Author: johnredwood

Yesterday I did an extensive interview with Mike Graham at Talk TV/Radio. You can watch it at:

The independence of the Bank of England is widely asserted and almost universally applauded. Let me begin before I am condemned for views I do  not hold, by saying  I do support the Bank of England continuing to have the important independent power to fix and change short term interest rates by setting an official influential Base rate. The wider problem is money policy (anti inflation policy) is about  much more than just fixing the short term official rate. In most of the other areas that matter the Bank is not independent.

The obvious point which no-one else ever seems to make in the debate concerns the main thrust of money policy since 2008. The decisions to create a lot of money to buy up government bonds have always been joint between Chancellor and Bank. This was set up by the Labour government and continued under the Coalition and Conservative governments. The Treasury not only agrees and signs off the policy but also offers a full guarantee to the Bank against losses on the bonds bought. Presumably Chancellors as well as Governors have therefore taken this task seriously, as the Treasury runs the risks. When interest rates are around zero money policy is driven by decisions on how much to print and how many bonds to buy. Why did the Bank do so much for so long last year?  Why didn’t they have target interest rate levels for longer term borrowings to guide their interventions? Why didn’t they monitor and comment on the explosion of money growth their bond buying generated?

These decisions have had a big impact in setting longer term interest rates at artificially low levels, which in turn leads to lower borrowing costs for property, business and other users. This has fuelled asset price inflation for more than a decade until this year when the underlying bond buying stopped.  The Bank did not worry about asset inflation.

It is also the case that Gordon Brown when he wrongly said he was making the Bank of England independent took away crucial powers it used to have to regulate the commercial banks. The  main UK clearing banks determine many of the details of how much credit is advanced, to whom. They decide how many loans to make. Regulation of these activities including warning them about running too much individual balance sheet risk rests with a different Regulator. Pre Gordon Brown the Bank directly and daily influenced clearing bank balance sheets and lending positions.

In practice the independent Central Bank, 100% owned by the state, answers directly to Parliament. The Treasury Committee makes the Governor attend and defend his actions on a regular basis. Parliament  changed the legislative controls and requirements on the Bank when Labour took over and when the Coalition took over. Labour changed the inflation target when in office. I think it is right that the Bank should be held accountable for its actions through Parliamentary scrutiny and through media questioning of policy and results. There needs to be more consideration of why inflation is so far above target, and more analyses of past recessions when Bank tightness was part of the problem.

It remains a mystery how the Monetary Policy Committee thinks it can control inflation without monitoring and commenting on the amount of money in  circulation or the speed at which it is used from bank accounts. Real money supply is now contracting. Money policy has lurched from far too loose to tight. I agree with the Bank who now forecast inflation will tumble next year. There is no need for them to be selling bonds at big losses to make things worse.

Consider the environment – Think before you print

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Getting the growth rate up to 2.5% a year is a bold ambition. It must be about increasing average income per head by that amount, not about inviting even more people to swell GDP but not average incomes. The right kind of growth means more better paid jobs for people already settled here. That means working smarter with more investment per employee to generate the higher incomes. It may well entail more people of working age being in employment. Getting it up to 2.5% is not going to be easy. Stopping some tax rises is a good start but there now needs to be a concerted effort to make, grow and produce more at home to replace imports.  It will take all of the below

1. More self employed. Rolling back IR 35  as set out  on friday will help. Buttressing training courses for everything from plumbing to baking and from building to gardening will help. Teaching self employment as a careers option would help. Benefits that are more flexible when someone out of work tries to start a business would help.

2. More small businesses. More generous rates relief, exemption from more regulations, break out of public sector contracts to manageable sizes for smaller firms to bid, mentoring, finance for growth. More generous enterprise investment relief.

3. National resilience policies to support self sufficiency in energy, a greater U.K. presence in strategic minerals, more support for domestic fishing and farming

4. Attracting more overseas investment. The new  top rate of income tax of 40% helps as it is more internationally competitive. The return to 19% corporation tax rates helps, to be allied to generous investment allowances.

5. Encouraging more home grown entrepreneurs. Extend the CGT allowance for creating a successful business. Offer favourable terms on  start up properties in the new Enterprise zones. Work with them over workforce recruitment and training.

6. Faster improvements in infrastructure to provide broadband, affordable energy and water.  Remove the carbon tax on high energy using industries as this leads to UK closures and more imports, not less global CO2. Have sufficient gas powered generating capacity for the transition whilst awaiting battery and or hydrogen storage solutions to intermittent wind. Put in new reservoirs.

