TONY Blair last night gave away another £1.4 billion of the British rebate, trying to buy a European Union budget deal that carries no guarantee of any cuts in European farm subsidies.

Following the fresh British concessions, EU leaders meeting in Brussels yesterday were poised to agree a budget that was larger than the one the Prime Minister had vowed to fight for.

Mr Blair was effectively forced to spend his way out of a diplomatic impasse by the intransigence of Jacques Chirac, the French president.

And Mr Blair’s EU presidency was only saved from a humiliating summit collapse through the mediation of Angela Merkel, the new German chancellor.

She moved to break the deadlock by proposing the budget for the period 2007-2013 should be increased from Mr Blair’s suggestion of 849 billion to 862.5 billion.

A significant part of the extra spending will come from more cuts in the 20-year-old British rebate, currently worth about £3.5 billion a year.

Mr Blair had already offered to forego £5.6 billion from the rebate over the next budget period. Last night’s deal could increase that to £7 billion, a concession that means £1 billion be will lost to the British exchequer every year.

Perhaps, but everyone else, the financial institutions, Western governments, homeowners, consumers did the opposite, so I guess you’re swimming against the tide in terms of majority interests.

Deflation might leave you sitting pretty on your nest egg (and it would boost what little savings I’ve managed to accumilate I guess) but it will just serve to magnify the massive debts this part of the world has accumilated.

Don’t make the mistake of thinking for one minute the powers that be give two hoots about whether you ‘did the right thing’.

Having said that I’m still planning on trying to save as much as I can this year.

The threshold for 45p tax and the claw-back on both the basic personal allowance & age related allowances should be set at £250,000 p/a with the 40p tax rate ended altogether. At a stroke the economy would be more competitive as you could have a taxable income of up to £250,000 p/a and only pay 17% income tax. The basic personal allowance should be £12,000 p/a and the age related one £20,000 p/a allowance for all people aged over 60 – with claw back restricted to incomes exceeding £250,000 p/a. Capital Gains Tax could be ended with capital gains taxed as income for the first two years & then be tax free thereafter.

These measures could be phased in over six years with public sector reforms designed to stop the £100 billion p/a of waste that the Tax Payers Alliance have highlighted . I am sure that the Center For Policy Studies could devise some ideas and you could always look at my proposed public spending cuts that I have suggested on this site recently.

These bold plans for ending the Big Government-High Tax agenda of Gordon Brown which has caused this malaise would send productivity through the roof by sparking a new enterprise culture on the back of tax changes that provide incentives for hard work , saving , investment , share ownership and wealth creation. We need more dynamism and innovation – by countering the brain drain we can do that. The spending cuts would in the longer term stop a permanent cut in income tax to 17p adding to the national debt.

But in view of the gathering threat of deflation and depression I would have one last throw of the dice as regards fiscal stimulus . Basic rate taxpayers should all get a £1,000 cheque in April 2009 . Under my plan with the VAT reduction ending then people might spend more money between now & April knowing that a) VAT would be going up so they would avoid higher prices in a few months time & b) That they would have extra money in April via a £1,000 cheque & a cut in the basic rate so spending a bit more would be affordable. So by ending the VAT reduction in April while cutting income tax from then might prevent the next few months being a terrible time for retailers by using the tax system to bolster sales figures. People would spend if they knew they could avoid higher prices and could afford to do so with a lower basic rate of tax & a big stimulus cheque from the government being a few months away.

The rebate cheque would add £22 billion to government borrowing but with dole queues getting longer , retailers under pressure , people losing their homes & businesses , disposable incomes under pressure and the housing market & credit market getting tight in the context of deflation clearly something must be done. The mortgage market needs deregulating so that cumbersome & inefficient rules are axed and that we have smarter & more effective rules to prevent abuses while boosting liquidity. We cannot have panic induced over regulation that might further choke of credit which is the life blood of a capitalist economy and thus stifle the innovation needed for an economic recovery. Smarter & more flexible regulation to deal with a 21st Century economy rather than a overall increase in the regulatory burden is what is needed . Why keep regulations that have failed ? They need to go to stop new rules leading to an increase in banking regulation that could drive up costs & harm competitiveness.

