Some news articles that caught my eye...

Facebook juror sentenced to eight months for contempt

When jurors go bad...

Yes, this is a story of a juror who thought they knew better than the judge and not only contacted a defendant via facebook but carried out her own internet research into the case.

The whole point in a jury is that you try the case on the information presented to you in court, to do anything else however tempting is just not fair justice for the defendant.

It may seem a bit harsh for this woman to spend up to four months in jail but I agree with the Solicitor General a message needs to go out to jurors that this is not acceptable. The whole foundation of our justice system can be contaminated by actions like this. Every defendant has the right in fairness to them to be tried only on the information presented to the court i.e. past history wont affect the burden of proof.

Banks must ring-fence retail operations, Osborne to say

This is about tighter regulation of the banking system to ensure the credit crunch doesn't happen again. Step1 is that Banks must hold more capital reserves, the international recommendation is 7% and in the UK the chancellor has gone for 10%, reminiscent of Gordon Brown's prudence. Step 2 is that the retail arm of a bank will be ring fenced from the investment arm. In practical terms this means that if a bank does fail the government could save the retail arm whilst letting the investment arm fail.

One criticism of this policy is that the banks will pass charges and costs on to the public. Well in my humble opinion you either make regular small payments or one big payment when we bail the banks out when they fail again. What we need to accept is that safe banking may actually cost us a bit more than it used to. The benefits are that we wont loose our money and we wont have to go through what has been an awful credit crunch again.

Another criticism is that the ring fencing doesn't go far enough, banks will still drain a retail arm to prop up an investment arm. Without all the technical details it may be difficult to work exactly if this might happen, but I look on this as more of a positive. A looser ring fencing policing will mean that the banks are not in a rigid straight jacket and can work within loosely defined boundaries to the benefits of the banks and the customers. For us, the customers, if we leave the banks with some flexibility then the costs for the retail banking side will be slightly lower.

To implement both of these policies seems a very sensible incremental policy change and not a knee jerk reaction that is unnecessary or costly.

Ash and Political Clouds - Some thoughts

Well first of all its been a while, it has been a hectic couple of months and once you dont write for a week you get a bit of a fear factor about sitting down at a computer and downloading your thoughts onto a blank page. The ever problematical writers block. Never mind.

However, with all that is now going on in the world the great need to write overpowered my fears.

Political Clouds

So the UK made history on Thursday with the first live election debate. To be fair the chancellors debate was much better this one was just like the normal bickering that happens at prime minsters question time.

The production by ITV was fairly mediocre including the impressive gaff of turning the sound down on Gordon Brown for the first few seconds of his initial speech. Then you got the presenter barking at the candidates "Mr Clegg!, Mr Brown!" its almost begging for a rap remix. All you needed was Simon Cowell and the X factor judges to create a programme of typical itv trash. At any moment during the programme you were waiting for them to announce details of the phone / text vote.

The Liberal Democrats are the ones coming off best though, out of the two debates they have won both, in fact the chancellors debate was won even more convincingly that the prime minsters. Yet does this translate into a win for the liberal democrats. The situation is very complicated but it would appear not, one poll taken soon after the debate suggested they would get up to 40 more seats. In a hung parliment they would have a significant say but no overall majority. On a constituency basis the situation has many factors to consider one of which is whether the previous MP cheated their expenses. Obviously if they did their will be a vote swing away from the MP or the party but to who. This could be the party who does best in the tv debates rather than just the second place person. I believe all these factors make this particular election unlike any previous one. Elections are normally impossible to call and I would argue this is super impossible to call. We wont know who has won until they are standing outstide of Downing Street saying "I have won".

Another interesting thing is about what is the acceptable image for a UK Prime Minister. I would suggest that the UK population has now got it into its head that to be a succesful prime minster you have to be a Tony Blair clone, ie no more old men. Out of the three you have David Cameron and Nick Clegg who have the Tony Blair look and Gordon Brown who has the old man look. Hence we will elect one of the other two and not Gordon Brown. If Labour ditched Gordon Brown and got themselves a Tony Blair clone would there be a massive swing back to Labour.

Well the next debate is next week and we will see what that brings.

Note:For editorial reasons to allow the reader to determine potential bias I declare myself to be a Liberal Democrat supporter.

Ash Clouds

This is a great news story for TV because in reality there is no visible ash cloud over the UK. News editors are so used to having pictures that they are showing you the ash cloud coming out of the volcano which must have lead to some of the less intelligent members of society looking out of the window for this massive ash cloud. They will never see it because the ash cloud over the UK is invisible apart from a haze over the horizon or possibly the dust on cars etc.