7. Cut the traffic jams to allow easier and safer deliveries and work journeys. A national strategic motorway network and strategic local networks of A roads where action is taken to improve flows and vehicle safety by junction changes, road widening, by passes and other improvements. We need more capacity which will lead to less wasted time and less CO2 from sitting in traffic jams.

8. Faster decisions on licences and planning permissions to reduce the costs of both successful and unsuccessful applications, with simpler limited criteria for rejection based mainly on safety or on local community compatibility.

9. Encouraging more people into the workforce.  The government has announced some plans to do this. They need to include assistance with training, mentoring and demonstrating to people how they will be better off in work rather than on benefits.

The Fed, the European Central Bank and the Bank of England made the same mistake last year. They each went on printing new money and buying up state debt  to keep interest rates too low through 2021 when recovery was well underway. As a result  they each triggered a 10% inflation against a target of 2%. It was not mainly the Ukraine war and energy prices that caused the inflation. Their  inflations were well set in before the war. The  world’s second and third largest economies, Japan and China, kept inflation below 3% despite importing lots of dear energy because they did not create excess money and credit.

The three bad Banks have now decided to do the opposite and tighten money, sell some of the bonds they bought and jack up interest rates. This is now spooking the markets, who fear they intend  to bring on a recession. Bonds fall in price to adjust them to the higher interest rates the Banks want, and shares fall in anticipation of a slump. All too often in last cycles these Central Banks have loosened near a peak to stoke the inflation more and tightened into a trough to make the recession  worse. Unlike the Asian Banks the three big Western Central Banks fly blind, refusing to  monitor and target money and credit. If they did they would have seen excess last year and would see too little this year. Yesterday was another bad day for share and bond markets in all three central bank areas.

There is a clear danger the Bank of England will lean too hard against government attempts to ease the squeeze and will engineer the recession they are forecasting. I believe their latest estimate that inflation will fall away rapidly next year so they can now pause their tough actions. Pressing on with selling bonds they have bought would be damaging at a time of a large external shock from energy prices. As this is a joint policy with the Chancellor they would be well advised to agree to delay it until recession is vanquished.

The debate about tax has been very slanted to socialist views this century. I agree that taxation should be progressive, with rich paying more and the poor receiving net transfers from the state. I do not agree with accompanying rhetoric that taxes can only be cut for the poor and should always be on the rise for the rich.

I have long argued that the way to get more tax revenue from the very rich is to set lower rates of tax. Armed with tax lawyers and accountants and able to change places to live and invest, the very rich have freedoms and opportunities the rest of us do not enjoy. To keep a good share of very rich investing here, creating jobs here, spending plenty of money here requires setting internationally competitive rates of business and personal taxes.

Today I want to add the argument that I favour cuts in tax rates for people on above average incomes who typically have a single well paid job or substantial savings but who unlike the very rich are permanent U.K. residents and taxpayers who do not find legal ways round current taxes. We need to make it easier for risk takers, small business entrepreneurs, people who go through long training and education to qualify for better paid jobs to aspire and to benefit from the risks and sacrifices they made. If you want an aspiration society you need to make effort and hard work worthwhile. Many of my constituents are on two or three times average incomes in the U.K. but they are not rich. We should not be trying to squeeze more tax out of them as a matter of principle as if they need to be punished for succeeding.

If we grow the economy more we will generate more tax revenue to improve public services.Growth needs to be in incomes per head, not GDP growth from increasing the number of people living in the country. Sometimes less is more, less is better. This is true of taxes.

Today the new Health Secretary will seek to focus the NHS on a new alphabet. A is for ambulance use, B is for backlogs or waiting lists, C is for transfers to care and recovery homes and D is for doctors and dentists. I wish her well in getting ambulance waiting times down , treatment waiting lists down, transfers from hospitals up and numbers of medical professionals up.

None of this can be done without learning from the mistakes of the last two years. Huge sums have been thrown at the NHS but the  non covid services have suffered, with unhappy staff and too many patients in an ever growing queue. So where has all the money gone and why didn’t it buy success? Just throwing more at it will not solve the problems.

Let me begin by repeating that I like many am grateful for the hard work and risks run by the teams that responded to covid before medical science knew which medicines helped and before there was a vaccine.
Unfortunately the senior management refused to use the Nightingale capacity to create covid specialist hospitals. That meant many non covid wards in general hospitals were unable to work fully, leading to many other untreated conditions. Money spent on the Nightingales was written off. Large sums were also spent on taking over the capacity of private hospitals to do non covid work, only for that capacity to be too little used.

The NHS then spent a fortune on a Test and trace scheme of very variable quality which some people gamed to carry on their normal lives. This spending  has now rightly been wound down.

The management needs to share its manpower plan and detailed budget with Ministers and Parliament. Ministers who take the blame need to be more engaged with the use of all the cash.