Author: johnredwood

Consider the 2022 figures for GDP per head

USA.      $75 000

UK.         $45 000

EU.          $37 000

The UK has spent the last 50 years trying to align itself more and more in trade, economic regulation and general laws with the EU on the grounds that this political direction and sacrifice would help our economic progress. The way the US has pulled ahead and stayed ahead of Europe shows this was a generally mistaken view. The US per capita figure is twice the EU.

I am not suggesting we should instead have sought a close political link with the US or should have accepted their law codes . Better would have been to make our own laws, set competitive taxes and traded as freely as possible with the wider world. The  Republic of Ireland showed how simply setting lower tax rates can make you prosperous and greatly boost tax revenues. Their 12.5% tax rate meant they attracted massive turnover and investment from the US giant corporations, delivering $ 105 000 per head of GDP last year, almost three times the EU average.

The truth is the US has set a legal, tax and educational framework that has produced all the great non Chinese world companies of the digital age. Apple, Microsoft, Google, Amazon, Netflix, Meta and Nvidia are the US giants that have generated so much cash, made so much investment and created so many jobs, boosting US success.

The EU and UK should be alarmed that they have produced no trillion dollar tec successes. I will write future pieces on why. Today I just wish to remind the UK it is free to set a competitive tax rate. As Ireland shows that allows your economy to get a boost from US success.

The Prime Minister has made clear Ministerial wishes. The asylum backlog of cases must be brought down. The NHS waiting lists must be reduced. Secretaries of State working within the relevant departments have reinforced these message and gone through plans with senior officials.

Large extra sums of money have been allocated to the NHS budgets, and specific additions added to cut waiting lists. There has been a surge in spending on asylum seekers, their lawyers, claim processing and their  care. Ministers have  not cut budgets or refused extra money when needed.

Staff numbers in the NHS have risen substantially in the last three years. There has been a  major recruitment of more people to process asylum claims more recently. So why are the trends still going in the wrong directions? How much of this is down to Ministers, and what should we expect of well paid senior managers in the NHS and the Home Office  now they have a clear Ministerial direction, extra money and extra staff?

Of course asylum claims need to be carefully assessed, to be fair and to avoid more legal challenges. They also need to be conducted with commonsense. Why were so any Albanian claims allowed to build up, and why were so many granted rights to stay when it is a safe country? Other Eruopean countries were firmer and quicker in saying No. Why can’t the staff prioritise the many easier  cases from safe countries and get on with making the decisions? It is not fair on the individual to keep them in a hotel for a couple of years and then to tell them No. They should be told much earlier.  It is also important not to delay unduly difficult cases where the answer is going to be Yes, as they have suffered already and would like to be put out of the uncertainty of waiting to hear how their case has been treated.

Either the management needs help from Ministers with better incentives to clear these backlogs, or it needs changing.

I have spent weeks this summer researching and  writing how the government and Bank of England could give us a better future. I have set some of these views on this website, in tv and radio interviews and through comment in papers. I have sent the main ideas to Ministers and advisers.

In the next few weeks I will be publishing an updated and improved version of my Central Banks lecture. This will reinforce the need for changes to their model, forecasting and current policy stance.

I will be launching another booklet on wider ownership, setting  out how we could help many more people to become owners of property, shares and businesses. It will set out ways to boost public sector productivity by involving officials in ownership and participation of delivery for public services.

I am just finishing a third on a supply side revolution so the UK makes and grows more. This  will need targeted tax cuts and a pro business approach in government departments.

These three pieces will provide a policy framework for a decent ownership and supply side revolution, against a background of a more stable and supportive money policy. They will also provide many individual  proposals government could adopt even if it is unable or unwilling to embrace the new vision,

The Bank of England’s way of fighting its inflationary mistakes of 2021 is to slow or stall the economy. They want to stop price rises by ensuring people cannot afford to buy so much, and to stop wage rises by increasing unemployment. This is all most unpleasant.

I have often pointed out it ignores two ways of sorting out inflation. The first is to avoid excessive money and credit growth It is true the Bank without saying so has now flipped from monetary excess to monetary tightness. The second is to promote more supply, which the Bank and government working together could and should do.

Yesterday the updated survey of UK business found that the average figure had fallen to 47.9 where 50 is the tipping point from no growth to growth. Services were at 48.7 and manufacturing at 43.3, so both sectors are now in retreat. This mirrored the Euro area whose Central Bank made the same mistakes in 2021. Their overall figure is 47, with services at 48.3 and manufacturing at 43.7.