So technically the pictures and the story are not quite matching up.

Anyway the ash cloud is coming down on a north west wind which at least until the wind changes means it is here to stay. In the UK we normally have south west or west winds which bring us warm damp weather on the gulf stream. The North wind predominating our weather system at the moment is also why we had the heavy snow fall earlier in the year.

So, we could have on and off international air travel for the entire summer. Based on that premise I was thinking that if I was a canny airplane operator as soon as there was a gap over Heathrow or the south east airports I would move all my planes to either Scottish, North West or South West airports which in my mind based on the last couple of days are likely to have more potential slots than the South East. If this happens, potentially over the long term could it affect the South East's status as the UK economic regional powerhouse.

As Nick Hewer off the Apprentice would say " I will leave it with you..."

Petrol, major rail projects and poor government policy

Gordon Brown is busy at the G20 summit trying to push a spending agenda to bring the world out of recession.

On the same day Gordon is saying that, there are two minor stories to suggest that he might need to get his own house in order before telling the world what to do. This is not to suggest I don't agree with Gordon's plan to use government spending to boost the economy but that doesn't stop me pointing out what are really some quick wins that have been missed.

After all the role of the voter is to hold the government to account.

Fuel Duty

Today there was a 2p rise in fuel duty which had been planned all the way back in November at the beginning of our darkest months / downturn / credit crunch whatever those media people want to call it today. I fundamentally agree that the price of fuel should reflect the true cost of car use in terms of the environment and emissions.

What I would argue is that the duty rise should have been postponed by six months. This is coming at a time when consumers and businesses are already suffering from a squeeze on their finances. This is just a kick in the teeth.

It is also money that will go straight into the treasury rather than be used on the high street. Think of it as a Vat rate cut in reverse, if you reverse the argument that the government used for the Vat cut then surely putting on the fuel duty raise will take money out of people's pockets and therefore stifle economic growth.

Taxation is often about smoke and mirrors but this is perhaps a step too far.

Major rail projects

A big aspect of the agenda is to invest in capital projects, several of which could be major transportation and railway projects. The good news is that the government nationalised the infrastructure of UK railways some time ago. So all it would have to do is loan money at very favourable rates which could be spent on major projects. There are lots of projects to spend the money on as well, several projects are in the planning stages and the government could bring several forward or just create new projects. The railways will happily make use of any money that the government cares to give it.

So are they doing it? The article would suggest probably not. Jarvis one of the main railway contractors who work on infrastructure projects has just cut 450 jobs citing network rail spending reductions as a trigger. Network rail have delayed projects and reduced spending causing a downturn in business for Jarvis and therefore Jarvis are having to trim there business to suit the new economic climate.

So if the government are not putting money into planned existing capital projects where exactly are they going spending this money they keep on talking about?

Clegg joins attack on VAT waste (BBC)

The political parties have taken every opportunity to criticise the Brown / Darling VAT plan. On the face of it you may think the whole thing is too small to make a difference but scientific studies have been done on whether it is better to give tax back as a big lump or as small amounts. I wrote about the research in 2008.

The VAT reduction is the equivalent of receiving lots of small amounts. Rather than save the money I just spend it again, injecting money back into the economy, in affect reducing my vat burden has given me more money to spend. This money will be spent across the whole economy saving jobs in all sectors until like capital investment / infrastructure projects which injects cash through a trickle down affect from some sectors into some other sectors.

I guess Nick Clegg has not read the research as he would want to spend the £12.5 bn on capital projects in schools and hospitals. A good idea and there is no reason why you cant also do this as well but it wont put money back into the economy through the pocket of every person in the UK and it does not reduce the pressure on the public at the time when we need all the help we can get.

The Lib Dems even tried to get the VAT reduction overturned. Sorry Mr Clegg although I usually support you I think the VAT reduction was a good innovative policy backed up by scientific research. Ultimatly it puts more money in my pocket and into all sectors of the economy which as I am sure you agree is a good thing.

You can say a lot about Gordon Brown and Alaister Darling but they do seem to know what they are doing with the economy and they are not afraid to try new and innnovative approaches.

What is the point of Woolworths? (BBC)

So woolies with a failing business model for the last few years has finally become the latest victim in the credit crunch/ recession / down turn or whatever it is being called today. As an aside it is comforting to know that the end of the world will be accompanied by a media friendly name which is supposed to make everything more acceptable.

Anyway woolies has lost its way and the decline has been ongoing for the last few years. You might say it started with the fall of the CD single although that was not the only reason for the fall from grace.

