Some preservation for posterity

There was comment on the Sunday Times website from a cabinet minister explaining the Labour Party strategy towards the voters. The Sunday Times has since taken it down, although it went out in their print edition, but to ensure that it is preserved for posterity, I reproduce it here.

“We don't care if the commentators or the economists turn against us. This is all about shoring up the base in the northern heartlands, which we lost in the European elections. We don't want or need them to understand the nuance of the argument. We just want them to hate the Tories again.”

Sounds like "You can fool all of the people some of the time, some of the people all of the time, and those are the ones we are concentrating on"

ONS screw up again, economy far more shot to pieces than previously imagined

The UK economy shrank by 2.4 per cent in the first quarter. Strange, It's never done that before, at least not for more than 50 years, so you would have though the ONS would have noticed. But no, they gave us a figure of 1.9 per cent decline, which has been revised to 2.4 per cent.

OK, that's enough on the ONS. Now for the really bad news. The 2.4 percent decline is the highest quarter on quarter decline in GDP since 1958, and the 4.9 per cent drop year on year is the highest ever recorded. So I guess that makes it a national record.

But remember folks, it is even worse than it looks. Government spending was still going up at around 5 per cent a year or 1.25 per cent in the quarter, representing, to within the width of a gnat's todger, half of GDP, so that for the whole economy to drop 2.4 per cent, the private sector must have dropped around 6.3 per cent (100%-(97.6%-50%*(1+6%/4))/50% for those who want to do the maths). If that kept up for a whole year would be a 27% decline in the real world economy, which would be a financial crisis of South American proportions.

So much for fiscal stimulus.

In other news, the household saving ratio fell to 3 per cent from 4 per cent in the final quarter of last year, as real disposable incomes dropped by 2.4 per cent.

Business investment fell by 7.1 per cent during the quarter, reflecting the fact that nobody wants to put money into a country that is efectively bust and will have to tax the living daylights out of the population to pay off its debts.

But the good news is that cash is so tight we have stopped spending so the balance of payments has improved with the current account deficit coming in at £8.5 billion in the quarter after £8.8 billion in the last quarter of 2008.

British aphids for British ladybirds

The problem is there are too foreigners in this country. Those Asians, they come here and eat all our insects, without so much as with your leave or by your leave. The Harlequin ladybird (Harmonia axyridis) is putting over 1,000 species in the UK in peril, scientists have warned. Originally from Asia, the harlequin preys on a wide variety of insects, including the larvae of other ladybirds, and will also eat fruit.

Introduced in continental Europe to control pest insects and first "spotted" (geddit?) in Essex in 2004, the ladybird has spread to most parts of the UK in only four years, preying on many other insects. "The rate of spread is dramatic and unprecedented," says Dr Helen Roy of the Centre for Ecology and Hydrology.

And they breed like crazy. Native ladybird species produce just one generation per year, but the Harlequin has as many as five generations per year. So we know how to deal with these interlopers: kick'em in the goolies. One likely predator to control the immigrants is a sexually transmitted mite that renders female ladybirds infertile, and is passed from one generation to the next by inter-generational mating.

Since the natives mate only once a year the mite is unable to propagate between generations of British ladybirds, but since the Harlequins are at it all the time, their very own sexually transmitted parasite will keep down their numbers.

Bumbling Britain's Future

The hype merchants and hucksters in charge of this country have put together some proposals for how they are going to meddle a bit more. What they call "key deliverables" (nothing of the sort of course, these are just summary titles for policies, but politicians have been picking up consultants' jargon even if they can't use it) are listed here.

So let's slam the doors and kick the tyres on this one.

First up is Democratic Renewal:

• Independent regulator for parliamentary standards established
• New statutory Code of Conduct for all MPs
• Independent Audit of all MPs’ expenses
• Online publications of all future MPs’ expenses
• Draft House of Lords Reform Bill
• Constitutional Renewal Bill, including action to remove the hereditary principle from the House of Lords
• Wright Commission on modernising the House of Commons
• Action on local democratic renewal
• Completion of a national consultation on a Bill of Rights and Responsibilities

Mostly solutions to problems that weren't there until Labour MPs messed up the system. the rest not something you would trust them to meddle with, and all o litle consequence to the man in the street.

Next up is Real Help Now:

• An extra 35,000 apprentices start work bringing the total to over 250,000
• Young Persons Guarantee of a job or training place introduced for all 18-24 year olds before they reach long term unemployment
• 150,000 jobs through £1 billion Future Jobs Fund
• Subsidised training or employment for adults unemployed for six months
• £1.2 billion support for affordable housing to buy and rent
• Mortgage Rescue Scheme and Homeowners Mortgage Support to help households facing repossession
• Enterprise Finance Guarantee underwrites up to £1.3 billion of lending
• Up to £75 million in equity for SMEs through Capital for Enterprise Fund
• VAT cut puts £20 billion back into economy
• 3.9 million families £150 a year better off through raised Child Tax Credit
• Car scrappage scheme stimulates up to 300,000 new car purchases
• New Growth fund provides over £18 million to support an extra 45,000 affordable loans
• Up to £42.5 million support for volunteers, charities and social enterprises plus additional £16.7 million hardship fund

None of which is new. They might as well add that fresh air and sunshine will continue to be free at the point of delivery, at least under the current Comprehensive Spending Review.

Let's have a look at Investing for the Future:

• Tax relief supporting £50 billion of capital investment
• £150 million Innovation Fund which will over time lever in up to £1 billion of private sector funding
• £750 million Strategic Investment Fund established
• ‘Infrastructure UK’ launched
• Guarantee of a sixth form, college or apprenticeship place to all school leavers who want one
• £400 million to kickstart mothballed developments and £100 million for Local Authorities to deliver new social housing
• Work underway to rebuild or refurbish secondary or primary schools in every Local Authority in England
• National roll out of an integrated employment and skills system
• Up to 1,000 additional wind turbines on and offshore
• £1.5 billion to deliver 20,000 additional energy efficient affordable homes over the next two years
• Renewable Transport Fuel Obligation ensures 5 per cent of all road fuels sold come from bio-fuels

The "tax relief for investment" is nothing more than the capital allowances system that we have had simce the introduction of corporation tax although these days for most plant and machinery it is only at 20% of the balance of unclaimed expenditure rather than the more generous 25% we had for most of the last 30 years.

The £150 Innovation Fund sounds good, but bears with little brain may need reminding that in April April, the government said it would establish a £750 million strategic investment fund to provide financial support to high-tech companies, and hey guess what! The £150 million will come from that fund. So nothing new here. All talk no action, and no reason to believe that politicians and civil servants will do a better job of spotting winners that the BVCA.

Even the relatively paltry £500 million for social housing is not new money. £150 million will probably come from an existing fund for decoration and maintenance of existing council property. The rest is made available because at present the surplus from council rents and proceeds of council house disposals are snaffled by Westminster and redistributed (one assumes to Labour heartlands), but this practice will be stopped. So in towns where where there is actually an excess of housing because the population is moving away there will be more cash from disposals, while in areas of population growth, where there will be higher demand for housing, there will be no cash. No new money, just edistribution,. ut they didn't tell you that.

The rest is a listing of initiatives already completed or aspirations (RTFO/wind turbines) already underway.

Let's move on to Fair Chances for all (remember that phrase because we'll come back to it later)

• 10 hours of one-to-one English or Maths tuition for thousands of seven to sixteen-year-olds
• All secondary school pupils have a personal tutor from September 2010
• Prescription charges abolished for all cancer patients
• All patients with suspected cancer will continue to be seen by a specialist within two weeks
• First ever NHS Constitution enshrined in legislation
• All patients will be treated within 18 weeks from GP referral, where clinically appropriate
• At least 75 per cent of GP surgeries offer patients extended evening or weekend opening hours
• Up to a million people aged 40-74 receive new NHS health checks
• Personal Health Budgets pilots begin to give patients and carers more control over healthcare decisions
• All social housing tenants have a greater say over where they live through Choice Based Lettings

The cancer ones are cute. The issue with serious cancer drugs is not whether you pay your £7.30 but whether NICE or your local trust agfrees to supply the drugs at so many thousand a year. But hey, while you are going through chemo, your asthma inhalers are free.

Then there is the great line "All patients with suspected cancer will continue to be seen by a specialist within two weeks". Did you spot that: "continue to be seen". Mark that up as no change.

All in all not much, particularly when you read the small print at the bottom - see later.

Then we have "Fair Rules":

• In partnership with police forces and authorities, monthly neighbourhood beat meetings and minimum police response times embedded, including answering 999 calls within 10 seconds
• Neighbourhood policing teams embedded in every neighbourhood
• New sanction for all benefit fraud first offenders, creating a ‘one strike’ provision
• Crackdown on fraud in the social housing sector
• Complete the implementation of the Points Based System for immigration on entry
• Over 95 per cent of passengers counted in and out of the country through electronic checks by the end of 2010

In case you are wondering whether most of that list is just doing things that ought to have been done before, so am I.

Well let's look at Families and Communities:

• 3,500 Sure Start Children’s Centres established – one in every community
• Free entitlement to 15 hours of high-quality early education a week for every three and four year old
• Expansion of free childcare to the most disadvantaged two year olds
• Youth Community Service begins – so that in time all young people have the opportunity to give something back to the community
• Offer of five hours PE and sport for young people
• More people are saving effectively through the new Saving Gateway accounts

Old news. Sure Start is up and running, as are the nursery places. Exta free childcare was announced 6 months ago, and none of the rest is new or paid for by the government.

