Margaret Thatcher’s message for the TRG’s inaugural conference in 1975

Nik Darlington 9.00am

The morning’s newspapers are devoted to the death of Baroness Thatcher. The TRG made a statement yesterday and I made my own comments later.

While millions around the world mourn her passing, we remember her words at this organisation’s birth, in September 1975.

"I am pleased to learn of the formation of this new and vigorous group, and thank you for your good wishes to me as Leader of the Conservative Party.

As a nation, we face three problems:

First, we must beat inflation, or it will destroy the basis of our society.

Second, we must secure the future of economic and political liberty by genuinely distributing power and property among our people—a policy which is the reverse of that which the present Government is pursuing.

Third, we must play an active and influential part in world affairs, showing concern both for the western democratic ideal and for those nations whose primary task is to overcome poverty.

It is good to know that the Conservative Party can look to the Tory Reform Group for creative and practical ideas on these matters and for the will to see them through. We face the future with a sense of hope, and confidence in the capacity of our people to cope with whatever lies ahead.”

Peter Walker, the founder of the Tory Reform Group, who served under Mrs Thatcher as Energy Secretary in the pivotal period of the miners’ strike, responded with the following words:

"The members of the Tory Reform Group are holding their inaugural conference in London today and have asked me to convey to you their good wishes and to express to you their determination to do all in their power to see the early return of a Conservative Government and the defeat of the Socialist Government that is doing so much harm to our country.

They have also asked me to tell you that besides your being able to rely upon their fullest support in bringing victory to our Party they hope they will be able to make a creative and constructive contribution to the preparation of our Party’s policies for the years that lie ahead.”

The “Socialist Government” was indeed defeated in 1979. Margaret Thatcher went on to revolutionise British politics, and change the course of not one but two political parties as even her Labour opponents under Tony Blair and Gordon Brown comprehended the sea change before them.

For our part, the Tory Reform Group remains wholly committed to continuing that “creative and constructive contribution” as we all work towards the return of a Conservative Government in 2015.

Inflation targeting, or what Arsene Wenger and Mark Carney have in common


Matthew Robertson 1.36pm

  • May 2004: Arsène Wenger hailed as Arsenal go entire season undefeated to win the Premier League
  • December 2012: Arsène Wenger under increasing pressure as Arsenal lose to League Two side Bradford City in the Capital One Cup
  • October 1992: for the first time monetary policy in Britain would be based on an explicit target for inflation
  • December 2012: Mark Carney, the incoming Governor of the Bank of England, has suggested abandoning inflation targeting

"When the facts change, I change my mind". A quote that has long been attributed to the father of modern economics, John Maynard Keynes. It is a belief that policy should be implemented to tackle the world as it is today, not as it was yesterday.  

The position of an English football team and the comments of the Governor of the Bank of Canada may not seem interlinked but they do shed light on whether it is beneficial to adapt to changing circumstances or to maintain the current strategy in total belief that it is the correct way.

One of the great success stories of modern economics is the taming of inflation. As Mervyn King, the departing Governor of the Bank of England, stated in a speech in October:

"Over the previous twenty years (1972-1992) inflation had been the single biggest problem facing the UK economy, peaking at 27 per cent a year in 1975. Over the subsequent twenty years (1992-2012), inflation, as I mentioned earlier, would average only 2.1 per cent."

The key to this success was controlling inflationary expectations and the key to that was inflation targeting underpinned by an independent central bank. Exiting the European Exchange Rate Mechanism freed Britain to set their own monetary policy, which culminated in Bank of England independence in 1997.

A target would be set and it would be free of political interference. As long as the target over the long term was met, the expectation was anchored as any deviation would be expected to return to the anchor. This was the case for most of the past twenty years.

This policy was a reaction to the economic difficulties of the time and has been reproduced in many countries over the world. Inflation is well above expectation at the moment but inflation between 2.5 per cent and 5 per cent is low by historical standards and the reason is that the inflationary expectation is still around the 2 per cent mark.

