Author: johnredwood

We cannot afford to spend around £10 bn a year subsidising the railway to run nearly empty trains around the country. Nor is it a green option to run diesels and electrics  drawing some electricity from fossil fuels when they have so few people on them.

The railway management need to use the current lull in railway use to make two important sets of changes. The first is to establish new timetables geared to the big change in work patterns COVID policies have brought on. The railway is currently planned  to earn much of its fares revenue from five day a week commuters wishing to travel at peak times. This business will be massively  reduced. We need new flexible ticketing to allow people rolling and increasing discounts the more they travel the same route for work purposes.  The railway is now trying to tempt many more people to travel by train for leisure. It is difficult to see why this should be highly subsidised as it is discretionary and is more likely to be taken up by the better off.

The second set of issues are based on technology. Modern trains can be more  fully automated in ways which may enhance safety and certainly raise productivity. Safety must remain the prime consideration.  Managements need to sort out with the Unions new manning arrangements that reflect business needs, timetable changes  and train automation opportunities.  There can be offers of no compulsory redundancies around programmes of change to get the workforce and its skills and job descriptions  into line with new needs.

Doubtless many of you still think HS2 should be cancelled. There is no sign of the government wishing to do this, and it has now committed substantial resource to carving an expensive route out of London. I am not expecting a change of decision on the London to Birmingham part of this  project.

Many former commuters seem to be singing “I don’t want to go to work on a train in the rain” to adapt on old pop  song parody.  It seems increasingly clear that the COVID  lockdowns have  made something snap in many five day a week train commuters minds. They have discovered they can do much of their job from home.

They have saved  serious money on not buying season tickets. Above  all they have been spared the difficult local roads to the station, the fight for a car park place and ticket and the lottery of getting a seat on the train.All  that  strain and worry has gone out of life.

On that busy office day will the train come on time? On the morning when you need to meet the boss will your train be delayed by leaves  on the line or the late arrival of the train in front? Will you get drenched walking from the station to the office? Going home might you have one of those nightmare journeys when you are stuck in a stationary  train for too long, ringing home to apologise and say you haven’t a clue when you will make it back.

Many commuters with all too many memories of late and cancelled trains, an absence of seats and a dearth of reliable information about what has gone wrong suddenly see the chance to duck out of many of those journeys and opt for a different working life. It looks as if many offices will be adapted for hybrid working with many more people logging in remotely. Employers who may prefer more to come and work in the office will decide that to keep some of the best talent they need to be flexible. They will decide to downsize their floor space to get a property saving out of the change.

All this will knock a big hole in railway revenues. I will look at what government should do with the trains in a later post. The commuter revolt is the result of poor and expensive services over many past years.

In their March forecast this year the Office of Budget Responsibility stated that the UK government would borrow an additional £354.6bn in the year ending that same month. The latest government figures for what they actually borrowed was £298 bn. So the outturn was £56.6bn or 16% lower than the official OBR forecast. They underestimated revenue and overestimated spending.

The latest figures we have are for July, one third of the way through the new financial year. In March the OBR forecast £233.9bn of extra government borrowing this year. The July figures saw the actual borrowing fall by more than £10bn that month or almost a half of the July 2020 total. Once again spending was lower and revenue higher than official forecasts. If the economy records similar progress from here as over the first four months of the financial year there will be another welcome substantial undershoot of the OBR estimates for the current year.

These large changes to forecast matter, as it shows the Chancellor is called to make judgements about spending, taxing and debt based on a model of the economy which tends to pessimism on both spending and revenue outturns. The model seems to be pessimistic about the ability of the UK economy to recover, and shy of accepting that the best way to get the deficit down is faster growth. Revenues are highly sensitive to extra activity, as the huge increases in Stamp duty receipts and taxes on entrepreneurial activities demonstrate this July.

I share the OBR and Treasury wish to get the deficit down, but I want to get it down by cutting the need for special spending to offset a weak economy and lockdown costs, and seeing revenues rise thanks to more activity. Of course government also needs to manage the large public sector well and avoid waste and low productivity. That requires daily action by Ministers and  senior officials over a range of activities, which I will be exploring from time to time in specialist pieces here. The message today is lifting lockdown restrictions has boosted revenues and cut public spending for the right reasons. We need more and faster growth to bring the deficit down further.

