The Credit Crunch: What are interest rates and why do they matter?

Debt is a good thing. It might seem counterintuitive but debt allows people to own their own homes, businesses to grow and for all of us to live more happy, prosperous lives. Just as an example, a button maker who borrows £1,000 and uses it to buy a new machine which produces three times as many buttons will be able to pay back the £1,000 and make a healthy profit to boot. That's the theory anyway. 

Why would you ever lend someone money? Not only are you depriving yourself the opportunity to spend that money but there's the risk you might never get it back. Interest rates are the way people who lend money get something back for the trouble. If A lends B £100 at a rate of 1% then he can expect to be paid back £101. That is he receives the £100 he originally lent plus £1 as his reward for having done so.

Banks operate by borrowing money from people at one interest rate and then lending that money to other people at a higher rate. In other words, if I put £200 in the bank then they might pay me a 1% interest rate but then lend that money to you at 2%. I receive a £2 reward for having deposited my money with the bank whilst the bank receives £4 from you in return for lending the money on to you. 

If things were left like this the system would constantly seize up. Each time someone went to a bank to ask for a loan the bank would have to wait till someone else deposited an equal or greater amount in the bank with which it could make the loan. To stop this happening governments make continual short-term loans to banks to provide them with ready money to lend on to other people. They do so through central banks. In Britain this is the Bank of England, in America it's the Federal Reserve, whilst in the eurozone (those countries using the euro) it is the European Central Bank. 

The interest rate at which governments make these loans is the most important interest rate there is. This is because the interest rates banks charge people borrowing money from them will always be higher than the rate at which banks borrow from the central bank. If the central bank's rate is low then banks will charge borrowers lower interest rates and vice versa. At the moment the Bank of England's rate is 0.5%.

Why do we have such a low interest rate? At the moment banks simply aren't lending anyone any money. The idea is that if banks can borrow money more cheaply from the Bank of England then they will be able to lend that money on to everyone else at an affordable rate. The fact that this still isn't happening shows the limits of what interest rates can do. Low interests rates alone won't get us out of the economic mess we're in now. They will help though.

-----

Most of the ideas here were stolen from those far more intelligent than myself, chiefly John Lanchester's "Whoops!"

Syria: A moral duty to intervene

Since the Syrian uprising began in March 2011 President Bashar al-Assad's autocratic regime has killed over 20,000 people.

Protests first erupted in the southern city of Daraa after Syrian security services arrested and tortured a group of youths. Their crime: spray painting anti-regime slogans on a school wall calling for Assad to step down. Since then the county has descended into a civil war in which up to 25,000 people have died.

How did Syria get here? Assad himself came to power in the year 2000 on the death of his father, Hafiz al-Assad. The regime he inherited, however, has a much longer history. Syria's Ba'ath Party, sister organisation to Saddam Hussein's Ba'ath Party in Iraq, arose out of the mid-twentieth century movement to unite the Arab people under a single pan-Arabian state. Following the failure of that movement, epitomised by the catastrophic 1948 Arab-Israeli  War, it degenerated into a vehicle of repression through which the minority Alawite clan, of which Assad's family is a part, could dominate the majority Sunni population in Syria. 

It sought to rely on the fears of Shias, Christians and other minorities as to what the Sunni majority would do if they seized power. Those fears, however legitimate, are now far outweighed by the threat Assad poses to the Syrian people as a whole.  At first greeted as a less autocratic, modernising face to the regime, his murderous actions over the past year have put to death any notion that this could be the case. When a regime resorts to the systematic slaughter of its own people it can in no way claim to represent their best hopes of safety. Sunni majority rule has to be worth a try.

The UK is the World's sixth largest economy and has a permanent spot on the UN Security Council. The World has treated us well. Despite being a nation of just 60 million we still hold a disproportionate share of the World's wealth and exert a degree of power far above what a small rainy island in the north of Europe could expect. As such we have a duty to act as responsible actors on the World stage.

A worrying complacency appears to have taken hold amongst the British people. People seem to think that since this conflict is thousands of miles away it doesn't matter. It does. A blood-thirsty tyrant is waging war against his own people. As fellow human beings we must do what we can to help. In 1940 the Blitz rained destruction down upon the British Isles and a Nazi invasion seemed imminent. We asked the World for help and it obliged. The World is now asking us to return the favour.

Britain has to show willing to help overthrow this barbaric regime. Seemingly intractable Russian opposition should not detract from efforts to obtain a UN Security Council resolution authorising international intervention to protect the Syrian people. At the very least we must continue to push for stronger action by the Arab League and regional powers to provide a united front against the Assad regime. 

Assad's regime is a foul stain on this Earth representing everything that is wrong with humanity. If we can play the smallest part in its eradication, we have a duty to do so.

