Blog 2023 Malcolm Blair-Robinson

Inflation is now getting to critical levels. This blog has repeatedly taken the side of those who think it is time to start raising Bank Rate. A quarter point rise was due some while back. Now a half point is needed. Interest rates would remain historically low, but a signal would go out that inflation will not be allowed to get a grip. There are serious doubts that the only reason for inflation is outside factors, outside the Bank of England’s control. Whatever the cause, its remit is to control inflation. It has a lever, the level interest rates, and its own credibility requires it to use that lever very soon.

These figures rightly cause dismay. They are the worst in Europe. That is humiliating. They are also the product of the outrageous outcome to all the years of ideological meddling in education by misguided politicians and crackpot academics.

It does not matter what you call schools or how you organise them, whether Academy, Comprehensive, Faith, or Free. What matters is that the national average of the state sector is that fewer than half the students can obtain a basic (c) pass in five subjects including English and Mathematics at GCSE. A good number go on to get degrees which are useless in the labour market and shunned by employers. Put this right and all else will follow.

Fail to do so and nothing will work, least of all the young. A country which wastes the most precious resource it has, the rising generation, will neither be successful, nor deserve to succeed.

It looks as if this foolish idea has been abandoned. Once again it is an example of a Tory government falling foul of its reform ideology, regardless of whether the proposal is relevant or appropriate during an economic emergency. The Tory half of the coalition must take on board an important truth. It is the party of good government or it is nothing.

It has never been a progressive party of reform. Its mission has been to make things work after the reformers have had a go an ended in a muddle. Even Thatcher fell victim to this. Her radical plan to unravel all aspects of socialism and union power received broad support, especially from the working class. This was because everyone could see these ideas did not seem to work. Her support began to falter when her reforming zeal crossed certain lines voters draw in the sand to deter politicians.  This included the de-regulation of busses, the privatisation of water, which almost everyone saw as a public resource, followed by the last straw, the poll tax. Her own party did the unthinkable and threw her out of Downing Street. Had it not done so the voters would have for certain.

To avoid electoral defeat in 2015, the Tories have to deliver an economically sound, better run Britain. If their reforms produce better schools achieving better outcomes, if the NHS really becomes patient focused and delivers a service based on care, not process, if welfare reform produces a fairer system which people support and understand, if the banks are re-structured to play a more constructive role in growing the economy and many other things as well, then, victory at the polls will beckon.

If, on the other hand things do not work better and echo the NHS internal market of the Major government or the botched rail privatisation of his perpetually quarrelling ministers, then May 2015 may be another black date in the history of the Tory party.

This is going to be very interesting. Apparently current polls show the thing is close. Referenda are notorious because too often people vote to make a point different to the question on the ballot paper. There has been speculation that former Lib Dem supporters, who feel betrayed by tuition fees, will vote No to punish Clegg.  Sounds plausible, yet this would mean voting for Cameron who is in the No camp, so therefore Yes to his cuts. Because the government and opposition are both split, will this bring everyone back to the central question, or will they all vote on a whim? 

The outcome will, either way, have impact. If Yes prevails, coalition government is here to stay. It will be good news for the Lib Dems. If No wins, it could be curtains for the Lib Dems for at least a generation. This is because the first past the post arrangement is basically predicated on the assumption of two opposing parties, one of which becomes the government, the other the opposition. It requires politicians to construct coalitions within their own parties before going to the voters. We get left and right wings, progressives and conservatives, within the main parties and so on. Any third party is reduced to a minority of loyalists and a few by-election victories, with its parliamentary party able to ride complete in one taxi.

So the central question of the referendum is not really a detail of how we vote. It is about whether we want a coalition system of government with lots of parties or a two party system. I suspect the issue is not the obvious Yes that people once thought. The coalition is unpopular on two fronts at the moment. Cuts and Competence. This is a very bad combination. If No prevails, the non-loyalist element of the Lib Dems, which is the majority, will drift to the Tories or Labour according to their inclination. The remainder will enjoy life as political sages as in the pre-Ashdown era.

This is why Cameron is campaigning for No, when his Big Society philosophy dictates Yes. The Tories know that their only way back to unfettered power is on the old voting method, slugging it out with Labour. This is why they proposed the device of the referendum to entice Clegg and Co. There was no Constitutional need for this. No previous change in the voting arrangements has ever been put directly to the people. A bill through both Houses would have done the trick. By agreeing to it, as part of the coalition deal, Clegg and his colleagues will either be shown to have taken a brilliant gamble which paid off, or to have made a strategic blunder which cost them all. In May we shall know.

