Author: johnredwood

U.K. productivity has been disappointing this century. The Chancellor and civil service call it a puzzle. The main reasons are obvious and need treating.

The public sector is the main cause. There has been no productivity gain all century so far. There has been huge spending on many more computers and digitalised services, and reductions in customer facing staff. At the same time there has been large scale recruitment, many promotions and much increase in the complexity of process and audit. There has been a proliferation of new public bodies and of EU and domestic regulation. Much of this has failed to make things safer and better.

The second cause is net zero high priced energy policies leading to accelerated run down or closure of highly productive sectors like oil and gas, steel, and other energy and capital intensive manufacture. There has been growth in labour intensive services instead. Even successful and internationally competitive sectors like banking  and business services have  had to recruit many more employees to implement waves of additional regulatory requirements.

The simplest way to lift overall U.K. Labour productivity is to reverse bans on energy using industry and go for lower energy prices.Essential to the task is also to effect a managerial revolution in public services. I will be writing more about this following yesterday’s headline agenda for change.

If anyone wishes to comment on Syria feel free to do so. The U.K. does not have any military commitment there and should leave it to Turkey, Lebanon, USA, Israel and Iran that do have military commitment to sort it out with the new Syrian transitional government and each other.

There are numerous ways to boost public sector productivity.

1. Recruitment freeze, forcing managers to promote or transfer existing staff into the important roles and eliminate other jobs as people leave or retire.

2. Regular review of old initiatives to wind  them up and transfer staff to better uses. Old initiatives in government often linger on long after the Ministerial impetus has gone.

3. Rule against both employing staff to do a job and employing consultants to do the work for them, Consultants  should only be used where the state lacks expertise and does not need permanent expertise of that kind.
4. Contract out more activities. Give staff the opportunity to buy out or be given their activity with an initial contract to supply the government.

5. Reduce office space for home working, with more hot desking.

6. Sell surplus assets.

7. De stock with more just in time delivery contracts for bought in goods.

8. Review energy use in public buildings, More insulation, better thermal controls.

9. Try to avoid heavy use of bought in contract Labour at higher pay than existing staff.

10. Identify overlap and excessive process by function to reduce duties of various departments and quangos.

 

Some briefing from the government suggests they are not willing  to agree further substantial increases in public spending as they did for 2025-6 in their first budget, or as the previous government did from the outbreak of the pandemic in 2020. Given the large cash and real increase in both health and welfare spending in the last five years attention should shift to getting value for money for all the increases agreed so far this decade.

I will update my thoughts on controlling public spending whilst improving core public services in a number of blogs. Today let us begin with the second and third largest increases in spending in recent years, Bank of England losses and debt interest.

There is no need to restate the detail of how the Bank’s losses could be slashed if they stopped selling bonds in the market at much lower prices than they paid for them and if they adopted the European Central Bank approach to paying interest on commercial bank reserve deposits.

When it comes  to debt interest the numbers surged 2022-4 thanks to the Bank losing control of inflation. The U.K. has issued substantial indexed  debt. It then charges to public spending the increase in repayment value of the debt as it occurs, though the Treasury does not make these cash payments. On maturity the government borrows the enhanced cash cost of repayment to meet the extra  bill.

As the Bank cannot be trusted to keep inflation low it would make sense to stop issuing indexed debt or greatly reduce its quantity, to avoid any future surge in these accounting costs. To control the rest of the debt interest programme the government needs to reduce the build up of  borrowings. Bringing spending and tax revenues into line is the obvious way to do this but governments find this difficult.

In order to speed transition to less borrowing government should in the short term have more recourse to selling assets it does not need to own. It can get on with the sale of Nat West, Channel 4, investments held in the U.K. Infrastructure and British Business banks, surplus property, local government investment holdings, and other assets.
The aim of lower borrowing should be to get the average interest rate down. The last budget put the 10 year rate and some related mortgage costs up. With a lower deficit and better spending controls it would be possible to lower the average borrowing rate by say a quarter which over time would bring down borrowing costs from current elevated levels.