The UKIP Threat: the Tories risk drifting to the unelectable right

Recently there has been a spate of articles identifying what they see as the growing threat UKIP poses to the Conservative Party. The Party, they argue, is haemorrhaging voters as traditional right wing voters, alienated by a Coalition Government more willing to please the Lib Dems than implement proper right-wing policies, jump ship to UKIP. Such views aren’t new. A vociferous minority have long claimed that we apparently lost the elections in 1997, 2001 and 2005 because we were somehow not right-wing enough.

This is a delusion. Elections are won on the centre-ground, not the die-hard fringes. In a country that has repeatedly elected centre-left governments it seems ridiculous to claim that what the people of Britain really want is hard-core conservatism. Tony Blair won three elections precisely because he seized the centre-ground, crowding the Tories out. Policies such as ‘tough on crime, tough on the causes of crime’ outflanked the Tories from the right, forcing them to move to the unelectable fringes in a vain effort to provide a real alternative to Labour’s policy on law and order.

To allow UKIP to draw us to the right would do to the Conservative Party what the Tea Party movement did to the Republicans in America. The witch hunt that brought down so many moderates for being ‘un-conservative’ left the GOP so divorced from reality that its pig-headed refusal to compromise led to the world’s largest economy losing its triple-A credit rating. That was ludicrous: conservatism is meant to be about sound economic management.

Britain is still suffering from 13 years of dire economic management. The British people deserve better. We have a duty to present them with palatable centre-right policies they can trust to get the economy back on track. Don’t let UKIP distract us from that.

Ending the educational apartheid

Earlier this week four universities joined the Russell Group, a group of universities which attracts the vast majority of research funding in the UK. In doing so they illustrated the continuing inequality in the provision of higher education in Britain.

Though we often hear politicians talk about the need to tackle inequality in our nation's schooling, very little focus is given to addressing it in higher education. When inequality is raised at all, it concerns quantity rather than quality. Pledges like Tony Blair's target of sending 50% of school leavers to university show an admirable desire to increase the number of people who benefit from a university education but do little to ensure that education is of an adequate standard.

This is a real problem. In an increasingly globalised world, the only hope for industrialised economies like Britain to remain competitive is to develop their skills base. For that to be achieved a decent higher education system is essential. A system that excludes the majority of people from top-tier jobs clearly fails on that count.

Surely everyone should have access to the best education that resources allow. Of course it would be wrong to attack the quality of the best institutions, but how is it wrong to want to raise the standard of the average? In an age when grammar schools have been all but abolished it seems ridiculous to retain such a system for higher education.

A complete change in the way people perceive higher education is needed. Snobbish attitudes that a degree is a waste of time for some people have to go. It is true, there are some Mickey Mouse degrees out there. But that's the fault of an unequal education system, not young people aspiring for a better future.

The current system is an anachronism, not fit for the twenty-first century. If we're ever going to tackle inequality in this country, politicians need to acknowledge this.

The Act of Union 1707: Why Scotland joined Britain

In 2014 Scotland will most likely vote on her independence. Over the past few weeks a great deal has been said on the potential break-up of the United Kingdom. Very little has been said about why the Union exists in the first place. 

As with most things British, the Union between Scotland and England can be traced back hundreds of years. A key date must be 1603 when James VI of Scotland was crowned James I of England.  However, despite now sharing a king the two nations remained very much distinct. Scotland retained her own Parliament, legal system and state religion. It wasn't until the Act of Union of 1707 that the two countries were bound together into a single nation. 

The background to the 1707 Act was certainly eventful. The previous half a century had seen civil war, the execution of a king, the restoration of the monarchy and the Glorious Revolution of 1688. The latter event is one of the most important events in British constitutional history. It put to rest any notion of the divine right of monarchs and ensured Protestantism was here to stay. What's more, the Bill of Rights of 1689 established the basis for the civil liberties we rely on today. 

It is against this backdrop that the Act of Union was passed in 1707. It can be seen as the culmination of half a century of radical constitutional change. However, to understand the reasons behind its enactment, one must look abroad.

In 1707 Europe was embroiled in the War of the Spanish Succession. England had joined forces with Holland and Austria to take on the might of Louis XIV's France and, after the Battle of Blenheim in 1704, England was winning. The way had been paved for a new English dominance that would see her become the World's leading trading-power. The success of her colonies in the New World, already a source of steady income, would see her wealth increase even further. 

The success of England stood in stark contrast with Scotland's international woes. England's Navigation Laws had made illegal all Scottish trade with England's colonial possessions.  Excluded from the new-found wealth of her southern neighbour, Scotland embarked on her first and last colonial venture. The Darien scheme failed so catastrophically that it virtually bankrupted the entire nation. Scotland was left isolated and poor, a tiny country on the periphery of Europe.

In 1705 England made Scotland an offer she could not refuse: either England would cut off all trade with Scotland or the two nations could form a Union. Scotland would gain free access to England's colonial markets in return for the surrender of her independence. To say no would mean financial ruin. To say yes would bring wealth and prosperity. Unsurprisingly, the Scots said yes.

Scotland never looked back. At least until now. The British Empire is now long gone and the free market reigns supreme. Is there still an economic case for Union? Scottish independence rests on that simple question.