Fundamentally Woolies have tried to compete with everyone and in doing so has made the usual mistake of having too many general products and not enough niche products. What it does well is that it is the retail version of the post office on the high street. In my town apart from Tesco it is the only place on the high street you can buy things like light bulbs. One of the last things I bought from woolies was a kitchen bin which was a third of the price of the equivalent one from their only competitor on the high street.

Even I have started being put off by woolies, the stores seem cluttered and un modernised, the parquet flooring they all used to have is now replaced by cheap flooring. Woolworths is an institution like M & S and like M & S it needs to go back to its roots and discover the reason it was there in the first place.

Any radical revamp would involve cutting its lines by at least half, it needs to concentrate on key areas such as home wares, stationary and children's clothes. It needs to cut the rubbish like books, electrical goods and most of the entertainment isle etc. If the product category doesn't fill a good 5m row of shelving it should go. By all means have two different store inventories based on store size but products need to be comprehensive and fill customers needs. Dare I say it most of the cheap products also need to go. Price the own brand range based on the competitors, don't be the cheapest in the market place, be one of the cheapest with a reputation for quality and good value.

Stack it high and sell it low was never a good strategy for woolies, it never had that kind of brand. Woolies made the mistake of trying to compete against companies on the business parks which had lower overheads. Woolies key strength is that it is on the high street at the centre of the community, it has a range of products which can only be found in woolies on the high street, you didn't need a car to go get what you wanted. This is its strength and this is its core business and this is the home it needs to return to.

Woolies is not dead merely lost in the wood. It has a lot of potential and only needs the right person with the vision to push through the changes.

Leaders welcome G20 action plan (BBC)

Has the credit crisis bought about a new world order, is the G8 now dead, long live the G20.

Only time will tell but at least on economic matters the exclusive club has got a little more inclusive.

"There was a common understanding by all of us that we should take pro-growth economic policies. Whatever we do, whatever reforms are recommended, we need to be guided by this simple fact - that the best way to solve the problem is economic growth, and the surest path to this grown is free-market capitalism. "

-President George Bush

A quote which confirms that the world's most capitalist country still believes that economic growth can solve everything. If you believe in sustainable development this was quite a depressing sound bite. Sustainable development suggests another way of growing in harmony with our resources, neighbours and the environment.

What President Bush can not answer is what happens when we can not grow, or to grow costs too much as resources become scarce. This credit crunch may well be the first of many as anything we do today will only put a crash off and it will make it bigger and longer. Regulation can only delay the inevitable, it will not solve the problem, it is not a fix more a sticker plaster. Capitalism has a flaw in that it involves the relentless pursuit of growth.

The future in this case is not ours to see, que sera sera.

Osborne stands by economy warning (BBC)

Apparently George believes it is his job to tell everyone the truth about the economy.

George ' Mass Hysteria' Osbourne is basically going around doing a private Frazer from Dad's Army, "We are all doomed".

George, this is not helpful and not clever so frankly shut up. In essence unless you have some new ideas or a solution just keep quiet. Leave the people with some brains to continue this conversation and get on with sorting out the economy rather than scaremongering.

"The reason why sterling has fallen by more than 25% is because they don't believe Gordon Brown when he says Britain is better prepared than other economies..."

-George ' Mass Hysteria' Osbourne

I admit it took me a while to remember why the value of a currency drops, the reason is that when interests rates decrease investors withdraw funds from sterling and head for other countries with higher interest rates. The whole premise of capitalism is that the money chases profit, therefore less profit in the UK then the money goes elsewhere. It is not really a judgement on Gordon Brown, it is the equal and opposite reaction from dropping interest rates.

Obviously if as a politician you say that you cant get votes, our political system seems sometimes to be based on having equal and opposite opinions. Getting cross party agreement is the stuff of myth and legend.

Its also interesting to note that the conservative party itself don't have faith in Osbourne's economic skills having drafted in his predecessor to help with some of the fine detail of party policy. Big vote of confidence for poor George there.

The Folly of Growth (New Scientist)

What I love about New Scientist is that they are not just a pure science magazine. With the recent credit crunch they ran a special issue on "The Folly of Growth - How to stop the economy killing the earth".

You see Capitalism is based on a false premise, that we must have continuous growth. The problem with that is with finite resources you cant have continuous growth as at some point resources run out, prices rise and you get shrinkage. This is the fundamental nature of boom and boost, the credit crunch and everything else that is wrong with the economy at the moment.

