Thursday, May 30, 2013

USA: Murder in the chicken shack


Email from America 3: the rural dream, and bloodstained reality

A decade ago, our second son had just been born and I was settling quietly into middle age. My wife had other ideas, and decided that we should move to the country. We bought 9 acres with a house and a barn, our own well and sewage system, and neighbours who leave us in peace. We cut our own wood for winter heat, breed goats for meat and milk … and raise chickens.

It started innocently enough with a call from the main post office on a Saturday afternoon, letting us know that we could pick up a package of live animals. What we got was a small cardboard box, stuffed with 50 fluffy chicks. We cooed over them, moved my car out, and installed them with a heat lamp in the garage. Within a month, they had some real feathers, and looked like badly-dressed inner-city schoolboys. One more month, and they were fully-fledged chavs – pushing, pecking, shoving, and occasionally killing each other.
They were so nasty that I didn’t feel really guilty when we drove them to the processor. They returned neatly wrapped and ready for the freezer, costing only 2-3 times what our local supermarket would charge. But they tasted better, or so we told ourselves.

We are now 8 years into our hobby, and have learned a lot. For example, give a rooster 10 hens, and he will hump and torment all of them. Put 20 hens with two roosters, and the dominant one will fight the other for all of them. It isn’t just the males. Remove all roosters, and one hen will take over, like a bad lesbian prison movie. It is distressingly human.
With selective breeding, we now have roosters who will defend their hens, but (usually) not attack people. In our microcosm of social engineering experiments, that may be the best that we can do. At the very least, it has given our children an appreciation for the convenience of grocery stores, and survival skills that rival those of an Eagle Scout.

Tim is a math professor in Ohio.

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy.

Thursday, May 23, 2013

Costa permanence

Consider this Santayana quote on the deceptive desire for permanence

That the end of life should be death may sound sad: yet what other end can anything have?

The end of an evening party is to go to bed; but its use is to gather congenial people together, that they may pass the time pleasantly. An invitation to the dance is not rendered ironical because the dance cannot last for ever; the youngest of us and the most vigorously wound up, after a few hours, has had enough of sinuous stepping and prancing.

The transitoriness of things is essential to their physical being, and not at all sad in itself; it becomes sad by virtue of a sentimental illusion, which makes us imagine that they wish to endure, and that their end is always untimely; but in a healthy nature it is not so.
George Santayana - Some Turns of Thought in Modern Philosophy

If we extend the idea, it is easy enough to see how a deceptive yearning for permanence may be used to justify all kinds of authoritarian trends. There are some curious byways one might explore with the idea too.

Take Costa coffee shops for example. After much vehement local opposition a new one has opened in Bakewell, Derbyshire. Bakewell is in the Peak District National Park but it made no difference in the end. Veni, vidi, vici as usual.

There are other factors of course, but do huge corporate bodies provide the illusion of beneficial permanence? Do we cosy up to the illusion via a cup of Costa’s second-rate coffee?

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Tuesday, May 21, 2013

Monday, May 20, 2013

Mixed blessing?


Suppose the UK has vast quantities of readily accessible shale gas – what then?

If the Cabinet do not have the wit and imagination to reconcile our industrial needs with the fact of North Sea oil, they would do better to leave the bloody stuff in the ground.
Sir Michael Edwardes on North Sea Oil in 1980

Do we have the wit and imagination to reconcile our energy and social needs with a shale gas bonanza? If the gas is there in abundance, are we likely to use it wisely? 

What would count as using it wisely?

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Sunday, May 19, 2013

Bill Oddie (naturalist): HSBC funding ecological destruction in Borneo



http://www.globalwitness.org/hsbc-sarawak/

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Saturday, May 18, 2013

John Ward: "THE SATURDAY ESSAY: What else are they manipulating?"

Answer: FOOD PRICES

creosote

Too much food costing too much money is killing people
 
Sector by sector, the truth is at last trickling out: ICAP, Libor, Gold, Currency values, oil…..none of them are natural markets, all of them are being ‘directionalised’….as in, manipulated for the good of the few – and never for us. But the most important commodity we have probably represents the most criminal scam of the lot.

The ‘price’ of gold plunged another $33 net yesterday. As usual, the drop made no sense. As usual, it took place on a Friday. As usual, the two steep declines happened when the London and New York markets opened. Those who have spent half a decade or more presenting clear signs pointing to manipulation of everything from fiat currencies to interbank rates have in the last year gone from fringe conspiracy theorists to vindicated commentators.

If it can be manipulated to the advantage of those in charge, then it will be. One thing big business can’t manipulate is the weather. And the weather is behaving strangely at the moment. The Italian Giro Cycle Race director Mauro Vegni confirmed to Agence France Presse yesterday that snow and winter-like temperatures on the upper flanks of the Col du Galibier may force Giro officials to remove the historic climb from this Sunday’s 15th stage. Yesterday was the 17th of May. Multiple freezes in U.S. hard red winter wheat country have further reduced the expected size of this year’s crop – after drought screwed up the region last autumn and during the winter.

So it makes sense that the wheat futures are suggesting high prices, right? Er no actually, it doesn’t: global cereal production will increase 6% to 2.708 billion tonnes in 2013 from the previous year, said the usually definitive Food & Agriculture Organisation (FAO). For while Asia is consuming more wheat now, to meet that demand more countries around the globe are growing it.

Yet the very same FAO yesterday pointed out that World food prices rose during April…for the second straight month. Now obviously, there’s more to ‘food’ than wheat, but let’s get this into some kind of perspective. Here in South West France, for example, we have had a cold and wet Spring: but every tree I can see is heavily laden with fruit. We are going to have a bumper harvest. Indeed, wholesale food prices should fall this year, according to the world’s large agricultural trading houses – like Glencor, which expects bumper crops in the US and South America. USDA says 125m more bushels of corn will remain in silos before harvest, an estimate that should see prices tumble.

But world food prices still rose for the second month in a row. In Brazil, for example, the price of tomatoes has gone through the roof. “I’ve had this restaurant for 48 years and this has been the worst price rise I have seen,” said Walter Taverna, whose restaurant Conchetta is a fixture of São Paulo’s historic Italian district, Bixiga. Where I live in France, not far from me is Marmande – Europe’s biggest producer of tomatoes. I go to the markets and supermarkets to buy fresh almost every day: my observation is that tomatoes have gone up by a good 25% year on year. In India, wholesale onion prices rose 50-60% in December and are up sixfold from a year ago. But the Government admits there is no crop-failure reason for this.

The fact is that there are umpteen ways to manipulate the price of food: it’s done by governments, by agribusiness, by Wall Street speculation – and then by supermarkets. (It’s also done indirectly via oil-price manipulation, which affects the cost of using machinery to crop, clean and prepare everything from apples to prunes. But we did that story already).

