Speaking for England

The ONS published its latest balance of payments data on 29 September. This included a final table which showed that the ONS have revised their view of how much UK investment abroad is worth relative to how much overseas investors have invested in the UK. Some have now suggested these figures show the UK has “lost” £490bn.  This is an odd way of looking at it. The figures show an increase of £334bn in inward investment, which of course is a figure that is taken off our overseas assets to derive the net figure. It does no however mean we have got poorer!

The maximum downward revision to the net figure was for the 2016 figure (£490 bn), with the bulk of the downward revision relating to a period before the referendum vote. The main reason for the downward change in the net figure arises from strong inward investment in 2016 accounting for an extra £334 bn investment.

I have often referred to the large  balance of payments deficit we have been running, and pointed out that an important part of our net outflows arise from the substantial contributions we make to the EU and from our large overseas aid payments. I have often argued to stop the EU payments, to up the UK content in the overseas aid spending where the money cannot  be spent in the country we are trying to help, and to follow policies which promote more import substitution. All the time the UK continues to send large sums abroad, and to run such a large trade deficit with the EU, there will need to be continuing inward investment into the UK to pay the bills. Alternatively we will have to sell overseas assets to pay for the imports and the remittances overseas. Either of these ways of paying for the trade and payments deficit will tend to reduce our net overseas asset position.

This is nothing to do with Brexit.The biggest part of the deficit is trade with the EU and payments to the EU.

It is also a reminder of how much trouble the ONS have in measuring things like the stock of overseas wealth held by UK people and institutions, which they have recently reduced as they change their way of estimating. They also have  difficulty  in knowing how much overseas investment has been committed here. Those who think Brexit has caused the fall in the pound should of course acknowledge that so far if this is true Brexit has helped swell the net overseas asset figure, by increasing the sterling value of foreign assets. Readers of this site will know I do not think Brexit is the main reason for the fall of the pound since 2015, nor for that  matter for the recent rise of the pound against the dollar.

The Uk currently runs a massive £20bn trade deficit in food with the rest of the EU. In 1984 the UK was 78% self sufficient in food. It produced 95% of all the temperate food we needed at home. The early years under the EEC had been fine for farming. Then the EU put in milk quotas and other restrictions on us which began a long decline in our ability to sustain home production.  The Common Fishing Policy led a fast decline  in our fishing industry. We have seen home production  fall from 78% to 60% of our needs. We  now import more than a quarter of the food of the kind we can grow or produce for ourselves. This is despite having one of the best climates for growing what we need.

Under the milk quota system which lasted 30 years from 1984 the UK only had half the milk quota of Germany, and ended up importing a lot of processed milk products from the continent. The Danish pig industry, the Dutch market gardening and flower businesses and many others made  big inroads into our home market. Our fishing grounds were taken over by the whole of the EU under the Common Fishing Policy. We changed from landing  1 million tonnes of fish in the year we joined the EEC, to landing just 400,000 tonnes last year. The UK became a net importer of fish, after years of being a  net exporter with one of the richest fishing grounds in the world. The large quantities landed elsewhere meant we needed to impose more restrictions on the total catch.

When we leave the EU we will be able to design a fishing and farming policy that allows us to sustain higher levels of home production. It will need further investment. The UK could do more food processing to add value to the staples supplied by the farms. Much of this can be done through co-operatives or processing businesses working in partnership with the farms. Where farm size is relatively small mechanisation will also require collaboration, joint investment or rental agreements to mobilise the high powered and sophisticated machinery that can  now automate farming and make it more efficient.

The UK is extending the growing season for everything from asparagus to strawberries by polytunnels. We presently only produce one fifth of our own apples, but have the techniques to greatly increase the output and the durability of the apples over a longer season. All this will be accelerated if the EU does opt for WTO tariffs rather than carry on tariff free as we propose. Only in agriculture are the tariff barriers potential high. They would require a rapid response from UK farms to fill the gaps caused by dearer EU product, rather than seeing us buying more from non EU sources overseas. Even without tariffs following the recent strong performance of the Euro against all major world currencies including the pound, UK farmers are in a good position to expand. Doing so cuts food miles, gives us the pleasure of local produce, and eats away at that colossal food deficit the EU has given us.

