Let’s reassure BMW

Once the UK runs its own  borders there is no need for the government to impose new checks and delays at our ports to impede motor components. I trust the UK government will reassure BMW and others that it has no plans to delay imported components. It could go further and say the UK place will not place any tariff on motor car components from anywhere in the world, making it easier for manufacturers here. That’s the advantage of running our own trade policy and customs.

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Was the EU really trying to help Mrs May with its change of view?

Yesterday’s well  briefed stories in pro EU UK papers told us the EU is willing now to admit that the Northern Ireland border issues can of course be resolved by technology and checks away from the borders. Just as the Eurosceptics have always claimed, and as the UK government argued at the beginning of the Brexit process, there is no need for new barriers at the border and long delays whilst goods are checked at a border post. In this electronic age the issues of Excise,VAT and safety of product are already sorted out by electronic manifests and checks where needed away from the border. Most does not need physical inspection, as regulated operators file the necessary information so the authorities can do what they need to do without troubling the lorry driver. The authorities only need to do a few random inspections to keep the system honest, or to inspect where there is evidence of possible fraud, as they do today whilst we are still in the EU.

There was a suggestion this was designed to help Theresa May. I did not quite understand that part of the story. Mrs May has been arguing that it is because there is a problem with the Irish  border – a problem many of us say does not in reality exist – that she needs to dream up the elaborate fix of Chequers. The imposition of the EU rule book for goods and the offer to collect EU tariffs for them was designed to remove the need for these things to  happen at the Irish border. If the EU now rightly says there is no such problem  it is difficult to see why we would need Chequers at all.

If we lift the nonsense that there is a problem with the Irish border, then a Canada plus plus trade deal is easy to do if both sides wish. The EU said they were up for a Canada style deal but wished to exclude Northern Ireland, leaving that in their customs union. That was clearly impossible for the UK. If this is no longer their  view, then why not just agree a Free Trade Deal. It is easy to do technically, unlike most FTAs, because we start from a position of having no tariffs and having common standards.

What is strange is the PM is ploughing on with her very unpopular Chequers proposals, just at the point where it seems there is no need for them for the reason originally set out. It may be she knows the stories yesterday were false of course, though they looked well briefed and went to EU friendly papers.  The alternative explanation is she wants to keep us in the common market for goods for reasons other than the Irish border. If so we need to  know why. I see no good reason to make any such proposal.

Meanwhile the IMF is back with bad forecasts for what might happen if we leave with No Deal. Once again it appears a major forecasting outfit fails to understand the positives from leaving without signing the Withdrawal Agreement. There is that £39bn to spend, and then there is the up to £13bn of tariff revenue on EU imports into the UK that can be given back to business and consumers as tax cuts. Any discounted cashflow calculation of the money shows the UK is clearly better off without signing the Withdrawal Agreement. Why do they always leave that bit out, and go for silly models showing big falls in trade that are unlikely to happen?

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Deutschebank reported today as moving assets out of London announced last year it was signing a new 25 year lease on 469,000 square feet of office space in Moorgate London.

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The WTO option is clearly better than Chequers

There are several options for our departure, but if the Prime Minister says the choice has to be Chequers or just leaving, just leaving is best.
The trouble with Chequers is it offers us a detailed and unattractive Withdrawal Agreement followed by 21 more months in the EU with more uncertainty. Many MPs have no wish to pay the EU £39 bn for that.

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End austerity

People are rightly tired of austerity politics on the continent, where it is an integral part of the Euro scheme which has led to deep cuts in pay and jobs in many of the participating countries. It is important the UK uses its freedom outside the Euro to follow a policy that promotes more jobs and higher pay. The good news is that the last eight years have been good years for jobs growth here, but we could do better on the pay front. We have not had to suffer the cash cuts in pay in the public sector seen in some Euro countries.

