Author: johnredwood

Today we will hear how non food sales in February fell.  This is to take the British retail Consortium figures of sales for non foods on a like for like basis, adjusting for expansions in shop space. The overall true figure is total sales of all items grew by 0.4% on the month, with food especially strong showing growth of 2%. Non food was affected by a later date for Mothering Sunday delaying purchases compared to last year.

Many shops continue to be pessimistic, as more retail spending takes place on line rather than in shops, and as severe competitive pressures keep down prices.

The budget is billed as helping drive productivity higher. That would be a good idea. If we work smarter as a country then each person can earn more. The government seems to have in mind labour productivity in its plans, though making productive use of capital, energy and other inputs also matters and can help make a country richer if done well.

The way to encourage smarter working and higher earnings must begin with fair taxation with low rates of tax on enterprise and effort. Politicians of all parties regard work as a good, yet all agree it must be taxed. Given the volume of public service we want as a country, it is true there has to be some tax on work. It is also true that if you tax work too highly you send it abroad, you persuade higher earning people to value leisure time more, you encourage early retirement. I trust the leaks about higher National Insurance for the self employed are just Treasury officials greedy for revenue and not inspired briefing. Starting a productivity drive with a big increase in taxes on some of the most productive people in the economy is not a great idea. Small and new business offers us scope for major adjustments in our economy and improvements in its performance. It is the new fast moving smaller businesses that often pioneer the modern more productive techniques and technologies, offer the new goods and services, and use labour well.  Cutting marginal rates of tax on enterprise, employment and business success will encourage more of what we need.

In both manufacturing and clerical work providing more machine power and computer power at the elbow of each employee raises productivity. UK productivity in factories in recent years has surged as elsewhere in the advanced world. What was done by hand and arm power in a sixties factory is now often done by robot or mechanical power. What was done in an office by people on typewriters, calculators and adding machines is now done by computers and electronic programmes with less human intervention. The full internet revolution has further to run to automate and take more of the routine out of office and factory working. The new jobs will be in machine minding, programming, managing and reviewing the output, and in designing and selling.

The waves of change that are often ascribed to imports and foreign competition also have been driven by automation. A more productive economy has to welcome these waves of technical progress and adopt more machine power to compete. It is then equally important that those who have lost their jobs as a result ar helped and trained to undertake the many new roles a machine driven culture produce. What can a  Chancellor do to bring this about?

He can and should concentrate on helping the public sector to adopt the new ways of doing things that will be smarter, higher quality and more efficient by using computer power. Productivity performance has been disappointing in the public sector this century.  He can and should  with the rest of government to do more to ensure the casualties of such changes are also winners, by backing retraining and recruitment into the new more productive jobs investment can spawn.

I awoke to an odd headline yesterday in the Sunday Times. The Chancellor we were told is going to set up a £60bn Brexit fighting fund.

Fortunately the Chancellor’s own words in  the same newspaper said no such thing. It was a silly headline. The government is scheduled to continue borrowing a bit more each year up to 2020, beyond our likely date of exit. The additional borrowing each year is now well down on the peak rates of the previous decade, and will continue to fall this Parliament. All the time we are adding a bit to state borrowing we cannot create a fund out of tax revenues.

Nor did the Chancellor write that there can be no net increase in spending in the March budget. He acknowledged that growth has come in faster and the revenues higher than forecast in the Autumn Statement. He has pre announced more money for vocational training and hinted at more spending on social care. He of course states his wish to see continued progress this Parliament in cutting the deficit further but has not said he wishes to stop all new borrowing. He will have some options as the Treasury and OBR correct some of their forecasting mistakes from the Autumn.

The headline about a Brexit fund is doubly misleading. The sum involved just happens to be the sum the rest of the EU would like us to pay as an exit payment. That is why we must rush to explain to them there is no such fund, no such money, as well as telling them there is no liability for us to have to pay. Nor does Brexit require a special fund. The future path of the UK economy is going to be mainly influenced by interest rates, the performance of the US and global economy, world commodity prices and their impact on inflation, and by the balance of domestic fiscal and monetary policy. In other words after Brexit as before the main determinants of our performance will have nothing to do with whether we are in or out of the EU, just as our past performance clearly got  no visible benefit out of being a member  of the EU internal  market. Inflation is rising as many have predicted, but so far UK inflation has risen in line with US and German because it is led by world oil prices, not by the fall in sterling.

In the EU we experienced two great crashes. One was caused directly by EU policy when we fell out of the mad and dangerous Exchange Rate Mechanism and plunged into recession. The second, the Great Recession and banking crash of 2008-9 was a common crash in the USA, the Euro area and the UK brought on by similar Central Banking and commercial banking mistakes in all three zones. The EU did not cushion or ameliorate the problems, and then added their own twist of the recessionary knife with the Euro crisis that followed.

Let’s hope our authorities have learned from these bitter experiences so we have a good economic performance as we leave the EU. To do so we need interest rates that allow continued expansion without damaging the pound further, as the US hikes her rates. We need some relaxation of credit for good projects, home purchase and other affordable purposes in the private sector, and we need accelerated rates on investment in infrastructure to catch up with our needs.