The pro EU media and papers in the UK wrongly reported both the UK and the German elections. They told us Mrs May and the Conservatives lost the UK election, whilst Mrs Merkel won the German election. It is a good idea instead to consider the actual results, now we know the final tally of top up seats in Germany.

Let’s take the popular vote first of all. Mrs May and the Conservatives won 42.4% of the popular vote. This was up by 5.5 percentage points from 2015, and was the  highest proportion of the vote taken by the Conservatives since Mrs Thatcher in 1983. That was a Conservative win.

In contrast, Mrs Merkel’s combined vote for her CDU party and her coalition sister party the CSU fell by 8.6 percentage points to just 32.9%, a new low. Mrs Merkel’s own CDU only polled 26.8%.

Mrs May stayed as Prime Minister, with many more seats than the next placed party. Mrs Merkel may stay as Chancellor, but has a lot of work to do to get the votes in Parliament to support her

Then let us consider seats lost. The Conservatives in the UK lost 13 seats, taking them down from 330 to 317. The CDU/CSU lost 65 seats, taking them down to 246. The CDU alone lost 55 seats.

As a result of the German system Mrs Merkel with her CSU allies control just 34.7% of the seats in the newly expanded 709 seat German Parliament. Mrs May and the Conservative party control 49.4% of the seats in the UK Parliament.  Mrs Merkel’s own CDU only has 26.8% of the seats.

Mrs May and the Conservatives in coalition with the DUP have a majority of 14. Mrs Merkel needs to mend her relationship with the CSU, and persuade the Greens and the Free Democrats to enter an arrangement with her in order to construct a coalition.

It is commonly assumed that the May-Merkel exchanges will be very influential over the outcome of talks about the UK’s future relationship with the EU. Doubtless Germany, as the largest country and economy in the EU and the largest paymaster of the EU, will continue to be more influential than its overall percentage of EU Council and Parliament votes. However, it is also likely to be the case that Mrs Merkel will find it much more difficult to offer decisive leadership given the need to make more  demanding and more frequent compromises over the German position  to keep a coalition going, assuming she is able to form one.  In contrast Mrs May’s DUP partners are likely to be solid on Brexit, as they were a pro Brexit party in the last election.

Amidst all the drama of nothing happening in the Brexit talks the government announced it is going to legislate to place a price cap on energy prices. It wishes to instruct Ofgem to control prices of standard variable tariffs. It argues that the energy market is very damaged already by a range of government interventions and by the behaviour of some of the companies involved. As many customers do not switch from standard tariffs to the cheaper ones on offer, the government thinks the Regulator should step in and force prices down where they are high.

The companies respond that the market has plenty of competitors and people can shop around for lower tariffs if they wish.  They also say they will abolish some of the lowest tariffs in response to any price cap on standard tariffs to limit their loss of revenue from these changes. The Regulator is unlikely to be able to stop them doing that.

So what do I think about all this? I welcome the aim of getting prices down for people. The legislation is likely to prove very popular in the Commons, with Labour  liking the approach. Cheaper energy is a necessity  b0th to boost people’s living standards, and to foster an industrial revival which would thrive on cheaper fuel.

I think the longer term solution to cheaper energy is to promote more market competition, and to reduce the number of government interventions in the market that favour dearer energy solutions. It would also be good to revisit VAT on domestic fuel once we are out of the EU, as this tax is a further cause of expensive energy. We should get on with producing more of our own gas, as at the moment gas asfeedstock and fuel for industry has to be imported.

Mr Juncker is trying to lay down the law to the UK. He says unless we agree firmly to send the EU a vast sum there will be no talks on trade.

He might as well have said  there will  be no talks on trade.

The UK must not give in and offer a large payment. We have no need to pay for talks they are meant to hold. We do not owe them any money after we have left.

Mr Juncker says if you order 28 drinks and then one drinker leaves, he must pay. Yes, but only for his drink, not for all the others. That is exactly what the UK will do. We will go on paying for our own drinks and for a proportion of the other’s drinks up to departure. Once out we will buy our own drinks, and they will only need 27.

If the EU wants to trade with us on WTO terms this is the way to secure it. If they want to keep tariff free access to our market then they need to start talking about how we might do that.