But we ae nearly there "Britain in a fairer and safer world":

• Ambitious global climate change agreement in Copenhagen secured
• Pittsburgh Summit builds on London Summit measures to secure sustainable global economic recovery
• UK report to lead global review of nuclear non-proliferation
• 1,000 UK civilian experts readily available for deployment in post-conflict stabilisation around the world

None of which amounts to a hill of beans when it comes to rebuilding our future. In particular our response to nuclear proliferation in N Korea and Iran is a joke. The world knows we only attack when we know they haven't got WMD.

But what's this footnote at the bottom?

"Not all of these items will apply equally across the UK, because of the different nature of the devolution settlements."

Yup, all of those health, socoial security and education matters may not apply to you because your circumstances may be different. But they aren't going to tell you what applies to whom, so you might as well assume the worst. None of it applies to you, but if there is anything to be paid for, you will end up paying for it.

There is no strategy here, just existing policy headings in a 4 page PDF, and no new initiatives because there is no mney to pay for them. The government has avoided addressing the enormous budget deficit with eye-catching headlines that melt away after 10 seconds of reflection.

But that is modern politics. They honestly think they are safe if the voters don't see through the flim-flam before the newsreader eached the end of the sentance, but that is all that is left of New Labour. They have demonstrated that after 12 years in power, there is nothing left that they can do. In the new global village the socialist utopian promises of luxury for all has been shown to be unaffordable.

The people of Darlington can probably continue to expect a higher standard of living than the people of Darjeeling and Dar-Es-Salaam, but they have to earn it. It won't come through the ballot box. The government's reserves are all spent. It isn't a question of whether there are real cuts in government spending, but a mattter of the extent to which they will have to be made to restart growth in the private sector. Can Brown fix it? No, he can't.

Youth unemployment

A shocking statistic, but noteworthy in the current state of the economy.

My second daughter has just left further education, and is one of 60 leavers from her college who are not going on to further study. Of those 60, 10 have jobs, 10 are going into the scam of unpaid internships and the other 40 are on the dole.

OK, it's a small college and possibly an unrepresentative sample, but I would have expected a better result from one of the colleges in the University of Oxford.

Greed is good, but don't overdo it

More than a couple of years ago, a property banker told me a story about when he was called on by a very elderly customer who wanted to a loan to buy a building that was leased to the phone company.

"It's a beautiful building, the tenant couldn't be better and when the lease expires, the residual value will be fantastic".

"How long is the lease?", replied the banker.

"Twenty five years", replied the old man.

"But with all due respect, how old are you, eighty five years old, maybe ninety? If the lease has twenty five years to run, you won't live that long".

"Trust me, for this building... I can live that long".

Bernard Madoff has been sentenced to 150 years in prison for his $65bn "Ponzi" scheme. Let's hope he has some prime real estate set aside to look forward to. If he leaves prison alive he will be 221 years old.

Bernie Ebbers of Worldcom is serving 25 years for accounting fraud. Former Enron chief executive Jeffrey Skilling was sentenced to more than 24 years in prison although his sentence was overturned and he is in prison awaiting resentencing.

Madoff probably though he was due for something along those lines, but none of his former friends came forward to give him a character reference, so the judge imposed the maximum sentence. I guess nobody knows you when you are down and out.

OECD warns over Government deficit

“The United Kingdom is in a deep recession. House prices are falling after an extended period of large increases which left many households over-extended. Financial conditions are tight, and the financial market crisis has threatened the stability of the financial system. External conditions are also highly unfavourable. The recovery is likely to be slow and unemployment is expected to climb significantly.”

Not my words, but those of the OECD, who last week lowered their growth forecasts, or more precisely increased their contraction forecasts, for the UK.

Their recipe for recovery: cut spending and put up taxes because a 14% deficit will kill the economy.

If you can't serve the time, don't do the crime

The first victims of Bernard Madoff have begun arriving on Monday morning at the Manhattan courthouse where the disgraced broker is scheduled to be sentenced for running a $65bn ‘’Ponzi’’ scheme that devastated the lives of thousands of investors across the world.

Prosecutors want the 71-year old former Nasdaq chairman to serve the maximum possible sentence of 150 years. Mr Madoff’s lawyer, Ira Sorkin, has argued that 12 years would be sufficient punishment.

“I hope he gets the max. I don’t want him to be comfortable,” said Dominic Ambrosino, 48, who walked into the courthouse nearly three hours early. The retired corrections officer, who with his wife lost $1.6m, was carrying a typed version of the four-and-a-half minute speech he plans to give at the hearing when Mr Madoff’s victims are invited to give their views.

Well, since total losses were 40,000 times those of Mr & Mrs Ambrosino, to be fair to the other victims, there should be 180,000 minutes of speeches, or 3,000 hours, which assuming the court sits in normal business hours would be the first 18 months of Mr Madoff’s sentence.

An Iranian irony

The Britain government reacted angrily yesterday to the arrest of at least eight Iranians working for the British Embassy in Tehran, calling the move unacceptable “harassment and intimidation” and warning that it would provoke a “strong and collective response”.

Yet the very same government thinks it is perfectly reasonable to detain for 42 days without charge those who the government considers to be a threat to the state, because of "the increasing complexity, the increasing international links and the increasing challenge of the investigation of the plots that are in place".

I don't want to write IRNA's press releases for them, but the Iranian state could well justify their actions by quoting Gordon Brown's words straight back at him.

Lord Mandelson is a Church Commissioner

In a recent interview with another pink financial paper Lord Mandelson, gloated over the fact that he is now an ex-officio Church Commissioner even though he was brought up an atheist, as is the new Speaker, and pro.tem. the current Home Secretary, the openly gay Ben Bradshaw and the Prime Minister.

All of which is about as good an argument for disestablishment as I can imagine. Well actually there is another one. The ex-officio Church Commissioner that is the new Speaker of the House of Commons thinks Bishops should lose the right to sit in the House of Lords. In 2007 he said: “there is no case to be made for reserved, ex officio, guaranteed religious representation in the second Chamber. The argument simply does not hold water.” Maybe not, but perhaps the Speaker should not be involved with the Church Commissioners by virtue of his office.

Some say that socialism is Christianity put into practice, at which point, remembering Scargill and all his works, I like to quote verse 3 of Psalm 30:

Thou Lord hast brought my soul out of hell:
thou hast kept my life from them that go down to the pit.

Moral compass has lost its magnetism

Britain's ethical foreign policy may have been ditched around the time that Military Intelligence was outsourced to the Downing Street press office, but it seems the rest of the world now has our politicians sussed.

British lectures to foreign governments are now laughed at from the Middle East to the Caribbean, as foreign newspapers print stories about MPs' expenses claims.

Reports of MPs billing the taxpayer for fake mortgages, duck houses, trouser presses and moat cleaning pose a problem for British diplomats who have previously criticised foreign corruption.

The Foreign Office minister Mark Malloch-Brown deleted part of a speech he gave in Mozambique this month, out of fear that comments on standards of governance might be ridiculed.

In a speech broadcast after the disputed presidential elections, Ayatollah Ali Khamenei, Iran's supreme leader, said: "Many countries of the world, including western countries, that claim to fight corruption and money-laundering, are corrupt to their core. You have all heard about the expenses scandals in the British government and the parliament. The whole world heard the story and those were just parts of the story."

It has also hindered attempts to stamp out corruption in the Turks and Caicos Islands, a British overseas territory with a population of 32,000.

Ministers were preparing to suspend the islands' constitution and dissolve its parliament after an official inquiry found signs of "systemic corruption" and "political amorality". But now Galmo Williams, the islands' premier, says British politicians "no longer have the moral authority to lecture other countries on corruption".

This problem won't go away until after the next general election, but at least the British government have Silvio Berlusconi to make them look good.

Weird story of the day

In the current financial crisis, one would have thought that banks would be very careful with their cash. Not so one British bank which will have a very curious item in its P&L statement at its next balance sheet date. Barclays have agreed to pay $4 million to buy a New York subway station. Not the real estate, just the right to rename the current Atlantic Avenue subway station in Brooklyn as Barclays Center, as the Americans would say, named for a nearby commercial complex.

MTA spokesman Aaron Donovan says the company will pay the agency $200,000 a year for 20 years for the renaming rights.

Spitting dummies

Three days ago the executive haircut (c. Dilbert) in charge of the FSA warned Mervyn King, Governor of the Bank of England, that his proposals for the Bank to take charge of financial supervision could damage stability and lead to pointless turf wars.

At the time I nearly commented that the FSA has no track record and no experience, so why should anyone listen to Adair Turner, but my instincts told me this was just a an opening round of salvoes in the turf war.

The next day, Mr King spoke to the Treasury Select Committee. As well as dire warnings on the state of public finances. He told the Committee that the Bank of England was being asked to assume responsibility for maintaining the viability of the banking system, but without being given any regulatory powers.

The blow me, somebody in the governemnt got riled, because today we hear that Alistair Darling is planning a new Banking Act this year that will strengthen the role of the Financial Services Authority. So no draft legislation for a while but we can sense the hand of 10 Downing Street. After all, the governor had only recently said that he had had consulations from the Chancellor, albeit brief.