The footballing philosophy of Arsène Wenger when he first arrived in England was equally as successful. His devotion to ‘pass and move’ football led to five trophies in six seasons as well as the first team in 116 years to go a league season unbeaten.

However, times have changed both for the economy and for English professional football. The financial crisis of 2007-2008 precipitated a new thinking in central banking theory. The Bank of England ignored concerns about inflation and reduced interest rates to almost zero per cent in an effort to enhance liquidity and reduce borrowing costs. The greater concern for the Bank at the time was economic output and preventing the economy stagnating into a long term liquidity trap. There were numerous inflationary concerns regarding world food prices at the time but the Bank, quite rightly, decided that the crisis needed urgent, unorthodox central banking. This was further reinforced by a period of quantitative easing where the Bank of England purchased financial assets from commercial banks to inject money into the economy.

In a speech on 23rd January, Mervyn King argued that pursuing a two per cent inflation rate target throughout the financial crisis, would have worsened the recession:

"To bring inflation down ‘would have meant driving down wages by creating a deeper recession, even higher unemployment and lasting damage to the job prospects of many young people."

The question now is whether inflation targeting should be abandoned for nominal GDP targets, something the new incoming Governor, Mark Carney, has suggested. A deeper question is whether the economic circumstances of the economy have altered significantly to warrant a change in approach.  Are the economic conditions so benign that there will be insufficient demand to produce growth without active interference from a central bank?

Central bankers will need to factor in these conditions along with inflationary expectations to assess which approach to take. The history of the 1970s suggests that active GDP targets don’t work but that might have been for a different time with contrasting conditions.

Whatever route is taken it raises the question of whether to change one’s mid when the facts change. The arrival of Roman Abramovich and latterly Sheikh Mansour altered the nature of English football completely. Chelsea and Manchester City have the ability to outbid and outspend any club to attract the best talent from around the globe. There is growing doubt as to whether Mr Wenger’s prudent approach of developing youngsters and buying affordable players can be successful in today’s Premier League. Despite constant criticism, Arsenal’s manager has remained dogmatic about what he considers the correct method.

Is this appropriate when the facts change? We shall see when Mark Carney takes over the helm in the summer.

By that time there may even be a trophy in that Arsenal cabinet.

Follow Matthew on Twitter @FlatFootTory

UK economy: Our demons are not deflationary but systemic

Henry Hopwood-Phillips 11.17am

We live in a time in which political correctness handicaps political honesty and a lack of capitalist courage hobbles market transparency. Churchill famously remarked, “when the eagles are still, the parrots begin to jabber”. And Orwell warned us that “to see what is in front of one’s nose needs a constant struggle”.

We are stuck in an economic quagmire because fractional reserve lending, in layman’s terms “unbacked credit”, has created a system funding activities (mostly non-productive) that a free market would never support. Activities that consume and do not produce any real wealth.

This in turn creates an atmosphere in which checks and balances in the capitalist system, e.g. Glass-Steagal Act (repealed 1999), start to seem anachronistic. Attitudes of important offices, e.g. mortgage underwriters, become lax. And collateral values are allowed to decline, as easy credit distorts the market.

In 2007-8, this credit bubble started to rupture. The trigger was US sub-prime mortgage lending but no doubt the day of judgment would have come sooner had the ‘masters of the unvierse’ not chopped and mixed good and bad debts into unfathomable CDSs, CDOs, MBSs and other jargon-heavy “investment vehicles”. Banking talents seemed to lie in obfuscation rather than financial genius. Banking solvency suddenly became an issue as banks were revealed to be over-leveraged and over-exposed.

The solution in the US was the TARP, which hoovered up illiquid “troubled assets” in return for spreadsheet honesty, the conservatorship of Fannie Mae and Freddie Mac, the bailing out of AIG, and Dodd-Frank regulation to ensure mistakes were not repeated.

In contrast, the UK (and Europe to a lesser extent) nationalised bad banks and kept credit spreads fairly opaque, fearing that to allow any of its interconnected clique of megabanks to fail would precipitate a domino effect. Private debt effectively became public debt overnight. Privatised profits and socialised losses united socialists and capitalists in anger against a managerialised system.

