Archive for February, 2009
27th February 2009
The need for a new Welsh Bank
The other day, I explained 23 ways of moving the economic situation forward.
The fifth point that I raised was about the need for publicly owned and not-for-profit banks that provide low-cost current and savings accounts as well as low-interest loans to individuals and small businesses, and I want to take this opportunity here to explain my thoughts in greater depth.
The problems Wales faces
Wales currently faces three significant problems – the drying up of affordable mortgages for first-time buyers, the lack of normal credit facilities for small and medium businesses and a long-term negative effect on perceptions of saving.
Part of the reason for this last issue is the opacity which became associated with banks, dabbling in deals of which they had no real understanding themselves.
This is striking because we have an absence of the local and publicly-owned banks that are common in many other countries, instead concentrating our efforts into a handful of global international banks that have been at the centre of the risky and exotic deals that have proved their undoing.
A new type of institution
We need a return to ‘narrow banking’, an uncoupling of the real-world, old-fashioned savings and loan banks that keep the wheels of our economy turning, from the investment banks.
This would create a banking system that would respond better to the needs of communities and local businesses.
With little in the way of indigenous financial institutions in Wales, this is the ideal opportunity to create one or more banks in Wales, focusing on the provision of a limited set of basic financial services to the public and small business, concentrating on the needs of the Welsh economy.
Indeed, as Geraint Talfan Davies wrote in last weekend’s Western Mail, this may well be the best time to open a new institution – untainted by the toxic debts that have engulfed so many existing banks.
One of the difficulties the Welsh Assembly faces in its attempts to deal positively with the current mess is that there is no particular vehicle that it can use, and it therefore seems logical that the Welsh Assembly Government should have the option to have a lender of last resort and an institution that is potentially subject to the policy priorities of the Welsh Assembly Government, so that, if this situation ever occurs again, the Assembly may make its own decisions.
Examples
Certainly a model that is worthy of consideration in this context is that of Germany, where there are local savings banks (Spaarkassen) rooted in local communities and where some of the services are provided by the Landesbanken, and backed by the German Federal Lander. Spaarkassen have been unaffected by the financial crisis and in many cases have increased their lendings.
Germany, like Switzerland, has a mixed-economy banking sector, with private, co-operative/credit union and publicly-owned. The Cantonal banks in Switzerland provide local finance for the Swiss cantons and are owned by them, but this hasn’t stood in the way of private banking.
Public Support
It’s clear that there’s public support for this sort of bank. Only the other day, the Financial Times survey showed that 81% of people supported the idea of local savings banks similar to the Spaarkassen.
We do also have a history of this in the UK, with the old savings bank movement, which became the TSB, the Post Office Savings Bank, National Savings Back, and municipal banks, with Birmingham, the site of the first municipal bank back in 1917, considering a private Bill to open a new bank. Here in Wales Ceredigion are apparently following the same route.
It has to be said that there is a major gap to be plugged in terms of business lending in Wales. Finance Wales provided just 110 loans in 2008 and are forced to be 4% to 10% above European reference rate for UK, and therefore not a competitive answer for small business in Wales. This leaves a clear gap in terms of normal business banking.
What it could do
There are probably two distinct roles at least that need to be considered – retail lending to individuals and commercial lending to small and medium sized companies.
Typical services would include:
- current account with cheque writing, direct debit and standing order facilities
- savings accounts, including ISAs
- credit cards
- ATMs
- personal loans
- mortgages
- small commercial loans
These banks would be linked into the plumbing system of the wider banking system, such as ‘Swift’, to allow for money transmission, interbank transfers etc.
How to fund it
There are a number of ways in which such a bank could be financed, all of which involve the public sector. These would include:
- the deposit of part of the surplus (reserve) cash of either, or both, of the Welsh local authorities and the Welsh Assembly Government, avoiding the need to invest and give the benefit of our money to outside banks, such as those in Iceland.
- deposits by retail customers. A branch network may be expensive, but, as a starting point, it might be possible to use facilities in council offices, or as an internet bank.
