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Category Archives: Economics

Housing associations: right to buy versus right to property

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Fast forward five years. A new leftist government is elected in Britain (majority 12) with a flagship policy to extend home ownership to “Generation Rent”. Legislation is drawn up to force private landlords to sell their properties at a discount to their tenants under a radical right to buy scheme. Unfortunately there is a stumbling block. One of the few human rights still standing amid the ruins of the old human rights regime following the Human Rights (Abolition of Trivial Provisions) Amendment Act 2017 is the right to property. Forcing owners of rental properties to sell them offends against Part 1 Chapter 1 Article 1(1) of the new British Bill of Rights which says:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.”

Fortunately, though, there is a precedent. Backtrack five years and the Conservative Government of 2015 had just such a radical policy of redistribution of property. It similarly forced property owners to sell homes to their tenants at a discount of 35% or more – caring not whether those property owners were driven to bankruptcy as a result. The fact that the property owners are housing associations doesn’t mean they don’t have human rights: they are private bodies (hence “legal persons”) and the flats they let out are their private property. The wording quoted above is that of Article 1 Protocol 1 of the European Convention on Human Rights, which applies now and which the Tories have no known plans to repeal – because the human right to property is one of the “important” human rights they set great store by. Read the rest of this entry

UK court backs security ban on anonymised telephone calls system

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A UK court has upheld the Government’s right to ban commercial marketing of a money-saving telephone service on security grounds because it could provide anonymity for callers. The service uses “GSM gateways” that can reduce call charges by rerouting calls through mobile phone SIM cards – but it also allows users to make anonymous calls, potentially avoiding government surveillance.

The Court of Appeal refused to award companies damages for a government licensing system that in effect bans the GSM gateway services they offered and largely halted their business.

Lord Justice Richards said: “Since the time when the existence of GSM gateways first came to light in 2002, the Home Office has maintained that the exemption of commercial operators of such gateways from the licensing regime would be seriously detrimental to public security.” He explained the system thus:

“When a call is routed through a GSM gateway, the caller line identification of the party originating the call is replaced by that of the SIM card in the GSM gateway, so that the identity of the originating caller is masked. This is said to give rise to serious public security concerns for law enforcement agencies in relation to the investigation and prevention of terrorism and serious crime.” (Recall Support Services Limited et al v Secretary of State for Culture, Media and Sport [2014] EWCA Civ 1370 para 9.)

Recall Support Services and five other firms sought to challenge the ban under a European Union law to encourage the telephony sector to develop. They had originally claimed £415m in damages for alleged losses as a result of the UK Government’s maintenance of a restriction on the commercial use of GSM gateways despite a European Commission directive intended to free up telephony services. Read the rest of this entry

Jeremy Wright’s rule of law: Justice shall not be sold – unless the price is right

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Dicey? Bingham? Or perhaps you prefer the Wrightean doctrine of the Rule of Law as it operates in the UK? For Jeremy Wright (the Attorney General for those who’ve forgotten – or perhaps never knew) has given us his thoughts on this complex and contested legal principle.

Generally “the rule of law” might be boiled down to a simple phrase: No one is above the law – even the Government. This though, is not the quite message Mr Wright wishes to get across. His speech “on the UK’s long commitment to the Rule of Law” was delivered at the London Law Expo in the City of London. The Expo is a sort of legal/business fest with, this year, Dragons’ Den man James Caan as keynote speaker. Wright’s intended audience, therefore, was the business community – specifically the international business community. What excites Wright is less Britain’s commitment to the rule of law, forged through revolts and rebellions and the slow painful birth of a democratic society. No, what excites him is this: that

“the numbers show just how successful the legal services sector has been: in 2012 it was worth over £20 billion, or 1.5% of UK GDP and contributed some £4 billion in export value. There were over 300,000 people employed in our legal services sector with over 200 foreign law firms operating in London and elsewhere in the country”.

Britain, for these reasons, is not just a place to do business. It is a place to do law. So the point of  the rule of law is: it’s good for business. “Our long commitment to the rule of law I believe, is of central importance to the British economy”. For Wright has very little interests in the philosophy or practice of the rule of law; rather he is concerned to established Britain’s (or perhaps only London’s) unique selling point: “All companies know that they will be judged by clear rules applied in accordance with the law.” The rest of the speech is a promotion of UK plc’s legal services. Somehow he even manages to spin the Libor scandal as a “good” story: Read the rest of this entry

Extinguishing the right to light by prescription

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UK Prime Minister David Cameron has likened his battle against planning regulation to the war against Nazi Germany. Now it looks as if a Blitz-style blackout will be a crucial part of Britain’s bid to build itself out of recession. The government wants to abolish the right to light.

