare an interest:

The picture's from the Liberal Party's London branch election event - the London booth is the largest in the world and results from it may well have affected the remarkably narrow result. The ABC's site for details on a seat-by-seat basis is well worth a look: you'll note that currently they're (rightly) still labelling some seats as "undecided" which the press would have you think are done and dusted.

First, let's consider the respective leaderships. I'm no fan of Kevin Rudd. Some ten years ago I lived in his electorate - I then thought him able, palpably ambitious and slimy to a quite extraordinary degree. But whatever one makes of him, he was elected Prime Minister at the ballot box as leader of the Labor Party in 2007 by a significant majority. His left-of-centre party then promptly took the axe to him given (i) poll numbers they didn't like and (ii) internal rivalries, installing their own candidate in his stead (sound familiar, British readers?). That's the legacy Julia Gillard had to bear. On the other hand, Australia's first female Prime Minister was only in post for a short period before calling the election. Overall, she had a good election. Rudd's inactivity on some issues and reversal of pledged positions on others were given lip service but could, when convenient, be only semi-defended, a benefit of the change.

On the other hand, Liberal Party leader Tony Abbott emerged as Liberal leader only after his Party had worked through two post-Howard alternatives in a single Parliament (neither of them the heir-apparent Peter Costello, who eventually pushed aside the laurel wreath). Despite this, Abbott managed to shake off a historically pretty poor media reputation and had a remarkably vigorous and impressive campaign. Lest you think I am being sycophantic, I point out that this is in stark contrast to his poor 2007 election, as I noted at the time.

As you will know by now, the result this weekend was unbelievably close. The current prediction has the two parties on 73 seats each. Thus in a 150 seat Parliament the Coalition and Labor have obtained comparable batches of seats, each unable to form government alone, and it seems likely that the Parliament's independent members will decide who forms power. Bob Katter, Tony Windsor and Rob Oakeshott are a curious trio. All are former members of the National Party (the minor partner in the Coalition along with the Liberal Party). It is a rural-orientated, often protectionist, populist movement which has long been closely affiliated with the more urban and free-market Liberals (by convention, the parties do not contest seats in which the other party has an incumbent member, and usually run joint Senate tickets). Beyond the formal and informal coalitions that have existed for some time, the two parties are now formally merged in Queensland.

Here's a thumbnail sketch of each of the three members now being wooed by the main parties (to the extent that GIllard name-checked all of them in her election night speech). On reading, you'll see that forming bonds with these men, each of whom plainly represents the will of the electorates for which they are members, is not without complications:

Five politically relevant things about where we are on the economy

1)     Double dips are not uncommon, and I expect there to be one this time.  Chris Huhne suggested recently that double dip recessions are rare and that talk of one occurring this time are Labour scaremongering.  I’m afraid he is certainly wrong on the first; whether I am a Labour scaremonger I shall leave to others to judge.

By a “double dip” I mean a situation in which, following a recession, after a period of growth but before the previous trend level of output, there is a further period of contraction.  Such events are by no means uncommon.  For example, there were double dip recessions in 1992 (output contracted in 1992Q2 after two quarters of growth), 1976 (output contracted in 1976Q2 after two quarters of growth), 1974 (output contracted in 1974Q4 after two quarters of growth), 1962 (output contracted in 1962Q4 after three quarters of growth), 1958 (output contracted in 1958Q2 after two quarters of growth) and 1957 (output contracted in 1957Q2 after two quarters of growth).  Indeed, the only technical recession in the UK since records began that did not involve a double dip was that of the early 1980s — with the early 1980s recession escaping only on the technicality that the initial period of contracting before the second dip from 1980Q1 on involved two quarters of contraction (1979Q1 and 1979Q3) interrupted by a quarter of growth (1979Q2).

Thus double dips are essentially the uniform experience of the UK when there are recessions (and note that the one time spending plans were materially cut back in the midst of recession – in the early 1980s – was the one time a double dip was averted, so double dips historically have occurred quite independently of fiscal consolidation), and I have always expected there to be one on this occasion, also.

Click on graphic to enlarge.

2)      A double dip recession will make it more important to cut spending early, not less important.  If/When there is a double dip, many commentators will presumably urge that the Coalition’s fierce fiscal consolidation plans should be abandoned.  That would be a bad mistake.  With a double dip recession, tax revenues are liable to fall below forecast and expected future debt levels relative to GDP will rise.  In other words, the risk that financial markets will lose appetite for UK government bonds, triggering an upwards spike in interest rates and the serious further slump that would entail, will rise materially.  With a double dip recession, markets will be more demanding of urgent action, not less, and any sniff that the Coalition is losing the political will to carry its programme through could be disastrous.

