Author: johnredwood

Briefing from the Treasury for over a year now has been rightly telling us inflation is too high, and wrongly saying what we need to do about it.

Their mantra is unfunded tax cuts cause inflation. No recognition that the last two years of high inflation have been years of tax rises, so there is no possibility the current inflation was caused by unfunded tax cuts. No mention that if unfunded tax cuts can cause inflation then so can unfunded  spending rises. No mention of the huge surge in spending in the last three years.

They should think again. The present  inflation was brought on by

The Bank of England printing £150 bn of extra money during 2021,a  recovery year.

The Bank keeping interest rates near zero by paying  ever crazier prices to buy up state debt and to enable the government to borrow huge sums at very low rates

The Treasury imposing high carbon taxes, fuel duties and windfall taxes on energy to give us very dear energy at a time of high market prices

The Treasury agreeing to a 103,000 increase in civil service numbers from 2017 to today and a 68,000 increase in other public administration posts , resulting in a 7.5% fall in public sector productivity over the 3 years 2020-22.

The big expansion of state debt this decade effectively financed on a Bank of England overdraft

Tomorrow I will examine how the right tax cuts offset by spending controls and asset sales can bring inflation down. I am not recommending more borrowing to fund tax cuts, but if you did borrow by issuing a longer dated bond to pay for a tax cut the bond withdraws the same amount  of spending power as the tax cut injects, though from different people.

I have been proposing a budget for faster growth and lower inflation. The notes beneath give the outlines of it.

The Prime Minister has three economic aims
• Get inflation down
• Promote growth
• Cut the deficit

These reinforce each other.
• More growth brings more revenue and lower spending on benefits
• Falling inflation reduces spending pressures, helps business with costs and lowers the deficit

The budget judgement
• The OBR forecast £131 bn deficit for 2023/4. Revenues have been better than expected so there is a £20bn improvement available
• The right kind of tax cuts can promote growth and boost other tax revenues more than the OBR model suggests. The OBR often under forecasts tax revenue.
• There are spending controls and reductions that can help cut the deficit as taxes are brought down a bit

Inflation is too much money chasing too few goods
• Our inflation stems from excess money, credit and bond buying by the Bank in 2020-21.
• Money supply is now falling. The Bank has lurched from far too easy to very tight.
• Government can help the Bank get inflation down by cutting taxes on expensive energy whilst prices remain high, and by offering tax cuts to the self employed and to businesses to promote more output.
• The Bank wants to get inflation down by stamping on demand. More
work to boost supply would help.

What the Bank should do next
• The Bank is independent in in setting short term interest rates. It is likely they have now set them high enough, but they will make that call.
• The Bank acts as agent of the Treasury in buying and selling bonds, with a full Treasury indemnity for losses
• The Bank should stop selling bonds at a loss in the market and sending huge bills to the Treasury (£24bn in the first 4 months of this year) Run the portfolio off as and when the bonds are repaid.

Affordable tax cuts for growth
• The UK has lost 800,000 self-employed since February 2020. Some of this is the result of the 2017 and 2021 changes to IR 35 taxation. It is now difficult for the self-employed to get contracts from companies.
• The government should restore the pre 2017 tax regime. This should produce a good increase in self-employment, saving money on benefits and leading to extra taxes on incomes form self-employment.
• Self-employment offers a flexible and fast way to expand capacity in a wide range of goods and services.

Boost small business with a VAT cut
• Raise the VAT threshold to £250,000 from £85,000. Many small businesses turn down extra work or have closure periods to avoid going over the VAT threshold in any given year.
• There would be a rapid increase in capacity as small business adjusted to a less onerous regime. There would be offsetting tax gains on taxing employee and business income as a result.

Take 5p a gallon off motor fuels whilst oil prices are high
• The government will get more revenues from domestic oil and gas production and from sales of energy all the time oil prices rise and stay high.
• Offer 5p off fuel duty per gallon all the time oil stays above $75 a barrel. Review three monthly.

Suspend 5% VAT on domestic energy bills whilst gas and oil are high
• As with fuel duty, remove VAT temporarily while oil is above $ 75 a barrel
• These two measures on energy will help push inflation down, which lowers public sector costs which have to match inflationary rises.
• They will also help contain business costs

Make a further reduction in Business rates
• Many businesses which provide a good service by occupying physical property to serve customers are suffering from high and rising business rates.
• Offer a further reduction in these costs to help business recover from the covid and interest rate shocks that have damaged output and profits.

Tackle the public sector productivity collapse

• ONS figures show public sector productivity is down 7.5% in the 3
years 2020 to 2022. This is a £30bn hit to budgets, raising costs by
that amount to produce the same output. This is on top of large
money increases in spending to handle inflation.
• Ministers need to work with public sector senior managers to restore the 2019 levels as soon as possible, freeing money for other purposes.

