Stephen Beer

www,stephenbeer.com

2010-09-04T15:47:00.001+01:00

Please do have a look at www.stephenbeer.com for my latest articles and www.stephenbeer.com/blog for my latest blog entries.

News on www.stephenbeer.com

2010-05-05T22:38:00.001+01:00

My news and thoughts on the election and afterwards can be found as usual at www.stephenbeer.com/blog .

Budget 2010 - Darling's roadmap to recovery

2010-04-03T17:01:00.003+01:00

The Budget will put Labour values into practice, while the Tories remain hidebound by outdated dogma.

This full article, published in Tribune this week, can be read at www.stephenbeer.com .

Budget 2010 - first impressions

2010-03-24T23:37:00.004Z

Alistair Darling's Budget has come at a time when the economy appears to be recovering from a sharp and deep recession...

My full post can be read here.

It's time to answer the anger - Tribune

2010-01-31T23:04:00.003Z

President Obama's bank plan is a good one and Britain should follow suit

Despite the financial disaster that has destroyed economies and put millions of people out of work, the banking sector is behaving as if the past couple of years had not happened and is lobbying against fundamental reform. Meanwhile, the supply of credit to small businesses remains limited. Voters, who are paying for banking excesses in livelihoods and taxes, remain angry.

This article, published in Tribune, is continued at www.stephenbeer.com .

Obama bank reforms and the UK

2010-01-26T23:22:00.001Z

When President Obama announced a new set of bank reforms last week he changed the agenda for politicians and bankers alike. Obama announced a separation of banking activities and a limit to prevent banks becoming too large. In the UK, the government said it would not adopt the reforms here. Yet the financial crisis has forced governments to think the unthinkable and take the sort of action they previously opposed. Banking separation falls into that category. Labour needs to stay ahead of the reform agenda.

Continued on www.stephenbeer.com .

Obama announces banking separation - the UK should do the same

2010-01-21T23:04:00.003Z

This post was first on my blog at www.stephenbeer.com.

It is time for wise reform in the national interest

President Barack Obama today announced that he wants to separate the activities that banks engage in. These reforms are along the right lines. The UK should do the same.

The Obama announcement today heralded legislation to limit the scope of bank operations. Announcing the 'Volcker Rule', after Paul Volcker, a former Federal Reserve chairman who has advocated such measures, President Obama announced that he wanted to 'ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.' Obama is concerned that banks are relying on government support to take excessive risks.

President Obama also announced that he wanted to put a limit on the size of banks, preventing institutions in future being 'too big to fail'.

This is a significant announcement today. It echoes the Glass Steagall Act that separated banks after the 1929 Wall Street Crash, until the legislation was reversed in 1999. Why doesn't the UK do the same?

There have certainly been calls for separation of banking operations. The Christian Socialist Movement for example has an Early Day Motion (no 531) before Parliament calling for just that. Yes, it's true that Northern Rock was not an investment bank - but it got involved with toxic assets traded and promoted by investment banks. And of course, Lehman Brothers was an investment bank and was not involved in retail banking at all - but many retail banks got themselves exposed to the racy assets Lehmans was trading. Systemic risk occurred because banks went beyond their core functions. That is why we need a return to more narrow, or utility, banking.

So, what's stopping us? Up until now, it has been collective political will. No government could act, it seemed, without international cooperation. Yet the US has done just that. There is another reason - the stakes are higher in the UK than the US. The financial sector is a larger proportion of the UK economy and the risks of reform can appear larger. It is understandable perhaps that politicians might hesitate - indeed they are wise to think things through.

However, eventually they must act and before it is too late. It is time for vision. They must also guard against both a 'Treasury View' which is stuck in the pre crisis mindset (ie let the financial sector alone) and the intensive lobbying and screaming from banks. The banking sector has demonstrated extremely poor judgement. It cannot reform itself now and it does not want to do so. Its bluff should be called because government's responsibility is to the people. Only clear government (and legislative) action can prevent another crisis.

Unemployment falls - behind the numbers

2010-01-21T23:01:00.001Z

This post was originally posted on www.stephenbeer.com.

Figures out today show that unemployment fell in the three months to November for the first time since May 2008. This is good news because it marks a pause, or a halt, to rising unemployment much earlier than most people had feared only a few months ago. Labour should see this as vindication of its employment focused policies. Cutting public spending now as the Conservatives call for (actually they wanted to cut spending months ago) would probably push unemployment much higher. But we should not get carried away.

As the Office for National Statistics states, unemployment fell by 7,000 (the claimant count fell for the second month in a row) but employment levels fell too, by 14,000. There were 28.92 million people in work in the quarter. There were 1.03 million people working part time because they were unable to work full time. This is the highest level since 1992 when the data were first collected. This may represent a change in our labour market ie it is more flexible. This can be grim going into a recession but can mean employment picks up with growth. This recession seems to have affected many sectors of the economy at the same time but it doesn't appear to have knocked out whole industries, despite some very hard times for people. Firms seem to have this time around reduced the hours worked by employees too.

People are more confident about the future economically when they have less fear of rising unemployment. These figures today may help there. However, we need to see a trend before we can draw conclusions. At least however, it does suggest that there is a drag on unemployment rising at the moment, which is a good thing.

Credit where it's due - Tribune article

2010-01-10T15:01:00.002Z

While the Tories talk down Britain's recovery, Labour is steering the responsible course.

This Tribune article I wrote on what can keep finance ministers awake at night can be read here.

Family politics

2010-01-06T23:19:00.001Z

This post was originally posted on www.stephenbeer.com/blog .

The New Year has begun with Conservative plans for health unravelling and, on the same day, David Cameron appearing to dilute their policy on marriage tax allowances.

The whole area of family policy is fraught with difficulties. We all have experience of family in one way or another and each family is unique. That said, surely there must be an alternative to either rewarding traditional family models or adopting a laissez faire approach to family policy, with the state sorting out the consequences? Dare I say it, is there even a ‘third way’ for the politics of the family?

That’s the approach I took when co-writing the lead article for the Common Good, the Christian Socialist Movement’s magazine. Each issue focuses on a theme, with a variety of articles on a subject giving different opinions and perspectives. The lead article introduces the theme with both opinion and some key facts and explanations. The new issue is looking at the family.

What matters is stable families. It’s not the government’s job to dictate how people should organise their lives – relationships can be hard enough work at times as it is. Indeed if the most stable families do indeed tend to have married parents (which does not mean being married leads to a more stable family necessarily), we should be focusing resources on those who most need support. That means lone parents and families with children in poverty. It’s also those people for whom things haven’t worked out as they hoped. It’s possible for Labour to do this while being positive and supportive of marriage too – most people celebrate weddings for example whatever their own take on relationships or particular circumstances at the time. After all, if two people are prepared to make a public commitment that they will be together for the rest of their lives in marriage or partnership why should we avoid talking about it?

Labour needs to shift its language on this a bit. Then we can concentrate on what matters most in terms of government policy and that is promoting family stability within communities and providing support to poorer families, with a focus on ensuring that we get nearer to providing equal opportunities to all children and young people.

It was clear this week that Cameron’s plan for a marriage tax allowance is has not been thought through. It’s designed to give the impression the Conservatives support marriage. One thing of course that does help family stability, including marriages, is an economic policy focused on the whole nation with an emphasis on fighting unemployment. Yet the Conservative’s economic policy is in a worse state than their family policy.

Darling's decisions: the verdict

2009-12-19T18:23:00.003Z

Progressive politics must rise to the challenge presented by the debt situation and find new solutions with a clear narrative. We need to focus on boosting productivity and changing incentives to continue the fight for equality. If we can do this, Labour will remain the Party for the future.

So concludes my analysis of the Chancellor's Pre Budget Report in Tribune this week. You can read it at www.stephenbeer.com .

An interesting election result in Hastings

2009-12-11T10:39:00.003Z

While the Tories held their St Helen's council seat in Hastings in the by-election yesterday, Labour's share of the vote rose considerably. In 2008 Labour received 24% vs 59% for the Conservatives (on a 50% turnout). Yesterday, on a turnout of 37%, the Tories won with 41% of the vote but Labour's share increased to 37%.

The LibDem vote fell from 17% to 14%. This time around there were two other parties standing - the BNP (6%) and English Democrats (2%).

We shouldn't draw too many conclusions from a single result (apart from credit to the Labour campaigners) but it appears that in hard-fought Hastings the Tory vote is vulnerable and the LibDem vote appears to have been squeezed.

The outcome of the UK tax on bonuses

2009-12-10T20:14:00.004Z

The new UK tax on bank bonuses announced by Chancellor of the Exchequer Alistair Darling on Wednesday finally introduces some clarity into the debate about bank bonuses. There had been much speculation about what form such a tax might take. Now we know. Might there be some unintended consequences?

The new tax is not a supertax on the income of individuals receiving bonuses, but rather on the bonus pool in any given bank. The aim is to act as a discouragement to banks to prevent them redistributing some of their profits into excessive bonuses when those profits have been made possible by government intervention, both direct and indirect. Some banks may choose to increase the bonus pool to compensate but this would probably not go down well with shareholders. The tax is only effective for one year.

Some people have argued that this measure will push banks to operate overseas, or because they will not pay large bonuses that they will lose personnel. However, the tax is temporary and any such impact might be mitigated by similar measures elsewhere - for example France is to impose a just such a tax. Alistair Darling has not had the last word on bonuses.

Yet it is surprising that the UK banking sector hasn't just hunkered down for a while, sorted itself out, involved its stakeholders in setting new ethical codes, and consulted with shareholders about what banking should look like in future. It is this apparent lack of gratitude towards the taxpayer, and lack of appreciation of what bank actions have done to the wider economy and peoples lives, that stokes anger against banks in this country and around the world. That's not healthy for anyone.

Economics & politics of the Pre Budget Report

2009-12-10T16:23:00.000Z

The political message of the Chancellor’s Pre Budget Report this week is that despite the deep recession caused by the banking crisis, Labour will protect frontline spending in the NHS, schools, and the police service. Spending elsewhere will have to be lower as savings are found. This will not be easy. However, Labour is not prepared to reverse the gains we’ve made as a country on improving healthcare, education, and in cutting crime. Bank’s will be discouraged from paying out large bonuses this year since bank profits have depended upon taxpayer support both direct and indirect. Funds will be directed to combat youth unemployment.

Another key message is that the government will not risk the recovery by cutting back on spending too soon. When debt as a percentage of national income is too large, you can tackle it by both paying down the debt and by increasing growth. That’s why the Chancellor’s commitment to the new high speed rail lines is so important. Investment in infrastructure helps make the economy more productive and that boosts growth in future.

As far as the big picture is concerned, Alistair Darling’s statement changed little. While the economy is now forecast to shrink further than expected this year, the estimates of the deficit this year have risen from £175bn to £178bn – less than had been expected. Another key macro point is the Treasury’s assumptions about the loss of output. In the budget it estimated that the UK’s productive potential was less than previously assumed and that the structural budget deficit (that part that won’t shrink automatically into recovery) would be 9.8% of GDP this year. The Pre Budget Report suggests this wouldn’t be quite as bad, at 9.0%. It means that there is slightly less for the Chancellor to do to bring debt down.

This must have been the most difficult Pre Budget Report to write. Last year the world was reeling from the banking crisis and the government had taken decisive action to support the financial system. This year, while the financial system is not yet in full health, we have had a year of deep recession. Though growth is forecast to bounce back as businesses build their inventories back up again, recovery will take time. Most people know that. The role of the Pre Budget Report was to show that action is being taken to tackle the deficit while not risking recovery. Alistair Darling succeeded in that aim.

Recent opinion polls are not conclusive but they remind us that there is still much to fight for in the election. Labour must focus its manifesto not just on what we have done to help the economy and financial system. We must focus clearly on what we stand for and what we will do in government in the next four years.

Bank bonuses and linking banks with the rest of society

2009-12-06T22:45:00.005Z

Should there be a windfall tax on bank bonuses? That's what's being reported as we approach the Pre Budget Report this coming Wednesday. There may be a good case but what matters more is how we improve banks relationship with the rest of society.

Investment bankers are expecting to receive large bonuses after a very profitable year. Those profits have come about because (on behalf of taxpayers) governments:

took large stakes in banks to inject capital;
guaranteed bank lending;
lent money at reasonable terms to banks;
insured almost all of banks toxic assets (the main cause of the problems);
and with interests at historic lows in effect printed money and pumped it into the financial system.

If a frontline investment banker is not making money in this environment they may be in the wrong job.

So it's no surprise that the case for a windfall tax has gathered support (for example see Martin Wolf in the Financial Times). There is a certain justice about it, since the bonuses could not have been considered had taxpayers (including many now out of work as a result of banks' actions) not bailed out the banks.

It might be difficult to enforce because a competitive environment does exist. So a system-wide problem can be hard to solve without some level of international cooperation. And bonuses are not in principle wrong - many people in different industries earn bonuses. It depends on whether they are properly linked to performance (without being helped by taxpayers) and whether they are particularly out of proportion. There is scope for some government action to ensure taxpayer support is not being creamed off into individual pay packets.

But banks should be encouraged to be more rooted in our society. The time is surely right for some sort of Community Reinvestment Act - something which has been in force in the US for years. Banks should be required to invest in local communities. The Cooperative Party is promoting the idea. It won't prevent another crisis but it might help refocus banks and promote a long term sustainable banking model.

Pay bankers with toxic assets

2009-12-03T22:49:00.003Z

The controversy over Royal Bank of Scotland bonuses has highlighted that those bonuses only exist because the UK taxpayer owns most of the bank, is standing behind RBS so that it won't fail again, and has required the Bank of England to print money to make life easier. The taxpayer is also insuring £240bn of RBS's toxic assets via the Asset Protection Scheme, which sees the taxpayer's interest in RBS rise from 75% to 84%. The taxpayer is insuring the value of the securities which got RBS into a mess in the first place.

Here's a suggestion I heard - rather than pay bonuses based on current profits, which come from taxpayer support, why not pay bankers in the original toxic assets?

That way, some risks can be transferred from the people of Britain to a pool of people who ought to know all about risk. The toxic assets would have to be held for the long term - perhaps until they mature. The bankers could stand to make a great deal, which would be a reward for the risks. Or they may make little at all. But it would link bonuses with the risks the bank(s) took and the long term health of the financial system - not just that part of it supported today by taxpayers.

Royal Bank of Scotland bonuses and why the Treasury has to examine itself

2009-12-03T21:53:00.007Z

How bizarre are reports that the board of Royal Bank of Scotland has told the government that members might resign en masse if the main owner - the taxpayer - insists it controls the level of its bonuses. They have stirred up once again the still fierce public anger against the banks, showing that they really just don't 'get it'. But should the Treasury examine itself over this matter?

When RBS got into trouble a year ago and the taxpayer stepped in and bought a majority stake (around 70%), the board members were changed. In those days of stress and panic, the Treasury took the view that it really didn't like holding stakes in banks: it would act as if it was just another institutional shareholder. This was formalised with the establishment of the UK Financial Investments to manage the peoples bank shareholdings. For some reason, the Treasury believed it should keep UKFI at arms length.

While some institutional shareholders regularly oppose excessive executive pay for example, most do not do so often enough. But when you own 70% of a company, you really cannot be an arms length shareholder. You have to be involved.

The problem with behaving in the way you think an institutional shareholder would behave is that you will end up acting in a pre-crisis manner. The news is the world has changed.

The RBS board apparently believes that it is not in the interest of shareholders (mostly the taxpayer) for the government to interfere in bonus arrangements. Yet such bonuses can only happen because the government supports the bank and because the taxpayer has injected billions of pounds into RBS. Indeed, the board risks its objectives (its interpretation of fiduciary duty) by its state of denial, since that may encourage calls for harsh regulation or nationalisation.

Both sides seem to be backing down to some extent. But this incident does illustrate that the banks need institutional reform because they are incapable of reforming themselves. Their worldview was destroyed by the financial crisis, yet they carry on with 'business as usual'. RBS today should not be like the RBS of two years ago. That is why government action is so important.

Banks must rediscover values for their own survival

2009-11-29T23:04:00.010Z

The banking sector has managed to put itself in the worst position possible in advance of any further financial crisis. By pushing on with 'business as usual' it has done little to assuage the anger still being expressed by people at its irresponsible behaviour and, now, at news of billions more being paid in bonuses (for performance that depends on the taxpayer backing the system). That means that banks cannot afford to make any further mistakes; the backlash would probably be disproportionate because people will feel that banks just do not 'get it'.

Bank behaviour is perplexing and it certainly seems to be frustrating some ministers in government. Financial Services Secretary Lord Myners gave an interesting speech last week to a City seminar of the Council of Christians and Jews. Noting the need for leadership on values in politics, he argued that 'Just as we need such values leading to action in our politics, we need them in our banks and economic life too. Banks must acknowledge that the values and ethics which drive their businesses are built on the values and ethics of wider society.'

Lord Myners listed examples of what this should mean in practice, including 'challenging...egregious remuneration practices.' Referring to excessive pay he expressed himself '...disappointed at the extent to which we are meeting opposition to change from those who have been rewarded so generously in the past.'

Myners highlighted three principles outlined by the Archbishop of Canterbury to guide thinking in the economic and environmental crises. They were: need for truth and honesty; recognise our stewardship of the earth and our responsibility to future generations; and understand our interconnectedness in that all of us are in these problems together. Myners called on people of faith in the City to 'Let your core values pervade your every action. As faith communities you have so much to offer to the debate.'

We can see that the debate about values in banking is developing. It is not enough to talk about values or urge their adoption. People need to take the lead and demonstrate how such values work out in practice, especially when there is a cost involved. And it is clear we cannot rely on people and institutions to reform themselves. At the least, we need to establish incentives in the financial sector to encourage the virtuous behaviour we seek. Structural reform (eg separating riskier banking from retail banking) is required too. All this is consistent with arguing that when they work properly, banks are a good thing for our economy. That's why we need to save them - even from themselves.

Government can also take a lead. Shareholders should behave responsibly and make their voices heard on executive pay. Taxpayers have large stakes in some banks via the government's shareholdings - those managing such stakes on our behalf must be required to take a lead. If this seems impossible to enforce - well who is apparently exercising unaccountable power in our country?

We still wait for a credible Conservative economic policy

2009-11-23T21:39:00.005Z

CBI conference time and the political leaders have been speaking to delegates. David Cameron's economic policy seems to have shifted again. The new emphasis is on growth - that's how the speech has been spun. The talk about cutting public debt is still there, but there is little sign of joined up thinking in the Conservative Party. As the Financial Times Editorial today notes, "rather than economising on their aspirations, the Tories keep finding new ways to spend."