All my adult life I have witnessed the political and civil service establishment urging bad ideas on our country in order to avoid the UK being “isolated”. There is a passion to make the UK dependent on allies and trading partners, and to force the UK to do what our allies and trading partners want for fear of upsetting them. There was a long concerted effort to realign us from  the USA as “best friend” to the EU as “best friend”. The whole Remain campaign , just like our long period of membership was based on the theory that you had to go along with whatever the EU wanted to show “you had influence”and to avoid this famous isolation.   In practice both the very pro EU large faction and the smaller pro USA faction accepted the need to try to be good friends with both. Both shared the same naivety that you keep a best friend by always doing what they want and never adding your own unique contribution or sometimes saying you wish to do something different on your own. It is very difficult to get respect or a good deal if all the time you are giving in.

Anyone who has read some English and UK history will know that quite often the UK has been estranged from the main powers of the world. Indeed, if anything characterises our foreign policy over the years prior to 1972  it is that we have been one of the principal sources of resistance to any leading European power that would become the hegemon or dominant country. Along with  the Dutch we stood up to the might of Spanish dominance in the sixteenth and early seventeenth centuries. With an alliance of smaller states under threat of invasion  we stood up to  Napoleon’s attempts to enforce European Union by conquest. In  the twentieth century we led the resistance to German aggression. These positions often entailed being isolated from the main powers and tides of opinion.

Today some are worried about a cooling of our relationship with the USA. They need not  be. Our relationship with the USA has been troubled and at times distant over the two and a half centuries since the birth of the USA as a separate power. We began by trying to put down their rebellion, when the USA rightly stood up for the excellent principle of no taxation without representation and used it to craft their own great democracy. We deserved to lose and should have accommodated their legitimate wishes  They joined the Napoleonic wars on the wrong side and we had to defeat the alliance they had joined. Relations improved in the twentieth century though the USA never liked our Empire and was reluctant to be drawn into what they thought of as European wars. Between 1939 and 1941 the UK did stand with the Commonwealth against the might of Germany, fighting a cause which should have been America’s as well. Only once the Japanese hit the USA hard at Pearl Harbour and Germany declared war on the USA did we become working allies and did the USA then come to assume part of the huge burden of the war in Europe and to dominate the war in Asia. History  tells us that we now often have interests in common with the USA and work closely with her through Nato. That is likely to stay true but we do not have to debase or efface ourselves to make it happen.

The UK is best when we do what we think is right and construct alliances and support groups accordingly. The Prime Minister is right that we should  not seek reassurance from every new President of the USA that we have a special relationship. We have close working relationships in  many areas and some clear defined common views and goals that can lead us to collaborate but we do not need to fawn as these will only happen if they are real and in our mutual interest. The EU was never our best friend and has revealed since we left just how much it still wants to control us in its interests and those of its two leading powerful members, France and Germany.

Indeed, countries do not normally have best friends. Nations have interests and join alliances of likeminded nations for stated purposes or on a case by case basis.

In the run up to the last US Presidential election  I drew attention to how much continuity of policy Mr Biden was offering beneath the heavy spin that Trump’s attitudes and actions were all unacceptable and needed changing. Mr Biden backed the Trump made in America policy. He supported taking a tougher stance against China and imposing trade sanctions and tariffs on them. He supported the large fiscal stimulus supplied by President Trump, and wanted the Fed to go on printing more dollars. He agreed with Mr Trump about withdrawing forces from the Middle East.

The three major differences which he understandably played up in his campaign were to open US borders and welcome in many more economic migrants, to work with allies and International bodies much more collaboratively, and to reverse the cheap energy policy in the name of net zero. Eight months into office President Biden has gone a long way to match or exceed  the Trump positions on these matters. He has changed from a attempted opening of  the borders  to many apprehensions and a lot of expulsions under Trump’s Health Title 42 procedure to try and stem the much larger flow he has encouraged. . He has pulled out of Afghanistan without securing the consent of allies or even consulting properly with them, with unfortunate consequences.  He has damaged the careful structure of alliances between Israel, Saudi Arabia and the Gulf States that Mr trump had constructed. He has not yet produced a full net zero plan, nor taken penal action against oil and gas companies.