The UK economy has been deliberately slowed by policy since March 2017 when I first started highlighting the actions being taken. Tax hikes on homes and cars allied with a marked tightening of credit and money did slow the growth rate, led to a sharp decline in car sales, a big fall in buy to let activity and to a big drop in turnover in parts of the housing market. The policies were designed to do just this and they succeeded. We were told this was necessary for a combination of reasons, including the need to be more prudent and the wish to accelerate electric car sales at the expense of diesel and petrol before there were sufficient good value and attractive electric cars to buy.

The government should now relax policy a bit. Take home pay should be lifted by tax cuts, as the current tax take from employee earnings is too big. Stamp duties should be lowered to make homes a bit more affordable. Sensible rate reductions will also boost tax revenue which has been reduced by penal rates. Vehicle Excise duties should be put back to pre 2017 levels, and car loans to buy new vehicles freed up a bit. Business rates, particularly on shop premises, should be reduced.

The public services including schools, defence, the police and social care are in need of more money. They should be asked to submit bids for what extra service they could supply for increased funding, with payments made for good plans for improvement.

The tax cuts and spending increases should be financed from the EU savings, as I have explained before.

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Project Fear caricatures itself

The latest round of Project Fear stories are usually re runs of past versions of the same thing. This time they are often repeated in even shriller and more apocalyptic tones, as the clock ticks down to our exit in March 2019.

Let’s deal with a few of them:

1. They said ” The UK will lose the advantage of the EU policy removing roaming charges for use of mobiles around Europe.” This was often mentioned in the Referendum campaign as one of the few examples of a positive from the EU. This week the main mobile companies confirmed they will not be imposing new roaming charges when we leave! There is enough competition in the market to keep prices down. A company like Vodafone anyway offers free roaming for non EU countries like Norway and Turkey as well as Iceland, a country which cancelled its application to join the EU. It is always wise to check your contract, as the so called EU free roaming may well have a usage limit.

2. They said ” The trade deals the EU has with other countries around the world will cease for us when we leave”. Six countries have already confirmed in an international Agreement they will continue these more favourable terms with the UK after we have left. No country who has signed an EU trade deal has said it intends to cancel it for the UK.

3. They said “There will be delays and queues at the UK ports leading to food shortages”. The UK government has made clear it is not going to impose a new range of delaying checks and procedures at our ports to hold up food we wish to buy from the continent after we have left. Why would we want to do that?

4. They said “The NHS could run out of medicines and we need to stockpile before departure”. No EU pharmaceutical company that currently supplies the NHS has said it wishes to cancel its contract the day we leave the EU! They will be legally bound to carry on supplying us. The NHS and UK port authorities have not announced any new checks or delays they wish to impose on medicines approved here for use here and imported from the continent.

5. They said (Treasury and Bank of England) that we would have a recession in the winter after voting to leave, with 800,000 job losses and a house price collapse. None of this happened, with continued economic growth, record levels of employment and a stable house market.

6. The press say the Bank is now forecasting a 35% house price fall if we just leave without a Withdrawal Agreement. This has recently been denied by the Bank, which is relief, as there is no way just leaving the EU could lead to any such house price fall.

7. Some still say airlines will not be able to fly into London after we leave. The leading continental airlines are busy selling tickets for trips into the UK after March next year, and assure those buying the tickets they will be flying.

How much more of this nonsense do we have to listen to? When will more journalists push back on these absurd stories?

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Ten years on from Lehman – there was an alternative to buying shares in the banks

I reproduce today a post I wrote almost ten years ago, as one who saw the banking crash coming. I urged lower interest rates on March 10 2008, March 28 2008 and finally proposed halving rates on July 18 2008 to relieve the fierce squeeze and the difficulties rates were imposing on borrowers. I argued against the severity of the money squeeze administered in 2008, and argued that bank shareholders and bondholders should take the hit of the losses incurred, with private sector refinancing to create strengthened banks. RBS, for example, had plenty of assets and trading businesses to sell to generate cash and slim its bloated balance sheet. This approach was finally adopted for future crises, with the living wills idea for banks, but was not adopted for the crisis we were living through. As a result it took longer to sort out the banks and additional resentment grew against them given their easy access to taxpayer investment in shares.