Cameron in his speech suggested that some argue that the public sector deficit doesn't matter and he responds that "If investors see that there is no will at the top of government to get a grip on our public finances, they are going to seriously doubt our country's creditworthiness." Maybe - we actually don't know - but that is why Labour has a commitment to cut the deficit in half, which Gordon Brown emphasised in his speech to the CBI. The Tories do not have a similar commitment (but they do have lots of spending pledges). The best Cameron could point to in his speech was a list of items previously heralded during his party's conference, which will make but a small dent in the debt. If he is serious about getting serious and being direct then we need some more detail.

The grand plan seems to be a national loan guarantee scheme (ie using taxpayers' money to back loans to business). This sounds very much like more government intervention. Increased lending to business would be paid for in a Tory emergency budget in the summer by banks not paying bonuses now but instead lending the money. Cameron spoke in favour of infrastructure spending but with little in the way of actual commitments or time frames.

Towards the end of his speech Cameron stated that it was business, not government, that created jobs. But the problem with being in recession is that it is business which is shedding jobs. We can take some comfort from the fact that unemployment has not risen so far as much as many had feared it would. Nevertheless, the stark fact remains that if the government deficit had not expanded, or if we had followed Tory calls to cut the deficit now, many businesses would have gone to the wall and many more would be out of work. And the same applies to that part of the deficit which has been caused by saving the banking system - many businesses would not have made it through the winter without it. This hasn't been about government crowding out the private sector; it has been about government stepping into the gap as the private sector shrank.

ABC at TUC Guardian Comment is Free

2009-11-18T23:00:00.001Z

"Without a stable economy, the rest is idle dreaming." So argued Rowan Williams, the Archbishop of Canterbury, in a speech at a TUC/Guardian conference on the economy on Monday. Entitled "Beyond Crisis", the conference was about developing a progressive answer to the challenges faced by the financial meltdown and the consequent recession. Rowan Williams was the keynote speaker. In a thoughtful speech, he argued for the promotion of virtue in society. However, the way markets are organised can work against this.

The Archbishop noted that the word "economy" in Greek means "housekeeping" and he expanded on this theme. Thinking about the economy in terms of family housekeeping was a good way of keeping economic discussions rooted in the real world. He suggested the economy should enable people to make and sustain a home and continue to flourish as human beings.

Williams argued we should promote "three-dimensional humanity", formed of three components: family, imagination, and mutual sympathy. All human beings begin in a state of dependency and the human family is the indispensable foundation for this, with unconditional family love mirroring the love of God. We are imaginative beings who can look to broaden our understanding. We have the capacity to sympathise with others, which challenges individualism. Christians believe that if one suffers, all suffer.

Echoing Gordon Brown's call for moral values in markets, Williams called for a rediscovery of virtue: " ... the qualities of courage, intelligent and generous foresight, self-critical awareness and concern for balanced universal welfare which, under other names, have been part of the vocabulary of European ethics for two and half thousand years: fortitude, prudence, temperance and justice. In the Christian world, of course, they have been supplemented by, and grounded in, the virtues of faith, hope and love that, in their full meaning, are bound up with relation to God."

Recognising that a stable economic environment was necessary, the Archbishop challenged the British Labour movement to "revive the passion for humane social existence; to reflect on what human character is needed for stability and justice to prevail; and to resist the barbarising and dehumanising of economic life which jeopardises natural and human capital alike."

In this speech, Williams built on his call for repentance in the financial community by focusing on the values required for a moral and better balanced society and economy. He moved the values debate on by linking values now with a vision of a better society in the future.

The promotion of virtue is an essential part of a rebuilt economy. However, this argument can sound as if we wish people had behaved better in the past and not got us into this financial mess, and as if we are imploring them to behave differently in future. This is also seen in practical calls for, say, pension funds to vote against more executive pay packages. Even if we managed to persuade all of the current generation of bankers, fund managers, pension fund trustees and advisers to behave differently, there would be no guarantee better practices would be passed on to new participants. Financial memories are short. We certainly need to reform the culture in which banking operates. But ethical behaviour needs to be entrenched and supported by institutional reform to help prevent another systemic crisis with devastating consequences for millions. People of integrity are required, but they need to be running new banking institutions. Otherwise surely, "the rest is idle dreaming."

In a panel discussion after the Archbishop's speech, John Kay repeated his calls for banking activities to be separated (also a Christian Socialist Movement campaign) but this was the only institutional reform mentioned. Many campaign and faith groups claim to "speak truth to power". As Kay noted, the financial services sector is a powerful political force in the UK and US. The Archbishop was speaking along the lines of his predecessor William Temple, outlining the values and broad policy aims needed in our society but not claiming specific policy expertise. Nonetheless, he could reflect further on how we should engage with people in powerful organisations such as banks and how we can identify institutional structures which hinder virtue. The church, often an institution which has learned such hard lessons itself, should have much to teach us.

This was first published on the Guardian website.

Bank reform - debate continues

2009-11-16T23:35:00.002Z

Both the article in this week's Sunday Telegraph by Barclays CEO John Varley and a commentary on it by the Evening Standard's Anthony Hilton are worth a read.

The ABC at the TUC

2009-11-16T22:28:00.002Z

I attended the Beyond Crisis conference today, which was organised by the TUC and Guardian. The main speaker was the Archbishop of Canterbury, Rowan Williams. I thought his speech provided much food for thought, focusing on the need for virtue in the financial sector.

I have been impressed recently by the way Williams seems to take his constitutional role as Archbishop very seriously. By that I mean he is not just the figure of authority in the Church of England and head of the Anglican Communion. The Archbishop has a responsibility to oversee the United Kingdom in a spiritual sense; to be a national pastor. And I think Williams is doing just this.

Regulation of the banks is not enough - Guardian Comment is Free

2009-11-10T23:03:00.002Z

Gordon Brown's G20 speech was bold but we need to separate the banks.

The backlash against the banking sector continues, but Gordon Brown's speech to the G20 provided some hope that bold and necessary reforms might actually get on to the international agenda. The prime minister highlighted proposals for reform that have been on the edge of international debate. He was right to do so because stronger regulation will not be enough to restore trust in the financial system. As he argued, there "must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards". However, one more reform proposal needs to join the others at the centre of the debate.

We had to save the banking sector, and with it our savings and ability to buy and sell, by pumping liquidity and new money into the financial system. But with a return to profitability, on current trading if not on the toxic assets that caused all the trouble, come signs that banks are going back to business as usual. We are seeing a return to the old ways in sector lobbying and a distinct lack of contrition. Hector Sants, the chief executive of the Financial Services Authority, noted in a speech that "there remains, I believe, an absence of collective responsibility for what has happened. I personally remain unconvinced that all senior management have taken on board the need to change and supervise." Sants also recognised that "there are limits to what regulatory rules can achieve".

Brown noted in his speech that international agreement on regulatory reform and better capital requirements for banks were needed. He argued too for agreement on "living wills" that outline how banks can be dealt with when they fail. He called for four further reforms to be considered, "an insurance fee to reflect systemic risk, or a resolution fund, or contingent capital arrangements, or a global transactions levy".

The debate has moved a long way. It was not long ago that an insurance premium for banks, for which I have argued, was nowhere near the agenda. Now it is being considered by the IMF. A transactions levy – a form of Tobin tax – is another reform that, once rejected out of hand, is now gaining acceptance, even if not by every government so far. Brown was clear that any proposal had to be global in nature, not distort markets or encourage avoidance, complement action already being taken and be fair and measured.

I believe the proposals Brown highlighted should be given serious consideration and I have some sympathy with Larry Elliott's support for a Tobin tax. However, these four reforms are all designed to mitigate the impact of the next financial crisis rather than prevent it happening in the first place. This is true even in the case of a transactions levy; one of the arguments for it is that it will not distort markets much even if it does reduce the volume of transactions. The main argument, which Elliott makes, is that it will generate tax revenue to pay down deficits already caused by financial crisis, and fund development in those countries most affected by global recession (and by climate change). I support a bank insurance premium because banks seem every few years to find new ways to lose money and threaten the whole system. Some upfront contribution to the taxpayer seems sensible in current circumstances.

If we are to restore the economic and social contract between banking and society we need to do more. Sants focused in his speech on finding ways to encourage the right industry culture that ensures ethical frameworks are applied by banks. This is worth pursuing but we need institutional reform to protect the financial system on which we depend. Banks will go bust from time to time. We should separate the more risky banking activities from retail banking. If the riskier banks go under, their shareholders will lose out but the system will not go down with them. This is the reform argued for by a variety of people, from Mervyn King, the Bank of England governor, to Labour's own Christian Socialist Movement.

There are objections and difficulties of course. Such reform would have to be global in nature, not distort markets, complement existing action and be fair and measured. It should therefore be added to the proposals being considered by the IMF. I suspect that, having been rejected out of hand, it will come to be seen as an essential reform.

This entry was published today on the Guardian website.

Gordon Brown says stronger bank regulation not enough

2009-11-08T22:29:00.004Z

Gordon Brown this weekend surprised commentators by calling for new measures to curb the destructive power of banks. Speaking at the G20 summit in St Andrews on Saturday, he called for new measures to be considered. These included an 'insurance premium' and a form of the Tobin tax.

This is exactly the approach we should have. New thinking, and action, is required before 'business as usual' prevails so sowing the seeds of the next financial crisis.

In the Spring of 2008 (about 18 months ago) in a submission to the government's review on financial stability, I argued for a banks insurance premium. I'm pleased to see it on the international agenda and being given serious attention by the IMF.

Labour positives Tory negatives - Tribune article

2009-10-29T22:35:00.001Z

The political conference season revealed a great deal about what the parties think about the financial crisis and the economy. For Labour, it was a time to show how it intends to build on the bold actions of the past year to manage the economy successfully in the years ahead. For the Conservatives, their conference was a week of truth. Vulnerable to charges of a lack of experience and maturity on the economic front, they had an opportunity to prove the critics wrong. They were unable to do so. In fact, their economics was sacrificed to their ideology.

The past couple of years – and particularly the past year – have been testing for political leaders. The financial crisis demolished old certainties and also revealed the power relationships that had been at work in the global economy. The world had been in thrall to parts of the financial sector which were engaging in “casino banking” activities that few questioned. When it all went wrong, even our ability to make simple financial transactions was put at risk. Leadership required bold action and quick decisions. Even as their bailouts were being discussed last year, some executives of British banks appeared not to realise how bad things could get. They believed all they faced was a liquidity problem.

As so often in markets, when you are in trouble, you cannot rely on the market to give you a break. The Government led the way by forcing a rescue. With that action, with the economic stimulus package announced a year ago and with its work for international action, Labour effectively saved this country from a depression.

The Conservatives had a bad year as far as economic policy was concerned. David Cameron and George Osborne shifted position constantly, looking for the political advantage when the country was focused on the national interest. Bank nationalisation was opposed and then supported. Little attempt was made to show they understood what had happened or had any original ideas what to do about it. We might feel media scrutiny was lacking, but the Tories were outflanked by Labour’s actions and also by Liberal Democrat analysis.

Osborne’s Tory speech at the Tory Party conference was a chance to bolster his credibility, lacking even in the City. As far as policy was concerned, the Shadow Chancellor did finally produce some proposals. Some of these were even structural in nature, such as accelerating the extension of retirement ages – an idea hastily amended on the day when he realised that women can retire earlier than men at present. Osborne repeated his mantra that public spending is too high and should be cut. From their leader down, the Tories have been adamant that debt has been allowed to rise too far.

The Conservatives’ lack of economic understanding was acutely illustrated by Cameron in his conference speech. Asking: “Why is our economy broken?” his answer was: “Because government got too big, spent too much and doubled the national debt”. He conveniently forgot that, until recently, he was pledged to implement Labour’s spending plans if he won office.

Even more concerning is that he was saying the recession we face along with the rest of the world is the fault of government spending and borrowing. In fact, the spending Cameron criticises is helping to keep our economy out of depression. The jump in the national debt was the right response when private sector confidence had dropped so low.

If we followed Conservative policies, we would cut government spending now and not permit government debt to rise to the levels predicted in the Budget. Businesses and consumers were already reining in their spending last year. Under Conservative philosophy, they would have been hit further with no hope offered by government. That approach was tried in the 1930s. It resulted in disaster.

The danger now is not over. If government spending is cut or taxes are raised too soon, we risk setting back the recovery. When a government considers the national debt, the choices facing it are not the artificial choices Cameron outlined to his supporters. In his conference speech, the Tory leader did not mention in that it the banks are responsible for getting the world into this mess. Also missing from his speech was any reference to growth.

Of course, we will not default on our debt. But the choice is not between cutting the debt now or letting it get out of control and leaving the job to hyperinflation. Properly managed, we can tackle the debt as growth improves. Gordon Brown made that point recently when, addressing an audience in the City of London, he argued that the correct approach is “the pursuit of growth, in the context of a debt reduction plan, with an export-led strategy” based on investment in skills and infrastructure. In dealing with the banks, the Prime Minister said the Government had taken unusual measures. With regard to the recession, he added: “We have had to be bold and unorthodox again”.

There are clear differences between the parties. The Conservatives seem to want to relive the early 1980s, but they ignore the fact that we do not have an inflation problem at present. The aggressive attitude to the budget deficit implies a rather pessimistic view of the British economy. There is little hope in their message.

Labour has aligned itself closer to emphasising growth and investment, in the spirit of John Maynard Keynes. This is the right approach, as long as the markets are convinced that debt will not run out of control. The deficit reduction plan is designed to give markets confidence. Hard spending choices still remain, especially if investment is to be protected. And there is still a struggle to be had against the conventional wisdom which wants debt cut as soon as possible.

Yet Labour is developing a message on the economy which is not only credible, but which speaks of hope in our ability to emerge stronger from this recession.

This article was published in Tribune (23 October 09).

Separate the banks - further support

2009-10-25T22:39:00.002Z

Support for reform of the banking system by separating 'casino' type banking from retail banking continues to grow.

Writing in today's Observer, Will Hutton argues that Bank of England Governor Mervyn King is right. Some combination of separation and better regulation is required, he says.

More echoes of the Christian Socialist Movement's campaign to separate the banks, focused around an Early Day Motion tabled in the House of Commons.

UK economy contracts again - what to make of today's GDP figures

2009-10-23T23:14:00.004+01:00

The first estimate of UK Gross Domestic Product for the third quarter of this year was published today. Economists had expected the economy to grow by 0.2% but instead it appears it shrank by 0.4%, making this the longest recession since records began. What to make of it?

The first thing to note is that this is the first estimate and it will be revised; that means it could be revised up.

Second, it is possible that as more data is factored in it will be become apparent that the economy was rebounding faster in September than this intial estimate reveals.

However, whether or not the headline GDP growth figure is revised, this announcement does remind us that the financial crisis has had severe implications for the economy. It will take time to recover. The real test is what is happening now. While we ponder over GDP (negative) growth in July to September, the economy could now be in positive growth and given that GDP fell in Q4 2008, the year on year comparisons could look very good indeed. More on what's happening in the economy at a later date.

Meanwhile we can say again that Alistair Darling is right; Conservative calls to cut public spending now would risk even a Depression.

Wall Street Crash 80 years on

2009-10-23T23:05:00.003+01:00

I'm watching Newsnight's special on the Wall Street Crash of 1929, which happened eighty years ago. It's a useful reminder that financial crashes can impact society for years to come. It is also an essential reminder that policy decisions (or inactivity) by government helped plunge the US into the Great Depression.

Many risks remain today but at least governments have acted to stimulate economies. Some would follow early 1930s policies and contract the economy further by cutting government spending now. Such people are deciding Conservative Party policy.

More support for separating banks

2009-10-23T22:44:00.004+01:00

Evening Standard City commentator Anthony Hilton writes today in favour of separating the banks. Three highlights:

"Lehman's bankruptcy was a disaster because of the contagion it spread through investment banking. Had it simply paralysed other investment banks such as Merrill Lynch and Morgan Stanley, governments might have been able to stand aside."

"If RBS and Citi had not had investment-banking activities then they would certainly have been tossed around in the stormy seas, and they may have faced a liquidity squeeze but they would not have been made insolvent."

"Separation would lead to more appropriate management. Conventional banks would be heavily regulated and not expected to shoot the lights out with fast growth and booming profits. They would be like a utility — judged on their reliability, stability, and service to customers. Investment banks would also temper their activity because they would need more capital if the subsidy from retail disappeared, and because if they took too much risk they would be left to fail."

The article summarises the case well and is certainly worth reading. It echoes CSM's campaign to separate the banks. We cannot just go on as before. The alternative plans out there (eg just relying on stronger regulation) do not deal with the institutional problems.

Mervyn King is right - Progress article

2009-10-21T20:58:00.003+01:00

Getting banking reform right is a moral issue - Labour must seize this opportunity to act

News about large bank bonuses is shocking and it demonstrates that the banking system still needs reform. A progressive party such as Labour should be up to the task. The banking system has been near collapse, both a year ago after Lehman Brothers went bankrupt, and at the beginning of the year when a further bank bailout was required. Central banks have slashed interest rates and governments have injected capital into banks, taking stakes and insuring their toxic assets. Quantitative Easing has seen money created electronically and pumped into the banking system. It is difficult to understand why individuals are receiving such large bonuses: with so much easy money in the system and backed by government guarantees (explicit or implicit) it will be hard for the average bank trader not to make a great deal of money for his or her bank.

Banks are institutionally incapable of reforming themselves. Yet if they are not reformed, we risk another disaster with millions more out of work and worse consequences for the very poor around the world. This is why the Christian Socialist Movement is supporting an Early Day Motion on bank reform (number 2008, the year it all went wrong for banks). Backed by Treasury Committee chair John McFall MP, it calls for banks to be split between traditional ‘retail’ banks and high risk investment banks. Getting this right is actually a moral issue, given the impact of the financial crisis. Bank of England Governor Mervyn King, in a speech yesterday, argued for the same reform. Labour, surely more progressive than the Bank, should seize the opportunity and act now while we can.

When investment bank Lehman Brothers went down in September 2008 it became clear that it was entwined with the global financial system. If only a few investment banks had collapsed and their shareholders lost the money they risked, that would have been manageable. But the esoteric securities, linked to the US subprime mortgage market, in which Lehmans traded, were also owned by more traditional retail banks. This is a key reason why the entire financial system, including people’s savings and ability to pay bills, were threatened.

Strong regulation is essential of course and there is still hope that governments will overcome bank sector lobbying and enforce a much stricter regime. Regulation is not enough however. As Mervyn King said, ‘The sheer creative imagination of the financial sector to think up new ways of taking risk will in the end, I believe, force us to confront the ‘too important to fail’ question. The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion.’ Institutional reform is required. Government should continue to guarantee retail banking but not more speculative banking activities, which would be carried out by separate investment banks.

The financial crisis has seen the Treasury make the essential bold moves to save us from economic depression. However when the pressure is off it can default to a pre-crisis mindset, supported by bank sector lobbying. Labour needs to break through such ‘forces of conservatism’ and make the reforms that are essential for the common good and the national interest. Separating banks is one such reform. That is why we should urge Labour MPs to support Early Day Motion number 2008.

