Month: July 2008

It was fitting that warmonger Obama should make his speech in front of the Siegessaule. This ugly monument to Prussian militarism was moved to its current place and enlarged by the Nazis at the end of the 1930s. The Goddess of Victory sports wings, as if from the Imperial Habsburg eagle. They formed the backdrop to Obama’s message that the American eagle now needs German military support for its wars in Afghanistan and into Pakistan.

It was typical of the Europeans that they welcomed this man on an electoral mission as if he were a cross between a peacenik and a pop star after the warlike Bush years. They were with their media taken in by the show, and failed to listen to the substance. In a way the speech was a studied slight to Germany, as it was clearly intended for American eyes and ears, not for those patiently listening beneath the Victory column. It was understandably critical of the lack of German support for NATO in Afghanistan to impress the Republicans back home, on the basis that the alliance is committed to this long and difficult war, but it is mainly American and British troops who are dying there. It set out to show Americans that the Senator can draw a crowd of seemingly friendly Europeans, after the Bush years of tension with the leftwards inclining chattering classes of the EU.

To me it revealed how Obama will not be a force for change , despite the promises. He came over as a cynical politician speaking above an audience so his spin doctors could project him in the way they choose to the folks back home. He made it clear he is as committed to war in the Middle East as Bush, and wishes to draw more troops and more countries into the conflict. There was no statement of war aims, no understanding of how they might win, no recognition that trying to contain a terrorist movement by occupying successive countries where they might hide is not necessarily to way to stop them. In short there was no new thinking, and no hint that lessons had been learned.

Many in the German audience heard the bit they wanted to hear – withdrawal from Iraq – whilst ignoring the rest of the message – the war goes on elsewhere as if nothing had changed. To those of us who think the whole war on terror was misconceived, this was not the message of change we wanted. This was another politician from the age of spin who may be good at that, but who has nothing new to offer that will help the world he claims to love. I felt all that was lacking was a cue for the American eagle to join him beneath the Golden Goddess of war, and for the Pentagon endorsements to roll as the film came to an end.

Senator Obama is travelling to demonstrate he is a great international statesman in the making. The more he travels the more compromises he has to make, and the more hollow will seem his message of wonderful change.

Today in Berlin he has allowed himself to be billed to speak in front of the Victory Column or Siegessaule, a monument to Prussian militarism and their prowess in defeating European neighbours. It is not a wise backdrop for someone who wishes to send a message of peaceful change after the two Middle East wars of the Bush years.

More importantly, the message is no longer one of negotiate peace and withdraw American troops from far flung foreign lands. The pollsters and positioners that cluster around the big Obama cheque book have persuaded him to be tender and tough at the same time – tender on Iraq, tough on Afghanistan. They have even managed to persuade him of the Pentagon’s wish to widen the Afghan war to include the border lands of Pakistan, where terrorist now congregate beyond the reach of most American fire power. Just as Democrat Clinton became bomber Clinton under the advice of the Pentagon, reining bombs in many places in pursuance of US policy aims, so peacenik Obama is morphing rapidly into warrior Obama seeking to intensify the conflict in Afghanistan. The UK may still be in love with Obama because he is not Bush, but it is time as he approaches our shores to be more critical.

I liked his message of change and wrote favourably of his new approach to fund raising – asking for small sums from many rather than seeking big sums from the few – when he first appeared on the political radar. I thought he would do well and might go all the way to victory. I said at the time I did not think I would like his policies, although people ignored that and billed my piece as meaning Redwood wanted an Obama Presidency. I was predicting success, not backing him. I liked his use of words, his ability to reach out, and his ability to forge a new coalition of support – it was great politics. As I feared, what he is now offering should he come to power is altogether more disagreeable.

I have three charges against Obama the realist, three bones to pick with Obama the wannabe statesman. The first is I do not think he has shown a full understanding of the complexities of Middle Eastern politics. He is in danger of being neither effective peacenik nor effective warmonger, now he wants to widen the Afghan war but retreat from the Iraqi one. He has not explained how he would handle the relationship with Pakistan, and was uncomfortable in Israel. If he is unsure of the extent of his war aims and limited by positioning in how he can pursue them, it does not augur well. He will come to learn that Iraq, Afghanistan and Pakistan are all linked – succeed it making it too hot for the terrorists in one of those, and they move to another base.

