John Redwood's Diary
Incisive and topical campaigns and commentary on today's issues and tomorrow's problems. Promoted by John Redwood 152 Grosvenor Road SW1V 3JL

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The Bank of England insists on getting it wrong

Headline inflation has come down to 2%. The European Central Bank has made its first cut in interest rates. Suspicious Conservatives think the Bank wanted to deny them a rate cut before the election , to offer up an introductory one in August to the new Labour government all the pollsters and most commentators say we are going to get.

It shows the difficulty for a so called independent Central Bank to keep out of politics. To the main parties this decision was a crucial one.Cut rates and reinforce the Prime  Minister’s message that we have turned a corner, the economy is on the mend. Leave rates up for a few more weeks and reinforce the Opposition view that it is all a mess.

So let me show balance. The Bank given the ludicrous way it seeks unsuccessfully to keep inflation  down followed its own method in deciding on further delay. It could argue that service sector inflation is still elevated and not coming down as quickly as the forecast it made so the Bank needs to be cautious. The Bank also of course yet again needs to thoroughly review how it forecasts inflation as it got it wrong again.

Housing inflation remains elevated within services.Rents  keep rising in part because migration still runs hot. Owner occupiers face mortgage hikes thanks to Bank policy. There are “ reasons” for the Bank to hang tough.

The disgrace however comes in the key Bank policy most media and politicians refuse to talk about – the Bank’s wrong decision to keep selling bonds at huge losses and send the bill to taxpayers. No other Central Bank does this. Even the Fed, cutting its bond portfolio aggressively as bonds mature has reined this in in recent months, realising the damage it can do.

When I was asked to comment yesterday on the lack of rate cut the media would not consider the far more important Bank decision to keep on selling bonds. Why?

Just one billion more

If putting more money into the NHS solved its problems we should see much reduced difficulties now. Record amounts and large increases in cash have been provided since 2019.

The truth as Labour acknowledges is you need reform, improvement in how it is spent, as well as extra money.

In this election various parties offer a few billions here and there to solve problems in the NHS or other public services. They offer to “pay” for this with tax hikes that they hope will just hit the rich, leaving most voters unaffected. It is nonsense to suppose these modest sums in relation to the total will make much difference.

In order to properly fund the NHS we need large sums, tens of billions, to pay the big bills. In recent years there has been plenty of wasteful spending.

The government paid a large sum to provide Nightingale hospitals, then scarcely used them. If they had been used for COVID the main hospitals could have done other work, providing more timely treatment and keeping waiting lists down.

The government spent a lot on taking over the capacity of many private hospitals. The NHS then failed to use all that capacity for non COVID cases, wasting much of the spend. Worse still the private sector couldn’t perform operations in its own hospitals, adding further to waiting lists.

PPE was in short supply worldwide. Taxpayers had to pay large sums to get PPE from worldwide suppliers where they could. Why didn’t the NHx have bigger stockpiles?  Why didn’t the NHS have flexible contracts with long term suppliers that allowed bigger deliveries in a crisis?

The NHS has been underpaying some medics. As a result expensively trained staff have got medical jobs abroad where pay is higher or have left for other occupations. The NHS hires staff back as contract staff at much higher rates.

There is no easy answer to improving management. I am not proposing another expensive reorganisation, What we immediately need is to make key managers more accountable and to get to tackle the staff, property and supply problems which are still widespread.

Posting to this site

A few people are going in for more and longer contributions. I am going to start deleting some for length and multiple posting.

Some want to make comparisons with Hitler  and Nazis. This is usually inappropriate. Make points using proportionate language,

One wannabe poster every day submits a variant of the same posting alleging a couple of billionaires run the world and control the governments. We have discussed this in the past. I have no intention of posting these. Go elsewhere to pursue.

War and defence

Those who think about the war in Ukraine see four possible out turns. The most likely is the current brutal war marches on with little change of territory, with Western cash and weapons supplied sufficiently to sustain brave Ukrainian resistance. In the last week the West has produced another $50 bn loan. The USA has signed a 10 year defence partnership and has relaxed its rules on use of Western weapons.

Some think both sides will be brought to see the need to compromise. If neither side can deliver a knock out blow it is possible they could agree a new border for Ukraine. To date Ukraine has been firmly against this. There is the option of NATO offering membership to the new Ukraine to emerge from such an Agreement, along with full security guarantees. One of Ukraine’s reasons for not wanting such a peace would be the threat that Russia could come back strengthened to try another invasion. Many Ukrainians and allies do not like the idea of ceding land to Russia as reward for an invasion.

Some think NATO should intensify its financial and military aid to increase the chances of a Ukrainian victory. Given the Russian war time economy  and willingness to accept large losses of troops this would come at a price but offers the best deterrence against future Russian aggression.

The fourth outcome is Russia taking more territory and forcing an even more favourable peace for itself.

