Author: johnredwood

We are assured by a desperate Defence Secretary that the money available for defence will be 3% of UK GDP in the next Parliament. This is a way of telling us he thinks it ought to be at that level but it will not be this Parliament. What is the point of saying that? He is very unlikely to still be Defence Secretary in 2034. The PM and the government might be swept away in 2028/9 if they stay this unpopular.

What he needs to do in his Review is give us an honest appraisal of the strengths and weaknesses of our current forces, a statement of what they need to be able to do in the years ahead, and construct a budget of essential spending for the next three years. It is obvious we need to spend more on cyber activities, on drones, on ammunition stocks, on fast missiles and on an Iron Dome style missile and drone defence system for the home islands. We also need to improve the offer to our personnel, with better quality and more stable housing arrangements.

The Secretary of State has taken an interest in better housing. More staff could have a home base, and more could be given help to buy their own home near the base. They could even be allowed to buy a home on the base on a contract which required them to sell it back on leaving the service at a price enhanced by the general movement in home prices during their period of service. That way they would have a deposit or substantial capital contribution  for their first home in civilian life and the MOD keeps its property at base. This scheme would bring private capital into service housing to the advantage of the MOD budget, and would ensure people leaving service had some capital for a home of their own or already had a home of their own to relieve the stress and pressure of ending without somewhere to live.

 

  The PM claims a hat trick of wins with 3 international Agreements. They reveal a hasty set of concessions to overseas interests and a lack of control of the detail for the future.

 

He thinks his Chagos deal secures our joint base with the US in the Chagos. The small print does not prevent the new owners inviting in people to populate the other islands and pick disagreements with those operating the base. It does not protect the marine zone, and could result in Chinese and other fishing vessels coming into those protected waters. Surrendering the freehold for no good reason leaves us and the US exposed to what Mauritius wants to do. The PM told us China opposed the deal, only to see China come out and broadly welcome it. It was an obvious win for China, a friend, ally and financier of Mauritius.

He thinks his US deal protects us from US tariffs, at the price of higher tariffs on our exports and lower ones on US exports. That could be the best deal on offer. We now learn it has not come into effect and there is no agreed legal text we can read to see all is secure. The government is left having to ask the US if we are indeed exempt from the latest 50% steel tariff. They should be telling us we are exempt from it and showing the world the text they agreed to secure tariff free steel. That is what they told us they had secured.

The EU re set seems to concede the big principle that the UK will have to be a rule taker from the EU, at least in food matters, and concedes the principle that the UK will have to pay for this submission to cover EU costs. It does not secure the easier entry to EU Airports , the freer routes for musicians to go to perform nor the less friction for our food exports the UK promised. All these things have to be negotiated and put into EU legal text in due course. The UK has paid to play, conceded to get talks. 

Surely a lawyer should look after his client, the UK, better? Nothing should be agreed until everything is agreed. The final text needs to be in the UK’s interest. 

The welfare budget is rising fast. The £296 bn of 2023-4 is forecast to hit £378 bn or 28% more by the end of the decade. Sickness benefit is estimated to increase from £48.5 bn to £75.7 bn or 60% over the same time period. There is a surge in people claiming an inability to work. There are over 900,000 young people not in training, education or work. Mental ill health has increased substantially.

The government is alarmed by this development. They say some of the right things. They  want to get more people into work and are offering more support and back up. They agree with the Iain Duncan Smith reform of welfare to make it more worthwhile to go to work, and are completing the roll out of his universal Credit system. Yet without more reform and or tougher enforcement the bills keep rising.

Some of their backbenchers are pushing for a more relaxed approach to benefits. They regret the clumsy and unpopular removal of the pensioner fuel allowance, opposed by all other parties. They are concerned changes to PIP payments to the disabled could catch the wrong people, harming people with long term serious disabilities. Opposition parties want to see more the detail. Many are now pushing to remove the two child limit on the child payments under Universal  Credit going to the unemployed and low income families. That change was a modest one which now saves more than £3 bn. It would be odd to add a reform to spend more when parties find it difficult to identify easy wins in cutting costs.