3)      A double dip recession would be quite compatible with a boom thereafter.  If the US and UK monetary authorities respond to the double dip as they should (and I expect they will) — namely by printing more money — and if the Coalition stays the course on cutting spending, then I expect growth through most of 2011 to be the strongest seen in the UK since the late 1980s (cf the recent experience of Germany).  I believe that this will be the combined result of natural recovery-driven growth and massive and unsustainable investment driven by huge monetary growth.  The model I have in mind is the early 1970s.  Output in 1973Q1 was 10% higher than in 1972Q1; capital formation rose over that period by 25%.  I’m not expecting growth in output or investment to be quite that rapid in 2011, but I do believe that this is an indicator of what enormous monetary stimulus can result in, if left in the system (which it ought to be, and I believe will be, on this occasion — I don’t believe the Bank of England will raise rates above 2% before late 2011 after a double dip, even if quarterly growth is exceeding 1.5% by then).

4)      Once the economy gets growing sustainably, there will be a huge expansion in the money supply, which will lead to inflation.  In the UK, the monetary base (the narrowest concept of how much money there is) has quadrupled during the crisis (most of this increase has been what is called “quantitative easing” or, more loosely, “printing money”).  Under normal circumstances, one would expect the result of such a huge expansion in the monetary base to be a similar expansion in the broader money supply, and consequently a large rise in the price level (if it were all to occur in one year — which it wouldn’t — we’d be talking 300% inflation).  Obviously these aren’t normal circumstances, so the increase in the monetary base (the extra money printed) has actually served to prevent what would otherwise have been a sharp fall in the broad money supply — which is why I favoured it, and favour doing more still; for now the big risk remains, as it has been since 2008, that we will see significant deflation, nominal wages would fall, and people would default on their mortgages.  We need to print more money now to limit that risk.

Jeremy Middleton: ConHome readers should lobby National Conservative Convention members with their views about the future of the voluntary party

Jeremy Middleton is chairman of the National Conservative Convention.

On Saturday ConservativeHome posted extracts from an internal paper, Our Future – proposals to develop the voluntary party. This document contains a series of proposals designed to help the Voluntary Party progress, to attract new people and to be more efficient.  All members of the National Convention have been invited to comment on it in detail with a view to reaching agreement amongst the Volunteers before the Party Conference.

The paper is a serious attempt to get all parts of the Party to agree on the importance of the Voluntary Party, to get the Voluntary Party growing again and to attract new people. It also aims to ensure that the Voluntary Party governs itself, and recognises that this requires us to take more responsibility as well as more authority from the centre.

It is a serious attempt to say that we, the Voluntary Party can deliver more, but that we need proper professional support to do it. It neither offers a panacea to every problem we have nor highlights every opportunity. But it is a serious attempt to make progress and we are making a serious attempt to consult widely and to improve our proposals.

I would encourage those of your readers who want to influence our discussions to lobby their National Convention members who, as the elected representatives of the volunteers, have been invited to respond in detail. All Association Chairmen, all Area Officers and all Regional officers are on the Convention, as are the senior members of the Womens organisation and Conservative Future.

ConHome readers should be aware that the proposals come from the Voluntary Party. I drafted it and the Volunteer Strategy Team made up of the most Senior Volunteers endorsed it. It would be wrong to see this as the work of Conservative Headquarters. Also the paper takes no position on Policy and is focused exclusively on the role of the Volunteers and how we organise ourselves. Naturally the political position is pivotal to everything we do, but is not the issue we address here. Finally, it is also worth pointing out that it is only a consultation document, so may change depending on the responses.

The only motivation of the Volunteers who have worked on these proposals is to see the Voluntary Party they love, grow larger, stronger and more efficient. The aim is to help our party. I think that it is only right that on occasion we challenge ourselves to do better. This is such an attempt.

