George Kerevan: Meanwhile in Norway

Norway has just announced that it is going to dip into its $332 billion oil fund to finance a spot of reflation.

The oil-rich Norwegians have squirreled away their oil revenues and now have the world’s largest sovereign wealth fund after Abu Dhabi.

According to the Financial Times, which has no political axe to grind, “Oslo is one of the best-placed governments in the world to spend its way out of the downturn.”

Unlike the UK, which has been running a structural budget deficit for years, the Norwegians don’t have to borrow to boost public spending. The other week, Alistair Darling announced he was going to borrow £10,000 for every man, woman and child in Britain.

It is normal for Labour (and the Tories and Lib Dems) to berate the SNP – erroneously - for wanting to pays the bills of an independent Scotland out of fluctuating oil revenues. In fact, it is the London Treasury which has always used erratic oil revenues for immediate revenue purposes – which is why it always gets its sums wrong and has to resort either to borrowing or putting up taxes.

There is something deeply Freudian about blaming your political opponent for something you do yourself. In fact, the SNP has always supported the sort of oil fund run by the Norwegians, which saves fluctuating oil revenues in a capital fund.

Meanwhile, in Ireland, they have just pumped £9 billion into recapitalising their banks. Note: this is proportionately more (relative to the size of the Irish economy) than Alistair Darling put into recapitalising RBS, HBOS (R.I.P.) and Lloyds TSB.

So much for suggestions (on this side of the Irish Sea) that Ireland is too small a nation to protect its own financial system.

Now, what was it I heard (from Jim Murphy) about the so-called “Arc of Insolvency”?

George Kerevan: Real votes versus polls

An interesting bit of analysis on politicalbetting.com regarding local by-elections in Scotland.

In the three Scottish council by-elections in 2007 the combined results were:

SNP … 3236 … 35% … +1%
LAB … 1913 … 21% … -3%
CON … 1602 … 17% … -1%
LIB … 1770 … 19% … +3%
OTH … 656 … 7% … 0%

These were Midstocket in Aberdeen in August, Helensburgh in Argyll in October and Lochee in Dundee in November.

Result: a two per cent swing to the SNP from Labour in what people view as a very good year for the SNP.

Now look at the four last Scottish council by-elections in 2008 which were all held on the night of or since Glenrothes.

The combined results were:

SNP … 6360 … 36% … +9%
LAB … 6807 … 38% … -1%
CON … 2001 … 11% … -1%
LIB … 1314 … 7% … 0%
OTH … 1248 … 7% … -8%

These were Forth in Edinburgh and Baillieston in Glasgow in November (night of Glenrothes); and Ballochmyle in East Ayrshire and Kilbirnie & Beith in North Ayrshire in December.

Result: a five per cent swing from Labour to the SNP.

The seats the four latest ones are in core Labour areas while the three 2007 ones are in more SNP territory.

There is clearly a "Brown bounce" going on but I'm intrigued by these numbers.

George Kerevan: £ tanks again.

This morning, the £ sank to its lowest level ever against the euro. Should we cheer or cry?

According to the BBC website, “a strong euro is good for the UK economy. It makes imports from the eurozone more expensive, while UK exports become cheaper to those paying for them in euros. This is clearly a boost to the UK manufacturing sector in these difficult times. The eurozone accounts for about 60 per cent of UK exports.”

Alas, this is economic illiteracy.

Recession in the EU means that overall demand for British goods in Europe will decline next year. This is predicted in the Pre-Budget Report: "Recent strong import demand from Europe is not expected to continue in 2009, while recession in the US is also likely to reduce demand for UK exports."

We may also see something called the J-curve effect – things get worse before they get better. A cheaper pound means that those UK manufacturers who can sell to Europe will now get fewer euros.

We should also remember that while the EU is our biggest market, they sell more to us than we sell to them. The UK had a total trade deficit of £32 billion with the EU27 in 2006. This was made up of a trade in goods deficit of £32 billion but also a trade deficit in services of £6 million.

A more expensive euro may reduce some imports, but I’d bet we will go on purchasing EU goods and services because we make so little here. In which case, the more expensive euro will boost UK inflation as well as reduce the available cash we have in our pockets to buy British goods.

George Kerevan: Our friends in Germany

I've been writing for some time that the Westminster Government is giving a misleading account of its influence in the rest of the world as regards the economic crisis.

This has been confirmed by Peer Steinbrück, the German finance minister, in an interview with NEWSWEEK. You can find the whole piece at www.newsweek.com


Newsweek: What is wrong with the stimulus proposals?

Steinbrück: The speed at which proposals are put together under pressure that don't even pass an economic test is breathtaking and depressing. Our British friends are now cutting their value-added tax. We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90? All this will do is raise Britain's debt to a level that will take a whole generation to work off. The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking. When I ask about the origins of the crisis, economists I respect tell me it is the credit-financed growth of recent years and decades. Isn't this the same mistake everyone is suddenly making again, under all the public pressure?

George Kerevan: Reaping the whirlwind

I’ve had an email from a special advisor to one of our Westminster Government ministers, taking me to task on my criticisms of the police raid on Damian Green’s private office at the House of Commons. Sent by Blackberry, of course.

