Author: johnredwood

This week the pound has reached $1.38, a level it was at in late  February 2016 before the vote on leaving the EU. Its steady climb has received less attention than its previous fall, and is not usually attributed to Brexit in the way some try to explain any decline post the vote. This is a curious asymmetry in the commentary. I also wonder why they thought the pound often fell against other currencies when we were in the EU with no plans to leave.

Various contributors to this site keep alleging that trade would be very difficult under WTO rules with the rest of the EU. They need to explain how it is we have smooth trade with non EU countries at the moment under those same EU rules. They also ignore the fact that our current border  for trade with the rest of the EU is a currency, Excise, VAT, anti smuggling and pro safety border requiring a range of checks and illustrating how much of this work these days is done by electronic manifest and checks that do not delay the flow of goods.

The one area of trade which will be affected by moving to WTO trade arrangements in the event of no trade deal with the EU is the trade in food. This is the only area where high tariffs can  be levied, and are currently levied by the EU on imports from  outside the zone. Were we to adopt the EU schedule of food tariffs on leaving the EU, they would represent a  barrier to continental exporters of food to us.

Our trade in food is in massive deficit with the EU. They sell us the bulk of the £6bn of meat we import, and much of the £10bn of fruit and  vegetables. Since we joined the EEC/EU our home producers have lost substantial market share to the rest of the EU, and have found it very difficult to export to the continent. Our beef industry was banned from exporting for a long period, and our milk industry did not have enough quota to produce more. Since 1990 our meat output is well down, our milk output has flatlined and our potato output is down.

The Netherlands have been successful at taking market share for salad stuffs and vegetables. The Danes dominate the ham and  bacon market, continental cheese producers do well, and the French and German dairy industries also export large quantities to us.

If the EU decides against a free trade agreement with the UK then UK farms will have a great opportunity to produce far more fruit, vegetables and meat for the Uk market. We could return from  the 74% self sufficiency in temperate food to the 95% level we were at prior to the full impact of the Common Agricultural policy. We will also be able to remove tariffs from tropical food products which the UK cannot grow for itself, giving the consumer a better deal.

I have been sent a few copies of a lobby letter concerning the EU Withdrawal Bill which will have its Report stage in the Commons this week. The letter asks me to vote for an amendment that demands a full official economic assessment before MPs vote on any deal which may be agreed between the UK and the EU.

I see no need for more official  economic forecasts and assessments. There have been many of them, including several official ones prior to the referendum and more official forecasts since the vote. The official UK study – assisted by  the IMF and World Bank – prior to the referendum wrongly forecast falling output, employment and house prices in the year after the vote if we voted Leave. More recent official forecasts of the UK economy estimate continued growth by the UK across the period of our departure, which seems to me to  be more realistic.

The UK growth rate 2019-22 will depend much more on domestic policies pursued, and on the world economic background, than on any particular form of Brexit. If the UK government sets a sensible tax and spending policy, and with the Bank of England allows a reasonable expansion of money and credit, the economy will perform fine. As the world economic background is likely to be expansionary with tax cuts, fiscal stimulus, banking deregulation and more energy coming from the USA, easy money in the Euro area and Japan, and decent growth from the emerging market economies, that too will help.

It is difficult to see how the forecasters of gloom could   believe voting to leave the EU would damage our growth, or why actually leaving will damage our growth. They wrongly thought consumer confidence would collapse, and now have unrealistic views that we will lose trade because the EU will wish to invent ways of stopping their exports to us so they can damage our exports to them. They need to understand that the EU and the UK will remain under WTO rules whatever deal or lack of deal is achieved. These rules and low tariffs or no tariffs outside agriculture have allowed a good expansion of trade in recent years for countries accepting the WTO system.

Those who continue to argue that we need to be in the Customs Union of the EU, or need to copy it from outside the Union as we leave, need to answer two very simple questions.

Why do we have a large and persistent trade deficit with the Customs Union, and a trade surplus with the rest of the world trading with them under WTO rules?

Why has our trade been growing faster in recent years with the rest of the world than with the EU Customs Union?

