Inflation Demon Rises Again as Sterling Burns

Labour Has Unleashed the Demon Once Again

UK Inflation Jumps to 17 Month High, says the Daily Telegraph.

UK Inflation hits 17 Month High, says the BBC.

Try 19 year high actually.

The Retail Prices Index (RPI) is now at 5.3 percent, up from 4.4 percent. Economists had expected it to rise “only” to 4.9 percent. The Telegraph and the BBC are following the government steer to concentrate on the CPI instead of the RPI. (The CPI, you will remember, was introduced by the Labour government to massage inflation figures downward.)

Even on the RPI, the BBC nonchalantly says the rise was created by “base effects” because a fall in mortgage rates that happened last year was not repeated this year. So that fall dropped out of the figure, and the rate went up.

In other words, underlying inflation is actually roaring away at 5.3 percent but until now that has been masked by a mortgage rate reduction this time last year.

5.3 percent and rising is an alarming figure. Or it should be.

But nobody yet seems to be alarmed. Mervyn King says it’s a “blip” and inflation will soon fall back to 2 percent.

We should be crystal clear about what is happening here. The last government pumped additional money into the economy in a desperate attempt to stave off a depression (or a desperate attempt to win the election, depending on how charitable you are feeling towards them). Their £175 billion “Quantitative Easing” program, accompanied by a similar amount of government borrowing in a single year, stoked money into the furnace. The big drop in the value of Sterling, together with interest rates held at historically low levels, put a match to the money pile.

And now the inflation demon is rising from the flames. Mark my words, we will all be feeling the draught from its wings very soon. In fact, anyone who shops in a supermarket will already have seen prices starting to rise.

History shows that once this inflation demon is unleashed, it is extremely difficult to put it back down again. The only way to do it is to whack up interest rates. Whacking up interest rates means mortgage misery for millions, it means expensive borrowing for business, and it means more taxes, since the biggest borrower of all is the government itself, and the government too has to pay interest on its debts.

Right now the Bank of England is ignoring the issue and hopng it will go away. Mervyn King reckons temporary factors are “masking the downward pressure on inflation” from the recession. That is fatuous nonsense – it is clear from Britain’s history over the last few decades that there is no economic reason why you can’t have recession and inflation at the same time.

In a year’s time, the Bank will be regretting its idleness, and reacting too late with sharp rises in rates. (Mervyn King, his complacent predictions having been completely discredited, will no longer be in charge of course.)

Labour really have taken us back to the dark days of the 1970s.

First Class Post on a Tuesday

No, I’m not going to start where Letters from a  Tory left off with his “First Class posts on a …” series. But this one really does deserve a mention.

Leg Iron has a hilarious view on why we don’t take politics seriously, over at Underdogs Bite Upwards.

“I will answer his question if he eats this spider.”

Nice! I am still laughing.

The Guilty Men Campaign for Labour Leadership

Ed Miliband and David Miliband – Campaigning to Lead Labour

During the election campaign and before, Conservative commentators (including me) repeatedly raised the spectre of Britain requiring a bailout from the International Monetary Fund, if our government borrowing was not brought under control. Of course, that happened to Britain before, in 1976 under Jim Callaghan’s Labour government.

The European country in the firing line today is Greece. A massive bailout package was recently agreed by the European Union as well as the IMF. As part of that deal, the IMF agreed to provide $320 billion towards the bailout.

The whole Greek rescue is now in doubt. The US Senate has unanimously rejected the use of American money for this type of bailout. The bill passed by the Senate, in the words of the Daily Telegraph:

instructs the US representative at the IMF to determine whether a country with a public debt above 100 per cent of GDP can be expected to repay IMF loans. If this cannot be certified, the US must oppose the rescue package.

It’s worth emphasising that again. When a country’s debt goes over 100 percent of GDP, it is doubtful whether that country can ever repay.

This, of course, calls into question the Greek rescue, as their debt even before the rescue loans is 130 percent of GDP.

The European Commission is predicting that British government debt will be 88 percent of GDP in 2011/2012. That is before counting all the “off balance sheet debt” that Labour brought in. The Private Finance Initiative alone adds around 15 percent to the figure, taking us to 103 percent.

Thus Britain’s debt will be passing the danger zone in around a year.

Yet another factor to concentrate the minds of the coalition government here as they start cutting the deficit.

There is a danger of course that as the cuts, and probably some tax rises, begin to bite, the coalition of Conservatives and Liberal Democrats will be blamed for the pain.

So let’s keep on reminding everybody, as those Labour leadership contenders parade around campaigning to lead their party. Those contenders were part of the outgoing Labour government. The gross irresponsibility of that Labour government here got us into this mess. They are all implicated and all face collective responsibility for it.

The cuts to come are Labour’s cuts. The crisis is Labour’s crisis. Labour has made a train wreck of Britain and really, the pain to come is 100 percent Labour’s fault.

British Airways and The Unite Union – Can They be Serious?


Industrial Dinosaurs: Derek Simpson of the Unite Union and Willie Walsh of BA

British Airways has won an injunction to stop the strike by cabin crew that was due to start today.