Many governments around the world depend on big cash crops to balance their deficits and amass foreign exchange. Argentina has had money problems forever, and there is blatant evidence to show that big farming there, hand in glove with government, has been hoarding soya beans given that the price has been depressed for a while now. Although Argentina isn’t a major-league heavy hitter in the global soyabean market – it accounts for about 10% of world production – its warmer temperatures allow it to crop early… and meet demand from huge net importers like China – until the US starts harvesting in the second half of the year. They’re hoarding the crop right now, and so prices are rising.

The last fifty years have seen a decline in the numbers of small to medium-sized farms across the world. Last year, deep in the constipated bowels of Brussels, a committee set up to find out this sort of thing came up with a frightening statistic: only 6% of European farmers are under 35. Farming is going out of fashion. Or rather, family farming is: agribusiness is going from strength to strength. Or from bad to worse, depending on your moral outlook. In 2004, the market share for the Big Four agrochemical and seed companies reached 60% for agri-chemicals and 33% for seeds. Seven years earlier, the figures were 47% and 23% respectively. The concentration continues – again with help from Big Government. The European Union is currently trying to slip through a law making it illegal for home growers to trade in seeds.

Today, it is impossible to separate the dominance of agribusiness from the power of hedge funds. The United Nations special rapporteur on the right to food Jean Ziegler recently indicted multinational companies for badly aggravating the food crisis and raising food prices. Speaking in Geneva, Ziegler told journalists, “Until early March, prices of many food articles followed the demand and supply forces. But since then there has been an explosion in prices which is largely due to the role of big corporations and hedge funds.” These big agri-corporations, he said, had huge stocks and, aided by hedge funds, had indulged in speculative activities so that “food access decreased for poor people while the profits of these companies were inflated”.

I’ve never met Mr Ziegler, but his empirical data clearly reflect my shopping experiences since February. The US Department of Agriculture (USDA) agrees that there will be food-price inflation in 2013: it forecasts a 2.5 – 3.5% increase for all wholesale and retail food prices in 2013. But the snag with this USDA forecast is that such an increase is way, way below what we’re seeing on the ground.
Some of this reflects the concentration in turn of food retailing into the five main UK multiple giants, the four in France, the five in Germany and so on. They all have form when it comes to screwing both farmers and consumers on price to lift their margins: the UK’s main shops nearly killed off the entire lamb farming sector some years back, and both milk and eggs have seen farmers in poverty while shoppers pay through the nose. Not only does this exacerbate the trend towards large agribusiness, it also lets the Tescos of this world look dirt cheap on, say, pork products in order to pile more margins onto other foods and thus end up making more money.

But the most damning evidence points the finger clearly at Big Business and Wall Street. According to a report in January 2013 from the World Development Movement, Goldman Sachs made about $400 million betting on food prices last year. (In 2010, they made a billion doing it). But using the word ‘bet’ implies that Goldman took a risk. In fact, the firm has a track record of buying long and in bulk to artificially push up prices…..and making a quick exit before the late price drop then inevitably occurs. By this time, of course, the folks who need the food to be cheap may well be dead. But Lloyd Blankfein is doing God’s work, so we mustn’t get in his way.

As always, the banks and hedgies have an answer for the anti-speculation lobby most obviously represented by Oxfam: they (Deutsche Bank and Allianz being prime movers here) argue that there “is no evidence that price rises are to do with anything beyond population growth and rising demand”. It’s a Jeremy Huntesque answer, because most of the evidence in fact points the other way. Indeed, other banks are clearly sensitive on the issue: Oxfam’s Belgian office has targeted KBC Bank and Dexia’s exposure to agricultural commodities, and has had some success in France by getting Credit Agricole and BNP Paribas to drop their food ETFs. In the UK, Barclays too has withdrawn from food commodity trading. This last, of course, is yet more backwash from the Bob Diamond era, and on message with being a nice clean rather than nasty cheating bank.

These are, however, small victories in the scheme of things. If pro-speculation people say price rises are solely to do with demand, then they need to explain this: the market for hedge betting and speculation in global food prices began to take off big time around 2007. Up until then, there had been considerable success in reducing the percentage of malnourished humans and deaths from starvation. But as a recent FAO report shows, ‘Since then, global progress in reducing hunger has slowed and levelled off….the undernourishment estimates do not fully re flect the effects on hunger of the 2007–08 price spikes or the economic slowdown experienced by some countries since 2009, let alone the more recent price increases’. It’s not necessarily causal, but it is correlated. It requires a better answer than “there is no evidence”.

But the most damning data of all come from those with no agenda beyond stating the problem clearly. The fact is that 867 million people are woefully malnourished, yet there is enough food in the world today for everyone to have the nourishment necessary for a healthy and productive life. One in eight humans on planet Earth do not get enough food, making hunger and malnutrition the number one risk to health worldwide – greater than AIDS, malaria and tuberculosis combined.

There are myriad reasons why this is. But among these are definitely (1) The decline in smallholding farms that produce foods cheaply and locally, (2) the globalisation of food pricing putting the cost beyond the reach of the poor (3) hoarding by governments and agribusiness to wait for the best price, and (4) deliberate price-directionalisation by speculators.

Frederick Kaufman, author of Bet the Farm: How Food STOPPED Being Food told The Daily Ticker last October that the price of global grains tripled from 2002 to 2012…..after decades of stability, and just two years after deregulation allowing derivatives food trading was applied. “Something new has come to this market and we’re seeing absolute levels of volatility that we’ve never seen before,” Kaufman said, “the exponential growth of commodity derivatives. U.S. derivatives trading in wheat alone has surged from $10 billion to $300 billion in less than a year….speculators are completely overwhelming the commodity futures market, subverting a market that worked so well for over a hundred years.”

Again, it’s a seriously accusatory correlation. And as one finds so often with the financial community, all attempts to reverse the deregulation of the trade are met with a wall of lobbying cash. Call me suspicious, but common sense suggests pretty strongly that this means they’re making a bundle out of it. Throughout 2011, efforts to do re-regulate within the Dodd-Frank Financial Reform Bill were met by massive Wall Street lobbying of everything from Congress to the Commodity Futures Trading Commission (CFTC) and the Security Exchange Commission. Goldman Sachs alone spent $1.08bn protecting the trade. Now, you can’t make a turn by directionalising a sector downwards. Sure, you can win a bet by backing a fall in prices, but then that would mean shafting global agribusiness on occasions. And there are two chances of that happening.