This is a lofty idea, or even an ideal. It has proved very difficult to articulate and may have lost as many votes as it gained at the last general election. Lyndon Johnson had a Great Society in the U.S., which he hoped would define his Presidency. In fact it foundered on Viet Nam. Margaret Thatcher considered there was no such thing as society. In the end these nostrums define the philosophy of the leaders who proclaim them, but they rarely bring about the change they are supposed to define. Whatever is achieved under the umbrella of the Big Society, will be rememberd as a product of the cuts. 

I have no doubt that it would have been better to keep this on the back burner for now. No doubt David Cameron wanted a counter-balance to the rigours of cutting the deficit. He had learned from Tony Blair that reforms must be tackled at once and not left until later. But Tony Blair had a landslide and the economy was doing rather well. Reform undertaken at the same time as cuts, unless obviously intended as an economy, can become a muddle and reflect badly upon a government which begins to look accident prone. Thus education looks unstable, there is anxiety about healthcare and there are real fears about public services, especially as they affect the vulnerable.

It is easy to understand Cameron’s zeal to be seen as a great reforming Prime Minister. There have been only two since World War II, Clement Attlee and Margaret Thatcher. The rest have been tinkerers whose reforms meant more to the political class than to the people they served. It is also worth reflecting upon something else. Margaret Thatcher reormed only the tax system and the strike laws in her first term. The big stuff like privatisation and confronting the unions came in the second and third. First she set the economy on a clear path to recovery. People could see where she was headed and backed her again and again.

Clement Attlee pushed through his reforms at the same time as dealing with a titanic financial mess on a similar scale to our current difficulties, leading to post war austerity worse, in the end, than in Germany. Although history remembers Attlee’s Labour Government with affection, at the time it was regarded as serially incompetent and was out of office within six years, where Labour stayed for a further thirteen. This was because reform and austerity do not work well together and voters turn against the whole idea.

The majority of voters in Britain do not want reform and regard it with suspicion. They just want the country to be efficiently run and the economy to work. Ministers have declared the country is out of the danger zone. Conversly the government may have walked into it. Care is now needed to do only things that need doing and to do them well.

There has been no capital where the shock of events in Egypt has been felt more than that of Israel. The impact is noticeable in a much less strident, more conciliatory tone from Israeli government spokespeople.

For all its faults and in spite of the obduracy of recent years, Israel is a democracy and, because of this, it has the flexibility within its society to adapt very quickly to change. For many reasons, most historic and some almost pre-historic, the Israeli people have for too long favoured aggressive governments with a narrow focus, unable to see their hands in front of their faces, hell bent on provocation and trouble. This in turn has brought to the fore all the very worst aspects of the Jewish character, leaving its vastly higher qualities based on the best human ideals and aspirations, somewhere in the background. All peoples have bad aspects. They do best when they leave these out back and bring their best to the front.

Change is coming to the middle east, but in a way few foresaw. The Arab people are discovering that they need no longer accept autocracy or dictatorship as the only form of government and with dramatic outcomes thus far they have taken matters into their own hands to show the force in the modern world of integrated people power. There is more of this to come. With it will come the realisation that democracy and freedom brings with it opportunity for economic advancement for everyone and responsibility of governments to deliver this. Democracy brings expectation and expectation is the driver of fair and good government. It will also reveal that there is more to governing that trying to think up ways to get rid of Israel.

All of this provides everyone in the middle east with the best opportunity since at least the end of the second world war for emancipation and prosperity. It also provides a new dynamic, where the old tensions no longer bind everyone in the knots of traditional enmity. If Israel can rise to this unexpected occasion, it may find it too is liberated by the the revolutions in Tunisia and Egypt. Liberated from fear.

As an ex-chancellor (quite a good one) and an elder statesman, Ken Clarke’s thoughts always have traction and his warnings about the effect on the middle class of next year’s cuts should be heeded. It is indeed true that it will not be just those on benefits who will fee the pinch. It is also true that the totality of our financial position is calamitous.

The middle class will suffer because so much of their expansion and rising wealth is property based and borrowing driven. An economy based on never ending increase in the value of housing assets is unsustainable, yet this is the only economic model that most people know and understand.

It is important to take another look at the U.S., because where it goes we go too. Property prices are falling again in America and foreclosures are again rising. In some areas of California, another overspent over borrowed economy, property prices are now down 67%  from their peak and still falling. 

Ken Clarke is right to warn. Age and experience give him a vision which does not rely on rose tinted glasses.  Maybe it’s time time we all took those illusory accessories off.

