John Redwood's Diary
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The European Political Community

Bizarre that the U.K. hosted the meeting of 46 leaders of European countries at Blenheim. That great British victory against France and Bavaria was an important part of a war ¬†against Franco Spanish attempts to dominate Europe. Stressing the associations with the Churchill family made everyone think of the U.K. ‚Äės role in thwarting a later German plan to dominate Europe. These are unhappy memories of Europe‚Äôs centralising ¬†thuggish tendencies and of the great loss of life resisting them entailed. Far from showing the U.K. as a friend and partner it reminds of times when the U.K. stood for self determination of people‚Äôs and states against those who wanted to create a European tyranny.

Today most of the Europeans assembled wanted to believe they are more united. They were willing to give the time of day to the U.K. offer of closer friendship without making any positive moves of their own. It was a mistake to think this was an occasion to reboot the U.K./ EU relationship when there were 18 non EU members there as well and when Commission President Von der Leyen was absent seeking votes from the European Parliament to keep her job.

The EU / U.K. relationship is set out in ghastly legal detail with the EU wanting to enforce it in ways that suit them. It is not normally a way to a happy marriage for the bigger partner to make the smaller sign a pre nuptial agreement they do not like, nor does it help the marriage if either partner wants to renegotiate. If the government does want to change the costly and unsatisfactory Treaty it will find changes come at a price which will not be worth offering.

The government would be wrong to enter a defence treaty with the EU. Let us stick to NATO and collaborate through that. They would be wrong to join Horizon and other EU programmes, It is cheaper and better to run our own. They are quite wrong to think being closer to the EU will boost our growth rate.The  EU is mired in slow growth and no growth. The single market is no free market. It is a rule bound  customs Union that is hostile to innovation and small business.  By all means have a growth strategy. The more you divert from the EU model the faster you can grow.

The need to reform economic targets to get faster growth

 

I have written to the Chancellor wishing her success in getting the U.K. economy to grow at the fastest pace of the G7 economies. As she says if we achieve that we can afford better public services and infrastructure. We should also boost the after tax incomes of the many and help business grow profitably.

The task is difficult but not impossible. The U.K. along with the other large European economies in the G7 have fallen way behind the USA in GDP per head, with a much slower growth rate this century. The US has raced ahead on the back of nurturing seven world beating digital giants, going for cheap fossil fuel energy produced domestically which it is also now exporting to Europe, and demonstrating leadership in many areas from pharmaceuticals to defence equipment. The U.K. has higher GDP per head than the EU, and has done relatively better at pharmaceuticals and digital technology than the continent.

I suggest the government look again at the control framework for the U.K. The US has twin targets of 2% inflation and growth in jobs and activity. The U.K. government could regard the 2% inflation target as binding on itself as well as the Bank, as government decisions on pricing public services and managed prices have a direct impact on inflation outturns. It could then complement that with a growth target. 2% would be an attainable improvement on the past. Maybe they would need to adopt 2.5% to give us a good chance of outgrowing the US in the years ahead from the lower base.

Of course government should consider OBR forecasts of debt and deficit, as both need to come down as a percentage of GDP. Relying  on their fifth year forecast is not such a good idea, as it is impossible to forecast accurately. If the OBR is too pessimistic it limits unduly choices to pay for a growth strategy.

 

 

 

Scrap the targets

I am a great believer in democratic parties and leaders telling us clearly what their aims are, and explaining the principles or beliefs that will help guide them. I am a critic of the modern craze to govern by targets.

Let’s consider the target to spend 2.5% of GDP on defence. The aim should be to ensure our country is well defended and can make a good contribution to the NATO alliance. We need first to ask what forces we need, not how much we must spend. If GDP falls or grows slowly the target means we have less defence, whatever the need.

A similar set of objections relates to the target of spending 0.7% of GDP on oversea aid. When this was in place the U.K. ended up backing projects of questionable worth and giving large sums to the UN and EU to spend in ways we could not control.

Worst of all is the deeply damaging national CO 2 target. This is encouraging all 3 main parties in Parliament to back closing down energy and industry in the U.K. to hit our domestic CO 2 target, only to import fossil fuel and industrial products so more CO 2 is generated elsewhere than we save.

The government’s target of growing faster than any other G 7 country is a good aim. It however depends on what 7 other economies do which we do not control as well as on what we do. Were they all to go into recession or slowdown beating them does not give us much growth.

Setting  a target to get NHS waiting lists down a more sensible target as it is under government control and not relative to external events.  Even this has proved to be beyond the U.K. public sector to deliver despite record NHS funding.They cannot even collect and publish reliable and relevant figures on how many are waiting for what. If you want to manage something that is under your control it helps if you can measure it accurately and watch progress.