Finally – and probably conclusively – we have to recognise that since 2008 the major part of the commercial world has been either heading for, in, or just limping out of recession. To suggest a boom in food demand when money is tight simply doesn’t make marketing sense….any more than Gold trackers falling in price while bullion roars ahead makes for the remotest iota of sanity. Certainly, there are specific factors of real importance: the Japanese Tsunami raised seafood prices, 2012 crop damage (especially in Australia) meant a spike in vegetable prices, biofuels have reduced the percentage of grain used for food, Chinese and Indian consumers are turning to wheat, and drought weather can ruin most crops before too long. Also some trends do have genuinely unforeseen consequences: it’s more profitable to sell grain to China than give it to laying hens…so that puts the price of eggs up, as laying hen numbers fall. But almost all of even these are the direct result of having globalised the food business: whether the troughers like it or not, market-driven global trade in food extends the length of the food hugely, creates concentration that increases the impact of one failure, and pushes up prices even without speculation.

But far too many factors cited by the greedy few are excuses: nothing more, nothing less. In a piece last year, Forbes magazine totted up the ten big factors impacting on food prices, and guess what? Speculation and derivatives were nowhere on the list. But even that article had to concede that food inflation early in 2011 (at the height of the recession) was the highest for 36 years – despite interest rates being close to zero. Ultimately, it cannot make sense for those from poor economies to pay the same prices as Sherman McCoy in Manhattan….but that is increasingly happening. The real impact of artificially expensive food is felt by the global poor. In places like Tajikistan, for example, the average family spends almost 80% of its income on food now. Price spikes in such regions can mean the difference between life and death.

The problem is globalisation of the food business, too much power held by big agribusiness, and financial provider speculation/directionalisation. Such ‘betting’ screws the price of gold, raises the price of oil, fixes the interbank lending rate, dilutes the value of a citizen’s currency….and raises food prices.

It is yet another reason why The Slog’s mantra remains tediously consistent: we should make regional self-sufficiency the goal of economies in general and farming in particular, and only trade in natural surpluses. This would reduce unemployment by putting people back on the land, secure the food supply with a far greater spread of risk, reduce national deficits, feed the Third World more cheaply…..and reduce both shareholder returns and financial centre profits. So we won’t be doing that then.

The neocon business model is mad, globalist mercantilism is a crock, and permanently high unemployment in the West and elsewhere is not a social price worth paying so that institutions can get their returns and keep us all in savings growth and pensions…..not. Lest we forget, until the late 1950s virtually no big financial providers anywhere were even in the stock market: the stock market was there to finance business – which is what it should be for.

None of this is fluffy Leftie bollocks: it’s common sense and common decency. But the Mr Creosotes keep trotting out their feeble defences, getting away with it, and then laughing until they wet themselves. The size of the task faced by those who would like to make the world a better place without violence never looked bigger than it does in 2013.

This piece is reproduced with the kind permission of the author. The original is at The Slog blog here.

Friday, May 17, 2013

I beat Hitchens: Clegg to collect his reward as an EU Trojan Horse?

Peter Hitchens tells us today that he has long predicted the LD/Con spat and that it will result in Clegg getting the lucrative post of EU Commissioner.

Three years ago - long before Hitchens - I reminded readers of Clegg's early stint as a student at the College of Europe, and predicted the EU job for him:

"It is, I think, significant that Clegg's postgraduate learning included a spell at the College of Europe in Bruges, an outfit whose purpose was described by postwar Euro-idealist Henri Brugmans as "to train an elite of young executives for Europe." I read that as a sort of McKinsey for pliable idiots. Other British Isles alumni include former Tory MP Nigel Forman, Neil Kinnock's sprog Stephen, LD stiff Simon Hughes, ScotNat MEP Alyn Smith (how a nationalist and a federalist? explain!), and Irish-born ex-Gen Sec of the European Commission David O'Sullivan.

"Now, for a short spell, Clegg's playing with the big boys, and they're going to have his marbles and the bag they came in. [...]


"The best that can be hoped for by Nick Clegg, I think, is to do a Blair: sell out to powerful interests who will springboard him into some position less vulnerable to the people's franchise. Perhaps the reward for his long service to Europe will be a seat on the European Commission (maybe he still speaks to David O'Sullivan and friends - see above). He, and ultimately his descendants, will be accepted into that modern equivalent of the Hapsburg dynasty that is the nascent power support structure of the EU."

As with Peter Mandelson, doubtless Clegg's putative position will mean that he cannot criticise the EU (even if he wished to), because to do so will result in the loss of his pension.

I'm not sure whether these days, selling out to a foreign power that wishes to infringe or abolish our sovereignty could in theory provide grounds for a prosecution for treason. I also don't understand why there has been so much done since 1998 to water down or abolish the relevant legislation and punishments.

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Tuesday, May 14, 2013

Great new Energy Page pieces! Nick Drew on energy security, AK Haart on scientific uncertainty in climate studies

Nick Drew closes his latest series on energy threats in the UK - something that has suddenly become a focus of attention in the mainstream media, as for example in The Spectator's latest edition here.

And we welcome a new voice to the Energy Page: distinguished scientific blogger and author AK Haart shows how "an inconvenient truth" may be inconveniently flawed, or unfairly ignored. AKH has been blogging regularly for two years and has taken a temporary (we hope) online vacation following the completion of his latest book.

Monday, May 13, 2013

A Climate of uncertainty


Many years ago I was chatting to an accountant who had been given the job of costing a range of standard analytical techniques used to assess pollution in natural waters.

I still recall the look on his face when I told him that the true value of an ammonia result of say 1.0 milligrams per litre (mg/l) might lie somewhere between 0.9 and 1.1 mg/l and occasionally would lie outside that range.

He was astounded. At first he couldn’t believe that a value of 1.0 mg/l of ammonia might not be exactly that. Even worse, it was unlikely to be exactly 1.0 mg/l even if that was the result reported and paid for. I had to draw a bell curve for him and explain the role of statistics in such analyses.

In the end he realised he’d learned something about chemical analysis and we moved on. What I didn’t mention was another word I could have introduced him to :-

Assuming...

Assuming the sample was taken from the right place.
Assuming the sampler used the standard protocol.
Assuming the analyst didn’t mix up the samples on the analyser.
Assuming there is nothing unusual to affect the analysis.

The natural world is exceedingly complex and the environmental sciences are riddled with measurement uncertainty and analytical pitfalls. Inevitably we always have to deal with that thoroughly human aspect of real life – we have to assume certain conditions which could affect our analytical results, measurements and our conclusions.

Suppose you are to conduct a limited survey of lead in a stretch of trout stream lying between two bridges. You have a sampling protocol borrowed from the Environment Agency and a contract with an accredited analytical laboratory where your samples are to be analysed.

Everything goes well, your samples are collected by a student and the analytical results are as expected for a trout stream. All seems hunky dory.

Apart from one result.

This single result shows an extremely high lead concentration in a single sample taken from the downstream bridge. So you have that particular sample reanalysed. After reanalysis the result stands – one high lead result is confirmed.

What do you do?

Report it and the entire stretch of trout stream comes under intense suspicion for intermittent contamination by lead. Yet the result appears hopelessly anomalous. You check with the student who took the samples. No problems there – all sampling protocols were followed.