We need to move on from  austerity.  The Treasury needs to write back some of the tax revenue it will collect over the next couple of years, that it took out of the forecasts in the Autumn Statement. It was too gloomy then. It needs to spend enough on social care, schools and the NHS to provide a good service. It can make spending reductions elsewhere, starting with the EU contributions and other items I have highlighted on this website.

It also needs to unleash more infrastructure investment. Much of this in energy, broadband and some in transport can be privately financed. The government may need to assist with loan guarantees, permissions, licences and co investment.  It needs to do more to promote enterprise through tax cuts. It has a programme to raise the 20% and 40% tax thresholds for Income Tax. It would also be wise to cut Stamp Duty rates to help homebuyers. It could offer entrepreneurs and small businesses additional tax relief.

Mr Trump’s plans to increase infrastructure spending, cut personal and company income tax rates, and relax banking controls to allow bit more lending all make sense. The UK is already well ahead of the US in lowering corporation tax rates for large companies, but needs to sharpen its competitiveness for start ups and smaller companies.  We should tax work, effort and enterprise less, as we want more of it.

I am glad the Lords have confirmed what I have long argued that the UK has no legal obligations under the EU Treaties to pay any one off exit payment or any continuing contributions after departure.

They missed out the even more important point  – UK Ministers have no legal power to make any one off or continuing payments after leaving. The payments would not be authorised. The legal base of the Treaty  supports our regular contributions but not the payments the EU have in mind.

The EU may well think it a good idea to ease the problems they have on our departure by charging us a huge sum for daring to leave. The answer is a simple and polite No to that request.

The EU needs to concentrate on making  sure it still has tariff free access to our market, which they also need. The good news is we are happy to offer them that. The bad news is they do not seem to be able to agree anything amongst themselves about how to respo0nd to Brexit. The EU Commission also seems to think it should try and threaten and bully us, when the sensible approach is to be helpful and courteous, as we are towards them.

The UK is offering them tariff free trade and the full rights of EU citizens to stay and work in our country. That’s a great and generous offer.  Why can’t they simply do the same civilised thing? Why don’t they take seriously their legal obligations under their own Treaty to have good relations with a neighbouring state  with a flourishing trade?

I have usually been an early and enthusiastic adopter of new technology. I liked the arrival of the mobile phone, thought the internet amazing and welcomed the sat nav. I automated business processes where this could take drudge work out and improve the quality of the product and the quality of work people were asked to do.

I don’t have the same enthusiasm for my so called smart phone. I’m not talking about a particular model or make. The faults of mine are likely to be faults of others.

My main need from a mobile phone is to be able to make and receive phone calls when on the move. I have good internet connections at home and in the office, with  a large screen computer, good keyboard for typing, and landline phones that work. I have no wish to use a small screen mobile with variable reception in these circumstances. I need my phone travelling by  car (hands free using when parked), walking or on public transport. I take an ipad for  computing at my destination or on a train  if travelling to a temporary location away from home and work.

The mobile phone has several disadvantages. Because it operates by means of a small screen if there is bright sunlight you cannot read it at all. Even not so bright daylight makes it difficult to read. Because you need to instruct it by touch it becomes finger printed, and  often your touch is taken as a different instruction from the one you intended.  Trying to type a message is difficult at speed because the letter pad is so small for any given letter. In addition, when the phone rings I need first to scroll the page, and then hit the receive bar on the second frame to appear. All this can take too long so the caller rings off. Quite often my touch does not register in time with the phone.  It means a lot of lost calls when out and about. It does not have a long battery life, so on a busy day you have to remember to take a recharger with you and plug it in somewhere.

It is not that reliable on a train and of course cuts out on the tube. Bluetooth links to the car do not always work, unlike the old mobiles which you plugged into the car system by cable which always worked.

It is true it can receive messages, offer me a moving map, provides a modest quality camera and doubtless other things I have not asked it to do. What I can’t accept is that is a smart phone. The truth is its a dumb phone,  a not very good one. I just lose more calls with it. The old  phones just required you to press one button to receive a call, and plugged into the car which also recharged them.

The Conservatives say that there is a simple choice for electors in the General Election. Do you want a government led by Mrs May, or one led by Mr Corbyn? Given the state of the polls and the current disposition of Parliamentary seats the most likely alternative to the current government is a coalition led by Mr Corbyn, including the SNP and the Lib Dems, rather than a majority Labour government.

It is true that various Opposition parties have said they do not want a coalition. They have to say that to seek to maximise their support and to get people to look at their unique party agendas. It is also clear, however, that were the arithmetic to fall in the right way for them,  b0th the SNP and the Lib Dems would be willing to do a deal with Mr Corbyn.

There are no other likely outcomes. We see and hear a lot of Nicola Sturgeon, but we know for sure she cannot become the Prime Minister leading a UK coalition, as she will not be contesting a Westminster seat herself. We know that the SNP, the Ulster parties and the Welsh Nationalists cannot hope to be the second largest party in the Commons, let alone the largest, to be able to lead a government because they are all contesting fewer than 10% of the total seats.