- borrowing through issuing medium and long-term bonds. These would require bonds to be guaranteed by a creditworthy entity, such as the Welsh Assembly Government and possibly local authorities. This would enable the new institution to provide loans by raising funds with a similar maturity. There may be complications with European law, regarding competition, but since 2005, papers issued by the Landesbanken no longer benefit from the guarantee of their relevant Lander.
Giving borrowing powers to the Welsh Assembly Government, a principle supported by the Labour Party in Scotland in their submission to the Calman Commission, would be a great boost to this new institution, and I call on the government in Westminster and the Welsh Assembly Government to discuss this issue fully and hopefully implement it before too long.
24th February 2009
The way forward x 23
Just as the rest of the world is coming to terms with the death of the kind of market fundamentalism that has held sway on both sides of the Atlantic since the election of Richard Milhous Nixon in 1972, it is curious to see the Labour Government drifting back into a position of deregulation and laisser faire. I think Martin Jacques’s suggestion that the political class hasn’t got a clue how to react to the current crisis is pretty accurate. Falling back on the old certainties, however, simply isn’t going to work.
To counter the oft-made (and often pretty accurate) criticism that all Opposition politicians do is oppose, here are some positive suggestions as to how UK Government policy could respond creatively to the economic crisis in both the short and longer-terms. They build on some suggestions I made in October - but a lot has happened in the last five months, and in Obama’s words things are likely to get worse before they can get better. There is no excuse for fatalism, however: these are just some of the things that a genuinely progressive government could do:
Short-term ideas
Accelerate monetary policy. The Bank of England delayed cutting its rates until the crisis was in full swing and began by cutting far too timidly. It may already be too late for monetary policy to have more than a marginal effect on economic recovery but this policy option needs to be fully exhausted. (1) Interest rates must be cut to zero. (2) Quantitative easing should commence without delay.
Stop the easy-money bailout and nationalise the banks. Taken as a whole the UK banking sector is, in every practical sense, insolvent. It is only Government intervention that has kept it afloat. But the Government’s policy of part-nationalisation, credit insurance and emergency liquidity has only been a limited success as bank lending continues to contract and bank losses continue to mount. Alistair Darling’s new plan, buying rotten assets from the banks – through a so-called bad bank – would leave the public stuck with all the bankers’ costliest mistakes, as yet unquantified – with little guarantee of any share of the upside when the economy improved, leaving the offending institutions free to carry on merrily as before. The socialisation of risk and privatisation of reward is a formula that should be roundly rejected.
The alternative option is (3) full-scale nationalisation of the banking system, meaning 100% ownership and direct management by the Government of most, if not all the major banking institutions. The Government is opposed to this for ideological reasons, but it represents far less risk to the taxpayer than the Government’s half-way house. Only full public ownership will allow us to downsize the financial system in a managed way which sustains lending to businesses and household that need it. We need a smaller financial sector, and smaller banks more focused on the real purpose of banking which is to channel capital investment into the economy. The speculative fortunes amassed through exotic financial instruments must not be allowed to return. What we do need to return to is a (4) home-grown version of the American Glass-Steagall Act enacted in the last Great Depression and regrettably repealed in the late 90s, a landmark piece of legislation that barred common ownership of banks, insurance companies and securities firms. That wall of separation between banking and commerce that was breached now needs to be urgently re-erected. Equally, the new mixed economy in finance must be more than just a temporary response to the crisis. (5) Publicly owned and not-for-profit banks that provide a low-cost current and savings accounts as well as low-interest loans to individuals and small businesses must be a key feature of a restructured banking sector in order to act as an additional check on more tightly regulated for-profit financial institutions.
Get serious about economic stimulus. What we really need in April is the announcement of a (6) £100 billion economic stimulus package that will create and save 750,000 jobs in the UK economy over the next two years. Can we afford it? Yes, is the short answer. The continuing desire of investors for the relative safety of UK Government bonds compared to company debt means that the Treasury is able to borrow at very low interest rates. The upshot of this is that though the size of Government debt may rise, the cost of servicing that debt remains lower than during other recessions. This provides strong scope for the kind of massive fiscal stimulus that is now required. Furthermore the £100 billion investment required may in fact cost only half as much over time because of the fiscal returns, as tax revenues rise in response to an improved economy.
