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Tom Clougherty discusses bankers' pay on Radio 2

Click here (and fast forward to 1:08.40) to listen to Tom Clougherty discussing proposals to cap bankers' pay on Radio 2's Jeremy Vine Show.

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Washington Post: China's Wen Blames Crisis on Lax Controls

By Mary Jordan (3 February 2009)

Published in The Washington Post here

Chinese Premier Wen Jiabao, after a meeting here with British Prime Minister Gordon Brown on Monday, said that a lack of effective regulation had played a key role in unleashing the global financial crisis and its "disastrous consequences."

"Some financial institutions pursued profit in a blind way, without effective regulation," Wen said, adding that the crisis "shows how dangerous a totally unregulated market can be."

The Chinese premier's comments came two months before President Obama, Wen and other leaders of 20 of the world's largest economies meet in London to discuss a new system to monitor the global financial system.

Brown, who will host the meeting, has spearheaded calls for an international watchdog, saying, "You can't deal with the problems of global financial markets with national systems of regulation."

Regulation is an issue that arouses particularly strong feelings in London, which has grown into a leading financial center in recent years in part because of its reputation for light regulation.

Many in the City, as London's financial district is called, have cautioned against overloading banks, insurance companies and other financial institutions with new bureaucratic rules, saying it would strangle future growth.

But political leaders, citing the overwhelming public outcry over a crisis that has sent housing prices plummeting and unemployment skyrocketing, are pushing for greater government oversight over a financial industry that is widely seen as out of control.

Adair Turner, Britain's top financial regulator, said Monday that the "horrendous instability" in the markets because of the crisis has left "little appetite" for light regulation.

"People realize that the cost of having gotten the regulatory system wrong is hugely higher than if we had regulated more tightly in the first place," Turner, head of Britain's Financial Services Authority, said in an interview.

Turner has called for, among other things, requiring banks to build up substantial capital in good economic times that can be used in bad times. He has also called for stricter regulation of investment banks, hedge funds and other institutions in what he has called the "shadow" banking system.

But many say they are worried that the hedge funds, foreign banks and other financial institutions that moved to London in recent years -- as the city promoted itself as an easier and less bureaucratic place to do business than its rival New York -- will leave.

Eamonn Butler, director of the London-based Adam Smith Institute, said there is likely to be "overkill" when it comes to new regulation. That could "gum up financial markets," he said, and prove so costly that it drives all but the biggest players out, hurting competition.

"London benefited because it was lightly regulated," Butler said. Now, he said, "cities in the Far East are rubbing their hands" at the prospect of getting new business that relocates from London and New York as regulation tightens.

Brown, who has emerged as a global leader for his response to the economic crisis, continues to be hammered for it at home.

George Osborne, the opposition Conservative Party's chief spokesman on economic issues, blamed him for botching regulation during his decade as Britain's Chancellor of the Exchequer, or finance minister, before he took over as prime minister in 2007.

In a speech Monday, Osborne said that Britain's financial system had been "broken" by Brown, including his decision to remove regulatory functions from the Bank of England.

Lax regulation, Osborne said, allowed banks and other institutions to increase their debt to many times what they could afford. The government was forced to take over the ailing Northern Rock bank last year and now has a 70 percent stake in the Royal Bank of Scotland, which had been in danger of collapse.

In a news conference after his meeting with Wen, Brown again sought to trumpet Britain's response to the crisis. He said he intended to double British exports to China next year and warned of the dangers of countries turning inward during this crisis.

Even as he spoke Monday, hundreds of British power plant workers went on strike as part of a growing labor action to protest the use of foreign workers.

"Premier Wen and I agreed that the biggest danger the world faces is the retreat into protectionism, which is the road to ruin," Brown said. "The best attack on protectionism is to demonstrate today the benefits of trade for jobs, for businesses and for eventual prosperity."

Brown said the extension of trade between Britain and China "is a signal to the whole of the world that we will work together, cooperating, so that we can come through the world downturn."

Wen blamed ineffective market regulation, excessive borrowing and overspending in the West for the global downturn. He also said that as leaders focus on reshaping the world financial system, more priority should be given to helping poorer nations.

"There is light at the end of the tunnel," Wen said. "I am calling for confidence, cooperation and responsibility. This financial crisis is a global one. No single country can remain immune. We are sitting in the same boat, and we need to all work together to overcome the difficulties."