What is happening in Egypt is remarkable. It is remarkable for a load of reasons, but one is truly remarkable above all the others. This revolution has no leader. It is driven by spontaneous people power, working together through modern instant communication technology. The masses became one. Almost between one week and the next one of the most secure regimes among the autocracies of the middle east collapsed. The implications for the world are huge, though yet unmeasurable.

The first part of the revolution has been completed with the triumph of the people. The second part, the establishment of a pluralist democracy, has yet to happen. Nothing is in place, or ready to be put together, to facilitate this. For a people who can make a successful revolution in a fortnight this should not prove an obstacle.

Nevertheless the country is now under military rule which is definitely not democracy. The army, which occupies the kind of status and respect among the population as did the military in the old state of Prussia, has promised transition. The people have accepted this promise at face value. They expect the army to deliver. However it is a two way street. If the various groupings and individuals who will make up the new body politic of a democratic Egypt cannot agree a way forward and begin to fall out among themselves creating deadlock, the army may conclude the people have squandered their opportunity and re-establish an authoritarian regime.

Certainly the people can see the light, but they are not yet out of the wood. If they do finally emerge into the clear it will be a triumph indeed. One of the epic triumphs of history.

Clearly this is not going to be resolved as easily as many in the West had hoped. I suspect the situation has moved from the prospect of a change of government and a relaxation of strictures on rights and freedoms, to a fundamental upheaval which will change Egypt for ever. It may be as fundamental, but very different, from the transformation in Iran after the fall of the Shah. The difficulty in reading the situation is that there is nobody leading this revolution. The key players have yet to appear.

The Egyptian Army shrinks from seizing power and may be itself split. It is trying to emerge as a national guardian or guarantor that the revolutionary demands will be met, but it has announced no plan as to how this is to happen. It may be saying that it is up to the people to drive their own revolution and remove from power all vestiges of the old regime. It will not join in but it will not act against them either. I suspect the High command would like to act to restore order, but fears a coup from middle ranking officers. Remember when Nasser took over he was only a colonel. If the Republican Guard fire on demonstrators, sympathetic army units may fire back, whatever their orders. There will then be a state of civil conflict which could escalate to civil war.

The next few hours may be critical in a fine balance between resolution and chaos. What is very clear is that the whole dynamics of the Middle East have changed, none of the gulf Autocracies looks safe or anyway as safe as before and that the tide of democracy, may very well be surging in a direction the West, which has for so long promoted it, would rather not go. It will have no choice but to go with the flow. A thought may be disturbing sleep in Washington. If Osama Bin Laden stood for office in Saudi Arabia, he would most likely be elected.

When this chapter of history is written, it will be seen that over the last sixty years America and Israel, starting with all the cards, played their hands very badly indeed. They look set to lose a game. They may lose a rubber. They could even lose the match. Obama sees that. Clinton maybe. In the end this will not be about military power, but about people power. We will need to adjust ourselves to the idea that people in democracies may not see things our way. Cozying up to, or even bribing, an autocrat is easy. The same cannot be done with a people.

This does not deal withn the key issues, which await the report of the IBC, but it does offer some political respite for the government. This respite may be short. Unfortunately the emotion understandably driving public re-action to all things banking is obscuring three things. The first is that the structure is wrong and it is wrong to delay reform for so long.

The second is that while bonuses are provocative to the people who have lost their jobs who ask, rightly, how and why one hundred people in RBS, owned by the taxpayer, are paid £1million, 50% of this,£50 million, comes back to the Treasury in income tax. If we add vat at 20% on the spending it rises to £70 million. Provided these funds stay in the U.K. and are taxed at source, which could be made a requirement, the taxpayer does quite well. This rationale will, however, do nothing to dim the public outrage and anger. Bankers need to know that, through their own actions, their calling has become at least political and at worst offensive.

The third point is, in terms of economic recovery, the most important. Much has been made of the need to lend to SMEs, although this must conform with the strictures of prudent banking. SMEs must take on board that risk capital and cash funding are not the same and and the products of different institutions. Only the latter falls within banking as discussed in these terms.  Here is a problem. In recent years all 75% of all bank lending has been on property.

As a consequence there are few, very few, staff who know anything about business or enough to make sound and sensible judgements. Thus the business model of the banks is unfit for the purpose of driving economic recovery and they have got to put this right pronto. It is especially bad for forging an export led manufacturing recovery, which is critical to future prosperity.

At present all the best brains in the banks are working in the so called investment departments, trading and betting as proprietors in securities of little value outside the game and which few of them, if any, fully understand. Unless we want an economic recovery driven by betting shops and casinos,  it is clear that the banks are misusing the talent within their ranks. Re-structuring needs to ensure that such a business model, on so dominant a scale, is both too risky and too expensive for those who use it. There are better ways.