The thinking is that valuable developments are being prevented by the centuries-old “easement” of light, whereby the owners or occupiers of one building should not have light reduced by new buildings or other blockages on neighbouring ground. The Law Commission has been tasked with reviewing the law – preferably to get rid of it.

The case that has set the bees buzzing around government ministers’ bonnets is HKRUK II (CHC) Ltd v Heaney (2010) in which developers built two new storeys to a property in Leeds and a judge issued an injunction requiring them to be removed since they blocked some of the light to a nearby building. Read the rest of this entry

Libor libel: has George Osborne defamed Ed Balls?

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Following UK Chancellor George Osborne’s apparent fingering of former Labour Government figures over the Libor affair – and his failure to either apologise or substantiate the claims, the question arises, has Osborne libelled his opposite number Ed Balls or members of the previous Labour Government?

Baroness (Shriti) Vadera has acted to ensure the media does not imply her involvement in pressing Barclays to reduce its Libor Panel submissions (she was former financial adviser to the Labour government in 2008 and had legitimately expressed the need for Libor to come down) and she has gained the deletion of a section of Question Time in which journalist Dominic Lawson repeated the Osborne claim.

Basically Osborne’s allegation is that people close to former prime minister Gordon Brown “were clearly involved” in the Libor issue – and the interview in the Spectator suggests he means they were involved in pressing for Barclays to reduce its Libor Panel submission so Libor would fall with a beneficial effect on interest rates generally.

The truth of the matter is that the Government was indeed worried about Libor and Barclays’ high submissions – and considered perfectly legitimate assistance to bring it down (explained in The still missing killer email). There is no evidence of wrongful pressure brought on Barclays by Vadera or Balls (who was Children’s Secretary at the time, not with the Treasury).

Libel is a defamatory statement in a permanent form – including broadcast in these iPlayer, YouTube days. The BBC would not be liable for Dominic Lawson’s live statement “as the broadcaster of a live programme containing the statement in circumstances in which he has no effective control over the maker of the statement” (S.1(3)(d) of the Defamation Act 1996) but probably would be liable if it kept it on a BBC website.

To prove libel it has to be shown that the statement was defamatory, that it was published and that it referred to the complainant (including that the person is identifiable if unnamed). To avoid liability the defendant must then prove it is true or “fair comment on a matter of public interest” or was covered by privilege – as Osborne’s comments in Parliament were, though not those to the Spectator. Defamation is an untrue statement that injures someone’s reputation including lowering him or her in the esteem of right-thinking members of society. On the face of it suggesting illegitimate pressure on Barclays would damage the reputations of those against whom the allegation is made.

Osborne, since the most recent revelations and testimony that fail to support his apparent implication has not elaborated or apologised, simply repeating that Balls “has questions to answer”.

Here, to give context, are some extracts from the Spectator article. It makes clear that Osborne was in a good mood as a result of the Libor scandal: “He saw almost instantly that a story that started with 14 big boys at Barclays trying to make a profit by hook or by crook could fast turn into something that threatens to destroy reputations in Westminster as well as in the City.” (Trashing reputations is what gets George Osborne up in the morning – even at the expense of a trashed economy all around him.*)

This element of the story is about failed regulation from 2006-08 when the Barclays boys were trying to manipulate Libor for profit. It is arguably fair enough to make political hay out of this sort of thing on the grounds that it happened on Labour’s watch and under Labour regulations – it is fair comment on a matter of public interest.

‘They were clearly involved and we just haven’t heard the full facts, I don’t think, of who knew what when’ – Spectator’s ‘bombshell’ Osborne quote

But the article goes further, focusing on late 2008 when the Government and the Bank of England wanted interest rates down and were concerned that Barclays was keeping them up through its Libor submissions. The article has Osborne first blaming the regulatory system for Barclays’ 2006-08 behaviour but it then goes on:

But suddenly, and far more explosively, he moves on to the political efforts to keep Libor low during the financial crisis of 2008.As for the role of the Labour government and the people around Gordon Brown, well I think there are questions to be asked of them’, he says. He starts to discuss reports that those in the Brown circle were pressuring Barclays to manipulate the Libor rate it was paying. Then he drops a bombshell: ‘They were clearly involved and we just haven’t heard the full facts, I don’t think, of who knew what when’.”