Not everyone welcomed Wen's thoughts. At an appearance at Cambridge University, a protester threw a shoe at the Chinese leader, exactly the same treatment then-President George W. Bush received at a recent appearance in Iraq.

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Guardian.co.uk: Paper promises on the economy

By Eamonn Butler (2 February 2009)

Published in The Guardian here

The government's jargon would have us believe it can save the UK. But more dodgy bank assets will only lead to inflation.

Gordon Brown says the government must use simpler language, because the credit crunch jargon confuses everyone. Well, in simple terms, we're bust and we're going to print money to make ourselves feel richer.

Alistair Darling has been rejecting all talk of "printing money". He doesn't want us to think that our money will go the way of Zimbabwe's. Even the thought of it is enough to make people sell Britain before it goes bust.

So he has no intention of giving up the jargon "quantitative easing" – which he's now given the Bank of England the green light to do – because it masks the inconvenient truth that, yes, the government is indeed printing money.

Of course, these days it is nothing so crass as just inking up new tenners. Instead, the Bank of England simply presses cash into the banks' hands in return for assets like shares and mortgage contracts. That gives the banks cash to lend to us, we go out and spend, and everything revives. QED.

But does it work? America's been doing it for months and there's little sign of borrowing or spending picking up. Japan did it for years without much effect on its own banking crisis. Some people think that the stimulus – about 5% of these nations' income – has not been enough to convince people to spend again. But then the risks of over-egging it are enormous.

The Bank of England already buys bank assets, but now it's proposing to buy much dodgier ones. So there is a fair chance of it using our money to buy a lot of worthless paper promises. Thanks, Alistair.

The most serious threat, though, is that we re-ignite inflation. Right now, prices are tumbling because everyone's confidence is shot. But if confidence comes back just as fast, we'll all be spending again – and with that huge wodge of Bank of England money in our pockets. So prices could well shoot up.

What worries me is not that, so much as whether our authorities have the bottle to rein things back in again. Governments like a bit of inflation: it gives spending, and business, a bit of a boost. But it's like a drug. To get the same high, you need increasingly large doses that ultimately kill you. So you eventually have to come off it, but you'll feel bad when you do. And governments don't like making their voters feel bad.

The risk with "quantitative easing" is that it could deliver a really big dose of inflation, and coming off that would make us feel particularly bad. Have our leaders the stomach for that, or will they let us drift into the destructive high-inflation low-output "stagflation" of the 1970s? Well, what do you think?

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France 24: Davos forum to focus on 'shaping the post-crisis world'

By Euny Hong,  Alexandra Renard and James Andre (26 January 2009)

Published in the France 24 here

This year's edition of the oft-criticised World Economic Forum, held between Jan. 28 and Feb. 1, has a six-point agenda focusing on global financial stability. But experts told FRANCE 24 the real work is carried out behind the scenes.

With the global financial crisis dominating the headlines for the past few months, it comes as no surprise that the World Economic Forum, which opens Wednesday in the Swiss alpine village of Davos, will be devoted to finding ways to try to solve the crisis. This year, organisers of the event, which is usually replete with receptions and cocktails featuring business and political luminaries, must be mindful of the economic climate.

While the number of heads of state attending the conference this year is almost double that of last year, fewer business leaders are expected to participate in the five-day conference. Russian Prime Minister Vladimir Putin will open the meeting, which will be attended by Chinese Premier Wen Jiabao, German Chancellor Angela Merkel as well as British Prime Minister Gordon Brown among others. One notable absence is US President Barack Obama, who will be represented by senior White House aide, Valerie Jarrett.

With the conference opening just two days after the collapse of the Icelandic government following its perceived mishandling of the nation’s financial crisis, this year’s meeting looks set to focus on political leaders as the global economic crisis threatens to affect governments across the world.

Iceland is not on the agenda of the 40-year-old conference, whose overall theme is “Shaping the post-crisis world".

Speaking to FRANCE 24, Geoffrey Wood from the London-based Cass Business School said it would be a waste of a conference if Iceland were not on the agenda. “Iceland raises an interesting question", he said. “Who should be responsible for a bank when it fails? Had we been informed that when an Iceland bank defaulted, the only available resources would be Icelandic government tax reserves, people would have thought much more carefully about using an Icelandic bank. At the moment there is no clear statement about who is responsible for which bank."

Wood feels that only at an international level could another Iceland be prevented. “Most banks are international when they’re alive, but who looks after them after they’re dead?"