Some military experts think going all out for victory by Ukraine would be best. It would avoid the costs of early future conflict and reduces the security need. The more that is ceded to Ukraine the more aggressive Russia might become.

 

The Ukraine war has made clear the inadequacy of NATO weapon stocks and the need for much more western weapons and ammunition manufacture.When will this be put in?

The West is considering using Russian money held in Western banks to help Ukraine. This poses legal issues which still have not been resolved.

What should NATO do now about Ukraine? Which outcome do you expect?

Look at Labour and Lib Dem Councils to see what they believe

It is often best to judge people by what they do rather than relying on what they say.This is certainly true of political parties, who often change their minds in office from their election promises.

I see at first hand what Lib Dem led Wokingham and Labour led Reading do. Both pursue a relentless vendetta against motorists, closing roads,  narrowing roads, restricting junctions, imposing more rules and speed limits. Both are spendthrift, claiming they do not have enough government money.Both allow the growth of potholes.

Both put up parking charges and make access to their towns difficult for those coming by car. Both claim a shortage of money despite receiving substantial national grants.

Both put up Council tax by the maximum.

Devolved government in Wales and Scotland sends the same message. Labour in Wales and the SNP in Scotland preside over a slower growth rate than England. They concentrate on getting more national tax per head to spend than England, yet their public services are often worse and their economic performance poorer.

There is some good Brexit news

We are just past the  half way point in this election. The two main parties, Labour and Conservative have both seen at times modest declines in polling support as they have unveiled their plans. The average poll rating is now 22% for the Conservatives and 42%  for Labour. Some polls have put Labour below 40% and Conservative below 20%.

The polls usually exclude the large numbers of Don’t Knows and Won’t says. The polls will be right if they stay at home or vote in the same proportions as those who have said what they will do. If there is a disproportionately large number of former Conservatives amongst that group then they could decide in the end to vote Conservative because they do not want a Labour government, changing the outlook. Some could decide to vote Reform, helping  confirm the poll predictions for Labour to do well.

Higher taxes, high migration levels, a failure to use Brexit freedoms sufficiently, an acceptance of bad Treasury and Bank economic policy would all get worse under Labour.It would  be a perverse outcome if former Conservative voters ended up voting or not voting in a way which gave Labour a large majority with under 40 % of the vote. Usually a party needs around 43% to secure a decent majority. Only if the Opposition is badly split do you get big majorities at lower levels of vote. Most of of those undecided or angry voters do not want a Labour government. The more we hear and see the Labour Opposition the clearer it becomes they will not tackle the tax, growth,  and migration issues successfully.

The Conservatives need to explain some of things that have gone right. Brexit has protected us from a big or any  share of the 800 billion Euros of new debt the EU is borrowing, We have quite enough debt of our own without needing loads more from the EU. At last after too dear a transition we are now saving billions  a year on contributions to the  EU and have increased NHS spending by far more than the promise on the bus. Our trade with the EU has expanded  since we left against so many gloomy forecasts, Trade with the rest of the world has expanded even faster as we have expanded old trade agreements and added new ones thanks to Brexit freedom.

Educational standards have risen well in England with big improvements in reading and maths. This augurs well for more young people to better paid jobs. Unemployment has come well down since 2010.

 

What we missed by having an earlier election

My advice over the last 18 months to the PM and his advisers was to go for a late November election. I argued the government could over 2024 deliver much lower legal migration, benefit from the likely  big fall in inflation, see interest rates come down a bit and be on a falling trend, deliver some economic  growth, get more accurate NHS waiting list numbers and show decent falls in waits. Showing government could deliver all these things would strengthen the case for re election on a platform of more growth, lower tax rates, lower migration and better public services to come, building on the 2024 achievements.

The government did agree to change migration policy, putting in changes to cut numbers this January. I urged them to publish at least monthly figures showing the falls, and aim to get nine months published by an election. Instead we have seen one 3 month number showing falls. The government rightly wants to get numbers down from here.

Inflation did fall as expected and is almost back to target. It should fall further by year end.

Going early meant no interest rate cuts. There could well be two or three later this year after the election.

The government did get in 2 budgets with some tax cuts. It would have been good to have had 3 and to establish more growth for longer to underpin more tax cuts to come. The small VAT threshold increase could have been bigger. Getting rid of IR 35 would have boosted self employment more than the NI cut.

I was told  Ministers were working on all the double counting and misleading entries in the NHS waiting list numbers, but did not complete in time for an early election. Numbers nonetheless were coming down until last month and may well fall further later this year. People who say they need to see a Dr for a review in 6 months time say they are on a waiting list yet of course they do not need an appointment for 6 months. Some entries are double counted.Some no longer need treatment. Many are awaiting first diagnosis, not treatment.