But to add insult to injury, the reason given for this unexpected move was that the Bank of England failed to warn adequately of the banking crisis. Excuse me. Not only did the Bank of England warn about the problems in the economy, particularly through their biannual Financial Stability review, but so did the IMF:

December 2003 IMF gives Brown borrowing warning
September 2005 IMF report Warning over £1 trillion mountain of debt
September 2005 Brown besieged over growth and borrowing plans
December 2005 IMF fires new warning over Britain's finances
December 2005 BOE FSR: ‘search for yield’ fuels highly leveraged and illiquid products
September 2006 IMF warns over UK property crash
December 2006 BOE FSR: A sharp turn in the credit cycle
October 2007 IMF report UK house market is 'heading for crash'
April 2008 IMF: UK vulnerable to US-style housing slump

The problem was that the Treasury (prop. G. Brown) wasn't listening. Now he has taken offence to the fact that the Conservatives have said they will put the Bank of England back in charge of the banking system. The Bank after all, has long dealt with the banks through the markets as well as a regulatory basis, and understands what is going on in the banking system. The FSA lacks the BoE's experience, hands on dealing in the bank funding market, international network via the BIS and its economic expertise. In fact the FSA has no background in economic policy, merely in market compliance. But Brown thinks King has got into bed with the Tories and is punishing him for doing so.

Putting the FSA in charge of systemic bank regulation is like installing your compliance officer as head of trading, or apointing the head of an NHS trust as a consultant surgeon. Only a fool would think it was a good idea. But unfortunately, we have a fool (and a spiteful one) running the country. This will run and run until we have a sensible government.

Last autumn, the Chancellor told the Governor of the Bank that he suspected him of passing on details of a plan to recapitalise the banks to George Osborne and David Cameron, who called publicly for such a move before the Government announced it. The Tories denied that they were briefed on the plan. Osborne meets King regularly. No one is playing politics. Labour is upset because King's criticism's are the same as the Conservatives, which are the same as those of any right thinking person.

BBC expenses are just a smokescreen

The BBC published the expenses of its senior executives, with the expected brou-ha-ha, but none of the real corporate excess sometimes found. It seems that no BBC executive can set foot outside the UK without paying £300 a night for a hotel room, and there is the occasional chartered plane, but nothing as grand as a whole Concorde (as was often chartered by NY bank boards for their overseas board meetings cum golfing holidays). But this is really a smokescreen for their unaccountably high salaries.

There is no apparent reason why the third in command in the BBC Finance department should be paid more than the Prime Minister, except that everybody else around there is paid as much, and that goes for the "talent".

But that doesn't get away from the fact that BBC employees, including the "talent" are paid from the public purse. Perhaps not from general taxation, but from a hypothecated usage licence that is every bit as much a tax as every other fee, duty, levy, impost, charge, assessment or withholding created by legislation (and if you want to know where that language comes from you haven't read enough tax indemnity clauses in commercial documents).

The BBC has recognised that there is a legitimate interest in how much the BBC spends on talent, but they are only going to disclose the total amount they spend. "But" they say "it would be wrong to disclose individual star salaries in an industry where confidentiality is the norm. There's a real danger that talent would migrate to broadcasters where confidential information about how much they are paid will not be disclosed."

But hang on a minute. I don't care whether any "talent"'s particular skill is swearing in a kitchen, juggling with their nose or reading the news in Swahili, they are still public sector employees and paid out of the public purse, and for that, reporting of large salaries is the norm.

Of course the talent doesn't want you or me to know how much they earn, for exactly the same reason that other highly paid individuals often like to hide their salaries - lest we should think the less of them. Too many people might think "I could do that job for £750 grand, or even half that amount". And the problem for the talent is that, in many cases, they would be right.

The BBC fret that talent would leave for other channels. From which we deduce that the BBC and the talent must believe that the other channels would welcome them with open arms, and we must conclude that the only thing that keeps talent at the BBC is higher salaries. Both of which imply that openness with salaries would reduce costs.

All-in-all the BBC's analysis doesn't sack up. They pay excessively for talent but appear to be short of common sense.

Mervyn King calls for lower public borrowing

The governor of the Bank of England has called for lower public borrowing. Mr King told MPs yesterday the Budget cuts were not "clear enough".

He said he was "more uncertain now than ever" on the prospect of the UK making a quick recovery from recession.

But then came the juicy bits:

"The scale of the deficit is truly extraordinary. 12.5% of GDP is not something that anybody would have anticipated even a year or two ago"

"But it also reflects the fact that we came into this crisis with fiscal policy itself on a path that wasn't itself sustainable and a correction was needed."

"There will certainly need to be a plan for the lifetime of the next parliament, contingent on the state of the economy, to show how those deficits will be brought down if the economy recovers to reach levels of deficits below those which were shown in the Budget figures."

Mr King said it was too early to say how long the UK's recovery from recession would take.

"There are genuine concerns about how quickly the recovery will pick up. Looking at the clear evidence, [businesses] are finding it hard to access credit from the banking system."

"A combination of that and real uncertainty over the global economy makes it very difficult to be confident of a rapid recovery."

The Bank's Paul Fisher added: "It could take two or three years before banks get really comfortable to lend again."

It is refreshing to hear public servants who are willing to speak the truth.

If Michael O'Leary ran the NHS

.. there would be no leaflets in 26 languages or patient consultations, but it would run on a fraction of the current budget.

Mr O'Leary has decided that while Eurostar has tried to give rail travel the look and feel of air travel, modern low-cost air travel should have the look and feel of a bus trip. To that end he has decided that there is no need for a friendly face to greet you at the airport because you can check in online.  If you can't manage that you have no place in the modern world, and having done away with such unnecessary frills as airbridges pulling up to the aircraft (£50 extra landing charges), passengers can get closer to the Greyhound bus experience by carrying their own luggage to the aircraft. After all, why pay for expensive baggage handlers and their equipment to get bags through security and onto the right plane while passengers are loafing in the departure lounge?

But lest anyone should think Ryanair's business model reached its limit when its mooted £1 pay-as-you-pee scheme was rejected in the press, here are some more initiatives:

Pay-by-weight: Extending the principle that some larger passengers pay extra for seats with more legroom, tickets would be priced according to a passengers total weight, including cabin and hold luggage. Scales with credit card slots will calculate airfares at the departure gate.

Scanner free flights: The use of expensive airport security staff will be avoided if passengers sign a disclaimer when they book their tickets. They won't see it, but it will be in the Terms and Conditions..

Near neighbours: On the principle that low cost airlines fy to airports that are nowhere near the cities from which they take their names (and passengers fall for that scam), the airline will reserve the right to cancel near-empty flights and rebook passengers onto a later same day flight to an adjoining country.

Work your passage: Ever fancied being a trolley-dolly for an hour or two? Well now's your chance, for the cost of a half-price ticket. Plus you get to wear a uniform, and men, you don't have to be gay. How cool is that?

Low maintenance flights: Addressing one of the few areas of cost that other airlines fear to consider, the airline could offer special reductions for flights on aircraft maintained outside industry standard preventative maintenance regimes or overdue for periodic overhauls and structural airframe checks. It works in Ethiopia.

What the hell - let's go for it: Economies can be made in landing and overflight charges by minimising the use of air traffic control and operating on the "go when you're ready" principle. The airline uses low traffic airports, there's probably nothing else coming or going when they want to take off. (Remember the Tufty Club? Stop, listen, look both ways and safely across.) Costs and delays could be further reduced by using the less congested military airspace where possible.

Chinese millions

There are now an estimated 364,000 dollar millionaires in China.

In contrast, the number of high net worth individuals in Britain has fallen by 131,000 to 362,000.

That's socialism for you.

Desperately seeking Amanda Stavely

I don't do blog stats much, but one of the perennial hits on this site is a page querying the status and business address of PCP Capital Partners, which has been chugging along at around 2% of all hits on this site.

Then yesterday the news broke that Ms Stavely's brokered deal between her Middle Eastern investors to fund Blackrock's purchase ofBarclays Global Investos for the usual reason that Black rock, its banks and their compliance officers wanted to know where the money was coming from and the Middle Eastern investors wanted anonymity, not appreciating that makes their money look as dodgy as the average drug cartel.

Not so hot Ms Staveley on the deal front, but with a couple of billion of her investors cash burning a hole in her pocket, the world and his dog was trying to find her contact details, with enquiries about her business address making up over 35% of the hits on this site.

So if you are one of the hundreds of inquirers, from Hong Kong to Santa Barbara, who have reached this site looking for Amanda, we can't help you but we would love to know what it is about the multimillionaire blonde businesswoman that sparked your interest. please leave a comment after the tone.

Spinning the forecast

The Guardian is spinning a positive economic outlook by reporting that the financial situation “has improved for the first time in two years”, although “soaring unemployment and ballooning budget deficits could knock a weak recovery off track”.

The Organisation for Economic Cooperation and Development said in its latest economic outlook that the slowdown in its 30 member countries was close to the bottom. Growth of 0.7 percent should return to the area next year after a 4.1 percent fall this year. The OECD had previously forecast for a contraction of 0.1 percent in 2010 following a 4.3 percent fall this year. "This is the first time since 2007 that we have revised up the projection," OECD chief economist Jorgen Elmeskov told Reuters.

By my calculations, a 4.1 percent contraction followed by 0.7 per cent growth is a net 3.4 per cent contraction, so in what sense is that a positive outlook?

“Some day, son, mark my words, things may be as good as they are today”.

