Mark Carney: time lord?

Is the bank of England Governor messing with the very fabric of time?

Time isn’t a very interesting idea to a physicist. There is the unchangeable past and the unpredictable future. “Now” isn’t a definable concept. It’s not even fixed – you can bend it. Time is a sort of illusionary bi-product spit out as the universe goes from a state of order to one of chaos. Why politicians and central bankers would want to start messing with it is a mystery.

Mark Carney, the Governor of the Bank of England, and the Monetary Policy Committee have been lured into the time game. They expect one of their trigger points, unemployment, to drop below 7 percent in 2016 at which point they’ll have a look at what they might - or might not do. In the world of the Bank of England this constitutes "delivering a measure of certainty". The previous governor, Sir Mervyn King, just used to say "I don’t know" when faced with demands for definiteness.

With unemployment currently at 7.8 per cent three years seems a long and unambitious timescale to set yourself such a meager target. Carney says that to achieve the 7 per cent unemployment rate a million jobs will have to be created – 750,000 new ones and 250,000 to compensate for planned reductions in public jobs and that is what will take the time.  Markets disagree and have pumped up their rate increase expectation to as early as next summer. Somebody is wrong.

Perversely, if you were Chancellor of the Exchequer, George Osborne, or a Conservative Party election campaign organizer, you might be pretty happy with the idea that unemployment wasn’t going to fall any time soon. The reason is simple – over the years the multiple of house prices to earnings has risen for about 3.5 to 6.5 for England as a whole (your main electoral battle ground) and the electorate has become twice as sensitive to interest rate movements today as they were twenty years ago (see graph). Get interest rate policy wrong and it could have electoral consequences.

By mapping where house prices are highest relative to earnings it’s easy to show that above average interest rate sensitivity lies almost exclusively in Conservative-held boundaries; the East, South East and South West (see second graph).  London is the exception but suffers the double whammy of being both the most leveraged part of the country AND dominated by Labour. You’ll get no votes from Londoners for increasing interest rates too soon.

Also the higher house price-to-earnings regions are associated with areas with higher salaries which already carry the highest level of taxation. Those earning up to £50,000 a year now have total deductions (National Insurance and Income Tax) of about 20 per cent whilst if you earn between £50,000 – 100,000 this rises to 32 per cent. In the £100,000 to 200,000 bracket your annual deductions bill averages 40 per cent of gross salary. By linking housing costs (i.e. an interest only mortgage) to where you are on the income scales it can be shown that for every 0.5 per cent interest rate increase could lead an equivalent of between 2 per cent and 4 per cent increase income tax. Increasing interest rates in that sense hits traditional Conservative voters harder than potential converts from the Liberal Democrats of even Labour.

None of this should come as a surprise to people but the extent of the apparent hyper-sensitivity of the electorate to interest movements is going to be more economically and politically important at the next general election than it has ever been before. The MPC will have to be doubly sure they have a self-sustaining economic cycle, embedded in a stable global background, before increasing interest rates. It may even be why they have set their earliest revue date to beyond the next general election. In that sense Mark Carney has been right to dampen the enthusiasm the markets have shown for marginally stronger UK data recently whilst if you were Conservative Party Chairman you would be praying that not too many jobs are created too quickly especially before the General Election in 2015.  



Source: HM Land Registry


Mark Carney. Photograph: Getty Images

Head of Fixed Income and Macro, Old Mutual Global Investors

Photo: Getty Images
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We need to destroy Isil, yes. But the Prime Minister has no plan

And so, until there is a better plan on the table, I will vote against bombing Syria, says Owen Smith.

There are no decisions we make as MPs more important than whether we commit our country to combat, with its inevitable loss of military and civilian lives. That is a view shared by MPs of all parties in the House of Commons, who treat their responsibility on this question with the utmost seriousness. I have no doubt, therefore, that the Prime Minister and all those who have concluded that we should enter more fully into combat in Syria, starting with bombing the Isil/Daesh stronghold Raqqua, have done so after careful consideration, believing that this action is necessary to protect the security of the UK, through defeating Isil and bringing stability to Syria.

However, I respectfully disagree with them, and I will not be supporting a motion to bomb, based on the arguments brought forward by the Prime Minister last week.

My opposition is not rooted in pacifism, it is a hard headed and finely balanced judgment based on what I think the likely strategic, security and military effects of our involvement are.

The Prime Minister is right to set out objectives to defeat Isil and the formation of a stable, inclusive government in Syria.  These are aims that we all should share and at some point the use of British military force may well be required to achieve that outcome.  I might well support military action if a comprehensive and serious plan were put to parliament by the Prime Minister.  However, the case that Cameron currently proposes singularly fails to explain to the country how bombing will achieve his twin objectives. In fact, he is equally hazy on both the end state he desires and the end game to deliver it, and even on the question of military action, it is the Opposition's job to point to holes in the government’s argument.