The second is his possible protectionism. His supporters often say he did not mean his protectionist sentiments, and would knuckle down like the Republican Presidents before him to try to make a success of the World Trade Talks and the latest round of reducing barriers to trade. If that is so, why can’t he bring himself to make the case for free trade? If he wants to remain new and fresh, he needs to be honest. If, on the other hand, he means what he says about protection, he will help make the world a poorer place.

The third is his likely support for higher taxes. His critics claim his social security taxes will mean a hike in the marginal rate of tax on higher incomes to 50% in the USA. That would be bad for business and bad for the USA as a place for business investment. If he is going to be yet another tax and spend Democrat it means he has not learned the lesson of Bill Clinton, who in his first term was fiscally more conservative to the benefit of the US and the world economies.

After high spend tax cutting Bush we need someone who will control spending and squeeze the size of government. The world needs a President who offers policies that encourage economic recovery. The fascinating political duel that has unfolded so far does not seem to have thrown up a candidate capable of doing what it takes to speed and broaden economic recovery. Both McCain and Obama favour more overseas expeditions by US forces, and both seemed wedded to high levels of spending. Both are concentrating more on the war on terror than the war on recession and Credit Crunch. There are probably more votes in the latter.

The Parliamentary recess is a symbol and a symptom of the overmanned and under achieving public sector. Some of my Labour colleagues will tell you that MPs have to work very hard in the recess – they have to catch up with all the constituency business which the pressure of a Westminster session puts on hold. Don’t you believe them. Any efficient MP can manage the constituency visits, cases and correspondence whilst also appearing regularly in Parliament. August and the first half of September are not ideal times for visits in the constituency. In my case there is no District General hospital within my boundaries, the schools are on summer holiday, and many businesses over August will be short of staff as they take their well deserved summer breaks. It is easier to keep up to date than to allow a backlog to develop that needs clearing in the recess.

I do plan to take some time off in August, but I think it is quite wrong that I am shut out from my main place of work and prevented from carrying out my main duties from July 22nd until October 6th! That’s a massive 11 weeks. Why does the government want to keep Parliament out of action for so long?

Doubtless they see it as a chance to have some respite from questions, criticisms and debates which highlight mistakes and problems. As from yesterday MPs are prevented from tabling a subject for debate, from asking oral questions of Ministers in Question Times, from tabling questions for written answer, from tabling EDMs and signing them, from participating in a committee, from asking a Minister a question during a debate or making points in a debate. We will have eleven weeks with no Ministerial statements to Parliament explaining what they are doing or reporting on errors and difficulties, no time to examine the secondary legislation they will still be drafting and pushing through, and no time to raise matters of public concern.

For the government it is a chance to dominate the media by using their spin doctors each day to pump out a story or a stunt, uninterrupted by criticism or an alternative agenda from Parliament.

At the very least there should be a session at the start of September before the main political conferences. This need not be a legislative session, as we have quite enough new primary legislation and do not wish to encourage more. It could combine Question Times to Ministers, with Ministerial statements, and adjournment debates on topics that the government and the Opposition wish to raise. There need not be any votes, so MPs who wish to be away can stay on their fact finding travels or whatever else they are doing, whilst those of us who wish to hold the government to account have a Parliament in which to do it. Whilst we are about it, why not abolish the main conferences, which are outdated ideas, and ask each party to go over to a couple of long week-end conferences each year so people with jobs can attend without having to take a week’s holiday, and MPs could continue to do their job at Westminster.

Westminster is overstaffed and underemployed. It should meet more often to provide better value for money. It is entirely representative of Labour’s wasteful public sector.

Whilst the politicians in the USA are thinking of legislating to stop speculators in commodities, and MPs in the UK are busily enquiring into whether there has been speculation in commodity markets or not, the real world has moved on apace. The share prices of commodity producers are indicating falls in energy and some commodity prices, oil has tumbled more than 10% in a few days, and some metal prices are in retreat. As so often, the politicians are busy talking about shutting stable doors long after the race horses have bolted.

No-one can be sure this is the decisive turn we have been waiting for in commodity and energy prices, but it has been likely for a few weeks that some of the froth will now go out of these markets. The news background for final demand for energy and raw materials is grim, with Asia tightening to squeeze high inflation out of the system, and with the West still in the iron grip of a Credit Crunch with a weakened banking system. If commodity prices are ever going to come down, now would be as good a time as any. It is most unusual for the price of anything to surge ever upwards in a straight line.

