Dec 11 2008
Wakey, Wakey, if you want to save the world
When the Prime Minister misunderstood the comment on this blog which said that on the policies he is following there will be pay cuts and lower living standards, he showed how out of touch he has become with what is happening in the economy.
This week the Trade Unions at Corus are discussing a 10% pay cut for steel workers in the UK. JCB we hear on the BBC have already done a deal to save some jobs by cutting pay. At the other end of the remuneration spectrum some amongst the unloved Hedge funds and derivatives businesses are reducing their fee levels and bonuses and shedding employees. In many companies the cut in living standards is being made by making large numbers of people redundant to cut the overall wage bill. In all too many cases the choice is stark – sack some to save the others, or ask all employees to take a pay cut to save more jobs.
In the USA the same thing is happening. There the Democrat politicians in charge of the Congress demanded action from the Unions to cut the costs of employment before they would agree to put in temporary aid to the three ailing car giants.
I repeat, I hate recessions and want to see living standards rising. It is the result of the huge errors of their respective Monetary policies and bank regulations in the last six or seven years that the UK and the US have lurched from boom to bust. In this downswing companies are struggling to survive and are posing their workforce with the cruel dilemma. Do some lose all their earned income, or do all lose some of their earned income? Why can’t the PM grasp that?
Perhaps it is because he lives in the cosseted public sector, where he thinks he can carry on increasing the numbers of box tickers and administrators with salary rises and pension increases well above the private sector average, all to be paid for by borrowing more or taxing the emaciated private sector more. Surely given the sacrifice so many private sector workers are being asked to make, now is the time for the government to show the way to controlling public borrowing and costs, by asking for a pay cut from all public sector employees paid more than £100,000 a year, starting with cabinet Ministers? I thought this group of Labour politicians believed in justice? Is the relative treatment of the high paid in the cabinet and the upper levels of our nationalised banks fair when compared to the Steel workers?
Yesterday when the PM made his howler about saving the world, the desired headline inadvertently popped out from the supreme regulator of our financial sector and monetary policy in a way which brought the House down. Far from saving the world, Mr Brown has not even got the banks to work. David Cameron was right to challenge the PM on why his banking package is not working, and to ask him to amend it. I predict that for all the bluff and bluster, the government will now look again at it, because under the surface they must be alarmed at what is happening in the real economy.
Meanwhile Mr Brown is learning an expensive lesson in how the EU works. When the UK is told it ought to be more engaged to have more influence, it does not mean the UK has a licence to dictate policy to the rest. Mr Brown lurched from being gently sceptical of the value of all those meetings, to thinking it would provide him with a great mezzanine stage to play “saving the world”. He went with his prepared lecture on reflationary packages, and the dodgy policy of cutting VAT. The Germans rightly took fright at such an idea. They saw the danger of expanding public borrowing to offer a modest price cut on discretionary items at a time of falling prices and lost jobs. Mr Brown misunderstood the mood and pressed his case too far. This week he is being badly scalded by the German Finance Minister, who has launched a severe attack upon the Brown economic policy and gained great publicity for the public put down.
It takes diplomatic bungling on a grand scale to get into such a row when you clearly did not intend to. Mr Brown should now wake up on this issue, and realise that the EU does not want the UK to be engaged and influential to take the EU in a different direction. They want us to go along with what Germany and France have decided. On this occasion it just happens that Germany is right, and ironically it is now Germany that is arguing for the EU to keep out of economic policy and leave it to individual member states at a time of crisis.
So I add one cheer for the German Finance Minister, to my one cheer earlier this week for Ms Merkel. Which reminds me – yes I do back the Telegraph’s campaign for a tax break to help savers. That would be possible if Mr Brown cancelled his unloved VAT reduction and started to get to grips with public sector costs.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
Dear Mr Redwood
Following on from “Mr Brown’s Howler”, it appears that the Prime Minister may have (inadvertently?) misled the House in a subsequent comment.
Iain Dale has the relevant excerpt from PMQ’s on his site (http://tinyurl.com/6yxzj3), however the quote in question is:
“Not a single depositer in Britain lost any money”.
This comment is, of course, patently untrue and I believe the Prime Minister should be asked to account for his comments.
I will be posting the clip and quotation, as no doubt will other bloggers, and I hope that you and your colleagues will give this attempt to mislead Parliament your attention.
Kind regards
Dungeekin
Reply
You don’t need to put this on the site John. I just want to say thank you for continuing to give us an intelligent view on the economy and politics. I particularly value your economic commentary.