Cheap energy boosts growth

Cheap plentiful energy is crucial to GDP growth and to the success of any industrial strategy. China achieves it both by relying too much on dirty coal and by buying plenty of discounted oil and gas from countries that are sanctioned by the West for their wars and aggressions in world politics. The USA has achieved it by finding and producing huge quantities of relatively cheap oil and gas for her domestic market, and exporting the surplus to an energy short Europe. Europe has bene lefty struggling with scarce and dear energy. Germany for a time did well out of reliable piped gas from Russia, only to have to make fundamental changes in the wake of the Russian invasion of Ukraine. Relying more on spot market prices rather than agreed long term contract gas proved expensive and troublesome.

The UK has gone for some of the dearest energy in the world by adding to the market costs of the oil, gas and renewable electricity it produces or imports substantial carbon taxes and windfall taxes on producers, and VAT on fuel users. The UK decision to run down its own North Sea oil and gas fields earlier than nature requires has added to costs and imports. The decision to make it difficult or impossible to look for more oil and gas and produce it onshore has added to the strains. The m sot obvious thing a government should do that gives priority to economic growth is to be positive about finding and producing more domestic oil and gas top replace imports. This would not add to world CO2 but reduce it, saving the transport and gas liquefaction generated CO 2  on the imports.  A larger UK oil and gas sector would generate a lot of better paid jobs, boost overall UK productivity and contribute substantial tax revenue to the Treasury.

The UK needs to be realistic about the costs of early switching of electricity to renewables from gas. There needs to be more progress globally with improving and lowering the cost of storage of power generated when the weather is good for the purpose. There needs to be proper accounting for the costs of stand by gas power stations for days when wind and sun disappoints. Maybe there needs to be a general move to synthetic fuels s is planned for aviation, so the extra renewable power can be used to manufacture hydrogen and other derivatives that are storable fuels. Green jobs or green led growth will require decisions on what are the winning and affordable technologies and then government assistance in their roll out. Do we, for example, want a full roll out of charging points for electric cars, or would it be better to roll out hydrogen fuel distribution as it will be needed for trucks and could be sued for cars as well, just as petrol and diesel are today.

The immediate task for an Industrial strategy must be to get the taxes and prices for fuel down for manufacturers. The UK is losing its steel industry, has lost all but one of its aluminium plants, is losing ceramics, cement, paper and other heavy energy users thanks to skyhigh energy costs.

The battle to oppose

Nigel Farage bid for seats in the election by saying he would lead a strong opposition to the likely Labour government. The Conservatives countered by saying only they could win enough seats to form a strong opposition, which is manpower hungry in a Commons full of debates, committees and question sessions that need staffing.

It will be interesting this first week in action for the new Parliament to see who does best oppose. Reform start with many institutional disadvantages that come from having so few MPs. It means if they want to be a more visible and sometimes audible presence they will need to be there all the time, rushing from debate to committee to Westminster Hall to cover the ground.

The Conservative Leader will get 5 questions at every PM Questions, and the Lib Dem’s will follow as third party. Reform  MPs will get occasional chances of a single question  like other backbenchers but will not get a weekly slot.  The Conservative  lead will get first slot with time for a considered response on  Statements and main debates. Conservatives will be represented on all Committees. Reform will only be on a few committees and will be lowly ranked for main debates and Statements.

This week Nigel Farage will have to find a way to make an impact on the King’s speech debate, the crucial debate about the new governments plans and legislation for the upcoming year. Will he be able to speak on the first day sometime after the PM , Leader of the Opposition and other senior MPs/ Privy Counsellors? What will be his main thrust? Will he have briefed the press and given interviews in advance, chancing what might be in the speech? If he speaks later it will get less pick up without pre briefing. Will other Reform MPs try to speak on later days of the debate to cover the different topics highlighted, as the official Opposition will do? The government speech appears to have been much briefed or leaked.

The Leader of the Opposition has time, stage and audience to make an important speech in the first response to the PM. It will be in good time for early evening broadcasts and for the Thursday papers. He needs to deal swiftly with the past and the election, moving on to tell us what they agree with and what they will oppose in this government’s approach. Today should be an important day of preparation and briefing for both Mr Sunak and Mr Farage.

There is plenty of taxpayers money being spent, but not well

It is quite wrong for people to say this is the worst financial inheritance for a government. U.K. finances were much worse in 1979 after Labour’s visit to the IMF for a bail out and aggressive over spending and borrowing. It was worse in 2010 when the outgoing Labour Chief Secretary to the Treasury said there was no money left. The U.K. was wrestling with recession and near bankrupt commercial banks needed hugely expensive  taxpayer rescues.