I have written before on how there is speculation and investment in commodities as well as higher overall demand from Asia, and explained how this could depart as quickly as it arrived. I find it odd that anyone could think otherwise, or think it worth spending time debating it. Once speculators and nervous investors see prices falling, some will decide not to hang around and will add to the selling pressure.

It is good news today to learn that there is strong price competition on the forecourts lowering the prices of petrol and diesel at last, after several months of ever rising prices. It reinforces my message to the Bank of England – fight recession, inflation will subside as and when these prices come down. The markets which have made it so difficult for muddled Central Bankers in recent months are at least temporarily coming to their aid. Let’s hope, like drowning men and women, the Monetary Policy Committee members grab this lifeline now it’s being thrown to them. They should cut interest rates without delay.

(Please note this expression of opinion is not investment advice)

It was music to my ears to hear Nissan’s revision today of their position that if the UK did not join the Euro they would invest elsewhere. They made a clear commitment to invest in Sunderland to produce their next new European vehicle there.
When Nissan made that foolish comment it was damaging to those of us who were battling to keep the pound, and welcome ammunition to Blair/Mandelson trying to find a way to move the debate in their favour to abolish our currency. I was surprised that such a good manufacturing company should allow itself to make such a strong comment on such a politically sensitive issue, and had to devote time to explaining why it was unlikely to be true.
As I pointed out at the time, business people make decisions on where to place factories and to make new investments on a range of factors that determine whether the investment is likely to be profitable or not, and whether it is likely to offer more sustained profit on a reliable basis than in some other location. Proximity to market, access to good components and raw materials, the ability to recruit and retain a good workforce, tax rates and the regulatory background are all important issues. It was never likely that a country’s choice of currency was going to be the one decisive factor.
The irony today is that one of the important influences on persuading Nissan to base their next new European car production in Sunderland will be the decline in sterling against the Euro in recent months, making the UK more competitive on price than Euroland. All of Nissan’s future cashflow and profit figures on their new car will look better because sterling costs are lower than inflated Euro costs. It would be a different story today if Nissan had set up in Spain or Italy, where they would now be struggling to control inflationary costs against the background of a rising currency making them uncompetitive.
Nissan has done a great job in recruiting and training people in the North East to become one of the most productive auto workforces in the world. They make good products to a sensible budget and of good quality. The UK should be proud of their achievement, and they should be pleased with what their workforce has done. They should also now welcome the wise decision of the British people to keep the pound, and understand that a future government will be pledged to keeping the pound as a matter of principle.
It is the British government that needs to do more to keep and attract industrial investment to this country, by regulating less and offering a more competitive tax package.

Today two pieces of news are juxtaposed which should make supporters of democracy pause for thought.

In Zimbabwe we are told there is a chance that the dictator who lost the election may be about to sign an agreement with the Leader of the Opposition, offering some kind of sop to him whilst retaining the job of President. In the EU the French President acting as President of the EU Council has proposed that the irish No campaign, who won the referendum, should sit down and talk to the Yes campaign and government, who lost the referendum, about how to implement the Treaty the people rejected.

All kinds of bien savants tell us that the new African approach to democracy in Kenya and Zimbabwe offers hope for the future – a government which loses stays in power but agrees to offer the winning Opposition some enhanced role beneath the losing President who retains office. That is not democracy. Democracy says that the will of the majority prevails. Democracy means that if you lose an election you bow out gracefully, to lick your wounds and work out how to do better next time. Similarly democracy means that if a government tables a referendum and loses, it has to stick to the view of the majority. It is not entitled to carry on as if nothing had happened, or to threaten another referendum because it did not like the answer. Indeed, a decent government that lost a referendum on a substantial matter like the future of the country’s constitution would resign, appreciating it had lost the support of the public.

I am astounded that these Europeans seem to think the popular will as expressed in elections or referenda matters so little, and think that in each case people in power have a right to negotiate, spin and slither around any kind of popular rejection. I want to hear our government condemning the idea that in African countries it is just fine for losers to cling to power if they offer the winners a consolation prize, and I want them to tell the French President he is making the Irish situation worse from the EU point of view by interfering in a way which suggest the EU does not care a damn about the views of the public and is desperate to overturn the popular will as soon as possible.

When the Conservatives lost office in 1997 I understood the feelings of the public. I have never through the long years of Opposition thought we had any right to a share in the government, and never wanted to change or rig the electoral system in a way which would give us more chance of winning.