Reply
Small businesses cannot be helped, let alone saved by a group of people who are uniquely unqualified to do so. The decision to shave 2.5% of the rate of VAT for thirteen months is clear evidence of this. We have heard that this will add some three hundred pounds to the average individual’s spending power but this ignores the fact that unlike governments people will not be sitting down to re-model their household cashflow forecasts and then be inspired to add that £99.99 item to their annual budget on the grounds that it is now selling for £97.86. All this measure has achieved is to slash the government’s revenues for no discernible return.
Reply
So we are starting to see wage deflation in some manufacturing firms? This is a worrying development.
I see also that shipyard jobs are at threat in Rosyth and elsewhere due to defence cuts. Whatever next ?
Reply
Re Germany:
BBCi’s initial headline this morning for the German FM’s remarks was “Germany Out of Step on recession”.
I was quite startled by that. Rather than a quick, punchy, impartial summary of what was said, the headline reflects the rebuff Labour ministers made. In other words the BBC took the Labour Party line on the issue.
Maybe I am paranoid or overzealous but this hardly strike me as impartial. Had the story been about a German FM criticism of the Tory Party’s policy proposals to deal with the recession I dare say the headline would have been sthg like “Damning International Criticism of Tory Proposals” or “Cameron under International Pressure”.
The BBC-i head line has since been changed to sthg like “Ministers shrug off German Attack”.
Reply
It was worse than that, your fellow MP, Kerry McCarthy sought an ‘honest and balanced debate; by quoting you out of context here
http://kerry-mccarthy.blogspot.com/2008/12/guest-blog.html
I did post a link to the full remarks.
Reply
adam Reply:
December 11th, 2008 at 2:01 pm
i cant post on her blog, so.
”
What. With Labour embracing EU/UN loony sustainable development. 80% cuts in CO2 commitments. Global wealth redistribution
That WILL hit living standards
The difference is Redwood tells he truth about things whereas Labour just LIE.”
Reply
Gordon Brown is said to read a great many books. Presumably he has read that other great son of Kirkaldy, Adam Smith. But he has shown no sign whatever of having understood what he has read.
So, sadly, whilst we all appreciate your efforts in trying to get the Dear Leader to understand basic economics when he reads your blog, I fear you are wasting your time. Still, no matter. The rest of us who enjoy reading your blog do understand what you are saying, even if Gordon does not.
Reply
Just imagine that you were the German Finance Minister. For 11 years you have had to listen to The Great Helmsman telling you were getting it all wrong. Eleven years of lengthy boring lectures. Now is your chance to get your own back. Perhaps there will now be a long line of EU Finance ministers telling him he is wrong.
Reply
The thing wrong with this recession is that all the pain, cuts & unemployment are being borne by the productive party of the economy, not by the government part. That will not only not get us out of recession it can only get us deeper.
I think it is to late for a mere cut in public salaries above £100,000. I even think we are beyond a hiring freeze in the civil service I suggested at the beginning of the year. We need to abolish sizeable parts of government. Particularly the regulatory parts & the quangos, many of which not only absorb their own budgets but massively increase the costs of productive industry. Regulations cost the people 20 times more than they cost the government to enforce.
That & telling the Atomic Energy Authority that they are licencing any successful nuclear reactor design this day would not only end the recession but get us growing nearly as well as China, India, most of East Asia & South America still are in this alleged “world recession”.
Reply
One day we might all learn that there is no such thing as a boom and set economic policy accordingly. A boom is just a deferred bust in the same way that government borrowing is deferred taxation.
We can have steady economic growth because a well run economy is capable of providing a genuine increase in wealth year-by-year, but there is no general economic equivalent to winning the lottery. If it appears that wealth is growing at a huge rate the reason is always that a bubble of some kind is developing and giving a false impression.
A sensible government does not encourage a boom, it keeps a steady course with a constant eye on what is happening to real, substantive national wealth.
The Conservatives made that mistake under Mr Lawson’s Chancellorship and Labour made it under Mr Brown, each resulted in a substantial recession and the burst of a house price bubble.
When people talk of ending “boom and bust” they must start meaning that they aim to end both boom and bust, the two cannot be divorced.
Reply
SuperGordo, or the Saviour of the World: An Ode
=============================
M R Cannon
“The first point of recapitalisation was to save banks that would otherwise have collapsed. We not only saved the world..” [Laughter . ]
- Mr. J. G. Brown, during Prime Minister’s Questions
Were we standing on the brink,
Gordon Brown,
Whereas now we’re safe in the pink,
Are we, Brown?
