Missed opportunity in the Economic Recovery Group

Overall the reshuffle leaves me feeling we have a stronger team. The promotion of Jenny Willott in particular is a big plus, and moving Steve Webb back to pensions can only strengthen our policy in this key area.

Unlike some of my fellow bloggers I am also happy to see Lembit outside the front bench team. Parliament needs politicians who are prepared to reach out to all of society and leaving him to do just that may yet yield greater rewards for us.

Where I am slightly disappointed is the composition of the Economic Recovery Group. For a party that prides itself in its Federal structures it is a real missed opportunity for us that while the prefix Lord and suffix MP appear on the list the letters AM or MSP do not. Given the key role these two bodies will have in Wales and Scotland one is left asking oneself the question why do we think all the answers must come from Westminster based politicians?

Emperor Browns new Clothes

First the Germans said, it now the IMF have followed suit Far from being the saving of the British economy the VAT cut is looking more and more like the Emperors new clothes.

But should we be surprised, while the big retailers are happy to pass the savings on what about the rest of the economy.

The publican running a microbrewery "I cant afford to change all my menus and beer prices are actually going up, the duty change over cancels the cut in VAT and that is permanent"

The small builder (and the haulage sector) "increases in fuel duty mean we are paying more not less tax and we cant claim that back"

Hotels personal experience "none of the hotels I use on a regular basis have changed their prices so all this means is margins going up"

Sure I have saved some money as a result the vacuum cleaner we needed to buy was £3 less but I saved far more by shopping around for the Children's presents than I did from VAT changes.

So where are we left, in 373 days VAT will return to normal and if the commentators are to be believed we will still be in deep recession. Potentially worse the rise may even create a double dip scenario with firms either forced to cut margins or see a further hit to spending.

We need confidence back by that point if we are to survive.

So is it working? Just look to the high street today

The Officer Club : up to 70% off

HMV: 2008 chart albums 2 for £10

B+Q: 50% off sale starting tomorrow on bed, bath and kitchen furniture

Adams: savings on everything bar the spring 09 collection

Waterstones : large range of 3 for 2

The sales have started and it isn't even Xmas eve. Compared to this the Chancellors offering is an expensive red herring.

Then look at the queues the bigger the cuts and the cheaper the branding in any case the bigger they were, The Works, Primark, Waterstones were all busy. In short shoppers were trading down and again by far more than 2.5%.

Now the figures in January will tell their own story as no doubt will be the number of businesses in receivership but now is the time for the Chancellor to be bold.

If the stats show the VAT cut isn't working it should be reversed immediately. With the money saved he should.

Invest in insulation of all public buildings.

Underpin the housing market by purchasing vacant property across the country and use it to reduce council housing waiting lists and homelessness.

Initiate further investment in infrastructure modernisation across the UK.

If the chancellor thinks getting the public deeper in debt for consumable items is the way out he is little more than giving whiskey to the dunk on the street corner. We do need to spend but we need publicly visible signs of our investment to build confidence in the rest of the economy not just a cheaper wii to fill our days while we sign on and look for a non existent job

Environment must gain from car bailouts

This week two key factors emerged in relation to our car industry.

Firstly the EU have passed new targets that will reduce CO2 emissions by 20% in 2020 including new targets for vehicle emissions. Secondly it appears at least one UK maker will be cap in hand to the Treasury looking for a bail out to keep in in business over the coming months.

Now let me make it clear I without hesitation support the need for a financial package to the industry. Without it the same decimation of communities that followed the Tory butchery of the coal mines in the 80's will be seen in communities across the land as not just the big factories close but so do all their component suppliers.

However this must not be a blank cheque. If the government are in effect to take a large share in the car industry then it must do so with two reforms tied to the back of its money.

First the industry management processes must be streamlined and modernised. Then second the money must be tied to short, medium and long term commitments to improving the environmental friendliness of their product.

