Author: johnredwood

As expected the twin squeezes on the UK from monetary and fiscal policy along with a weak world background produced no growth in the fourth quarter of 2019.

For the year as a whole the UK managed a creditable 1.4% growth, a bit higher than I expected given the policy background and a testimony to the underlying strength of the economy. This means the UK outgrew the Eurozone again last year. This happened despite the world car manufacturing recession and the impact of higher taxes on UK homes and cars.

Given the weakening world background the UK needs positive action from the authorities to support the uplift in confidence generated by the result of the election.

After years of being wrongly told UK supply chains will be disrupted when we leave the EU, today there is surprisingly little discussion of the impact of the corona virus on world output.

  The Chinese  had to extend their New Year holiday production shut downs this year. Yesterday there was some return to work, but there must still be many closed factories, and  factories with reduced workforces. Some cities  continue with restrictions on travel and activity, and some people in China are isolating themselves at home for 14 days after contact with someone who had the virus.

The South Korean car companies have announced periods of closure as they are short of Chinese components. It is highly likely other companies and countries face shortages which may entail closing their plants for a period.

Meanwhile the worries about the virus have led to a big decline in international travel, the loss of tourism business in China and other parts of Asia, some loss of luxury goods sales which accompany travel by the rich and other knock on effects from the epidemic.

The Chinese economy is the second largest in the world and was meant to grow at 6% this year, meaning it was forecast to provide the single largest boost to world growth of any economy. In the first quarter of 2020 it is very unlikely the Chinese economy will be able to achieve anything like this growth rate. The oil price is down 20% from its January peak as markets worry about lost Chinese consumption and orders.

All this implies the western economies need a bigger monetary and fiscal boost to offset these negative trends from China. It also acts as a reminder that dependence on components from far away can be an additional worry or weakness in manufacturing.

The UK has many campaigners against carbon dioxide who worry about levels of man made gas being put into the atmosphere. I suggest today to them that the UK has been one of the most successful countries at getting its CO2 emissions down. They should now divert their energies to cutting CO 2 in places putting out much more and not cutting in the way the UK has.

They should start with China. China adds around  around 30 times more CO2 to the atmosphere each year  than the UK. It also puts out considerably more CO2  per head. At around 30% of world new CO2 output it is surely the place to start, as its output is still increasing.

If that is too difficult then surely they could turn their talents to changing the EU. After our departure they account for around 8 times our output with a higher CO2  output per head. They still mine and burn a lot of coal, which we have stopped doing,

Germany in particular needs attention. At more than double our CO2 output there could be quick wins. They might also like to campaign about the German motor industry which is still based around fossil fuels for most of its output.

Clearly it is much easier and cheaper to cut CO2 output in a country like China where there are quick wins and easy changes the UK has already made. It should also be welcome to the EU if we offer them advice on how we got to much lower levels per head than them, as their whole new economic and regulatory policy is based around CO2 reduction.

The new government is allocating more money to the police and recruiting more police personnel. At the same time figures have emerged showing a current low level of clear up of many reported crimes. I would be interested in your views on what the police priorities should be, as they set about deploying the additional police that become available to them.

Some say there is currently insufficient attention to burglary, breaking and entering and car theft. Others counter that social media hate crime can lead to crimes of violence, and that on line fraud is now a more serious source of theft than break ins. Given that the police cannot be everywhere and have  to prioritise their energy and time, what would be a good  balance?

How much attention should be given to traffic offences?  How can the police prevent domestic violence without getting dragged into many family disputes that will not end in violence?  Can we get better at spending  the big sums the state as a whole spends on troubled families? Then  there could be  less need for police intervention as social services and welfare have found ways to  get people through their problems that could otherwise spark anti social behaviour and worse.

Nationally there is considerable concern about knife crime, and a clear wish to see convicted terrorists kept away from harming the public more. There is also a strong wish to police our  borders better once fully out of the EU so we do not admit additional  criminals in the first place.

Yesterday I heard a short discussion on the media about the rising cost of renewables on the typical electricity bill. Some think it unfair that  low income consumers have to pay the renewable surcharge alongside better off consumers. Others think it right as we are all users of power, and the cost has risen thanks to the renewable surcharge. Those who want to take the surcharge off lower income consumers either want the whole charge put onto general taxation as a subsidy to the power industry, or want means testing of the bills with reductions for low incomes.

This raises the bigger question of how much are people prepared to pay to go green. In Chile there were riots over higher charges that led to the last global climate change conference having to move to a different country to avoid the protests. In France the gilets jaune movement started as a protest over high fuel taxes imposed for green policy reasons. In the UK it was popular politics to suspend or cancel  planned fuel tax increases.

As governments consider new tough targets for the next fifteen years they start to have more reality. They do mean according to their advocates the end of all diesel and petrol cars, the wholesale replacement of all conventional heating systems in people’s homes, the complete electrification of the railways and the total greening of the electricity generation system within a few years. Given the increasing reliance on electrical power it will also require a substantial increase in generating capacity.

I would be interested to hear views on how much of these  big investment and spending programmes should be paid for by the users and consumers, and how much from  higher taxes on those same consumers. The polling points to a tension between the numbers who think we should do all these things, and  the numbers who think they should help pay for it. This also has a bearing on the pace of change people want.

I do find it extraordinary that people write in to complain about me citing World Bank figures for GDP and Incomes per head for the EU, UK and USA. They complain I am attacking the EU because it shows  the EU with the lowest figures of the three.  I am merely stating the facts as set out by an international body these correspondents are usually keen to praise. I have no reason to doubt their past statistics, though I do not always agree with their forecasts.

As we prepare for full departure from the EU it is most important we look at what works. What does the USA get right to promote prosperity, freedom and happiness for the greatest number, and what does the EU get right? What do we wish to change, because we are currently following the EU model, and what do we wish to keep because it is good?

One of the big differences which will be contentious with some is the different approach to energy. The USA is increasing its output of oil and gas from onshore deposits. The EU is against further exploitation of oil and gas deposits and shale reservoirs at home, but is wedded to importing more gas from Russia. It is busy constructing a new large pipeline to increase its dependency on Russian gas. If you wish to promote higher incomes and more jobs at home you need to accept more domestically produced gas and oil. If you wish to be greener you need to reduce reliance on  Russian gas and find alternatives that meet your green requirements.

The USA has increased its oil output by more than fifty percent, taking it up to 13 million barrels a day this year. This big expansion in recent years has been an important boost to incomes and jobs. Meanwhile  Germany imports 90million tonnes of oil a year, and burns its way through 66 million tonnes of coal a year to keep the wheels of its car factories and other industrial activity turning. Burning so much coal is not a good idea in  the leading industrial economy in  the EU which claims it is a world leader in  removing fossil fuels.  The EU is a large user of coal but  is of course dwarfed by China which consumes 4 billion tonnes of coal a year. None of these industrial economies is yet able to rein in their use of fossil fuels in the way the Green movement would like.

The UK needs to move back to energy self sufficiency, without coal in  the mix. This may well require more UK gas to replace imports as well as further renewable electrical power.