We need a better recovery plan

First Published: October 19, 2008

It is usually dangerous when the establishment unites behind a single policy and says there is no alternative. The last time that happened in the UK we were lumbered with the Exchange Rate Mechanism which gave us a rapid inflation followed by a recession.

Recently in the USA the Republican and Democrat leadership united with both Presidential candidates behind the Paulson plan. That plan turned out to be bad politics, failing its first vote in Congress, and bad economics, leading to subsequent modification by its own author.

Today I suggest a threefold aproach to the crisis.
The first is to amend the government’s way of handling its approach to the banking crisis.
I fully support the provison of liquidity and longer term loans to the banks. They must take full security for these advances to protect the taxpayer. The withdrawal of too much liquidity at times over the last fifteen months has intensified the crisis.
The government should not spend £37 billion it cannot afford on buying bank shares. It should refuse to finance the HBOS/Lloyd’s merger, leading to Lloyd’s going it alone in the private market for its capital needs. The Regulators should give HBOS and RBS time to increase their capital ratios, whilst the government makes it clear it stands behind both banks with loans and cash if needed. They could both improve their capital ratios by stopping dividend payments, cutting very high pay and bonuses, reducing staff through natural wastage and other cost reducing measures, and reducing their loan books. It should be their choice which combination of these measures they adopt.
The government and Bank are right to experiment with other ways of lending and using guarantees to get the banking markets moving again.

The second is to get control of the public finances. Cancelling the £37 bllion will help. There are many other ways of starting to control public spending, whilst keeping every nurse, teacher, doctor and teacher and other important public service workers.

The third is to take action to stimulate the private sector, which is crashing downwards rapidly. That means cutting interest rates by 200 basis points or 2% immediately, with the prospect of more to come if needed. It means working with the energy, water and transport industries to see which larger investment projects can be brought forward to provide some work for the construction industry. It means redoubling efforts to help people back into work who lose their jobs as the redundancies build up this winter.

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In search of an agriculture policy

This week the government produced an “Agriculture Bill”. That is welcome, as farmers need to know what rules will apply and subsidies will be paid after March 29 next year if we just leave the EU then.
On reading the Bill, it emerges that it is not such much an agriculture bill as a Land management and environment bill. It seems to assume a 21 month delay in exiting the EU, which may or may not happen. Great emphasis is placed on the state paying taxpayers money for public goods which include public access, upholding heritage , protecting or improving the environment and action which “mitigates climate change”. There is an added provision which is welcome which says “The Secretary of State may also give assistance for and in connection with the purpose of starting, or improving the agricultural productivity” of a farm.

An Agriculture Bill, and the agriculture policy, should primarily be about food production. That after all is the main purpose of farms and market gardens. There is a huge opportunity awaiting us as we leave the EU. Our market share for home produced temperate foodstuffs has slumped from over 90% to under 70% during our time under the CAP. A well designed domestic policy could reverse that. There is no good reason why Holland outcompetes us in a wide range of temperate vegetables and flowers, nor why we should be so dependent on Danish bacon, French dairy products and Irish beef. These are all things we can do more of ourselves. It would be a good environment policy to cut the food miles and satisfy more demand with local produce. It would also ensure good landscape gardening by farmers. Many of us find well tilled wheatfields or lush grazing meadows with herds of cows a great landscape where the farmer provides a good view free to the onlooker whilst also producing the food we need to eat.

I have made representations that more needs to be built into the policy to promote UK home grown food. Mr Gove needs to liaise with Dr Fox at Trade to ensure we have early sight of a good new tariff schedule for an independent UK. Products from farms and fishing vessels are the main items that attract high EU tariffs against the rest of the world. The UK needs to optimise its tariff schedule to provide lower tariffs on some world foods to help the consumer, whilst imposing sensible tariffs against continental competition for the temperate foods we could produce in bigger quantities for ourselves.

