Author: johnredwood

Governments tax tobacco to stop people smoking. They tax alcohol to limit people drinking. They tax petrol and diesel because they want us to use less. They tax plastic waste to get rid of it. They tax flying to reduce it. You get the idea. Government knows better than people what is good for us and imposes taxes to restrict us. It imposes VAT on non food purchases, as it thinks we should make do with fewer purchases. This can lead on to an outright ban as it will soon impose on new petrol and diesel cars . It is government’s puritan tendency. Keir Starmer represents this tendency well, displaying his inner Malvolio all too often.

Government also loves taxing work, saving and investing. This government seems to see work as an unreasonable interruption to people’s lives as it looks at giving rights to people to four day weeks and more flexible and home  working. It may be readying a new tax attack on anyone who works long hours and earns more than the government thinks desirable. They will reinforce the bias in the tax system to penalising success and enterprise.

The bias against so called unearned income is particularly damaging. If you work hard and save some money from taxed income you will then face higher taxes on the income and gains that generates. This is not unearned income. This is twice earned income. You first had to earn the savings, then you have to work at choosing and managing  the savings.

Of course government needs to collect some tax and will rightly get more of that from better off people. All the time we opt for free at the point of use for health and education, and all the time we need to defend ourselves as we do there needs to be sensible taxes. The aim should be to keep the rates of tax down and the number of taxes under control, as that is the best way to grow the economy. It is important to stop undue spending growth on everything from falling productivity to bigger losses by services like trains and the Post Office where customers should pay.It’s not core public services or pensions we cannot afford. It’s Bank of  England losses, the world’s dearest new railway, the bungles of the public sector which lead to big compensation bills, the arrival of so many illegal migrants needing hotels  and the  £30 bn loss of productivity.

The ONS put the loss of productivity at 6.5% 2020 to 2023. The Treasury say we lost £20 bn that way. It looks more like £30 bn.

How did it happen? There was of course a loss of productivity in schools when they were shut for Covid, but that bounced back when lockdowns ended. There was a loss of output in the NHS when many dedicated staff worked hard and at risk fighting Covid but other NHS activities were paused or reduced to avoid cross infection. That too bounced back.

What stayed was the  large recruitment of extra  civil servants and public sector administrators across many departments and public bodies. No resource was spared in fighting the pandemic, but normal business did not resume thereafter. Civil service numbers rose from 445,480 in 2019 to 519,780 by 2023, an increase of 74,300 or 17%. Total public administration numbers rose by a fifth to 1.2 million.

I tried to get the government to slim administration back down to 2019 levels by imposing a recruitment freeze on new employees from outside the public sector. That way no one would be sacked, and employees would gain more promotion opportunities. Every time someone left to retire or take a job elsewhere the management would decide whether they could eliminate that post, or promote someone into it whilst eliminating theirs. they could be guided by the staffing numbers and organisation chart for 2019 in where they were trying to get to, adjusted to any changed priorities. Only a few Ministers insisted on this. The government as a whole was persuaded to try to do one in one out, which of course does not restore lost productivity. I expect the new government will drop any idea of trying to get back up to 2019 levels of achievement.

Many large government functions like welfare benefits and grant allocation can be done with fewer people and more use of the many computers the state owns. Why isn’t this happening?

I am not going to condemn all working at home. It would be hypocritical to do so, as I often work from home. That saves time battling bad transport systems and allows me to work without interruptions or distracting noise.
Going to the office regularly is needed to socialise ideas, keep in direct contact with colleagues, be there to mentor and advise new recruits and to have informal meetings to exchange ideas and keep up to date with problems.

Getting this balance right is difficult. Done well by people with a good work ethic  part working from home raises productivity. As much office work is filling in and drafting things on a computer you can do that as well from home as the office without the wasted travel time. Done badly where home distracts the employee with many other things and they miss the trends,ideas and problems going to the office would let them pick up.

Each senior manager needs to work out when and where collaborative working in person is needed and when working from home might boost productivity. In a mixed business where some employees need to be the workplace every working day there is even more need to come to a fair settlement over home working for those who can.

My observation of central government post Covid was that offices were too empty. Meetings with Ministers often saw the MP, Minister and private Secretary in the same room but the senior officials at home. Clearly  taxpayers are paying a lot of money for large swathes of expensive  central London office accommodation which is not used. Use it or lose it.

The Prime Minister made a pessimistic uninspiring speech yesterday around the theme of “things will get worse”.

It was a big mistake to tell the nation he now leads we are living in a rotten society. He blamed all of us as well as the last government and told us off for being divided and rotten to the core. As someone given a large majority on just one third of the vote it is a bad idea to attack us and tell us he has to stamp out our divisions and lock up those who are leading the rottenness.