But when we read little further we see that the Guardian didn't mention that the OECD has revised down its forecast for the UK economy in 2009, warning the UK is in "a sharp recession" with output set to contract by 4.3% in 2009, worse than its previous forecast of a 3.7% fall.

The OECD predicts zero growth in the UK economy in 2010 and says the UK budget deficit will hit 14% of GDP next year.

Wall Street: the land of dumb

Citi, that most innovative of banks is revamping its system for pay and rations. The board of directors consider that the bonus system over-incentivised the workforce, aking them too willing to work on risky deals that boosted profitability. The trouble is that without those deals they wouldn’t make any money. So their solution is to raise salaries and reducing bonuses for top bankers.

Citi began informing staff on Tuesday of the new pay structure, which had been in the works for the past few months, telling some senior bankers their salaries could rise by up to 50 per cent this year.

Citi’s move comes as US banks are striving to strike a balance between their desire to retain dealmakers and politicians’ demands to see a sharp reduction in Wall Street pay. Yep, that’s right Citi respond to the politicians’ demands by putting up salaries by 50%, just after Goldman Sachs announced record profits.

Which means that CEO Vikram Pandit will now be receiving 3 cents a week instead of his previous 2. Sounds like he was feeling the pinch.

Did your MP claim for the cost of his tax return?

Several MP's have claimed for the cost of an accountant to prepare their personal self assessment tax returns. Contrary to their pleading, an MP's tax return has nothing to do with parliamentary business. It is a computation of an MP's personal tax liability. You ersonal tax return is nothing to do with your employer's business (or your business if self employed).

At the moment I know that the following have done so and will add to my list as I do further research, but if your MP did the same, please drop me an email with their name.

• Douglas Alexander
• Graham Allen
• Hilary Benn
• John Bercow
• Hazel Blears
• Colin Challen
• Ann Clwyd
• Ann Coffey
• Patrick Cormack
• Mary Creagh
• Jon Cruddas
• Alistair Darling
• John Denham
• Frank Dobson
• Louise Ellman
• Mark Francois
• Cheryl Gillan
• John Healey
• Geoff Hoon
• Beverley Hughes
• Joan Humble
• Daniel Kawczynski
• Jim Knight
• Andy Love
• Andrew Mackinlay
• David Maclean
• Anne Main
• Gillian Merron
• David Miliband
• Meg Munn
• Denis Murphy
• Edward O'Hara
• James Purnell
• Dan Rogerson
• Martin Salter
• Marsha Singh
• Geraldine Smith
• Angela E. Smith
• Jacqui Smith
• Peter Soulsby
• Ian Stewart
• Andrew Stunell
• Paddy Tipping
• Derek Twigg
• Kitty Ussher
• Phil Woolas

Now this is funny

Washington Mutual, Inc. known to its friends as "WaMu", was a savings bank holding company and the former owner of Washington Mutual Bank, which was the United States' largest savings and loan association.

On September 25, 2008, the United States Office of Thrift Supervision seized Washington Mutual Bank from Washington Mutual, Inc. and placed it into the receivership of the FDIC. The OTS took the action due to the withdrawal of $16.4 billion in deposits, during a 10-day bank run amounting to 9% of the deposits it had held on June 30, 2008. The FDIC sold the banking subsidiaries (minus unsecured debt or equity claims) to JPMorgan Chase for $1.9 billion, which re-opened the bank the next day. The holding company, Washington Mutual, Inc. was left with $33 billion assets, and $8 billion debt, after being stripped of its banking subsidiary by the FDIC.

The next day, September 26, Washington Mutual, Inc. filed for Chapter 11 voluntary bankruptcy in Delaware, where it is incorporated. Washington Mutual Bank's closure and receivership was the largest bank failure in American financial history. Before the receivership action, it was the sixth-largest bank in the United States.

So what do you do if you are the out of work Chief Risk Officer of such a bank? Why, you join the lecture circuit and tell people how hard it is to run a bank.

Well good luck to Mr Cathcart and his "interactive session with a former chief risk officer of a top bank". Perhaps that should be "An interactive session with the penultimate chief risk officer of a former top bank".

Sodium chlorate on the green shoots

There was an interview with Brendan Barber of the TUC on BBC Radio 4 this morning. I wouldn't normaly listen to Mr Barber's views on the economy but he was "aggressively questioned" by the BBC interviewer who wanted to know why he dared not to support the green shoots theory put about by the NIESR. The obvious answer was because they have jobs and survivor bias makes them think the world looks OK, whereas Mr Barber's members are still losing their jobs.

For confirmation of the TUC world view, look no further than the share trades of the senior executives of US corporations. New data shows that they are cashing out of their holdings at a rapid pace.

US government bond yields followed equity prices lower yesterday, confounding analysts who had expected that Treasury rates would rise this week as the federal government auctioned off a record $104bn of debt.

A World Bank report said the global economy would contract 2.9 per cent this year, more than a previous estimate of a 1.7 per cent. A White House spokesman said later in the day that the US unemployment rate was likely to rise to 10 per cent in the next few months.

Maybe they should all be listening to the experts at the NIESR.

If only the left hand talked to the right

Adair Turner, who runs the hotch potch of busybodies that likes to be known as the FSA says bankers and regulators are already showing signs of forgetting the lessons of the biggest financial crisis ever in the history of the whole known universe. There has been some "aggressive” hiring of traders by investment banks, which Lord Turner says raises new fears of irresponsible pay deals.

A fish rots from the head, mate. Look at yesterday's deal promising vast riches to Stephen Hester based on book profits not bank health and then go figure. Then call UKFI. If you don't know their phone number ask your bosses at the Treasury. They also call the shots over at RBS.

A kick in the Hamptons for the tax payer

Three lessons that should have been learnt by the UK government and Royal Bank of Scotland have not been appreciated:

1. Benchmarking against other banks is not always a good idea, particularly if you don’t have the same strategic objectives.
2. Chasing profits to drive up the share price is more dangerous than building a sound banking business.
3. You can’t always spend your way out of trouble.

But then we are talking about a Labour administration and RBS, so it is no surprise to hear that the bank will announce a £9.6m pay package for chief executive Stephen Hester. RBS chairman Sir Philip Hampton says he consulted some of the largest non-government shareholders. The package consists of £1.2m in salary, a projected £2m of annual non-cash bonus payments and close to £6.4m of long-term share and stock option awards, which is broadly in line with the deals available to some other UK bank chief executives.

Which is why it is wrong on both counts. The government owns 70% of the company. The other shareholders can go hang. It is the tax payers who own most of the company and keep Mr Hester in his job. UKFI supposedly manage the country’s interests in the bank, but appear to be a bunch of City patsies, foremost of which is UKFI chairman .... Sir Philip Hampton.

Hester’s package has been compared to that of Michael Geoghegan at HSBC, who earns a basic salary of £1.1m and a long-term incentive of £7.5m. But HSBC is a viable business that has not been propped up by government money. Hester is in effect a public servant at the moment. Sure enough, the tax payer would like to see a return on the money that was put into RBS, but more importantly it would just like to see the money paid back without any forseeable prospect that RBS would fall back into government ownership. Quite frankly the tax payer doesn’t care how profitable RBS may become or what heights their share price may reach, because the government shares will be sold as soon as the market shows enough demand to take them at a price that pays out the government.

The proposed long-term incentive plan relies on a mix of targets, including relative total shareholder return and absolute share price performance. All of which is largely irrelevant to the tax payer. How RBS performs compared to JP Morgan or Banco Santander is of little interest. Hester’s package encourages him to go for exactly the same short term profits that push up the share price, and which caused RBS to go under. A better set of performance measures would include benchmarks based on reduction of volatility, management of credit losses, widening of credit spreads, liquidity management and a whole list of metrics applicable to unhealthy banks, not some 1980’s style executive compensation scheme.

Let me be clear. I don't mind if hester is paid a lot of money while he is running RBS, but while he is running it mostly for the benefit of the government he should be rewarded for fixing problems, repairing the bank's balance sheet and returning capital to the government, not for engineering some go-go get rich quick scheme that ramps up the share price, and stuffing the bank with more unquantifiable off-balance sheet risk. The government may end up with a tidy profit, but it might just end up with a loss, and Mr Hester has a one-way option.

No doubt we will hear the usual tosh that this cosy arrangement aligns Hester’s interests with those of the tax payer. It doesn’t (because the tax payer’s upside is capped), but one person whose interests are aligned with Hester in having uncapped upside is the supposedly independent non-executive chairman of RBS, who unusually for someone in that position has been awarded £1.5 million of share options on top of his £750,000 salary.

Arise Sir Philip Hampton.

Financial Crime of the Week: The Cosa Nostra Bond Dealers

Banks keep a record of all flaky deals that get proposed to them, particularly “walk-up” deals involving mysteriously acquired assets, and they have a never ending supply of customers offering deals like this one. It appears that the dodgy securities would have been used as security for loans.

Italy’s financial police last week said they asked the U.S. Securities and Exchange Commission to authenticate seized U.S. government bonds, with a face value of $134 billion, found in the false bottom of a suitcase carried by two Japanese travellers crossing into Switzerland.

A spokesman for the U.S. Bureau of the Public Debt in Washington, said that $134 billion was higher than the amount of unredeemed bearer bonds in circulation. Treasury records show an estimated $105.4 million in bearer bonds have yet to be surrendered. Most matured more than five years ago, he said. The Treasury stopped issuing bearer bonds in 1982.