The Bank of England needs to have members appointed to seven year non-renewable terms after being vetted by the Treasury Selected Committee and approved the House of Lords to ensure that we get the best people and that they are not there to serve the government of the day by keeping interest rates too low for too long but rather to keep prices stable. The inflation target should go back to RPI-x as it is more reliable while the FSA needs to be scrapped as it has failed and the system was too unwieldy and no one knew who was supposed to do what when. In short the Central Bank must regain the powers it lost in 1997 so that debt & the banking sector can be properly managed to ensure that there is no more insane lending but equally no more bank runs either. An inflation target of 2% would be good for people on fixed incomes and long-term business planning. The Bank of England should have the powers of the Fed so that it can get liquidity into the banking system if needed and so it can stop banks going bust with the same effectiveness as it did in 1992.

I think that this package would ensure financial stability , low inflation and a faster economic recovery via a short term boost and longer term cuts in taxation & the size of government.

The UK goverment should print the money therefore not incure interest that must be passed on to the people (indirectly done through tax and the banks)
they could put into action regulations restricting money production therefore negating the need for inflation (we didn’t have it at on time!)

The banks would not have to give interest on savings as what ever is put in would retain it’s value (unlike nowdays were it constantly devalues even with the interest added)

Restricting banks to only being able to loan out money from investers (where both bank and invester gain a share of the profit) and you then cut out the problem of banks magicly creating money, hence cutting out inflation.

Not only that but you would slowly be able to cut down on the ridiculous amounts of tax needed just to repay the irresponcible borrowing of individuals in goverment.

(i have other ideas as well John if your interested)

The solution will only come in parts from different places. The Tories must give confidence in a change of government as part of that solution.

This can be done by persuading the leadership to announce that the only way to get Britain working again as it should would be to introduce a radical revision in the tax, NI and benefit regime that will get the lowest paid off benefits and motivated to work because a Tory Gov’t will take them out of tax altogether annd introduce incentive to work at all levels. By low paid I mean those on up to about 80% of average income.

The banks have a specific problem and ultimately the solution will be setting up new banks to replace those that have no chance of recovery – RBS, HBOS to name a few. Ultimatel ythey have to be let go. There is nothing that can be done as you have effectively said above. The taxpayer cannot afford it.

I have the honor and confidence to introduce to you an business opportunity for the british people in view of the fact you are trustworthy and reliable.

Please allow me to introduce myself, I am Mr Seymour Swag I work as the Chief Executive Officer in Insolvobank plc. There are assets on our books relating to the mortgages of hardworking british and american citizens. I know the value of these assets to be realised in excess of $1 trillion due to the fact you are a truely outstanding steward of the world economy.

However, following my investigation, my colleagues in our accountancy management department only recording the value of these assets as $ 500billion.

It is my wish and my intention to share with you and the hardworking british people the sum of 500 million USD unrealised at this moment in time as a reward for all you have done in your tremendous and honorable stewardship of the world economy.

I will bring my position and influence to transfer this realisation to you nd the british people by legal means. When these assets are transferred into your account I will require the sum of £50 billion in cash in order to meet regulators capital adequacy requirements and keep this transaction both honorable and withing the banking institutions regulations.

Of this £50 billion I will share with you 50% for for your treasury department and debt mangement office in order to complete our transaction and save the world.

Please contact me urgently Gordon, time is running out to save the world and we know what will happen to your poll ratings if I have to switch off the atm machines.

Best wishes and regards to you and the british people,

Seymour Swag,
CEO,
Insolvobank plc.

It is hard to imagine anyone would not be able to see this transparent strategy, but Cable with no prospect of anything other than the odd vox pop, will probably swallow the idea whole. ‘Power at last’ etc.

Dumb, really, really dumb.

One additional point on your proposal if I may! You suggest that there is insufficient capital available to business and homeowners, is this correct? My understanding is that capital is available but at a much higher price (interest) than the base rate and too high for the businesses who are in trouble.

This is probably because the base rate and the real rate in the market has become disconnected simply due to the fact that capital is scarce, demand for capital exceeds supply and risk is also significantly higher.

Slashing the base rate so low means savers will get no return on their money and so will begin to move it out of the banks to invest directly into companies (i.e. the Stock market).

Your proposal therefore is to provide capital by creating new money in the central bank thus increasing supply and bringing down interest. If it was so easy then Zimbabwe would be the richest country on the planet!

I apologise for the technical nature of my comment but as per my first comment it is important that we realise there is not an easy way out. The market has not failed, we just dont like the outcome!!!

Reply: No that is not my proposal. I am not in favour of further rate reductions.

The VAT reduction has cost everyone time and money. I noticed a few mistakes in invoices in ( and out – mea culpa ), but I noticed two cases where the nett price was raised and the gross amount held. The suppliers keeping the VAT reduction to boost bottom line. So predictable.