The news yesterday  that Mr Barnier does not think there has been enough progress was in a way a relief. The only progress the EU will currently recognise is a firm UK offer of large sums of money we do not owe. As long as we continue to decline to offer cash, they will probably come to the conclusion they need to talk trade as it is in their interests to continue tariff free. If we start to offer cash they will hang tough for longer. I was delighted to see the UK electorate are better bargainers than the Parliamentary Opposition. 74% agree that No Deal is better than a bad deal, the only way we have a negotiation that gives us great leverage. The way to end the uncertainty is to prepare for No deal and to show we are ready to leave in March 2019 whatever the response of the EU.

I am writing about this again today, knowing some of you think I write too much about Brexit and others complain whenever I do other topics. I do so today because this is an important moment ahead of the EU Council, when the UK needs to stand firm to avoid drifting to a bad deal.

The PM is clear that we only have a transition period if there is an Agreement to transit to. She has also said No Deal is better than a bad deal. She does not want transition to be any longer than is needed for implementation, and argues implementation times may be different for different clauses of any  Agreement.

There are growing demands amongst Brexiteers not merely to pursue No Deal as a prudent contingency plan but to pursue it as the main plan. The EU might then decide it wanted to offer something better to us in its own interests. It would also avoid the problem of UK negotiators ending up offering too generous a settlement.

There are four big worries about relying heavily on eventual Agreement. The first is money. One of the main prizes of leaving the EU, as advertised prominently in the Referendum campaign, is the right to spend our own money. Giving away two more years of net and gross contribution delays any benefits and leaves the UK Treasury very tight for domestic programmes and tax cuts.

The second is the ability to make our own trade arrangements. If other countries think the UK will not be able to sign a trade deal for another three and a half years it removes the enthusiasm and urgency currently around to get something done. If the UK is not in control of its own regulations it limits the ability to negotiate a services agreement with others.

The third is the issue of powers. The PM was clear in the Lancaster House speech and White Paper that leaving the EU meant leaving the jurisdiction of the ECJ. Imposing the Court on ourselves for another two years limits our legislative as well as our judicial independence, as the ECJ is superior to Parliament.

The fourth issue is the ever growing volume of EU law. The EU could use a long period of transition to impose on us and our businesses a whole range of new legislative burdens designed to help the continent or to hinder business generally. Once we are out any new burdens only apply to our business with the continent in line with the requirements they impose on themselves, and no longer apply to the dominant domestic business or exports to the rest of the world.

These serious concerns are turning more people to see advantages in No Deal. That will produce a world where we can change regulations for domestic  and  non EU business , can sign trade treaties, spend our own money and be in charge of our own laws. We can have, for example, a fishing policy that works for us. That would be a popular early win from a clean departure on March 29 2019.

The government rightly told us this week they will work up their plans for trade and border movements if we leave without a Deal. The good news is that much of the work we need to do to improve our borders and upgrade capacity need to be done with an Agreement as well as without one. The UK is currently spending money on a lorry park in Kent for days when French strikes disrupt cross channel freight, and spending on electronic systems for smoother transit. These systems have to be able to handle both tariff free EU trade and trade with non EU countries with tariffs. We need to make sure there is sufficient capacity on the non EU system in case we leave without a trade deal. There is a £400m plus budget to do what is needed.

I found the comment of the Chancellor surprising that he wishes to limit spending on this. It is urgent and clearly a priority, whether we leave with or without a deal. The Prime Minister in Questions yesterday made it clear the government will  authorise all necessary spending. The government does need to provide in a timely way for our exit. Every matter we can fix before March 2019 is a matter we do not need to ask for delay on from the rest of the EU. There is no reason why they should grant us lots of delays, and every reason to expect they would want us to carry on with contributions to the EU if we seek to delay. The Treasury needs to understand that saving £12bn a year of net contribution is the biggest saving we have in prospect, and far in excess of any sums needed to have smooth functioning borders after March 2019. Getting a system which works from March 2019 will  be cheap at the price.

The Treasury have a dreadful record on Brexit. They backed the losing side. They made a series of forecasts for 2016-17 which were very wrong. They are still exuding pessimism at every available opportunity. The Chancellor needs to get them to cheer up, have new and more realistic and optimistic forecasts, and to find the money we need for a successful and growing economy post Brexit.