Perhaps now we will see a differentiation in ways commentators did not expect. President Biden went further than President Trump in upsetting NATO allies. Mr Trump’s Doha Agreement it is true was a bilateral between the USA and the Taliban without wider NATO signatures. However  Mr Trump made withdrawal of US troops in it conditional on various good conducts by the Taliban and did not himself remove the troops much as he would like to have done prior to the election. President Biden will go further than Mr Trump in increasing both spending and deficit, with added  ideological edge to increase the state sector substantially. He will through his Treasury Secretary, the former Chairman of the Fed Janet Yellen expect the Fed to keep interest rates down and keep printing the dollars. There is likely to be less push back from the Fed than there was against Mr Trump’s wish for easy money, not least because the current Fed Chair wants to be reappointed early next year. President Biden will take more risks with inflation than President Trump did.

President Biden’s foolish decision to pull out unilaterally overnight from Afghanistan has done great damage to alliances and to the Middle East. A small force of US led  NATO troops who did not in the later years usually have to fight sustained for several years a democratic government in Kabul and helped them keep some semblance of law and order. Whilst that government had obvious flaws it could have been replaced in due course through an election. Instead President Biden has ushered into power the very movement NATO went to remove twenty years ago.

The recent minutes of the Fed’s Monetary Policy Committee show they think there is still insufficient recovery to justify any reduction in the amount of dollars they create each month. They plan to continue with  an extra $120bn a month and renew their discussions at their next meeting. Meanwhile the Bank of England has signalled an end to creating more pounds by the end of this year, and has throttled back the monthly amount in the meantime. The UK has received much less monetary stimulus than the USA relative to the size of the economy. UK inflation on the official numbers is at 2% and US inflation is at 5.4%.

In addition the US Congress and President are contemplating further large increases in public spending and the deficit whilst the UK Treasury is rightly letting recovery bring the deficit down as it will do without further government intervention to spend more.  This week’s foreign policy disaster by President Biden will not  be good for confidence and consumer sentiment in the short term in the USA and may give the Fed further excuse to seek to run the economy hot. There is a lack of clarity over just how far the Congress will go in crafting a big spending big deficit budget for next year, though with Bernie Sanders as Budget Committee Chairman there are plenty of pressures to spend on a huge scale.

The main Advanced countries and the EU have shown they can get away with substantial money printing and large deficits for a limited period of artificially depressed demand brought on by their choice of anti pandemic policy.  There is however no proof that they are all now like Japan and can enjoy zero inflation, huge budget deficits and endless money printing as the state buys back much of the debt it issues. Japanese society and its economy has a strong savings culture, an ageing population that is cautious and a long post 1990 crash  tradition of no inflation. The US economy is showing that it still has a lively turn of speed on prices when stimulus is applied. The Fed assures us the rises will be temporary. That would be a more certain outcome if the Fed recognised as the Bank of England has done that Quantitative Easing has to come to an end as the economy recovers. It seems quite a lot of the dollars end up wanting to invest in UK companies, with a rash of bids outstanding.

This week the government announced its support for hydrogen as a transport fuel and as a way of heating our homes. It said that it thought the hydrogen sector could create an additional 9000 jobs by 2030.

The UK economy has 31 million jobs, so the limited ambition for hydrogen this decade only sees an increase of 0.03% in employment if these hydrogen jobs are all additional.  It contrasts with the current 1,000,000 vacancies the job market sports. It implies pessimism about the speed of expansion and take up of this new wonder fuel. These jobs would add just 0.9% to the total available if they are extra jobs.

Hydrogen has obvious advantages over some of the other proposed technologies. Heat pumps for homes would be much dearer and less effective than adapting our current gas boilers to run on 100% hydrogen instead of natural gas. Batteries cannot offer sufficient power relative to weight for heavy trucks and other large vehicles.

The intermediate plan is to see if they can introduce 20% hydrogen into our current natural gas. That at least has the advantage that we can keep our current boilers. I never saw how it could be green to make us dump our gas boilers long before they have worn out, given the amount of energy it would take to replace them with Heat pumps.

The energy policy priority I am urging is to secure the construction of some more electricity capacity before thinking of new ways to use more electrical power directly or indirectly via hydrogen. Producing green hydrogen will take a lot of renewable power.

I am also pressing to make COP 26 about China, Germany and other large  producers of CO2 to catch up with the closures and changes the UK has already pushed through in the name of net zero.