As banks all deleveraged at once, a credit crunch ensued. Servicing nationalised debts on already fragile fiscal bases became untenable in the politically undecided and therefore economically rootless eurozone. As market confusion spread over where the buck effectively stopped within EU institutions, debt prices for PIIGS began to rocket and further “stop-gap” bailouts were required.

A fall in money stock, caused by a credit crunch, is usually followed by a fall in prices, i.e. deflation, as stable services and goods chase less money. However, central banks, as Milton Friedman famously said, “are always looking to correct their last mistakes”. Deflation is the spectre that haunts the mistakes made by central banks during the Great Depression. And so the central banks print money. They print money for government bailouts, print money to get banks loaning, print money to increase general liquidity.

The problem with all this is that loose monetary policy caused the mess in the first place. And it is now prompting moral hazard by acting as its own solution. It insincerely pretends to fight off the deflation that would raise the debt burden because in fact central banks don’t want you use their quantitative easing (QE) to pay off debt because that would decrease the money supply (causing deflation); in fact, they want you to increase your debt in order to buy irresponsibly and continue the consumption bubble that would continue the prosperity illusion.

Side effects of deflation, such as a fall in economic activity, might be painful but all the pain is, in reality, the burning away of the inflation that no longer reflected the actual wealth produced. Shattering illusions of prosperity caused by money pumping. Would you rather live in a castle on a cloud or a house on the ground?

The debate on what principles our monetary system should be based upon, whether it be fiduciary, commodity-based or various hybrids, is for another place at another time but what must be clear is that fiat money and fractional reserve banking do not impose a natural limit on the growth of money supply. The current system has failed us and yet no real debate on the essentials seems to be occurring.

Follow Henry on Twitter @TheHolySmoke

A curate’s egg of a Budget?

David Cowan 6.02am

On Wednesday, George Osborne grew in stature as a Tory Chancellor. The Budget was the most definitive account of the Government’s plan for growth. Yet it was mainly framed as a tax reform budget, and it is by this standard it should be judged.

In which case, it was also something of a curate’s egg. In places it was bold and radical, while in others it did not go nearly far enough.

Mr Osborne articulated a clear, long-term vision for tax reform. He began by claiming Adam Smith as his guide, embracing the principle that taxes ought to be “simple, predictable, support work, and they should be fair”.

The establishment of the Office for Tax Simplification (OTS) demonstrated Mr Osborne’s commitment to sustained reform of a tax code that must be “fit for the modern world”. (This already comprises measures such as merging the rates of income tax and National Insurance.)

There is the Personal Tax Statement, first proposed by Ben Gummer MP, which will appear for the first time in 2014. It will tell taxpayers exactly how much they are paying in tax and exactly where that money is being spent. This is particularly important at a time when people do not know how much of their hard-earned cash is consumed by the costs of servicing our £7.9 trillion debt.

At the heart of this Budget is the start of a serious shift in taxation from income to wealth.

The 50p top rate of income tax will be reduced to 45p in April 2013, but Mr Osborne has already reassured Conservative MPs that the new top rate will not be permanent. Following the announcement on Wednesday, Ed Miliband immediately rolled out the tired old rhetoric of faux class warfare. The fact is that the top rate was not raising any meaningful revenue - a mere third of what was promised - and as page 91 of the Red Book proves, it will actually be the millionaires paying more after this Budget.

The group of taxpayers that Mr Osborne ought to be most concerned about are the taxpayers still stuck in the 40p higher rate, between £41,450 and £150,000, especially since he has just shifted 300,000 new taxpayers into that category.

This situation is not helped by the changes to Child Benefit. What the economist Andrew Lilico has persuasively argued is a tax rebate, not a welfare benefit, has effectively been taken away from the important ‘squeezed middle’ at a time when living costs are still rising painfully.

Then there is the so-called ‘Granny Tax’, which was ‘unearthed’ by linguistically creative journalists hours after the Budget. Despite the Brown-esque manner in which it was delivered, the policy remains a sensible one. Mr Osborne has said that the age-related allowances will be frozen from April 2013 onwards. The impact has been exaggerated, as Sara hinted at yesterday, and it will be alleviated by the planned increases in the personal allowance.