‘A salon of vanity’

Since it was set up in 1971, the World Economic Forum has attracted criticism from anti-globalisation activists as well as experts who question whether the gathering of business and political elites actually achieves its primary goal, which is encapsulated in its motto, "entrepreneurship in the global public interest".

While critics view Davos as a symbol of flamboyant capitalism, organizers this year hope the forum will be able to address the global economic crisis.  But Markus Kerber of the Berlin-based Technische Universität is sceptical about the summit's ability to address the crisis. "Davos is a salon of vanity, nothing more," he said. "Davos has never offered any solutions or new approaches. They don't question anything, especially not IMF politics, or the politics of world banks."

According to Eamon Butler, director of the Adam Smith Institute in London, the real work at Davos is done behind the scenes. “The [Davos] agenda is not so important. Most of the work is outside the conference hall, to keep it not reported, off the record", said Butler.

What’s more, according to Butler, different people attend the conference for different reasons. Politicians, suggested Butler, will go “to meet other politicians" to compare notes. But at Davos, politicians also try to make important contacts with business leaders, “because business people know more about what’s going on than political officials", said Butler.

This year, about 1,400 business executives are expected to be at Davos. Many of them might be spending their time at Davos justifying the need for financial bailouts to the politicians.

That said, says Butler, one must not expect too much. “It’s not like the UN Security Council. The Security Council decides things. The Davos conference doesn’t." In fact, Butler says Davos this year will be “business as usual", except that “there will be a lot of small countries irritated by big ones".

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Telegraph.co.uk: Labour plans 'class war' law to narrow the gap between rich and poor

By James Kirkup (13 January 2009)

Published in The Telegraph here

Social class could be put on the same legal footing as race and gender under new Government plans to narrow the gap between rich and poor.

A new law will be drawn up to put public bodies including schools, hospitals and local councils under a binding obligation to work to improve the prospects of disadvantaged youngsters.
 
The suggestion was made in a package of new Government measures intended to make it easier for children from low-income households to rise up the economic ladder.

It has led to renewed accusations that Labour is resorting to the politics of class war.

The package also includes a new initiative encouraging the best universities to target the brightest children from poor schools.

There will also be more taxpayer-funded childcare for the parents of two-year-olds in poor families, career-development loans for middle-class professionals who want to retrain and £10,000 "golden handcuffs" payments to lure the best teachers to the worst-performing schools.

Another initiative will see affluent parts of Britain "twinned" with sink estates and other deprived areas, with poorer children encouraged to visit other areas in order to "expand their horizons and their experiences".

The most politically controversial aspect of the package however, is likely to be the planned "class law," which is being promoted by Harriet Harman, the Labour deputy leader.

Miss Harman will introduce a Single Equalities Bill later this year, and has already signalled that the legislation could allow employers to engage in positive discrimination to favour female and ethnic minority job applicants.

In a White Paper published on Tuesday, the Government signalled that the planned law could go further, effectively telling the public sector to consider social class as a factor equal to race, gender and disability when deciding how money, services and even jobs should be allocated.

The White Paper suggests imposing an "over-arching requirement on public authorities to address the inequalities people face associated with where they live, their family background or the job they do"

Officials said the law would "embed" social class in the day-to-day work of public officials and civil servants, making them consider the economic circumstances of individuals, groups and areas in the same way they currently consider sex and ethnicity.

The White Paper directly compares class with race and gender, saying: "We have already legislated to require public authorities to tackle the inequality that arises from race, gender, or disability. But we know that inequality does not just come from your gender or ethnicity, your sexual orientation or your disability. Co-existing and interwoven with these specific inequalities lies the persistent inequality of social class."

As a result, ministers may legislate to make clear that "tackling socio-economic disadvantage and narrowing gaps in outcomes for people from different backgrounds is a core function of key public services."

This could take the form of a new "strategic duty" on Whitehall departments and public services to "address the inequality that arises from socioeconomic disadvantage and place this objective at the core of their policies and programmes."

If that "duty" were extended to cover employment policy, it could raise the prospect of unsuccessful job applicants suiing employers for discriminating against them because of their class.

Officials said the final form of any legislation would be subject to consultation with unions, business groups and others.

But ideas under discussion in Whitehall could have significant impact on the way public bodies deliver services.

In healthcare, for instance, NHS trusts could be obliged to focus resources on issues like anti-smoking campaigns, because poor people are more likely to smoke than their middle-class counterparts. And police forces could be pushed to concentrate manpower in poorer areas.