Below are links to pdf files summarising each proposal on which the consultation is taking place:

1. Introduction
2. Background
3. Proposal 1: To link Political Campaigning and Social Action and make them the mission and purpose of Local Associations
4. Proposal 2: To help Associations Broaden their Appeal in their Communities by involving more people including Parliamentarians, Councillors and new supporters
5. Proposal 3: To Help Area Teams deliver Best Practice to their Associations
6. Proposal 4: To Empower Regional Teams to Create a Culture of Accountability, Responsibility and Expectation
7. Proposal 5: To provide the professional support needed
8. Summary
   

The hard truth about soft subjects

By James Groves, Head of Policy Exchange's Education Unit

Record numbers of A-Level students are going to be finding that the university places which they had hoped for are not going to be there. Securing a place at one of England’s universities has become more competitive than ever. But is this all bad? A healthy measure of competition must be allowed to prevail and access to our universities should be rigorous if standards are to be maintained.

This need not mean that we should cease from looking for new and better ways of improving the supply of Higher Education across the country. Crucially, universities must be allowed to raise top-up fees so that they become self sustaining and no longer rely as heavily on a limited pot of HEFCE funding. This system effectively leaves itself hamstrung, with Government having to artificially set a cap on the number of student places available each year and fining any institution which recruits more than their quota of undergraduates. The private sector could also bring considerable new capacity, issues around which we here at Policy Exchange will be exploring in an upcoming report.

However, much of our focus should be upon ensuring a healthy degree of completion for places remains, provided that all students get the chance to compete on a level playing field.  Much has been made of the fact that the independent schools outperform state maintained schools on A-Level attainment by a considerable margin.  Yet, rather than channel our energies on berating the successes of the private sector, should we not be asking how improvements in maintained schools can be secured?

I might even suggest that the latter might learn from the former. In particular, maintained state schools should look seriously at the A-Level subjects they are offering their students and at how universities regard these subjects. In The Hard Truth About ‘Soft’ Subjects, published in 2008, we indicated that non-selective state school students are far more likely to take non-traditional A-levels than students from Independent and Grammar schools. For example, 75% of all A-level examinations are taken in non-selective schools, but 96% of Law and 93% of media studies A-level entries are in these schools. Conversely, Independent school students are far less likely to take non-traditional A-levels. For example, 15% of all A-level examinations are taken in Independent schools, but only 2% of Sociology and 6% of Psychology A-level entries are in these schools.

This is not just an issue of student choice: it is about which subjects schools choose to offer. Part of the reason why students are more or less likely to choose non-traditional A-level subjects is the availability of those subjects at the school they attend. Non-selective state schools are far more likely to offer non-traditional A-levels than Independent and Grammar schools. For example, non-selective state schools account for 73% of the market share of all schools offering A-levels, but 90% of schools offering media studies are non-selective state schools.

While the previous Government claimed there was no such thing as a ‘soft’ subject, this was proved immaterial by the fact the vast majority of 27 leading research intensive universities that we surveyed admit fewer ‘soft’ A-Levels in comparison with the national uptake of these subjects in schools. Our data on A-Levels accepted in 2007/08 indicated, for example, that more than three times as many Economics A-levels (640) were accepted at Nottingham University than Sociology (193) or Drama/Theatre Studies (165). These two subjects are both more popular than Economics at A-level in schools.

Such hard truths point towards two key realities. Firstly, universities must be properly transparent with students, parents and schools about certain ‘soft’ subjects which they believe do not provide sufficient preparation for Higher Education. Secondly, state maintained schools must face up to the fact that they have a responsibility to advice students of the potential implications of studying ‘softer’ subjects. Furthermore they have an even greater responsibility to emulate the Independent sector by ‘bucking the trend’ and by finding innovative and exciting ways of teaching those more traditional A-Levels which will leave their students much better placed to compete in the race for a University place.

A David Milliband for the Labour Party party party party

Oh my.

David Milliband's leadership team has published the most cringeworthy guide to hosting a "party" for those people who might just feel spontaneously inspired to speak of the magnificence of the Glorious Leader hold a house party a la the Obama campaign. It's a six page colour PDF with minute-by-minute steps to help you maintain the spontaneity, including scripted remarks for-the-words-what-should-come-outta-your-mouth.

You simply have to read this.

Tips for success include:

3) Invite them. It’s probably easiest to give them a call. Invitations are best when made personally so if you won’t see them face-to-face, just pick up the phone. Here is an example of how to frame your House Meeting and this may be useful for sending out emails;

“David Miliband in his campaign for Labour leadership has launched the Movement for Change. This is an exciting initiative to rebuild the Labour Party from the grassroots and go back to the Labour traditions of organising within the local community.