This leads on to the Liberal Democrats’ key victory: the acceleration towards a £10,000 income tax personal allowance. As a result of this Budget, no-one will pay income tax on their first £9,205 as of April 2013. Everyone working for the minimum wage will see their income tax bill halved.

This has not stopped Conservative MPs from claiming some credit for the policy, as Nick Boles did during the pre-Budget PMQs, and as Robert Halfon’s fascinating Right Angle campaign web site has done of late.

However, what really matters is how these tax changes are funded. Mr Osborne, under pressure from the Lib Dems and even Tories such as Boris Johnson, unleashed a new set of measures to target wealth, largely through tinkering with Stamp Duty.

A new 7 per cent rate will be levied on £2 million properties and a new 15 per cent charge will be used to crack down on the use of corporate envelopes to avoid tax when purchasing properties.

Capital Gains Tax (CGT) will also be extended to residential properties being held by overseas envelopes. This will be accompanied by a new range of anti-tax avoidance and evasion measures.

Altogether, it means that the richest will pay up to five times more than they would have done with the 50p income tax rate.

This is the correct direction of travel for direct taxation. Wealth should be taxed in a manner that is fair and which encourages wealth creation. Yet it still remains the case that the best way to do this is a Land Value Tax (LVT), within the context of simplified property taxes.

The main rate of corporation tax was reduced by 2 points, which will eventually mean corporation tax of 22 per cent in April 2014 - well below the level of comparable countries like the United States but not as low as Ireland’s 12.5 per cent. Mr Osborne wants the rate to come down to 20 per cent by 2015.

But the method taken to fund the reductions in corporation tax was misguided. The bank levy is one of Mr Osborne’s more harmful gimmicks and has yet again been increased (to 0.105 per cent) at a time when our financial services industry needs to be made more competitive, not less.

Mr Osborne has also taken a leaf out of Sir Geoffrey Howe’s book by increasing indirect taxes on consumption (e.g. 5 per cent hike on tobacco duty) to fund deficit reduction and ever-increasing public expenditure. Albeit to his credit, he has managed to keep fuel and vehicle excise duties lower than they would have been under a Labour government.

George Osborne’s vision is of a tax code that is more transparent, where direct taxation moves away from income towards wealth, in which a more competitive business tax regime can boost growth, and where taxes on consumption help to maintain ‘fiscal stability’. Regrettably, political gimmicks like the bank levy and other tax raids continue to infect Mr Osborne’s agenda.

Earlier this week, I asked whether George Osborne could join Neville Chamberlain and Sir Geoffrey Howe among the pantheon of great Tory Chancellors. Wednesday’s Budget brought him closer to the mark, but not quite the whole hog. His fiscal plans have been blown off course since last November and we are yet to experience the full dangers of the largest experiment in quantitative easing ever embarked upon.

Follow David on Twitter @david_cowan

Railways should be seen as a public good like education or health

Stuart Baldock 11.28am

The average the cost of a rail journey has increased by 5.9 per cent. The price of some tickets has increased by as much as 11 per cent.

The Government allows train companies to raise ticket prices by Retail Price Index (RPI) +1% but it could have been more drastic still.

In the autumn statement, the Chancellor, George Osborne, scrapped plans to increase fares by RPI +3 per cent. Had this decision not been taken, ticket prices could have increased by an average of 8 per cent.

The ‘relief’ may only be short lived - unbeknown to many passengers, rail companies also have the opportunity to increase ‘non-regulated’ fares, e.g. off-peak tickets, in both May and September.  Additionally, in January 2013 and January 2014, it is anticipated that the Government will revert to the RPI +3 per cent formula to calculate fare increases.   

Passengers are entitled to feel aggrieved. Travelling at peak time is often an unpleasant experience. Even if the service they plan to join is not too overcrowded to board – there is unlikely to be the ‘luxury’ of a seat.  