Help the people who are hurting. Economic confidence cannot be restored from the top; we have to water the roots. The stimulus package must therefore be judged by the extent it helps the poor – the unemployed poor, the working poor and those on a fixed income. As a priority we should (7) raise the State pension and the (8) minimum wage, stabilising the income of the poorest in society. Increasing their spending power will pump money back directly into consumer markets.
The core of the immediate problem is falling house prices. Repossessions are continuing to drive prices down further. Placing a floor under house prices is a necessary first step in restoring economic stability. A key element in this is (9) preventing a glut of properties flooding the market through rising repossessions. To this end President Obama is creating a modern version of Roosevelt’s Home Owner Loan Corporation that kept people in their homes by purchasing mortgages from people in danger of losing their homes and then re-issuing them with more favourable terms. We should do the same here, with thousands of interventions in the market. Effectively calling a moratorium on repossessions orders against all responsible lenders is not charity – keeping families in their homes is the biggest economic stimulus imaginable. It also has the additional benefit of directing public money to the public, rather than the banks.
Long-term ideas
Address the root causes of the crisis. Weak regulation and greedy bankers – on both sides of the Atlantic – were undoubtedly a big part of the problem. But there are deeper underlying causes and these must be addressed too. Interest rates were too low to stave off the growing housing bubble and personal debt explosion. Governments tolerated this because they needed cheap credit and asset price inflation to make up for the ‘demand gap’ left by the export of high-wage jobs to cheaper countries in Eastern Europe and Asia. At the same time cheap imports from these countries allowed western countries to keep retail price inflation artificially low, masking the growing destablilisation of the economy. The world economic crisis was thus borne of a model of globalisation which has given too much power to corporations and too little protection to workers.
Protectionism in the narrow sense would be highly damaging – as the salutary example of the Smoot-Hawley tariffs in the Great Depression showed. But we do need to achieve a greater balance of power between capital and labour internationally. The concentration of corporate power through the merger mania of the last thirty years has to be reversed through the kind of (10) tough anti-trust laws passed in the United Statesover a century ago. Secondly, free trade has to become (11) fair trade based on certain minimum standards in labour and environmental regulation. We should at the very least insist on the kind of protection that our workers achieved at the beginning of the last century – and, where possible, work with local NGOs and trade unions to achieve progress.
An end to boom and bust. One of the many disastrous and entirely self-serving decisions by the current Prime Minister was the deliberate exclusion of housing costs from the calculation of inflation – the shift from RPI to CPI in 2003 – which meant that the Bank of England effectively ignored the risks to financial stability posed by arguably biggest and most destructive housing bubble ever in the history of the United Kingdom. To prevent an even more violent recurrence the Government needs to do two things; end the over-dominance of London in the UK economy which fuels the demand for the finite supply of housing in inner London, by (12) relaunching regional policy and (13) shifting whole Government departments and entire institutions north and west; and (14) secondly reintroducing some element of housing cost into the Bank of England’s inflation targets, encouraging it to intervene to prevent a future housing bubble. Neither of these policies will be popular in the south east of England but both are necessary if the boom-bust cycle is genuinely to disappear.
Creating a new global financial system After the immediate crisis has passed the world will have to create new rules and new institutions – in the same way as happened after the Second World War with Bretton Woods Conference – to promote transparency and provide financial security to future generations. We need a (15) coordinated international effort to crack down on illegal tax havens; (16) an international financial regulator; (17) tight controls on flows of international capital; (18) and a properly regulated and licensed public exchange for derivatives – whether the City of London likes it or not.
A further vital element will be the need to abandon the system of floating exchange rates and (19) adopt a new system of semi-pegged exchange rates between the dollar, pound, yen and euro to reintroduce predictability into the system. Explicit rules would prevent countries like China rigging their currency to boost their exports artificially.
Close the wealth gap. Wages have fallen as a proportion of GDP since the 1970s and have consistently failed to keep pace with rises in productivity as corporate profit margins have increased. The polarisation of income and the current financial crisis are intimately inter-connected. During the housing bubble people borrowed not only to buy houses (whose prices had risen beyond the reach of most first-time buyers) but also to fund consumption through equity withdrawals and credit. This lift helped avoid a recession after the dot.com bubble burst at the beginning of the decade. Building an economy on credit rather than higher wages has led to record levels of debt as a proportion of income; dependence on a high pound to attract foreign capital (thereby undermining manufacturing); and an increase in hours worked and the number of jobs held.