This can be simplistically be done in many ways however I suggest 4 key commitments to start the process off

1 Remove the most polluting variants from their range within six months
2 Place environmental friendliness on a par with safety in all advertising
3 Refocus new research on technology that improves fuel efficiency especially in the stationary traffic jam scenario
4 Commit to the original more ambitious targets that the EU originally proposed for this weeks legislation before the industry lobbyists got their claws in

That way not only will we have a car industry left after this crisis passes but we will have one configured towards ensuring our children have an environment left in which to own their own car in the future

Unlocking the housing market log jam

As it becomes increasingly apparent that the changes announced earlier this year are having no impact what so ever on the housing market is it now time to consider more radical measures?

Given the increasing number of repossessions announced today and assuming the trend continues are we confident there will be enough capacity in the local authority sector to rehouse these individuals?

If you have answered yes then no to these questions perhaps there is some merit in developing these ideas?

Given that premise how about this for starters

Many house sales will no doubt be trapped in chains at the moment. Could the government therefore consider purchasing the highest property in the chain allowing every transaction under it to be completed?

Costs: unknown but if you start at the longest chains and work down.

Benefits :
Increase in stamp duty revenue from house sales lower down the chain
Increase in workloads in house move related industries, (estate agents, removals, land registry)
Increase in tax and reduction in redundancies in the sector
Availability of new social housing stock within the community as opposed to "social housing estates"
increase in mobility for people moving with the labour market


Obviously this is uncosted and unproven but unusual times such as these call for innovative and different solutions

Many questions for Northern Rock

First let me declare an interest, I am a demutualisation shareholder in Northern Rock. I had planned to sell my shares in June to finance a house move but the move fell though. Not long after the company issued a profit warning but the market advice was stay put.

"Analysts at Keefe, Bruyette & Woods said that Wednesday's announcement reflected "a period-specific strain in 2007 and does not indicate the business model is not working." Profits outlook hits Northern Rock

I left for holiday off the back of stable but not stunning results and a nice dividend announced and waiting for me in the autumn. In late Aug I though about selling again but with no threats on the table and no pressing need for the money I thought I would wait until the announced dividend was paid and take stock again.

The rest is history. On paper I am about £5000 poorer than I was 12 months ago.

So as we move into the end phase there are a few questions that still need to be answered and most of them relate to the governments handling and culpability in the affair.

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Why was no stock exchange announcement made by the company about its financial position between the 14th August and the 14th September 2007 when clearly the company had already anticipated the financial crisis and had been in discussions with the Bank of England?

14th August : Bank of England governor Mervyn King is alerted to the potential impact of the global credit squeeze on Northern Rock's business in a phone call with officials at the Financial Services Authority (FSA) and the Treasury." Timeline:Northern Rock banking crisis

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Why were declared shareholder dividends suspended when staff pay rises were still paid in full, and secret bonuses for 173 staff totalling up to £17m allowed to proceed?

"SENIOR staff at Northern Rock are receiving secret bonuses of up to £100,000 a year as part of an incentive scheme" Key Northern Rock staff receive secret bonuses

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Why does the Chancellor continue to blame the bank for risky trading practices when those same trading practices were approved as sound by the oversight regulator?

"we recommend investors look through the near-term interest rate strain and at a business model that can clearly deliver superior returns at lower risk," they continued." Analysts at Keefe, Bruyette & Woods Profits outlook hits Northern Rock (July 2007)

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Why did the Bank of England and the Chancellor fail to use the time from the 14th Aug when knowledge that a government approved method of funding a bank was under pressure to the 13th Sept when it failed to put in place policy that would have protected savers the majority of savers and hence preempted the run on Northern Rock in the first place.

"Our system for dealing with the insolvency of banks and deposit insurance is markedly inferior to other countries." Professor Mervyn King.

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Nationalisation now seems to be the only answer my remaining shares will quite likely become worthless and as a taxpayer I will have an hefty increase in national debt.

However even as late as the middle of August action could have been taken by Government and the Bank of England to reduce the severity of this crisis.

As a taxpayer I want my pound of flesh as shareholder in a highly regulated industry I want a pound of bones too.