It is not hyperbole when rail passenger advocacy groups note that for many commuters such increases are unaffordable - particularly at a time of stagnating wages. Research by the Hay Group has highlighted that for many workers the cost of commuting by rail already accounts for around one-fifth of yearly earnings.   

The rationale for increasing fares is a simple one. Taxpayers who do not use the rail network should not have to shoulder the burden of financing the much needed investment in the UK’s rail infrastructure. But everyone can benefit from a good rail network.

Every commuter on a train is one less person driving a car on the UK’s already heavily congested roads. A recent report by Churchill Car Insurance calculated the per annum cost to the UK economy of lost working hours due to traffic congestion at £752 million. Why allow unsustainable increases in rail fares and possibly make this worse?

Additionally, there are environmental benefits that rail travel has over other means of transportation – particularly cars. For example, if we take an average journey in the UK to be approximately 10 miles or around 600 miles per month, one person commuting by car will emit 3.96 tons of CO2 per annum. The same journey undertaken by train would emit only 1.62 tons of CO2 per annum.

It is time we started viewing our trains very much like we view education, health, or defence. The railway is a public service that all taxpayers can benefit from. Passengers directly contribute £6.5 billion to the running of the railways. Taxpayers contribute £4 billion. There should be a rebalancing.

Research by the Campaign for Better Transport (CBT), has found that in some instances rail passengers in the UK pay up to ten times more for their tickets than on the continent. The CBT compared the cost of travel between Woking, Surrey and London Waterloo with similar commutes on the continent.

  • A season ticket between Woking and Waterloo costs £3,268 per year.
  • Between Ballancourt-sur-Essone and Paris the cost of a season ticket is £924.
  • Between Strausberg and Berlin the cost of a season ticket is £705.
  • Between Collado-Villalba and Madrid the cost of a season ticket is £653.
  • Velletri and Rome, the cost of a season ticket is £336.            

In response to the CBT’s research, the Association of Train Operating Companies notes accurately:

“In many other countries, the state chooses to subsidies the railways more heavily than in Britain.”   

If we want to stimulate the UK economy and help lower paid workers we need to increase state rail subsidies.

If ticket prices increase along the current trajectory then we risk reducing our workforce mobility; particularly for the lowest paid.

Rail fares as a proportion of salary for a Senior Manager, based on a 17-30 minute commute, are between 1-2 per cent; for a Production Operative it is 8-11 per cent. Based on a 50 minute commute the figures are an even more disparate 2-3 per cent and 16-20 per cent respectively.

When the economic situation improves, the cost of commuting to jobs should not be an impediment to taking work.

In not cutting taxes and allowing high inflation, the Government is holding back growth

David Cowan 7.45am

On Tuesday the ONS revealed that growth for the last quarter was only 0.5 per cent. Many were expecting the figure to be lower, especially after only 0.1 per cent growth in Q2, but this meagre performance is still a serious cause for worry.

This may be unsurprising given the current global financial storm, the latest Eurozone bailout package being at threat by a Greek referendum and the lack of a credible plan from President Obama and Republican presidential candidates. However, this does not mean that the UK is powerless to boost growth. In fact, the Government is pursuing policies that are harming growth.

The most irresponsible is the Bank of England’s second round of quantitative easing (QE2). The de facto printing of money to the tune of £75 billion will not boost growth, but only exacerbate the already dangerously high level of inflation at 5.2 per cent. There is nothing progressive or compassionate about allowing the ‘inflation tax’ to put further pressure on the poorest people in the country at a time when real wages are not increasing. We cannot inflate our way out of our problems. The Government must realise that we need capital accumulation based on real savings for investment into British businesses instead of cheap credit at the heavy cost of rising inflation.

The Government’s growth strategy also seems to be too heavily weighted towards investment programmes. While it is certainly desirable that the Government should invest in more science R&D, education, apprenticeships and expanding the broadband network, there are some potential ‘white elephant’ projects that should not be pursued.