In 2024 we have just witnessed 5 years of a large increase in public spending, partly paid for by tax increases. There is plenty of money being spent, but a lot of the spending is misdirected or wasteful.The government needs to sort out spending priorities and redirect cash.

It should tell the Bank of England to halve its losses. That would save taxpayers around £15 -20 bn a year. Following European Central Bank policies would save us by not selling bonds in the market and reducing the running loss on holding bonds,

It should aim to get public sector productivity back up to 2020 levels within two years, when it would then be saving £20 bn a year.

It should make a major reduction in legal migration for lower paid jobs, allowing substantial savings on social housing capital and revenue budgets and all the other capital and revenue costs extra people bring.

There’s a £50 bn redirection to allow government to pay medics more and to build more new public sector facilities.

 

The PM should ring Donald Trump

The attempt of an assassin to kill the front runner in the US polls was a direct assault on democracy that all who believe in democracy should condemn. The Prime Minister should pick up the phone to Mr Trump, ask how he is and send the UK’s best wishes that US political arguments are settled in the court of public opinion and in the ballot box.

How should Conservatives oppose?

I have  heard a couple of Shadow Cabinet members on the BBC setting out the Opposition position. They clearly found it difficult. They rightly sounded chastened by the electoral disaster that beset them. They apologised and sounded contrite.

They do however have a vital role to play. In a Parliament where 34% of the voters have such dominant representation and where the third largest party largely agrees with the government, the 121 Conservatives need to provide strong criticism where the government is wrong and a good alternative where its laws and policies will not work.

They need an early agreement amongst themselves as to why their candidates did so badly. They need to apologise for the bad errors that led to the result and move on to the current world. They should not apologise for everything and accept  the blame for all the problems Labour will now expose and blame on the previous government.

The three big mistakes I think they should apologise for are the boom/ bust inflationary cycle Bank and Treasury delivered, the huge overrun of migration which they should have controlled and the collapse in public sector productivity 2020 to 2023 which pushed up taxes and worsened services.

In Opposition they should support the government’s aims of the U.K. growing faster than the rest of the G7, of providing  high quality public services and promoting opportunity for all. Where government does good things that support these aims they should back the government. I will set out in a later blog where they already need to oppose and warn, as early policy announcements will take Labour further from these aims.

Letting people out of prison

Prison is essential for criminals who threaten our safety. Terrorists, murderers and all who attack people violently should be given custodial sentences to protect the rest of us from their attacks. They should serve more than 40% of the sentence before discharge. There should be no early discharge for anyone who might revert to violence on leaving prison.

It is more debatable what to do with offenders who steal. If someone fails to pay the BBC licence fee it should not be a criminal offence. It should be treated as an unpaid invoice. There should be legal redress for the BBC to demand payment, and to send in bailiffs if all else fails.

If a thief stole my car I would like him to have to buy me a replacement. I have no wish to have to pay for him to stay in prison if he could stay in work and pay compensation out of his wages. Punishments need to fit the crime. If he cannot work and pay then a stay in prison to put him through training to make a more useful contribution to society would be a good idea.

Prison has three purposes. It is used to protect the rest of us from those who would harm us. It is a deterrent to people contemplating a crime, though only if the clear up rate of such crime is suitably high.It is a means of trying to help people change their lives for the better when they come out. It has proved bad at this last.

Prisons need to be drugs free, with a disciplined environment. Overcrowded prisons in old buildings struggle to be effective.Parliament is too ready to create new and additional criminal offences. Most people want the law enforcement system to concentrate on violent offenders, and tackling the big scam gangs who are milking the benefit system, robbing on line commerce and banking and bringing in thousands of illegal migrants.

The U.K. will not grow faster if we close industries down

Did the Net Zero Secretary get the memo that the government wants us to be the fastest growing G 7 economy? Up he pops to halt new oil and gas development.

Between 1990 and 2021 the U.K. slashed output of energy from 219 million tonnes of oil equivalent to 106 million. The gross value added of energy to our national income and output slumped from 10.4% of our economy to just 2.5% No wonder our growth rate slowed. Energy production had boosted our tax revenues mightily and raised our productivity. As Labour closes down our oil and gas we will lose jobs, tax revenue and productivity. Jobs in energy have collapsed from  600,000 to 175,000 over 40 years. There was more oil and gas to find and exploit, onshore and off.

Some say the green replacements will offset. Truth is we are replacing home gas and oil with imports, losing all the jobs and tax revenue to abroad. Where we put in more wind turbines and solar panels  much is imported, creating jobs in China, not here.

If the government is serious about wanting a higher productivity better paid faster growing economy it should want to expand our oil and gas industries. That will help growth. It would also cut world CO 2 as we shed imported LNG. LNG generates so much more CO 2 to compress, liquefy, transport and re gassify. Why do all this when you can have local gas down a pipe?