The figures are quite stark. Our trade in goods  deficit with the EU widened to £96bn, and our travel deficit to £15bn. Our sales of services were quite unable to offset these large deficits in the way they do for our trade with the rest of the world.  Between 2014 and 2016 our exports to  the rest of the world  grew by 6.7%, whilst our exports to the EU grew by a little over 3%.

The good news is with or without a deal with the EU we will be trading with them under WTO rules, as both the EU and the UK are members of the WTO and accept its rules and its arbitration system for any disputes. The recently enforced Trade Facilitation Agreement that came into effect last spring from the WTO binds us and them to keeping border arrangements friendly to business with smooth procedures for the passage of legal goods.

Germany in 2016 exported £66bn worth of goods to the UK and imported just £33bn back from us. The Netherlands exported £36bn to us, and took just £18.6bn in imports. I will be looking in future postings at what we buy from these large exporters, and what opportunities there are to buy from elsewhere should the EU wish to impose new barriers on their trade with us.

If they want us to go to WTO terms we will be able to find cheaper imports from non EU sources and produce more at home.

One critic remarked that he could not support the Conservatives because they had never held up change or progress for a single day. He revealed a misunderstanding of Conservatism. Conservatives accept the past, and are happy to adapt and conserve all that is best from it. That does not mean we  wish to go back in time, freeze the status quo or resist positive improvements to people’s lives. We like the new as well.

Radical parties of the left favour more revolutionary action, Conservatives favour more evolutionary action. Both often seek the same high level aims. The main parties in the UK if challenged would say they wish to promote greater prosperity and freedom for everyone in our society. The disagreements come over how you do that, and over how far you should go in sweeping aside or remodelling the past. There are also some issues of definition over freedom, with Conservatives thinking more of freeing people to do things for themselves, and socialists thinking of ways the state can enable some people to do things within government control. This distinction is a matter of emphasis or degree, not an absolute.

Curiously today the parties of the left are more conservative than the Conservatives when it comes to the big issue of constitutional reform and our withdrawal from the EU. They are more radical when it comes to wanting a much bigger role for the state in our lives, in the hope that will create greater equality of outcomes. They fight every inch of the way to try to avoid decisions passing from the EU to the UK people and Parliament. They seek new ways to mimic the controls, spending, taxes and requirements that come from the EU. At the same time they recommend spending far more on state service provision, without discussing whether they could do this within the tight guidelines of the Maastricht budget criteria that the EU requires of its members.

Conservatives and socialists both want good quality public services, with healthcare and education delivered free at the point of use. Both want to spend more on developing those services, with disagreements about how much of this extra spending can and should come from the proceeds of economic growth and how much if any should come from tax rises.

Meanwhile the mood of the country is for the EU to get on with Brexit and tell us what if any barriers they wish to impose on their trade with us. The government should seek to up the tempo and remind them nothing is agreed until all is agreed, and no deal is better than a bad deal.

The third of the commanding heights of the 1940s economy to  be nationalised alongside steel and rail was the coal industry. It employed 700,000 employees in the later 1940s, producing around 200 million tonnes of coal a year. The number of employees slumped to just 235,000 by 1979. Many of the employees lost their jobs under Labour governments, who accepted a large number of pit closures as the industry  struggled with costs and falling demand. More job losses followed in the 1980s and 1990s, along with a bitter strike about whether individual pits could be economic or were exhausted.

Today there is no deep mined coal produced in the UK, and a very small opencast coal industry. We now import most of the reduced amount of coal we do need. An industry employing well over 700,000 at peak has all but disappeared. It was nationalised for most of the post war period, but this did nothing to arrest the long term decline. Indeed, there were occasions when the nationalised management took too pessimistic a view of the economic prospects for individual pits. I remember helping the miners at Tower Colliery take over their mine from the NCB when the NCB said it had to shut for economic reasons, and go on to make a success of mining more coal from it for many years.

The nationalised concern did have substantial investment programmes from time to time, developing a range of new super pits with better machinery and operating at larger scale. None of this arrested the long term decline in coal use and coal output. More recently governments have turned anti coal on environmental grounds.