This article can be found here.

Separate the banks - Compass online article

2009-10-21T20:56:00.001+01:00

The financial crisis we have just been through caused a sharp and deep recession. For the first time for a generation, the global economy itself shrank slightly. For tens of millions of people around the world that has meant unemployment. For the very poor, the impact has been severe.

The Millennium Development Goals seem even less attainable. Recent economic data has been encouraging, showing that government efforts to boost confidence have had an impact. Nevertheless, we cannot simply go back to ‘business as usual', as some in the banking sector seem to be doing.

Amidst talk of spending cuts, we must not lose sight of the need for a fundamental reform of the UK banking system to prevent this sort of disaster happening again. The government's forthcoming banking bill provides an opportunity. That is why the Christian Socialist Movement (CSM) is supporting a new Early Day Motion (EDM) calling for a separation between ‘casino' and retail banking and urging people to encourage their MP to sign this EDM (no 2008). The EDM has been tabled by CSM chair Alun Michael MP and is supported by John McFall MP, chair of the House of Commons Treasury Committee.

We know that the roots of the crisis lay in the US sub prime mortgage market. But if all that had happened was that a few investment banks made bad calls on some esoteric financial securities, we would not have suffered such a financial and economic meltdown. When the investment bank Lehman Brothers collapsed, it soon became apparent that the toxic assets with which it was associated were linked to banks all round the world. More traditional retail banks had also acquired exposure to these securities and so when the market for them collapsed, large holes appeared in the banks' balance sheets. The drop in confidence threatened their very existence, since banks rely on trust. We saw with Northern Rock what happens when that trust vanishes.

Last year it was almost the turn of Royal Bank of Scotland and others to fail. Royal Bank of Scotland had become entwined with the ‘casino' banking world and had even joined it in part. Government action was not able to prevent the subsequent drop in economic confidence as banks reined in lending and businesses and consumers understandably began to worry about the future.

There international consensus for tougher regulation must be sustained. Banks will need to keep more capital on their balance sheets. Bonus payments schemes will need to be focused on sustainable profits and prevent actions which threaten the system. Regulation should enforce transparency and control the amount of leverage on bank balance sheets.

Stronger regulation is essential, but it is not enough. Regulation will sometimes fail as with Northern Rock. Casino banking will either circumvent regulation or render it ineffective through financial innovation. Memories fade and, as economist Hyman Minsky highlighted, periods of stability encourage people to take more risks and regulatory regimes to relax. We have a moral obligation to address the problem at its heart. Traditional retail banks became mixed up in things they did not understand. Differences between investment banking and retail banking became blurred. We should stop that happening again by separating banks between those engaged in risky speculative banking and those carrying out traditional retail banking. Investment banks could engage in more risky ‘casino' type trades without threatening the whole financial system. Governments could let them go bust if they make mistakes. Retail banks would continue to have government support and deposits would be protected. Risks would be more accurately priced.

This matters to all of us because lives are being lost or damaged by the crisis. Somewhere along the way, banks lost a sense of the common good and became divorced from the rest of society. Banks are at the moment institutionally unable to change. So in the national interest, and driven by moral obligation, Labour must reform them so they become an effective part of the Good Society. That is why we must urge the government in its banking bill in the next session of Parliament to 'separate as well as regulate' to stop the banks gambling with our money.

By Stephen Beer & John Mitchell

Stephen Beer is CSM's political communications officer and works as an investment manager.

John Mitchell is a CSM member. He worked for the World Bank for 17 years and was previously Director of the World Development Movement for 12 years. This article represents the authors' personal opinion.
CSM is supporting Early Day Motion number 2008.

This article can be found here.

Bank of England Governor Mervyn King and Christian Socialists support same bank reform

2009-10-21T20:52:00.001+01:00

In an echo of CSM's current campaign on banking reform, Bank of England Governor Mervyn King last night argued that banks should separate, with more risky activities being split out.

Speaking to Scottish business organisations, King maintained that regulation was not enough, saying “The sheer creative imagination of the financial sector to think up new ways of taking risk will in the end, I believe, force us to confront the ‘too important to fail’ question. The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion.”

His comments effectively support CSM's campaign to separate banks into 'casino' banking and more traditional retail banking operations. CSM is behind Early Day Motion number 2008, which makes this call.

Bank bonuses - and taxes?

2009-10-18T22:24:00.005+01:00

Bonus schemes are in the news again. But it is not only Goldman Sachs - all banks announcing large bonus schemes are under fire since, as US National Economic Adviser Larry Summers pointed out, the banks are only around because they received large government (for which read taxpayer) bailouts. Indeed, in various ways direct and indirect they still rely on taxpayer sponsored action.

It is not surprising therefore to hear talk about the potential for a windfall tax on bonuses - mentioned in the Sunday Times today by John Waples.

One of the benefits of deferred bonus schemes, from government's point of view, is that they may be announced now but payouts will be spread over, say, three years. That gives plenty of time for governments to introduce 'excessive bonus taxes' should they wish to do so.

But unless there is fundamental reform of the banking system little will change; banks have shown themselves to be institutionally unable to reform themselves.

Roger Bootle on Tory economic plans - they could clobber the recovery

2009-10-18T22:18:00.002+01:00

From today's Observer Business section - Roger Bootle is quoted as saying:

"A Conservative government could cut too hard. They may put up taxes quite a lot and that could clobber the recovery. You need a clear plan to reduce the deficit, but need to do it gradually. I'm more worried about deficits than the national debt.

"If you get deficits down gradually and let the economy grow, debt will improve over time. After the Napoleonic wars and the second world war debt was at 250% of GDP. It is much lower than that now."

Gradually perhaps the conventional wisdom that we have to aggressively reduce public sector debt is eroding.

Banking - a matter of morals Guardian Comment is Free

2009-10-14T23:58:00.003+01:00

Reform of the banking sector is a moral issue and one with which people of faith should engage

With stock markets reaching new highs and some banks recruiting again there is the distinct impression that things are going back to "business as usual". In some respects, this should be welcomed, though not in the case of new excessive bonuses. We need a resurgence of confidence in the economy to help take us out of recession.

Nevertheless, we cannot pretend that the events in the banking sector over the past couple of years never happened. The financial crisis cost jobs and increased poverty, particularly amongst the already very poor. Governments have had to intervene to prevent economic depression, which has meant large public sector deficits which at some point must be reduced. We need to reform the banking sector to prevent or at least mitigate the effects of another financial crisis. That is why the Christian Socialist Movement has supported an early day motion (EDM) yesterday urging government to separate "casino" banks from retail banks. The EDM was tabled by CSM chair Alun Michael and supported by John McFall, Treasury committee chair.

While the roots of this particular financial crisis lay in the US sub-prime mortgage market, the crisis was systemic because banks did not properly control their exposure to the esoteric securities which had been invented. This was not just a problem for investment banks such as Lehman Brothers. More traditional retail banks had also exposed themselves to these risks. Their inability to determine the nature or size of their exposure meant that retail and business banking was threatened and even the ability to make simple payments was thrown into doubt.

When Lehman Brothers collapsed, it was clear that it was intertwined via toxic assets with the retail banks, some of which held securities a world away from their business expertise. Bold action by the government in the UK and elsewhere effectively prevented the financial system from completely collapsing, but it could not prevent the enormous drop in confidence around the world (though it did mitigate the effect). The impact this has had on people, especially the poor, is one reason why the banking crisis has moral implications.

There is international consensus for stronger regulation and the pressure for this to happen must not cease. Regulation must be wiser and must have a long term, shrewd, approach to banking. Ultimately, I agree with the US economist JK Galbraith, who noted that most financial innovation comes down to more ways to increase leverage. Effective regulation needs to control the amount of borrowing undertaken by banks and must ensure transparency.

Yet stronger regulation will not be sufficient, even though it is necessary. Memories of financial disasters fade over time and people repeat old mistakes. Periods of stability create the conditions for complacency and the taking of more risks, as economist Hyman Minsky pointed out. So-called living wills for banks may not work if worried retail depositors feel they do not want to wait to see if the wills are effective.

Separating "casino" banking from retail banking would help increase transparency and prevent the next banking crisis from threatening to take down the whole system. Retail deposits would continue to be protected and moral hazard reduced in the investment banking sector. Investment banks which made mistakes could go bust without generating systemic risks or risking people's savings. The cost of certain speculative financial instruments for businesses might be higher because there would no longer be the guarantee of a taxpayer bailout of the bank if things went wrong, but the cost increase would simply mean risk was being correctly priced. The City of London would retain or even enhance its reputation as a leading financial centre.

Banks left behind a proper sense of ethics and the common good, which some are now recovering and others seem yet to learn. Reform of the banking sector to make it better in every sense is a moral issue and one with which people of faith should engage. By supporting this early day motion and highlighting the issue CSM is hoping to promote just such an engagement. More than that, it is important to remember that arguments about banking reform are not just technical; people's lives and livelihoods depend on the outcome.

MPs urge government to separate casino banks from retail banks

2009-10-13T08:26:00.004+01:00

CSM Chair tables Early Day Motion, backed by Treasury Committee chair

(more info at http://www.thecsm.org.uk/)

There has been a fresh call in Parliament to reform the UK banking system. The chair of the Christian Socialist Movement (CSM), Alun Michael MP and CSM member John McFall MP, chair of the House of Commons Treasury Committee, have tabled an Early Day Motion (EDM) urging the government to separate speculative casino banking from traditional retail banking. The EDM argues that strong regulation is essential but that this more radical measure is needed to protect UK retail depositors from future massive losses from casino banking.

Their action comes on the first anniversary of the Government’s rescue of UK banks, and as CSM, whose members include the Prime Minister, Gordon Brown, calls for action to ‘stop the banks gambling with our money’. CSM’s campaign urges the government to not only strengthen regulation but to implement a complete separation of speculative investment (‘casino’) banking from traditional retail banking in the forthcoming banking legislation the government is to put to Parliament.

Launching the campaign, CSM chair Alun Michael MP said:

“The current international banking crisis has done enormous damage to jobs and businesses in Britain, to the UK’s public finances and to hundreds of millions of the world’s poorest people. Our Government has taken the lead internationally in dealing with the crisis, but the consequences will still blight a generation and the hardest hit will be some of the poorest people in the world. That is why CSM is calling for action to ‘stop the banks gambling with our money’ and to ‘separate as well as regulate’ UK banks to help protect our people against this sort of banking crisis in the future. There must be no return to business as usual. It’s not just an economic issue but a moral one. We want a similar approach taken worldwide and for the UK to lead by example.”.

Outlining his decision to support the early day motion John McFall MP, Chair of the Treasury Select Committee said:

“I strongly welcome the government’s decision to introduce much stronger regulation in banking including new capital requirements. However, regulation will never be 100% successful in always preventing massive losses on speculative casino- type investment banking. So an ever present danger exists when banks combine this casino banking with traditional retail deposits which are rightly guaranteed by the taxpayer. Without a safeguard for the retail side, massive losses on the speculative casino side may once again threaten UK retail depositors. That would mean UK taxpayers would have yet again to pump in tens of billions of pounds to rescue such a combined bank. We cannot allow this to happen again.”

CSM’s campaign comes during a period of intense debate in the UK, Eurozone and US about the banking legislation needed to help prevent future banking crises.

Early Day Motion on separating banks

2009-10-13T08:25:00.000+01:00

CSM is arguing that the banks should be separated, with casino type banking separate from retail banking.

CSM Chair Alun Michael has tabled the following Early Day Motion:

Separation of speculative and retail banking
“That this House notes the enormous damage that the international banking crisis has done to jobs, businesses and public finances and to some of the world’s poorest people; recognises the substantial and continuing resources provided by taxpayers to support banks; acknowledges that an important part of this crisis was caused by a number of traditional deposit-taking retail banks becoming involved either directly or indirectly with speculative, casino-style, investment banking; welcomes the support of all political parties for continuing to provide a government guarantee for retail deposits held in banks; notes also that when banks are systemically important it is the taxpayer rather than the shareholder who carries the ultimate risk; supports much stronger regulation of banks to help prevent such a crisis in the future; recognises that, given constant financial innovation, regulation on its own will never be completely successful in always preventing massive losses on speculative casino-type investment banking; acknowledges that in a bank that combines speculative investment banking and traditional retail banking that massive losses on the speculative side would threaten its retail deposits thus necessitating taxpayers to rescue such a combined bank; therefore calls on the Government in its forthcoming banking legislation to separate speculative casino banking from traditional retail banking and, as well as leading by example, to encourage a similar approach internationally.”

Credibility of Tory economic plans questioned

2009-10-11T22:27:00.005+01:00

The Observer reports that the National Institute of Economic and Social Research believes George Osborne and his team misread a paper it published on the economy, with the result that cuts planned by Osborne will take five years more than he assumed to save the money he claimed result.

Meanwhile, David Blanchflower in the Guardian on Saturday was rather upset with Osborne's plans, believing they would threaten economic recovery and lead to higher unemployment.

Pro City but in favour of bank reform

2009-10-06T22:08:00.004+01:00

I keep reading that City voices are arguing against tighter regulation and financial reform. The City in fact has many different voices. Fund managers, for example, are distinct from traders or bankers. A fund manager will vigorously support the market system but hold a healthy scepticism, having in mind sustainable returns to shareholders ie his or her clients. So it is possible to be pro City but argue strongly that banks should not be allowed to risk billions of pounds of taxpayers' funds and the country's future again.

Cuts and trust - article in Tribune

2009-10-06T21:56:00.008+01:00

From the current issue of Tribune:

Labour got it right while the Tories were wrong, says Stephen Beer, so the economic fight must not be on their ground

The banking crisis that unfolded during Labour Party conference a year ago now almost seems like a bad dream. As delegates debated the crisis, we were not to know that worse was to come. The basic functions of the economy were about to face a severe threat and it was only bold leadership which pulled us back from the brink. Now we are confronted by challenges on tax and spending. Britain faces a recession, even though there is more optimism now than when Alistair Darling delivered his Budget in April. The danger is that Labour addresses the cuts issue on Tory ground rather than its own.

The increases in public sector debt are sobering indeed, with borrowing expected to be £175 billion this year and similar next year. However, before we panic, we need to appreciate why borrowing has risen. Put simply, deficits in the financial, business and household sectors are being moved onto the Government’s balance sheet so those sectors can recover. As economic activity picks up, so will tax revenues. The Government could have raised taxes and cut spending to compensate for lower tax revenues as the recession kicked in. While this would have kept Government debt down, it could well have tipped us into a 1930s-style depression.

Unfortunately for this country, we appear to have a further problem with our debt. This was outlined in the Budget and highlighted by the Institute for Fiscal Studies in a report published last month. Part of the national debt is regarded as structural, which means it is not linked to the cycle.

The Chancellor’s estimate of the permanent structural deficit rose by 6.4 per cent of national income (£90 billion a year). Tax revenues seen during the boom years in the City will not all return and the Treasury estimate of the economy’s productive potential has been revised downwards.

To some extent, the debt bubble provided us with higher than normal tax revenues, which the Labour Government spent on new schools and hospitals, for example. In effect, some of our tax receipts were debt financed. Now those revenues are unlikely to return and so tax income and spending are further apart.

If spending is not reduced or taxes are not raised, the debt level will increase. That’s because we have to pay interest, no matter low and assuming we have low inflation. Hence the talk about spending cuts, although few politicians and commentators are also talking about tax rises.

In fact, it is not clear why belt-tightening should begin next year, as the Treasury assumes, and why the deficit must be paid off by 2017-18. Budgets must have credibility, of course. But controlled high deficits can be sustained for many years if resources are properly targeted. The problem facing us immediately is that, despite recent optimism, a durable economic recovery is not yet guaranteed. Levels of bank lending to businesses have dropped year on year, which is not normal – even in a recession. Meanwhile, unemployment continues to rise. We may find we actually need to increase borrowing in order to stimulate investment. Nevertheless, Labour needs to demonstrate that the nation’s finances will be under control, which will mean spending cuts at some point.

The debate within the Government about whether to talk about cuts was finally resolved when the Prime Minister used the word in his speech to the TUC, pledging to protect frontline services. Leaked Treasury documents and Cabinet discussions point to preparation by Whitehall for some tough spending rounds.

The Tories are not being responsible in this debate. They are calling for spending cuts now, but the economy and banking system are too fragile. Their performance over the past couple of years of financial crisis has been abysmal and their economic team has yet to convince people that it really knows its stuff.

The political risk Labour supporters face is to find ourselves making our case on Tory terms. Spending cuts were associated with Conservatives. We spent more than a decade hammering that point home. If spending cuts are the main point of politics, voters may note that the Tories are rather keen on the idea. The debate needs to be about the kind of future society we want, because Tory cuts would take us backwards and risk bringing about the broken Britain they talk so much about.

That debate can still be won. For the left, the issue is how government ensures people have a meaningful stake in society and, following RH Tawney’s prescription, more freedom in their lives. At times, that will mean cutting waste or focusing on key priorities, such as unemployment.

Neither should we forget that the country is now using the new schools and hospitals built over the past few years thanks to this Labour Government. New hospital equipment will not simply vanish. In many ways, even with the problems we currently face, Britain is now a better country in which to live in than it was when Labour took office in 1997.

We need to work fast to apply our values to government spending choices. That does not mean simply arguing about the spending programmes on which we can save money. We need to be more robust and say which programmes should not survive. As we debate the next election manifesto, that has to be our task. The challenge is harder still. It will be a poor manifesto that just contains lists of spending programmes saved and others cut. It will be a grim read if we simply swallow the conventional wisdom about the economy and the public finances, threatening a recovery before it has taken root. We have more hope and confidence than that.

Spending cuts and deficit hysteria

2009-10-03T19:18:00.005+01:00

Our political classes are 'going through one of their occasional bouts of masochism,' claimed Samuel Brittan in Friday's Financial Times. He is probably right, but the pressures are great.

Sir Samuel has been arguing that the projected deficit is nothing to get too het up about. Yes it is large but growth will deal with that over time and the position has been much worse in the past.

As he points out:
In the early Victorian period the ratio was nearly 200 per cent and almost reached that level again in the early 1920s. In 1956 it was just under 150 per cent. Harold Macmillan, who was chancellor at the time, quoted the historian Lord Macaulay: “At every stage in the growth of that debt it has been seriously asserted by wise men that bankruptcy and ruin were at hand; yet still the debt kept on growing, and still bankruptcy and ruin were as remote as ever.” In fact the debt was gradually reduced from the peaks mentioned above without any heroic gestures.

So why are we caught in this ridiculous debate? I think government is concerned about reactions in the bond market, which it may feel does not appreciate the points Samuel Brittan makes so well. And I think the Conservatives by arguing for spending cuts now are playing a political game; either that or they have no idea how to manage an economy in a recession.