It was an even bigger mistake to tell us he will make changes that will make things worse, as some necessary purgative for our societal breakdown. Governments should not set out to make things worse, as they might succeed. Then they will be to  blame for the bad condition of society and may find it difficult to restore better outcomes.

I have one bit of advice to a PM and  Chancellor who say they are now going to do things they do not want to do. Do not do them. No one is making them cut benefits to pensioners or put taxes. If they want to give big pay rises they need to link this to productivity where even the Treasury says £20 bn has gone missing. If they want to spend more on their nationalised industries and net zero they need to cut the Bank of England losses to pay the bills.

It is never a good idea to do the wrong thing. Lower income pensioners need their fuel money. Higher taxes on investing and business will slow growth, cutting revenues and giving us a bigger black hole.

The Transport Minister thinks Wales was right to impose 20 mph speed limits in many places. She has told Councils  in England it’s fine by her if they want to harass more drivers off the  roads with closures, narrowing, lane removals, lower speed limits, more bollards and painted regulations.

Yet she belongs to a government which says it wants to boost the economic  growth rate. Hasn’t she realised how dependent businesses and their customers are on cars, vans and trucks? Doesn’t she know every  extra  traffic jam from less roadspace cuts down how much work people can fit in to a day, puts up the costs of doing business and adds to CO 2 as vehicles keep their engines running for longer to cope with delays and go slows in lower gears.

You can’t take the weekly shop home on a bike or get to most places by train. Roads are nationalised. Motorists are made to pay many times the cost of providing them with Vehicle excise Duty, VAT, Fuel Duty, road tolls, congestion charges and parking charges. The road provider regularly closes roads, allows utility providers to dig them up and put pipes and wires under main routes and fails to maintain them to decent standards. The owners of Heathrow do not close the runways to put in pipes and wires or to under take surface maintenance at busy times when people need to fly. Why does the state as road provider treat overcharged drivers so badly?

Lives and attitudes were changed by lockdowns. I will be writing some blogs  over the next few weeks exploring some of the changes .They will cover

1. Attitudes to working from home versus going to an office or other premise to work

2. Attitudes to the working week, work/ life balance , and productivity

3. The approach to deficit financing and monetary management

4. The mismanagement of the NHS and the wider public sector

5. The role of scientists and experts in policy formation and government presentation

6.The role of international bodies and Treaties in the response to the pandemic.

7. The spin and media control stifling different views or approaches, reinforced by most political parties taking the official line.

Your thoughts and interests in this could  be useful.

The pandemic seemed to accelerate home working, hit productivity and public sector disciplines badly, gave more power to certain scientists and officials, relied on the WHO to a considerable extent, and was financed through irresponsible Central Bank policies. There was an agreed view with regulation and effective censorship or criticism of anyone who proposed differen5 approaches.

We are due a reconsideration of the Bank’s policy of running down its bond holdings by £100bn a year. It looks as if they will reconfirm they will carry on with it, and update or change the reasons.

The US Federal reserve Board faced with the same problem of a large portfolio of bonds bought at very high prices when interest rates were low has refused to sell bonds in the market at a loss as the Bank of England does. It has allowed its portfolio to reduce as bonds come due for repayment. It has recently reduced the pace of doing this, reinvesting some of the maturing bonds to avoid a bigger lurch in the size of the portfolio. It does not receive a cent of taxpayer money to cover its losses. It just places the losses onto its balance sheet with a  matching asset for “future profits” as it can do as a Central bank which can create  money it wants as it needs it. The Fed cut the rate of decline in its bond assets as it was worried it was squeezing commercial banks too much who have deposits at the Central Bank to finance the bonds. If their deposits fall too low they will lend less and there will be less money and credit around.

The Bank of England aware that it may well be over squeezing with its aggressive reduction in bonds and commercial bank reserves has launched a new facility for commercial banks. Those that have been squeezed too much by the bond policy can borrow money from the Bank to lend on to customers. The Bank of England is at least honest enough to admit it has no idea what is the correct level of commercial bank reserves and of bond holdings to have, so it lets banks get out of a hole of its making by lending them more if necessary. Why get into the hole in the first place?

The Bank loses money for UK taxpayers in two ways. It needlessly takes big losses on selling long  bonds instead of holding them to repayment at a higher price. It has a running loss on the difference between the money it pays commercial banks on their reserves and the low rate of interest it gets on bonds which it bought at very high prices. The ECB has cut its losses on holding bonds by requiring EU banks to deposit a minimum level of money as reserves with no interest payable.It pays a lower rate of interest on the additional deposits  than its fixed base rate. The Bank of England used to pay no interest on commercial bank reserves at all until 2006.

The Bank always needed  government permission for the bonds and insisted on a full guarantee to pay the obvious losses they would make. As a result the Bank has made a big hole in fiscal policy, not its territory. Why do we allow this to carry on?