After some soul-searching you leave the high result out of the final report. It’s too anomalous and too contentious. Frankly you don’t believe it because human error is hardly unknown in such cases, from contamination to mixed-up samples. 

This is key – you don’t believe the result. You are convinced it is due to human error.

After your report is published, you discover that a field adjoining the trout stream was spread with sewage sludge in the nineteen seventies. The sewage sludge may have had a high lead content from lead in petrol and road runoff into the sewers. The anomalous lead result occurred shortly after a heavy storm so there may have been runoff from that field.

Oh dear.

This little story is pure fiction and the high lead result could still have been due to human error. The problem it highlights is common in all environmental analysis - even satellite temperature measurements of the atmosphere.

When studying the natural world, we have our expectations and very often anomalous findings are due to human error, process malfunction or instrument failure. So one way or another, anomalous findings tend to be left out of the picture and the picture itself migrates towards a consensus.

There are often political pressures behind those expectations too. Good scientists know this and cope with it, but the potential for deceiving ourselves and others is considerable and insidious.

A few decades ago, climate scientists had a far more complex problem to deal with and many flunked it. They failed to cope with climate complexity and the pressures their assumptions eventually brought on their incautious heads. We should not be particularly surprised.

The much trumpeted climate consensus means all our assumptions are correct. Oh dear – have our energy policies been bent to breaking point over something so naive?

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Saturday, May 11, 2013

UKIP needs to get its act together

I've just finished listening to this week's edition of Radio 4's current affairs panel discussion programme "Any Questions?"

As ever with these things, there's much more heat than light, especially when the more politically skillful members of the panel jerk the audience's chain, as Yasmin Alibhai-Brown (on migration) knows how. This bout was recorded at Keele University and students are more likely to applaud generous impulses, since they are not yet faced with the practicalities of paying for them as well as supporting themselves and their families. Which is why Harold Wilson reduced the voting age to 18.

It seems to me that UKIP, here represented unofficially by Christine Hamilton, who did her best but is perhaps too straightforward to wrestle with weasels, still has something to learn in how to present its policies.

1. A referendum on Europe: it's a democracy issue.

Debate on this is usually misdirected into claims about the supposed danger to British jobs etc if we left the EU. Every point made against withdrawal should be turned back with the comment:

"What you are saying should be part of the debate the country should have in a referendum campaign. Let the people decide. It's all very well for us to rush into the Middle East and destabilise their regimes in the name of democracy, yet when it comes to our own country, suddenly you think the people should have no say at all in who ultimately governs them. If you're right, then the people will vote your way. Do you really believe in democracy, or are you afraid of it?"

2. Immigration: the need to distinguish between asylum and economic immigration.

This debate is swiftly twisted into accusations of insularity and racism. Seal off that tactic fast by saying that in genuine asylum cases, there's no objection. Then the word "economic" needs to be introduced, early and repeatedly. Economic immigration is subject to economic arguments.

If low-paid labourers are brought into this country, then it is unlikely that the taxes they pay will be enough to fund the social benefits (education, health etc) to which they and their families will rightly be entitled (it's a disgrace to suggest that we should deny them such benefits, as the Tories have proposed).

And then there are the other people who stay unemployed, underemployed or underpaid because of economic immigration. The more of them there are, the more it's going to cost us. The net effect is a permanent imbalance in government finances and the country is going to get deeper in debt. It's an economic issue.

If we want to spend money on the low-paid, we'd do better to spend it on training and rehabilitating the people here who should be in full-time, reasonably-paid work.

And we need businesses that will employ them. Where are the politicians who should have defended our economically vital enterprises? Here in Birmingham, we've lost HP Sauce to the Dutch, Cadbury's chocolate to the Americans and less said about what happened to our car plant the better.

Too many professional politicians don't have a clue about economics. The banks turned on the taps, and instead of investing directly into British businesses, we poured billions of private money into raising prices in the housing market and speculating on share prices. The people who work for banks made out like bandits. Then the system crashed and now we're pouring billions of public money into the banks, and many of the bandits are still there.

Maybe some think that the battle is lost already and we're busted. But if they think it's inevitable that the country's going to get poorer, why bring in even more poor people?

This is happening at a time when there is increasing economic inequality in this country, and that's partly because of wages being held down by making workers compete desperately with each other, both here and with their counterparts in other countries that don't have to pay our welfare costs.

We're not getting this point across in political circles, because the Left sees the poor as their natural voters and the Right is happy to depress wages to maintain corporate profits and executive bonuses. We're not "all in it together"; but they are.

But it's going to unravel, anyway. As a portion of the population draws away from the rest in wealth and income, they will be less and less inclined to pay for everyone else. At one level, there will be the tax avoiders - look how broadcasting and football stars organize their finances to pay as little tax as possible - and at a higher level there will be the tax refugees: Monaco has become a Tower Hamlets for billionaires. The Tax Justice Network may find the trillions in cash that has fled offshore, but good luck with calling it back.

So the people who will pay will be the people who don't earn enough to pay for clever schemes to avoid the taxman, and aren't rich enough to leave the country. The income of the middle class will be sweated, and by printing money to cover its own debt the government will steal the spending value of middle class savings.

And the poor will be ground down further as the money dries up. Already they're having their benefit cut if there's a spare bedroom in the house, and children with learning disabilities are finding it more difficult to get funding for transport to take them to school. It's hard at the bottom end, and getting harder.

Economic immigration is an economic issue. Let those who are for it explain how it will benefit the country as a whole, not just some business owners and some calculating politicians.

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy.

CO2, water vapour, sunlight, climate change, global warming

My brother has kindly forwarded the following video by an Australia-based British scientist whose former field was geology. It shows that when you combine atmospheric CO2 levels with the variable luminosity of the sun, you do indeed get a good fit with the graph of the Earth's temperature over the last 500 million years.

Though water vapour can also contribute to the greenhouse effect, its role is limited because beyond a certain limit, the excess falls to earth as precipitation. However, a warmer atmosphere can hold more vapour.

It seems that we are in a "fool's paradise" period (my label) because although atmospheric CO2 has risen significantly, much of the additional heat stored in the system has been absorbed by the oceans, and at the same time there has been a temporary weakening of the sun's radiation. When the sun's energy emission resumes its long-term upward trend, and if the ocean warming crosses some point where new things happen (e.g. the release of deep-sea dissolved methane?) we may get climate change with a vengeance.

Yes, the Earth has been much warmer in the distant past - when humans did not exist. Life will probably continue, but maybe not on terms that favour our species and civilisations.



All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Thursday, May 09, 2013

Utilities, Energy and the New Dirigisme

Once upon a time, oil was the only energy-source that enjoyed anything approximating a free market.  Gas and electricity meant monopolies or, if investor-owned, a regulated rate of return, steady but low.