The seized notes included 249 securities with a face value of $500 million each and 10 additional bonds with a value of more than $1 billion, as well as securities purported to be “Kennedy” bonds. No such securities exist. Had the notes been genuine, the pair would have been the U.S. government’s fourth-biggest creditor, ahead of the U.K. with $128 billion of U.S. debt and just behind Russia, which is owed $138 billion.

Nice try guys, but I doubt it would have worked even if you had got to the bank. Try being a little more realistic with the amount, pick a bond that actually exists and is not yet due for redemption. It’s a bit of a giveaway if you ask for a currency against a security that is overdue for redemption. Why not just redeem the security if it is real?

Ecclestone and Mosley overtaken

If ever there was a business model that was eady to be squeezed on both sides, it was Formula One, or more specifically Bernie Ecclestone's operation that was going to be squeezed. Ecclestone is a tough operator and he built a business with magnificent profit margins, but experience shows that it wasn't going to last. More fool then those investors who believed in the securitisation of F1 income or those investors who thought they were onto a perpetual cash flow (a rare error by CVC) and bought shares in the company.

The structure of the F1 industry is quite simple. The teams fund their own development and running costs partly with their own equity and partly with money from sponsors. The FIA regulate the sport and Ecclestone's company operates all of the commercial aspects, booking the tracks and selling the TV and other rights. The FIA gets an annual fee for endorsing F1, and the competing teams take about 50% of the revenues, but the remainder and indeed a very large amount considering the invested capital, goes to F1 and its shareholders.

The profits were so large that Ecclestone was able to raise $1.4 billion through securitisation about 10 years ago, secured on TV revenues, but with other sources of revenue available F1 could earn fantastic profits. Each year the established European venues would be told that their position in the F1 calendar was under threat from Middle Eastern and new Asian venues such as Singapore and Bahrain who were willing to drop $50m apiece into the F1 coffers for the prestige of hosting an F1 event. Meanwhile, revenue from TV and internet rights increased every year.

The trouble for Mr Ecclestone and Mr Mosley is that like all middlemen, in the long term they hold very few of the cards. They don't own the tracks and they don't own the racing teams and they don't own the technology that goes into the cars. When the current round of contracts expires they are nothing more than a sports offical and a deal broker, and the shrewd financial minds in the car companies that back the F1 teams have the sussed.

FOTA would like a bigger share of the revenue to ay for some of their investment. The prestige, marketing clout and technology that comes from F1 is not enough. F1 and the FIA, anxious to keep their share of the pie suggest a £40m cap on spending. The teams disagree. They are happy to keep the budgets uncapped, but they want to pay for it out of a bigger share of the revenues.

The easiest solution say FOTA is to put on their own races. After all, how hard can that be? The tracks are vying to provide a venue for Ecclestone's races and the TV companies have reviously struck lucrative deals, but there is no reason to think they have any greater obligation to the Ecclestone's F1 than they have to any other group.

Mosley blustered that there is a breach of contract, but nobody will take him seriously because all of the annual team contracts will expire, and none of them were with the FIA in any event. Mosely then muttered darkly that there were "EU competition issues". Dream on, pal. Or more precisely, stick to your nazi orgies. The EU has no cmpetition when another group sets up a new busines in competition with an incumbent.

In short, the manufacturers hold all the aces, and Ecclestone and Mosley are holding 2's and 3's. But then Ecclestone should have realised that from the time that he got out of running the Brabham team and started the Formula One Constructors Associaction, which became the F1 business.

What goes around comes around.

May UK car production was 43% lower than in 2008

Just thought I would mention it.

Of course nobody will be rushing out to buy a new car with the higher duty rates. No doubt Mr Mandelson will be trying to shovel tax payers money into the deadbeat car manufacturers, because he is there to promote "enterprise". He will also claim that it is good value for money because it will mean VAT receipts are higher, even though those receipts will be far less than the money spent.

Up a creek, no paddle

So this is how it looks this morning.

• Public sector net borrowing was £19.9bn in May, double the level of one year ago.
• The total outstanding government debt has risen to £774.8bn, £150bn more than one year ago, and equal to 54.7% of UK GDP.
• Capital Economics estimated that the total public borrowing was now on course to reach £200bn, or 14% of GDP.
• Corporation tax receipts in May down 27% year on year.
• VAT revenues down 18%.
• Income tax receipts down 11%.

So how bad is that? In a word, appalling. Do the maths. Public sector borrowing is just shy of £20 billion per month in an economy with an annual GDP of £1,416 billion, or £118 billion a month.

Let's say the government share of spending is near as dammit half that figure of £59 billion per month. So £19.9 billion of that £59 billion about 34% is not paid for by taxes but has been stuck on the national credit card.

And that doesn't take into account the growth in unfunded public sector pensions, which is growing at £3 billion per month or the off-balance sheet liabilities that are growing with new PFI projects.

Heavy borrowing, but on a lesser scale, might be understandable in a developing nation with huge capital requirements for investment with a likely future payoff, but in a mid-sized post-industrial nation with limited growth prospects, expiring natural resources and few competitive advantages, it is a sign of impending disaster.

£1 in every 6 that is being spent in this country this year is being funded by extra government borrowing with no particular reason to think it will be repaid. Just think about that the next time you are in the supermarket. One person in 6 shouldn't be there, one car in 6 shouldn't be on the road, one commuter in 6 hasn't really earned their train fare. More importantly, one third of all our doctors, teachers, nurses, policemen are paid for by the thrift of other nations.

An uphill struggle

Yesterday saw the launch of a hydrogen car whose designs will be available online so the cars can be built and improved locally. The Riversimple car will reach 80km/hr (50mph) and travel 322km (200mi) per re-fuelling, with an efficiency equivalent to 300 miles to the gallon.

Sounds neat, and digging deeper the car achieves some of its efficiency from a novel electrical system. Instead of using batteries or driving the wheels directly from the motor, the hydrogen fuel cell is used to charge ultra capacitors which will power the engine. Why is this such a good idea? The instantaneous power required to accelerate a car is much higher than the power needed at "cruising speed" so the designers think that they can use the capacitors to give a boost of power when required, achieving an istantaneous power evel much higher than the output from the engine. Their fuel-cell motor has an output of 6kW, compared with the 50kW output of a Smart car.

Sounds great in principle, but cars don't need a 20 second power boost to accelerate. They also need energy to go uphill, and with a 500kg mass of driver plus car, an 80% efficient power system with no frictional losses could only go uphill at the rate of 1 metere per second, or about 15mph on a 15% slope , but probably less.

The car will be available in a number of cities. I would suggest as flat as possible, Lincolnshire or the Netherlands sound good, and avoid Bath, Edinburgh and Rome.

The client state

Are we seeing green shoots of recovery? Not even close. US industrial production figures recorded their 16th monthly drop in May according to Fed data released on Tuesday. The glaring figure, though, was industrial capacity utilisation which dropped to a record-low of 68.3 per cent. The manufacturing figure came in at an even worse rate of 65 per cent. Prior to this recession, the low for the series which began in 1948, was 68.6 per cent set in December 1982.

UK unemployment is rising faster in this recession than at anytime since the 1980s, according to official figures. UK unemployment rose to 2.261 million in the three months to April, the highest since November 1996, according to the Office for National Statistics. The jobless rate rose to 7.2%, the highest since July 1997. The number of people claiming unemployment benefit rose by 39,000 in May, less than the 60,000 which had been forecast by analysts. The claimant count rate rose to 4.8%, the highest since November 1997.

Still if you live and work in the la-la land that is the public sector you won't have felt any of this. In fact you will have been stirred by Labour statements that there will be cuts if Conservatives form a government after the next General Election, and cuts mean job losses for thousands of doctors, nurses, teachers etc.

That isn't even close to the truth, although it is clear that there will be cuts who ever is in power. But it doesn't stop the Labour Party gunning desperately for the votes of public sector workers, who have been largely unaffected by the recession that has ravaged the private sector, causing people to lose their jobs, careers and homes. This is simply a dog-whistle message. When public sector workers hear the words "cuts in services" they don't think of the pour souls who might fail to benefit from those services, but the loss of their own jobs.

But it's coming. Whichever party wins there is a £175 billion annual deficit to fix, and a lot of that is going to come from cuts.

Just remeber this: the number of people in public sector employment was 6.02 million in March 2009, up 15,000 from December 2008, while the number of people in private sector employment was 23.09 million, down 286,000 from December 2008 (ONS, Labour Market Statistics, first release June 2009).

In the three months to April average earnings, including bonuses grew by 0.3% in the private sector, compared to a rise of 3.6% in the public sector (ONS, Labour Market Statistics, first release June 2009).

Look who's back

The government wants to start another tax. This time it's 50p a month on every phone line, on the promise of something to do with digital inclusion. The press would have realised that it was just the thin end of the wedge, sure to go up every year in the Budget, and like road fund duty, nothing to do with the underlying costs it is purported to pay for.

In essence the government is telling you to pay for somebody else's internet access. Remember the story about Williie Walsh asking BA employees to work for free? Do you see a trend?

So how do they dress it up in the media? By dredging up Martha Lane Fox, and splashing her picture all over the papers as a "Digital Inclusion Champion", not that anyone asked for one. Indeed she seems to be in place to handle a problem that hasn't happened yet, nor does it seem likely. The internet has developed quite well so far without massive government intervention.