Morals and markets at Labour Conference

2009-10-02T17:05:00.005+01:00

Speaking at a CSM fringe event at Labour Conference, I argued that a window of opportunity to reform the banking system was closing. I wrote up my views in an article on the Guardian website:

"Markets need morals," said Gordon Brown in his Labour conference speech yesterday. If we have learned anything from the financial crisis it is surely that our economic system needs to rest on a set of values. We can, through dialogue and debate, work out what values are most important. Yet it is not enough just to hope that the banking sector will reform itself. Such a hope would be an idle hope. Labour needs to work at putting such values into practice.

The collapse of Lehman Brothers, coming a year after the fall of Northern Rock in this country, was a profound shock not just to the financial system but to those operating within it. Traders and others began to seriously question the basis of the securities they were buying and selling. In many cases they decided they could not trust valuation estimates, which meant they did not know how to price securities. This was more than just technical. Something fundamental about certainty in life was being considered. There are fewer such conversations today.

Yet the need to for values remains. We can probably agree on what some might be easily enough even if we differ on others. In his St Paul's Cathedral speech before the London G20 summit in April, Gordon Brown listed some, including hard work, fair play, a responsible approach to risk, loving your neighbour as yourself. He believed a global ethic was possible because different religions and traditions did share some common values.

This issue is being discussed at Labour conference this year in fringe events. The Christian Socialist Movement, the Christian group affiliated to Labour, has been running seminars on this theme all week. At CSM's Morality and the Markets fringe today, financial secretary Stephen Timms MP highlighted a role for faith groups to help identify key values. At the same event, Jon Cruddas talked about values such as kindness, often regarded as "soft" values but which were nevertheless essential. Cruddas argued that CSM was asking the right questions at this conference. Speaking at the Morals and Banking event on Tuesday, I threw a few values into the pot too. I would stress the role of trust, faith in each other, honesty, integrity, service, and a commitment to the common good. This latter point is important because there is a sense that some parts of the banking sector are trying to continue "business as usual" without addressing their relationship with the rest of society.

Lord Turner, Chairman of the Financial Services Authority appeared to be making this point in his Prospect magazine interview and subsequent Mansion House speech. He said that "some financial activities which proliferated over the last ten years were 'socially useless', and some parts of the system were swollen beyond their optimal size." He stressed that the City "will continue to play an important and vibrant role in the UK economy," but added that " ... not everything that a financial system does is socially useful." He quoted Stephen Green, Chairman of the British Bankers' Association in support: Green has suggested that "banks have pursued short-term profit by introducing complex products of no real use to humanity." Paul Myners, financial services secretary, has expressed frustration that banks appear to be resisting change. There is a real sense that the window of opportunity to address the nature of banking in future is closing.

This is not how people in this country generally feel, however. There is a strong anger still at what the banking system has done to the economy and that it appears to be showing few signs of regret, or as the Archbishop of Canterbury has argued, repentance.

Measures to regulate bonuses, linking them to a responsible approach to risk and to long term profitability are needed. Banks, at the very least, must not act against the common good. One way of helping to ensure this is to improve the relationship between the banking sector and wider society. Community reinvestment measures are a good idea as are Co-operative party proposals to encourage mutualism in the sector. Casino bank activities must be separated from retail deposits.

Gordon Brown's speech on Tuesday contained steps in the right direction, argued Jon Cruddas at today's meeting. I would add that banks have shown they cannot control their own activities; every few years there is another banking crisis. Rather than plough on hoping it will be different this time, we need to ensure the financial system can reflect realistic expectations of risk and return. That requires leaders to keep breaking out of the current "conventional wisdom" about how banks should work.

Labour Conference - CSM continues to debate the issues that matter

2009-09-30T17:04:00.003+01:00

CSM has continued to debate the economy and morality at the Labour Conference this week. Yesterday I spoke at Morals and Banking - is the feeling mutual? alongside Alun Michael and Rachael Reeves, with Michael Stephenson of the Cooperative Party in the chair. It was a stimulating debate - I'll post with a summary of my comments soon.

We continued the debate today with a seminar entitled Morality and the Markets with Stephen Timms MP, Jon Cruddas MP, and Joanne Green of CAFOD, with CSM Director Andy Flannagan in the chair. Jon Cruddas argued that CSM was hosting just the debates the Party needs to have this week. We've one final event this evening, Do we have enough faith in development?

Gordon Brown's speech yesterday went down well in the hall amongst delegates and there was a fairly good mood afterwards - the mood I would say is determined, with renewed enthusiasm to fight for the change we want to see in the country.

The last item of business on the floor today was an emergency resolution from the CWU calling for disclosure of the Royal Mail pension deficit. It was passed unanimously by delegates.

Economy the theme of Labour Conference day two

2009-09-28T17:22:00.002+01:00

The economy was the main subject of debate at Labour Conference today. We had a Q&A on the economy followed by debate and a speech from the Chancellor of the Exchequer Alistair Darling. Last year he was dealing with the fallout from the collapse of Lehman Brothers. This year, the backdrop was an economy that has been in recession but that would have been in depression had he not made some crucial decisions over the past 12 months.

His speech contrasted Labour's actions with the Conservative's record over the past year. They are calling for spending cuts now, before recovery has taken place. This shows that the Conservatives remain vulnerable on the economy. This is serious stuff, a matter of jobs and future prosperity. The economy is not simply a subject for opportunistic soundbites.

Peter Mandelson's speech this afternoon was well-received. The mood this Conference so far is serious minded but united.

CSM's fringe event on tax dodging and poverty was well-attended with 77 people at the meeting. Tomorrow evening I am speaking on Morals and Banking at another CSM event organised with the Cooperative Party.

Labour Church Service kicks off conference

2009-09-27T18:16:00.005+01:00

The official Labour Party church service was back to its usual time this year this morning. Once again it provided an opportunity for delegates so inclined to start the week off in perspective. And the Christian Socialist Movement, which runs these services for the Party, was able to help people focus on one of the key themes for this year's conference.

That theme is how we can ensure markets work within a proper set of values - moral values - and how amidst the fallout from the financial crisis and recession we can ensure the poor are not forgotten.

Tear Fund President Elaine Storkey addressed these issues in her sermon.

Labour delegates joined with regular chuchgoers in Gloucester Place Baptist Church. The Prime Minister read the lesson and a number of ministers and other MPs attended.

In Conference itself for me the debate to watch on Monday will be the Economy debate in the morning. Can the debates about bank bonuses and public spending cuts be developed; can we move on from the slogans into practical policy consistent with a clear political message?

Labour conference begins

2009-09-27T09:57:00.002+01:00

It's day one of the Labour conference and a sunny day here in Brighton.

Pre conference receptions last night, including of course the London reception, were well-attended and I thought there was a good mood about them. The PM spoke well.

The Conference proper kicks off in an hour with Labour's Conference church service. The themes for CSM include morality and markets. The recession will provide the backdrop to conference this week.

Spending cuts, debt,and Vince Cable

2009-09-21T23:10:00.006+01:00

Vince Cable writes an interesting piece in today's Evening Standard about the spending cuts debate, though he misses out one crucial element in the discussion.

Cable makes the good point, which is being forgotten, that:
Cutting public spending before we are safely out of recession risks pushing us back into recession. Equally, the apocalyptic cries of “national bankruptcy” are unhelpful scaremongering. In fact, general debt levels in relation to GDP are modest by historical and relative standards and borrowing costs are low — below two per cent in real terms.

He is right, and this is where the Tories' economic thinking is muddled and wrong.

However, nowhere in his article does Vince Cable mention the bond market. It is not the case that the UK will not be able to fund its debt, but I suspect the Treasury is worried that if markets believe borrowing is not under control (in some way), the cost of borrowing could rise.

What would have happened if the Budget had predicted borrowing this year and next as being, say, £185bn rather than £175bn? Probably not a lot different as long as there was a plan of some sort to reduce it. But I suspect Alistair Darling believed £175bn, which allowed for necessary stimulus measures, was about the right level. There is room for debate about how we go about balancing the budget by 2017/18 - eg which years have more reductions in spending.

Keynes was probably right that if you look after growth, the budget will ultimately look after itself. There are two ways to reduce a structural budget. One is to cut back aggressively; the other is to focus on building up the productive potential of the economy. The Budget, being in fact prudent, focused on the former. But we need to discuss measures to boost investment. Moreover, unemployment has not gone away and is still rising.

Banking and morality - the debate continues

2009-09-20T22:58:00.004+01:00

The news that banks appear so quickly to have forgotten the crisis into which they plunged us all has not gone down well. This appears to be the case in government.

To some extent, that banks are generating operating profits now is what we want - we need banks to be profitable to help restore the financial system. However, the sector has to work out how to do things differently and how not to cause such chaos again. It must recognise that it has required taxpayers to assent to a massive state intervention, for which they will be paying for some time to come.

Speaking at the Financial Times Global Finance Forum on Friday, Financial Services Secretary Lord Myners stressed that while the government was determined to regulate the financial sector, regulation alone was not sufficient. Banks needed to take responsibility:

"Corporate leaders in the global financial sector have begun to talk about addressing moral failures and that is to be welcomed. But it’s time to move beyond sound bites and to start hearing how they intend to drive moral reform within their institutions. "

Some sort of repentance, a changing of behaviour, was required argued Lord Myners:

"The banks need to understand that they have lost the trust of the public, and need to change their behaviours and values in order to earn forgiveness."

The speech can be downloaded from the Treasury website here.

I'm speaking on this theme at Labour Party Conference at a CSM seminar.

IMF warns on unemployment

2009-09-07T22:01:00.004+01:00

Economic confidence may have bounced since the lows of September last year and March this year but unemployment is still rising.

The rate of increase may have reduced but it is too early to say that the importance of this issue should be downgraded. That is why economic stimulus packages must remain in place. And that is why Conservative Party calls for public spending cuts now imply taking risks with the UK economy.

The head of the IMF, Dominic Strauss-Kahn, named rising unemployment the 'third wave' of the economic crisis. The first two waves were 'the financial crisis and the consequent global economic crisis.' He was speaking after the G20 conference in London this weekend. Referring to crisis response plans, he said that 'even if we need to discuss our exit strategy, it's not the time to implement it.' He did state that governments should prepare the public for exit plans.

Of course just because the IMF says something doesn't mean it is right (people should remember that when it makes economic forecasts). But these comments do echo the Bank of England Governor's concerns about the fragility of any signs of economic recovery at this stage.

There is still a need to focus on tackling rising unemployment.

Would a High Pay Commission answer the right question?

2009-08-17T23:00:00.004+01:00

Compass today launched a campaign for a High Pay Commission with a hundred leading supporters. I understand where this is coming from but I am not convinced.

The argument is that high pay should be regulated because excessive pay led to the taking of excessive risks, which in turn led to the financial crisis and the deep recession we are now experiencing.

It does seem that pay rewards that were not linked to long term sustainable profits and that took no account of systemic risk were a factor that helped cause the financial crisis. Simply focusing on high pay itself risks avoiding the main issues however, and unless there are some internationally agreed standards it is difficult to see how rules could be enforced. That is not to say we should avoid talking about bonuses etc, it's just that we need to think more deeply than that.

The banking sector spent years arguing against more regulation and certainly often it seemed against government intervention across the economy. Then came the crisis and banks were queuing up to request or even demand the biggest government bailout in history, on pain of a systemic failure which they could do nothing to prevent on their own. Now, government guarantees are supporting the sector.

Surely this raises questions about the place of banking within our society. It is not separate; it is part of society. Therefore it should be part of a working towards the common good, or at least not working against it.

Unless we rethink how we want banks to operate we risk setting up problems for the future. Government bailouts mean that we have major moral hazard - the government will always come along and get banks out of a mess.

It is actually a pro City argument to suggest we rethink the role banks should play: we need the City to be suited to the challenges of the future, with all the skills it can apply. The government could be more proactive with a clearer sense of what it believes future banking should look like. The taxpayer's holdings in banks could be managed on behalf of the entire UK plc, not just as if the government were another shareholder.

We should not be too hard on government however. It has saved the financial system from collapse in this country: if it had failed we would be in a depression, not a recession, and our financial sector would probably have imploded.

When we think about high pay, this is the context in which we need to think. Really the link to the financial crisis is pay not linked to sustainable profits and manageable risk, however high it is. High pay in itself is another issue, whatever we may think about it.

And we must consider how the politics of this look too, for Labour. I think supporters of a High Pay Commission need to explain a bit better why this is not the politics of envy.

I assume this commission would of course also regulate the pay of top footballers and pop stars.

A clearer debate on Afghanistan?

2009-07-19T16:01:00.003+01:00

The debate about Afghanistan is actually beginning to settle down a bit in the sense that what we are really talking about is becoming clearer.

In the near term, it comes down to: more helicopters asap; more troops (of whatever nationality); more supplies of certain specific equipment to for example gather intelligence on Taliban movements.

Longer term, it is focusing on our strategy there as part of the NATO force; defining it more closely; recognising why we are there.

We still need to accept that there are difficult choices to be made - ie the security case may mean defence spending will have to be higher in future than we have assumed it will be, which means cuts elsewhere.

John Hutton, former Secretary of State for Defence, writes a balanced piece (which firmly states that we need to prioritise getting the necessary equipment to our forces in Afghanistan) in today's Sunday Telegraph.

Making the case for Afghanistan - Guardian Comment is Free

2009-07-15T23:44:00.000+01:00

In today's Guardian:

All night long a fierce struggle had raged from house to house and in the alleys of this mud labyrinth. The assailants knew every inch of the ground perfectly. They were fighting in their own kitchens and parlours. The defenders simply hung on where they could, in almost total darkness, without the slightest knowledge of ground or buildings.

So wrote Winston Churchill about his experiences with the Malakand Field Force in 1897. The fighting taking place today is often at close quarters with small arms and engaging an enemy that knows the terrain very well. Not much has changed since, we might conclude, after a sad week with many lives lost in our forces in Afghanistan.

It is depressing that it has taken the death of so many soldiers to reawaken the debate about our aims in Afghanistan. Nevertheless, the debate can be a healthy one if political posturing is avoided, and we all have a responsibility to engage in it. There are no easy choices and advocates of withdrawal, such as Peter Preston, need to provide a much more robust analysis of the security implications of such a move, both for Afghanistan and with regard to the terrorist threat at home. There is still a need to think through our strategy, however.

In contrast with Churchill's experience, we are not in the region for some destructive Empire demonstration of force, what used to be crudely called "butcher and bolt". The international forces are in Afghanistan to ensure al-Qaida does not regain a foothold and to ensure the Afghan people have the space to build some government infrastructure. They are fighting hard and taking great risks to achieve these aims.

The prime minister, in his statement to the House of Commons on 13 July, stated this broad aim clearly. The strategy (how we direct military and political engagement) has sometimes been confused in debate with tactics (how our commanders handle forces in battle). The strategy has often been obscured. When I wrote in Tribune magazine in 2006 and 2007 calling for a defined political strategy, we had not been long in Helmand and enabling the Afghan army to disrupt the heroin trade seemed to be important. We hear little of that now. We do hear about the need to increase development, but that requires some degree of security. The government must articulate a clear political strategy with the Afghan government and its other international partners.

Three years ago soldiers had insufficient appropriate equipment and this remained the case for too long. The situation has improved to some extent, for example with the use of Mastiff armoured vehicles. Forces need more helicopters and more soldiers in combat roles. Helicopters play a useful role since they not only provide safer transportation but they also increase the options available.

The Guardian's panel of experts is right to focus on the number of soldiers in the area, both international and Afghan. At the moment we have just over 9,000 troops in Helmand, but this probably means there are less than half actually engaged in combat roles. If, after the Afghanistan elections, we give up the ground we are now gaining we will have set back any aims to win hearts and minds. Local Afghans will sensibly conclude that international forces are not willing to commit the necessary power and will not be around for long, in contrast to the Taliban. The US "surge" in Iraq demonstrated that a focused effort by a large number of soldiers can change a situation to create the space for local forces to take over. This will not be easy in Afghanistan, where the national army is not yet large enough nor is the government infrastructure sufficiently in place for an easy repeat of the Iraq experience.

There are financial implications, as Larry Elliott has illustrated. We are in a recession in the UK, with the prospect of lower government spending growth when it is over. Yet we should answer the questions Elliott poses: if we need to increase defence spending further to maintain our national security and fulfil international objectives in Afghanistan, we should do so.

Our activities in Afghanistan are not being properly communicated and much of the debate is occurring in a vacuum. At home, we see the casualties but we do not see what they and their colleagues have been achieving. There will be security issues to consider when releasing information but the Ministry of Defence should explain the current engagement much more clearly.

Politicians have a duty to raise their concerns about the conflict and the resourcing of our forces. Since there is broad agreement among the parties about our role in Afghanistan, they also have a responsibility to make the case for that role to the nation at large.

Unemployment rises again

2009-07-15T23:36:00.004+01:00

Figures out today show that the UK unemployment rate in May was 7.6%, up from 7.2% in April.

This is a steeper rise than most forecasters had expected. It shows that unemployment is going to be a key policy issue in the months to come. Bold action is required. Former Bank of England Monetary Policy Committee member David Blanchflower emphasised this point again in an article in today's Guardian.

Labour is not asleep to this threat but we can do more.

2009-06-15T22:17:00.003+01:00

Easy to forget that only a couple of months ago it was considered almost insulting to suggest the economy might not perform as badly as many were suggesting. Now, sentiment has shifted the other way. But Labour has to keep focused because even if the outlook has improved we need to improve the prospects for business and fight rising unemployment.

The G8 leaders at the weekend noted that the global economy appeared to be stabilising. That's perhaps not surprising considering the dark days at the beginning of the year, when the financial sector remained in serious trouble and many businesses could not even access day to day credit facilities from banks.

Alistair Darling, the Chancellor of the Exchequer, has had to withstand the shifts in economic sentiment. His Budget forecasts were dismissed as too positive. Now some commentators imply that he may have to revise them upwards. Darling has cautioned against over-optimism.

Former Bank of England MPC member David Blanchflower has echoed the caution and emphasised the potential for unemployment to rise much further this year. It will especially affect young people seeking to enter the jobs market for the first time, he has said on various occasions.

This further underlines my call for a clear message from Labour about jobs. We must do all we can to limit the rise in unemployment, help people obtain new skills, and help those out of work find work. The contrast with the past two recessions under the Conservatives must be clear. Labour will never see unemployment as simply a 'price worth paying'.

Labour should not despair but get on the front foot

2009-06-08T23:00:00.004+01:00

Labour Party members should not let the European election results tip them into despair. A lot was going on around these elections.