The biggest one is High Speed Rail 2 (HS2) which is based on Labour’s original badly planned route, has £28 billion worth of hidden costs and leaves our current infrastructure in its present decrepit state. The £1 billion Regional Growth Fund is also another futile attempt to get growth going and will actually destroy jobs.

Businesses are still having to pay higher taxes, which the state then inefficiently redistributes to areas which are already heavily dependent on hand-outs. Growth will not come from a Keynesian style ‘multiplier effect’. The focus should be on tackling the true restraint on growth: high taxation.

The 50p tax rate remains, despite it losing £4.5 billion and driving businesses away. National Insurance Contributions (NICs) are penalising job creation and have caused perverse income tax rates. The 10 points increase in Capital Gains Tax (CGT) will only prevent the capital accumulation we so desperately need for real investment in the private sector. Green taxes are already making up 20 per cent of every household’s energy bill.

On top of this, new taxes have been arbitrarily levied on banks and energy companies with little or no warning thus causing uncertainty. It is time for real action on reducing and simplifying our unnecessarily long tax code which is punishing enterprise and the poor.

Tax cuts can largely pay for themselves, as optimal levels are reached and increasing growth will boost revenues. However, there will need to be some spending cuts to soften any loss of revenue which may occur. I would suggest scrapping HS2, which will save £30 billion, dismantling the Green Investment Bank and Regional Growth Fund, which will save a further £4 billion, and abolishing the Department for Education (as I have previously suggested here).

The Government is contending with a turbulent economic climate and the legacy of Gordon Brown, which has left the UK heavily indebted and uncompetitive. There have been bold moves to tackle this, such as the deficit reduction plan, liberalising employment law and planning regulations, and education and welfare reform. However, there has been no attempt to deal with the key threats to economic prosperity for all, especially the poorest: rising inflation and high taxation.

It is essential that George Osborne tackles these twin dangers if he wants to regain the Conservative party’s reputation for economic competence and social compassion.

Follow David on Twitter @david_cowan

This EU referendum debate is self-indulgent and wrong

Nik Darlington 3.45pm

On BBC Radio Scotland this morning, I said that while a sizeable number of Conservative backbenchers threatening to defy the Government over the EU debate today is not surprising - this is a markedly eurosceptic parliamentary party - what would be surprising is if the eventual rebellion is such a high number.

Since then, rumours and moods have swung to-and-fro, but it is no more clearer what will happen. Several Conservative MPs are witholding from making a decision until they have heard the debates and, in particular, whether the Eustice amendment is tabled. That is going to be crucial and indications are that it will not be.

The Prime Minister has stood resolutely behind his original view. The show of strength has certainly impressed many MPs but perhaps not enough to change their minds on what they, rightly or wrongly, view as a matter of conscience and constitutional importance.

The Government’s failing is not to take this position, it is to fail to make its case clearly and to communicate it to Conservative MPs and the wider country. Party management has been lacking and, as James Forsyth indicates on Coffee House, the whipping operation has come up very short indeed. The position, however, is correct. The proportion of British citizens who say Europe is a priority issue can be counted in single figure percentages.

The Tory Reform Group takes the view that with unemployment, inflation and low growth figures threatening the lives and jobs of people up and down the country, this moment of dire financial crisis is not the time to re-open a debate on Britain’s membership of the EU.

TRG chairman Tim Crockford said:

All of us agree that the EU needs reform but whatever the strongly held view of some, this is simply the wrong time for such a debate.

David Cameron has moved the Conservative party into the centre ground of British politics - he has made us electable again. This debate is self-indulgent and wrong. The Conservative party has historically put the national interest above party interest. It did so to form the Coalition. It must do so again. It is time to remember that we are a party of government now and must behave like it.

Central bankers, not politicians, will be the ones guiding the global economy to safety

Matthew Robertson 7.59am

Ever heard of Paul Reid? What about Sir John Parker? John Deacon?

You’ll be forgiven for not knowing who two thirds of the above are but I’m sure a lot of you know what Ben Bernanke, Jean Claude Trichet and Mervyn King do for a living.

