Rescuing Democracy in the United Kingdom from our current Elected Dictatorship
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Spin,
not face-to-face confrontations with the voters, is the Government's
chosen method of communication. Ordinary people are dangerous. Ordinary
people might ask a question which throws a politician 'off message';
the Cabinet member might reveal himself or herself to be a human being
like us, and not a programmed android. Worse still, he or she might
tell the truth.
Ann Leslie - Daily Mail, September 16, 2004
Blair wants to leave his
mark on history - looks more like a stain to me.
Peter Thorndyke, Diss,
Norfolk - Daily Mail, May 23, 2005
I know I'm me - why do I
need an ID card?
"Sorry, officers, I
don't have an ID card. I never applied for one. It seemed a bit steep
at 300 quid. I do have my free passport, my driving licence and my
London freedom travel pass, each with my photograph. I have my NHS
medical card, with its lengthy number, given me at birth, my RAF
service book with my Armed Forces number, and a chit authorising me to
wear a few gongs -including a General Service Medal with Malaya bar,
for fighting communist terrorists on behalf of my country, or so they
told me.
"I've also got various credit
cards and store cards, all with my signature on the back, generally
good for buying the everyday requrements for life as well as the odd
luxury. If you decide to arrest me, I suppose I'll have to be
photographed and given another number, besides my PINs.
"I'm afraid I haven't got a
pension book; it was taken away."
"By thieves, sir?"
"No ... well, not exactly. By the
Government. By the way, may I see your warrant cards please, gentlemen?"
Oh dear, they've disappeared. E.
Harry Gumer, Romford, ESSEX - Daily Mail, June 1, 2005
NO means NO
When does NO mean MAYBE?
When it's not the answer the EU wants. With the courageous French
NON resounding in their ears, shabby, undemocratic self-interested
leaders of Europe propose ignoring the part of their precious
constitution that requires ratification by all members and
continuing without one of the biggest founder members to
prevent derailing the gravy train.
As in Ireland,
they refuse to accept any NO votes, ignoring the will of the people,
and re-stage votes until they can engineer the 'correct' answer. Sadly,
Foreign Secretary Jack Straw dances to their tune like a puppet on a
string. With tactics such as these, how can anyone really believe the
EU has our interests at heart. Letter from Steve Penny, Kingsnorth, Kent - Daily
Mail, June1, 2005
Surely
the French result makes the £1million the EU recently spent on a
treaty signing ceremony seem a trifle premature and extravagant. Letter from Keith Wiseman, Bury, Lancs. - Daily Mail,
June1, 2005
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Britain has
traditionally been one of the biggest net contributors to the EU
because we do not get as much money back from Brussels in farm and
regional subsidies as our rivals.
According to
Treasury figures, between 1995-2002, Britain's average contribution
taking the rebate into account, was £2.6billion, or £43.55
per head of population.
The French -
the biggest recipient of farm subsidies - contributed £1billion a
year or £16.08 per head of their population.
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May
5 , 2006 (1091 days since war ended)
Death
Toll: 2415US - 104UK - >60,000? civilians - 25 media
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Tony
Blair should know that respect comes by example - from the
top. If a country's leader has no respect for the rule of
international law and no respect for the truth, how can
he expect anyone to have respect. Letter
from P.J.Atkinson, Ashford, Kent - Daily Mail, January 12,
2006
The
Chancellor's single greatest act of vandalism in almost
nine years in office has been his wanton destruction of
Britain's private retirement industry. By slapping a massive
tax on pension funds, now worth
£7.3billion a year, he has helped to turn
the best private retirement industry in Europe into a basket-case
in perpetual crisis. Together with the adoption of European
accounting rules - which make it much riskier to operate
a company pension scheme - hundreds of firms have shut their
final salary plans to new employees and slashed benefits
to existing staff.
From
Allister Heath: "I've seen the future and its grey"
in THE SPECTATOR - April 15, 2006
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The
great pensions disaster
Martin
Jacomb says a series of catastrophic decisions have wrecked Britain's
once-proud retirement savings system -The Spectator - March 18,
2006
Britain's
private sector pension provisions used to be something we were
proud of, the envy of less fortunate nations. Our public sector
pensions, of the other hand, have never been backed with full
cash contributions. Pensions provided for government servants
are paid month by month by the Treasury as though they were Civil
Service salaries, with no funds set aside for future liability.
Even though the capital value of the 'debt' (which is just as
real as borrowing) is absolutely gigantic, it is disregarded by
the Treasury when it presents our national balance sheet.
The
public sector pensions situation is deadly serious, with retirement
at 60 and longevity rising. The liability is thought to be worth
somewhere between £500billion and £800 billion, while
more than a fifth of council tax now goes on local authority pensions.
All that is bad enough; but on top of it, in just a few years,
decisions taken in the public sector, by politicians and bureaucrats,
and also by the accounting and actuarial professions, have managed
to destroy the private sector pension structure which used to
work so well, and a crisis has been created instead.
Until
recently most companies ran pension schemes which paid you a pension
based on your final or average salary, called 'defined benefits
schemes'. Employer, and usually employee as well, contributed
to pay for this. These contributions were the most important element
in the personal savings of our nation.