Cut the benefits bill by helping more people into better paid work
• The measures to boost self-employment and small business will help
reduce welfare costs
• Switching more employment by helping people already settled here
into jobs instead of increasing the numbers of legal migrants will also
cut costs, both by reducing benefit demands and cutting the extra
costs of providing homes, surgeries, school places for additional
arrivals

Overall budget judgement
• The Treasury seems to think IR 35 changes would cost £2bn, the fuel duty change £2.6bn and VAT change £4 bn. Business rates could add another £5bn
• This is less than the current £20 bn increase in revenues/lower deficit experienced. It is also balanced by productivity restoration in the public sector. If only one third of the recent losses were regained in the first year that covers two thirds of this package.
• The return to work and self-employment changes would also generate spending savings.
• Any success in cutting inflation faster would also generate savings on the costs of government debt, given the way they account for Index linked

Whether we like it or not, Artificial Intelligence is going to make big advances and huge changes to business . I see many wins from it, enabling as it will a productivity advance and a quality advance in many clerical, administrative and analytical functions. It is a greatly enhanced Google Search facility and an improved Microsoft software package with more capacity to help. Like all such big families of invention it will costs us some old jobs but throw up many new ones.

Some worry that it will be used by the criminals and the tyrants for evil purposes. That is of course possible, just as they use current computers and communications systems to try to disrupt our lives, steal from us and threaten us. We will still need a police force in the age of AI, and that force will need to be AI savvy.

I would not leap into legislating to regulate the businesses and create new offences. It is too early to know if that might be needed and what shape it might take . In the meantime be reassured. Theft, fraud, sexual exploitation, terrorism and violence are all against the law. The police can still track and arrest even if they are using some AI as part of their crimes. Using AI will also offer a new way to detect them as use of computers leaves footprints back to the original criminal user.

The issue we should be discussing is why are the world’s three dominant AI/Cloud computing companies all US? It is good news there is lively competition to control costs for the users and drive faster innovation from Microsoft, Alphabet Google and Amazon Web Services. It should alarm the EU and worry us that no large company from this side of the Atlantic is seriously in the game and gaining substantial market share.

The meeting of the 1922 Committee with the Director General of the BBC on Wednesday evening was a private meeting and covered a wide range of topics before we had to vote in divisions. It led me to some more thoughts on the BBC and our media future which I would like to share more widely.

The BBC has an annual  turnover of just £ 5.7bn. Whilst it remains an important presence in UK media, with access to substantial tax revenue in the form of the licence charge for watching live tv, it is a small presence worldwide. The global non UK activities earned just £2bn last year  by charging users.

Netflix started up in 1997. It  now has a turnover of $32 bn or 4.5 times that of the BBC. Amazon Prime Videos business  is comparatively recent but already has a turnover larger than the BBC. Disney with a worldwide total entertainment turnover of $82 billion also has a tv turnover as large as the BBC without any preferential terms  or tax in a particular country.

The BBC assures us it has a fine reputation abroad and it has ambitions to  have a more influential world presence. To do so it needs to understand why the great US media corporations have been so successful at exploiting new technologies for dissemination of services and how they have captured the attention and the money of so many foreign viewers.

The BBC has a good back book of programmes and archival material from news to cultural events. It has plenty of expensive talent on its books. It commissions programmes from a range of independent producers. If it expanded its global business more rapidly this cost base could be defrayed over many more paying customers, and talent could be paid well out of the growing audience and revenue base.

Leaving aside the tax financed UK traditional business, the global/studios business could be expanded rapidly. To do so its ring fencing would need to be strong so  no subsidy was paid across from UK taxpayers. It can have its own balance sheet with arrangements for accessing the back materials and the talent held by the UK BBC to the mutual benefit of the two arms of the Corporation. There could be talent sharing and revenue sharing arrangements where they were working jointly.

Some say the world BBC is held back by lack of money. With its own ring fenced balance sheet and revenue stream from overseas  sales that should be easy to remedy. BBC Global could borrow against its talent, programmes and audience figures as it grows its own equity. It could bring in minority outside shareholders with equity contributions.

The UK has to earn its living. It should not sit and watch as Netflix, Amazon, Disney and the other US giants dominate the world media markets. With its reputation and established library the BBC should be able to help build one of the world giants of the new media age. Its immediate task should be to put another nought on the number for its non UK turnover. The UK has done well at building a bigger domestic film industry and has some competitive flowering in domestic tv and radio, but needs to add a media giant to the repertoire to make a difference to our balance of payments and living standards.

 

Now that government wants to help drivers get about there are ideas they can adopt to make the vision a reality.

Talking to Ministers, they say they do want highways authorities to review traffic light phasing and controls.

It would be good if all sets could be equipped with sensors so lights responded to different traffic conditions. At low use times lights should shift to green when any vehicle approaches a  red light when there is no traffic using the green. At normal times green time should be proportionate to traffic flows.

If these systems cannot be used the phasings should be adjusted to reflect normal use patterns.For example, the  lights at the junction of the Embankment with Vauxhall Bridge Road, a busy London junction, offer twice as long on green for traffic  approaching from  over Vauxhall Bridge. This produces unused green time in that direction and permanent queues on the other three. Why?

The government should allow traffic turning left at a light controlled junction to treat the red light as a Stop sign. Drivers should stop as now on red but if the turn was free of vehicles and pedestrians then they should be able to proceed.