The second thing Mr Gove needs to do is to set out in more detail what grants and subsidies will be available for UK farmers wishing to improve and expand in UK food production to assist them with a substantial uplift in capacity that we need as we leave the EU. I was delighted to see recently Chapel Down Vineyard announce its search for an additional 400 acres for new vines, such is the demand for its product. Wine growing adds a lot of value to the basic grapes, and offers scope for much greater import substitution. It will also save a good few drink miles on the transport system, as lugging cases of wine in glass bottles around is costly and generates a lot of exhaust gases. There are many other specialist agricultural areas where we can expand production and add value.

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The collapse of Venezuela

Socialism is paved with some good intentions but can so often end in disaster. I share the wish of socialists to eradicate poverty and hunger, and to create the circumstances where people can live better lives.I agree the state needs to redistribute some income, but it also needs to encourage people to work and to support their own families. The problem is if you try to do this the socialist way, like Venezuela, you end up with far more people in poverty, with people hungry, too many empty shelves in shops and with a need to repress normal democratic politics to prevent a change of government.

Jeremy Corbyn famously told us that Chavez was inspirational. He said that Venezuela’s policy of “fighting back against austerity and neo liberal economics” as we have in Europe showed there was a “better way of doing things. It is called socialism”. So they tried it on a grand scale in Venezuela. They nationalised the oil industry and much else, introduced strict price controls, intervened across the board in business, and sought to make payments to the poor to boost their incomes. They spent well beyond the country’s means and watched as the country’s output sank. They triggered a collapse of output, and a hyperinflation. 2.3m Venezuelans have fled the country seeking a better life elsewhere. Those who remain face daily shortages, rampant price rises, and an increasingly tough government trying to control a people who are far from happy with what has happened.

There are many shortages. These result from too many controls on private business and too much interference from the state. Venezuela has the largest oil reserves of any country in the world. It should be a fabulously rich country, with access to so much oil wealth and revenue relative to its population. Instead the nationalised industry could not keep output up. Today the government is having to look at letting the private sector back in to try to recover damaged wells and increase output from run down fields.

If you introduce price controls you end up with less output. If you print too much money to give to the poor you end up robbing them through a massive inflation. If you borrow abroad against your country’s assets in foreign currencies, you struggle to honour your debts when your own currency collapses. This is the price of socialism. What does Jeremy Corbyn think now about the inspiration of Venezuela, the better way he was looking for? The USSR “better way” required border guards to shoot people who tried to leave. Venezuela now depends on the goodwill of its neighbours to take in the hundreds of thousands crossing the border to find some food.

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There are other options to Chequers

One of the most bizarre lines the government is currently using says there is no alternative to Chequers. The government knows full well there are other options. After all it is working on one itself which it tells us will be ready by March next year, the option of leaving without a Withdrawal Agreement. This one avoids payments of £39bn and allows us to choose our own tariff schedule for trade under WTO rules with the EU like the rest of the world.

There is also the Canada plus plus plus deal. This would entail leaving with a Free Trade Agreement with the EU based on the one Canada has recently signed, with additional barrier removal thanks to starting from a position of few barriers as members of the same customs union. There could be no tariffs rather than the few tariffs that remain in the Canada one. There could be a better range of services agreed given we start from a common position on services. There could be a security partnership added. The EU has offered a Canada style free trade agreement, only with an unacceptable position on Northern Ireland. It should be negotiable to persuade them that there is an easier solution to the Irish border problem than the EU makes out, so the Free Trade Agreement applies to Northern Ireland alongside the rest of the UK.

David Davis was working on an alternative to Chequers in the Department before his resignation. Presumably the government recognises that as a possible option. The government is doubtless working on an alternative to Chequers that might command the support of the EU , given the substantial objections they have made so far to the proposal.

There’s four options that are not Chequers which the government has worked on, so it’s not sensible to say there is no alternative.
There has also been a campaign to ask the ERG to produce their proposal instead of Chequers. Yesterday the Group presented research to show that the Irish border is not a problem that requires Chequers or the EU backstop. If you accept this detailed proposal, then the other options become possible and the need for Chequers falls away.

Various think tanks have also produced plans. My view is leaving without signing the draft Withdrawal Agreement is very difficult to beat. Saving £39bn and completing exit next March to end the uncertainty looks like a good plan to me.

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  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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