Then came liberalisation, and gas and power took off as traded commodities in competitive market structures.  The sector divided into merchant (unregulated) activities and 'true utility' (wires and pipes, where so-called natural monopolies prevailed).  The trade-off for residual monopoly remained a more-or-less regulated, low-ish rate of return.  Some companies had characteristics of both merchant and utility in their portfolio; others had cleaner business models and were one or the other, with the utilities being conventionally viewed as annuity streams or 'defensive' stocks.


Endless debate ensues as to whether this can all work out as well as the open-market theorists claim: FWIIW, I am squarely in that camp, and the development of a global gas industry is its best evidence.  However, just as things were working out nicely in electricity too, along came the baleful decarbonisation agenda, and with it an avalanche of regulatory meddling.  The EU's Emissions Trading Scheme was an attempt to execute some of the new policy goals via market mechanisms, but as a result of various entirely avoidable errors it hasn't really worked.  So meddling it is.


There is a school of thought that goes: bring back the CEGB ! Advocates of this include those with no memory, who have forgotten just how bloated and wasteful it was; and also those with long and fond memories, who recall exactly how bloated and wasteful it was, and they loved every minute of it.


However, governments no longer have the money for this malarkey and anyway, outright renationalisation is (currently) not allowed in the EU.  So we get dirigisme on an ever more detailed basis, as governments seek to determine exactly what new power plants (and other infrastructure) get built, and where, and by whom.


Which finally brings us round to the challenges for the likely builders of said new kit, and for those who might be considering investing in them.


The energy companies have, over a relatively few years, learned to play the game quite differently to the way they conducted themselves from the 1990s onwards.  Instead of taking a professional view on, for example, forward energy prices and spreads, and making their investment decisions accordingly, they have decided it's easier to demand subsidies, 'capacity payments' and various other featherbedding guarantees before they will invest in, well, pretty much anything these days.


Like governments, many of these companies are short of dosh, and so they demand high rates of guaranteed return.  Like monopolies, governments know exactly who is going to pay for all this in the end: it's us electricity-junkies that have nowhere else to go (until we surrender to death by hypothermia).  So they make the necessary arrangements, via a plethora of subsidies and schemes, for guaranteed high rates of return.


Guaranteed high rates of return - what's not to like ?  Shouldn't investors be flocking to join the game ?  There are several schools of thought, all wrestling with the following polar considerations:

  • People will always need electricity, the energy companies have governments over a barrel, and this isn't going to change any time soon; so back up the truck and enjoy it
  • This new 'system' is clearly dysfunctional, with regulatory risk abounding, not least because government is taking powers to make the 'utilities' their agents, not only of investment but also every facet of social policy which has an energy angle
It's even possible to synthesize these points and argue, (as does Liberum Capital) that in the medium term these guaranteed returns look so good for the energy companies ("at a perfectly feasible power price, SSE would be seeing 33% annual increases in EPS towards the end of this decade"), they are bound to get slammed mercilessly when the whole game comes unstuck.

I always reckon that those who live by the subsidy, die by the subsidy.  But maybe there is good money to be made in the meantime ... what do we all think ?



This post first appeared on the Capitalists@Work blog


All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Fighting the Government for savers and against inflation (3)

The struggle continues...

No reply to my email of 21 April (see Part 2 of this series) before I sent the following:

Me to MP's researcher, April 27, 2013:

Further to my last email of 6 days ago, perhaps you could spare the time to look at the latest article by Matt Taibbi in Rolling Stone. It may give you some idea of why I now (as a former IFA of 23 years' experience in the financial industry) regard the whole bank and trading shebang as irredeemably systemically corrupt. Any government that wishes to retain its claim to authority needs to protect the life savings of the little people.
Do please let me know how you are getting on with framing appropriate questions as previously discussed.
Best wishes
 
No reply before the following:
 
Me to MP and his researcher, May 08, 2013:
 
Perhaps the following may show why asking about NS&I Index-Linked Savings is important and topical - and getting some mainstream interest and airing. Is there any reason to delay the debate much further?
(I read the book myself some time ago.) As Hitchens says, the 1923 Weimar inflation (which my mother's family lived through) is unlikely to be repeated here - but the damage is great even if it happens a little more slowly. 10% inflation for 7 years will halve the value of money.
Should we really leave Parliamentary comment on inflation to Ed Miliband, thus suggesting by implication that the Coalition is unconcerned?
Best wishes
 
Reply from researcher, with copy to MP, May 08, 2013:
 
Apologies for not processing this in the last two weeks – all questions fell at prorogation in April and after I last emailed you it is not likely we would have had a response in time. We have been in recess for the last week in any event where Questions could not be tabled.
We are now able to table a question with the new session opening today – Last time I looked at this I was wondering if you had a more specific question in mind than the general one I gave you on the 12th March (Below) Which you responded to on the 21st April after I emailed you again on the 18th April.
‘To ask the Chancellor of the exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation and devaluations of the pound’
You’ve sent me the below on May 3rd, it would be helpful if you could clarify if you are worried about individual or also state ‘savings’ – on the second the financial Savings Guarantee Scheme at present does guarantee savings under £85,000 in the event of systemic banking collapse or other smaller bank failure without penalty to the individual or value of the saved amount but the government will only be able to clarify that it has no intention to bring in a new bank bailout ‘tax’ of any kind for sums under that amount and no future government action is bound by a previous one – the government does not take the view, at present at least, that the Proposed (and rejected) tax on savings under or over a protected amount should be taxed in any way, (although it would consider funds over that sum forfeit in the case of bankruptcy, for example) to the best of my knowledge.
1. How to set aside money and preserve its spending value, without being eroded by inflation and taxes and without being forced to accept any kind of investment risk;
2. How to be sure that no portion of savings below the deposit insurance ceiling will not be seized in some form of bank bail-in or pseudo-tax, but be payable in the form and to the schedule expected by the saver.
As such I might suggest this amended question as a draft off the top of my head and would welcome any comments or amendments you want to make.
‘To ask the Chancellor of the Exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation or devaluations of the pound, if he has given thought to the taxation of savings by the Exchequer in various forms putting off individuals from saving some of their earned income by eroding the investments value, if he shares a concern that efforts to tax the small scale saved income of individuals to rescue financial institutions, such as measures debated by the Cypriot Parliament recently as part of the European Union’s and International Monetary Funds’ bailout terms undermine general confidence and what measures he can or will take to reassure individual savers that their investment will not be used to rescue institutions which have grossly mismanaged their affairs and thus be penalised, via the reduction of the value of their savings, for the mistakes of risk takers on a systemic financial level.’
If we can agree a draft I can get it to the table office as a written question as soon as you are happy and John is comfortable tabling it.
Yours

Me to researcher (copy to MP), May 09, 2013:

Thank you for your response. Again I must say that the issues are sufficiently important to ask orally on the floor of the House, rather than be buried in writing. I have already seen what a written answer from the Treasury is like. Am I mistaken in thinking that oral PMQs and questions to Ministers raise matters in the way that is most likely to result in prompt and effective action?
There are two separate issues and I'd suggest that they be pursued separately. One is inflation, the other is expropriation. The questions need to be pin-sharp specific to prevent wriggle, deflection, partial answers and waffle.
On the first, I think the question should focus on the need to restore NS&I Index-Linked Savings Certificates. Hansard links I gave you earlier showed that protecting the small saver was recognised as a "social obligation" - by both sides of the House - when they were first introduced in 1975.
On the second, you will doubtless know that the first proposal in the Cyprus bank affair was to take money off even those who had less than 100k Euro in their accounts. It doesn't matter whether it's dressed up as a tax, a bail-in or forced conversion to bank shares; up to the insured amount, savers should be able to transfer or extract all their cash. Once that principle is breached, no money in any European bank is safe and that will spell the end of the system as we know it.
A suggestion for (1):

“Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?”