As a counterblast of all the pictures of Lane Fox that will appear in tomorrow's paper, here is a different image, the Lastminute.com share price, the closest you will get to exponential decay without resorting to radioactive materials. Let us not forget how at the start of the millenium, Ms Lane Fox and chums managed to turn a £316 million flotation into a £25 million company. With that on her CV, no wonder she has to scrounge for work on the government payroll.

Is the US still a safe haven?

Following on from the Chrysler story of third world shenanigans, we have the news that at least one Wall Street bear thinks that the US may lose its AAA credit rating. Technical analyst Robert Prechter, known for predicting the 1987 stock market crash, said he sees the United States losing its rating by the end of 2010, as the government issues trillions of dollars in debt to fund efforts to bail out the economy.

Fears about the long-term vulnerability of the prized U.S. credit rating came to the fore after Standard & Poor's in May lowered its outlook on Britain, threatening the UK's top AAA rating. That move raised fears that the United States could face a similar risk, with the hefty amounts of government debt issued in both countries to pay for financial rescues causing budget deficits to swell.

The economy "is obviously heading toward a depression," despite the government's efforts, said Prechter. Federal Reserve Chairman Ben Bernanke has not averted a re-run of the 1930s Great Depression, even though investors are becoming firmly convinced that the Fed has avoided disaster and that the economy has hit bottom. "It's the next leg down (in stocks) that will make it clear that these things are not true," Prechter said.

Klutz of the week: Willie Walsh

Enough of politics for a while, the business stories are just too good to let go, and in particular we like to highlight the inadequacies of those in senior positions in major public corporations, so first up is chairman of Citigroup, Richard Parsons, who told a meeting on Monday that the bank may find it harder to retain and attract top employees while the bank is holding on to federal bailout money.

"I do worry we could be competitively disadvantaged if we aren't able to find a way to quickly repay TARP," Parsons said at a forum sponsored by Time Warner Inc, where he used to be chief executive. Look pal, if your “talented” executives weren’t losing billions, you wouldn’t need any bail out money. Go figure. It may not be such a loss.

But best of all is that perennial figure of fun, whose idea of a business plan for a highly capitalised well-run premium airline with high value prime time landing slots was to turn it into a low cost carrier. Willie Walsh has already announced that he will not take a bonus this year, even though the airline helpfully revamped its executive compensation scheme so he could still profit when BA made a loss. Mr Walsh is nevertheless entitled to an allocation of shares if BA outperforms its rivals, or to be more accurate, underperforms less badly than its rivals, and that is on top of his £735,000 basic salary.

But that is not the end of his frugality. Mr Walsh has also announced that he will not be drawing his salary in July, perhaps safe in the knowledge that the £60,000 cost will not cause too much of a dent in his bank balance. But he has asked the 40,600 BA staff to do the same, also telling them the company was looking for job cuts.

He said, “The new unpaid work option means people can contribute to the cash-saving effort by coming to work while effectively volunteering for a small cut in base pay”.

Get real. The idea of a business is that you invest capital and employ workers, by the fruits of which you sell goods and services on which you make a profit. If you ask your staff to work for free, that isn’t a business. That’s a hobby. Many airlines are started because pilots think they can turn a hobby into a business, but it looks like Walsh will finish of BA by going the other way.

Walsh has lost the plot. He might as well try to get his business out of trouble by asking his customers to pay for tickets and never fly, or suppliers to deliver their goods and tear up their invoices. If he can't make the business work wthout asking for charity handouts, then he shouldn't be in his position or drawing any of his £735,000 salary.

It's time for a new pilot in the cockpit. Perhaps one who knows how to navigate as well as bossing the cabin crew.

On reflection, make that klutz of the year so far.

America: Democracy and the Rule of Law

One of the problems with doing business in many African and some Asian countries is that a plaintiff may have a hard time securing justice through the legal process. Dealing with a government in western countries is always difficult, but elsewhere it may be nigh on impossible. The court system may be said to be founded on European principles, often French or British, but somehow the result often seems to be less satisfactory. Powerful interests seem to have a way of prevailing, and the hand of the government may be seen in the background, pulling stings for the benefit of those that help to keep it in power.

Consider then the plight of the pension fund of the State of Indiana, the Indiana State Teacher's Retirement Fund, and a few others who chose to challenge the White House's involvement in the Chrysler bankruptcy filing.

Chrysler filed for bankruptcy because it had taken on debt which they would never repay. The bankruptcy process is relatively simple in principle. The assets of the bankrupt company are sold to the highest bidders and the proceeds are distributed to the creditors, but not all creditors are created equal. There are a long line of people trying to get their money back, and the bankruptcy law specifically stipulates who has the highest priority.

A company raises capital by issuing shares and debt. The debt can be secured on the assets of the company whereas the unsecured debt relies of the general credit of the company, but because the secured creditors are taking less risk on the company. At the front of the line in a bankruptcy stand the secured creditors, followed by the unsecured creditors. At the back of the line are the holders of common shares. Somewhere in the middle are preferred shareholders. When debt is issued secured creditors generally accept a lower rate of interest than unsecured creditors because they take less risk.

The White House interfered in Chrysler's bankruptcy, arguing that normal bankruptcy procedure should be ignored in the “interests of other stakeholders”, and that secured creditors should not take precedence. Most of the secured creditors were already in hock to the government through TARP, so their complaints did not last long, but the Indiana pension funds were not so sympathetic and asked the Supreme Court to strike out the bankruptcy filing, but after a stay, Judge Ginsberg let the filing proceed.

So the teachers and firemen of Indiana will suffer from the actions of the executive branch recouping about 33 cents on the dollar for their secured debts, but who is the principal beneficiary? By all accounts it is the United Auto Workers Union and their pension funds who will get 55 per cent of the residual value of the company for their supposedly higher risk unsecured paper. Under normal bankruptcy law the secured creditors would have got their money back in full before the UAW saw any value.

But then the Indiana public servants didn’t contribute to the Obama presidential campaign on the same scale as the UAW.

It was never going to happen

The funding gap between state and private secondary pupils has grown by 20 per cent in three years. When Gordon Brown announced his objective to lift state spending on children to the private sector average in his 2006 Budget, the average bill for a private school day place was £8,150, while spending in state schools was £4,750 per pupil.

Since then, the gap has increased from £3,400 to £4,446, with the Independent Schools Council (ISC) putting the average annual fee for day pupils at £10,296 in 2008/09 compared to the £5,850 spent on each pupil in a state school.

And the gap has grown by more than 50 per cent since 2002 to almost £4,500 a child, according to ISC figures. In 2002, private schools were charging an average £6,550 compared to the state school spend of £3,650 - a gap of £2,900.

The pledge was always likely to prove undeliverable for the simple reason that private schools only stay in business by spending more on education than state schools can afford. If that meant that they became unaffordable for some and the number of private schools fell, then so be it, but so long as private schools remain affordable for some, they will continue to exist.

Which is why government ministers have changed their tune and now say that Mr Brown's 2006 goal was to bring state spending up to the then private-sector average of £8,150, which of course it wasn't, but that is history and there is no more money in the pot.

A bit more on Ronaldo: the Beckham Law

With the caveat that this is not tax advice and I lifted it straight from Wikipedia, it seems that CR7 might have cut himself a sweet deal tax wise. Well this is what Wikipedia says:

On June 10th, 2005 the Spanish government approved Royal Decree 687/2005 implementing the Personal Income Tax regulations in relation to article 9.5 of the Spanish PIT Law. The "Beckham law", as it is commonly known, regulates the procedure to apply for the new Spanish tax regime for expatriates in force since January 1, 2004.

The change of legislation allows an individual who has relocated from another country to Spain the choice of being taxed as a Spanish resident or as a non-Spanish resident. The choice applies in the year of arrival to Spain and continues for the following five years. By electing to be non-resident, one can limit their liabilities to Spanish taxation to Spanish income and assets only and not on a worldwide basis. Thus under Spanish Non-Resident Income Tax rules they may avoid tax on their worldwide income for a period of up to six tax years provided that certain conditions are met.

Should such a choice be made, the expatriate will be subject to Spanish taxes on their Spanish source income and on their assets located or exercisable in Spanish territory, being subject to a flat 25% tax rate on his salary income instead to the progressive tax scale for resident individuals (ranging from 15% up to 45%) during the year of acquisition of the Spanish tax residency and the following 5 consecutive years.

Not bad at all. A 25% tax rate instead of the UK 50% rate and no tax at all on foreign source income. A little like the UK non-dom rules, but without any of the messy "bringing income onshore" rules. Very handy if you have a big deal from foreign sponsors, international image rights, worldwide endorsements etc. Particularly if you have a relatively short career like a footballer.

When should governments invest in banks?

About 20 years ago a Harvard Business School professor lectured to me and others that the only logical reason why a shareholder should logically support an acquisition of another public company (in which the shareholder could have taken a stake) was for the tax benefits. As it happens, I think he was wrong, but he had 75% of a point.

Now it seems the boot is on the other foot, and if I was a US tax payer, I would want the government to take a major stake in Citigroup. Why? Because of the tax.

Citi has been reported as creating a poison pill that would deter investors and hedge funds from building up a large stake in Citi as well as deterring existing shareholders from increasing their holdings. If an investor buys a stake of more than 5 per cent in Citi, or if an existing shareholder with more than 5 per cent increases its holding by more than 50 per cent, all other investors will in effect be able to buy one share for every share held at a 50 per cent discount to the market price.