Were we crashing, diving, falling,
At the news from New York City?
Groaning “Worldwide growth is stalling”
Crying “Save us, please have pity!”
When the Hang Seng took a nosedive,
And the Dow Jones tumbled down,
Was it you who kept us alive?
Was it, Brown?
The rot started in the States,
You say, Brown,
Did you cut their interest rates,
Did you, Brown?
As investment banks were failing
And as repossessions rose,
Did you hear the people wailing
As you picked your bogeyed nose?
Did you jump into a phone box
And don your super hero’s gown
Your trousers tucked into your socks
Really, Brown?
Did you fly into the air,
Gordon Brown?
O’er the wasted lands laid bare,
Brown, O Brown!
Where the Main Street banks were busted
And their pensions had gone west
Did they turn to one they trusted
Did they think that you knew best?
Men don’t think it half so hard when
The pound falls ever further down,
Since the markets are still open
Saved by Brown.
It would greatly, I must own,
Soothe me, Brown!
If you left this theme alone,
Mighty Brown!
As we face a bleak tomorrow
With a mountain range of debt;
You seem not to share our sorrow
But, grinning, do not get it yet.
You’re the source of half the trouble
Not our saviour, just a clown.
As we watch our problems double
Chuck it, Brown!
Reply
When we had a lot of immigrants four years ago, our Church started out to help them learn English, to look after the drunks (lots) and welcome the ones who were dumped here without either a job or any money. We were inundated.
Today, I went down to the Church and there were three part-time government employees (three more weren’t on today) with nobody to help and only pretend work to do! That’s right, no immigrants at all in Wisbech, home of the agricultural industry of the Fens.
Having just read two articles in the Spectator this week about the imminent global financial melt-down, I explained that perhaps we could re open as a soup kitchen in a couple of months’ time.
They were not amused. And, what is more, they thought I was joking…..
Reply
Your idea of a cut in the cost of the public sector payroll is a good one. Two routes to this are:
1 elimination of unwanted, needless or nice to have but not essential activities, and
2 reductions in the pay of individuals as is happening widely in the private sector. My suggestion for doing this is:
up to £50k pa no reduction in pay
next £50k-£100k pa 5% reduction in pay
>£100k pa 10% reduction in pay.
To this idea I would add reform of public sector pension schemes, which currently amount to a huge unfunded liability.
Close all unfunded public sector pay-as-you-go pensions as of 31 December 2009, protecting pension entitlements earned up to that date. Wef 1 January 2010 invest public sector pension fund contributions in money purchase schemes invested in the usual array of pension scheme assets. Tax their investment income the same way as private sector schemes.
Reply
Don’t expect any better from the Beeb ; which chose to illustrate Mr Redwood with that (admittedly daft) singing of the Welsh Anthem. It’s just smearing. Given the insane salaries the Beeb get, perhaps it’s not surprising.
I’ve often wondered if the public sector claim that ‘they’d get more money in private industry’ - (teachers especially are always claiming this, it’s complete fantasy) should be tested with the quangos and bureaucracies. I don’t think anyone would employ any of them
(Oddly that when Brown is on, they don’t use the footage of him picking his nose)
Reply
The Irish Government did just as you suggest and all took a 10% pay cut when the financial crisis started to really bite. I believe the Singaporean Civil Service all took a pay cut too.
Good enough for them, good enough for Gordon et al
Perhaps David Cameron and the Shadow Cabinet, as people in receipt of public salaries, could lead the way on this in the UK?
One can but dream….
Reply: Shadow Cabinet Members other than the Leader and Chief Whip do their Shadow jobs for no remuneration, beyond their basic MP salary.
Reply
So why does a company have to cut wages to be competitive in the UK when our currency is in freefall? JCB has little domestic competition, it being pretty much the last indigenous manufacturer of earth moving equipment. Corus have virtually no domestic competition either.
I like this blog very much too. I don’t always agree with the sentiment, but I can understand the logic of the positions taken.
Reply
Derek Reply:
December 12th, 2008 at 8:37 am
Because demand has not so much dimmed as vanished entirely to a level unprecedented in the experience of anyone working in industry today. Ignore the govt spin, be very afraid.