So who is in the right here, management or Union? The answer is clear. Both sides are 100% wrong.

It is obvious that striking against struggling BA is not in the long term interests of the crew. The strike can have only one effect – which is to damage the airline further. That in turn will cause further damage to the company’s ability to pay its staff, and mean that future deals on pay and conditions will be worse than they otherwise would have been.

The offer from BA, which the Union is opposing, contains measures that would be regarded as old hat in most companies.

They include:

  • Reducing the number of cabin crew on long haul flights from 15 to 14. Would those staff really not be able to cope with that 7% reduction in staffing?
  • A two-year pay freeze from 2010. That is now commonplace in many private companies (including the one I work for) and is about to be extended into the public sector.
  • New contracts for fresh recruits and newly promoted staff, which would introduce a single on-board management grade, promotion on merit, no seniority and pay at market rates plus 10%. Frankly, it is astonishing that old-style nationalised industry restrictive practices like seniority and “Buggins’ Turn” promotion have survived as long as this at BA. It is also amazing that the Union have objected to “only” being paid 10% above the going rate.

However, the Union claims it has now reached agreement in principle on all of this with the airline. The sticking point now is travel concessions, which were withdrawn permanently from staff members who took part in a previous strike, and some disciplinary action that has been taken against “more than 50″ union members.

Those remaining issues do not sound to me like major ones that couldn’t be resolved by talking, without a damaging and disruptive strike.

Assuming, of course, that British Airways managers are keen to resolve the dispute. They went to court to stop the strike on a pure technicality. The claim was that the Union did not correctly notify its members of the results of the strike ballot. It is often said that the law is an ass, and in this case, the court provided ample justification for that view by supporting BA. Stupid though the strike is, getting the courts to stop it on such spurious grounds is misuse of the intention of the law, and brings that law into disrepute. BA should be ashamed of itself for that.

BA should also consider the effect on its staff. Eventually the only way forward for the company is for the staff and the management to work together as a single team. One day they will have to do that. Will misusing the law to stop a strike, when a big majority of staff voted in favour, bring that day any closer? Or will it further alienate staff and cause more resentment and ill feeling?

Looking at those industrial dinosaurs battling it out with strikes and retaliation by legal action, while the company faces an uncertain future and long term decline, is profoundly depressing.

I am going to Munich later this year for a holiday. I looked at several airlines for our flights. Easyjet were the cheapest – no surprise there. Lufthansa were only a little more expensive than Easyjet, and the difference was easy to justify based on the additional service you get like allocated seats.

And BA? Their price was 50% more expensive than Lufthansa. Why would I or anyone else choose to fly with them on those terms? Because we like the pretty red, white and blue uniforms?


The Beneficiaries of the BA Dispute

If the Union don’t like the management’s cost cutting proposals, they need to explain how they believe those cost differences should be addressed. And BA management need to explain why they have allowed this lack of competitiveness to fester for so long, when the company has been in the private sector for more than 20 years.

Both the Union and BA management need their heads knocking together. They need to understand that their passengers owe them nothing, any of them. If their airline collapses, nobody will mourn. Their competitors will be happy to take their airport slots, and eat their lunch.

None of us care about the Union’s grievances, or about the management’s macho desire to break the Union. If they can’t resolve their differences, we don’t care. There are lots of other airlines that will be happy to fly us wherever we want to go.

If they want a place in our future, BA and the Union should do a deal and get back to work, together, fighting their competitors for the business of people like me.

Meanwhile, my money will be putting lunch on the tables of Lufthansa’s German crews.

More Ash Cloud Nonsense

Travellers Face More Disruption as Quango Reimposes Flying Bans

Heathrow and Gatwick airports are to close again, on the orders of the Civil Aviation Authority, based on the Met Office computer model, which predicts that they will be at risk from a volcanic ash cloud that is too dense.

This comes after the week-long closures of airports across Europe in April, which were subsequently admitted to have been over-cautious. They were based on preventing flying anywhere where any ash was predicted by the computer model.

Richard Branson, of Virgin, did not mince his words on this latest closure:

The closing of Manchester airspace once again is beyond a joke.

All the test flights by airlines, aircraft and engine manufacturers have shown no evidence that airlines could not continue to fly completely safety.

It is obviously dangerous to fly through the mouth of a volcano as has been demonstrated time and time again on television by what happened to the BA plane. However the volcano is hundreds of miles away from the UK.

Over a thousand flights took off from France last week in similar conditions to that which exist in Manchester today without encountering any problems or showing any levels of ash concentration.

We need strong leadership to intervene to avoid doing further unnecessary damage to the UK economy and lives of travellers.

British Airways weighed in with:

The approach the airspace authorities have taken in relation to volcanic ash remains overly restrictive and not justified on safety grounds.

While we welcome the steps that have been taken since mid-April to moderate the restrictions, it is clear there is too much reliance on the theoretical model of ash spread produced by a single body: the London Volcanic Ash Advisory Centre.