Citi people said they introduced the measure because US tax rules threatened Citi's ability to benefit from a $43 billion tax benefit. Those rules limit companies' ability to use prior year tax losses when more than 50 per cent of their shares are held by investors with stakes of more than 5 per cent. If Citi loses its right to use some of the tax benefits it has accumulated over the years, it will have to write down substantial deferred tax assets, book big losses and lose Tier 1 capital.

But if I was a US tax payer, I would be saying to myself, that is $43 billion of future taxes that may or may not be going to the US treasury.

What is the market cap of NYSE:C? About $19 bn. So a 50% stake from the US Government in Citi would run to about $10 bn, for an immediate payback of $43 billion in eradicated tax benefits, plus there might even be some upside in the shares!

Citi never sleeps, but Uncle Sam is snoozing on this one.

Sports news: UK tax flight starts

A few weeks ago, Andrei Arshavin commented in the national press on his pay packet. Since joining Arsenal in the January transfer window the Russian midfield wizard has dazzled the fans of the North London team with his fancy footwork and creativity, but it seems that Mr Arshavin now considers that his move to the Premier League may have been one of his less astute manoeuvres.

Arshavin agreed a deal worth £80,000 a week, more than the €106,000 wages he earned at Zenit St Petersburg, but as is often the case, he was surprised upon receiving his first payslip to find that his bank account had been topped up by a much lower amount. Arshavin had been used to a relatively low income tax rate of 13 per cent in Russia. Now he has learnt that next year he will have to pay the new 50 per cent tax rate on his annual earnings over £150,000, which in his case means £77,000 of his £80,000 weekly pay.

The 27-year-old said with customary delicacy: "I have a problem with my contract. Certain nuances emerged linked to taxation and some other things. As a result, I’m getting less money than I expected. My advice to other Russian players who may move to England in the summer is to take contract matters more seriously. It’s important to understand clearly and in detail what money you are going to get and what taxes to pay, so that there are no unpleasant surprises of the kind I am facing now. Nothing should be done in a rush."

English football clubs should take note. Their revenues from TV rights and match day tickets may be higher than their continental rivals, but despite paying lower wages (often 70 to 75 per cent of a club’s revenues) continental clubs could look a more attractive option with lower tax rates in Spain (25%), France (40%), Italy (43%) and Germany (45%), particularly to players who instinctively go for the net.

Indeed, this morning's news that Manchester United have agreed to sell Christian Ronaldo to real Madrid will be no surprise. The player may have wanted to move for some time, but not only will the player take home the same at £100,000 a week in Madrid as he would have banked at £150,000 in Manchester, but he will pay hald the amount of tax on the earnings from his not considerable wealth.

The loss to the UK exchequer is clear and the extra stamp duty from a house sale won't come close to filling the gap.

It tells you something ...

... when the most intelligent talk on politics and the economy is not on the news channel, the business news or the political programmes, but on the Comedy Channel.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Peter Schiff
thedailyshow.com
Daily Show Full Episodes Political Humor Newt Gingrich Unedited Interview

"Too many Americans bought too much stuff that they couldn't afford with money they didn't have and now we need to go back to a basic economy where the economy grows based on under consumption, where we save more and consume less."

"But all we have is our consuming. We don't have a manufacturing base any more. We don't make anything any more. We don't do anything. All we do is buy stuff. You take that away from us and we're Poland".

Classic.

The engines cannae take it any more, cap'n.

Oh, such is the wailing from the NHS Confederation you would think that the end of the world was nigh. Apparently the NHS will cease to exist if the £110 billion budget is not increased in real terms. I'll say that again for the benefit of those who might have missed it: £110 billion, or as near as damn it a quarter of all the money raised through taxation.

Are we spending more or less than the rest of the world?

Well, here are the figures for government health spending as a percentage of GDP from 2004 for the 25 most developed countries:

Iceland 8.3, France 8.2, Germany 8.2, Norway 8.1, Austria 7.8, Sweden 7.7, Luxembourg 7.2, Denmark 7.1, United Kingdom 7, United States 6.9, Belgium 6.9, Canada 6.8, Switzerland 6.7, Australia 6.5, New Zealand 6.5, Italy 6.5, Japan 6.3, Israel 6.1, Ireland 5.7, Netherlands 5.7, Finland 5.7, Spain 5.7, Greece 4.2, Singapore 1.3, Hong Kong 0.

So that puts the UK on 7% at about ninth place. Except that as we now know in 2011 it will be £110 billion out of around £1,400 billion GDP, which would be 7.9 %, enough to put the UK in 5th place.

But hang on. We know that £175 billion of UK GDP is not self sustaining economic activity, but pump priming financed by egregious government borrowing. A more sustainable level of borrowing would be the supposed limit on budget deficits for the Euro area, 3% of GDP or about £50 billion. So to put the UK's spending in perspective, let us compare NHS spending with what we might term "UK long term sustainable GDP", which would be £1,400-175+50 billion, or £1,275 billion.

That gives a figure of 8.6% of GDP which puts the UK NHS in first place.

And now for something completely different?

George Osborne gave a speech to tha ABI at their annual conference, and for once it sounded as though it was written by someone who knew what they were talking about. It may be woolly fluff or he may be serious, but I liked this bit:

The charge of short-termism and underinvestment in long term productive assets has frequently been aimed at Britain's economic model, and with some good reasons.
We have lower levels of physical capital per worker than our main competitors, and research by the OECD and the National Institute of Economic and Social Research has shown that in key sectors this is an important part of the explanation for our long-standing productivity gap with countries such as France and Germany.
Our physical infrastructure is older and far more congested than the average for OECD countries, particularly our transport and energy networks.
And our levels of investment in R&D and innovation are significantly lower than the US, Japan, Germany and France.

The Labour government actually took a step forward by reversing some of the disincentive to investment coming from the 6% writing down allowances on long life assets. Which international company was going to site its long life assets in the UK when it could choose other European countries where they get to write off more than 80% of the asset cost over 25 years? That was a Conservative policy, and I can't recall any major investments where the UK was chosen over other countries since 1996. In the current budget the rate has been increased to 10%. which is probably about right.

But the Labour went the other way reducing the general rate of writing down allowances from 25% to 20% and by setting a rate of 10% for integral fixtures in a building. This includes, by way of example, "air cooling or air purification", so the government can kiss goodbye the idea that any high-tech firm will set up any chip fabrication plants in the UK.

Last of all, but most importantly a Conservative government should scrap all of the Labour government's legislation and there are dozens of pages of it eneacted since 1997, which aimed to stop the bank's leasing large items of plant and machinery to UK companies under tax based finance leases. The government effectively cancelled the primary means of leveraging inbound investments until 1997, that financed not only the Toyota and Nissan car plants, the NEC factory in Scotland, most of the offshore drillships in the North Sea, the gas interconnector to the cntinent and the electricty interconnector to Ireland. More importantly it would put the UK back on a competitive footing with Germany and France where such finance is widely available from their banks. A big ask, perhaps, but these are desperate times.

Hampshire horror story moves on

Dear Reader, you may remember the tale of Nicola Horlick and her battle with Vincent Tchenguiz, which had all the ingredients of a Jane Austen novel.

It is now time fr the next chapter, for Ms Horlick's company, UK asset manager Bramdean Alternatives, has named the mysterious suitor who has emerged as a rival the proposal by property tycoon Vincent Tchenguiz. It is none another Hampshire name, Petersfield Asset Management Limited, beneficially owned, forsooth, by none other than Nicola Horlick.

Ms Horlick, as one well remembers, made a name for herself by flouncing out of Deutsche Bank. She then courted the womens' pages in the national press by presenting herself as the only woman to have ever worked and raised a family at the same time. Not necessarily successfully, because as readers will recal from last year, while Ms Horlick took care of her family, she aske Bernard Madoff to babysit a substantial part of her investors' money, which is one reason why Bramdean Alternatives reported a net asset value of $257 million at the end of July 2007, but only $181 million in March of this year.

Mr Tchenguiz, who holds a 28 percent stake, has called for an extraordinary general meeting on June 18 to replace the chairman and directors.

To paraphase Jane Austen, it has become a truth universally acknowledged, that a single man in possession of a good fortune is in need of a woman to spend it for him, but paying 2% annual management fees for the privelege adds insult to injury.

Scottish banking disaster: 1,500 innocent bystanders wiped out

If you are one of the 1,500 people who stand to lose their jobs because Lloyds Banking Group is to close all 164 branches of Cheltenham & Gloucester, you would undoubtedly be pretty pissed off right now.

After all, when the "merger" with HBOS was announced it was pretty clear that the LLoyds businesses were pretty robust and the mortgage book was reasonably sound, although not perfect. One would have thought that any job losses would have fallen on the other side of the fence.

Moreover, when the Prime Minister waved the merger through all the normal anti-monopoly processes, it would seem that the bank and its employees were getting a free ride.

Not so, beause what Brown and his lackey Victor Blank forgot to mention was that the EU also has a say in these matters and they don't look to kindly on the notion that the average British High Street should be full of Lloyds Bank operations selling mortgages.

I don't really see the problem with that. If Lloyds wanted multiple operaions selling against each other I am not to bothered. They don't have a monopoly on High Street sites. There are plenty of empty storefronts in most British towns, and more outlets will generally mean more choice not less.

No doubt the reality is that Lloyds management see the excess capacity as ripe for cost saving, but ne can't help seeling sorry for all the diligent C&G workers who will lose their jobs as a result of an exercise to bail out another incompetently run Scottish bank.