The role of Opposition is an important one in a democracy. A good opposition understands that, and works away first to be a good opposition then to be a plausible alternative government. A sensible elected government seeks to build a wider coalition of support than its own party, but always remembers it only governs through consent, and has to go once it has lost that consent. Those who seek to rewrite the rules for African countries and for the EU are not democrats. They are undermining the very basis of consent which is crucial to democratic government.

True democracy is not the tyranny of the majority so much as the accountability of the government to the majority, and the availability of an alternative to keep a government more honest and responsive.If the system no longer allows the alternative to take over or the popular view in a referendum to prevail, the system is dead.

During this second cold and wet summer in succession it is good to enjoy the occasional day of warm sunshine, and remember wistfully past summers which were so much hotter. At least I can blog more, because week-end games of cricket are being cancelled all too regularly owing to rain and bad light! This week I was in a game where we played on into the dark after 6.30 pm at considerable hazard to fielders.

It was against this background that I found the following comments of Dr David Evans, the author of the Australian carbon accounting model, most interesting:

“ The satellites that measure the world’s temperature all say that the warming trend ended in 2001, and that the temperature has dropped about 0.6 degrees in the past year….The world has spent $50 billion on global warming since 1990, and we have not found any actual evidence that carbon emissions cause global warming” (This first appeared in an article in the Australian)

I was also sent copy correspondence Christopher Monckton has been having with the American Physical Society over an article of his written for their Journal in July 2008. Apparently they commissioned him to write a piece claiming that the extent of the likely impact of human generated carbon dioxide on global temperature change is less than commonly thought. He tells me wrote it and that they asked for other professional opinion on it. He was therefore surprised to learn that they intended to place a disclaimer on the article saying “The following article has not undergone any scientific peer review. Its conclusions are in disagreement with the overwhelming opinion of the world scientific community. The Committee of the American Physical Society disagrees with this article’s conclusions”.

All this is looking very dated, as the world faces recession, credit crunch and downturn. In these circumstances there should be more opportunity to concentrate on practical greenery. Most could surely agree it makes sense to recycle and re-use more, to generate more power from sources other than oil and gas, to waste less fuel and raise the efficiency of everything from home heating to industrial production. All these things will help cut the costs of production, help price firms back into weak markets, and help householders reduce their bills.

There are two ways of going green. The UK government belongs to the tax them and regulate them camp. They have put taxes on petrol and owning cars, taxes on business and taxes on using city centre roads. They have with the EU written endless pages of new regulation. They have made the green cause unpopular, by seeing the opportunity it affords to introduce everything from more taxes to a spy on your rubbish bin. People feel robbed. They are nervous about whether they are conforming with the mass of new regulation bossing them around.

The alternative approach is to rely on incentives and new technology. At the end of the nineteenth century people were worrying about how to handle all the horse manure in London from the build up of horse drawn traffic. They did not foresee the technical revolution that the car and bus represented. It is going to be possible to cut the amount of carbon and of noxious gases emitted by engines to produce much greener motorised transport. It is going to be possible to generate more of our own power and capture more of our own water at home, and to insulate our homes to much higher standards. We know how to generate electricity without needing to burn oil or gas.

The best green policy the UK has enjoyed in recent years was the duty reduction on petrol to encourage people to switch from leaded to unleaded fuel. The modest tax incentive achieved the switch effortlessly and comparatively quickly, as people saw the need to cut lead in the atmosphere and liked the cut in their bills. We need more policies like that, to go with the grain of human nature, to cut our fuel use and to promote better technology.

The Conservative Policy Review warned that the removal of powers from the Bank of England could make it more likely a bank went under. It also pointed out that the fiscal rules were well and truly broken a year ago and suggested ways to remedy them:

2.1. Making the Bank of England Independent

The Chancellor’s early decision to make the Bank of England the independent judge of interest rates, with the creation of the Monetary Policy Committee, was an idea whose time had come. It has been welcomed by all political parties and the business community, and has combined with the effects of globalization to continue the relatively benign interest rate and inflation environment we have enjoyed since 1993. However, it is important to understand the limitations that the Government placed on the Bank’s independence; and we will recommend that, in contrast, a Conservative government takes action to strengthen the MPC still further. It is also important to understand that the first decade of a more independent MPC has coincided with a very favourable business and interest rate climate worldwide, and with easy money globally. It should be remembered that the Chancellor also took substantial powers away from the Bank, transferring banking regulation to the FSA and removing the Bank’s role in managing public debt.

