Author: johnredwood

It has been widely accepted that the Iranian authorities made a tragic mistake. They now confess that they wrongly thought a civil airliner with 176 people on board was an incoming cruise missile.

In a world desperate to calm tensions it is probably wise to accept the latest Iranian explanation of what happened. It is important, however, that Iran learns the lessons of this tragedy. The plane they shot down had only just taken off from their main civilian airport.  It had been given clearance by the Iranian authorities for take off, and must still have been in closely controlled airspace adjacent to the airport. Their military need to know of civilian movements from a central civil aviation hub under the control of their government. They could always instruct the airport to avoid take offs at times of high tension where and when  they might unleash missiles.

It appears that many people in Iran are now angry with their government over the delay in offering this latest explanation of the last seconds of the airliner, which in turn is reminding them  of their dislike of other features of the Iranian regime. Iran’s stance supporting various terrorist movements around the Middle East, and backing proxy wars against  Saudi Arabia and other Sunni states has led the USA to impose strong sanctions on Iran. These are gradually damaging the Iranian economy, and are forcing Iran to find sales outlets for her oil away from traditional markets in the West. Some Iranians also dislike the disregard for personal freedoms and the limited adherence to human rights.

Mr Trump clearly still does not want to go to war with Iran. Because he had signalled his wish to avoid military encounters in the Middle East he felt Iran saw this as weakness and thought they could attack the USA and her friends in the area as they chose. The President countered with an unexpected targeted attack on the high command of Iran. It was a formidable demonstration of the powers of US military technology, knowing exactly where a named individual would be and being able to kill him from a distance with no US individual needed anywhere near the scene. The Iranian government thought they saw an opportunity to speed the USA’s departure from the Middle East, hoping they could accelerate US withdrawal of troops from Iraq.

The US President hopes he has found a technological answer to so called asymmetric warfare. If Iran uses terrorist groups and informal armies to kill Americans and damage US installations, the USA will use precision to kill the leaders responsible. The danger is a possible escalation. The fact that so many Iranian people now think their government has gone too far is a better augury. Any sensible person wants peace, which means different future conduct by Iran to be matched by the USA responding favourably to such moves.

Members of the Monetary Policy Committee are now telling us that maybe they should cut interest rates after all. Having watched as their tight money policies predictably slow the economy, they now express surprise at what they have done and seek some change of tack.

I am not proposing a 25 bp rate cut. I would urge them to look at the substantial tightening their Bank has undertaken through changes to the capital buffers, tough guidance on lending and the cessation of the Funding for Lending scheme. There is practically no money growth in the UK, implying continued slow performance from the economy.

Meanwhile the reintroduction of Quantitative Easing by the ECB has led to a spurt of money growth which probably heralds some pick up in the economy later this year. The Fed has stimulated a sharp rise in money growth in the USA which probably means a decent recovery for an economy still growing faster than the other advanced countries as the year advances.

Why has it taken the Bank so long to notice the obvious? Why are they still so out of line with all the other major Central Banks of the world? This institution got the ERM comprehensively wrong, the banking crisis and great recession hopelessly wrong and now is getting the world slowdown wrong.

Some write in to tell me increased spending needs to be accompanied by reform to ensure better quality and efficiency in delivery of the services provided. I agree.

Let’s take the case of schools spending. The government is promoting Free Schools. They have greater freedoms over the curriculum, teacher recruitment and rewards, and management. They can vary the school day and the length of terms. They receive their money direct from central government, removing the Council’s involvement and costs. 30% of these schools are rated outstanding, compared to a 20% level for all schools.

The government plans to drive forward its schools reforms, encouraging more free schools and ensuring more of the money available in the education budget gets to the schools where a Local Education Authority is still involved.

I wonder what is the point of Local Enterprise partnerships. They involve themselves in parts of the transport and training budgets in particular, but there is overlap with Councils who make local transport decisions and central government responsible for the national networks. There is an argument for having just two levels of decision making an budgets, under elected supervision, at central and local government levels.

The costs of government can be reduced. The preparations for Brexit can be achieved more cheaply. We need no more wasteful preparations for Brexits that Parliament blocks nor over the top preparations for eventualities that are not going to take place. Whitehall was gripped with unrealistic pessimism which cost us needless spending.

Government should stop borrowings by Councils that want to acquire portfolios of commercial properties that they buy off the private sector outside their areas. We do not need Councils to become portfolio investors, often buying shops the private sector thinks will fall in value. There may be a case for Councils being involved in new property development investments in their own area, but again there need to be controls over the extent and the wisdom of the investment.

The new fiscal rules require the government to only spend what it collects in taxes, with the exception of capital investment. Given the increases promised for schools, the NHS and the police, this means that the government does need to be careful with its spending. If it has other priorities for additional money, it will need to improve the efficiency of the spend elsewhere or identify programmes that are no longer needed.