It means Gordon Brown is wrong, without infinite resources we cant beat the boom and bust cycle. All because of this one simple premise, which everyone can quite clearly see is wrong but no one wants to admit it because to do so would be to admit that capitalism which has worked for 200 years no longer works. A modern tale of the emperors new clothes.

It would suggest that Capitalism is just as flawed as Communism, in fact you could argue that it is more flawed than Communism as to solve the current credit crisis the governments had to move towards communism by part nationalising the banks and increasing government control of the banking system.

Of course with finite resources the logical economic system would be one that is based on efficient use of resources or more precisely sustainable development. So why do we not have a sustainable or steady-state economy already?

Well,such an economy would mean we would have to live within our own means, no more large debts, greatly reduced oil based travel, less hours worked, the redistribution of wealth from the poor, no benefits to saving and investing, and finally greater control over all aspects of our lives.

The transition period would be much harder as well, just think if tomorrow you were told you could no longer own a car, you had restrictions on the electronics you could buy and only 200 air miles for the year for your holidays. Ouch!

Of course there would be an upside, the end of consumerism, the end of boom and bust, less work, less stress, less inequality, living in harmony with nature rather than against it, better public transport, less pollution, stable prices, no income tax (tax would be on inputs and outputs to the environment), less road congestion, the end of global warming, the end of inflation, no more credit crunch, no more tax havens for the rich, stable population and much much more.

So lets look to the sustainable future and lets hope for the better tomorrow becoming reality.

I have to say all the articles in the new scientist special edition were great and are well worth reading, I may even post some more articles about sustainable development soon.

A solid prudent plan that I heartly recommend to the house

This is a good plan and an even better plan than the American plan. This plan doesn't buy so called 'toxic debt' and make it a government and therefore taxpayer liability. This plan is about investing in the banking industry and potentially even turning a profit in the coming years when the crisis lessons.

This plan should solve the immediate crisis and though it is likely we will suffer a recession it is likely to be shorter and shallower because of the positive action the government has taken. For all the whiners out there who say we shouldn't bail out the fat cats they should bear in mind that a broken banking system will lead to deep recession or a complete collapse in the economy. At its best it will mean high unemployment and high inflation, at its worst it could lead to hyper inflation, housing crashes and the extreme devaluation of the pound. Doing nothing was never an option.

A lot of people are saying how it is costing the taxpayer over £2000 per person. Well it actually isn't, the government will borrow the money either from existing reserves, or by selling government bonds etc which are always in demand. They could even cut spending to compensate or in the worst case the £2000 could be reclaimed off people via the tax system over the next ten years.

Plus don't forget tax can be raised from businesses too or that higher rate tax payers could be made to pay more, £2000 per person is literally only the total cost divided by the number of taxpayers. It is another virtually meaningless statistic.

The government is used to sudden demands on capital reserves, natural disasters cause immediate demands. You may find that some of the £500 bn has already been budgeted for in the budget forecasts, it would be bad financial planning by the government if they had not allowed for contigecy funding.

If the worst came to the absolute worst then the government could just print more money or even sell off gold reserves, although both could cause inflation and the devaluation of the pound.

The other good thing is that we are not kissing goodbye to the £500 bn, some £50 bn of the money will buy banking stock as preference shares which means the government will own part of the banks and will get any profit made in preference to other share holders. There is quite a reasonable possibility of the government making a profit, after all when have you ever know a bank like Lloyds making a loss even in these crazy times.

Some of the money, £250 bn is only available as guarantees for bank loans so that will only have to be handed over if a bank defaults on a loan, I think within the next three years and again as everyone keeps saying most of the banks are perfectly well capitalised and unlikely to default on reasonable loan terms, they just cant cope with the crazy loan rates they are being offered at the moment so cant re-finance their debt.

The short term loans, £200 bn, should by and large be repaid with interest. So in all cases there is a reasonable chance we will get the entire £500 bn back plus interest. Even if we don't it is completely unlikely that we will loose any kind of large amount. Even in the absolute worst case once the money comes back into the government it would be hard to imagine any scenario where the government had lost more than £50 bn. This is simply because none of the UK banks are at risk any more. All of the banks with the heavy mortgage exposure have either been nationalised or taken over. All the remaining banks are well capitalsed with a good balance sheet and assest book.

Of course the stock exchange disagrees but this may be simply because the traders are in a blind panic. Once the dust settles and they run out of steam things should start to return to normal. Of course one of the reasons the market is falling is because a lot of people are making money off selling and buyers are too scared to re - enter the market in any great numbers. Once the buyers feel the market has bottomed out they should buy again. In all likelihood if we have a couple of days of peace the volumes traded will decrease, the sellers wills stop selling and the buyers will re - enter.