This week I took a train from London to Ipswich and back.

There were two plus points. There was good service frequency, giving me plenty of  choice of trains. The out bound train ran to time so I could get to my appointment.

There were plenty of bad points. The seats were in the modern way exceptionally hard and uncomfortable. Tickets were checked both at entry and exit on stations and on board the train, requiring more revenue staff.

For my return I got to the station 40 minutes early. There were two earlier trains I could have caught. Both had very few occupied seats. The ticket office told me the charge would be 260% of the original ticket price to switch trains as I had bought my original ticket in advance. This is silly. I would have paid a modest handling charge with some extra net revenue for the train company  in return for the convenience of an earlier train. It would have been extra revenue for them. Why so unfriendly to customers?

The train back left on time  but had to run slow through East London owing to “ congestion”. A timetable based system should work better than that. More passing places for faster trains would help.

As a taxpayer no doubt I have to pay more for that trip to cover the subsidy as the trains had such low passenger occupancy. The company was running very long trains for not many passengers , meaning it was wasting a lot of energy taking too many unneeded coaches with it.

As always with train journeys there was considerable extra cost and complication getting to and from the station by other means. Central town and city stations are difficult to access, apart from London where you can use the tube.

Electric trains often need gas power stations to supply the energy. When calculating the  CO  2 production you should calculate it for the whole journey, not just the train ride part. Last year the railways needed £33 bn of taxpayer subsidy and capital spending for well under 10 % of U.K. travel.

I agree with Keir Starmer that spending £100 m on a bat tunnel over a small section of HS2 is a bad idea. The issue is what is he doing about it?

I do not recall him previously intervening over the crazily escalating costs of the project. He is not this time identifying excess costs in HS 2 that he can control.

HS2 is a crucial example of state investment failure. It has been completely nationalised for its whole life, and has been given unbelievably large sums of money as it runs through any budget or spending buffer its highly paid executives get Ministers to approve.

I voted against it when Parliament decided to go ahead. The original business case was poor, depending as it did on taking passengers away from the existing routes. Now costs have more than trebled the business plan is one of ruinous losses.

The PM implied the very favourable treatment of bats in the planning process will be downgraded, yet when a Minister was asked to explain how  and when there was no answer. The PM needs to do more than express public anger late in the  day about one detail of a badly failing nationalised industry. As its custodian with power to change the management and change the project he needs to tell us exactly how he will put it right. This is about more than a bat tunnel or £100 m. It is about a £100 bn dud nationalised railway, greatly delayed and cancelling planned services to Northern cities.

So just five months in the government dumps its most attractive and exciting promise to make the U.K. the fastest growing G7 economy. They want to perpetuate this century’s experience of falling further and further behind the US, clinging to EU style slow growth, high taxes and bad regulation and cosying  up for more of it.

Their excuse is they want a target that relates to how we feel and lead our lives. Boosting people’s spending power is fine, but of course it  would have happened with the faster growth they offered us for the election. Difficult to achieve without faster growth.

It makes many other Labour policies unhelpful. Most people who can afford it want to buy a petrol or diesel car. Labour will ban them soon.

Most people think U.K. energy prices are too high, cutting our real incomes. Labour put them up and want to close down more of our cheaper power generators.

Most people think their cars are the best way to get to work and the shops. Labour try to make driving dearer and more difficult.

Most people think taxes are too high and there are too many taxes. Labour puts them up on an industrial scale.

Many find it difficult to contact and deal with government who want people to deal with computers under threat of punishment if they make a mistake.Labour serves the civil servants not the public.

 

The railway is largely nationalised. The four train companies already run by  the state run like the others over fully nationalised track, signals and stations to government controlled timetables. Three of the fully nationalised ones have very poor records for cancellations and delays.

As we go into 2025  we learn there will be more inflation busting fare rises  next year with other train companies to be transferred to state control.Far from the end of the need for profits to bring fares down, the arrival of bigger losses and the limits on subsidies will drive prices up more.