Euro area interest rates have been held lower than ours and their Bank is not selling bonds off in the market at huge losses. When will the Bank of England get the message that it may now be lurching to too tough? It needs to get better at forecasting inflation  and to build a model which reflects the realities of the lag between raising rates and the impact on jobs and activity.

So we learn that UK state borrowing was £11.3 bn less in the first four months of this financial year than the OBR forecast.Spending was up so the main reason for a further large error once again was understating tax revenues. Income  tax was up by a massive 13% . The OBR often understates revenue when the economy grows a little.

I renew my question to Ministers. Why do you make the OBR five year forecast of the deficit the key control on your economic choices? As the OBR cannot get within £10 bn for the immediate year why believe the 5 year forecast? If the OBR model regularly understates tax revenue why accept advice to hike tax rates?

The numbers were further distorted by the transfer of £14 bn to the Bank of England to pay losses, taking the total to an astonishing £24 bn in just four months. The Bank’s decision to sell bonds at the low prices it has driven them down to instead of holding them to repayment has added to the misery and inflated government ex Bank borrowing and spending.

Spending on benefits was up £11bn, on staff costs £8.2 bn  and  grants to Councils up £3 bn, making a total increase of £24 bn so far this year. If the government would introduce a freeze on public sector recruiting save for key personnel like medics and uniformed roles the government could start to control some of these outgoings.

Debt interest remains very elevated. More than half the stated costs do not entail any cash payments out or additional borrowing given the way the accounts treat indexation of some bonds.

The government needs to look through these confusing numbers and forecasts. The underlying reality is it could cut the rate of increase in spending, boost public sector productivity and cut some  tax rates to grow the economy and revenues more. OBR forecasts are an ill fitting restraining jacket that falls apart every time it meets reality. Why keep stitching it up again when it delivers wrong forecasts and wrong policy responses?

In order to close the gap with net zero ambitions governments and companies pursuing this agenda need to revise the way they account for it. Here are some questions they need to answer.

1. As China, Russia, India produce more than 40% of the world’s CO 2 output and their output is still growing, how do we get to the 2030 and 2035 targets? What actions are being taken to get the largest and fastest growing outputs by these countries  to be reined in?

2.Why does the system assume electric vehicles are a win for less CO 2? Will the figures include the fact that many EVs are being recharged with electricity that may come from more fossil fuel than renewable generation? What allowance is made for all the CO 2 produced in mining  and smelting the raw materials for an EV and its battery? And for total assembly and delivery? How many miles does an EV have to travel before it generates less CO 2 than carrying on with an older ICE vehicle,assuming it can get 100% renewable electricity or putting in accurate figures for the CO 2 content of the electricity likely to be used.

3. Why does the accounting system credit a country with lower CO2 because it has closed down fossil fuel based activities, only to import the products needed? This will usually raise world CO 2 by the amount of extra transport involved.

4. When attributing success to more renewables shouldn’t you need to also factor in the extra  costs and extra CO 2 from the standby fossil fuel generation needed to prevent black out when the wind drops?

5. What will be the CO 2 impact of needing to put in so much more grid capacity and cable to allow a major switch from gas to electricity?

6. When calculating the CO 2 impact of rail travel it is important to include connecting travel by road vehicle and do a whole journey calculation. It is also important to use a realistic mix of electric and diesel trains and allow for times in stations with engines running.

Our road system is badly run, delivering a poor service to all the people struggling to get to work, to drop children off at school and getting to the shops. It lets down delivery drivers, large trucks bringing  essential supplies and business vehicles carrying people to do work in our homes and commercial premises.

It is a typical nationalised monopoly. It believes in keeping us short of roadspace on the bizarre grounds that if they built more roads we would use them more. Any normal business is delighted to expand when it hits on a popular product or service.

The highways authorities take special delight in making life as difficult  as possible for their tax paying customers. They regularly restrict access, narrow lanes, increase junction delays and change rules on road use. They  compound this by setting traps to get more fines revenue out of complex and changing regulations.

They fail to maintain the surfaces of many roads, letting potholes grow until more extensive and expensive repairs are needed. The state grossly overcharges for use of the roads, collecting far more in motoring taxes than it defrays in road costs.

They insist on putting cables and pipes under the middle of main road requiring digging up the road every time a repair, replacement or increase of facility is needed.

Why? We depend on the roads for so much of our lifestyle.