I lost money in only a week on the currency movement. I cannot predict the price of Sterling against the Euro any more. I know however, that there will be very large price increases in the next couple of months on goods from the EU. A lot of manufactures come from Italy and Germany which are then incorporated into UK manufactures. The present currency volatility is making pricing unstable. It takes a lot of effort to keep up with the volatility and it will make pricing very difficult for everyone. I have no idea what I will be paying for anything in the coming months – even when its coming from inflation low economies like Germany. A bit of currency stability would not go amiss, even at a poor rate.

And there’s the tide of stories about the interest rate and the position of bank deposits. I personally have a real fear that the money I saved up when those around me were buying plasma tellys and BMW’s is about to be wiped out by my government. A very real fear. I did what was right. I did not borrow more than I could afford to pay back. I saved money. I put it on deposit ( ISA’s) for the long term. I planned for my dotage. And I fear, truely fear I am going to be mugged.

What are we to do to persuade these imbeciles they should go to the country?

I do some work on bank-customer disputes, and it’s become clear that the regulators have been captured; they have come to see their job as protecting the banks, right or wrong. Whenever I suggest to them that they’re actually there to protect bank customers, their reaction ranges from embarrassed agreement to changing the subject.

This has become worse since the creation of the FSA, and it will be interesting to see what happens when the government tries to deliver on its promise to give statutory force to the Banking Code, as Lord Broers’ committee recommended.

Bank regulation in Britain is completely broken, and we should start thinking about what’s to replace it

Two of Peter Drucker’s countless incisive quotations which mean everything to business and to the basic understanding of all decision making in economics by politicians financier’s and regulators, are :-

“The purpose of a business is to create a customer”.

“The best way to predict the future is to create it”.

It requires a degree of lateral thinking to see exactly what Peter Drucker meant by what amounts to a couple of simple phrases which are almost throwaway general knowledge. Yet the trick is not to understand what he meant so much as to understand the need to practice them. Peter Drucker was concerned with Practice. They are fundamental basic knowledge which any person who understands them would take for granted, yet many fail to put them into practice.

Creating customers requires customer confidence as well as the means for them to buy. Yet as long as long as confidence, promoted by the means for customers to buy is lacking, then customers and therefore revival of any economy, is virtually impossible to achieve.

Pumping money into banks so they in turn can seek to loan money to people who currently have no confidence because of fear of unemployment is really never going to produce “a customer” until confidence in their job is first restored. Therefore, loaning money to businesses would offer stability in the job market which ’should’ promote confidence and in turn lead a customer to buy.

The economic cycle must start with a customer who has confidence. i.e.”The purpose of a business is to create a customer”. And this can be achieved with Loan Guarantees coupled with Tax Reductions which ’should’ create confident buyers i.e. “Customers” who create the demand necessary for any business and economy to survive.

So what of:- “The best way to predict the future is to create it”?
We can start creating a future by providing businesses with the means to keep jobs and to create customers as above. But we already know by recent events which led to the crash, that the current model isn’t working.

There are also measures which the government has to put in place too which you note above, which are designed to give investors and entrepreneurs confidence, as due to the size of our population and lack of natural resources, and social welfare systems, we need an external market too. So measures have to be taken beyond the internal economy in order to stabilize it and then to promote confidence again with investors which in turn place their money here to help drive our economy.

This leads me to ask how a future can be “created” rather than predicted if we are taking decisions globally rather than independently?

Why would our economy instill more confidence with external investors than any other economy if we make decisions within a global framework which places us in a position which is materially no different to any other and without the flexibility of independent decision making which could, if we were able to act independently, “create our future”?

How can Labour’s VAT cut and non-existent aid to businesses create confidence through employment and “customers” ?

How can Labour’s global decision making “create a future” for us if we offer no material advantages to external investors ?

The short answer is that they can’t, but yours can.

Either way it will mean significant unemployment and major structural changes to the economy. The only difference being how hard the change is and how long. Bringing the economy into equilibrium via asset price falls is more painful but the economy will recover quickly once finished whereas printing money leads us to high inflation, no growth and high unemployment for a significantly longer period.

The time to fix the issue was before it happened by not letting credit get out of control, unfortunately it would seem central banks are always fighting the latest battle using the last wars tactics!!!

If this is indeed the case, what then should the government do? Might one solution be to demerge NatWest as a viable domestic banking utility and retain all the bad stuff in RBS? RBS then slowly withers on the vine.