Author: johnredwood

The UK is the EU’s Treasure Island. We run a £92bn current account deficit with them ( year to Q3 2016). That includes a huge deficit on trade in goods which come in tariff free to their advantage. It includes £7bn of annual remittances by EU citizens living in the UK but sending money back to their home countries from good jobs here.

The UK has lent the rest of the EU £1.4 trillion through the London banking system. We pay around £700 million more to them each year for UK citizens to use their health services than they pay to use the NHS here.

We pay a gross budget contribution of £17.7 bn  or £10.8 bn after rebate and payments back to the UK state.

I will be looking in more detail at the financial flows going from the UK to the rest of the EU in later blogs. The overall magnitude of our financing of the EU is the main reason they do not want us to leave without first demanding we carry on paying as if we were staying.

If they decided to be decent and sensible they would of course find it easier to keep hold of much of this money. London banks will be very willing to lend more if they can trade sensibly with the continent. If the Commission and Germany agree with the UK proposal that all EU nationals located in each others countries can stay the remittances will continue. If they want tariff free trade they will doubtless continue to sell us more than we sell them.

Meanwhile leaving must mean ending our budget contributions. That should not be part of any negotiations.

Donald Trump has promised – or threatened –  to cancel the Trans Pacific Partnership Agreement, to pull out of Nafta, to take action against Mexico and to name China as a currency manipulator.  Markets and governments are now waiting to see how many of these he does in his first hundred days.

He will be told that he has to work within US and international law, and abide by the rules of the World Trade Organisation. He can pull out of the Pacific trade agreement. . He can give notice to quit Nafta, but will need subsequent legislative change from Congress and the Senate. He can open new proceedings against Mexico if he has evidence of trade violations. He does not appear to have the evidence to claim that China has been a currency manipulator under international trade law. There are no signs that China has been consistently intervening to get its currency down in recent months.

If he adopts the Republican proposal for reform of company taxation, that in itself will provide a substantial tax based boost for US exports and a hit to imports into America. The idea behind the party scheme is to exempt exports from their revised business tax, but to ensure imports carry its full force.  Some say it is not compatible with WTO rules. The Republicans disagree, and the USA has more clout in international bodies like the WTO than any other country.

Globalists and free trade enthusiasts are concerned lest Mr trump’s America first agenda prompts retaliatory actions and makes protectionism fashionable. People on  both sides of the Atlantic who have seen their jobs go or their wages cut thanks to low cost competition from Asia or Latin America will be egging him on.

I have had a very busy week so far, and have only just  caught up with the postings on this site. Delays are created if individuals post often and at great length. Sometimes a long posting with expertise and new information is necessary and helpful but endless long postings saying similar things are not.

I will have to simply delete some long postings from people who have already written in on the topic. I do delete long postings with references to sites I do not know and have not the time to read, and long postings with questionable allegations about people, companies and institutions.

We are awaiting a government White Paper to set out ways to promote the construction of more homes. The government believes the UK build rate needs to be considerably higher than the current one, given the large number of people needing homes.

I agree with those who write in to say that the government should deal with the demand side as well as the supply side. The government itself has pledged to cut inward migration to tens of thousands, but believes it needs to exit the EU first so it can extend migration controls to EU citizens as well as to people coming from the rest of the world. We await a statement of policy from the new Home Secretary on how migration controls will be tightened generally and especially for EU migrants. The indications are that the government wishes to limit work permits for lower paid jobs, but leave free movement for highly qualified and well paid people, and management  coming in under intra company transfers.

We need more homes just to deal with pent up demand from people already legally settled here. There are many young people who would like a home of their own, who cannot afford to buy so they  stay living with their parents. There are many young people sharing flats and houses with others of their generation, with the cost of housing being one factor that delays establishing their own household. Many more people would like to own a home of their own who are currently living in rented accommodation. There are also elderly people whose children have left home who are put off moving to a smaller and more manageable property by the high costs of moving, including Stamp Duty as a significant deterrent.