All can see how much better off we would all be if hundreds of thousands of people not working could get jobs. They would also be better off . Any ideas on how to do that?

In the USA Elon Musk promised $2 tn off spending before the election and  a halved $1 tn of savings  when given the job of setting up DOGE. As he moves  on from that task Congress is busy agreeing a further rise in public spending with no sign of big savings built into the budget numbers. I do not doubt Mr Musk’s energy or determination to cut costs. He did expose some scandalous wastes. He assures us his process for cost down will now embed and bring forth more results. Time will tell. What he has done is made people more sceptical about those who promise to breeze into power to boost productivity and cut waste, as it proves difficult.

In the UK the government is seeking cuts in admin and back office on a more modest scale and seeking to turn round bad productivity. It too is finding that difficult to land. It is still adding stupid spending like the Chagos and more migrant hotel places. Reform has come out with bold plans to make major cuts in public spending to pay for some tax reductions and benefit increases, People will watch with interest how they get on in the 10 Councils and two Mayoralties they won in May. So far there is no sign of them cutting budgets below inherited levels.

The task of reducing public spending growth  is urgent. It needs  clarity about which things government should stop doing, with the identified costs that will cease. It requires careful negotiation with staff about how to use staff freezes, voluntary redundancies, better technology to allow smarter working. It needs good use of bonuses and promotions to transform quality, productivity and outcomes for public service users.

The headlines from the IMF were a relief to the government. By their low European standards for growth the UK is forecast to do OK, at 1.2% this year and 1.4% next year. No one seems to think Europeans can or should do anything about the ever growing gap between US and European outcomes. Because the large deficit is to do with increases in  spending rather than with tax cuts the IMF excuses instead of condemning. Their permanent bias to larger government and more state intervention shines through even though all the evidence shows the more of those you have the less well the economy performs.

The IMF does however contain some warnings in its text, probably recognising the likelihood they are being too optimistic. They say the risks to the forecast are “ to the downside” . They say the Bank need to watch stubborn inflation though they expect rate cuts. They accept that spending pressures are pushing up borrowing. They worry about the government’s scope to borrow. They praise the idea of the government borrowing for short terms given the way the cost of borrowing longer has shot up since the budget.

On the day of the LDI pension crisis in October 2022 the 30 year bond got to 4.8% and the 10 year to 4,38%. The Bank and Opposition blamed Truss but the big sellers of bonds driving  the bond prices down to drive the interest rates up were the bank of England and the Pension funds. Recently the 30 year has been 5.5% and the 10 year 4.7%. Both rates have been well above the October 2022 spike all this year so far. Markets are worried by the big increase in spending and borrowing the government put  through in the budget and are not in a mood to take much more increased spending.

According to Treasury and OBR numbers higher rates of inward migration boost growth and can lower the deficit . It is of course right that if you add in a lot of new low paid migrants GDP goes up. It is also true GDP per head goes down with the encouragement of more low paid employment.

The OBR we read is minded to increase their forecast of the deficit if we have fewer migrants. This is odd. Low paid and no paid migrants need subsidised housing. They need  a range of free and subsidised public services. They add to the need to build new roads, surgeries, schools, hospitals, power generation and sewers. Much of this has a direct public spending cost.

The OBR may need to revise its assumption about productivity growth down for other reasons. Public sector productivity is still well below 2019 levels and the public sector is out recruiting. Private sector productivity has the huge headwind of accelerated energy and industrial closures. Oil, gas, petrochemicals and the manufacture of petrol cars all deliver high labour productivity. All are being run down by bans, high energy prices and regulations. Current OBR forecasts say productivity will recover to 2% a year by the end of this decade, and average 1.25%

The government is rushing to accept a Sanitary and Phyto  Sanitary Agreement with the EU. They hope such an Agreement would allow the UK to sell more meat  and dairy products into the EU with less inspection and documentation of the products. These products are already tariff free under the TCA, whilst the non EU products in these categories face high tariffs.