To reverse this trend a comprehensive package of measures are necessary. We should first (20) end the tax loophole that allows hedge fund and private equity managers to claim their income as a capital gain meaning they pay less in income tax than their secretaries. Government could introduce (21) tough new procurement principles denying public sector contracts to any company that pays their top executives more than twenty five times the wage their lowest paid workers receive. We could also do what most European countries and (22) introduce a small annual tax on wealth holdings. The super-rich hold most of their wealth in financial investments and yet the only form of wealth tax that we have – council tax targets property but leaves this financial wealth untouched. The result: people on average incomes pay a tax on their wealth, rich people don’t. A graduated wealth tax exempting the first £250,000 of household wealth and topping off at 1% on fortunes worth over £2 million would raise about £15 billion a year. As a final measure we could (23) require the super-rich to make their tax returns public. This was the practice in the United States following the New Deal and is done now throughout Scandinavia. Transparency in tax affairs will help combat tax evasion. In the words of David Cameron, let sunshine win the day!
20th February 2009
Evidence-based policy….policy-based Party
In 2005-2006 55.6% of Welsh domiciled students went to a Welsh higher education institution. In 2006/07 that figure increased to 60.3%
2006-07 was the first academic year in which the ban on top-up fees in Wales for Welsh domiciled students came into effect.
That means that an estimated 960 Welsh students, who would otherwise would have gone to English universities, decided to stay in Wales.
The distinctive Welsh policy on tuition fees is one of the great achievements of devolution; it has reversed the declining numbers of Welsh youth choosing to study, work and live in the country of their birth. It has begun the process of turning our national brain drain into a brain gain. All the more astonishing that Labour in the Assembly now wants us to ditch the policy and start exporting our most precious resource again: the skills and aspirations of our people.
The Labour Party is entitled to their policy but they have no right to impose it unilaterally on us as this was not envisaged in One Wales. A fair compromise would be to allow the enabling legislation to pass but delay the implementation by one year until 2011/12 after the Assembly elections. Parties can then present their policies anew to the electorate, and an incoming administration could decide whether to agree to continue to scrap the tuition fee grant. If the policy being proposed has wide support then waiting one year will not do much harm; if not, then in the interests of democracy we should prevent it being presented as a fait accompli. Plaid Cymru’s National Council that meets tomorrow needs no reminding that it voted through One Wales to create the One Wales Government. But this policy was never part of the deal.
19th February 2009
Colofn Golwg
I must admit that I have changed my mind almost as often as the Prime Minister about the likely date of the next Westminster election. Due to Brown trailing in the polls, nearly everybody is now predicting an election in May next year, nearly the last possible time it could be held. But I’m now amongst a minority who predict an election a year earlier. The clearest indicator of this was last week’s announcement that the Budget will be held on the 22nd of April this year – the latest date for a Government (apart from newly elected government’s budget after an election) since 1945. The excuse given is the recession, and the need to give due consideration to any international suggestions arising from the G20 summit which takes place in London on the second of April. If I was to venture a guess, I think that the truth is that the Government are setting the stage ready for a snap election.: Obama standing shoulder to shoulder with Brown at Ten Downing Street and then a mega-budget with at least £20 billion worth of financial stimulus, mainly through short term tax cuts, on top of what we received in the PBR back in November.
The plan will be to make Brown seem like an Obama esque character with an international recovery plan whilst making Cameron seem like the opposer of this progressive alliance. Also in April of course, millions of pensioners will receive their up-rating to their state pension. And the fact that we’ll already be in the middle of the European election campaigns and therefore restricted by the Electoral Commission in terms of spending means that the Conservative party will be unable to spend over the next few months, thus restricting the boost they’d expect from their substantial funds.