The EU is labouring under various misapprehensions about the UK. It seems to think if it hangs tough the UK will make more generous offers. It feels it has no need to engage on trade as if their access to our market will stay the same whatever the outcome of the talks. They need to realise if we leave without a deal we will put in the current EU tariff schedule  with the EU  outside our border paying the tariffs  to comply with WTO rules.  They apparently think if they block an open border proposal made by the UK for Northern Ireland the UK will give in and agree that all or part of the UK has to stay in the customs union.

It is in everyone’s interest involved with the Republic of Ireland and N0rthern Ireland to uphold the various Agreements and to retain an open border. The UK has set out clearly how that can be achieved. Outside the customs union the UK would have an electronic border for the goods of recognised traders, allowing their trucks through without stopping through number plate recognition against filed documentation  in advance. Small Irish and Northern Irish traders regularly crossing the border would be exempted from tariffs and other new barriers. We will install this unilaterally if there is no deal. The EU will have to decide if it wants to put up its own more restrictive border on the Republic side. The Republic of Ireland needs to sort out with its EU colleagues just how they will operate their side of the border.

The papers published on Monday on Customs and Trade make clear the UK has a solution for our borders with No Deal or with a Trade Agreement with the EU.  We will adapt the current registered Economic Operators approach, so most of our trade will be notified in advance of the truck or container reaching our port.Goods from approved traders will go straight through without extra customs checks compared to today, with any duty settled electronically as part of the account. Ro Ro ports which mainly handle EU trade will be brought within this same system as EU trade becomes foreign trade if we have no deal.

The UK government is well advanced with changing EU trade agreements with other countries into UK trade agreements with those countries, as it is entitled to on splitting from the EU. There is no cliff edge. A Transition period may only be needed if the EU and the UK come to a late agreement next year which requires computer and physical changes to our border arrangements that need time to implement. Getting on with implementing a customs and border check system for No Deal covers most of the issues anyway.

There is growing resistance amongst Brexit voters and many businesses to the idea of a long further period of delay. Uncertainty is reduced by preparing for No Deal in ways which allow a deal. If the EU as I fear says the UK has not done enough to warrant trade talks anytime soon the government needs to redouble its work to make a success of No Deal. Maybe then the EU will see they have overplayed their intrinsically weak hand.

It was Brexit day again in the Commons yesterday. The EU continued its  miserable commentary. Earlier this week it talked up talks  with Mr Corbyn in the hope that would split the UK. Yesterday they decided to reject the PM’ s friendly offer.

Prime Minister set out where we are with the talks. Good progress is being made on issues including healthcare, the Irish border and the rights of EU citizens in the UK and UK citizens in EU countries. There is no meeting of minds on money, and no agreement yet from the EU side to talk about the future relationship.  From the UK’s point of view there is nothing to be gained from the so called divorce, and every reason to discuss all relevant matters about the future as soon as possible. We would not need any implementation period if we  used the remaining eighteen months before exit intelligently.

The Prime Minister is right to remain optimistic, positive and friendly, offering a good future partnership on trade and security to the other EU states. She is also right to plan for No Deal, as she stressed she is, just in case the EU continues to overplay its hand by resisting talks about the future relationship in good time. Showing No Deal can work  is not only  prudent in case the talks fail, but also sensible as it reminds the EU that an Agreement is only worth having if it is better than No Deal.

It never ceases to amaze me just how much the media make of no news on talks. There could  be months more of this shadow boxing. We may not know for a year whether there is going to be a deal or not. We must use this time to show business how trucks will move through ports, planes will fly, financial services will be traded and laws will be enforced after 30 March 2019 without a deal. There is no cliff edge. The rest of the world trades with the EU without belonging to it. The UK can transfer its trade account from Brussels to Geneva and to the WTO where we will be welcomed as an advocate of free trade, and can use the various agreements and protocols of that organisation to ensure smooth trade.