Ministers approving schemes to alter road layouts and junctions should not approve or fund Council schemes which are designed to get vehicles off the road. Of course we need better routes for cycles and safe paths for pedestrians. Taking roadspace off vehicles on busy main roads is not the way to achieve this aim.

Roundabouts are usually better than light controlled junctions. They should usually be preferred.

Where right  turning traffic can easily get stuck Councils should be encouraged to widen the carriageway to create a right turning lane to free traffic going straight on or turning left.

Councils should exercise greater discipline over timings and duration of works that entail digging holes in roads. This should include their own Highways department.

Councils should move to getting utilities under verges and pavements in conduits with locked access  to avoid the continuing need to dig up roads to repair pipes and wires.

I am pleased to report one of the hotels being used for migrants in my constituency will be vacated by the Home Office soon. The Minister reported progress with stemming the flow. He argued that it was not fair that groups of young men sought to circumvent the legal ways of entry and to take more of the places available for asylum seekers by refusing to use the legal channels.

He was able to tell us that numbers  crossing from the continent are down by a fifth this year compared to last. The French authorities have co-operated more in stopping boats from departing French shores. The new arrangements with Albania have stopped most of the flow from there and have enables the return of many to that safe country. The government awaits the result of the appeal to the Supreme Court over sending people to Rwanda who seek illegal entry to the UK. The processing of claims has been improved.

They have intensified work to find, charge and prosecute the illegal gangs operating the boats.  It is good there has been some progress but clearly more is needed by pursuing all these options, and processing claims more rapidly.

If all goes as planned Parliament will  end the current session this week and prepare for a King’s speech and a State Opening.

Given the state of the polls and recent by elections I assume this Parliament has at least a year to run before the next election to give the PM more time to demonstrate the competence he talks about and to deliver his five pledges.

The main opportunities he has to show the change he says the public wants rest on the year’s legislative agenda to be set out in the  King’s speech, and changes made in the November and April budgets to come.  I will be presenting detailed proposals for the budget shortly. Today I am interested in your ideas for legislation.

My own priorities are unlikely to appear. I would like to see

1 A small boats Bill to make clear to UK courts that Parliament does not want Human Rights Law to impede decisions and removals of illegal migrants from the UK

2. The completion of the Northern Ireland Protocol Bill to remove the problems with the Windsor Framework,restoring UK government of NI.

3. Restoration of the full EU Retained Law Bill with more EU law repeals and amendments.

4 Tax Reduction and Simplification Bill

5. A Wider Ownership Bill setting out more ways to promote ownership of homes, shares and businesses

6. A public sector productivity Bill creating  opportunities for state employees to buy out their managerial and administrative tasks in government through an employee buy out.

7 A privatisation Bill to facilitate the sale of all remaining shares in Nat West and to sell Channel 4. Bill to be fast tracked to complete sales next year.

8. A People’s BBC Bill as discussed here before

I do not have a worthwhile view on the efficacy of the vaccines or of  the balance of good and harm from them . I have not read enough of the literature and have no medical training . Yesterday I reported the NHS line and the questions raised by some MP s over the vaccines.I have myself raised other big issues over the way government responded to the pandemic. At the time I raised queries about the statistics presented for infections and deaths.I did not presume to advise my constituents as some non medically qualified MP s did over getting vaccinated. If asked I suggested they talked to a medical adviser they trusted.

During the covid period I did have strong views on the economic damage done by extensive lockdowns. I worked with a small group of MP s to press for  Parliament to be up and running and then for the earlier return of an active in person Parliament. I saw the need for more scrutiny of the wide ranging actions being taken to direct the economy and to spend large new budgets on healthcare.  I argued for concentrating protections on the vulnerable and helping them safely avoid contact with possible disease carriers, rather than getting most of us to avoid contacts outside our own family or bubble. I voted and argued for less extensive lockdowns.

I also pressed for more work on the possible approval and use of existing medicines to blunt the virus and help with symptoms for those infected. I argued for isolation hospitals to be separate from other general hospitals, for the Nightingale capacity to be used, for more use of the private sector hospitals for non covid patients, for better air flow and air cleansing in hospitals and other public buildings. I have subsequently sent in these issues for the Covid Enquiry to consider when they can spare time from examining the issues over how Ministers behaved. To produce a good report they need to examine the scientific work, forecasts , NHS management of greatly increased resource and medical advice offered as it evolved during the waves of the virus.

I have not published all contributions from yesterday. The share prices of pharmaceutical companies generally have fallen this year for a variety of reasons. The  lawsuits I see raised as contributors to share declines are about infringement of patents, rather than  harms from covid vaccines. Governments often issued some exemptions from liability to speed introduction of vaccines that they thought would save lives.

Governments and medical experts continue to recommend a range of covid vaccines, and have made decisions now about which ones they prefer to use. Anyone thinking of having vaccinations can now find plenty of information about side effects and about what has happened to a small proportion  of people who have experienced greater harm than a sore arm and feeling a bit under the weather for a few days. Those who do dislike these vaccines can make their own decisions as they are free to do and can study outcomes so far from using these treatments.