Of course, this isn’t a risk free strategy. A snap election is often seen by the electorate as an admission that the economy will worsen. When Harold Wilson tried to benefit from his popularity by calling an unexpected election in 1970, he lost. Then, when Thatcher called an election a year earlier than needed in 1983, because of concerns about inflation rising the following year – the Tories lost 7% of their support which was higher than the polls predicted before the Election was called. However, it was enough for them to hold on to power. With the economy likely to worsen between now and June 2010, Brown has only one last throw of the dice: bridge the gap down to two or three per cent and then call a snap election, to possibly take place on the fourteenth of May. After all, Cameron needs to win by a clear 8 per cent margin to be sure of a majority. One thing is certain, however: Brown won’t make the same mistake as he made in October 2008. There won’t be any guessing about an election from Labour’s side until Brown begins his long awaited journey to the Palace.
Rhaid i mi gyfaddef mod i wedi newid fy meddwl ynglyn a dyddiad tebygol Etholiad San Steffan bron mor aml a’r Prif Weinidog. Mae’r arolygon cynddrwg i Brown ar hyn o bryd fel bod bron pawb nawr yn darogan etholiad ym mis Mai y flwyddyn nesaf, bron y dyddiad hwyraf y gallai fod. Ond dwi nawr ymhlith y lleiafrif sydd yn proffwydo etholiad blwyddyn yng nghynt. Yr awgrym cliriaf o hynny ydy’r cyhoeddiad yr wythnos ddiwethaf y cynhelir y Gyllideb ar Ebrill 22ain eleni- yr hwyraf ar gyfer llywodraeth (ac eithrio cyllidebau llywodraethau newydd wedi etholiad) ers 1945. Yr esgus ydy’r dirwasgiad a’r angen i roi ystyriaeth llawn i unrhyw argymhellion rhyngwladol yn deillio o uwch-gynhadledd y G20 yn Llundain ar Ebrill yr ail. Y gwir ydy, mentra i, yw bod y Llywodraeth yn dechrau saernio platfform perffaith ar gyfer galw etholiad sydyn: Obama yn sefyll ysgwydd-wrth-ysgwydd gyda Brown yn neg Stryd Downing ac yna mega-gyllideb gyda thua £20 biliwn (o leiaf) arall o ysbardun gyllidol, yn bennaf trwy doriadau treth tymor byr, ar ben yr hyn y cawson ni yn yr Adroddiad Cyn-Gyllideb ym mis Tachwedd.
Y cynllun fydd i bortreadu Brown fel cymeriad tebyg i Obama gyda cynllun adfer rhyngwadol a chornelu Cameron fel gwrthwynebydd y gynghrair flaengar yma. Ym mis Ebrill hefyd wrth gwrs y caiff miliynau o bensiynwyr eu huwch-raddiad pensiwn gwladwriaethol. Ac mae’r ffaith ein bod ni’n barod yng nghyfnod ymgyrch yr Etholiad Ewropeaidd o ran rheoliadau y Comisiwn Etholiadol yn golygu bod yna gyfyngiad ariannol ar yr hyn y caiff y Blaid Geidwadol wario dros y misoedd nesaf fydd yn atal unrhyw fantais y byddan nhw wedi disgwyl o’i coffrau sylweddol.
Nid bod yna ddim risg i’r strategaeth hon. Mae’r penderfyniad i fynd yn gynnar yn aml yn cael ei ddehongli gan yr etholwyr fel cyfaddefiad y bydd yr economi yn gwaethygu. Pan geisiodd Harold Wilson elwa ar frig ei boblogrwydd drwy alw etholiad annisgwyl ym 1970 fe gollodd. Pan alwyd etholiad blwyddyn yn gynnar gan Thatcher ym 1983 – oherwydd pryderon y byddai chwyddiant yn cynyddu y flwyddyn olynol – fe gollodd y Ceidwadwyr saith y cant mewn cefnogaeth o gymharu a’r arolygon cyn galw’r Etholiad. Ac eto mi oedd yn ddigon i ddal eu gafael ar rym. Gyda’r economi yn siwr o waethygu ymhellach rhwng nawr a Mehefin 2010 un tafliad olaf o’r dis sydd gan Brown: torri’r bwlch nol lawr i rhyw ddau neu dri y cant unwaith eto ac yna galw etholiad sydyn tair wythnos ar Fai 14eg efallai. Mae angen, wedi’r cwbl, i Cameron ennill o 8 y cant yn glir i fod yn sicr o fwyafrif. Un peth sy’n sicr: fydd Brown ddim yn gwneud yr un camgymeriad ac y gwnaeth yn Hydref 2007. Fydd yna ddim dyfalu ynghylch etholiad o ochr Llafur nes bydd Brown yn cychwyn ar ei fodurgad hir-ddisgwyliedig i’r Palas.