Hansard reference (10 July 1975):

A suggestion for (2):
"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"
Best wishes
MP to me (copy to researcher), May 09, 2013:

I tend not to do Oral questions. They don't have any real effect on government policy and it is a lottery as to whether you have the opportunity to ask one. Hence we can put in a treasury oral each time treasury come up (about every 3 weeks) and at some point it may be asked (perhaps at the 3rd or 4th time of asking) or we can put in a written question and get a response in just over 5 days.

Me to MP, May 09, 2013:

Thank you. Whatever works, is what matters, to paraphrase Alastair Campbell. I look forward to the response. I can only hope it's better than the patronising drivel I got from Lord Sassoon.

MP to me, May 09, 2013:

I can,of course, go for an adjournment debate to have a longer session. I do think it is an issue to give some attention to. However, we should start with written questions and letters.

Me to MP, May 09, 2013:

Thank you for your response.
We've had Lord Sassoon's letter 10 months ago (25.07.2012) in response to your letter to the Chancellor's office dated 02 July 2012, so presumably we're past that point and into follow-up. And how hard can it be simply to instruct NS&I to resume doing what it had previously done for an unbroken period of 35 years through thick and thin? This is not a new or complex matter, I would submit.
 
MP to me (copy to researcher), May 09, 2013:
 
I am on the train at the moment and would have to get a copy of the letters to hand to comment.
 
Me to MP, May 09, 2013 (6 minutes after the last):
 
I can help, to a degree. I don't have a note of what you wrote to the Chancellor's office, but here is the text of Lord Sassoon's letter:
"Dear Mr Hemming
Thank you for your letter of 2 July to George Osborne regarding correspondence from your constituent [...] about National Savings and Investments (NS&I). I am replying as Minister responsible for this policy area.
I appreciate that your constituent is concerned about savings in the current climate of relatively high inflation and low interest rates and is disappointed that Savings Certificates are no longer on sale. It is important, though, to recognise that inflation has come down from 5.2 per cent in September 2011 to 2.4 per cent in June 2012. The Government continues to give priority to reducing the impact of rising prices on families and businesses including through the recently announced deferral of fuel duty increases, which means that petrol prices will be 10p per litre lower than they would have been under the previous Government's plans.
NS&I provide cost-effective retail debt finance to Government. The money invested in their products contributes to the Government's overall debt financing remit. In doing this, NS&I follow a policy of balancing the interest of savers and the taxpayer with the stability of the financial services market. While doing so they aim to meet the financing objective set each year by HM Treasury.
It might be helpful if I explain the reasons why NS&I withdrew their Savings Certificates.
In July 2010, the popularity of both their index-linked and Fixed-interest Savings Certificates reached unprecedented levels and sales volumes far exceeded those either anticipated or required by NS&I to meet their financing target set by HM Treasury. Because of this, they took the difficult decision to take Certificates off sale on 18 July 2010. This change however did not affect existing customers.
The March 2011 budget confirmed NS&I's Net Financing target for 2011-12 as £2 billion with a range of £0-4 billion. To achieve this, they needed inflows of some £14 billion from sales and reinvestments during the year which gave them the ability to reintroduce one 5-year term of Savings Certificates on 12 May 2011. Their aim was to keep them on sale for a sustained period of time to enable as many savers as possible to invest.
As they expected, the Savings Certificates proved very popular and in just under four months they had received over 500,000 transactions. In order to stay within the Net Financing target range for the year, at this point they had to withdraw the certificates from sale.
Existing NS&I Savings Certificates customers can, on maturity, keep their investment for another term of the same length. Alternatively, they can reinvest into any of the other Savings Certificates terms and issues on offer to existing customers.
In more general terms, the Government wants a saving system based on freedom, fairness and responsibility, which is both affordable and effective.
To support and encourage savers the Government has:
  • ensured the amount that people can save tax-free is not eroded by inflation by indexing the amount that can be paid into ISAs each year. This means that the Government has increased ISA limits by £600 this year, including an extra £300 for cash ISAs;
  • announced at Budget 2012 that Government will work with industry to improve competitiveness and transparency in the ISA market, particularly by encouraging the industry to work towards faster ISA transfers;
  • introduced Junior ISAs, offering parent a clear, simple and tax-free way to save for their child's future;
  • confirmed that employees will have a new duty to automatically enrol qualifying employees into a pension scheme from October 2012. This has the potantial to encourage 5 to 8 million more people to start saving or save more into a workplace pension scheme. The Government is also establishing the National Employment Savings Trust (NEST) to provide a low-cost, high-quality pension scheme for individuals not currently served by the market;
  • set up the Money Advice Service to offer free and impartial information and advice on all money matters available online at www.moneyadviceservice.org.uk , face-to-face, or by calling its helpline on 0300 500 5000. The Money Advice Service also launched a financial health check to help people proactively manage their money. It also publishes comparative tables of savings accounts and the interest rates offered; and
  • given individuals more choice over the use of their pension savings to provide a retirement income by removing the effective requirement to purchase an annuity by age 75.
Please pass on my thanks to Mr Norfolk for taking the trouble to make us aware of these concerns.
Yours sincerely
James Sassoon
LORD SASSOON"
... and here is my reaction:
"Thank you for forwarding Lord Sassoon's letter, which arrived here yesterday. It is not at all up to the standard that I would expect from a Treasury mind; in fact, it is little short of a disgrace.
The first page confirms what I suspected, that the present Government is concerned only with its own funding needs and not at all with what should be its commitment to savers, not to say the currency (which according to the BoE's own website has lost 99% of its value since 1900). As you know, National Savings Index-Linked Certificates were introduced in 1975, a year in which RPI inflation was, as I said to you before, 24.2%. If the government of the day could bring in this product at such a time of crisis and galloping inflation, I cannot see any justification for the present hiatus.
The point about the present level of inflation is useless. Savers need to know for sure that their money retains its spending power over the chosen period, not to be informed from time to time that RPI may have temporarily dipped.
The second page slides further downhill into irrelevant party political nonsense. To be specific about its failures to address the subject, I will take each of Lord Sassoon's points in order:
  • The cash ISA limit has nothing whatever to do with maintaining the purchasing power of cash.
  • ISA transfers, ditto.
  • Junior ISAs, ditto.
  • The NEST pension scheme is not a savings vehicle but an investment vehicle, a distinction that surely cannot have escaped someone with Lord Sassoon's background in the financial services industry. The nearest to cash within pension funds is either money market funds (which have a big fat question mark over them at the moment, I can tell you as an IFA) or bank/building society cash funds that (a) usually offer a significantly lower rate than cash ISAs and (b) are (except perhaps for SIPPs) not covered by the FSCS in the way that individually held accounts are (see the Pensions Advisory Service's article here).
  • The Money Advice Service is also irrelevant to the purchasing power of cash savings.
  • Changes to the requirement to purchase an annuity at age 75, ditto."