I would be interested to hear your ideas on what further measures the government should take in its White Paper and in the budget that follows. I want to see Stamp Duty brought down to lower levels. At the expensive multi million end it has greatly reduced transactions in  dear properties, leading to a fall in revenues from the tax. For the rest of us in the normal market it is still an expensive addition to the costs of first purchase or moving.

I support the government’s enthusiasm for more factory manufacture and pre assembly to speed and improve building. We are short of many building trades for on site work. The weather often delays their task. If more components of a kitchen, bathroom, structure of a home, window assemblies and roof can be made in the factory the time taken on site can be reduced and the available skilled labour concentrated on those tasks that can only be done on site.

The main housebuilders are all taking some steps in this direction. More homes will be built around a timber pre-fabricated frame. More sub assemblies will be done in the factory for systems and components going into the home. Progress is however quite slow. Where government itself is the customer it could require faster progress in this direction. The UK housebuilding industry was badly damaged and slimmed down by the Great recession of 2008-9. Most of the companies  now are strongly cash generative, but very cautious about expanding their output and their balance sheets too much. That is why demand so outstrips supply.

The rest of the EU clearly has a much bigger problem with Brexit than the UK does. They are the ones who lose our budget contributions, who need to keep access to our very lucrative market, who want full access to our successful jobs market to place more of their people who are unemployed or in lower paid work, who want to keep their surplus on public health payments, and enjoy the remittances from EU workers working in the UK.

There is likely to be strong disagreements between many member states who will want full tariff free access to our markets, and the EU Commission who want to design some kind of punishment settlement. The EU officials seem to want to prove a member state leaving wil be worse off, but would only succeed in proving the rest of the EU will be worse off if they have their way.

The strength of the UK position is its simplicity. Most of the things we want – freedom from paying contributions, control of our own borders and laws – do not require consent from the rest of the EU and are achieved by simply leaving, as we are entitled under the treaties to do. When it comes to trade we know trading under the most favoured nation status at the WTO works just fine, as that is what we do for the rest of the world at the moment. It is the rest of the EU that would suffer from the tariffs WTO allows. All our services and much of our goods exports are tariff free. Cars attract a 10% tariff, and agricultural products, where the rest of the EU sells us a lot, attract some high tariffs.

It will be interesting to see how the differences between the Commission and member states pan out in the forthcoming discussions. If the Commission succeeds in demanding tariffs, we need to know that soon so we can get on with an early exit and establishment of the WTO system to regulate our trade. As Civitas has pointed out this week, because we will collect around double the tariff revenue from them that they will collect from us, the UK can offer tax breaks and grants in compensation so we are no worse off. The pain will be felt instead on the continent, in a futile attempt to make the EU Commission’s nasty political point.

I have long argued that we are unlikely to trade less with the EU after we have left than we do today, whether we have a special deal or not. Clearly the rest of the EU will want to keep on selling their goods to us, so they will not be able to impose big barriers on trade. Nor can they under WTO rules. Both the rest of the EU and the UK will remain under WTO rules on our departure.

The good news about offering the rest of the EU the choice between confirming current tariff free arrangements and registering it as a Free Trade Agreement at the WTO, or accepting most favoured nation status with low average WTO tariffs is that either outcome will be fine from the UK point of view.

This obvious commonsense does not prevent some “experts” claiming we might lose trade and therefore they think lose some output. Indeed, one or two extreme Remain enthusiasts have suggested all trade with the continent will cease if we leave without an agreement, an absurd proposition. Trade will continue. Germany will not stop selling us cars nor France her dairy products.

It is interesting, however, to ask what happened to the UK economy when the extreme outcome did occur. In 1939-40 when war broke out with Germany, Germany soon took over much of the continent by conquest. It was also in alliance with the Axis powers, which included Italy, Hungary and Romania. The Axis countries and the conquered lands did not trade with the UK, so for a period there was no trade between the UK and most of the continent.

What happened to the UK economy? It leapt ahead, growing by 32% in real output and income between 1939 and the peak in 1943. Much of the growth in output was of course production of military transport and weapons. By 1943 the UK was producing a staggering 26,000 planes a year from widely dispersed component and assembly factories around the country. By the end of the war the UK had also developed the first jet engine fighter, and had produced 250 Gloster Meteors. Output of military vehicles, ammunition, military clothing and much else was massively increased.