Like other European operators, we have no confidence in this model as the basis for deciding closures of European airspace.

The airline industry has a great deal of experience in dealing safely with the potential risk posed by volcanic ash.

As a global airline, British Airways has operated for many years in areas of volcanic activity, and we believe airlines are best placed to take the final decisions on whether or not it is safe to fly. Safety will always be our over-riding priority.

All of which is pretty forceful criticism coming from those two airlines.

So what did the Civil Aviation Authority have to say about it? Their Chief Executive, Andrew Haines, said:

We are all working flat out to keep flying safe whilst minimising disruption from the volcano.

We face a massive challenge to do this. Firstly because the standard default procedure for aircraft that encounter ash, to avoid it completely, doesn’t work in our congested airspace.

Secondly, the top scientists tell us that we must not simply assume the effects of this volcano will be the same as others elsewhere.

Its proximity to the UK, the length of time it is continuously erupting and the weather patterns are all exceptional features.

The answer can only come, therefore, from aircraft manufacturers establishing what level of ash their products can safely tolerate.

This was agreed at an international aviation conference we held last Thursday, attended by all the leading airline operators (including Virgin and BA) where this approach was welcomed and supported. The manufacturers are co-operating fully and urgently in this task.

It’s the CAA’s job to ensure the public is kept safe by ensuring safety decisions are based on scientific and engineering evidence; we will not listen to those who effectively say ‘let’s suck it and see’.

And while their Chief Executive is spouting all this bluster, the CAA are engaged in an argument with Eurocontrol, the Europe-wide air traffic regulator, over whether it is necessary to have a 60 mile exclusion zone around any area of dense ash. On 10th May they produced a document entitled Rationale for the Removal of the Current Volcanic Ash Buffer Zone.

So here we have two levels of regulator, the national and the European, debating with each other about the parameters within which they work, while the lives of thousands of people are disrupted and the airlines are pushed further towards bankruptcy.

Phil Hammond, the new Transport Minister, really needs to get a grip on this and sort out this mess before what’s left of our economy is finished off by all this idiocy.

Does Blogging Matter?

Letters from a Tory Has Come to an End
Letters from a Tory Has Come to an End

Today is a sad day in the blogosphere as we all mourn the end of Letters from a Tory.

That blog has finally come to an end after 2,196 blog posts. And that means thousands of hours of work. If the author was a paid journalist, he would have earned tens of thousands of pounds for it. In his case, he used paid-for hosting (unlike stingy people like me who use the free WordPress service) and did not take advertising, so he was actually paying for the privilege of writing his blog.

What’s more, his standard was as high as that of the best mainstream journalists.

So why did he do all that work? I can’t speak for him, but I guess he wanted to make a difference to the world, to raise his voice above the mindless chatter of daily existence.

Anyone who writes a blog has to wonder whether it really does make any difference. Would the world really be a different place without that blog? Has it had any impact on the big wide world? Or is it just self-indulgent ranting?

The answer can only be that it is a bit like raising a family, or simply being a decent person. Will that make any real difference to the world? No, of course not. If my own children were badly brought up, or if I were rude to somebody at a bus stop, the impact on the world as a whole would be negligible.

But the impact on the people concerned, on the children or on that bus passenger, would not be negligible.

Blogs may be read by tens, or hundreds, or in the case of a blog like Letters from a Tory, I guess thousands of people. Every one of those people will have had their lives changed by reading it – otherwise they wouldn’t keep coming back for more day after day.

This is where the blogosphere is so different from the mainstream media. The engagement with the reader is much more personal, and much more two way. It’s a conversation, where the media are just somebody with a megaphone on Speaker’s Corner.

Does anyone care what the Sun thinks, or the Daily Mail, or even the Daily Telegraph? Even the politicians, who probably do care what is written about them in those papers, only care because of the impact they think it has on the papers’ readers. In reality, I suspect few of those readers really care what the Sun says. It wasn’t “The Sun Wot Won It” in 1992. It was people’s conversations with their neighbours, activists tramping the doorsteps, and people making their own minds up having heard the politicians themselves speak on television or radio. Those were the days before the web really took off. The blogs of today are like the conversations with the heighbours of those times.

People who read the same blogs every day, really do care about what is written there. They impact fewer people than a big newspaper, but the impact on each one is so much greater.

So you who are reading this, know that your visit here and your interest is extremely welcome!

What’s in a Name

Labour’s Education Rebranding Has Been Ditched

Michael Gove, the new Education supremo, has wasted no time in stamping his authority on his department.

New Labour rebranded it “The Department for Children, Schools and Families”, complete with a pretty rainbow logo and no capital letters, to show how warm and friendly it was. They gave it responsibilities for tackling child obesity, and even for youth crime.

Mr Gove is having none of that. He has changed its name back to “The Department for Education”.

You might say that all this really isn’t very important. But it is. This change, minor though it is, is a sign that the wasted Labour years are over.

The fuzziness, spin and marketing drivel of Labour is gone, and the department is going to get back to the serious business of doing its job.

Good start, Mr Gove.