The
first decision in this catastrophic series was the Inland Revenue
rule, introduced in the late 1980s, that, if a pension fund built
up a surplus of more than 5% over the assessed value of future
pension liabilities, the company lost its tax privileges on the
excess. Since pension funds did well with their stock exchange
investments during the 1990s, this limit was frequently hit, and
companies cut their contributions. The concept of building a surplus
in the good years was thus deliberately stifled by the Inland
Revenue, and a good flow of savings for investment was cut off.
The extra tax fell back into the Treasury. Savings for investment
were effectively diverted to government consumption.
Then
came Gordon Brown's tax on pension fund dividend income in 1997,
turning the screw and making pension funds a much less favourable
form of rewarding employees and providing for their retirement.
The effect was to interrupt continuous flow of income into pension
fund investment. The extra tax was about £5 billion
a year. Equity shares were, at a stroke, made less attractive
and stock exchange values inevitably suffered accordingly. The
decision contributed directly to the stock market downturn in
2000-2002. This, together with increasing longevity, opened up
deficits in pension funds. The value of their investments became
less than the capital value of the liability to pay future pensions.
At
this point the actuarial profession, following pressure from the
Financial Services Authority on some mutual life assurance companies
(which cannot raise capital on the stock market like a non-mutual)
to rebalance their portfolios, started advising pension fund trustees
to sell equities and buy gilt-edge government bonds, in order,
so they said, to minimise risk.
This
does not, however, necessarily reduce the risk at all. Long-term
funds invested in equities over the years tend to do better than
bonds. As a temporary switch to guard against a decline in equity
values, this may have been a good idea for the early movers. But
if everyone sells equities and buys bonds, the bonds go up in
price and the equities go down, later switches sell at the bottom
and buy at the top. Why this was thought to be a sensible long
term investment policy for the whole sector is a mystery.
But
it gets more absurd still. The way pension fund liabilities are
valued is by reference to the long-term yield on bonds; so that
if bonds go up in price, they yield less, and the officially assessed
capital value of the future pension liabilities goes up. This
is indeed as ridiculous as it sounds.
The
absurdity is at last becoming obvious. The price of long-term
government bonds has gone up enormously, out of line with government
bonds abroad, partly because pension funds are buying all they
can. They feel (wrongly) obliged by the regulatory regime to do
so. But as they do, the calculated value of the future pension
liability also goes up. Thus a vicious circle is created. This
is serious because everyone can see that the price of long-term
bonds today is virtually a 'bubble price' and cannot last long.
Even the authorities are concerned that long-term bond prices
are too high, and more long-term gilts are being sold to crated
more supply and bring the price down. But the correction has been
small.
The
net result of all this is that over 90% of FTSE companies have
a pension fund deficit according to this compulsory calculation
of their future liabilities. And the Pensions Regulator, a new
figure who has entered this ALICE in WONDERLAND world,
wants these deficits eliminated. So companies are diverting cash
into their pension funds to close the deficits instead of investing
in new plant and modernising their equipment. No wonder our economy
is losing its dynamism.
The
result is a serious misallocation of resources on a grand scale.
As a company manager, you do not invest in the future of your
business; you lend the money to the government instead. Your focus
of attention is directed from your business to managing the obligations
to the pension fund.
The
Pensions Regulator has come on the scene as a result of new legislation
introduced to try and prevent people suffering too much when their
pension funds become insolvent. The way this works is that pension
funds have to pay a premium into the new Pension Protection Fund
and this insurance pool is there to pick up some of the liability
when a fund goes bust.
This
is a tax whose constitutional legality may one day be tested.
But in the meantime the premium is set so that it is lowest if
the sponsor company is in good order, its fund is solvent, and
the investments in it not particularly risky. As the fund gets
shakier and the investments more risky, so the premium goes up.
So those least able to do so pay the most.
The
Pensions Regulator is a powerful person, and the new law which
empowered him prevents a company that has a pension fund with
a deficit from doing anything which might reduce its ability to
pay off the deficit unless it gets his permission. This obviously
includes making acquisitions, being taken over by a company with
debt, buying back shares, or even paying a dividend. Why the Pensions
Regulator should be in any position to judge whether these moves
are good or bad for the company and its pension fund is a mystery.
The
obligation of policing all this is, in practice, imposed on the
pension fund trustees. They effectively stand between the company
and the Regulator. So that now, when the board of directors wants
to do any major transaction, if their pension fund is not fully
solvent, they must get the pension fund trustees' prior approval.
If directors get this seriously wrong, they can be made personally
liable. They can apply for a clearance from the Regulator, but
they may well decide that the risk of getting a red or amber light
is too real to warrant going for a clearance.
This
amounts, in fact, to a massive tilt of corporate power away from
the boardroom to the pension fund trustees, whose experience and
knowledge do not usually qualify them for this role. And their
primary focus is pensioners, present and future, and not the wealth-creating
sponsor company.
These
changes spell the end for defined benefit schemes. Some people
say that they are not needed now anyway and are out of date, because
people don't stay in the same job for a lifetime. But maybe, if
there were proper pensions, as there used to be, more people would
like to stay loyally put, and they would then become more productive,
thus helping to remedy the UK's pathetic productivity record.
Anyway,
nothing now can save defined benefit pension schemes for the future.
This important savings habit is gone. Perhaps it is all part of
a plan to insure that we have inadequate savings for retirement
and become dependent on the state.
Sir
Martin Jacomb was chairman of Prudential Corporation from 1995
to 2000. He writes here in a personal capacity.
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