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Tuesday, 21 December 2010

Do you really want our politicians to be honest?

Before we start, I have a confession to make.  I too made a covert recording of the Secretary of State for Business, Innovation and Skills.

I secretly recorded Vince Cable giving a lecture soon after he came to power because I wanted to accurately recall the details of his speech on Keynesian macroeconomics and fiscal stimuli.  What I didn't do is leak it to the press.

I like Vince.  This isn't a blind admiration of someone I've never met - liking someone, just because it's a cool thing to do.  I've met the man, shaken hands with him, and heard him speak passionately and intelligently on contemporary issues of global importance.

On top of that, he seems a genuinely warm and affable man.  Self-effacing and acutely aware of his own position; in the speech I mentioned above he joked how surprised his host must have been, having booked a Lib Dem spokesperson months ahead of a general election - to get a Secretary of State!

I wouldn't go so far as to claim St Vince of Cable is the antidote to everything I see wrong in modern politics; but he does, in the words of a cider brewer, make a refreshing change.  He has a PhD in Economics and had a career outside of politics and academia, making him well-qualified for the job.

So when I read what constitutes "headline news" this morning I began to wonder if Vince Cable had not already made the undercover reporters with recording gear for who they were, and carefully selected his message to express the position the Lib Dems find themselves in!

Okay - I'm joking. A bit.  But in truth what is so shocking about anything he's reported to have said?  Perhaps showing some underlying frustration?  But unless the Lib Dems step up and speak out the whole party risks being lost in the sea of blue.

UPDATE: 15:46 - I wrote this post before learning of the "war on Murdoch" comments...

Reading between the lines of his description of a "nuclear option" - the fact he thinks he has no "conventional weapons" to fight his ground might actually relate to the way the Lib Dems have chosen not to tackle the press before now, instead opting to portray unity with their coalition partners at all costs.

I mean, would the world have ended if a government minister had abstained on a vote on government policy (tuition fees)?  The political classes certainly think so.  WAKE UP!  Let's stop pretending we don't have a coalition government!!  The fees rise was a Tory policy.

The Lib Dems had already agreed in the coalition agreement document that their MPs could abstain if they didn't like the outcome of the Browne report.  The government would still have won the vote, even had every Lib Dem abstained, including Mr Cable!  No-one would need to resign.  The government wouldn't have collapsed.  Life would just goes on.

I'm reminded of another speech made towards the end of summer, in private, by a senior Lib Dem in government.  Part of the speech explored how the Lib Dems in government should deal with the press, given a very real fear that the press would exploit even the smallest perceived split.

My own view differs from that of the Minister.  Whilst some in the party feel that the Lib Dems need to bite their tongue and wait for the press to learn to live with a coalition, I feel the Lib Dems need to grab the press bulls by the horns or risk disappearing into oblivion.  The country must learn to live with a coalition of two parties, rather than paper over differences to maintain an allusion of perfect government.

Maintaining a unified front may appear to be in the country's interests.  After all, given these difficult economic times (TM), we need a strong and stable government!  But I feel another cliché is far more apt: if it doesn't kill [the coalition], it will make it stronger.

So how about this...  How about proving the government is strong enough to survive differences of opinion between the coalition partners?  Surely that's the best option long term for reassuring the British electorate and pacifying  the itchy markets?

After all, if we continue to paper over the cracks, we never know how serious a problem we're ignoring.  At least airing differences in public gets the electorate used to accepting and living with a style of government new to most in the UK, and provides some transparency of how the government we elected arrives at its decisions.


Wednesday, 15 December 2010

QE hit savers twice as hard and left a dangerous moral hazard

Caught at this angle with a very shallow depth of field the Queen on my ten pound note looks like she might be winking at me. Which is about right. With inflation staying stubbornly high and savings interest rates pitifully low, cash is becoming a joke.

The joke started a couple of years ago.  The banking crisis meant cash was in short supply, but instead of the banks raising money from savers by hiking interest rates on savings, they thought it better to take assistance from the government, in effect shafting us twice.