This, the Spectator goes on to say, “is a remarkable charge” – “But Osborne does not stop there.”

He continues: ‘My opposite number was the City minister for part of this period [May 2006 to June 2007] and Gordon Brown’s right-hand man for all of it, so he has questions to answer as well. That’s Ed Balls, by the way’.” For these last words, Osborne leaned close to the reporter’s microphone, we are told.

Thus the two issues become conflated, apparent failure of regulation, alleged pressure on Barclays to manipulate Libor. The Spectator is clear that none of this is “the usual political point-scoring” but “crucial to Osborne’s electoral ambitions”.

The potential libel, then, is specifically about 2008 and centres on the words “they were clearly involved”, meaning Labour Government figures. The Spectator wonders whether Osborne “intended to bring into question Balls’s defence that he couldn’t have known about any-rate fixing as he was Secretary of State for Children at the time”.

No defence
The fact that Osborne has not named those “clearly involved” would be no defence to a libel action if people such as Vadera or Balls were clearly identifiable as the target of the allegation. Vadera
is, arguably, identifiable, which, one might assume, is why she has taken action against the media to stop repetition of the untrue claim – libellous if deemed to be damaging to her reputation.

Balls, given his Children’s brief at the time, is less identifiable – except that Osborne seems to bring him into the frame as Brown’s “right-hand man for all of it” – meaning the whole period of 2006 to 2008. The Spectator suggests Osborne is seeking to undermine Balls’s Children’s Secretary defence – but that is not the same as Osborne actually pointing the finger at Balls regarding alleged government manipulation attempts.

This leaves Alrich in some difficulty. The burden of the allegations has been reproduced here. Repetition of someone else’s libels is still libel – even, in many cases, if you make clear you don’t believe it. All being well, though, a defence of “fair comment on a matter of public interest” will put paid to that.

There is, however, also a danger of suggesting that the Spectator, rather than Osborne, has committed a libel by its contextualising commentary on what Osborne said – implying it was directed at Balls by undermining his Children’s Secretary defence and implying it relates to the untrue claim of government pressure on Barclays rather than the just the regulatory background to Barclays’ Libor manipulation.

The answer to that would be that the man on the Clapham omnibus reading the Spectator (if he still bothers, rather than picking up a free copy of Metro like most people) would indeed draw that conclusion from the words published.

If Osborne did mean to point the finger at Balls, the Spectator’s implications that he did are not untrue – but the substantive allegation remains (we believe) untrue. The Spectator would be on the hook for publishing the claims even though they are Osborne’s. On this reading, the “bombshell” bit of what Osborne said was libellous and the Speccie should not have published it.

One suspects Osborne will rely on some of this for his own defence. He will insist that nothing he actually said explicitly or impliedly suggests Balls approached Barclays or was involved in a decision to approach Barclays to push down Libor. His attack was more of a scattergun affair justified as political knockabout or “fair comment on a matter of public interest” ie comment on the regulatory failure.

However, he has had ample opportunity to clarify which allegation he is making and has failed to do so. So what can be concluded with any safety? Perhaps we may use Osborne’s own formulation: the whole issue leaves him with questions to answer.

*Note: This, on the face of it, shocking suggestion – that Osborne cares more about scoring points against his opponents than dealing with bankruptcies, unemployment and rising poverty in Britain. It qualifies as a statemnt likely to bring him into “hatred,  ridicule and contempt”, according to the libel law formulation. Fortunately we are able to ridicule politicians, not merely because they are very often ridiculous, but also because “mere vulgar abuse” is accepted and excepted under libel law.

A more detailed look at the legal issues, including relevant cases, is here
See also the Defamation Bill 2012 PDF version, 113KB

Barclays, Libor and the still missing killer email

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The political row about Libor and UK Chancellor of the Exchequer George Osborne’s attempt to suggest the previous Government tried to manipulate it  becomes more bizarre in the light of emails we now have on the issue. Coupled with the testimony of the Bank of England’s Paul Tucker, they raise the question: “Has Osborne libelled Labour politicians about their involvement in Libor fixing?”

Osborne has tried to conflate two things: the perfectly reasonable concern that the Bank of England and Labour Government had that interest rates in 2008 were too high; and the practice of trying to manipulate Libor by Barclays “submitters” from 2005 to 2008 in favour of Barclays traders who had taken risky positions on interest rates via derivatives or swaps or other arcane financial instruments.

On the latter: there are supposed to be Chinese walls between the submitters and the traders. Each morning the submitters for the banks on the Libor panel are supposed to produce their honest assessment of the short term rate at which other banks will lend to their bank. They are answering the question: “At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?” The submission is put in independently without seeing the other banks’ rates.

The answers are received by Thompson Reuters who aggregate them and put them through a formula (including ditching the outliers – the top and bottom quartile figures), and the resulting Libor (London interbank offered rate) is then published.

The submitters’ rates are based on their perceptions of what the right answer will be, not on actual transactions; they do not know whether, at the end of the day, they will have surplus funds to lend to other banks or be in deficit and so have to borrow. It reflects how secure the banking system is seen to be. The higher the rate, the more risky a bank’s creditworthiness, the lower the rate, the less risky.

The rate has knock-on effects on all sorts of other interest rates – which is why the traders in another part of Barclays are interested in it. If, for example, they are (in effect) betting on interest rates falling and they can get their chaps, for the odd bottle of Bolly, to massage down the figure submitted from Barclays, that will have a small but significant effect on the aggregated Libor rate. As a result, the interest rates our trader is interested in will go down (only slightly – we are talking big profits out of tiny movements in rates). The trader cashes in, Barclays raises its profit and the trader preserves his bonus for the year – and possibly his job.

That’s why some of the emails from the traders to the submitters were pretty desperate. If the interest rate market went against them, they could be in deep trouble. And it is this for which Barclays was hit by a £290m fine.

All this is quite a separate issue from the 2008 correspondence between Barclays and the Bank of England apparently prompted by the Cabinet secretary, Sir Jeremy Heywood.

The email we now have that sets out the position most clearly, indicating the issues at stake, is that between Heywood and Bank of England Deputy Governor Paul Tucker of 26 October 2008.

“There is no incentive for lenders to offer funds after 10.30 at or below Libor when they know two banks continue to pay above Libor throughout the remainder of the day.” Email from Jeremy Heywood

There had been turmoil in the financial markets, Britain and the world was staring into the abyss – depression and potential financial collapse. The Government, unsurprisingly, was interested in interest rates and would want Libor to be falling – that would indicate confidence in the banking system and also lead to lower interest rates generally for businesses and those with mortgages, all of which would help get us out of the crisis all the quicker.

The email notes that rates in America were falling, but Libor was not – or at least it was falling too slowly. Two banks, Barclays and RBS, were apparently bidding it up. “For example, on 23 October 3-month Libor fixed at 6.005%,” says the email. “RBS continued to bid 6.050% through the remainder of the day.” In other words RBS was defying the Libor Panel with a higher rate after Libor was set at 10.30 that day. “There is no incentive for lenders to offer funds after 10.30 at or below Libor when they know two banks continue to pay above Libor throughout the remainder of the day.”

For whatever reason, Barclays and RBS were willing to go out on a limb and borrow at above Libor.

At this time too the 2008 Credit Guarantee Scheme (CGS) was in play. This was, in effect, a guarantee of government money available for banks to borrow if their liquidity looked like drying up in the crisis – so they could keep on lending.

But it came at a price. The Heywood email notes that the CGS rate of interest, including fees, would be higher than Libor and speculates that Barclays was willing to borrow on the money markets at above Libor because “avoiding the CGS signals that banks using the Interbank market need no government assistance in borrowing”.

It then speculatively proposes a scheme to set CGS at slightly below Libor at a price based on a Dutch scheme where fees are set at what might have been reasonable for 2007-08 but excluding the September turmoil (which had pushed the price up).

This is very far from asking Barclays to manipulate Libor down.  Quite the opposite. It actually acknowledges that Barclays might have had good market reasons, from its point of view, for bidding Libor up. Quite naively perhaps, in the light of what we know now, it does not suggest Barclays might have had an interest in gaming the system.

What we don’t have here is the killer email from Ed Balls, Children’s Secretary, (for that is what he was at this time) pleading with Barclays: “My people are hurting; for God’s sake bring that Libor rate down so that I can put food into their little mouths.”

Paul Tucker has now “absolutely” denied  seeking to manipulate Libor and denied any ministers suggested it.

Osborne is at least naïve but more likely deviously trying to rewrite history and misinterpreting the meaning of words to construct a stick to beat the Labour Government with. He is the arch-manipulator here.

It beggars belief that the Government in the fraught times of 2008 would close its eyes, sit on its hands and not ask questions about why Barclays was bidding up Libor. If it knew why, it might be able to help out. That is what the emails actually show.

So has George Osborne libelled Balls and Baroness (Shriti) Vadera, former financial adviser to the Labour government? This issue is considered in a supplementary posting: Libor libel: Has George Osborne defamed Ed Balls

Short on logic

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How much is something worth? Whatever someone will pay for it. This has been the fundamental faith of the believers in the free market ever since the labour theory (that the value of a good depended on the amount of work that had been put into it) was soundly repudiated by economists

Yet short sellers, the financial market “bears” who have apparently caused so much devastation to banking in the US and Britain in the last few months, have a different, and somewhat unorthodox answer to the question. Something is worth what we say it is.

They aren’t being arrogant. They are simply saying that they know the true price of a share, the real objectively arrived at value of it, and that the market is wrong. And they are happy to share this knowledge with the world — once they have made pots of money by selling companies short.

What they do, put simply, is to spot mispricings of shares — the market gives them a higher value than they should have because the market has failed to take account of some factor that should push the price down. The bears step in: they borrow, let us say, a million shares from someone who is holding them long term (and pay a fee to do this) then sell them. When the shares fall (because the market has suddenly realised it has been mispricing them), the short seller buys them back at the lower price, hands them over to the owner and pockets the difference between the higher price at which he sold them and the lower price at which he bought them back.


Of course it would be unwise to short a thoroughly healthy company. You might find the market saying, we’ll take your borrowed shares and any more you have please. When you come to close your positions (ie buy back the shares to return to their owner) you may find little difference between the price you sold at and the price you are forced to buy back at — hence no profit to be made (there may even be an embarrassing loss).

The defence made of short sellers is either that: a) they are bravely exposing the real value of shares in companies whose underperformance has gone unnoticed or has been deviously kept hidden, thereby providing the valuable policing service of “price discovery”, bringing to light the true value of shares for the benefit of efficient markets; or b) they are a brutally oppressed minority heroically refusing to go with the herd and instead bravely taking a real risk for the sake of the higher good — up there with Galileo, Gandhi and Martin Luther King (the argument being that the long term tendency of shares is to rise so short sellers are doing something rather special and risky in taking a bearish view — and backing their view with other people’s money).

The last argument is simply a way of trying to counter the view that short sellers are making easy money with what amounts to a trick. In fact what we are doing is really, really hard, they say, and it takes real guts and everyone’s against us and why don’t you all leave us alone?

The first argument, though, is the one that needs to be taken seriously, not least because it is accepted orthodoxy in the world of finance and economics yet is based on a contradiction: the mysterious confidence in there being an objectively right price for goods at the same time that the only right price is the price people will pay for them — a market price based on the aggregate subjective views of the people buying and selling the shares.


The problem is that the short sellers are making use of the borrowed shares to do two exactly opposite things in the market. The shares remain, to all intents and purposes, in the hands of the original owner, say an institution wanting to hold them long-term. The fact that they are holding them tends to buoy up their value in the market — the more that are held rather than sold means there are fewer to buy; short supply tends to raise price.

At the same time the very same shares are being sold in the very same market — tending to drive the value down, since that is what happens when supply in the market rises.

The two effects, of course, don’t cancel out. The sale of the shares becomes the dominant tendency since it is no different from the long term holders actually selling the shares. As far as traders are concerned a million shares have suddenly been dumped on the market. Greater supply without greater demand means the price must fall; add to that the confidence factor — if these shares are suddenly on the market, there must be something wrong with the company so the traders mark them down even further; and add to that the blackguarding of the company, publicly and/or secretly, by the hedge fund employing the short sellers and you add another twist to the downward spiral of the share price.

Yet, the original holders of the shares have no intention and had no intention of actually selling the them. The original price was right, as far as they were concerned — a hold, in the jargon, with some expectation of long term growth. So exactly what price has been “discovered” by the actions of the short sellers? A wholly false price, one based on layers of fiction and market misinformation. What they are doing, far from “discovery” of a true price, is injecting false information into the market — the information that there are a million shares available to buy when in fact there aren’t.

There is nothing wrong with making money from other people’s misery — it is and always has been fundamental to the capitalist system. But you can’t have it all in this world. You can have the penthouse, you can have the cadillac, you can have the yacht —but can’t also expect to have the moral high ground.

For an alternative view:

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