The UK was also turning out large quantities of commercial shipping. There were strong advances in coal and steel output to fuel and supply the industrial activity. Much of this was paid for by public spending and public borrowing.It would have been equally possible to expand civilian production with private sector spending and lending if there had been no military imperative.

What 1939-45 demonstrated was the potential in the UK to have a much larger energy and industrial sector if the demand was available and if imports from the continent were closed off. The country also converted much more land to agriculture to produce much more of its own food.

Fortunately we will not be revisiting those extreme times. We can ,however, learn from them that the UK is very adaptable, and could also adapt in more benign conditions where it would be good if we produced more of what we want and import less from the rest of the EU. I doubt they will want to impose tariffs on their exports to us to encourage us to produce more of our own goods and farm products.

Jeremy Hunt yesterday gave a honest and detailed account of the state of the NHS and its response to winter demand. He told us just how big the increase in demand for care and treatment has been. There are 9m more visits to A and E than in 2000; He reminded us that there are 340,000 more people over 80 than in 2010, the age group needing most NHS care. He explained how more and more people go to A and E at the hospital, when quite often they do not need hospital treatment. Around one third of those who attend A and E do not need to be there but could be dealt with by a GP or other local health professional. Despite the large increase in demand, most hospitals and trusts are coping a little better than last year. A few Trusts are performing very badly, have poor records on keeping people waiting and are being placed into special measures to improve them.

The NHS has a target of no-one waiting more than four hours at A and E. Clearly if on admission the person needs urgent treatment, that is what they should get without waiting 4 hours. The NHS recruited 1600 extra doctors and 3000 more nurses this year, to help cope. Since 2010 there has been an increase of 11,400 doctors and 11,200 nurses overall. The NHS also commissioned more GP consultations for the holiday period to try to reduce the pressures on A and E. Over Christmas and over New Year 150,000 medical staff were on duty in hospitals to deal with all the cases.

Clearly we need to continue to expand the NHS to deal with extra demand. We also need to help users of the NHS understand how it is organised and how it is best to use it. All UK citizens should be registered with a GP, and should normally use the GP as the first point of call for diagnosis and possible treatment. The GP should be the gatekeeper to the hospital system. Only where someone has a bad accident or a serious looking medical condition happens suddenly should they seek direct access to the hospital via A and E. We offer free emergency provision to anyone in our country.

New migrants to the UK should seek doctor registration for the free NHS as soon as they have legally settled here. Anyone not qualifying for free treatment should be informed of their need to hold insurance or to be ready to pay for non emergency treatment should they need any whilst staying in the UK.

The regular disruption of a private rail company on the Southern franchise has caused a lot of trouble for commuters which we have talked about recently. The Mayor of London has been free with his advice to the Transport Secretary, telling him to intervene to prevent the strikes. The Mayor has also said if he took control of this franchise he would be able to run it better.

Today the Mayor has a chance to show his skills at peacemaking with transport unions, as this time it is his very own TFL which faces a damaging strike on the underground. Why hasn’t Mayor Kahn be able to work his promised magic and stop it? What does he intend to do to get the tube running again properly? Does he support the changes to station staffing that have caused the problems, as he says, or is he going to back down and side with the Union over it?

The Mayor is not having a great time with transport policy. He has decided to pull the plug on new orders for the UK manufactured new Routemaster bus. This iconic vehicle launched by the previous Mayor was said by the new Mayor to be too expensive. This was because the early orders had to cover start up costs and the possibility of low volume against the costs of all the tooling. Just at the point where the London taxpayers would get some relief, with lower prices for the next orders, the Mayor cancels. Worse still the new buses he wants to buy are coming from a partnership with a Chinese company, where the UK content in the buses will be much lower. So the UK loses jobs making the new buses and has a bigger import bill as a result.

The Mayor has also backed down on his promise to freeze all fares for commuters. He’s discovering it’s easier talking about national issues from the Labour party leadership to Brexit, than actually doing a good job running London transport and using after UK manufacturing in the process.