Yes, the Labour vote did fall significantly. And the two BNP victories together gave a nasty jolt. The wider context was that pro EU parties and parties on the Left did not do well (and note that the LibDems did not reap benefits from Labour's unpopularity; nor did the Tories gain as much as they should have expected). At the same time, last Thursday was the first opportunity the UK electorate had to express its disgust via the ballot box at the expenses scandal.

It was not all bad news of course. In Vauxhall we won a by-election with a candidate with a good local track record, with a clear message about what we stood for, and by a well-organised campaign.

So, with the Parliamentary Labour Party expressing its support for Gordon Brown this evening and a reshuffled cabinet in place, where should we go from here?

I am still convinced that we need a positive political narrative that recognises economic times are hard and recognises that spending limits mean we need to find other ways to promote our values. There is still time for creative thinking in this area which will also contrast Labour's policies and values with those of the Tories. But not a lot of time.

Lambeth Labour's ray of light

2009-06-06T00:02:00.003+01:00

Congratulations to Mark Harrison, elected as a Labour councillor for Princes ward in Kennington (Vauxhall constituency) on Thursday. Mark received 1,726 votes, or 41% of the vote, compared to the LibDem candidate who had 1,396. The Tories did not get the surge for which they had hoped, receiving 707 votes. Turnout was almost 43%.

The by-election was fought under very difficult circumstances given the national situation but we were able to show that voters will support a Labour council that is actively implementing Labour values at a local level - and a candidate who has a record of standing up for residents. The election also showed that Labour is active on the ground running effective campaigns.

Committee calls time on ‘reckless City risk-taking’ - Tribune

2009-05-23T10:58:00.002+01:00

IN THE midst of the current parliamentary turmoil we can forget we are still learning the lessons of the financial crisis. Many believe that the bonus schemes run by banks and poor corporate governance contributed to the near-collapse of the financial system. The House of Commons Treasury Committee has been examining the issue and its latest report, published last week, concludes that “bonus-driven remuneration structures encouraged reckless and excessive risk-taking.”

There were large disparities between the pay of different groups of employees within the banking industry. But the committee focused on how bonus schemes may have affected behaviour. Employees were encouraged to take risks which had unknown implications for the banking system and the schemes seemed one-sided. As Mervyn King, governor of the Bank of England, put it: “It was a form of compensation which rewarded gamblers if they won the gamble but there was no loss if you lost. It is obvious that if you do that you give incentives to people to gamble.” Pay needs to be linked to long-term performance and the interests of shareholders, concludes the committee.

The financial sector has become detached from the rest of society, resulting in the current backlash. This is true not only of bonus schemes but also other aspects of corporate governance, too. Various bodies are reviewing their structures but there is really no substitute for some direct and level-headed leadership from government.

The committee worries that banking has not fully appreciated the need for change and is waiting for the return of “business as usual” but we know that will only store up problems for the future. The 7,000 people marching for jobs in Birmingham last week were highlighting what can happen to people’s lives when financial risks are not properly managed.

Tribune » Blog Archive » Committee calls time on ‘reckless City risk-taking’

Bounce back hope must spring eternal - Tribune

2009-05-19T07:29:00.002+01:00

LABOUR’S theme for the general election next year will probably be “hope”. That is, we will hope that the economy recovers sufficiently in time; we will hope that unemployment has peaked before the election; and we will hope that voters will not risk letting the Tories interfere with a nascent recovery. At the moment, this seems a rather pessimistic kind of hope.

In fact, the signs are that the economy is no longer deteriorating as fast as a couple of months ago. It may still shrink further, but perhaps not at the same rate. If the first quarter of this year was the low point economically, Alistair Darling’s Budget last month may have been a low point politically. In that Budget week, it was unpopular to be optimistic. However, City forecasters are revising up their estimates of growth in 2010. Unemployment is still expected to rise. A lower sterling exchange rate should encourage exports and our flexible economy may mean that Britain bounces back a lot faster than people are assuming. Even if growth remains sluggish for a while, people could be surprised by this country’s economic performance compared to their current pessimism. Yet any growth is likely to be tempered by the scale of bank and public debt.

One of my themes over the past year has been that Labour needs to get ahead of the deteriorating economic conditions in terms of both policies and message. It is not too late to do this, but we need to refresh our approach urgently. Labour thinkers have proposed various solutions. Unfortunately, many ideas out there give a rather stolid impression, taking little account of the powerful impact of the banking crisis or lacking an attractive central theme.

Progressive politics is changing again. As early as 1956, when Labour was wedded to nationalisation, Anthony Crosland argued that what really mattered were the values underpinning socialism. The policies could change with the times. We might think we have learned this lesson, but we have relied on increasing public spending growth. Years of underinvestment in public services had to be tackled and we can see the results now – for example, in better schools and hospitals. Higher spending levels, particularly when tax revenues were buoyant, were appropriate. That is no longer possible.

The scale of the national debt means future government spending growth will be slow, with cuts in many areas. A socialism based on deciding how to slice an ever-expanding cake will no longer be viable. As spending cuts loom, we need to decide what spending we need to retain. We will have to revisit our values to help make the hard choices and work out new ways of putting them into practice.

Labour wins when it has a progressive vision of the future that resonates with the country. That helped us win in 1945, rather than Winston Churchill and the Tories. In 1979, we had no such a vision and we lost. In 1997, we did and we won. We need to think not about what are today’s battles, but what, next year, will be the hopes and concerns people will have for the future.

Our message should start from workplaces, families and communities. We can show how our values apply to each and how a Labour government will work with people to help them enjoy better lives.

People must be convinced we are serious about tackling unemployment, which could rise by another million or more. That should mean some direct measures to generate employment and a renewed commitment to improve opportunity for everyone, since everyone is of equal worth. To be truly radical, we should also take significant action to promote business investment – even at the expense of some treasured spending programmes. We have to boost the economy’s potential and in an environmentally sustainable way. Business needs confidence and stability and a sense that taxation will continue to be fair but not onerous. Without growth, the outlook for spending is bleak indeed.

The family (in whatever form) is an important source of security for many, especially when times are hard. In a recession, we should strengthen our support for families and keep talking about it. Education spending needs protection.

Promotion of co-operation and community is at the heart of progressive politics. We can find ways of encouraging a renewed public service ethos in government agencies. That would cover the use of our data, where talk of civic freedom must be reflected in our actions.

Such an ethos would apply to our financial sector, too. Radical reform of local government in terms of its aims and links with its residents could be considered, with tax breaks or movable holidays for local charitable activities.

When we recover a coherent narrative, with consistent policies tailored to recessionary times, we will be more confident when criticising Conservative positions. Tory policies, especially on the economy, crumble under scrutiny. A Conservative government would be a risk for the country. Labour has the values and the experience to guide the country through these difficult times to a better future.

Tribune » Blog Archive » Bounce back hope must spring eternal

Remembering John Smith

2009-05-12T23:12:00.003+01:00

John Smith, leader of the Labour Party, died fifteen years ago today.

Morality and the financial crisis - CSM takes the debate forward

2009-05-10T22:01:00.004+01:00

The financial crisis has been such a shock that it has prompted many to think afresh about the values which underpin the global financial system. Gordon Brown and Australian Prime Minister Kevin Rudd debated this in St Paul's Cathedral just before the G20 summit. Last week, CSM (Christian Socialist Movement) carried the debate further.

The occasion was CSM's annual Tawney Dialogue. This year it was between Bishop of Hulme Stephen Lowe and John McFall MP, chair of the House of Commons Treasury Committee.

Bishop Lowe called for a return to 'relationship banking' where customer and bank manager know each other over many years. John McFall highlighted the collapse in trust which was behind the crisis. In future, the financial sector would have to recognise there is a difference between ethics and mere compliance with rules.

CSM is posting up information about the event last week. It is planning to continue the debate and to that end has posted up a series of questions for further discussion by its members and others, with opportunity to return comments.

Despite a mini media storm, Hazel Blears is correct

2009-05-04T21:44:00.003+01:00

Somewhere amidst the weekend hype about cabinet splits and leadership bids was a very good article by Hazel Blears that not just the cabinet but Labour MPs and the wider Party would do well to read. The media outlets seem to have hyped it into something it was not. I haven't heard of anyone actually disagreeing with the arguments she made.

She calls for a practical policy agenda, direct and plain communication with voters, and policies, campaigning, and communication that are in touch with where people are at. Seems reasonable to me.

Progressive moments in the age of austerity - Tribune

2009-05-02T14:00:00.003+01:00

Stephen Beer assesses last week’s Budget and concludes that Labour must move fast to redraft the political agenda

IF THE Chancellor of the Exchequer had even so much as hinted that he saw green shoots of recovery in last week’s Budget, the criticism would have been immense. Such was the backdrop to the statement he gave. There were few surprises. Yet the official announcement that borrowing is expected to rise to levels beyond what was conceivable just a year ago has still come as a shock. This was not a Budget without a theme. It was just a bleak theme about public finances deteriorating sharply following the financial crisis. As a result, Labour must review its political agenda fast.

Alistair Darling revised down his estimates of gross domestic product growth this year to be more closely aligned with other forecasts, with national income falling by 3.5 per cent. He expects a recovery to begin into 2010, with growth of 1 per cent next year and 3.5 per cent in 2011. It was unfortunate that the International Monetary Fund released its new forecasts on the same day. The IMF expects the British economy to contract by 4.1 per cent in 2009 and continue to shrink in 2010. Moreover, two days later, the first estimates for GDP in the first quarter of this year were released, indicating that GDP fell 1.9 by per cent, or 4.1 per cent year-on-year. Revised estimates will be released later.

The sharp slowdown has impacted on public finances. Net borrowing this tax year is now forecast to be £175 billion – up from £118 billion forecast in the November Pre-Budget Report. This will be around 12 per cent of GDP, as the Institute for Fiscal Studies has highlighted. As the economy slows, so tax revenues fall, but government spending on benefits rises. These effects are known as the automatic stabilisers. If the economy does not pick up as the Chancellor expects, tax revenues may be even lower than predicted.

The worrying aspect of the debt position is that the Treasury believes the structural deficit (debt that will not just decline as growth picks up) will form 9.8 per cent of GDP in 2010-11. This is partly due to a decline in the economy’s productive potential. The Treasury does not expect it will again see some of the tax revenues it received over the past few years. The scale of the borrowing is such that £220 billion will have to be raised this year by the sale of Government bonds. Suddenly, politicians are examining bond yields and trying to gauge the market’s reaction.

There is a fiscal stimulus as a result of the Pre-Budget Report and the latest Budget, for example through adjustments to tax credits and VAT. Darling also wisely ignored calls to cut spending now, at a time of deep recession when the economy will rely on the Government. Indeed, he boosted spending on unemployment and business support, such as via the new Strategic Investment Fund. However, the Chancellor signalled that spending growth would drop to 0.7 per cent in real terms between 2011/12 and 2013/14. That means cuts. The IFS estimates that if cuts were distributed evenly across Government departments, only International Development would see real spending growth. In practice, Labour will want to protect health and education. The IFS calculates that cuts yet to be announced could amount to £45 billion.

Darling also announced tax increases. We knew already that National Insurance contributions are set to rise by 0.5p in 2011. The Chancellor changed plans for a 45 per cent tax rate for incomes over £150,000 per year in 2011 by raising the rate to 50 per cent and bringing implementation forward to next year. Higher rate pension tax relief is to be tapered down to 20 per cent for incomes of £150,000 and over. Various duties were also raised.

The language of politics includes phrases such as “making tough decisions” and “hard choices”. They will be much more than phrases soon. So we need to focus now on what spending plans really matter. The Conservatives will face these hard choices, too, as we approach the next general election. Their priorities will be different.

The financial crisis may well have created a “progressive moment” for Labour, but being progressive does not mean being more relaxed about higher levels of debt unless it is essential. It will be about finding the right relationship between the markets and society. There will be little new money to help solve our social problems. Instead we will have to focus on changing the incentives in our economy and encouraging an increase in the productive potential of UK plc.

While the reaction to the Budget was almost universally pessimistic, it is possible to be too pessimistic. Simply because the IMF’s growth forecasts are below the Treasury’s does not mean the IMF is going to be right. Economic forecasting is notoriously inaccurate. In the current atmosphere, we embrace each item of negative news. That is not to discount the serious economic conditions. Yet we risk too easily forgetting that we remain much better off than ten years ago. The investment in public services has improved the lives of many, with new hospitals, new schools and shorter waiting times for operations, to give just three examples.

The Chancellor was right to give a sober account of the public finances. Labour must now focus on developing and communicating a bold progressive vision for everyone that is suited to these times.

Tribune » Blog Archive » Progressive moments in the age of austerity

Why politicians and economists should read Samuel Brittan on budget deficits

2009-04-25T18:47:00.002+01:00

Amidst all the understandable concern about the size of UK government borrowing, some perspective is required. Yes the figures are staggering. But it is worth reading Samuel Brittan's comments on the current fiscal situation, as I have argued before. This piece, in the FT last week, is well worth reading:

A long cool look at budget deficits
April 16 2009 22:04

The year 1992 was the last in which the Conservative party won a British election – to the surprise of most political pundits. It had some superficial similarities to the present. Public sector borrowing was on the rise and at its peak in 1993-94 reached 7.8 per cent of gross domestic product, regarded then as shockingly high.

FT.com / Columnists / Samuel Brittan - A long cool look at budget deficits

Brittan, writing before this week's Budget but with similar estimates for public debt, makes the point that we have had higher levels of debt in the past. He also argues that Norman Lamont managed to chart a course to improve the fiscal position over the years following the 1990s recession without damaging the recovery.

I suspect that for the moment, such calls for perspective on the current economic and fiscal outlook are going to be at best ignored, if not aggressively refuted. Alistair Darling is going to have to rely on time. It is unlikely that the outlook will suddenly appear all sunny and bright in a year's time but we might still have a less pessimistic vision of the future before us.

A dose of reality about those Q1 GDP statistics

2009-04-25T18:34:00.007+01:00

This piece in the FT today (first paragraph below) injects some reality into the reaction post the Q1 GDP data out yesterday. The data formed a first estimate of growth in the UK economy for the first quarter of this year. The national statisticians estimated GDP fell 1.9% in real terms, equating to a year on year decline of 4.1%.

Weak data dash Darling’s predictions
By Chris Giles in Washington

Coming just days after Alistair Darling delivered one of the bleakest Budgets in Britain’s history, the news that the economy shrank by 1.9 per cent in the first quarter thickened the storm clouds gathering over the chancellor.

FT.com / UK / Economy & Trade - Weak data dash Darling’s predictions

In fact, estimates are often revised as this article notes. And because we are talking about Q1 09, there will be little if any impact on estimates for tax revenue since those relate to the new tax year (April to March).

The politics of this week have been dominated by grim headlines and a general and pervading air of pessimism. That is not to say that the outlook is not incredibly challenging, just that there is a big difference between an economic forecast and reality and the reality is we don't actually know what is going to happen.

Debt relief, according to the biblical principle of jubilee, could underpin future budgets Comment is free guardian.co.uk

2009-04-25T00:03:00.002+01:00

Time for a jubilee budget?
We'll need time to say whether our chancellor did the right thing yesterday. Debt relief, according to the biblical principle of jubilee, might have been a good place to start

When is a budget a good budget? That is a difficult question to answer. A good Budget is perhaps one that is economically sound and has an ethical basis of some sort. The problem is that many budgets in the past which seemed good at the time turned out to be detrimental to the economy. In the same way, history regards some unpopular Budgets as containing measures which promoted the long-term health of the economy. Yesterday's budget statement given by the chancellor, Alistair Darling, will be remembered for some time. That is just as well because it may take a while to assess it properly. Good or not, there is little cause for celebration.

The backdrop is grim. Confidence dropped sharply throughout the world economy last autumn and the banking system came close to collapse. Businesses and households found that their access to credit was much reduced. The result was a severe drop in output across the world economy continued into 2009. Some forecasters are still revising their economic growth estimates downwards. The IMF forecasts the global economy to shrink by 1.3% this year, making this recession genuinely worldwide. Advanced economies are forecast to see GDP contract by 3.8% on average. UK GDP is expected to fall 4.1% which is significant but less than Germany (-5.6%) and Japan (-6.2%). Forecasts can have their own momentum of course, and often fail to predict turnarounds. The Treasury believes UK GDP will fall 3.5% but rise in 2010, putting it at the top end of estimates for next year.

The sharp slowdown is hitting tax revenues and is one reason why net borrowing in the UK is expected to peak at £175bn, larger even than the borrowing forecast in the pre-budget report (PBR) last year (£118bn). The recession has prompted the chancellor to produce a fiscal stimulus, with measures in the PBR and the latest budget. Yet the condition of the public finances means that taxes have to rise and spending growth has to slow sharply in later years. The room for manoeuvre in this budget was limited. We may prefer not to have started from here (though Germany, a less indebted economy, also faces serious problems), yet decisions had to be made.

Some would argue that a "good" budget in such circumstances is one that cuts spending dramatically and even raises taxes to balance the books. Surely, when people and businesses are paying down debt, the government should do likewise? Yet if we want debt levels in the business and household sectors to fall then government debt has to rise. If government was to take money out of the economy at this stage, businesses and families would be worse off. That is the simple equation but there is an economic case: when confidence is so low, government should step in. The alternative is a 1930s-style Great Depression.

The slowdown is throwing millions of people out of work around the world. Latest figures show unemployment in the UK running at 2.1 million. While the increase in unemployment in this recession is below the levels of the 1980s, the rise has been sharp and most forecasters expect over 3 million unemployed by the beginning of 2010. Unemployment is an awful thing to happen to people, their families, and communities. Aside from the loss of income there are other effects, such as poorer health, which Bank of England MPC member David Blanchflower has highlighted (pdf). The Church has long been concerned about joblessness. So a "good" budget will be one which tackles unemployment and poverty. Alistair Darling's statement does take some further steps in this direction, by guaranteeing a job or training place for those under 25 who are out of work over a year. He also announced more funds to help the Department for Work and Pensions give assistance to the unemployed and he made changes to the working tax credit to give support to those working fewer hours.

Could the Christian and Jewish principle of jubilee found in the Bible ever become evident in a budget speech? That would certainly be radical and perhaps a good thing. The Christian Socialist Movement is one organisation discussing how the jubilee principle could apply today. The jubilee laws were not anti-market. They assumed everyone had an equal stake in society (being equally valued) but that in practice economic relationships changed. Once every generation, and to a lesser extent every seven years, the economy was recalibrated and debts were cancelled. This principle of debt cancellation has been applied today to developing countries via successful campaigning. A "jubilee budget" might address how debt levels throughout the economy can be managed in future and how economic power can be better shared.

Stephen Beer: Debt relief, according to the biblical principle of jubilee, could underpin future budgets | Comment is free | guardian.co.uk

Labour must work to boost jobs - Tribune and Compass

2009-04-05T22:06:00.005+01:00

Sometimes some of us can feel that we have been here before. In 1975, with the British economy in trouble, Labour Government ministers and officials met executives of Chrysler in the United States to see if the car manufacturer's operations in Scotland could be saved.