Though I, like most MPs, am no military expert, I have studied these issues with great care and, along with many military and diplomatic experts, I cannot see that that Britain adding around an extra 10 per cent per cent bombing capacity (we will contribute six to 10 planes) to the US, French and other forces’ capabilities is likely to make a truly telling contribution to what we can all agree should be an agreed military objective: degrading and defeating Isil.  Especially given that there have already been around 3,000 air strikes against Isil in Syria.

I am sceptical that our weaponry is significantly more effective than that of the US, however excellent our personnel. I am also sceptical that bombing can avoid civilian casualties. And am wholly unconvinced that bombing, without significant, committed, united and effective ground troops to hold and build on the territory cleared by the bombs, will deliver the objective. It may not even be enough to chase Isil out of their stronghold in Raqqa. If the Prime Minister had been able to build a coalition of support from neighbouring countries of Turkey, Jordan, Iraq and others, willing to commit troops on the ground to take and hold ground cleared by air strikes then the equation would be very different. However, the current coalition is incomplete, and the ground troops insufficient.

Cameron has talked of there being perhaps 70,000 men under arms in opposition to Isil and ready to engage on the ground, but this does seem to me, as to many others, to be an optimistic assessment. Evidently, some of the anti-Isil and anti-Assad forces can be effective, as the Kurdish militias (the YPG) showed in driving back Isil forces from the northern town of Kobani last year, under cover of US planes. But these successful moments of defence have been few and far between and have mostly either involved these Northern (Rojava) Kurdish fighters or their ethnic countrymen from Iraq, the US-trained Peshmerga. Neither group is in close proximity to Raqqa and both see their primary objective as securing a Kurdish homeland from Syria, Iraq and Turkey. Other groups, some suggest as many as a hundred, are fighting across the region, but have a wide variety of allegiances and aims, tribal and religious, including two powerful groups that are off-shoots of Al-Quaida.  So it seems clear that the Prime Minister’s current proposals offer no realistic prospect of ground forces securing territory in and around Raqqa, which will ultimately be necessary to effectively neutralise the Isil threat, both regionally and internationally.

Nor is it clear to me what Cameron hopes Bashar al Assad will do in the event of increased bombing of Isil.  Assad is currently fighting on several fronts, against Isil, against the Kurds and against other groupings, some of them the ‘moderates’ the PM hopes will help. It remains uncertain as to whether Assad will view the bombing as an opportunity to intensify his fight with Isil, or to crush the moderates whose main goal is to depose him.

Perhaps more important a reason to oppose this action than the apparent holes in the military strategy, is the lack of a plan for what comes after. The current situation on the ground, provides scant hope for a peaceful and inclusive government to emerge, even in the event of Isil being eradicated. Far more likely is the continuation of pre-existing conflicts and the emergence of new crises from the rubble of Raqqa. British bombs might hasten the end of this phase of the conflict, if supported by a real and reliable land army, but it is only diplomatic, financial and, crucially, regional political pressure that stands a chance of any form of stability.

Maybe these questions would shrink in size if I truly felt our security at home would be increased by our bombing Isil in Syria.  But I do not.  Isil is a terrorist organisation, but it is also an insurgent army, an idea and a brand. It’s monstrous reach out of Syria, to Paris most tragically, but potentially to any of our towns and cities, may well be in planning, arming and instigating. And I am sure that the Security Services could draw evil, concrete connections between Raqqa and the Bata’clan. But Isil’s reach, and its strength, is intangible too: in its propaganda and cultural call to arms.

The only way we can be sure of defeating the Isil threat to our streets and in the region, is to find a long term political solution in Syria.  Unfortunately in my judgement, the proposals put in front of us to vote on this week do not offer that potential.  The prime route to ensuring that Isil’s capacity to threaten Western Europe is destroyed is to build on the recent peace talks in Vienna, with the aim of constructing a concerted international strategy on defeating Isil.  For this to be successful, global and regional partners must play a central part in the strategy, showing that the world is united in opposition to the poisonous ideology of Isil. And Arab nations, with Sunni majorities, must be in the vanguard of both peace talks and any military action.  

Finally, I repeat that these are judgements, not facts, and I may well be proved wrong. But I reach my conclusion as an internationalist, a European and someone who loves France and the French people. Their call for us to join with them is, for this MP, by far the most compelling to step up our engagement to actual combat at their side. But it is neither unpatriotic nor cowardly for us not to do so. The UN Resolution and NATO Treaty invoked by France, call on us to engage in ‘such action as it (the individual member states or NATO as a whole) deems necessary, including the use of armed force’. That tells me that any action our Government undertakes, including bombing, will be legal. But is does not tell me whether it will be strategic and wise, politically or militarily. And just as we cannot outsource our defence to our allies in the US or France, nor too can we outsource our judgement.

And so, until there is a better plan on the table, I will vote against. 


Owen Smith is Labour MP for Pontypridd and Shadow Secretary of State for Work & Pensions.