One: they take our taxes to fix their funding black hole
Two: they give us no interest (in real terms) for cash in our bank accounts.

Banks needed money, but weren't prepared to pay the ordinary folk for the privilege.  Instead they went the indirect route - via HMRC and the Treasury.

With inflation at around 3.3%, any savings account offering less than this in interest is losing you money for every day your money sits in the bank.  A quick check of my own reveals: 0.1% (current account), 0.4% ("savings" account), 1.1% (business "savings" account).

Of course it's losing you even more money if it's sat on the shelf at home, which brings me on to the rest of the joke.  This morning a headline caught my eye:

Investors told forget savings accounts, think of shares

And the punchline came a few hours later:

Spain debt downgrade threat sends Euro and stock markets lower

It's clearly not worth having cash at the moment, which undoubtedly is the intentional effect of the current policy.  Those with cash should in theory wake up to the reality that it's rapidly losing its value and do something with it, pronto.

But this simplistic view sidelines human nature.  In uncertain times we like what little rainy day money we have.

And the problem is compounded by a mass of personal debt.  In the UK we have mountain of this - in addition to government debt and corporate pension deficits - of around £1.45 trillion pounds.  That's over £24,000 per person (including children).

And whilst the banks are penalising savers with low interest rates as they take our taxes to support their lavish reward structure, they're not dropping rates of interest on borrowing.  I checked the rates offered to me on junk mail sent out by my banks and credit card companies over the last 2 months.  Every single offer is at least 2 percentage points higher than the last loan I took out (8.9%) over three years ago, when the Bank of England base rate was 5.5%.

The base rate is now 0.5%, but so I should expect to be paying around 3.9% on my borrowing, right?!

Ok, so let's say we get the hint and decide to get rid of our devaluing cash.  What should we do with it?  Shares are still risky.  Gold and previous metals are at historical highs - not a best time to buy.  We should be paying-off our debts, but many of us fear we may need quick access to cash in the near future, which seems to put otherwise rational people off this option.

And who's the real villain in the piece?  I'm becoming suspicious of Quantitative Easing (QE).

Since 2009 we've injected £200bn into the money supply system by "printing money" in a way that isn't officially classed as "printing money" because (a) no money is actually "printed" - but it does appear on the balance sheet(!); and, (b) so long as the government eventually pays-off the debts financed (via a circuitous route) by not printing money, the money can presumably be "unprinted", and everyone's none the wiser.

So really QE isn't printing money.  It's transferring a portion of government debt from bondholders and securing it against the pound.  If the debt isn't repaid, the pound takes the hit.

But the problem in reality is that QE has increased the money supply.  The net effect is the same as printing money.  Banks have hoarded much of the extra cash created by QE, which must be another nail in the coffin for savers. Banks don't need our cash.  Banks don't want our cash!

And the extra money freed by QE that didn't get hoarded?  I'm left wondering what effect the extra cash that did hit the "real" economy has had on the higher inflation we're seeing now.  The high inflation that's devaluing savers' cash and making life difficult for anyone living with pay freezes or even pay cuts and job losses.

Yes, I can see all this has been done with the right intentions.  The right intention being to stimulate the economy, get the money supply moving again and make life better for everyone.

But there comes a time when we have to face up to a couple of realities.  When we print more money, we create inflation, and inflation is a moral hazard.  Inflation penalises prudence and provides an out for indebted institutions.  And when we gift taxpayers cash to shore-up the balance sheets of the banks, we remove any incentive for those same banks to offer savers any reward for saving, again penalising prudence.


Friday, 10 December 2010

Violence is unacceptable, but it's up to the authorities to stem the dangerous cycle

Photo by Niel Cummings (License: CC-BY-SA)
Co-operation and good will, that's how we get by in 99.999% of our lives.  We don't live in an oppressive society governed by fear, violence and intimidation.