Miss Harman is said to harbour ambitions to succeed Gordon Brown as Labour leader and was elected the party's deputy leader in 2007 with strong support from grassroots members. She has sought to consolidate that popularity by appealing to left-wingers with frequent references to social class in recent months.

She is expected to focus on class again in a speech to the Fabian Society on Saturday, pledging to fashion "a new social order" in Britain. "We want to do more than just provide escape routes out of poverty for a talented few. We want to tackle the class divide," she will say.

Theresa May, Miss Harman's Conservative shadow, accused her of political posturing. "Harriet Harman's attempts to play up to the left wing gallery look like a return to the class war," she said.

She added: "Harriet Harman's legislation would lead to bureaucrats ticking extra sets of boxes on forms but none of the real changes that are needed to improve social mobility. This law shows ministers are completely missing the point about the action needed to extend opportunity across society."

Tom Clougherty of the Adam Smith Institute, a free-market think-tank also criticised the Government approach.

He said: "It is patronising and dehumanising to treat people as a member of a class rather than looking at them as individuals and assessing them on the unique characteristics and abilities they have developed."

"Legislation is likely to be counterproductive -- the way to get away from these divisions is to stop thinking about people as groups and start looking at them as individuals.

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Sunday Sun: Should the rich pay more tax?

By Phil Doherty (11 January 2009)

Published in the Sunday Sun here

RECENT research has found the public’s attitude to the “undeserving" rich is hardening and that more people than ever think they should pay more tax. But does it make sense in the middle of the huge economic downturn facing Britain? PHIL DOHERTY reports . . .

“TAX them until the pips squeak . . . " goes the old adage on making the rich pay more to the public purse.

But, in the last decade, neither Labour nor the Tories have advocated raising the higher threshold of tax for the rich.

And neither party saw a vote winner in closing tax loopholes that allow the rich to evade their present tax responsibilities with the help of their creative accountants.

In recent years there has been no political clamour to make examples of tax-evading rich people . . . yet some sections of the media at times seem obsessed with outing poorer benefit cheats.

But research by the left-wing think tank the Fabian Society and pollsters YouGov — on behalf of the Joseph Rowntree Foundation — shows that the public’s attitude to the well-off has changed . . . thanks to the credit crunch.

And when, in his pre-Budget report last November, Chancellor of the Exchequer Alastair Darling announced his intention to introduce a new higher top rate of tax of 45 per cent for those earning £150,000 a year, protests were muted. In fact, many want it to be higher.

Louise Bamfield of the Fabian Society said: “Our work suggests there is a growing public mood for rich people to contribute more.

“Three quarters of respondents to our poll supported the Government’s proposed new higher top rate tax of 45 per cent for people earning over £150,000. Meanwhile, almost seven in 10 respondents expressed support for a new top rate of 50 per cent for people earning over £250,000.

“Poll data also gives some clues as to why people think the rich should contribute more, with 70 per cent of respondents agreeing that ‘Those at the top are failing to pay their fair share towards investment in public services’.

“There was also incredibly low support for the business case for low taxation, with only 19 per cent of respondents agreeing that taxes on high earners should be kept low so that ‘British companies can attract the talent they need to succeed’.

“As the threat of unemployment spreads more widely than at any point over the last decade, there is sympathy and support for people affected by the downturn and, temporarily at least, greater empathy and understanding towards people who have been laid off."

But the right-wing Adam Smith Institute believes it would be madness to tax the rich more at a time of economic meltdown as it would destroy the entrepreneurial spirit at a time Britain needs wealth creators.

They believe the best way to help the poorer sections of society is to lift the very poor out of the tax system altogether by raising the point where an individual starts paying tax up to £12,000, instead of the present £6035.

Spokesman Tom Clougherty said: “Higher taxes for the rich might make for good envy politics, but higher tax rates do not necessarily mean that more tax is paid, or that more revenue is collected. Often, the opposite is true.

“Higher tax rates discourage work, discourage investment and discourage production. Less wealth is created as a result, and both the economy and the exchequer suffer. That’s the last thing we need in a recession.

“Higher taxes also give people an incentive to avoid tax, either by hiring accountants to find loopholes or by moving somewhere else. Given that the top one per cent of wage earners in the UK pays 23 per cent of its income tax, that’s a real problem.

“A better way to make the tax system fairer is to take the poor out of income tax altogether, by raising the personal allowance to at least £12,000.

“Raising taxes on the UK’s wealth creators is just counter-productive."

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