It is anyway necessary to regularly review spending and to challenge public sector managers over how  well it is being spent. Today I invite contributors to send in their best ideas for things that could be cancelled or trimmed from the present large budgets.

My own list includes some large items. I would cancel HS2, and spend some of the savings on more immediate and necessary improvements on rail routes into cities and towns, especially in the North and Midlands. London is currently receiving money for Crossrail and for tube improvements.

I would transfer some of the money required to be spent on Overseas Aid to housing, NHS capital and new school provision to represent the first year costs of refugees and economic migrants who need homes, access to surgeries and school places for their children. These are allowable costs under the overseas aid definitions.

I would toughen and spell out the terms of any future payments to the EU, as we do not wish to be paying more to them once we have properly left at the end of this year. The EU will have benefitted from an additional 21 months of our budget contributions thanks to the delays imposed on our exit by the last Parliament anyway.

I would promote faster growth in the ways set out on this blog, which will reduce the numbers out of work and so lower the benefit bills for a good reason.

As forecast here the latest figures for GDP growth show that the combined fiscal and monetary squeeze administered by Mr Hammond and the Bank of England have had their predicted effect. The economy has not been growing for the last quarter and the overall annual growth rate has tumbled towards German and Italian levels.

The USA is still growing considerably faster thanks to big tax cuts, a fiscal stimulus and active encouragement of growth and sensible lending by the Fed, their central bank. Never has UK policy been so much at variance with global policy as today, with the rest of the world’s central banks fighting recession and the UK one fostering slowdown.

The delay in the budget until March means the cavalry of some fiscal stimulus does not arrive until April. Meanwhile some Monetary Policy Committee members openly muse about a quarter point cut in interest rates, though with no great sense of urgency. What the Bank should be doing is renewing its old scheme for Funding for lending, reversing its most recent decision about capital buffers for commercial banks, and changing its advice on lending for home and car purchase and for small business lending where there is adequate income and capital cover for the loans.

The Treasury needs to lift the IR35 tax changes which are damaging small contractors. All branches of government need to engage with the need for faster growth and join the international consensus that we need to fight slowdown now.

The government will legislate to introduce a points based system of migration control. The plan is to reduce numbers coming in to take low paid work, and to ensure anyone entering to work comes to a job that has been identified.

The government has  not set out any numbers yet, but presumably the plan is to have fewer migrants in total than we have been experiencing in recent years with EU freedom of movement. This should have a knock on effect to national and local plans, which currently need to cater for a large and continuing expansion of demand for homes from a variety of sources including from strong inward migration.

In Wokingham the Council has responded with a large approved building programme under the current local plan. As we look forward to the successor plan we need to reduce the future numbers of extra homes planned to take account of the large number already allowed. We need green gaps between settlements, protection of woodland and good farmland, and maintenance of flood plain.

Many of the homes now being built are being built on low lying land which creates more drainage problems. There are limits to how much drainage can achieve as it just dumps the water more quickly into the river system which itself is prone to flooding.

We also need to plant more trees and create more woods, not rip them out to concrete over the landscape.

This week the outgoing Governor of the Bank of England gave a speech which was read as dovish and temporarily drove the pound down. He set out how despite low interest rates the Bank could if necessary ease money policy more. He did not encompass all of the ways in which the Bank could ease but was right about the possibility and the general magnitude of flexibility left in the system.

There were two glaring omissions from the speech. There was no detailed examination of the worldwide Central Bank moves to ease over the last few months, as practically every other Central Bank has joined the necessary move to stop the global slowdown and stimulate growth. China has lowered commercial bank capital requirements and brought forward local authority borrowing. The Fed has cut interest rates three times and pumped money in at the short end. The ECB has resumed Quantitative easing. Brazil, Turkey, Australia, New Zealand, India and many others have cut rates. The UK has done nothing and has ignored the slowdown.

The second is he did not refer to the substantial tightening the Bank has carried out . Contrary to the global trend the Bank has just doubled the countercyclical buffers restricting commercial bank lending. Its words and actions have until Mr Carney spoke this week helped boost the pound, in itself a monetary tightening.

I ask why the Governor did not comment openly on these moves and explain the different path the UK has taken. I think he should seek to justify the tough policy being followed and tell us how this affects growth. He should understand and explain the FPC and MPC interactions and the significance of balance sheet moves by both the Central bank and the commercial banks to money conditions and to economic growth. It looks as if the Bank has yet again misjudged the situation. He talks too much about  alleged Brexit impacts and not enough about the global and domestic policy influences on price and output which are dominant as elsewhere in the world.