We don't have security services and police on every corner, and the majority of police don't routinely carry guns.  A good proportion of society support the police in their work.  It's beyond argument that police make our communities better, and consequently when required, most of us are co-operative and helpful to officers.

I won't say violent protest is never justified. Occasionally history has shown violence necessary in ending oppression.   However in the case under question there is no such justification.  Disliking laws passed by parliament in a reasonably democratic manner is no justification for hurling rocks at police, smashing public buildings and burning street furniture.  Besides, it's the tax payers who will foot the bill - an ironic point, in a demonstration essentially centred on public funding.

(I say reasonably democratic, as I acknowledge no democracy is perfect, but looking around the world I think we're in a pretty good shape).

But whatever the justification through misbehaviour of protesters, the police and authorities must take a step back and acknowledge their own role in exacerbating what could now descend into a destructive cycle of violence.

Many were critical of the police handling of the protest at the start of November, which also descended into violence when property was damaged at the headquarters of the Conservative party.  I however supported the police tactics.  Whilst it could be argued the police had failed in their aims to protect property, there were relatively few credible allegations on blogs and message boards of provocation or brutality from the police.

Furthermore, the wider community were rightly outraged by the violence and dangerous behaviour, symbolised by one protester putting lives seriously at risk by hurling a fire extinguisher off the roof of CCHQ.  The outrage lead to a media campaign to find the culprits.  The Twitterati, sometimes sceptical of mainstream media and authority alike, were happy to help distribute images of the wanted.

In short - the police lost the battle, but won the hearts and minds(!).

Skip forward to the next protest.  Police, eager to avoid criticisms levelled at them after the first demo, hit back.  Digging out the kettle  from the police armoury.  Obviously some commanders still believing that depriving ALL protesters - the non-violent majority as well as the violent minority - of their liberty is a top plan!

Kettling, coralling, containment; whatever you want to call it, is wrong on so many levels - not least of which shown by yesterday's destruction: it simply doesn't work.  It failed to protect property, and failed to prevent disorder spreading elsewhere.  Whilst massive police resource was deployed in parliament square, blocking exists and forming a cordon around the Supreme Court and busted doors to the treasury, disorder spread to Oxford street, and Charles and Camilla's car was attacked.

But yesterday's demo was notable for another reason.  I saw quite a lot of talk on twitter and blogs used by the protesters of tactics to avoid kettling.  A Google map was created so those using smart phones could share locations of police blockades to assist in what some called an attempt to "kettle the kettle" - to encircle the police encircling the protesters.

It is probably safe to say the kettling tactics deployed on the 24th November, when school children were detained for many hours, did a lot to stoke anger in an already volatile aggrieved section of society.

In short, in the second battle, the police appeared to win the day, but the protesters came back stronger.

I'm no expert in police tactics, but I'm vehemently opposed to mass detention except as a very last resort.  Surely police commanders should be encouraged to keep the protesters moving - round the streets in circles if necessary, allowing those bored to drop out, rather than confine many thousands of innocent peaceful protesters along with the violent minority.

I'm not denying violent disorder is an extremely serious situation.  The police are faced with a very difficult job.  But the long game is restoring order, and everyone at all ranks should remember that.  Despite the animals misbehaving, it might not be the best option to carry on prodding the already agitated beasts.

One can't help feel that kettling is being used not as a tactic of last resort but as a deterrent and a punishment.  To punish those who dare to protest, in an attempt to deter further protests.

I'm seriously concerned that repeated use of this tactic could lead to a downward spiral of violent protests.  There's already talk of a new protest against kettling.  And those showing an interest in such a protest come from a far wider cross-section of society than the student protests.

Another cause of public anger is of course the disgraceful horse charge against protesters.  A police spokeswoman justified this by claiming protesters didn't stick to the agreed route, and threw snooker balls and other objects at police. 

Again two wrongs don't make a right, and if the situation is to improve, someone has to take the moral high ground and refrain from retaliation.