Bernard Donoughue, the head of the Downing Street policy unit at the time, recorded in his diary that the Government was determined to be a tough negotiator.

However, the pressures were too great. Donoughue wrote: "More public debt was used to bail out an American multinational to provide more car capacity than we need - contrary to our industrial policy." Yet the decision was judged the least worst option, given the alternative of deterioration in the terms of trade and an immediate increase in unemployment.

Such are the pitfalls that await ministers attempting to help struggling industries in downturns. Making the right decisions is not easy, especially when thousands of jobs are at risk. The car industry has requested help in the downturn and other industries are suffering, too.

Their requests contrast with the billions of pounds of support for banks and the £150 billion of "quantitative easing" - effectively, printing money. While the quick action taken to rescue the banking sector last year arguably saved our economic system from collapse, there is still more to do. At the same time, rising unemployment presents us with a new challenge. Labour needs to be proactive in its approach.

The latest news on unemployment is grim. Figures released last month showed that unemployment rose to more than two million for the first time since 1997 - a rise of 421,000 over the year. The unemployment rate was 6.5 per cent in the three months to January - an increase of 1.3 per cent over the year. The claimant count - those claiming Jobseekers Allowance - rose by 138,400 in February. That was the largest monthly increase on record, going back to 1971. The claimant count rose by almost 600,000 people over 12 months.

Unless economic confidence returns soon, companies will continue to face tough trading conditions leading to more redundancies. Employment data tends to lag behind business conditions. Other measures are being tried, such as pay cuts, in attempts to retain valued and skilled labour. Wage inflation is declining. It is highest in the service and public sectors.

The previous two recessions, in the 1980s and 1990s, offer some guide. In 1984, the unemployment rate rose to 11.9 per cent - or 3.28 million people. In 1993, it peaked at 10.6 per cent or 3.03 million people. It feels as if jobs are being shed much more quickly this time, but the claimant count is at or below the same levels as at the equivalent period in the dark days of those earlier recessions.

This provides some context, although this downturn has been caused by a financial meltdown which makes it unique. As the financial sector contracts, so does the economy in the absence of countervailing forces. Financial stability has yet to be restored, which means that deflationary forces may yet prevail. In the past few months, the world has seen a sharp deterioration in economic activity. Draft forecasts from the International Monetary Fund last month were reported to show that Britain's gross domestic product, which was forecast in January to drop 2.8 per cent in 2009, was expected to fall 3.8 per cent this year and fall by 0.2 per cent in 2010. Official revised predictions have not yet been published.

So the outlook for jobs remains poor and uncertain. Unemployment is likely to rise over 10 per cent, with more than three million people out of work. Of course, this is bad news for the individuals and families affected. It also has implications for the economic prospects of the whole country.

As David Blanchflower, a member of the Bank of England's monetary policy committee, stated in a speech in Cardiff last month: "As redundancies rise and house prices fall, more British households will face the grim prospect of experiencing both unemployment and negative equity in their homes. Forced selling in the housing market could lead to further downward pressure on house prices, pushing more households into negative equity. In this case, mortgage arrears and defaults will arise, putting further pressure on the financial sector."

Blanchflower argued: "Any fiscal stimulus that is being planned should be concentrated on maintaining employment and sustaining labour demand, perhaps through expansions of public sector employment where appropriate."

In an earlier speech, Blanchflower outlined measures he believed should be considered. These included raising the school leaving age to 18, investment in "shovel-ready" infrastructure projects that can create jobs, a boost for funding for the public and not-for-profit sectors for a couple of years, and an additional fiscal stimulus worth up to £90 billion.

Additional Government borrowing has to be managed carefully. In any event, it will rise with the "automatic stabilisers". In times of recession, welfare benefits increase and tax revenues decline - which together act as an economic stimulus.

It is here that the Tories are being particularly irresponsible. Borrowing should increase in such a slump (including discretionary borrowing), so we can avoid a financial collapse leading to full-scale depression. The Conservative response is to raise the stakes on Government borrowing. It is difficult to know if this is driven by a belief that now is the time for the Government to tighten its belt (which would be near economic suicide) or by political calculation. The evidence for a well-thought-through Tory approach to this crisis is hard to find. To those facing redundancy, David Cameron's Conservatives have little constructive to say.

Labour must ensure it has a comprehensive strategy to boost employment that is easy to explain to people. There should be four elements. First, the newly unemployed should have a clear route to benefits and advice. For a start, the Jobcentre Plus website could be improved. Second, policy towards family and communities should be adapted to deal with rising unemployment. The boost to child benefit is a step in the right direction. Third, a clear and rigorous approach to bailouts is needed.

Fourth, serious and fast consideration should be given to measures such as those advocated by Blanchflower.In the modern economy, where there is such a premium on skills, it will not be easy to establish the Government as "employer of last resort" - desirable though this is.

However, the Government can get close by ensuring measures to expand demand are focused where there will be maximum impact on employment. A working person will contribute to economic growth. It makes more economic sense to have a person in work, even paid for by the taxpayer, than unemployed.

This will continue to be a year of difficult choices and high economic stakes. It is not easy to make policy when events are unfolding so quickly. Pressure for Government interventions will remain. It is quite possible that quantitative easing will start to get the economy going again this year. Still, at the next general election people will want to see that Labour has a clear and bold strategy in place to combat unemployment. We must not let them down.

Compass » News » Labour must work to boost jobs says Stephen Beer

This article appears in Tribune this week.

The G20 agreement: a good first step but the debate about market values continues

2009-04-04T16:00:00.003+01:00

Despite worries it would fail, the G20 London Summit has finished with an agreement to do more to help the world economy. The world’s poor were not forgotten. There will be more to talk about and do in the months ahead.

The world economy is facing a significant slowdown. The OECD forecasts that on average GDP in its member countries will fall by an average of 4.3% this year. The US is forecast to see GDP fall 4.0% and UK GDP is predicted to be down 3.7%. Such a rapid fall in income does not come without costs and unemployment is expected to rise above 10% in many industrialised countries. For the UK, that would mean over 3 million unemployed (from around 2 million now).

Meanwhile, the drop in demand in the richer countries is impacting the poorest in the world. While food prices have held up, demand for metals and other commodities has fallen. Demand for manufactured products is also dropping. This is affecting the job prospects of millions. Moreover, countries do not receive the tax revenues from extractive industries that they have become used to.

The financial system remains in a fragile state and governments have to continue to take action to support banks and help them deal with ‘toxic’ assets. This is the first step to restoring economic confidence. There are some early signs that confidence, while subdued, has at least recovered from the lows of a few weeks ago but this needs to be sustained. In addition, governments need to take action to stimulate their economies.

The Summit did not announce a fiscal expansion beyond what governments are already putting in place but leaders did agree a programme to help support the global economy worth $1.1 trillion. This represents an additional $500bn available to the International Monetary Fund (IMF), a new allocation of Special Drawing Rights worth $250bn, a boost to trade finance worth $250bn, and extra lending by Multilateral Development Banks worth $100bn. IMF gold sales will also be used to help provide finance to poor countries ($6bn). These combined funding measures are not going to be pumped into the global economy immediately but will stand ready to be used and even its existence should help increase confidence.

Leaders agreed to resist trade protectionism (and so avoid repeating a mistake made during the Great Depression in the 1930s) and announced measures to improve the regulation and transparency of financial institutions and markets. They restated their commitment to meeting the Millennium Development Goals, achieving increases in aid budgets and further debt relief, and to creating green jobs.

The fact that the leaders seemed to agree at all will probably help sentiment. However, there was little in the final communiqué about the values that Gordon Brown and Australian Prime Minister Kevin Rudd talked about in St Paul’s Cathedral earlier in the week. They would probably argue that the Summit agreement represented first steps in putting those values into practice. Besides, as President Obama noted, more than one meeting is required to solve the problems facing the global economy. This summit was never going to come up with a blueprint for the reform of the global market economy. It could have done much damage had it failed: instead, it was part of the solution and the debate about what kind of society and market economy we want continues. Nevertheless, what matters now is the actions taken once the leaders have returned home.

An article I have on the CSM website.

We need values to underpin the way we conduct market activity (Comment is free, Guardian)

2009-04-01T23:32:00.002+01:00

The financial crisis has prompted a rethink about the values that should underpin our global economic system. This was the theme addressed by the prime minister, Gordon Brown, and Australian prime minister Kevin Rudd yesterday, at an event at St Paul's Cathedral. The first in a series of debates on the theme of "money, integrity and wellbeing", the prime ministers were invited to speak on the subject of "My word is my bond? Rebuilding trust – the G20 and beyond."

That London Stock Exchange motto – "My word is my bond" evokes visions of a golden age. Perhaps people have in mind the world described in a series of BBC documentaries made in 1964. Trading itself still takes place on this underlying principle, albeit with better checks and regulations. Problems arose from what was actually traded and how it was marketed: the risks taken were so extreme that they threatened the entire financial system. Moreover, there appeared to be a growing gap between rewards and sustainable performance. A part of the financial sector seemed to be detaching from the rest of society yet has since required billions of dollars of support.

The prime ministers were speaking on the eve of the G20 London summit and against a backdrop of a deteriorating world economy. For example, on the same day the OECD published a new set of economic forecasts. These predicted GDP would fall 4.3% on average across OECD economies this year, with the US down 4.0% and the UK down 3.7%. Both PMs acknowledged this immediate economic crisis and the human costs. Their contributions encouraged some hope while also illustrating the challenge that faces any attempt to remake the world economic order.

In his speech, Gordon Brown outlined his belief that "Our financial system must be founded on the very same values that are at the heart of our family lives, neighbourhoods, and communities." Families do not reward the taking of irresponsible risks. Most private businesses also understand responsible risk-taking, which is very different from the bets which nearly brought down the financial system or the rewards associated with them. These values found in families and much of the private sector must be brought to the market.

Brown identified the relevant values as hard work; taking responsibility, being honest, and being fair. A global ethic is possible, he argued, because "a single powerful moral sense demanding responsibility from all and fairness to all" runs through the many traditions and faiths. Loving your neighbour as yourself (and the equivalents across faiths) means we also have a responsibility to help the poor and deal with climate change.

Prime minister Kevin Rudd noted that "something almost audibly cracked" in the public's trust in financial markets last September. A rebuilt economic system is required in which all can have trust. A proper balance between markets and government has to be restored. Values such as security, liberty, and prosperity have to be combined with the values of equity, sustainability, and community. We will avoid a 1930s-style depression if we rebuild a values-based system and have the courage to act together.

Talking about values is the easy part. Actually agreeing on which values matter and putting them into practice is more difficult. Faith groups can certainly help find common ground. Ultimately, we all need to think about what kind of society we want in future. It is less about obtaining a balance between government and markets than ensuring a more equitable participation in the market system and working against inequalities. Inequality and poverty have declined in general during periods of globalisation (including open markets and more trade) but where serious inequalities arise they should not be ignored. We need to rediscover RH Tawney's point that people need economic freedom alongside civil liberty. Power, whether political or economic, needs to be accountable in some way.We should be encouraged that Brown and Rudd are talking about markets and values going into the G20 meetings.

We should be realistic about the challenges involved in restructuring the global economy but not cynical. It is right to make the attempt to reconnect markets with values. Once we have agreed on which values matter, regularly referring to them (like a stock exchange motto) and acting upon them would be a good start.

Stephen Beer: We need values to underpin the way we conduct market activity | Comment is free | guardian.co.uk

Why UK should not fret about national debt - Samuel Brittan Financial Times 27/03/09

2009-03-31T20:59:00.002+01:00

This piece, in the Financial Times last week, from Samuel Brittan puts the national debt situation in perspective and is worth a read by policy-makers (first paragraph and a bit plus link below).

Why UK should not fret about national debt Samuel Brittan Financial Times 27/03/09

Some characteristically cautious words by Mervyn King, the Bank of England governor, about fiscal stimuli have been hysterically seized upon by the nation's Conservative press. The central bank chief said that the automatic stabilisers that "kick in" during recessions (such as increased benefit spending and lower tax revenues) "are bound to lead to higher fiscal deficits for the next two or three years ... and it doesn't make sense to try and offset that". He added, however, that, given the very large deficits expected, it would be sensible to be cautious about further discretionary fiscal stimuli. "That's not to rule out targeted and selective measures that can do some good."

But at the risk of lèse-majesté, I have to say that while there may be a good many reasons to think twice about a further stimulus in the forthcoming UK Budget, the size of budget deficit or the associated national debt is not one of them.

Why UK should not fret about national debt - Samuel Brittan Financial Times 27/03/09

Tribune: Summit stakes could not be higher as slump spreads

2009-03-29T22:08:00.003+01:00

Amid the battle to prevent a global depression, never have so many economies expected so much from so few people as next week when the leaders of the G20 meet in London. Yet, despite such Churchillian echoes, never have the prospects for disappointment seemed so sure. Almost two years since the financial music stopped, the world is on the brink of the worst slump since the 1930s. Our leaders have already moved on from talking of spending billions to expending trillions of dollars to get us out of this mess. Now, in the space of a few hours on April 2, they must do more.

The International Monetary Fund believes world productivity will shrink for the first time in 60 years, falling between 0.5 per cent and 1 per cent in 2009. In the advanced economies taken together, growth of gross domestic product is forecast to be as much as 3.5 per cent this year, compared with 2.6 per cent for the United States alone and 3.2 per cent in for eurozone countries. The January forecast that Britain’s GDP will fall by 2.8 per cent could be revised downwards.

This is no ordinary slowdown. Toxic assets are weighing down balance sheets, making banks reluctant to lend. Together with a widespread drop in demand, this has led businesses to cut jobs and salaries as they pare back. The threat of deflation looms. Governments are responding by trying to restore financial stability, by boosting the money supply through quantitative easing and by borrowing and spending or cutting taxes.

The size of the discretionary fiscal measures varies from country to country. The International Monetary Fund estimates that British action this year represents 1.4 per cent of 2007 GDP but we are projected to tighten policy in 2010. This will surely change with the April Budget. US fiscal action this year represents 2 per cent of GDP and next year will be almost the same. The hope is that governments agree to take further action together. However, it seems not all governments take the same view – so raising the stakes for next week. The total stimulus to date is less than the 2 per cent of GDP the G20 committed to in November.

Tomorrow (Saturday March 28), church groups, NGOs and trade unions will march together in London under the banner of a G20 manifesto called Put People First. It calls for a “massive investment in a green new deal” to create new jobs. It also puts pressure on governments to maintain their commitments to help the world’s poor.

The IMF summit briefing notes that developing economies are particularly vulnerable in the crisis, as investors perceive them as higher risk.The IMF and its civil society critics seem closer, calling for a more transparent and effective governance of the financial system, further reform of the IMF and World Bank, and agreement that further fiscal measures are necessary.

However, Put People First appears to be suspicious of further action to remove trade barriers. The 1930s depression was exacerbated by the erection of tariffs and import controls as countries sought to protect their economies. Such actions made things much worse: we risk repeating that history.

The summit will be no Bretton Woods mark two. Nevertheless, with a bit of leadership, the G20 should be able to co-operate on fiscal measures, and on more and fairer trade. It has the potential to improve economic confidence. The stakes are high indeed.

Tribune » Blog Archive » Stephen Beer: Summit stakes could not be higher as slump spreads

Memo to Tony: piety is not enough - Comment is free guardian.co.uk

2009-03-23T22:50:00.003Z

Tony Blair's Faith Foundation should not encourage a mushy 'faith in faith'. We must be realistic if we want to curb the destructive power of religion and harness its good

Tony Blair last week wrote that, free from the constraints of office, he is now able to engage with faith issues in public. In his New Statesman article, he referred to his time as prime minister and Alistair Campbell's statement that "we don't do God". When he did mention his faith, Blair noted, "it tended to be misrepresented to serve the political purposes of others." He is now working on a number of projects to promote greater understanding of the role of religion, through his Tony Blair Faith Foundation. Blair is right to highlight the role that religious belief plays in our world. A deeper appreciation of the different faiths is important and may even help us develop a global ethical approach to world problems. However, the key is to encourage better quality relationships between people, whatever worldview they hold.

For Blair, the forces of globalisation have brought different faiths together but different outcomes are possible. Religion can help deepen understanding and work for the common good, or it can be exploited to emphasise difference in destructive ways. Blair suggests that 'Religious faith – and how it develops – could be of the same significance to the 21st Century as political ideology was to the 20th Century.'

There does seem to be an increasing recognition amongst leaders that faith has to be factored into world affairs. Blair echoes former US Secretary of State Madeleine Albright who wrote in 2006 [in The Mighty and the Almighty] that the terrorist attacks of 11th September 2001 had helped change her approach to faith issues: "Diplomats in my era were taught not to invite trouble, and no subject seemed more inherently treacherous than religion." With religious movements flourishing alongside forces of globalisation she concluded, "I have come to realise that it may have been I who was stuck in an earlier time…"

Understanding the role that religious belief can play in local and global politics is both vital and also simple common sense. Blair wants to go further and help ensure faith is a force for good rather than the reverse. He believes that the "great faiths" can together forge common approaches to ethical problems, most immediately to help reconnect the financial system with some "basic values". He seems to be searching for a global ethic to develop with globalisation along the lines proposed by Hans Küng, a Swiss Catholic priest and theologian at the University of Tübingen whom Blair has admired. Küng has argued that a global ethic should centre on a commitment to humanity and truthfulness, with a sense of responsibility. One of the greatest challenges is surely to apply such an ethic to prevent armed conflict between nations and people.

This sounds all well and good but any inter-faith dialogue risks missing the point unless the differences between the faiths (and any other wordviews) are recognised. There is common ground on some of the ethical outcomes but no faith can downplay its central beliefs. For example, one faith believes Jesus is the Son of God and dealt with sin through dying on a cross and rising again to life, while others believe he is not and did not. Such contrasts should not be politely ignored but they can be politely acknowledged and even debated. Putting religious leaders together in a room and chatting convivially can seem like progress, especially at a global or Davos level, but such dialogue must start by recognising and respecting the differences before finding the common ground. Otherwise all such inter-faith dialogue is preaching only to the converted and will bypass most believers.

World faiths are often driven by their core beliefs to work for the 'common good', often leading development in communities. Blair is right to encourage practical projects on which people of different faiths can work together and get to know each other that way. He might also focus on ensuring international development agencies and political bodies increase their own understanding of religious beliefs and practices. His projects should avoid promoting "faith in faith" as such, since it matters where you place your faith. They have potential if they focus on encouraging better and deeper relationships between people around the world.

Stephen Beer: Tony Blair recognises the importance and danger of faith | Comment is free | guardian.co.uk

On the Guardian website today.

Brown in Washington - can we learn the political lessons from Japan?