There are many questions to ask before signing any such EU drafted proposal.

How wide will the reach be of present and future EU laws and regulations? All the time we were in the EU there was substantial regulatory creep into most areas of business and family life.

What is the proposed cost the UK would  have to pay to be regulated?

Will the UK have to stop researching and making new products that do not conform with EU rules? Post brexit we have developed new fertilisers and new ways of farming.

Will the EU  rules undermine any of the new trade deals we have negotiated with other countries? Which TPP, Indian and US products would the EU make us ban or impose cumbersome rules on?

What will the impact be on inflation as we become more dependent on dearer EU imports?

What is the likely increase in our exports to the EU and their exports to us? Given they  export more than 3 times the amount of food and drink to us as we do to them, will these measures further increase our trade deficit in food?

Will we have to go back to mainly  importing EU citrus fruit with high tariffs on citrus from elsewhere?

 

The Conservatives introduced a cap on Universal Credit of 2 children for two reasons. The overall benefits bill was rising too fast. The present government agrees and says it wants to cut it. It did not seem fair that parents going to work to pay for their homes and children should delay having another child or limit their family size because they cannot afford another mouth to feed whilst  people not working would be paid by the state to have another child.

As Kemi Badenoch made clear in her GB News interview yesterday, she thinks it is wrong to improve the benefits offer to migrants when most in the country and the government say we need to get migration down.

What do you think about scrapping the cap? If you support it how would you pay for it? What impact do you think it will have on migration? Do you think our benefits offer to migrants is too little?

Should a distinction be made between those on UC whilst being in low paid work, and those living entirely on benefits?

The US will impose higher tariffs on the rest of the world as the President seeks to onshore more investment, The EU is a protective Customs Union imposing high tariffs to keep out foreign food and other items, imposing large non tariff barriers on overseas goods and services. China makes it difficult for foreigners to invest and sell into their market. These large players will end up with more barriers as they act out their trade war.

In these conditions it is unlikely the UK  can grow faster by promoting more goods exports. It is made impossible if the government perseveres with dear energy and bans on oil, gas, petrol and diesel cars which have been important exports for us.

So what we should do as part of  a Growth  strategy is concentrate on import substitution. There some very easy big wins:

1 Lift the ban on discovering and producing more North Sea oil. Cut our oil imports.

2. Lift the ban on new gas production. Slash LNG imports.

3.Require all new military vehicles and ships to be made in the UK.

4.Rescue oil refining by cutting taxes on oil and home production.

5Reclaim our fish and offer support to expand our fishing fleet

6. End  the progressive ban and high taxes on making and selling petrol and diesel cars

7. Require anyone putting in solar and wind farms with subsidies to meet a minimum  UK  content for buying the equipment

8. Exempt new homes built  with 90% UK materials and components from Stamp duty on sale

9. Require all public bodies and the Motability  charity to only buy UK made vehicles

10. Require the electricity industry to cover an average 100% of UK demand over a year . This is vital to national security as well as lowering the import bill.

 

 

Our membership of the ICJ   is a model of how to belong to an international body if you want to. We joined by unilateral declaration. It made clear the ICJ has no power over us in disputes between the UK and the Commonwealth. At any time we can amend our Declaration unilaterally . In 2017 we strengthened the omission of certain nuclear matters. We could cancel our membership any time.

The government’s idea that we were about to lose a case in this court was odd, as for years there has been no such move. Not only does the ICJ not apply here but how could Mauritius or the Court enforce any such ruling as the Diego Garcia base is a key US military asset?

This deal is another example of the government giving in needlessly in international negotiations and sending a big bill to the taxpayer. Every time the PM negotiates the UK loses.

I did point out well in advance of the surrender the legal position and showed the relevant document on GB News.