British Rail was in continuous decline as a nationalised industry. It was a big loss maker.It kept getting rid of staff. It lost passenger numbers regularly. It did not adjust to changing patterns of travel. It lost much of its freight business by being too inflexible over waggon loads and failing to put branch lines and sidings into new industrial parks in the way it had before WW2.

Nationalisation of the railways will bring higher fares, no improvements in service quality and insufficient innovation to reflect changing travel and demand patterns.

There is talk of renationalising the steel industry. Why pay to take over an industry which dear energy ,high taxes and other problems have just led into closure. Why buy a steel works with blast furnaces that are shutting? The government is wrong about losing basic steel making. If all it wants is some steel recycling plants there are cheaper ways of getting the private investment they need than nationalising what they partly replace.The government could hold a competition to see who would build and run recycling plants and to see how much subsidy and other support they would want.

 

One of the main reasons the  US is a lot better off than the U.K. and growing much faster is the UK’s self harm policies in the name of net zero. Under President Trump the US increased its output of oil and gas by 50%, adding plenty of extra tax revenue and well paid jobs. Even under President Biden more oil and gas licences were allowed and output went up a bit more. Both Presidents put America first and encouraged much more US based manufacture by tax breaks and subsidies. As a result the USA was able to save Europe over the Ukraine crisis, sending LNG from its own surplus to replace Russian gas. Meanwhile the current U.K. government has

1 Banned all new oil and gas exploration

2 Delayed or blocked opening up new oil and gas reserves about to be developed

3 Increased high windfall and corporation taxes on domestic oil and gas to ensure remaining investment is throttled

4. Strengthened emission trading, carbon taxing and high company  tax regime and put up managed energy prices to make high energy using business in U.K. very uncompetitive

5 Allowed policy mix to lead to closure of Grangemouth refinery to make us more dependent on imported oil products

6. Confirmed inherited policies and approved closure of all remaining  steel blast furnaces

7. Failed to commission new gas fired power stations which previous government was looking at, and altered policy to end their use by 2030 to decarbonise generation then

8. Delayed decision on which bidder will take forward work for a fleet of new smaller nuclear stations

9. Brought forward ban on all petrol and diesel car sales to 2030 and failed to remove fines for unrealistic inherited targets. Plant closures now following.

10. Failed to find a buyer for Britishvolt giga battery project which had entered administration

11. Unconcerned at hostility of policy mix to ceramics, cement, paper, glass, aluminium, petrochemicals and plastics manufacture in U.K. Likes the  import model.

Policy needed  amendment to promote industry when they came to office. Instead Miliband’s sole preoccupation with domestically produced CO 2 has made the U.K.uniquely  hostile to high energy using industry. It is no good the  Industry Secretary saying he doesn’t agree with deindustrialising when that is his government’s  policy. It is a tragedy for the U.K. It will bizarrely increase world C0 2 given all the extra fossil fuel expended on the imports.

 

 

The government thinks it has to choose between following the EU more or the USA. As its main aim is faster growth to afford better public services, it needs to recognise this century the US has been growing more than twice as fast as the EU. Making the U.K. more like the EU would mean dragging our low growth rate and GDP per head further down  to get to the EU average. Why do that?

US faster growth hinges on four big differences

1. Going for so much more output of domestic gas and oil, whilst the U.K. is seeking to accelerate our exit from oil and gas production. This sector is a big source of tax revenue for public services, and of well paid jobs.

2. Going for abundant cheap energy. US electricity and gas prices for industry are around one third or less of sky high U.K. industrial prices .The U.K. is busily closing down steel, ceramics , cement, paper, glass, aluminium and much else as energy is so dear. The U.K. makes energy dear with high taxes, carbon pricing and emissions trading.

3. Allowing and encouraging digital revolution companies to expand. The US has led the world with on line shopping.software, search, data  centres, A I and the rest. The U.K. and EU have sought to regulate the industry and to find ways to fine and limit the US success stories,

4. Spending a lot on defence with plenty of spin off from home based defence production to civilian applications. The EU and U.K. have spent less, imported more and innovated less.