I have spent the last three weeks with Parliament in recess talking to various business audiences  and in meetings to hear the worries of traders. No new issues have emerged above the ones we have often discussed on this site.  It is a pity the EU cannot put in place a proper mandate for its negotiators soon, as there are good ways of improving on No Deal that would help both sides. The issue the EU has to get round to answering is how many barriers and tariffs do they wish to place on their trade with us, bearing in mind they are limited in what they can do by world trade rules. It is bizarre that both sides say they support free trade and prosperous commerce, and both agree they have a good basis for trade at the moment. So does one side, the EU side, really want to damage it?  If they do they will find they do more damage to themselves than to the UK, given the big imbalance in trade and the nature of the goods and services traded.

Meanwhile as the PM reminded Parliament voted to take back control of our money , our laws and our borders. The government has  to deliver that as soon as possible. Its such a pity the EU overplays its weak hand, which takes the EU closer to facing self imposed barriers on its access to our lucrative market.

Being neither a Spaniard nor a Catalan I do not take sides in the current political dispute over the future of the Spanish Union. I am interested, because it goes to the heart of the identity politics that have come to play a more prominent role in recent years throughout the EU area and in bordering states like Ukraine.  The EU itself where we remain members until 2019 has expressed a view, supporting the rule of law of the Spanish Union against the subordinated democratic Parliament of Catalonia and its wishes.

If the Spanish state had approached the Catalan independence movement as the UK Parliament did the Scottish independence movement, there may well have been a referendum in Catalonia that gave a victory to the Union. Instead the Spanish state denied Catalans a legal referendum under the Spanish constitution, and tried to prevent by force the referendum organised by the government of Catalonia which did not enjoy the legal backing of the Spanish Parliament. The use of force to close polling stations and to prevent people voting created bad scenes for world television, and has led to adverse comment when the Spanish Prime Minister claimed the force shown was proportionate. It seems likely that more Catalans would now vote for independence than before recent events.

This week the world waits with bated breath as the two sides plan their  next move. The Spanish state could use the national constitution to close the Catalan Parliament and demand new elections, or could seek to close down devolved government altogether. The Catalan government might  declare independence based on the results of its recent referendum even though this would be illegal under the national constitution. The Catalan nationalists might claim they had a popular mandate from their own elections and from the referendum, and were forced to act against the rules of the Spanish state owing to the unwillingness of Madrid to offer them legal means to pursue their democratic objectives. Would the Spanish state then seek to arrest the Catalan politicians? Would the Spanish state seek to displace police and officials loyal to the Catalan government, with police and officials loyal to the Union government?  We all hope this can  be handled peacefully without large demonstrations getting out of hand. It looks today as if  both sides want the other to make the next  big move, as they are engaged in a battle for support from those not strongly committed to either side.

Opinion is now split three ways in Spain. In Catalonia itself there is a strong movement for independence, though there is no definitive vote to tell us the true balance of opinion for or against. In Spain outside Catalonia and the Basque country there is a strong block of opinion behind the proposition that the state should enforce Spanish law against the Catalan government. There is then an emerging third force throughout Spain that wants the two sides to talk, to try to find a legal and democratic way through. The Spanish government does not welcome this, as it wishes to take a tough line to what it sees as a simple matter of law enforcement.

The Spanish government has facilitated businesses who want to take the precaution of switching HQ from Catalonia to somewhere else in Spain. This may be just to increase pressure on the Catalan government, as it is otherwise a sign that the Spanish state thinks secession possible. The Spanish state needs Catalonia, as the region contributes around 20% of Spanish national income whilst receiving around 11% of public spending.

This conflict evokes memories for some Spaniards of troubled twentieth century conflicts between Catalonia and the Spanish state. It highlights how the rule of law is  the important underpinning of free societies and prosperous democracies.

The rule of law  is a necessity for a flourishing commerce and for the safe enjoyment of people’s property and family lives. This rule of law depends on the consent of most of the people most of the time to the origins of that law in Parliament, and to the special powers of police and the courts to uphold it. These deep disputes about identity threaten that framework. If enough people in a democracy say they no longer accept a given Parliament, backed by a police force and court system, as the originators and enforcers of their rule of law, the politicians do have to work out how they can design a new framework which does command respect. If a small minority break laws they find inconvenient the state has an enforcement problem and the support of the people to enforce the law. If a majority of people no longer accept the law of a democratic  state the state has to think again.