The spin issued by senior officers from the Met just doesn't cut it.  What's an agreed route to a disorderly band of angry students?  Is our right to protest against the government limited to only what police agree to?  Of course it isn't.  Peaceful protest must be facilitated in all forms.

The police with helicopters at their disposal could surely have foreseen problems, and altered plans accordingly.  Plus it was somewhat inevitable that the protesters would focus on parliament square, since they tried - but mostly failed - to get there on the demo on the 30th November.

And, having been hit by a snooker ball in a pub riot in Halifax as a youngster, it's not fun.  But I wasn't wearing full armour - as nearly all the police I saw were.  And whilst this made a good headline, I can't imagine that many students thought to raid pool tables across the land for such missiles in advance of the demonstration. Maybe one or two were thrown - is this the extent of media training for senior officers?

Yesterday the police came under extreme provocation. They had a thankless task to complete. But I'm urging the police to take a rational approach.  To avoid kettles at all costs, as they only serve to increase anger and frustration.  To avoid charging with horses at protesters, as this is a serious risk to life and extremely cruel on the horses.  And to avoid spin in their attempts to justify their actions.

The tactics deployed yesterday only server to forment anger.  Retaliatory tactics will not help maintain long term order, as they destroy the co-operation and good will I mentioned earlier.  It is not a role of the police to punish those who break no law in their choice to protest peacefully by detaining them of their liberty for 8 hours.


Thursday, 9 December 2010

Lib Dems made a mistake signing the pledge, but voting against the fees increase will just make it worse

The Lib Dems are bearing the blunt of public anger as voters feel betrayed by a manifesto pledge to cut fees, and a separate NUS pledge signed by many candidates to oppose any increase in fees.

In my view the party made a massive mistake making such promises without first considering both the prospect of being in a coalition, and the likely content of the then-unreleased Browne review into higher education funding.

And I worry that opposing the fees increase in today's vote will make a bad situation worse.  There's over four years left to run in this coalition, and unfortunately coalition government is built around the currency of political capital.

I'm sure there are one or two Lib Dem policies that Conservative MPs feel they can't support.  If the Lib Dems waste all their capital now fighting this one battle, they put their entire influence in the coalition at risk.

For me the battle over university funding boils down to two questions: 1. are the proposals really that bad, given the circumstances? And 2. how difficult or complex would it be to undo them in any future government.

I hope the Lib Dem MPs will reluctantly support the vote today, and live to make a positive difference in the remaining 4 1/2 years of the coalition.  Some voters will have a long memory, and votes will be lost.  But the mistake has already been made.  Voting this bill down won't fix anything.  Supporting the bill will give the party chance to regain public support and confidence in the remainder of the parliament, as liberal policies are put into practice.

Saturday, 4 December 2010

Fairness on Tax

Chasing alleged tax-dodgers (both corporations and individuals) seems a worthy cause, after all it's useful to stress paying one's fair share of tax is a key plank of social and corporate responsibility.

But I fear adverse publicity for a few alleged wrongdoers will do little to change corporate attitudes to tax, given the persistent undercurrent of corporate tax émigrés.

What the UK needs is a wholesale review of tax, with a focus on corporation tax and high net earners, as the current system clearly is doing very little to encourage global corporations to use the UK as a base, with many favouring EU countries with far preferable corporation tax rates such as Ireland, or principalities and dependencies such as Lichtenstein or Jersey.

Moreover the current system is unfair.

Firstly it's unfair to smaller businesses, who don't have the revenues to warrant investing in complex tax reduction practices that larger corporations can afford.  Consequently my own small business Dalton Firth Limited paid more corporation tax on 5-figure turnover in 2009 than it was reported that Google UK paid on £1.6bn of advertising revenues.

But I'm not begrudging Google this tax win!  Another unfair element to the UK's system of business-related taxes is the large variation in the total tax revenues generated by different business models, irrespective of the pre-[corporation]-tax profits made by these companies.

Despite vast differences in the amount the exchequer gathers from taxes such as employer's national insurance, VAT and the indirect taxes collected in income tax from their employees; each and every business is expected to comply with the same rules regarding corporation tax.