The economy has grown this year though not every month. It will take the lower inflation and lower interest rates to come to boost it, and would benefit from further pro jobs and business tax cuts.

 

Too much debate about who might win

After months of being ignored the BBC invited me on to the World at One to discuss the vote split between Conservatives and Reform! I pointed out I have set out crucial topics like nationalised industry losses, Bank of England disastrous money policy, revealed the public sector productivity collapse, wrote about controlling independent bodies and much else crucial to how we can have lower taxes, a growth strategy and better public services. The BBC resolutely wallows in ignorance of these issues and opportunities. I reminded  them I am an economic and political analyst, not a pollster. I declined to play their game of creating a row between Conservative and Reform.

Their view as always mimics the Lib Dem’s. The country is festooned with their self serving lies with every poster that announces “Winning here”. Past experience and current polls say they will lose in most of those places.The slogan is all about them and their ambitions. It tells us nothing about what they want for our country or how they would serve their electors. They often ally this to nasty personal  attacks on their opponents as they are understandably reluctant to talk about their record in local government or their work in coalition government.

No-one knows how in 3 weeks time many past Conservative voters will vote because they have not yet decided what to do. Currently some say they will vote Conservative, some say Reform, and many say undecided. What the BBC should be encouraging is a fuller exploration of the issues like budget pressures, wasteful spending, public sector losses and the productivity collapse to provide some balance to the parade of left wing experts who all conclude tax rises are needed.

Candidates contesting the election are best advised to ignore opinion polls, which tell the big majority of them they will lose. Candidates need to talk more about the big issues facing us, what they think about them and how they want to serve us. Too many shelter behind party sound bites that close down or skate round debate. Labour’s endless repetition that they have a fully costed and funded programme is a silly way of trying to avoid big issues about affordability and value for money of public services.

Some propositions all should debate

Parties in the election say they want to promote growth and prosperity. Many of them want a bigger tax take to spend more on public sector activities, and to expand what the public sector does. To pay  for this they plead  growth then look around for people and businesses with money to tax more.

In order to break out of the UK’s slow growth boom bust progress of our years in the EEC/ EU under Labour, Labour/Liberal, Conservative and Conservative/ Liberal governments we need to change some stupid assumptions.

1. The Bank of England and  Treasury  know what they are doing and will get it right without political direction.

They designed the disasters of Competition and  Credit Control (early 1979s boom/bust) ;European  Exchange  Rate Mechanism (early 1990s boom/ bust] ; Global banking with derivatives ( 2000 S boom/ bust) and Quantitative Easing and Tightening ( COVID great inflation). Labour invented the overspend, overborrow IMF  humiliation of the 1970 s and added to the 2008 banking crash its  own private finance and public sector borrowing excess.

2. The U.K. can solve global warming by deindustrialising, importing energy and goods that generate a lot of CO 2.

By keeping our own gas in the ground we lose many well paid jobs, much tax revenue, and increase world CO 2 by importing LNG .That helps no one.

3. High levels of migration are good for growth.

We need to look at per capita growth. The Treasury needs to account properly for all the extra capital and revenue costs to house and support a low wage or dependent migrant.

4. Rejoining the EU single market and adopting all its laws would boost growth.

It would do the opposite. Our growth rate slowed on completion  of the single market. It hit innovation and blocked trade with non EU.

5 Our public services would all suddenly work well if we put a few billions more in.

The NHS has enjoyed huge increases in money since 2020, way more than the Brexit bus promise. Productivity has fallen , staff relations have been poor so the money did not buy success.

Who will control these dangerous independent bodies?

I regularly advised senior Ministers to institute proper reporting and accountability for the host of  so called independent bodies that rule us. They usually agreed, yet they seem to struggle to impose the discipline or to find the time to do it.
As a result we have The Environment Agency and Ofwat  responsible for water often unable to stop floods and granting permissions for sewage discharges to rivers owing to a long term lack of investment in sufficient pipe capacity. The Environment Agency wanted wilding  instead of food growing and profitable forestry. The Bank of England charged with keeping inflation down gave us a peak inflation five and a half times target. The NHS England Board insulated the NHS from much ministerial involvement, then denied any responsibility for falling out with the staff or for the build up of waiting lists and the  drop in productivity. Border force was unable to propose and implement a policy to carry throughMinisterial wishes to end the small boats business across the Channel.

The role  of the Minister should encompass an annual budget meeting to review finance and use of resources, agree fee and charge levels and any Treasury payment to the body. It should include a meeting to agree the annual report and review the annual performance. There needs to be special meetings to agree changes of policy and guidance, to lead to Parliamentary statements so we know what is expected of the body. Chairmen and Chief Executives should get bonuses for outperformance, but should not be paid a bonus at all when performance is poor.

Esther Mc Vey was working from the Cabinet Office on improved accountability for these bodies when the election was suddenly called. That work needs to be revived by Ministers after the election.