Best wishes,

MP to me (copy to researcher), May 09, 2013:

I will ask Martin to draft a letter along the lines of your response.

Me to MP, May 09, 2013:

I would be greatly obliged if we skirted round Lord Sassoon's letter, which is nothing but a large catch of red herrings, and, whether by oral or written question (whichever in your professional opinion and experience is likely to get the more expeditious and effective response) ask the two questions I drafted for your researcher this morning, namely:
“Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?”

and
"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Fighting the Government for savers and against inflation (3)

The struggle continues...

No reply to my email of 21 April (see Part 2 of this series) before I sent the following:

Me to MP's researcher, April 27, 2013:

Further to my last email of 6 days ago, perhaps you could spare the time to look at the latest article by Matt Taibbi in Rolling Stone. It may give you some idea of why I now (as a former IFA of 23 years' experience in the financial industry) regard the whole bank and trading shebang as irredeemably systemically corrupt. Any government that wishes to retain its claim to authority needs to protect the life savings of the little people.

http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425

Do please let me know how you are getting on with framing appropriate questions as previously discussed.
Best wishes
 
No reply before the following:
 
Me to MP and his researcher, May 08, 2013:
 
Perhaps the following may show why asking about NS&I Index-Linked Savings is important and topical - and getting some mainstream interest and airing. Is there any reason to delay the debate much further?

http://hitchensblog.mailonsunday.co.uk/2013/05/when-money-dies-the-horrors-of-inflation.html

(I read the book myself some time ago.) As Hitchens says, the 1923 Weimar inflation (which my mother's family lived through) is unlikely to be repeated here - but the damage is great even if it happens a little more slowly. 10% inflation for 7 years will halve the value of money.

Should we really leave Parliamentary comment on inflation to Ed Miliband, thus suggesting by implication that the Coalition is unconcerned?
Best wishes
 
Reply from researcher, with copy to MP, May 08, 2013:
 
Apologies for not processing this in the last two weeks – all questions fell at prorogation in April and after I last emailed you it is not likely we would have had a response in time. We have been in recess for the last week in any event where Questions could not be tabled.

We are now able to table a question with the new session opening today – Last time I looked at this I was wondering if you had a more specific question in mind than the general one I gave you on the 12th March (Below) Which you responded to on the 21st April after I emailed you again on the 18th April.

'To ask the Chancellor of the exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation and devaluations of the pound.’

You’ve sent me the below on May 3rd, it would be helpful if you could clarify if you are worried about individual or also state ‘savings’ – on the second the financial Savings Guarantee Scheme at present does guarantee savings under £85,000 in the event of systemic banking collapse or other smaller bank failure without penalty to the individual or value of the saved amount but the government will only be able to clarify that it has no intention to bring in a new bank bailout ‘tax’ of any kind for sums under that amount and no future government action is bound by a previous one – the government does not take the view, at present at least, that the Proposed (and rejected) tax on savings under or over a protected amount should be taxed in any way, (although it would consider funds over that sum forfeit in the case of bankruptcy, for example) to the best of my knowledge.

1. How to set aside money and preserve its spending value, without being eroded by inflation and taxes and without being forced to accept any kind of investment risk;
 
2. How to be sure that no portion of savings below the deposit insurance ceiling will not be seized in some form of bank bail-in or pseudo-tax, but be payable in the form and to the schedule expected by the saver.

As such I might suggest this amended question as a draft off the top of my head and would welcome any comments or amendments you want to make.

'To ask the Chancellor of the Exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation or devaluations of the pound, if he has given thought to the taxation of savings by the Exchequer in various forms putting off individuals from saving some of their earned income by eroding the investments value, if he shares a concern that efforts to tax the small scale saved income of individuals to rescue financial institutions, such as measures debated by the Cypriot Parliament recently as part of the European Union’s and International Monetary Funds’ bailout terms undermine general confidence and what measures he can or will take to reassure individual savers that their investment will not be used to rescue institutions which have grossly mismanaged their affairs and thus be penalised, via the reduction of the value of their savings, for the mistakes of risk takers on a systemic financial level.’

If we can agree a draft I can get it to the table office as a written question as soon as you are happy and John is comfortable tabling it.

Yours

Me to researcher (copy to MP), May 09, 2013:

Thank you for your response. Again I must say that the issues are sufficiently important to ask orally on the floor of the House, rather than be buried in writing. I have already seen what a written answer from the Treasury is like. Am I mistaken in thinking that oral PMQs and questions to Ministers raise matters in the way that is most likely to result in prompt and effective action?

There are two separate issues and I'd suggest that they be pursued separately. One is inflation, the other is expropriation. The questions need to be pin-sharp specific to prevent wriggle, deflection, partial answers and waffle.

On the first, I think the question should focus on the need to restore NS&I Index-Linked Savings Certificates. Hansard links I gave you earlier showed that protecting the small saver was recognised as a "social obligation" - by both sides of the House - when they were first introduced in 1975.

On the second, you will doubtless know that the first proposal in the Cyprus bank affair was to take money off even those who had less than 100k Euro in their accounts. It doesn't matter whether it's dressed up as a tax, a bail-in or forced conversion to bank shares; up to the insured amount, savers should be able to transfer or extract all their cash. Once that principle is breached, no money in any European bank is safe and that will spell the end of the system as we know it.

A suggestion for (1):

"Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?"

Hansard reference (10 July 1975):

http://hansard.millbanksystems.com/commons/1975/jul/10/savings-index-linked-schemes

A suggestion for (2):

"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"

Best wishes

MP to me (copy to researcher), May 09, 2013:

I tend not to do Oral questions. They don't have any real effect on government policy and it is a lottery as to whether you have the opportunity to ask one. Hence we can put in a treasury oral each time treasury come up (about every 3 weeks) and at some point it may be asked (perhaps at the 3rd or 4th time of asking) or we can put in a written question and get a response in just over 5 days.