I'm not making a judgement, positive or negative, on how various organisations hitting the headlines recently choose to run their business, so lets take three generic businesses: a mobile phone operator, an investment bank and a large high street retailer.

Both the mobile phone operator and high street retailer will be generating positive VAT returns on goods and services sold, yet the investment bank is unlikely to generate much if any VAT.

Running a national network of stores requires a large workforce.  For example Tesco currently employs more than a quarter of a million people in the UK alone.  Furthermore the bulk of these employees are UK-based through necessity, so it's pretty safe to assume a retailer will provide a large amount to HMRC by way of national insurance contributions as well as - indirectly - income tax via its staff.

But for other corporations, staff costs as a percentage of turnover can be far less.  If our generic investment bank made use of overseas staff, e.g. to run call centres and internet services, they could further-reduce the amount to the UK exchequer by way of their employees.

On paper it's probably fair to tax profits with corporation tax, in addition to all other taxes.  But in practice given international competition for global corporate tax revenues it seems only logical that governments should look at the total benefit to the UK economy for each business before deciding the rate at which profits are taxed.

I can stomach paying more in corporation tax than a global megacorp, if that same megacorp is providing jobs and bringing other tangible benefits to the UK economy.  But I can't quite face the prospect of some other business with a reasonably high turnover and relatively low employee count finding clever ways to avoid paying taxes.

Only today the Telegraph reports that recently-acquired iconic British name Cadbury is considering a move to Switzerland in order to reduce its annual tax bill.  This can't be in the country's best interest.

Perhaps the government has to accept that corporation tax must come down across the board to restore our competitive advantage and level the playing field between businesses who chose to employ expensive tax consultants and those that do not.  

Obviously given the current deficit any reduction in corporation tax would have to be offset with an increase in other taxes, but the government must not do what is reported to be occurring: individual settlement deals with some companies, as this somewhat obviously sets a dangerous precedent that could lead to future allegations of favouritism and corruption.

We need a tax system that works fairly for all corporations - one that doesn't rely on intervention on a case-by-case basis to protect the overall interests of the economy, even though such interventions - if they are occurring - are almost certainly in our best interests.


Live-tweet tedium, but what else can one do?

My Twitter stats indicate a fair amount of churn in a week I live-tweeted from 2 events.  I lost some long-term followers, and friends are ribbing me about the impenetrable hashtag soup that was my tweet stream over the last few days.

Still, follower count is up and I made quite a few new contacts from these meetings.  Also, aside from Twitter and blogs there's no formal coverage of such events, so live tweeting is useful for those interested but unable to attend.

And the week also brought a couple of welcome compliments for my coverage, which got me thinking: is there a better way to do it?

I considered using a separate account, but I've tried - and mostly failed - to keep 2 accounts updated in the past, as it became rather cumbersome.  Overlap of the two streams gradually increased, and inevitably they became indistinguishable.  Plus I want to keep in touch with the new people I meet through such events and I don't want to partition my life: one life, one twitter! So no second stream.

The only other 2 options seem to be: (i) accept it, you can't please all of the tweeters, all of the time; or, (ii) limit my tweeting.  But option (ii) would amount to polish on what should be a free-flowing medium.  No point in turning the antidote to traditional media into... traditional media, by applying a heavy layer of spin and forethought into managing my twitter. 

I'm reminded of a couple of observations Antony Mayfield, author of Me and My Web Shadow, raised when he spoke at Digital Surrey last September.  The first: grow a thicker skin, and the second: social networks are human spaces ... which reward human behaviour.

I won't pretend lost followers doesn't bother me.  It does - a bit, especially when they're people I know from the "real world" (TM) - and I'm fascinated by the minutiae of the social web as part of my quest to understand emerging media.  So for now I think I just have to lump it - accept that you can't make a cliché without breaking a few eggs - and carry on as before, unless anyone's got a better suggestion?