Did anyone else notice

.. that while the world's press was looking the other way at a Committee Room in Westminster, LDV vans went into administration? P45s all round.

From Dr Seuss via Dan Hannan

Gordon Brown will you please go now!
The time has come.
The time has come.
The time is now.
Just go. Go. Go!

I don't care how.
You can go by foot.
You can go by cow.
Gordon Brown will you please go now!

You can go on skates.
You can go on skis.
You can go in a hat.
But Please go. Please!

I don't care.
You can go
By bike.
You can go
On a Zike-Bike
If you like.

If you like
You can go
In an old blue shoe,
Just go, go, GO!
Please do, do, do, DO!

All you need to know about yesterday's election results

Results are now in from Scotland and N Ireland, and as things stand about one person in 19 voted for the current government or about 1 in 25 of the whole population.

Another pointless statistic is that the expected increase in the National Debt over the next 4 years is about £325,000 per Labour voter. Thanks guys.

No really thanks a bunch. That explains why, after last week's election, Labour has fewer County Councillors (146) than MPs (283).

Oh and the BNP (not that I am a fan) polled more votes in Yorkshire and the North West than Labour polled in the 10 seat South East region.

Artificial sweeteners for Lord Sugar?

Conservative Shadow Culture Secretary Jeremy Hunt MP issued a statement this morning regarding the appointment of Alan Sugar as an entrepreneurial tsar/csar:

"Presenting a programme for the BBC and working for the Government on the same issue is totally incompatible with the BBC's rules on political independence and impartiality. Sir Alan Sugar needs to make a choice between his role in The Apprentice and his role as the Government's business tsar. I have written to Sir Michael Lyons and asked him as a matter of urgency to explain who at the BBC gave guidance to Sir Alan and whether he had informed them that he would be a Labour peer."

John Whittingdale, Tory Chairman of the Culture Select Committee, has already objected in a similar fashion:

"In my view, it is not possible for him to continue to present The Apprentice at the same time as he is so closely identified with the Government. I had assumed that by accepting the role as enterprise tsar, he would stand down from his role in The Apprentice. His show is all about business and enterprise. he will be making recommendations on policy to Government. He is already a political figure – he has made no secret of his admiration for Gordon Brown. Either he is an influential figure in Government or this is just window-dressing."

Both of which miss the bigger point. Sir Alan is the owner (and Chairman of the board) of Viglen Ltd, an IT services provider catering primarily to the education and public sector. Following the sale of Amstrad PLC to BSkyB, Viglen is now Sugar's sole IT business.

Viglen announced on 30 April 2009 that it had been awarded a contract by the Office of Government Commerce (OGC) to supply a range of computer equipment to the public sector.

The company said that the award of the contract will see Viglen supplying over 45 central and local government councils, including a number of NHS and local education authorities, just under 70,000 computers over the next two years. The contract is a 24-month supply agreement with a 12-month extension period, and has the potential to grow further to include educational establishments, charitable organisations, social enterprises and the voluntary sector.

Viglen expect the total value of the contract to be worth up to 30 milllion pounds.

Now that is a real conflict of interest.

Why is Brown hanging on?

Can things really get better for him over the bnext year? Probably not, but perhaps he is mindful of this Persian tale:

Nasrudin was caught in the act and sentenced to die. Hauled up before the king, he was asked by the Royal Presence: "Is there any reason at all why I shouldn't have your head off right now?"

To which he replied: "Oh, King, live forever! Know that I, the mullah Nasrudin, am the greatest teacher in your kingdom, and it would surely be a waste to kill such a great teacher. So skilled am I that I could even teach your favorite horse to sing, given a year to work on it."

The king was amused, and said: "Very well then, you move into the stable immediately, and if the horse isn't singing a year from now, we'll think of something interesting to do with you."

As he was returning to his cell to pick up his spare rags, his cellmate remonstrated with him: "Now that was really stupid. You know you can't teach that horse to sing, no matter how long you try."

Nasrudin's response: "Not at all. I have a year now that I didn't have before. And a lot of things can happen in a year. The king might die. The horse might die. I might die.

"And, who knows? Maybe the horse will sing." "

PM's expenses

In view of the fuss made over wreaths and church collections, it is surprising that we haven't heard more about the fact that the Prime Minister claimed £30 on his office expenses for the cost of hiring a bagpiper to play at a ceremony for veterans.

The same report for the Telegraph says that Mr Brown flipped the designation of his second home before moving into Downing Street and submitted an estimated electricity bill for his home in Fife which partly covered a period when his London flat was his designated second home.

He also claimed for council tax and service charge bills for his London flat for periods when his second home was in Scotland.

And how was this different from any of the MPs who have been barred from standing again?

Spot the odd one out

Top headlines in today’s media.  See if you can spot the one with the different angle

Gordon Brown fights for his political life as 75 rebel MPs urge him to stand down - Mirror
Brown hangs on, for now - Guardian
Campaign to oust PM gathers pace - Independent
Labours cybermen are ready to delete PM - Sun
Plot to oust Brown as Labour fears poll disaster - Times
'Don't sign Gordon's death warrant': Mandy begs MPs to snub anti-Brown email as Milburn and Byers are named as plotters - Mail
Gordon Brown fights for his political life - Telegraph
GO NOW: LABOUR MPS TELL BROWN TO QUIT FOR UK'S SAKE - Express
Brown fights for survival -- Rebel MPs prepare resignation call – FT
UK votes in MEP and council polls – BBC Website

No bias at the BBC then.

 

Another game of hide and seek

Having tried for months to hide the details of their own expenses from the public gaze, MPs are now getting uppity about the amounts that the "talent" at the BBC take home, and worse still that the BBC tries to keep the details confidential.

The Public Accounts Committee has complained that the National Audit Office was not given access to individual salaries because it would not sign a non-disclosure agreement. The BBC Trust said that was because it had "legal obligations to staff" to protect the details. In February, the NAO reported that BBC stars were paid more than commercial stations and that about three quarters of budgets for breakfast and drive-time shows were spent on presenters.

Edward Leigh MP accused the BBC of fighting "again and again" not to disclose the salaries of its radio presenters, and said the public should have at least "an idea" of what they earnt.

"It is disgraceful that the NAO's lack of statutory audit access to the BBC puts the corporation in the position to dictate what the spending watchdog can and cannot see. The reason why they give this excuse is because they have fought again and again to prevent parliament, the National Audit Office, and the Public Accounts Committee getting full statutory access to the BBC which is wholly owned by the public," he said. "Because we don't have statutory access they can then plead data protection. If we investigated the BBC like every other government department then data protection would not apply".

You only have to look at the excuses put out by the BBC to see he has a point:

1. Staff employment agreements are subject to confidentiality agreements. I have never seen a properly drawn up confidentiality agreement that didn't provide for disclosure to government agencies, as and when required. In the case of the BBC, all employment contracts could and should provide for review by the NAO.
   
2. Full transparency would lead to demands for higher pay. Not so. The MPs' expenses scandal shows that when the public sees how much public sector workers are paid, they will press for the amounts to be reduced. Indeed if the stars really believed transparency would lead to higher pay, why would they be so keen to have the figures kept confidential?
   
3. The Corporation's governing body, the BBC Trust, says staff have a right to privacy under the Data Protection Act, balanced against the public's right to know how public money is spent. BBC staff are to all intents and purposes paid out of the public purse, albeit through a hypothecated annual duty levied on the use of television sets. Other public sector workers accept that their pay is subject to public scrutiny and publication.
   
4. If their pay was disclosed it would be easier for stars to be poached by commercial channels. Commercial channels pay less than the BBC so that is hardly likely. It is more likely that other performers would undercut the BBC's "stars" by offering to do the same work for less money.

You’ll have to help me out here

I am still trying to figure out the Iraq War.

Obviously we didn't go to war because of weapons of mas destruction. The UK bomb factory at Aldermaston is massive, as is the site at Porton Down, so these stories about mobile weapons labs were obviously pure fantasy.

Then Dick Cheney stands up and says there was no link between Saddam Hussein and 9/11. Well we all knew that, but so did the US administration, so that leaves petrol as the only possible reason.

But then the next thing you know, General Motors goes and sells Hummer to the Chinese.

Now I am foxed.

Push any harder and the hedge funds will push off

Hedge funds don't like being regulated. Lack of regulation is in effect the
sine qua no of hedge funds. After all if they are trying out all sorts of
financial gymnastics, the last thing they want is a bureaucrat telling them
whether they should be doing back-flips or somersaults. Such is the
international nature of the hedge fund business that they are not
particularly wedded to any particular country. If they want to short
Turkish government bonds whilst taking a long position in peso volatility,
they can do it from the comfort of their beach villa in Grand Cayman just as
easily as they can from their mansion in Connecticut or their Mayfair mews.

So imagine their consternation when the EU issued a draft directive on
alternative investment funds that would limit their capacity to borrow.
Private equity firms are also caught by the rules. What upset most of the
hedge funds is that the rules try to capture the implicit borrowings in
derivatives as well as traditional borrowings.
"If this directive goes through as drafted, large chunks of the industry
will be leaving Europe, whereas we have the opportunity today to have large
chunks of this industry coming to Europe," said Ian Wace of Marshall Wce.
The FSA and the Treasury described the borrowing provisions as naive and say
they will fight the directive. If they are as effective as they were in
regulating the banks, expect the shares of intercontinental removal firms to
go through the roof. We repeat our buy recommendation of a few months ago
on Zug real estate.