Only Mr Farron leads a party with a few seats in Parliament today and with a wide spread of candidates. However, the current poll ratings show Labour at more than double the ratings of the Lib Dems. UKIP  may field a lot of candidates. They have only ever secured the election of one MP in a General election, and he has now stood down and is supporting the Conservatives. His argument is that UKIP’s main proposition has been achieved thanks to the Conservative government’s referendum and the vote of the UK people.

This is why I agree with the Conservative proposition that the election is a simple choice between a government led by Mrs May and one led by Mr Corbyn.  The added risk that the SNP could be an important part of any coalition that Mr Corbyn might need adds to the muddle and chaos such an outcome would cause. It is difficult to see how a party, the SNP,  that wants out of the UK  Union can help govern it fairly, and difficult to see how a party which does not in effect accept the result of the EU  referendum could help secure the UK a good future relationship with the EU.

The EU this week issued a White Paper on its future. As many of us argued before the referendum, and as the EU’s 5 Presidents Report argued, the Commission sees the future of the EU as one of far more integration. This new White Paper complements the 5 Presidents Report which I explained at the time of its first publication, and goes beyond it. The Paper starts by reciting favourably the Spinelli/Rossi vision of a united Europe in their “Il Manifesto di Ventotene” published at the end of the 2nd World War.

As the authors of the White Paper say, “The Lisbon Treaty and the decade long debate that preceded it, has opened a new chapter of European integration that still holds unfulfilled potential.”

It is true that this latest White Paper does contain five possible pathways forward for the EU, including one which envisages less integration than they currently enjoy. The Paper also makes clear that the Commission thinks that a bad option. They seem to strongly favour the fifth option, the one that  entails “doing more together across all policy areas”.  The President of the Commission in his foreword urges the EU to be radical and to opt for much more integration.

Option 2 is the only option that allows less EU control. It is based on doing nothing but the single market, fairly widely defined. The Paper raises the possibility  of more border controls and some limitations on freedom of movement under this scenario which they dislike.

Option 1, the carrying on option, envisages slower and piecemeal progress to more integration, highlighting possible advances on more integrated border and asylum policies, more EU defence and some stronger controls over the Euro and economic policy.  Again, this is not a favoured proposal.

Option 3, coalitions of the willing to drive ahead much more integration in various areas, and Option 4, doing less more efficiently by targeting areas like counter terrorism for more common action, are also not preferred. Option 4 does not seem to involve scrapping areas of competence in any meaningful way and still entails more integration in selected areas.

The proposal the EU wants its members to sign up to is Option 5, “Doing more together across all policy areas”. They envisage the EU having just one seat on each international body, with a common foreign policy on all main issues. They will make defence a priority for more integration. They will lead the global fight against climate change, and  have the largest world overseas aid budget. They will turn the European Stability Mechanism into the European Monetary Fund and get it to raise money to finance investment programmes. The Euro area will need more controls and a fiscal stability function, entailing more EU involvement in taxation and doubtless more “own resource” EU tax revenue.

I welcome their launch of this important debate. The 60th birthday of the EU is a fitting moment for its remaining members to take stock and ask themselves what next. The document reminds us just how central the Euro is to the whole project, and how much more they need to do to back their currency and tackle the high unemployment they have in many parts of its area. The UK being out will make it easier for them to use their institution in the way many of them wish to. A successful single currency needs a powerful central government with tax raising powers to stand behind it. As the 5 Presidents Report made clear, a single currency needs a Euro Treasury.

Yesterday the BRC published its latest shop prices index. Over the last year prices are down by 1%. This is a smaller fall than recent figures, but shows there is still fierce competition on the High Street and on the internet, with the overall balance of prices under good control.

Asda also published its latest disposable income tracker. This showed disposable income up by 3.5% over the last year. All this has happened at a time when oil prices have risen sharply, with a big effect on domestic fuel and vehicle fuel. Fuels are up 17% over the last year, and are the main force behind the rises in the CPI and the RPI.

I was expecting further rises in inflation as the rise in world commodity prices flows through, and as we get further rises in electricity, services with a large wage component, and the usual local and national government increases in fees and charges. So far UK inflation has been running in parallel to German and US inflation, which have also risen rapidly from a very low base mainly owing to fuel prices.

Lots of forecasters are still refusing to look at the figures that are coming out. Many still say there will be a sharp rise in prices from lower sterling, which they wrongly think has mainly occurred after the referendum vote instead of before. This they think will then remove all real growth in incomes and weaken the economy.  They are overdoing the gloom.

The property valuers have some explaining to do. They have been warning of immediate post referendum declines in City offices. Yesterday British Land announced it has sold the Cheesegrater, a large modern well let City office block, for £1.15bn, which is 25% above the September 2016 valuation! The yield is only 3.4% on the good rents signed up.  Will we have some apologies over all that red ink they spilled last summer?