2009-03-03T07:43:00.003Z

Gordon Brown arrives in Washington today to meet President Obama. They will spend a great deal of time no doubt talking about the G20 summit in London in April. That summit is a great opportunity for world leaders to coordinate responses to the current economic crisis.

Many commentators have looked back to Japan in the 1990s. Japan is argued should have dealt with its banks - its 'zombie banks' which remained in existence despite high bad debts - much more quickly than it did. Yet perhaps leaders around the world are realising now that when you are in the midst of a crisis, where the outcomes are uncertain and you are not sure how pessimistic or optimistic you should be, it is much more difficult to take bold action than a study of history sometimes suggests.

In the middle of events it takes a special effort to see the situation clearly, and then to ensure the collective political will is sufficient to take action, since there will always be costs attached to the options available (including doing nothing).

Perhaps we do need another John Maynard Keynes - an erudite economist with a grasp of the situation, working closely with government as Keynes did in the Bretton Woods negotiations.

Unemployment must now be Labour's top priority - Guardian online article

2009-03-03T07:42:00.003Z

This piece was published on the Guardian website yesterday. I firmly believe we (Labour) need to plan for bold action to tackle unemployment now given the outlook for jobs. I was referring to past and ongoing government actions to rescue the banking system (which have to date saved the market economy from collapse, which is not the same thing as avoiding recession). That was the sense of the original article: not suggesting it was all done and dusted. My point is that there is an additional major challenge which must be faced now in a bold and comprehensive manner ie fast rising unemployment.

Jobs to do

Labour has rescued the banking system. Now it's time to tackle the spectre of rapidly rising unemployment

Stephen Beer guardian.co.uk, Sunday 1 March 2009

Rescuing the banking system from collapse was vital, of course - and we should probably give ministers more credit for saving the economy. Meanwhile, many on the left have been devising new policies backed by increased government spending. Yet a large problem remains to be tackled: unemployment, which could well exceed the levels seen in previous recessions. Labour needs to ensure that a recession under its watch will be different from those experienced under the Conservatives.

David Blanchflower, a member of the Bank of England's monetary policy committee, gave a speech on the subject this week at Stirling University. Unemployment tends to lag changes in GDP, which is why when growth picks up we can appear to have a "jobless recovery". But this recession might be different. Jobs are being lost rapidly and almost in line with changes in GDP. Blanchflower believes that unemployment could rise to "close to 10% by the end of 2009", with perhaps over three million unemployed by 2010. That means joblessness will match levels last seen in the early 1980s and 1990s. In 1984, the unemployment rate peaked at almost 12% and rose to almost 11% in 1993. At the end of last year, it was 6.3% and rising.

High unemployment can cause a downward spiral of forced house repossessions leading to falling property prices and more negative equity, with consequences for the banking system. It also threatens the good work done to fight poverty and reduce inequality. Despite Jesse Norman's pessimism, there have been real gains in this area. Indeed the joint LSE and Joseph Rowntree study he quotes suggests income inequality and poverty would have risen rather than decreased had Labour not acted – with the gap between high and low incomes much wider.

The negative impact of unemployment is pervasive. As Blanchflower said, it is linked with "malnutrition, illness, mental stress, depression, increases in the suicide rate, poor physical health in later life and reductions in life expectancy." It can lead to higher crime rates, particularly theft. Blanchflower emphasised the damaging impact it can have on young people, often leading to lower wages in later life.

Labour has to do everything it can to limit the rise in unemployment. This will not always mean bailouts. Much money was lost in the 1970s throwing good money after bad, with workers still being made redundant. Blanchflower proposes an Obama-style fiscal stimulus (equivalent to £90bn) and policies to keep young people in education until the age of at least 18. He advocates investment in "shovel-ready" infrastructure projects, which will come with jobs, and a boost in funding to the public and non-profit sectors for two years so they can fill job vacancies. He also suggests tax incentives to encourage job sharing. I believe government should also be the "employer of last resort".

Ministers should read Blanchflower's speech: Labour must make it clear now what we will do to address the challenges people will face in the months to come. A Labour government must be both radical and proactive when it comes to fighting rising unemployment.

Stephen Beer: Unemployment must now be Labour's top priority | Comment is free | guardian.co.uk

We still have more to do to tackle this recession

2009-02-23T23:05:00.006Z

While there seem to still be new financial and economic events to respond to each day, so that it is difficult to keep track, we need to do some thinking pretty quickly to get ahead of events as best we can.

Labour's National Policy Forum meets in a few days. That will provide a useful forum for the Party to address the challenges before the country. However, delegates will need to think afresh, not about Labour principles of equality and social justice, but about cherished policies they may have been pushing for months.　The world has changed.

While we will probably need to focus on how more local organisations can deliver some of the ends we seek, heading down the track towards us is most likely a rapid and significant increase in unemployment. What is the strategy to deal with this, however temporary it may be?

Are we in Labour prepared for government to pay people directly to work, if they cannot find work elsewhere? Where are those green jobs we hope will attract people? We need to get going on these policies. It is bad enough having to work shorter hours or accept pay cuts, but being out of work is much worse. A Labour government should approach a recession in a noticeably different way to a Tory government - the approach to unemployment should be a key element in this.

Government as employer of last resort

2009-02-09T22:52:00.005Z

Will Hutton writing in yesterday's Observer makes the point that government should employ people directly to help develop a better society, rather than remain in dispiriting long-term unemployment. This echoes the case I made last month, writing for the Fabian Society.

All political parties are behind the curve at the moment on what to do if another million plus become unemployed. Incremental measures will not be enough - certainly not enough for a Labour government.

Two comment pieces worth reading today

2009-02-01T17:08:00.002Z

Worth reading today, both from The Observer:

The limitations of Conservative Party policy on and understanding about the economic crisis exposed by Will Hutton in an exchange with David Cameron.

Andrew Rawnsley on social unrest in economic slowdowns.

Recent reading for politicians thinking about our economic future

2009-02-01T12:50:00.004Z

Three articles in one day (29 Jan) in the FT provide some useful reading and opinion about the current financial and economic crisis:

Samuel Brittan puts concerns about deflation in context; also here.

George Magnus injects some sobriety into debates about the outlook for sterling and argues for a bad bank to be established.

Lasse Pedersen and Nouriel Roubini argue that in future banks should be regulated - and should buy insurance based on - a measure of their systemic risk (ie impact on the whole financial system) rather than individual risk.

At the Inauguration

2009-01-24T15:16:00.009Z

It was freezing cold but the spirits were warm. Inauguration week in Washington DC was something special. From the Inauguration concert on the steps of the Lincoln Memorial to the ceremony itself, the event was celebrated by people from all backgrounds. It felt it was a privilege to be there and share it with them.

The atmosphere in Washington was one of excitement and I could sense a real lightness of spirit. Americans kept apologising to me for the past eight years. Yet the mood was tinged with realism: there are many challenges ahead and they won't be solved over night, even with a new President of hope. Barack Obama made that clear in his Inauguration speech (and his speech to the Inauguration concert on Sunday evening) and it didn't come as a surprise to people.

Obama took campaigning to a new level, which by mobilising the grassroots (and learning from the experience of Howard Dean's campaigning) resonated with vast numbers of people not usually energised by politics. The next challenge is to maintain that coalition while in government. The White House website has been changed to reflect the new style but the test will be whether the interaction with supporters can be maintained in terms of meaningful conversations.

As I left Washington DC, I wondered what we should learn in the UK about how politics may be changing.

Tackling inequality - my idea for the Fabians

2009-01-16T07:30:00.001Z

The Fabian Society is holding its New Year conference this weekend. It has asked contributors to suggest ideas for how to 'make the recession fairer'. My idea was as follows:

We are fooling ourselves if we believe government policy amidst this financial crisis means that there will be a new wave of funding for the projects and goals we want to promote. Recessions mean we do not just talk about hard choices; we actually have to make them. The main political challenge facing us looks likely to be high unemployment. With rising unemployment comes job insecurity, higher probability of family breakdown, risks to social cohesion and implications for equality. We have very little time to get this right.

Moreover, much unemployment will be in financial services and high skilled manufacturing. The new unemployed will have high expectations of the help and service they receive from our job centres. We must meet those expectations.

In the last two recessions, unemployment reached three million. It may well double this time around and so reach the same level. If one of the worst case scenarios occurs, it could rise further. This is because at present businesses are being starved of credit as a result of the worldwide collapse in financial confidence and overall demand is also affected.

We are taking action in government to address this issue and more radical action is likely in the months to come. The forecasts for government borrowing will rise further. The government is trying to both help get credit markets working again and stimulate the economy. However, as tackling unemployment becomes our main political goal, we may find that trying to boost overall demand in the economy is no guarantee that more jobs will be created. The last recession was different, but for a time there was talk of a ‘jobless recovery’. That could happen again.

Increasing government borrowing to boost overall demand (eg via tax cuts or more government spending) is probably not what Keynes would have focused on except in a depression. As Pavlina Tcherneva, of the Levy Economics Institute, has shown, a genuine Keynesian solution would focus on raising demand for jobs.

Government should become ‘employer of last resort’, just as the Bank of England is lender of last resort. Government could employ people directly through dedicated agencies, working for start-ups or voluntary sector projects. Incentive schemes to encourage employers could also be considered. As the economy picks up, it will become worthwhile for people to leave government employment for higher paid work.

In this way, people keep their skills fresh and add to their experience. New businesses that need usually expensive labour can afford it. The voluntary sector will receive help at a time when giving is under pressure. And the economy will receive a growth boost.

Andrew Rawnsley, investment, and Keynes

2008-12-15T22:42:00.002Z

If we're going to spend, then let's invest in Britain's future

Rather than encourage people to squitter money on imports, the government should build us an infrastructure fit for this century.

Andrew Rawnsley
The Observer, Sunday 14 December 2008

Andrew Rawnsley: If we're going to spend, then let's invest in Britain's future | Comment is free | The Observer

This article by Andrew Rawnsley in the Observer today argues for classic Keynesian investment spending, on the grounds that it will benefit the economy in the long term as well as the short term.

A popular way to look at this Keynesian solution is to see an investment gap in a downturn where the private sector is not investing. Government, it is argued, should step in and fill the gap. One issue this raises is what happens in the next period? The investment has raised the productive capacity of the economy - which could mean there is a larger gap! But dedicated Keynesians would probably argue this is in fact not actually a very dynamic way of interpreting the General Theory.

I believe there should be a focus on investment spend - as long as it helps keep unemployment down. The key focus for policy should be employment.

Sunday reading on the financial crisis

2008-12-15T22:40:00.000Z

Spend or save? Free-marketeers and the Keynesians row over the road to salvation

Will Hutton
The Observer, Sunday 14 December 2008

It is one of the most undiplomatic and swingeing criticisms of a fellow European government by another that I can remember. The description by Peer Steinbrück, Germany's Social Democratic finance minister, of Gordon Brown's switch from conservative free-market policies 'all the way to crass Keynesianism' must have had Brown spitting blood.

Will Hutton: Free-marketeers and the Keynesians row over the road to economic recovery | Business | The Observer

Worth a read from yesterday's Observer.

Labour policy and the PBR

2008-12-11T21:43:00.000Z

The Pre Budget Report (PBR) - it was only presented on 24 November and already it seems a long while ago. But what are the political implications for Labour post PBR and amidst recession?

Reality has in fact yet to properly sink in regarding the scale of what has been happening. Apart that is from the perspective of key policy-makers in government (certainly not the Conservative Party), a few outside government, and many in the City.

A sign of this is the recent batch of speeches and articles heralding a return to 'normal' Labour politics. It is certainly true that the Tories are finding themselves boxed in, playing out nasty-party politics again. But from a Labour point of view, just because we have suspended the fiscal rules and will be hiking spending and debt does not mean we can suddenly spend money everywhere and resurrect policies that seem to herald from the 1970s.

The reality that has to bite is that unemployment is rising and will continue to do so for some time. This is not a simple slowdown, because the banking system is still not working properly. Banks are not lending to businesses at normal interest rates, if they are lending at all.

The policy framework has to adjust for a period of rising unemployment, as I argued here. And the policy narrative has to change too, as I argued in April and January this year.

Ministers, especially those in economic posts, certainly seem to get this and you can sense the tone has changed. There is still a lot of firefighting to be done of course and it must be difficult to chart long term policy positions while dealing with more immediate problems such as banks in trouble or businesses complaining about lack of funding. That's where the Party and its policy forum need to come in and show they get the new scenario too.

The Conservatives will face a difficult time internally if unemployment rises significantly because they have committed to a policy position which eschews intervention beyond the 'automatic stabilisers' ie when borrowing rises in recession because tax revenue goes down while benefit payments go up. They will feel the pressure as they will have little to offer people. They will be trying to shift the blame for rising unemployment on Labour and at the same time highlighting examples they believe they have found of wasteful government spending.

Can we begin to sketch out the beginnings of a Labour recession policy framework?

For a start, it will not throw out economic lessons we learnt over decades. There will be a limit to how much good money can be thrown after bad. Except in a deep slump, there is no evidence to suggest that attempts to boost aggregate demand by tax cuts and more spending will lead to the outcome we will all judge most important - reducing unemployment. It might be cheaper to employ people directly through a government agency.

We will face a choice later on of whether to 'muddle through' a recovery that will take time or help shift the balance of economic incentives in favour of (job producing) enterprise, even though hard choices may be involved.

More people will focus on state provision, both in education and health. That will provide challenges but also echoes of the late 90s when most agreed our public services needed investment.

People may also come to value communities more, especially when facing the threat of redundancy. Policy should encourage the building of better quality relationships between people.

It's a good start – but the Runnymede Trust needs more evidence to backup its prescription for faith schools | Comment is free | guardian.co.uk

2008-12-06T19:17:00.003Z

The Runnymede Trust report on faith schools, Right to Divide?, is a useful contribution to the debate but it is by no means conclusive. The authors note that discussions "on the role of faith schools and their effect on community cohesion often create more heat than light". The report is therefore welcome not least because of the consultations involved. However, the links between the anecdotal evidence it summarises and its recommendations are not strong enough.

Stephen Beer: It's a good start – but the Runnymede Trust needs more evidence to backup its prescription for faith schools | Comment is free | guardian.co.uk

There has been relatively little rigorous work done on the impact made by faith schools, whether on educational attainment or community cohesion, however defined. That is the first problem with this report, since it is not clear how accurate any generalisations can be.

The state has to be neutral in matters of belief, while not denying our Christian heritage or the identification by most people with Christianity (a fact acknowledged by the report). It needs to chair the public discourse in a fair manner. Yet people, including young people, do not start from a seat on the fence. Even if agnostic, in practice we will live according to one worldview or another. One purpose of education is to help us understand our own worldview, and to compare it rationally with others.

Right to Divide? worries that faith schools may be too authoritarian, though it gives little supporting evidence. Yet it argues for schools that support liberal democracy and celebrate diversity. The report is right to insist that principles of equal worth must be upheld by all schools. There is no place for discrimination. That is a deal the state makes with faith schools, as part of a "licence to operate" and it must be adhered to. I agree wholeheartedly while noting the report's authoritarian position on this point. Indeed, most faith schools can give clear reasons why we should uphold such moral values, which a "worldview-neutral" school will find hard to do.

Most other schools in practice probably avoid serious engagement with faith, as suggested by the report. Better Religious Education lessons might help, but are not sufficient. In a liberal, secular (but not anti-faith), democracy, an ideal model would be a school which is neutral regarding worldviews, supportive and protective of young people with different outlooks, and which equips them with tools to analyse ideas and faiths around them.

We should ask therefore why some parents feel that their children's faith will be undermined by non-religious schools, before they have acquired the skills to critique their own beliefs and those of others. It is probably because they do not believe other state schools are anywhere near that ideal. In a democracy, we must take these concerns seriously.

Most faith schools are Church of England or Roman Catholic. Apart from Northern Ireland schools, in general it is hard to suggest that over the decades these schools have acted against social cohesion. They may appear anomalous but that does not mean that they or new schools should be forced to end selection on the basis of faith and certainly not without firm evidence that the change would be of benefit. Faith schools may even promote inter-generational bonds. They may also foster social cohesion because people of faith often better understand people of other faiths, even where there are fundamental differences.

The report would have benefited from more analysis of the differences between schools which select according to faith and those which have open selection but are run according to a faith ethos. The latter, in the form of some of the new academies, offer an interesting model. It may be that over time they will provide useful examples of how to engage students of all worldviews, from the starting point of one worldview. They focus on disadvantaged areas, in line with a recommendation of the report.

At worst, in this democracy, faith schools are symptoms of the failure of the state-school system to appreciate the role faith perspectives have in society. That is where we should focus our efforts.

The Pre Budget Report one week on - economics and politics

2008-11-30T15:24:00.004Z

Talk to anyone who works in the City for more than a couple of minutes and you will find a metaphorical black cloud of gloom will descend over the conversation. Your companion will be telling you he or she has looked into the future and before you his or her face will indeed appear to have been affected by the experience. For such has been the shift from high optimism to high pessimism (the outcome is of course uncertain). Into this atmosphere was launched the UK's Pre Budget Report (PBR) on Monday 24 November.

A week has passed and some of the dust has settled. It has been clear to me that this was onlyt the first fiscal stimulus - Alistair Darling appears to suggest the same in the Observer today. That is a reflection of reality, not failure. The UK will not be alone. In any event, the measures in the PBR must be given time to work before we can know for sure.

The Chancellor announced in the PBR statement that over a year and half, the government plans to inject £20bn into the economy. This will be in the form of various measures, the most headline-grabbing being the cut in Value Added Tax (VAT) from 17.5% to 15%.

Other measures include bringing forward increases in pensions and child benefit payments to January. In fact, this measure should not be underestimated because it will effect those with a relatively high propensity to consume (rather than save) increases and those rises will be based on an inflation adjustment which itself is taken from the Retail Prices Index as at September, which saw a level above 5% which we will not see again for some time.

The government will also bring forward some spending plans.

But the PBR has not had a sudden positive impact on sentiment, nor on Labour's opinion poll position. In part this has been because the plus points were leaked in advance of the statement, so focusing attention on the negatives. Moreover, there is some scepticism about the efficacy of a VAT rate cut, which appears rather insignificant compared to 10%-plus discounting by retailers. That does ignore the fact that it amounts to a £12bn injection into the economy but that will not be experienced on an individual level.

The PBR also contained a road map for paying for this stimulus. It does not make for happy reading. Taxes will have to rise when growth resumes (which the government forecasts will be in 2010 and beyond, at reasonably high growth rates). The new upper rate tax of 45% for incomes over £150,000 will contribute, as will the 0.5% increase in National Insurance (effectively income tax). What also makes for grim reading is that government spending growth will be at much lower levels than previously forecast. In addition, the government plans to make savings; if these cannot be found some hard choices will have to be made about spending priorities. It is by no means certain that the full implications of this have sunk in around Whitehall.