Me to MP, May 09, 2013:

Thank you. Whatever works, is what matters, to paraphrase Alastair Campbell. I look forward to the response. I can only hope it's better than the patronising drivel I got from Lord Sassoon.

MP to me, May 09, 2013:

I can,of course, go for an adjournment debate to have a longer session. I do think it is an issue to give some attention to. However, we should start with written questions and letters.

Me to MP, May 09, 2013:

Thank you for your response.

We've had Lord Sassoon's letter 10 months ago (25.07.2012) in response to your letter to the Chancellor's office dated 02 July 2012, so presumably we're past that point and into follow-up. And how hard can it be simply to instruct NS&I to resume doing what it had previously done for an unbroken period of 35 years through thick and thin? This is not a new or complex matter, I would submit.

MP to me (copy to researcher), May 09, 2013:

I am on the train at the moment and would have to get a copy of the letters to hand to comment.

Me to MP, May 09, 2013 (6 minutes after the last):

I can help, to a degree. I don't have a note of what you wrote to the Chancellor's office, but here is the text of Lord Sassoon's letter:

"Dear Mr Hemming

Thank you for your letter of 2 July to George Osborne regarding correspondence from your constituent [...] about National Savings and Investments (NS&I). I am replying as Minister responsible for this policy area.

I appreciate that your constituent is concerned about savings in the current climate of relatively high inflation and low interest rates and is disappointed that Savings Certificates are no longer on sale. It is important, though, to recognise that inflation has come down from 5.2 per cent in September 2011 to 2.4 per cent in June 2012. The Government continues to give priority to reducing the impact of rising prices on families and businesses including through the recently announced deferral of fuel duty increases, which means that petrol prices will be 10p per litre lower than they would have been under the previous Government's plans.

NS&I provide cost-effective retail debt finance to Government. The money invested in their products contributes to the Government's overall debt financing remit. In doing this, NS&I follow a policy of balancing the interest of savers and the taxpayer with the stability of the financial services market. While doing so they aim to meet the financing objective set each year by HM Treasury.

It might be helpful if I explain the reasons why NS&I withdrew their Savings Certificates.

In July 2010, the popularity of both their index-linked and Fixed-interest Savings Certificates reached unprecedented levels and sales volumes far exceeded those either anticipated or required by NS&I to meet their financing target set by HM Treasury. Because of this, they took the difficult decision to take Certificates off sale on 18 July 2010. This change however did not affect existing customers.

The March 2011 budget confirmed NS&I's Net Financing target for 2011-12 as £2 billion with a range of £0-4 billion. To achieve this, they needed inflows of some £14 billion from sales and reinvestments during the year which gave them the ability to reintroduce one 5-year term of Savings Certificates on 12 May 2011. Their aim was to keep them on sale for a sustained period of time to enable as many savers as possible to invest.

As they expected, the Savings Certificates proved very popular and in just under four months they had received over 500,000 transactions. In order to stay within the Net Financing target range for the year, at this point they had to withdraw the certificates from sale.

Existing NS&I Savings Certificates customers can, on maturity, keep their investment for another term of the same length. Alternatively, they can reinvest into any of the other Savings Certificates terms and issues on offer to existing customers.

In more general terms, the Government wants a saving system based on freedom, fairness and responsibility, which is both affordable and effective.

To support and encourage savers the Government has:
  • ensured the amount that people can save tax-free is not eroded by inflation by indexing the amount that can be paid into ISAs each year. This means that the Government has increased ISA limits by £600 this year, including an extra £300 for cash ISAs;
  • announced at Budget 2012 that Government will work with industry to improve competitiveness and transparency in the ISA market, particularly by encouraging the industry to work towards faster ISA transfers;
  • introduced Junior ISAs, offering parent a clear, simple and tax-free way to save for their child's future;
  • confirmed that employees will have a new duty to automatically enrol qualifying employees into a pension scheme from October 2012. This has the potantial to encourage 5 to 8 million more people to start saving or save more into a workplace pension scheme. The Government is also establishing the National Employment Savings Trust (NEST) to provide a low-cost, high-quality pension scheme for individuals not currently served by the market;
  • set up the Money Advice Service to offer free and impartial information and advice on all money matters available online at www.moneyadviceservice.org.uk , face-to-face, or by calling its helpline on 0300 500 5000. The Money Advice Service also launched a financial health check to help people proactively manage their money. It also publishes comparative tables of savings accounts and the interest rates offered; and
  • given individuals more choice over the use of their pension savings to provide a retirement income by removing the effective requirement to purchase an annuity by age 75.
Please pass on my thanks to Mr Norfolk for taking the trouble to make us aware of these concerns.

Yours sincerely

James Sassoon

LORD SASSOON"


... and here is my reaction:

"Thank you for forwarding Lord Sassoon's letter, which arrived here yesterday. It is not at all up to the standard that I would expect from a Treasury mind; in fact, it is little short of a disgrace.

The first page confirms what I suspected, that the present Government is concerned only with its own funding needs and not at all with what should be its commitment to savers, not to say the currency (which according to the BoE's own website has lost 99% of its value since 1900). As you know, National Savings Index-Linked Certificates were introduced in 1975, a year in which RPI inflation was, as I said to you before, 24.2%. If the government of the day could bring in this product at such a time of crisis and galloping inflation, I cannot see any justification for the present hiatus.

The point about the present level of inflation is useless. Savers need to know for sure that their money retains its spending power over the chosen period, not to be informed from time to time that RPI may have temporarily dipped.

The second page slides further downhill into irrelevant party political nonsense. To be specific about its failures to address the subject, I will take each of Lord Sassoon's points in order:

  • The cash ISA limit has nothing whatever to do with maintaining the purchasing power of cash.
  • ISA transfers, ditto.
  • Junior ISAs, ditto.
  • The NEST pension scheme is not a savings vehicle but an investment vehicle, a distinction that surely cannot have escaped someone with Lord Sassoon's background in the financial services industry. The nearest to cash within pension funds is either money market funds (which have a big fat question mark over them at the moment, I can tell you as an IFA) or bank/building society cash funds that (a) usually offer a significantly lower rate than cash ISAs and (b) are (except perhaps for SIPPs) not covered by the FSCS in the way that individually held accounts are (see the Pensions Advisory Service's article here).
  • The Money Advice Service is also irrelevant to the purchasing power of cash savings.
  • Changes to the requirement to purchase an annuity at age 75, ditto."

Best wishes,

MP to me (copy to researcher), May 09, 2013:

I will ask Martin to draft a letter along the lines of your response.

Me to MP, May 09, 2013:

I would be greatly obliged if we skirted round Lord Sassoon's letter, which is nothing but a large catch of red herrings, and, whether by oral or written question (whichever in your professional opinion and experience is likely to get the more expeditious and effective response) ask the two questions I drafted for your researcher this morning, namely:

"Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?"

and

"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"
 
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