They are the fine tuning, careful helmsman of the Western economies. The men, who before 2008, were mostly concerned with raising/decreasing interest rates a percentage point or two so that inflationary pressures would not embed themselves in the economy.

Like now, they were hardly household names and even though their roles were fundamental to the world economy, the measure of their success was determined by the consistency of their approach and the expected headlines they each produced. This was the Guardian in 2006:

‘Interest rates were left at 3.25% but the ECB president, Jean-Claude Trichet, sealed market expectations that rates will rise next month by saying that vigilance was needed on inflation pressures.’

The Economist in 2007:

‘Ben Bernanke talked about “generally favourable financial conditions” and enthused—as much as a Fed chairman is allowed to—about “fairly brisk” financing activity in bonds and business loans. Mr Bernanke also talked about the Fed’s continuing concern over inflation. Nothing new here, really.’

And the FT in 2005:

‘But with money markets now expecting at least one quarter point interest rate cut this year and another early next year, Mr King’s emphasis on the risks of higher inflation appeared designed to correct the recent notion that interest rates would soon be cut.’

Inflation was the key problem and the tool at the disposal of central bankers to tackle it was setting interest rates. Economics had enabled solving the problem of inflation whilst continuing solid growth. Central bank independence removed the threat of politicians manipulating monetary policy to coincide with electoral cycles and by having a credible committee to keep inflation around a certain target, inflationary expectations could be tamed.

This was the job of a central banker, staying behind the scenes ensuring that inflation was kept under control and the economy smoothly elevated. A similar role to that of Paul Reid, Managing Director of National Air Traffic Services (NATS), who ensures the safe and orderly movement of aircraft along our air routes. Every little decision can have a monumental effect, a small deviation can set the course of the economy/aircraft on a cataclysmic path.

Of course the financial crisis of 2008, for which we are still suffering from, dispelled any belief that economics had solved the problems that had dogged it for years. Growth across the Western world is still stagnating and inflation is well above target in most Western economies.

Throughout the conference season you will have heard a lot from Cable, Osborne and Balls on their suggested paths for the UK economy. There is no doubt that the role of fiscal policy is important in negotiating the turbulence ahead but the key to the recovery lies with the controllers, the fine tuning, careful helmsman of the economy. A fiscal stimulus will have little impact if detrimental monetary policies are pursued at the same time.

A cautionary tale comes from Europe. The crisis devouring the Eurozone has various causes, not least the failure of European politicians to tackle the underlying problems, but the rate increase from 1.25% to 1.5% by the ECB on 7th July has not helped. ‘The entire continent would benefit from maintaining price stability and confidence’ exclaimed Trichet but the exact opposite has happened. As a result of the increase, borrowing costs increased for countries such as Spain and Italy, who unlike Greece are suffering from a problem of liquidity not solvency. On the back of the ECB’s decision stock markets fell across Europe and unemployment increased 150,000 to 10% from April to July and has stayed there ever since.

As the West confronts the dilemma of credit and liquidity the central banks will have to assist in every way possible and so the old rule book of maintaining price stability through setting interest rates may have to be altered.

Interest rates must be kept low to ease the pressure on companies and individuals’ cash flows. This is the lifeblood of the economy and maintaining liquidity must be at the top of every central bank’s agenda. A job reminiscent of Sir John Parker, chairman of the National Grid, who ensures that electricity generated anywhere in Great Britain can be used to satisfy demand elsewhere at any given point.

The systems are so interconnected that any break could have devastating effects. This is the exact dilemma central bankers face today. Central banks must maintain liquidity to ensure that money can reach businesses and individuals elsewhere when needed. By keeping interest rates low, central bankers can assist with ever increasing liquidity troubles.

You will have heard a lot about Cable’s fiscal stimulus, Balls’ VAT cut and Osborne’s credit easing over the Conference season. However, as the UK hovers over a possible double dip, America endures increasing unemployment and the Eurozone faces collapse it is the air controllers and energy deliverers of the economy who will have the biggest impact on our lives.

As for John Deacon, he was the solid bass player of Queen whose great hits would not have happened without him, but you already knew that didn’t you?