I’m hosting a House Meeting as part of David’s leadership campaign to bring people together in the community to discuss how we can be part of the Movement for Change at a local level. It will be a chance to share stories, build relationships and discuss what we would like to change in this area and how we can help make David leader of the Labour Party to take this forward.

I hope you can come. The details are: Time, Date, Venue

It will be a really exciting opportunity to talk about our community and how we can help David Miliband’s Movement for Change being put into practice locally as well as practical steps for Labour supporters, Labour members and David’s leadership campaign.”

5) Inform ze High Command David’s leadership team (on [email protected]) that the House Group
Meeting is taking place.

(and then the "events subsection itself! Hold yourself steady!)

The Indian High Commission gives Exchange and Mart a run for its money

A little tale totally unrelated to politics that made me chuckle.

The Indian High Commission in London has its own website, full of information for those with an interest in the country.

Not only are there links to details of David Cameron's recent visit to the sub-continent, but also facts and figures about the country and details for Indian nationals requiring the High Commission's services.

But completely randomly at the bottom of the menu on the front page of the site is the option "Van for sale", which links to an advert for the VW transporter van being sold by one Satya Prakash c/o the Head of Chancery at the High Commission.

Very enterprising!

Cheap holiday

Fancy a try out as an avatar?

A few days’ back, the astonishing news broke that the European Parliament was spending a couple of hundred thousand pounds on a computer simulation of life in EU politics.

The site is now registering for testing. Fancy wasting five minutes of an afternoon by organising a sit-in of the Commissioner’s office? Inclined to lobby the designers so they can accommodate a placard-wielding crowd, a rogue French farmer, or an anti-fraud investigation? More seriously, what about test-suggesting a slot for alternative, Euro-sceptic views on what the EU’s about amongst all the promo videos that are going to be linked in?  

The worse that could happen is that you get a pixellated visit from Europol. I for one intend to get my taxpayers’ worth. Given Paul van Buitenen’s celebrated discovery of the high powered rifles and machine guns held by the Commission’s security staff, it may yet turn into a version of Doom.

Wisdom in Foreign Affairs

Martin Parsons reviews Douglas Hurd's Choose Your Weapons: The British Foreign Secretary - 200 Years of Argument, Success and Failure (Weidenfeld and Nicolson, 2010) 414pp.

For anyone who wants a summary of what works and doesn’t work in foreign affairs, former Conservative Foreign Secretary Douglas Hurd’s new book is a pretty good place to start. Lord Hurd begins by contrasting nineteenth century rivals Castlereagh and Canning, whose disagreements became so intense that they fought a duel. Canning’s foreign policy was idealistic, unilateral, liberal and interventionist, while Castlereagh’s was based on diplomacy and the building of alliances and embryonic institutions. This contrast is played out in each of the twelve Foreign Secretaries and associated Prime Ministers he selects.

However, the genius of this book is that it is not merely an academic history book, but includes Lord Hurd’s reflections on these events based on his own experience as both a diplomat and later as Foreign Secretary. These pearls of wisdom include:

• His observation that foreign policy is often based on a series of inherited myths, such as the ‘importance’ of Suez when Britain no longer had an Indian empire it needed a short sea route to;
• Lord Hurd also comments that there is often a potentially difficult relationship between Prime Minister and Foreign Secretary, as the Prime Minister naturally wants to take the lead in meetings with foreign leaders. On this, Lord Hurd wisely remarks that ‘The Prime Minister is first among equals but should treat his Foreign Secretary as a colleague’ listening to his advice rather than relying too much on his own judgement.
• He observes that ‘A Prime Minister, as Eden found in 1956 and Blair over Iraq in 2003, can always find advisers to praise his wisdom’. However, the British constitutional machine, properly used provides an antidote in the form of solid mechanisms of fact-finding, analysis and recommendations.
• Nonetheless, he also avers that sometimes nations will construct their foreign relations not simply on the basis of logic and reason, but also on the basis of feelings and sentiment;
• Some of Lord Hurd’s most interesting comments relate to dealing with states that don’t play by the same rules that we do. Whilst he observes that there is a link between oppression inside a country and the likely course of its foreign policy. He also acknowledges that it is sometimes the duty of a Foreign Secretary to deal courteously with villains and that some acts of wickedness will go unchecked and some wicked men go unpunished. This is so, he contends, because ‘sometimes attempting what is right would cause more suffering than already exists. In that case, doing what is right would in fact be wrong.’

There are academics who write books and there are people who write from experience; however, this highly readable book does both. Lord Hurd has done us a great service with this book.