He writes: “One, really sober and senior civil servant tell me they are really perturbed by the Tory tactics over the Damian Green case. They can't understand how politicians who aspire to be in government within the next 18 months would want to undermine the utter loyalty and neutrality of the ministerial private office. It is the core of our non-politicised civil service that all Ministers have unconditional trust in their private office. If that goes then you move to the European (and Australian) model where a Cabinet minister appoints all their office from political ranks. With the result that last year the incoming Rudd government [in Australia] appointed 550 special advisers. Is that really what the Tories want?”

He adds: “A future Tory government will reap the whirlwind when they discover there are more Guardian readers than Tory PPCs in the civil service.”

I accept these points. But this does not alter the fact that there was no need to use the dangerous conspiracy laws to go after Green and his informant – there are other, less provocative procedures. The style of the police intervention was a calculated attempt to intimidate the Tories. That too will backfire on democracy.

George Kerevan: whistleblowing

I was listening to my erstwhile comrade Nigel Griffiths MP (Lab, Edinburgh South) on the radio this morning. Nigel was in full ranting mode against those MPs of all parties who are up in arms (understandably) over the heavy-handed police raid on the House of Commons office of Tory shadow minister Damian Green. The latter has been leaking information from a civil servant on Home Office bungles over immigration so the Government is feeling embarrassed. Nigel feels Mr Green had it coming.

Nigel and I were councillors together on the old Edinburgh District during the 1980s. He is a clever man and never, ever rants accidentally. I wonder if by this excessive display loyalty, Nigel was trying to attract the attention of the Labour Front Bench.

Can this be the same Nigel Griffiths who voted for the Public Interest Disclosure Act 1998, one of New Labour’s early pieces of legislation, designed to protect whistleblowers from loosing their jobs?

Or is this the Nigel Griffiths who stood up in Parliament as a minister and said: “It is in everyone's interest to ensure that there is as much public disclosure as is practical.” (Hansard, 11 Feb 2004, column 468WH)

George Kerevan: interest rate at 2 per cent

The Bank of England has cut interest rates to 2 per cent. The last time this happened was on 26 October 1939, which tells you something about the emergency.


Interest rates stayed at 2 per cent until 8 November 1951, when they were raised to 2.5 per cent by the incoming government of Winston Churchill.

GEORGE KEREVAN: Banana Republic

I notice in the small print of Gordon Brown’s deal with the banks - to allow hard-pressed middle class families to defer paying interest in their mortgages - that it will cost the Government another £1 billion it doesn’t have.

The scheme is fair enough – a runaway cycle of repossessions and forced house sales will only send property values crashing even further, adding to the threat of permanent deflation. However, there are dangerous consequences to the way the Government is making new spending promises by the day.

When the Government borrows money it sells bonds. Institutions and funds buying such bonds need to take out insurance against default. This insurance is called a credit default swap, or CDS.

In the long forgotten days when Gordon Brown was still preaching the virtues of prudence (i.e. last February) it cost a mere £8,000 to insure a £10 million UK Government bond against default over five years. This was because no one ever considered for a moment that the British Government would fail to meet a debt obligation.

But to insure that £10 million bond today will cost you £110,000. This is not only an all-time high, it rates Britain’s creditworthiness. The cost of taking out insurance cover on British Government debt is rising faster than for any other major economy.

In fact, it now costs more to insure against Gordon Brown and Alistair Darling defaulting than it does to insure against Lloyds TSB not meeting its liabilities. Did anyone mention banana republic?

George Kerevan worries about arresting MPs

Does anyone remember the ‘cash for honours’ police investigation? In 2006, it surfaced that a number of secret loans had been made to the Labour Party before the general election, and that – suspiciously - many of those lenders subsequently had been nominated for peerages. New SNP MP Angus MacNeil wrote to the Metropolitan Police asking them to investigate. The Met bobbies, led by Yates of the Yard, launched an investigation. Everyone denied wrongdoing and after 16 months of high profile sleuthing, the CPS said there were no grounds for a criminal prosecution.

I mention this because for the fracas over the arrest of shadow immigration spokesperson, Damian Green, who was held by the Met for nine hours and who had his House of Commons office turned over by police officers in the search for files about immigration that the Government wanted to keep secret. David Cameron and the Tories are predictably unhappy but it is the response of Labour ministers which is fascinating. They have taken refuge in the old line that they cannot possibly comment or interfere in police business.

Strangely, this is not how they reacted during the Met’s investigation of the cash for honours affair.

Downing Street began briefing that someone in the Met was engaged in a dirty tricks campaign against Labour by leaking stories that No 10 officials had erased e-mails relating to nominations for peerages. The Prime Minister's official spokesman hinted darkly: "You really have to start questioning who is spreading this information because it is wrong."

Peter Mandelson (then a plain citizen) thundered against the Met: "Those who undertook this investigation used the media to create a false impression of the then Prime Minister, and to undermine public trust in the government...I feel even sadder for the lasting damage that has been done to British politics".

I expect Labour is enjoying the Tories being on the receiving end of a police investigation, this time round. But they should not laugh too long. When the police start arresting elected politicians for ferreting out what the Government is trying to hide from the electorate, then we are all in trouble.