The first month of a Labour government saw borrowing rise on the same month the last year, and come in higher than experts were predicting.  The cause was higher spending, as revenues were strong. A substantial part was higher benefit bills agreed by the outgoing government as well as by the new one, but some was first increased  spending by the new Ministers. There will be a lot of extra spending to come as they make inflation busting pay offers above the old plans, as they expand the green subsidies, as they allow in more migrants on low or no incomes , make more state investments in nationalisation and as they expand the public sector without productivity plans.

The figures were flattered by the drop in inflation which cut the so called debt interest figure as it includes the non cash payment of indexation increases in Index linked UK state debt. The Bank of England also celebrated the arrival of a Labour government by sending them a lower monthly bill for their losses. Lets hope they make a habit of that.  This disguised a bit the spending  problem Labour is creating for itself.

The UK cannot afford the £20-30 bn of lost public sector productivity since 2019. The past government was slow to tackle it though it wanted to. The  new one seems to have given up. The UK cannot afford the high Bank of England losses, but neither the last nor the present one seem prepared to tell the Bank to adopt ECB or US policy towards their bond portfolio which would cut the losses substantially or entirely.

If the government is serious about wanting economic growth it has to wean itself off ever higher public sector spending and losses by state owned organisations. It needs productivity enhancing pay deals on the railways and in the NHS. It needs a more moderate and mainstream approach to Bank of England bond adventures. It needs to reappraise its aims with green activities, as it  is trying to do too much and will end up losing large sums of taxpayers money in a muddle over  going for hydrogen, hydro, nuclear, carbon capture, battery, wind and solar all at the same time. These policies can be  in ways which impede successful adoption by the public so incurring large taxpayer losses. They have  not thought through how they replace fuel duty if they succeed in banning new  petrol and diesel cars or how they replace the high taxes on home produced oil and gas as they shut it down.

It is perhaps fitting that energy prices go up again soon after the new government arrives. The last government was wrong to impose and retain price controls for as long as it did, but it was always encouraged to do so by the Labour Opposition. These price controls mean lurches in bills and prices, and mean prices stay higher for longer when they are on the way down. What is the point of them?

The last government was wrong to impose windfall taxes on energy that did not define the windfall properly and stayed on after the windfall high prices went down. The new government likes these taxes and wishes to hike them. That will mean the more rapid close down of our own oil and gas, more import dependence and higher prices. The last government did come round to the conclusion that closing down our own oil and gas faster  was a bad idea. It meant  importing more  LNG which is far more CO 2 intensive as well as meaning we lost the tax revenue and the better paid ,jobs that home production delivers. It is self harm on a huge scale.

This government on its sane days admits we will depend on oil and gas for many years to come. Global forecasts say the world will be burning more oil and gas in 2030 than today and decline thereafter will be slow. The issue is who benefits from the oil and gas extraction, and do we add to the CO 2 by relying on CO2 dense LNG where liquefying, gassifying and transporting all require large amounts of energy.

Some think trying to reduce CO 2 is a bad idea, and disagree with the global warming theory.  There is no need to engage that argument when less contentious and more obvious arguments show that not getting our own oil and gas out of the ground is madness. No wonder we have dear energy. No wonder energy security is a government phrase that they do nothing to implement. The UK is living dangerously by spurning its own domestic energy. It is deindustrialising too quickly, importing too much and wondering why it does not grow faster.  Far from saving the world it just watches as others grow richer  out of selling us oil and gas and fossil fuel based products, producing more CO 2 on the way.

I do not support the idea that political parties should receive state funding paid for by taxpayers. The closest we get to that is the grant paid to the Opposition in Parliament to allow it to hire support staff, and growing budgets for so called Special Advisers to Ministers.

I think it right that political parties raise money from people who support them. I also think it right we disallow foreign companies and non residents from making donations.

It is true that funding parties still poses difficult questions. If a Trade Union gives a large donation to Labour or its MPs because it likes the party’s general support for Unions, that passes the test as an acceptable contribution. If a Union gives money whilst telling a Labour Minister they must accept a high pay demand from that Union or must amend Employment law in a way they want, that is cash for policy.

It is the same for Conservatives who have tended to get more donations from successful entrepreneurs. It is fine if they donate because they agree with a lower tax and less regulation agenda which Conservatives are meant to believe in. It would be wrong if the donor wanted specific tax or policy  changes for their money.

The present government is backed by a majority of MPs who have received financial assistance from Unions. It inherits a public sector which is heavily unionised, has just collapsed productivity and is pressing for large inflationary increases. MP s and Ministers need to tread carefully not to give a bad impression.

I think the main parties are allowed to spend too much on national campaigns, and Ministers have too many special Advisers. The system would work better if less money was wasted on these budgets.