(Commentary on benign climate and UK higehr rates) But there are two reasons for our performance still not rivalling the best of our international competitors, which relate to Government actions; and these need to be considered if we are to create an optimal mix of inflation and interest rates in the future.

The decision of the Chancellor in 2003 to change the Bank of England’s target rate of inflation. He replaced a 2.5% annual increase in prices as measured by the RPI with a 2% target as measured by the CPI (which typically rises by 1% per annum less). It is widely agreed that this led to a relaxation of anti-inflation policy at a crucial time. And its result can also be seen as further proof of the destabilization consequent upon attempts to bring fiscal policy in line with Europe’s; which was earlier seen in the deleterious effect of the ERM policy (which had Bank of England and all-party backing).

(ERM passage )
The second reason is the deterioration in the public accounts from 2001 onwards. After two years of following Conservative spending plans, with sensible and tight controls on public spending, repayment of borrowings and fiscal prudence, the Chancellor turned to a large increase in public spending. This resulted in substantial inflationary expenditure in the public sector, and large debt issuance. Money growth was strong, and the public finances worsened rapidly.

This has resulted in the Bank of England struggling to reduce inflation from a high of 4.8% on the RPI (3.1% on the CPI). It is being forced to tighten monetary policy, in an attempt to offset the impact of inflationary public spending, rapid money growth, and increases in public sector charges (in particular, postal prices and student fees).

In relation to this, we are also concerned about the appointment process for the MPC. The majority of its members are chosen by the Chancellor, who has at times failed to fill a vacancy promptly, and whose decision-making is opaque. We recommend that an incoming Conservative government should make this process a far more transparent one.

We are concerned about the division of responsibility between the FSA and the Bank over banking and market regulation. Fortunately, conditions in the last decade have been benign internationally, with no serious threats to banking liquidity. We think it would be safer if the Bank of England had responsibility for solvency regulation of UK-based banks, as well as having an overall duty to keep the system solvent. There could be important delays as information was exchanged between the two regulators if a banking crisis did hit, and there might be gaps in each regulator’s view of the banking sector at a crucial time when early regulatory action might spare a worse problem.

2.2. Recommendations on Economic Management

1. The Government should neither reintroduce exchange rate targeting into its monetary policy, nor enter the Euro: these are likely to prove destabilizing, and to reduce the UK’s competitiveness.

2. An independent MPC should continue to be supported in its role of controlling inflation through the setting of interest rates.

3. There should be further debate about whether the CPI is fully reflecting important inflationary pressures, including the cost of housing, and whether the Bank of England’s target needs reviewing.

4. The independence of the Bank from any external pressures should be buttressed further by introducing an open selection process, and formalizing the role of the Treasury Select Committee in scrutinizing appointments to the MPC.

5. Whenever possible, fiscal policy should support, rather than undermine, keeping both monetary supply and inflation under control.

2.3. The Fiscal Framework – and its Weakening Foundations

2.3.1. The State of the Public Finances

Under the Labour Government, there has been a rapid build up in debt, and official figures show the UK’s public sector net debt at £497.7 billion (April 2007). However, recent work by MPs and the Public Accounts Committee has revealed that the true extent of the UK’s public sector financial obligations is almost three times this stated amount. A report from the Centre of Policy Studies in 2006 itemised the following:

Stated net debt £487 billion
Public unfunded pension liabilities £720 billion
Local government unfunded pension liabilities £90 billion
PFI £25 billion
Network Rail guaranteed borrowing £18 billion
TOTAL public sector obligations £1,340 billion

Even these figures could be increased, however, if allowance were made for the possible failure of some PFI projects, with the consequent need for the Government to spend more on them; the current rapid growth of the public sector pay bill, and hence of pension liabilities; and probable further borrowing by Network Rail. (Estimate raised to £1.5trillion on Northern Rock nationalisation)

PFIs, in particular, are misleadingly valued in the public accounts. In July 2003, the capital value of PFI projects was included as £20 billion on the Government’s balance sheet. And yet payments due under those contracts amount to £138 billion over the next twenty-five years (from 2005/6). It is also worth noting that there are many PFI contracts entered into by local government, which do not appear in these figures at all.