12th February 2009
Y Gymraeg am droi’n bwnc dadlau eto
Ers eu lambastio gan yr Adroddiad King am eu diffyg diddordeb a dealltwriaeth o’r byd tu allan i Lundain, mae gwasanaeth newyddion y BBC yn ceisio ei gorau glas i wneud yn iawn am eu diffygion cynt. Ond mae nhw dal yn gweld Cymru trwy delisgôp Llundeining: ‘dadleuol’, ‘drudfawr’ a ’sgepticaidd’ oedd yr ansoddeiriau oedd yn neidio allan o’r penawde ar y rhaglen ‘Today’ ar ol i’r golygydd gwasgu darn mwy cytbwys Wyre Davies i siap oedd yn cydymffurfio yn fwy taclus i ragfarnmau diswyliedig eu gwrandawyr yn Siroedd y Ddeheudir Seisnig.
Roedd yr ymosodiadau a’r dychan ymostyngol i’w disgwyl gan y Telegraph. Ac mae David Davies, chwarae teg iddo fe, o leiaf wedi bod yn gyson ei wrthwynebiad i hawliau ieithyddol. Yn fwy siomedig oedd gwrthwynebiad Ann Beynon o BT. Ie, dylai bod mwy o siaradwyr Cymraeg yn defnyddio’r gwasanaethau Cymraeg y mae nhw’n eu cynnig yn barod. Ond ymhlyg yn y gosodiad y mae’r awgrym bod hawl cwmni trawswladol i beidio cynnig gwasanaeth Cymraeg yn fwy pwysig na hawl y dinesydd mewn gwlad ddwyieithog i’w derbyn. All neb wasanaethu dau feistr, ond does dim byd yn dweud, Ann, bod rhaid i ni gyd ildio bob tro i Famon.
Yn fwy siomedig fyth oedd ymateb Rhodri Williams nad oedd biliau dwyieithog yn mynd i wneud unrhyw wahaniaeth i’r iaith Gymraeg. Fel cyn Gadeirydd Cymdeithas yr Iaith Gymraeg nid ddylai bod rhaid ei atgoffa o ymgyrch hir y teulu Beasley am orchymyn treth Cymraeg a gostiodd mor uchel iddyn nhw. Oedd hynny yn ofer?. Onid yw pwer symbolaidd arwyddion a thestun ac argaeledd gwasanaethau yn tanlinellu y neges bwysicaf un: bod y Gymraeg yn gydradd ac yn rhan annatod o’r Gymru gyfoes. Ac ie mi fydd dyfodol a lle priodol y Gymraeg yn troi unwaith eto yn bwnc dadlau. Ond mewn mis lle mae un gwleidydd Llafur wedi cyfaddef ei fod yn casau Cymry Cymraeg ac un arall wedi cyhuddo Cyngor Caerdydd am lanhau ethnig trwy hyrwyddo ysgolion Cymraeg mae’n amlwg nad yw’r consensws wedi ymdreiddio i bob man, beth bynnag. Os oes yna ragfarnau ieithyddol allan yno mae’n well gen i weld pobl yn eu mynegi yn agored fel bod modd eu herio a’u gwrthbrofi.
Yn y pendraw arwydd o hyder cenedlaethol yw mynnu dwyieithrwydd ymhob agwedd o fywyd. Nid damwain yw hi taw’r tair gwlad sydd a’r gofynion ieithyddol cryfaf ar gwmniau preifat – Catalunya, Quebec a Fflandrys – ydy’r rhai mwyaf llwyddiannus yn economaidd ymhlith cymunedau ieithoedd llai. Hyder yn eich hunan – eich iaith, eich hanes, eich hunaniaeth – ydy’r cam cyntaf i’r hyder personol sydd yn esgor ar lwyddiant economiadd. I fynnu dyfodol, mae rhaid i ni yn gyntaf fynnu parch.