Reply
I see that in the States, the talks about bailing out the big car companies has failed because the unions refused any possibility of pay cuts for the workers. Shades of Scargill? Mind you bancruptcy in America is not as bad as it is here. I remember flying on Delta Airlines a year or so after they were bancrupt.
Reply
There are some pretty misguided sorts on here, including, I have to say, Mr. Redwood himself.
Monetary policy is losing its traction — in no small part due to the ECB’s risible rate decisions over the summer and Autumn — and we are in desperate need of unified, cross-nation and massive fiscal stimulus.
Of course, in an idea world, we would want to balance the books and maintain prudence, but I’m afraid this is not an ideal world. Deflation, the worst nightmare of the capitalist economy, is on the way, and unless we kill it now, we will not do so for 10 years of unremitting misery and destruction.
Germany as the forth or fifth (I don’t remember which) largest economy in the world (and largest in the EU) has a huge strategic role to play in this crisis, and it’s idiotic current stance is talking us ever closer to the abyss.
Sorry to break it to you all, but It’s time to stuff the pomander under your noses and support Brown’s efforts at stimulus, rather than being a slave to the failed Hoover-Mellon policies of the 1930s, which would take us to financial Armageddon.
Reply
mikestallard Reply:
December 14th, 2008 at 5:19 pm
Erm……
If you believe Mr Brown’s figures, our debt is very small. Then, if you add pensions, PFIs, the nationalised and semi-nationalised banks (which deal in trillions, not billions), you come to a figure which is something like four times our GDP, twice Italy’s comparative debt.
Already the investors are smelling a rat (parity with the Euro). If we pour more pennies into the hole which Mr Brown has dug, I regret we are going to see the pound at a very low level. Remember Argentina with a massive public payroll and a tiny GDP? Middle classes took to the street selling family heirlooms for their lunch.
And how able is the IMF to bail us out again, I wonder? There seem to be quite a lot of doubts there.
Germans can remember 1922…….
Reply
Bazman Reply:
December 15th, 2008 at 4:22 pm
That’s interesting. I could do with a new TV and do appreciate second hand quality goods from the middle classes. The prices are just so fair.
Reply
Mark Reply:
December 14th, 2008 at 5:20 pm
On the contrary, the interest rate cuts will have put money into many people’s pockets without increasing government borrowing. Although the newspapers complain that not all banks have passed the cuts on in full to all borrowers, most borrowers have seen a significant reduction in their monthly repayments. This has hurt savers, of course, but is far more effective than a 2.5% cut in VAT, which manages to be both paltry and expensive at the same time.
One of the problems we face is the need of the government to borrow vast sums. The vastness of those sums depends in part on whether and by how much cuts are made in areas of government spending which are bound to rise as the economic position deteriorates. The pound is plunging, raising the cost of imports and putting pressure on interest rates. A sound approach to government finance rather than reckless borrowing is what is needed.
Reply
Re Mike Stollard’s and Mark’s reply to my post of 14th Dec 03.05
First, apologies for the spelling and grammar in the last post.
Second, I can understand your point, but unfortunately you’re still fighting the last war – and using the tactics necessary to win it – rather than the current one. I suspect that to correctly asses the current situation, you, and many on the political right, Mr Redwood included, are going to require not a change of attitudes or opinion or nuts and bolts policies, but a whole paradigm shift.
The current government’s fiscal policy during the boom years was boneheaded. However, to then continue fighting that battle now, when deflation and depression are clear and present dangers is surely a risible stance. Cuts in interest rates are not enough. We need ZERO interest rates, perhaps even targeting long term rates – guaranteeing to keep them at near zero for, say three months, or even a year – and we need to start running the printing presses NOW so the Bank of England can start the quantitive easing process. Hand in glove with this monetary policy, we need a fiscal blast that can defibrillate spending back into life, and ideally, we need all of this now, and in conjunction with similar measures from the rest of the G20.
The pound’s fall has been a benign drop for now, and parity against the Euro would not be such a bad thing as things stand. It would stimulate British manufacturing, make imports more expensive and thus create jobs, create some inflationary pressure (albeit small in a deflationary environment) and aid the country’s current account. This depreciation of the pound has been a blessing, and is a prima facie argument for staying out of the euro.
I’m sorry, but desperate times call for desperate measures, which is why you all need to dispense with your admirable balanced books economic instincts. Alternatively, you can stick to your guns but admit you’re advocating a decade-long depression. It’s what Herbert Hoover and Andrew Mellon did last time, and we know what happened.
Reply