The icing on the cake if you like is that any bank signing up for this money will have to sign up to an FSA code of practice of executive dividend, pay and bonus payments. The final element of structural reform which can only strengthen the banking system and the economy in the future.

In conclusion, Mr speaker this is a excellent plan and I heartily recommend it to the house.

House votes down bail-out package (BBC)

Houston, we have a problem. Its not really one of those small problems its a huge global catastrophe.

The business news was fairly scary at the moment but at least there was vague hope and then a story like this gets out. This is why the Bank of England is independent from politicians. Sometimes some things are too important to get right to allow for political positioning and point scoring.

I think it would be fair to say that we are witnessing the beginnings of a global economic meltdown. I really, really hope that we are not about to go into an economic dark ages but with stories like this the outlook is looking very black.

President Bush has two choices, try and amend the plan and resubmit it or go back to the drawing board. Either way he better do it quick cos things are turning bad fast.

On the other hand here in the UK we are doing ok, with another small bank nationalised most of the structural changes in UK banks should be finalised. Plus the politicians are on holiday so they cant really meddle. However, given that the world economy is directly linked to the American economy all eyes are across the pond waiting with bated breath for someone, anyone to come up with a rescue plan.

Has anyone perhaps suggested to the UK MP's that at a time like this it might be useful if they could get back to work?

How to kick start an economy - the American way.

The US government have decided that the best way to boost the economy is to get the American public to spend more money. The Government has given each household a tax rebate, in many cases worth hundreds of dollars.

The new scientist* reports the findings of two scientists who suggest the plan is unlikely to have much impact. They took 140 students and asked them how they would spend various amounts of money. Students offered a $600 payment said that on average they would spend just $113, however if they received the payment in 12 monthly payments they would spend $420.

Other criticisms can include that the majority of recipients will either save the money or use it to pay off existing debts. Neither actions pumping the money into the economy. The final criticism is of course that it will hurt the government increasing national debt and lowering spending reserves.

All in all probably an inefficient way of spending tax dollars and breathing new life into the economy.

On a personal note I would agree with the findings of the study. If you gave me a lump sum I might pay off some debts or spend half of it on something nice and use the other to pay off debts or save it. If you gave me 12 payments I would not really notice it and just use it to up my general standard of living.

*This has been well publicised in the general media, but I don't have a link at the moment. However as a reference I can give you the New Scientist article which covers the story and Research. The Article "People of America: spend more of your money!" can be found in the 7 June 200 issue on page 15.

New Labour = Are they thick or what?

Excuse my language but really I am beginning to think that Labour are trying to get kicked out of office.

There all useless, I thought I would never say it but since Tony Blair left office I don't think they have had one good idea between them. The Tories must be rubbing their hands with glee, they could start burning books and they would still get elected at the next election just because the entire electorate is now completely bored.

Labour has gone past incompetent into territory where no government has been before.

Harriet Harman is the latest new labour muppet to trot out a 'new terrible, potentially frightening missing the entire point' law.

The new equalities act which among other things will allow employers to positively discriminate and with two equally qualified candidates choose the ethnic minority candidate or female candidate over the white male.

Luckily it can work both ways, if white men are under-represented then they can be selected in preference. However in all practicality who would do that?

It is usually at this point in the article that I point out the over reaction of the media or that the legislation actually does a whole load of other things but I feel very strongly about positive discrimination.

I feel the only way to combat discrimination is not only to outlaw negative discrimination but also positive discrimination. Allowing positive discrimination will convince some organisations that negative discrimination can somehow be justified, after all they are just making up for the other organisations that positively discriminate, redressing the balance as it were.

The biggest problem I have with positive discrimination is that it does nothing to address the underlying issues of society and why in some organisations ethnic minorities and women are under represented. Positive discrimination may get them into the organisation but if the culture isn't changed then they will soon be leaving again. Meanwhile you have alienated all sorts of people for not having a level playing field.

What about sectors which are already female dominated. HR is getting to the levels where the women are in the clear majority. There is still a legacy of very senior male HR managers but most of the middle rank is predominantly female. At the lower scale there are some male administrators but again predominantly female. As each year goes by the sector becomes more female dominated. In fact the profession does not even recognise that it has got a diversity issue among the very people who set policy for everyone else.

Will we see positive action recruitment and programmes for men in HR? I doubt it.

Harriet Harman uses the police as an example of why positive discrimination would be a good idea. The Metropolitan police have had targets for years and consistently failed to recruit the number required to meet the targets. They have openly campaigned to be able to positively discriminate in recruitment. There have been equal accusations of both positive and negative discrimination in their recruitment policies from recruits.

This is a very organisational solution to a problem, ignore the root causes and go for the simple solution. Positive discrimination is the equivalent of saying leaves keep getting into the building so lets cut down all the trees in a five mile radius where actually all you need to do is keep the door shut and get someone to sweep the leaves out once a day.

Just because it is hard to establish the reasons for discrimination and a gender pay gap doesn't mean we should not try.

I think a lot of problems stem from the secrecy around salaries, using an economic concept in a market where everyone had complete knowledge of the system then if a company did discriminate and did not pay market rates then its employees would just leave.

Having moaned for half an hour one good thing about the legislation is that it does merge all the previous equality legislation into one new bill.

Mark Easton's BBC Blog raises some more interesting points about equality and particularly about the poor prospects for the white male and some more evidence on why positive discrimination doesn't address the actual causes of the gender pay gap.

I hate to do it but I will give the last word on the legislation to the Tory party,

"This bill should seek to unite not divide. It has good intentions but its lack of detail and clarity is disappointing..."

-Theresa May MP

The "Credit crunch"

The story of the "credit crunch" continues. Twelve months ago it wasn't even a phrase.

Here is my little diagram of the main players, it looks like the consumers are trapped in some dodgy little pyramid scheme and in some respects we are. In a blamestorm (a blame equivalent of a brainstorm) everyone would be found to be at least partly responsible. The other issue is trust, all of the players are closely connected and any exchange in money is based on trust.

To examine the credit crunch more closely we have to examine the concerns and motivations of each party:

Bank of England:

Main concerns: Inflation is now at 2.5%, over the government target and although the interbank credit markets lack fluidity the bank doesn't want to be seen as bailing out past poor financial decisions.

Options: Interest rates cannot be adjusted sufficiently to boost confidence, the risk of rampant inflation is too high. It is likely the Bank of England will have to offer longer term loans or take risk onto its books to increase confidence.

Lenders:

Main concerns: Avoid going bankrupt and reduce their risk dramatically. Spread the blame and get a bail-out from the government.

Options: Reduce risk, find compromise with Bank of England over longer term loans. Learn from their mistakes, leave risky mortgages to specialist companies.

Government:

Main concerns: Win the next election, give the consumer what they want without storing up problems for the next five years.

Options: Reduced since the Bank of England were made independent (A very good thing). Spread the blame to the banks and consumers suggest that their hands are tied while lobbying for other parties to sit round the table.

The government may be able to look at stronger regulation for the financial services or increase funding for home owner schemes to add buoyancy to the housing market.

Consumers:

Main concerns: running out of money fast with inflation, poor pay rises and being heavily extended on credit. If not on the housing ladder now, absolutely no chance. If on housing ladder fears of a market crash and negative equity.

Options: Re-finance debt and lobby for changes to the banking system. If they have over extended themselves learn that the economy can go down as well as up and that no one will come bail you out.

Summary

Somehow we need to regain confidence in the banking system I would expect the Bank of England to make more loan money available to lenders over longer terms. Hopefully, all lenders will learn not to take as many risks.

Consumers will loose out, credit that was available will not be extended to the same extent. Everyone now accepts that lenders made some dubious decision and took on too many high risk loans. This is partly the consumers fault for over extending themselves, just because a lender offers you money doesn't mean you should take it.

For the property market using simple demand / supply economics. Demand will fall especially at the lower end of the market as it is the first time buyers that prop up the market. This will then cascade up. However, supply may also fall which may lead to a stabilisation of the property market.

Best guess is the property market will go through a structural re-alignment, we may see a fall before it stabilises at just below or near inflation growth. Falls will be lower at the bottom end of the market, even with credit restrictions I would anticipate that demand for first houses will still outstrip supply.

When it comes down to it I feel blame lies with both the lenders and the consumers. No one thought that the economy would have a hiccup, we built our finances on a house of cards, when one fell so did all the others.

Shrapnel

Ok I have been busy counting out the small change ready to go to the bank. It is known as shrapnel, as it is the small coins that arrive back in your pocket after the big coins have been spent (exploded).

Now in the UK we have penny coins such as 1, 2 and 5. All of these are now pretty useless, they don't buy many things any more, they just weigh your pockets down.

If I were in charge I would probably get rid of 1p and 2p coins, after all there are billions of them just like mine sitting around in money boxes.

The other troublesome denomination is the humble fiver, have you noticed recently that more shops apologise for not having any fiver's in change and give you lots of coins or that the fiver's you do get are past their sell by date.

The reason is not that there is a national shortage, the Bank of England has millions just waiting to be issued, but that retailers and banks don't like the notes, they take up too much space. It may not be long until we see a £5 coin come into general circulation.

Of course even better would be to get rid of cash altogether but that seems just as far off as it has even been. Despite trials with mobile phones, charge up cards, chip and pin cards etc nothing quite seems to be able to replace cash in its entirety.

The other disadvantage to all this shrapnel is that it wears out the pockets on my trousers and even with the iron-on mending patch they are never quite the same.

From Banking to trouser pockets, it is a funny old world.

Public Sector Pay Reviews

The government has been busy insisting lately that all public sector pay reviews should be kept to as near the 2% target inflation level as possible. The cold hard logic is that because there are so many public sector workers the more money they are given, the greater the inflationary pressure.

The first problem with this is that it doesn't reward workers in the public sector. In fact really given that other inflation figures are higher including the RPI index at 4.0% it probably gives anyone working in the public sector a pay cut. So not only are public sector workers under appreciated with less job security they must now take a pay cut year on year.

The second problem is that it is a very short term knee jerk reaction which does not make economic sense in the long term.

Lets start with a premise which we can all agree on and then apply the New labour policy to see what happens.

Premise:

We want a public sector which rewards and values employees. In doing this we recognise we will not be able to compete on salary but workers will not be penalised simply because they work for the greater good.

We will treat employees as individuals encouraging innovation, recognising that a strong capable workforce will mean a strong Great Britain

New Pay Scheme:

No salary settlement to be higher than lowest rate of inflation.

Implications:

• Differential between Public and Private sector increases in the same way that the differential between house prices and earnings have increased
• Employee motivation decreases, if salary does not change employee become priced out of the economy (eg housing) and so have to seek promotion on a new grade or move to the private sector. Staying in the same post is not a viable option.
  
• Low paid jobs attract poor employees who cant compete for average jobs. There is a tendency for public sector employers to hire or retain poor employees rather than have no one in post.
• Low paid jobs cannot be filled, greater reliance on temps which cost up to X1.5 more.
• Employees who remain in the same post for their career i.e. police officers, paramedics decide to leave the industry.
• Organisations cheat: they award pay rises outside of the annual payment to keep employees effectively negating any economic effect the annual policy has.
• When employee leaves, the job cannot be filled, the salary is then regraded to a salary which the old employee would have liked but was not allowed. So the public sector is willing to pay more for a new person with less experience. The policy does not retain employees.
  
• Public sector will never be world class. You get what you pay for, you pay third rate wages you get third rate service.
• The average employees suffer, these pay settlements don't effect the fat cats only the front line staff.

In reality you may save money by restricting salary growth but you end up paying more in hidden costs and your public sector improvement / reform policies suffer.

Public sector pay as an economic tool is a blunt instrument. There is an argument for making sure that things don't get out of hand by applying a cap or by phasing large pay rises. However, the bottom line is that the policy does not treat people as individuals.

There are much better ways of managing the economy without penalising a section of society who choose to give up private sector wages for the greater good.

Salary Converter V2.0 - Convert annual to hourly, weekly, anything

I finished the major upgrades today.

You can now convert from hourly, daily, weekly, 4-weekly, monthly or annual to hourly, daily, weekly, 4-weekly, monthly and annual pay figures.

In addition I have incorporated amendments for part time and non standard working weeks. The original version had an assumption that everybody worked 37 hours a week and five days a week. Clearly for people that did not their daily rates and hourly rates would be wrong.

A nice little project which will be extremely useful when job hunting. Now I can compare rates between jobs however they put the pay on the advert.

Unless anybody else has any suggestion I really cant see any further improvements to be made. Jobs a good 'un as I always say.

Northern Rock final notes

The news cycle moves into its final phase. The Northern rock is now obviously safe, no one can be blamed in the government so the last two targets are the Bank of England and the fat cat bosses. At this stage the media are able to accuse people of knowing exactly what would happen and that they stood by and did nothing. Of course it is always easiest to criticise after the event.

Mr King, Bank Of England Governor has defended his actions by saying that to intervene earlier would have been to prop up bad loan decisions. I support him, to have done otherwise would have given a clear signal that a bank can take excessive risks without any consequences. If there were any problems the Bank of England would bail them out.

As for the fat cats they could have seen this coming but in order to build their business they took risks. There is nothing wrong with their business model but it does rely on a prosperous confident inter-bank loans market. When the loan market tightened Northern Rock entered marshy ground. There perhaps should have been an internal emergency plan to deal with the situation.

The one clear thing that has come out of this is what we need to do to stop a run on a bank. Deposits of the general public need to be protected to maintain the confidence in the financial system. The government is currently looking at plans to protect up to £100,000 of any deposit in a bank or building society.

If you have more money than that on deposit in any one bank you should consider spreading the money around and take further financial advice on how to minimise your risk exposure. Remember banks are businesses just like any other, they can go broke. These days because it is all electronic money they can go down fast. Don't put all your eggs in one basket the Bank of England wont always come riding to the rescue.

Northern Rock watch

Well Northern Rock is still headline news despite nothing more happening. Yawn this story is getting old. The media even the venerable BBC have started interviewing pensioners in the bank queue's who are worried about their pension. Yet, the bank has not collapsed and will not collapse. It is backed by the Bank of England, the government has now gone as far as saying it will guarantee all deposits at Northern Rock.

So why are people still withdrawing money, because the media say so and because everyone else is. Seriously where is the story now. The only story now is 'media seek to undermine the UK banking system'.

The stock market is also looking for the next vulnerable target try to make a profit if another bank hits financial difficulties. The one flaw is that the whole financial system is based on trust. In society we find it difficult to trust any more which can only lead to further instability in the future.

The media and those that do what the media tell them to do or think are part of the problem.

Statutory Emergency Pay (SEP)

I like many others spent my day picking my way around road closures caused by floods. All weekend the police have been saying only travel if you have to and today they even said Oxford is now closed, do not come to Oxford.

For those of you not familiar with Oxford it is where several rivers including the Thames meet. Most of the south and west of Oxford is on a level with the river. There is extensive flooding throughout these districts closing three of the six main roads into Oxford. Of the remaining three one has roadworks and is already overloaded and the other two just serve the north of the city centre. Coupled with the one way system and the trains not running Oxford has pretty much ground to a standstill.

Anyway this got me to thinking who really pays attention to what the police or government say. The vast majority of people go about their daily lives as normal, especially those going to work. This of course causes more work for the emergency services as people get stuck or cause traffic congestion.

Of course to stop all this you have to deal with the need to go to work. Most people will not get paid or need to take a days annual leave if they don't turn up. Obviously no one can afford this so everyone struggles into work.

So just as we have Statutory paternity, sick and maternity pay, we should introduce the following legislation which would include statutory emergency pay.

The Basic idea

When the police or government decide it is no longer safe to travel in an area, it is now no longer safe to travel. All non essential businesses are now closed by order of the government, workers are under no obligation to travel. To compensate for loss of earnings companies will pay statutory emergency pay which can be claimed back from the government. Employees will have the choice of taking the lower earning of SEP or using annual leave entitlement.

Of course enlightened companies will in a similar vein to some maternity schemes enhance statutory emergency pay. They may top it up to normal salary or allow spread deductions over 12 months or allow employees to earn back the extra money in enhanced overtime to make up for lost company time.

Most emergencies would be over in a few days. To date this year I would have claimed two days, one for snow and one for floods. In my own mind I questioned why I was travelling at the time as it may not have been safe to do so.

Although it seems it will cost the government money think of the savings from not having to rescue people who have got themselves needlessly in trouble. It will also free up the emergency services to deal with the actual emergency and get there quicker not just the traffic chaos caused when roads close. Plus it will undoubtedly save lives.

So Gordon Brown how about it, surely this appeals to you?

Interest rates hit 5.75%

Interest rates are now at 5.75% and although I think there will be no change next month after that it is more uncertain.

The CPI measure of inflation is dropping but slowly 2.8% in April down to 2.5% in May. Whilst a downward trend continues I think there will be no change in the interest rate. Long term prospects for inflation is to return towards 2% naturally by the end of the year. So any slow or steady downward drop will hold interest rates stable. However, any increase, unless there is a short term economic reason will put an upward pressure on interest rates.

Other factors include retail and housing both not particularly strong at the moment. However wage settlements may have an effect if they start to increase. There have been a small number of agreed pay settlements a significant margin above the rate of inflation which could keep inflation high.

Overall I would expect interest rates to be stable for the next few months but I think there will be one more rate rise to come once the impact of the previous rises can be judged. I don't think interest rates will fall below 5.5% for the remainder of this year unless there is a major economic instability.

Of course I am not an economist so your opinion is as good as mine, but these are my humble thought on the subject.