2.3.2. The Fiscal Rules – Flexible Friends?

Two fiscal rules were established by the Chancellor, to reassure those who remembered previous Labour Governments’ economic mismanagement that this time things would be different. The Golden Rule required that the current budget should not be in deficit over the cycle as a whole; and the Sustainable Investment Rule required that public sector net debt should not exceed 40% of GDP.

In the early years, this framework worked well, as the Chancellor effectively followed Conservative spending plans. The Government repaid debt and ran surpluses. However, this has all changed in recent years. Public spending has expanded rapidly, which has plunged the country into large annual deficits.

As a result, the Chancellor has been able to remain within the Golden Rule only by changing the years of the cycle; and similarly, he has remained under the Sustainable Investment ceiling only by keeping many public sector borrowings, and unfunded liabilities, off the official balance sheet. This willingness to undermine his own rules, and to exercise such flexibility within apparently sensible and tight controls, has damaged both his credibility, and the Government’s reputation for financial management.

This is a pity, since we agree with the principles that initially formed the basis of the Chancellor’s fiscal framework. We believe that governments should not as a rule borrow to pay for current spending; but instead should run healthy current account surpluses in the good years of an economic cycle, so that some latitude is possible in the weaker years. We also believe that there should be a limit on the total borrowings of the public sector as a percentage of national income, both to reduce any crowding out of private investment, and to preserve a good sovereign risk rating on world credit markets. The common theme here is that borrowing is simply deferred taxation, which ultimately will have to be repaid by taxpayers, with interest.

2.3.3. Public Capital Expenditure – Sustainable Investment Rule Proposals

The distinction between current and capital spending is clear. Daily expenditure on wages and supplies, for example in the education and health services, is recorded as current spending in the public accounts. In contrast, the construction of a school or new hospital ward is recorded as capital spending or investment: items that will be available for a period of years, once the initial sum has been spent.

The contrast between public and private capital spending is, however, an added complication. In the private sector, a company invests to produce a future return; if that return is inadequate, the investment has to be written off. If the investment is sufficiently large and badly judged, it might, in extreme circumstances, even lead to that company’s bankruptcy. As most private investment yields a return higher than the cost of borrowing, it is usually appropriate to borrow some, or even most, of the money to make that investment, increasing both risks and rewards for shareholders. So, for example, a car manufacturer might borrow to invest in a new factory, in the belief that he can then make and sell extra cars; this extra revenue will then bring in sufficient cash flow to pay both the extra cost of his new factory, and the interest on his loan.

Much public sector investment spending, however, does not generate such useful additional revenues, and hence there can be no automatic assumption that an investment can be afforded on these grounds. If a local Education Authority spends capital on a new school, there will be extra costs in future years, but no extra revenues. Staff will have to be paid to maintain, clean and staff the school, but the service that it provides is of course free. The only possibility of extra revenue is if the school is due a government grant under the education funding formula, for example if it is to cater for extra pupils.

All of this requires careful management, as there is no market test for many of the capital projects a government will want to carry out. We believe that a new government will need a revised framework for capital spending, to ensure a sensible balance between the need to control spending, and the need to make enough money available to upgrade and expand public facilities in core areas like health and education.

We therefore propose that an incoming government should consider adjusting the Sustainable Investment Rule to:

1. Include guaranteed borrowings (such as those of Network Rail) in the calculation of public borrowings.

2. Include a more meaningful figure, to be settled by the NAO, for public sector liabilities under PFI and PPP contracts.

3. Adjust the limit on state borrowing to take these changes into account.

4. Continue to exclude public sector unfunded pensions liabilities from calculations of debt for the purposes of the Sustainable Investment Rule. Instead, they should be represented openly on a restated, and more accurate, government balance sheet.

5. Value government assets such as schools and hospitals on a ‘replacement cost minus assessed depreciation’ basis, in order to take into account their state of repair and fitness for purpose.

These adjustments should be made to reflect existing liabilities and should not lead to any loosening of fiscal control. In addition, we need to make it easier to decide sensibly the priorities for the limited supply of public capital. We believe that the best way to mitigate this capital scarcity is to allow worthwhile and appropriate infrastructure projects to take place in the private sector, for which there will always be (in normal conditions) readily available capital. This approach, adopted for most capital investment in a free enterprise society, can be applied to the following types of investment, which, in the UK, have typically taken place in the public sector: