The Hidden Cost of Rail Travel

I don't go into London much these days - I used to do so far more regularly. We expect the annual rise in train tickets - it seems a given that prices go up yet on each route there is no competition so it is actually a licence to print money.

But we do have a friend for train tickets - Office of Rail Regulation whose job it is to ensure that there is (farcically) some competition and that price rises are not just in the realms of fantasy. However, what is not really governed at all is the cost of parking at stations.

In an ideal world, it would be great to cycle to and from our local stations. Kings Langley is nearest but this has only slow trains going through it and twice our car has been broken into in the car parks. So we tend to use St Albans or Watford Junction as they have more regular fast trains, with St Albans being very handy for my wife as the trains stop at Farringdon which is great for her office in Spitalfields. But it is a long cycle indeed to St Albans and there is no bus link from near us to go there either. So car is the best way.

I tend to use Watford as I am not fussy about where I alight in London as I go to several places for business. I was struck by this year's increase in the ticket prices - in a couple of years the prices have ratcheted up significantly and there is no doubt that salaries are not keeping up with ticket price rises. But the real hit was the price of parking my car. It is now £8 per day - just a couple of years ago it was less than £6.

In that time, the car park has automated so the human labour force to patrol the entry is no longer required and finally it takes credit cards. On a piece of cheap, ex-railway land, there is space for 270 cars which is probably on average two thirds full on each day of the year. The price rises for parking are not regulated by the rail regulator and so they have risen at above 10% per annum each year for some time despite lower running costs. I was truly astounded that this is allowed and not monitored by the regulator.

There is one thing in business that I have noticed, you rarely ever see firms who run carparks go out of business, and few go public as the requirement for capital is minimal in such a regular, cash business. In 1998, the owners of NCP, sold their business for £555m. Just imagine what that business would be worth today if only for its property value.

Commuters in this country get an awful deal and we only really ever hear part of it. The cost of parking is a racket in its own right.

Who Should We Believe?

Depending on which set of figures you look at for the economy, you could be verging on the suicidal to the ecstatic. Certainly, we seem to be clutching at straws if we think Britain has emerged from its recession yet.

In the week, I highlighted The Sunday Times Appointments Section as being devoid of private sector jobs and full of public sector senior appointments, arguing this was a bad sign. Yet for the second month on the trot, there has been a marginal increase in the number of appointments available generally according to Government figures. Encouraging, if fragile.

But, the National Institute of Economic and Social Research (NIESR) has calculated that our GDP did not rise a jot in this last quarter. This falls in line with the worrying industrial output figures reported for August which were sharply down on July. True, we could argue it's holiday time but the level of drop, some 2.5%, surprised most economists. Bizarrely, the Government's response was to say that this prediction of stagnated GDP showed that the Government's policies are working.

We have also heard that house prices are now nearly back to levels experienced in 2008 - certainly there are plenty more placards up in my area - but this is still some 15-20% down on prices in July 2007. The number of mortgages being approved has risen but we know that lending to small businesses, despite Government indications to the contrary, is reckoned by the Bank of England to be £14.7bn down on last year. Are we putting the credit in the wrong places, you might ask?

Bank profits and bonuses are sharply rising, the price of gold has hit a peak (perhaps I should have followed those persuasive TV adverts), car sales are up 11.4% from this September to last, inflation has fallen to 1.6%, and the Services sector, such as restaurants, showed expansion for the 5th successive month and is now at a two year high - trashing my comment on empty tables for pre-theatre meals in London last Saturday. Or so it would seem.

The figures are all slightly baffling. The reality we see is a great deal of uncertainty as we face a great many cuts to public services no matter who gets into power which will inevitably hit jobs after 12 years of growth in bureaucracy in the public sector that now accounts for 1 in every 4 jobs in the UK. Our population is rising faster than expected due a new birth rate explosion, 25% of that growth coming from couples not born in the UK as immigration takes its toll on the UK. Unemployment continues to rise to nearly 2.5m and there are predictions of over 3m by this time next year which is well above 7% of the working population.

The budget deficit continues to rise and at a greater rate predicted by the Chancellor, indicating that it may well be getting out of control, which will see Britain borrow an extra £175bn this year - and rising. Many predict, contrary to Government promises to halve it by 2015, that borrowing will be nearly 99% of GDP by 2014. As we are faced with a rising Welfare bill due to more people on the dole claiming benefits, and greater immigration numbers than ever predicted, and therefore a shortfall in tax revenue, the squeeze is on. And there will be a need, due to the heavy borrowing, to find big cuts, some 10%, to try and manage the situation down.

I find the whole situation baffling but the one thing I believe to be true is that we are paying for 12 years of unsustainable and unreal economic growth that was based on a flawed financial system that relied on the unchecked ascent of asset values and the instruments which relied upon that principle. And we have set up the remedies to start the exact same cycle again, despite posturing to the contrary - banks are once again out of control.

It seems that even if we halt the decline this quarter, we are a full 6 months behind our competitor nations in recovering despite all reassurances to the contrary before we hit the recession - the one that we were reassured that we would not hit - and I believe we are focusing on the wrong areas to manage the situation. Time will tell, but the comedy of errors by the Government, Investment Banks and the FSA in calculating a bailout of the financial system literally over a few late nights and some pizzas will haunt us for a generation. Last Sunday's article in the Times was meant to reassure us that the parties took the banks on and dressed them down for 10 years of excess. What it showed was that having ignored the banks for 10 years, they suddenly became experts in their business to save them.

If you believe that, then you will believe that little green men have invaded Uxbridge and put up the price of rail tickets.

Does Anybody Actually Know What They Are Doing?

The PM is in the US to talk to the President to compare the size of their economic phallus' (phalli?) and see who has spent the most money in the bail outs on things that they shouldn't have - like bonuses, fat pensions, consultants, investment banking advice and daft conferences to whitter on as if they know what they are talking about.

In a single day, even an hour, it seems fiscal policy was turned on its head and there are worrying signs that not only does no one know what they are doing, but worse still, they are all promoting doing the opposite thing.

Knee Jerk Reactions

In the series of bank bail out knee jerk reactions like large nervous twitches, we have seen several hundred billion spent by the government and the Bank of England to try and remedy the financial mess we are in. I am deliberately vague on the figures as there seems to be no popular consensus on how much actually has been pledged, spent, put up as guarantees and loans or slung down a large drainpipe leading to nowhere. In the remarkable series of events that allowed Fred Goodwin to walk away with a fabulous pension at our expense, no minister seemed to be able to know his address or phone number to contact and tell him he was not going to be rewarded for failure. How surprising that a bunch of vandals found Goodwin's house with remarkable ease and made the same feelings known with a series of well directed bricks.

Barack Obama seems to have lost his coolness and has developed a nasty habit of tittering when answering questions on the crisis which he refers to as essential 'gallows humour', and his usual unflappable speech style has been replaced by a Gordon Brown stutter.

The two should get on famously this week as the one thing they are both getting good at is spending large amounts of money their countries haven't got.

The latest in the series of knee jerk reactions came yesterday as inflation shot upwards and not one single economist had predicted it, which does not inspire much confidence. Having already embarked on his course of Quantitative Easing in earnest, Mervyn King, wobbled visibly and there now seems to be a volte face likely on that particular bright idea. In response gilt yields shot up record amounts as investors started to speculate that the era of low interest rates may be short lived.

The rise from 3% to 3.2% in the Consumer Price Index was very unexpected - in fact falling high street prices had been seen as potentially pushing us toward deflation if anything. But it is clear that economists don't spend much time in the real world as from my tired eyes shop prices have stabilised and gone back up with few exceptions. The fire sales seemed to be over a while back. In response, Mervyn King penned a fifth letter of explanation to the Chancellor.

I hope he put pictures in it as I think Alistair Darling is having real trouble reading things at the moment.

Further, King then told the Treasury that he may hold back on spending his £75bn of Quantitative Easing that he agreed to do not a month ago. The fear that inflation takes off is one of the side effects in the theory book on this one and Merv is playing very much by the book it seems.

The combined effect of these two things then sent gilts down in price and yields up as investors speculated that the Bank would buy far fewer Government bonds than first thought which had sent prices up previously. Another unexpected result of all this tumult was that sterling rallied against a whole basket case of currencies and gained 2.25 cents against the dollar.

Opposite Views

As Gordon Brown starts his visit to Washington to basically agree with the US that buckets more spending is the only solution to this economic crisis, Mervyn King was warning the Treasury Committee that the Government should not embark on a policy of further spending to stimulate the economy and was specific that the country should not run up more debt. Instead there could be targeted measures to get us out of the mess.

The Government was quick to point out that there was no rift with King on the stimulus package. We can only assume that either no one knows what the other is saying or Brown will simply tell King what to do - no discussion.

Rumours are that Alistair Darling is sitting muttering in a corner not knowing which way to turn. It will be an interesting match when Darling meets his US counterpart, Tim Geithner, who far from retreating into his shell with a face like a slapped backside as Darling has, he has boldly stepped forward and said that he wants wider powers to deal with financial firms. He claimed that the £173bn spent on bailing out AIG could have been avoided if his predecessor had the powers to have put AIG into receivership. Darling will be shocked at such a notion with the Government having to step in to save 5 major banks falling in the UK, the first of which, Northern Rock, had a strong case for just withering.

Bungling, Incompetence and Negligence

It may come as cruel twist to the saga of Goodwin-gate that in fact the US taxpayers and not the UK's may end up paying the cost of Fred's pension. The RBS Board insured themselves against their own incompetence (what foresight they had) and the main underwriter is none other than AIG. So if the UK Government do sue Fred and by some miracle they win, AIG amongst others will have to cough up. Pigs will be flying snow to Eskimos before the Government will get a penny back from Fred.

But it has been a depressing week for our super hero leader. As he flies like a speeding bullet to several countries to bore them with his monotonous message on spending and non-protectionism, the revelations by the National Audit that after the Northern Rock bail out was done, the highly paid consultants, under the watchful eye of ministers, allowed a further £800m in 125% stupid mortgages to be handed out up to 6 months after. Even a an imbecile would ahve thought to have told Rock management the very first thing they should do was to stop such nonsense - but no the object was to 'save' the bank not to rectify its brilliant lending policies. We then had Lord Myners whinging that he was not to blame for the Goodwin pension fiasco when it was his responsibility to get it right, we had Northern Rock paying its staff bonuses and changing the terms of its loan repayments to us, a sharp rise in unemployment was announced, tax revenues dropped by 10%, deficits rose sharper than anticipated and now we have the Czech Republic becoming the third and most significant country to oust its Government in the wake of the crisis.

As each country reports dramatic bad news after bad news, it is now absolutely clear that the financial crisis and recession has gone far deeper than expected and into the general commercial markets. It is becoming fast apparent that the drop in consumption in the wider sense will not be replaced by the vast spending by central governments. The spiral is beginning to lose control.

What is most worrying is the divided opinion amongst the people charged with getting us out of the mess having allowed us to get into. It is no good turning to the Conservatives as they are struggling to keep up with the niggling soundbites and witty one liners of criticism to have enough time to have ideas on how they would go about it.

Niall Ferguson had a long and technical article in the Telegraph yesterday with his ideas on how to stimulate the economy which I did not understand but what he does agree upon, as many are realising for themselves, is that the anticipated results of pouring a vast pile of money down a drain have been over estimated while the long term borrowing requirement has been vastly underestimated.

The Tories picked up on one of my analogies from some months ago, saying that Gordon Brown was like an obsessed, broke gambler believing it just requires one big bet to wipe out all his losses. The trouble is, he is gambling with borrowed stake money, and the IOUs are underwritten by us. I think we should take a lead after Latvia, Hungary and the Czech Republic and turf Brown and all his incompetent ministers and advisers out.

The sad fact is that we don't have anyone competent to replace them, except for the guy by the fruit machine in the Robin Hood pub last night who advocated bringing back Nigel Lawson, Ken Clarke and John Major led by Margaret Thatcher - his A Team. Er, no thanks.

Go on then, Gordon, have another throw of the dice on all of us. Here's hoping.

Action & Reaction

I was not particularly enthusiastic about the Government's latest additional £350bn bail out and I was a few quid short of the predicted loss at RBS which hit £28bn but despite a drop in inflation today to 3.1%, it seems the markets are now turning their attention to Britain's economic health with great scepticism.

Blankety Blank

Despite Gordon Brown taking on the role of master blank cheque writer, it could not stop a fierce run on shares in banks yesterday as RBS plunged 67%, Lloyds TSB by 34%, Barclays by 10% and HSBC only 6.5%. Worse still, our currency also plummeted to below $1.40 after being $2 last Summer.

After such a massive second bail out, why are the markets reacting so badly? What is it that they know that the UK Government does not know?

Debt

The rumours alluded to on the front page of today's Telegraph talk of a leading agency is about to cut its rating on Britain's sovereign debt. Edmund Conway, Economics Editor at the Telegraph, explains that while this does not mean Britain is much worse off, what it does underline is a growing opinion that Britain is inching toward Insolvency.

I have to say it's all a bit scaremongering. Yes, there is a lot of gloom in Britain, High Street names are dropping like flies and major industries are cutting back in the face of a dramatic slowdown, but realistically we have been here before, have we not?

I guess the argument revolves around the massive borrowing Britain has embarked upon. From targets of 37% of GDP, pretty soon Britain will have upped its borrowing to 58% of GDP. And the money to service this debt is tax revenues which are set to fall sharply as unemployment goes up and the strain on the State grows. The outside concern is that Britain is borrowing more and becoming less able to pay back the money.

A Realistic View

58% of GDP is not that harsh and is more in line with the borrowing of Germany and France, so we cannot be that badly off, despite our own concerns. And there is always the prospect that things will get better when the recession ends - tax revenues will start to grow as business picks up and unemployment comes down. Also by actually not being too hemmed in by currency and not being part of the Euro and fixed interest rates, our depreciating pound may help us.

The fact is, even if Britain's rating is changed it does not affect our ability to repay the debts but it is a measure of external confidence in our ability to do so.

Confidence

The issue is confidence. While the British Public seem satisfied enough with our PM's performance in the crisis, the external markets are mildly terrified. For the second time in less than a few months, Britain has come up with a botched bail out, having reassured us that the first one was more than enough to save the world. This time around the cost is equally large and potentially more so as now we are proposing to underwrite to toxic debts that no one seems to be able to quantify but some optimistically put it at £200bn, yet RBS has liabilities of £1.3 trillion alone. The taxpayer is faced with a liability which is equal to 90% of the disastrous bank lending of the last 10 years.

The biggest question from yesterday's announcements that perhaps has spooked the markets the most is, now that the toxic debts are underwritten, how does the Government propose to sort them out?

The almost inevitable outcome of yesterday's announcements and market reaction is that the Government took a further lurch toward nationalisation of banks and in some ways their dalliance on the subject will only fuel further concern. Banks are now having a hard time raising funds and if their shares are scuppered much further they almost certainly will have no place to turn. If we nationalise the banks and our ratings go down, the banks will have further difficulty in raising money.

It's a vicious circle that needs to be broken as soon as possible.

'Forgotten Victims'

As we all look at our failing Pension Plans as the stock markets whirl madly, analysts pointed out that many Pension Funds are highly dependent on bank shares. There was a time in the past that 'Bricks & Mortar' and Banks were the safest investments but this year has proved a savage exception. Well over 10m people own shares directly and many more own them via Pension Schemes - and as bank shares constituted about 21% of the FTSE value 2 years ago, many Pension Schemes are highly exposed to these shares - now those same shares will be only 10% of the FTSE value and most of us don't know how exposed we are.

With the collapse of bank shares and the looming possibility of nationalisation, it means widespread losses for pension scheme participants. In many cases, not only will people not be aware of their exposure but they may not be able to do anything about it, as the only time they get a chance to gauge it or do something about it is when their annual statement arrives. With over 90% of bank shares by value being held by institutions, it's clear that the exposure is huge.

The UK Shareholders Association has warned that private shareholders will be the 'forgotten victims' if nationalisation occurs and compensation will be a long time coming and will not cover much of the losses, certainly if Northern Rock is anything to go by.

It may already be too late, but a call to your Independent Financial Adviser (IFA) may clarify what your options are. Try Haymarket Associates at www.haymarketifa.co.uk if you do not have one.