But where the PBR chimes in with City pessimism is that the start position of the economy has been revised. It is not just that we might wish we hadn't started from here. It is that we are starting from somewhere completely different to where we thought we were. The Treasury has revised upwards its estimate of the structural deficit - ie some of the deficit that was assumed to disappear with higher growth (some of the 'cyclical' deficit) turns out to be permanent. Structural changes are required to remove it. This means we need to relearn how the UK economy is structured and rethink what we should do to chart its direction in future.

There are great challenges. There are also great opportunitities. And it may well not be as bad as many now believe. If the banking system recovers, the UK economy being financially focused could see a geared upside to growth which may put us in a better position than many other economies.

However, Labour now needs to continue thinking about the politics of this economic situation and consider what the challenges may be in 2009. That will be covered in my next post.

Osborne does not comprehend full scale of crisis

2008-11-13T23:53:00.002Z

Osborne does not comprehend full scale of crisis - letter in the Financial Times

Published: November 12 2008 02:00

From Mr Stephen Beer.

Sir, George Osborne should give some more thought to his economic strategy (“How Britain should tackle its recession”, November 10). He may believe he is sounding quite reasonable when he advocates tax cuts that are “properly funded”, presumably by spending cuts elsewhere. Yet he does not give the impression he really understands the scale of the global economic crisis.

We face a severe drop in economic confidence. Relying on Bank of England rate cuts as the principal policy tool risks the economy wallowing in a liquidity trap while unemployment rises. Government action should therefore focus on measures that restore confidence and compensate for the massive deleveraging taking place by households and the financial sector.

The alternatives are to give in to large-scale unemployment or higher inflation in future (which passes the debt to savers). The government will need to step in with targeted tax cuts that it intends to be permanent, together with increased spending. Both should be aimed at boosting employment and investment.

Once these measures have been decided upon, a reorientation of public finances can be devised that will reduce the government deficit when sustained growth resumes. To prevent a 1930s-style Depression, governments need to take bold action now.

Stephen Beer
London

Copyright The Financial Times Limited 2008

FT.com / Comment & analysis / Letters - Osborne does not comprehend full scale of crisis

Fiscal stimulus plans - but do we know why?

2008-11-11T22:59:00.002Z

We can hardly move for plans to increase or direct government spending as responses to the financial crisis and economic slowdown.

All three main political parties in the UK are talking about tax cutting plans (though only Labour actually gets it in terms of the need for a looser fiscal policy). In the US, there are debates about the nature and timing of the next stimulus package.

Yet before we get carried away, are we actually clear what we are trying to achieve?

A fiscal stimulus will work - won't it?

2008-11-10T22:42:00.005Z

The conventional wisdom is focusing on tax cuts as providing the fiscal stimulus the economy requires. But is cutting tax the best way forward? And do fiscal measures promote growth in a downturn? Rather worryingly, evidence from the International Monetary Fund suggests that sometimes it could make things worse.

If companies won't invest and the economy is slowing, one response is to cut taxes or increase spending. In last month's World Economic Outlook, the IMF looked at the effect of using fiscal stimulus. It found mixed evidence in practice, with some suggestion that economies with high government debt levels actually saw growth fall after a fiscal stimulus. This was because markets began to worry about mounting levels of government debt, which effectively raised borrowing rates. However, the IMF study defined high debt levels as 75% of GDP (a long way from the UK level). The IMF also found that in the past fiscal stimulus had acted as a counter-cyclical tool, but only in advanced economies.

An IMF simulation indicated that an increase in government investment would be the fastest way of stimulating an economy. However, this appeared to be contrary to the empirical study. More work will be required, both on empirical studies and models used. Perhaps a key lesson is that the easy assumption that a fiscal boost will in turn boost the economy is not necessarily soundly based. We should also not forget that fiscal policy was rejected as an economic policy tool because increasing inflation and lags between policy and implementation meant that it could make things worse.

However, we do live in unusual times. Business confidence is low. Borrowing is difficult because banks are still deleveraging. Cutting interest rates may have some effect, but there is a strong case for government intervention where business will not invest.

In any event, we must not lose sight of a key aim of government policy. It is that people should be productively employed and can lead fulfilling lives.

Bank of England Financial Instability Report?

2008-10-28T23:22:00.002Z

The Bank of England is today publishing its bi-annual Financial Stability Report. The Report analyses the developments that have culminated in the turmoil of recent weeks and the actions taken by the UK authorities and other countries. It sets out the Bank's views on the near-term prospects for the financial system and the reforms necessary to address systemic risks.

Bank of England|Publications|News|2008|Rebuilding Confidence in the Financial System, 28 October 2008

The Bank of England published its bi-annual Financial Stability report today. It is useful reading for anyone wanting an account of what happened recently to the financial system and the issues and risks that the Bank sees outstanding.

In particular, it is worth noting the Bank's call for counter-cyclical controls on financial institutions. From a political point of view, it is important to ensure we are through the current crisis first, as Martin Wolf points out in the FT. However, while the will is there, new mechanisms do need to be found to prevent or at least mitigate a repeat of the crisis.

What kind of Keynesian are you?

2008-10-22T21:26:00.004+01:00

We are told that everyone is apparently a Keynesian now, but of what sort? Much of what we think of as Keynesian is the product of subsequent attempts to squeeze his General Theory (published in 1936 after the Great Depression) into the old neo-classical system. The General Theory becomes in fact a 'special case'. Such an explanation does not do justice to the General Theory itself but might mean we come to the wrong policy conclusions.

Here are some policy options:

cut taxes temporarily
cut taxes permanently (at least, assume they will be permanent)
bring planned government spending forward
increase welfare payments
redirect government spending towards investment projects
increase government spending on investment
focus government spending on creating jobs

Most of the options above require an increase in government borrowing, but the effects may be very different. There may also be unintended consequences. For example, why should consumers spend a temporary tax cut? Surely, knowing it is temporary and with high levels of debt and uncertainty, households are unlikely to splash out with any tax cut; they are more likely to save it or use it to pay down debt.

Skidelsky on Keynes in The Times

2008-10-22T21:24:00.000+01:00

From The Times
October 23, 2008

An impossible crash brought Keynes back to life
It seemed that the great economist was history - just like the Great Depression. But recent events have proved him right Robert Skidelsky

When Alistair Darling said that “much of what Keynes wrote still makes sense”, anyone under 40 might well have asked: “And who on earth is Keynes”?

An impossible crash brought Keynes back to life | Robert Skidelsky - Times Online

Robert Skidelsky's excellent biography of Keynes is essential reading for anyone who wants to understand Keynes' life and the development of his thinking.

The financial crisis - can we really say never again?

2008-10-13T22:08:00.003+01:00

The late economist Hyman Minsky argued that financial instability was an inevitable feature of capitalist economies. Can we avoid that? No, is his sobering answer. Periodically, economies need restructuring by government:

After an initial interval, the basic disequilibrating tendencies of capitalist finance will once gain push the financial structure to the brink of fragility. When that occurs, a new era of reform will be needed. There is no possibility that we can ever set things right once for all; instability, put to rest by one set of reforms will, after time, emerge in a new guise. (Stabilizing an Unstable Economy, 1986)

Minsky argued that we need to reject failed models of how the economy works and deal with reality. Part of that is to be constantly vigilant. Nevertheless, reforms do require political leadership. This is something we are seeing in the UK.

This piece in tomorrow's FT is worth reading (excerpt and link to the rest below).

Is there time to avert a Minsky meltdown?
By George Magnus
Published: October 13 2008 18:03 | Last updated: October 13 2008 18:03

The point at which a Minsky moment becomes a Minsky meltdown has arrived. Named after the economist, Hyman Minsky, this is the point where financial instability has become so acute that only an exceptional, immediate and global government attack on the causes of instability is likely to avert a systemic banking failure, in which non-financial companies could rapidly fail too. The Group of Seven leading industrialised nations and the European Union now look like they “get it”, but with several hundred billion dollars of debt to be rolled over in the coming weeks, the question is whether they have the time to “do it” too.

FT.com / Comment & analysis / Comment - Is there time to avert a Minsky meltdown?

Financial crisis - the merits of holding meetings and Galbraith's take

2008-10-12T17:29:00.003+01:00

This weekend sees another series of meetings of political and financial leaders in efforts to stem the banking crisis. Clearly, there are risks in holding such meetings. Failure to produce a plan of action, which is actually followed by action, might lead to a worse result than having no meeting at all. But then, it is always good to talk and communication is key in these times. And indeed, it looks as if the UK is leading the way on capital injections for banks; it is trying to persuade other countries to follow.

Apparently we are all reading JK Galbraith's history of the 1929 stock market crash. Anyone remotely involved with the current turmoil should have read it years ago. Still, it does merit regular return. Galbraith looked not only at the Crash but at the aftermath. In one section, he writes in praise of the 'no-business meeting'. President Hoover organised a series of meetings with business leaders, after which positive statements about their sectors were made. Hoover was not, Galbraith dryly maintained, merely organising reassurance.

[President Hoover] was also conducting one of the oldest, most important - and, unhappily, one of the least understood - rites in American life. This is the rite of the meeting which is called not to do business but to do no business...there is the meeting which is called not because there is business to be done, but because it is necessary to create the impression that business is being done. Such meetings are more than a substitute for action. They are widely regarded as action.

While there is probably an element of this in the meetings taking place at the moment, really these meetings are essential to get the global financial system working properly again.

Nevertheless, when the attention turns to the wider economy we can probably expect some Hoover-style meetings too...

Three rules for government intervention in markets

2008-10-07T22:40:00.004+01:00

Here are three rules which apply whatever party is in government - intervention in markets should be:

clear
decisive
contain at least some element of positive surprise

Governments are obviously concerned about the immediate situation right now, but urgent thinking is required about how our economy should be managed in future. This will prove to have been especially the case if any slowdown is longer than currently expected. It will turn out to be a key political issue. Labour Party policy work on this is required.

Thinking ahead amidst the financial crisis

2008-10-06T23:16:00.003+01:00

The global financial crisis continues, with FTSE down almost 8% today. But what about the potential unfolding economic crisis? Governments and central banks are rightly concerned about the immediate problems, but it is worth thinking more about the months ahead.

Here are some things we can say with some confidence at this point:

companies are finding it difficult or impossible to borrow from banks
future investment is in jeopardy
unemployment will rise (we just don't know how much or for how long)
consumer and bank borrowing will unwind and government deficits will grow

Here is where policy-makers need to be doing some serious thinking (while avoiding undue pessimism):

update unemployment policies, including information about what to do if you lose your job
realise that for many unemployment will probably be a new experience in their careers - how can coping with unemployment and finding work be as straightforward for everyone as possible?
with government borrowing set to rise, how can this take place within a new framework?
work out how new jobs can be created in the months to come
ensure the poorest in society are not left behind as government spending becomes constrained

There will be clear political choices to be made.

It may not be as quite bad as you think

2008-09-29T23:46:00.004+01:00

From the Tribune website:

THE conventional wisdom is that Gordon Brown will not recover in the opinion polls and is doomed to lead the Labour Party to a catastrophic defeat in 2010. However, the conventional wisdom, as JK Galbraith who first coined the term pointed out, is usually wrong.

The political chatter has it that Gordon Brown is facing a situation similar to John Major in 1997 or James Callaghan in 1979. The 1970s have particular resonance, since that, too, was a time of rising inflation and sluggish economic growth after an oil price shock and a war in the Middle East. Governments found they could not inflate economies out of trouble, since inflation rose but sustainable economic growth was increasingly elusive. Callaghan famously renounced Keynesian economics and an era of Thatcherism began. Labour lost the ’79 general election and was out of power for 18 years.

However, if we are looking for parallels, there are good reasons for focusing on the late 1960s. Yes, Labour lost the general election of 1970 to the Tory Party led by Edward Heath whose economic policy was rapidly discredited, but the point is that Labour should have won it. Harold Wilson called the election because he thought he would win. A combination of a lacklustre campaign and a rogue balance of payments figure were in large part to blame for defeat. Yet that the party even expected to win at all in 1970 seems incredible, given the unpopularity of the Labour Government and its leader only a year or two earlier.

There is probably no better summary of this turnaround than that written by Ben Pimlott in his biography of Harold Wilson. According to the late historian, Wilson’s leadership appeared under serious threat between April and June 1969, just a year away from the general election. “It was widely felt, and frequently suggested in the press, that the Prime Minister could not survive until the election.”

Wilson had been seen as an election winner, but when that was in doubt, speculation of a leadership coup grew intense. Pimlott noted that: “Since 1967, the Tory lead had been almost continuously in double figures (according to Gallup) and frequently above 20 per cent. In August 1969, Wilson’s personal rating touched rock bottom at 26 per cent.” He added: “Many MPs in marginal seats had begun to feel that, facing certain defeat, they had nothing to lose [by a change in leadership].” It is still difficult for us to appreciate how febrile those times were, with almost constant rumours of plots, although the parallels are obvious.

However, by the summer of 1969 Labour’s position had improved sharply. Pimlott wrote: “Labour’s national deficit fell to 2 per cent in October and Wilson’s rating rose to 43 per cent, restoring a solid advantage over Heath.” Labour had suffered a serious economic blow with devaluation in 1967 and its economic policy appeared to be in tatters. However, with a competent Chancellor in Roy Jenkins, the economy began to turn around (benefiting from devaluation) and with it Labour’s standing.

Particularly allowing for contemporary swings in public opinion, something similar could happen again. The talk now, up to two years away from the general election, is of recession and world growth may indeed be sluggish for some time. But in 12-18 months’ time, the focus may be on recovery.

We live in very different times to the 1960s, but the central lesson is clear. Political prospects can change very quickly. Of course, Labour needs to do more to spell out its politics with a firm direction. Every activist needs to take the fight to the Tories to expose the holes in their economic policies. Our economic message must be clear and consistent. But above all, we need to hold our nerve if our party and our leader are to benefit from a political recovery.

Stephen Beer is chair of Vauxhall CLP and a City investment manager. This article represents his personal opinion

Tribune » Blog Archive » Steven Beer: It may not be as quite bad as you think

US House of Representatives votes against Paulson plan

2008-09-29T23:27:00.004+01:00

The vote against the Paulson plan by the US House of Representatives demonstrates the need to get the politics right too when approaching this financial crisis. Wall Street's political power is at a low ebb at present, compared with the votes of US citizens concerned about their jobs and many with their own debt problems.

It is interesting that there was also a clash of approaches, with some Republicans calling for a more market orientated plan. Whatever the eventual solution, somewhere down the line bad debts need to be recognised for what they are; bad debts. And action has to more clearly address voters' concerns.

When the world has changed - mixing politics and the credit crunch

2008-09-27T16:39:00.004+01:00

The wrangling in Washington over the terms of the $700bn bail-out deal continues, though the latest seems to be that a deal is closer. We are now in the situation where a deal has to be struck, with little debate on what overall approach governments should take. What will become increasingly clear is that the likelihood of further government action to support financial institutions directly has increased (as opposed to just buying toxic assets).

However, a real problem is that not many people have an idea about what to do. On this basis at least, Paulson and Bernanke should be praised since they do have a plan and a clear idea about how to implement it. John McCain's admission last week that he hadn't read the bail-out plan was telling - if only all this finance stuff could get sorted, we can go back to normal campaigning.

But the world has changed. And politics will have to change too. On the Left, the challenge is to avoid sounding like we hope the 1970s are back (that was not a good time economically):. Government has to have a role; the free market philosophy has flaws (though markets are the best system we have in most cases for communicating and satisfying needs); and in a worst case scenario, the government may have to become employer of last resort.

The Right has challenges too. How can it fashion a pro-market ideology that is not harsh and uncaring towards those who are particularly adversely affected (some benefiting from the 'misery of others' in Shadow Chancellor George Osbourne's words)?

So expect 'radical' calls to give regulators new powers, restrict executive pay in some circumstances etc. In other words, democratically elected politicians giving more power to unelected regulators to make decisions based on...well, no one's worked that out yet.

Labour conference reflections

2008-09-26T14:15:00.005+01:00

To my mind, this was a successful if sober Labour Conference.

There was a real sense of being part of the serious business of government, especially in these difficult financial (and increasingly economic) times. The events in markets had highlighted the problems with Conservative economic policy ie its very foundations, while in contrast Labour appeared keen to 'do what it takes' to secure stability and our banking system, in the words of the Chancellor (who received a long standing ovation after his speech).

The Prime Minister appeared increasingly confident and relaxed. His Conference speech was well-received. It projected a clear sense of purpose to my mind, providing a good foundation for the weeks and months ahead.

While the media does focus on stories about disunity, in fact this Conference showed a united Party to the world. This was not like the Tories in the late nineties, where fringe events would hum with dissent, whatever was going on in the main hall.

However, it is vitally important that Labour keeps up with unfolding financial events. We can be confident that our policy points in the right direction ('we did fix the roof while the sun was shining,' was Gordon Brown's declaration) but things will change with slowing economies. It means, as I emphasised at the beginning of the year, that we will no longer be debating how to slice an increasingly larger cake, but will be making those hard choices we have talked about for so long. Choices reveal priorities. They provide opportunities and challenges for political parties.

Labour Conference day 5

2008-09-26T13:54:00.006+01:00

The final day of Conference has been much reported but here's my summary. There were debates on health and education, which filled up most of the time. We had speeches from Alan Johnson, Ed Balls, and John Denham.

The education debate was sandwiched between the health debate and, towards the end of the session, a celebration of the 60th birthday of the NHS. Alan Johnson spoke again. He introduced one of the first hospital administrators (and first woman) of the NHS, appointed by Aneurin Bevan (to run the Royal London Hospital in Whitechapel). You could tell why she was appointed! We also heard from the first person to be born under the NHS and from someone who had recently recovered from cancer, which was dealt with around a month from diagnosis (ie pretty quickly).

Towards the beginning of the session Transport Secretary of State Ruth Kelly spoke to conference. She had rewritten part of her speech following an overnight leak that she had asked to resign at the next cabinet reshuffle (rumoured to be imminent) for family reasons. That leak still seems a mystery (ie how did it come out?) and did a bit to overshadow the PM's speech the previous day. In her speech she emphasised the importance of spending time with her family.

Finally, the conference ended (late lunchtime) with a speech from the deputy leader, Harriet Harman, and the traditional singing of the Red Flag and Jerusalem.

Labour Conference day 4

2008-09-23T18:56:00.002+01:00

A busy day at Conference today with debates on sustainable communities in the morning (including housing) and of course the leader's speech in the afternoon.

Gordon Brown's speech focused on his experience compared to the leaders of other parties and on our message of fairness. The difficult economic times were addressed. There was a focus on the NHS (60 years old this year) and our central message of fairness.

Will update later with more details. The Labour website contains details of the speech (www.labour.org.uk).