Author: johnredwood

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.

Dear Sir Andrew

I wish you and your business every success. I was pleased to read on your website that the initials of William Cook also stand for “World Class”. You are right to be proud of your family company’s achievements and to be concerned for the welfare and future of your workforce.
As a donor to the Remain campaign and to the Conservative party you will know that donations do not buy influence or change of policy. Donations are made to support causes and parties the donor wants to support. I am glad you have in the past chosen to support the Conservative party, and hope that when we approach the next election you will once again see that the Conservatives offer the best policy proposals that can work for everyone, including successful family business owners. It would never be right for the Conservative party to change policy just because someone who granted it money wanted it to do so. It would be especially wrong to do so in defiance of a large vote by the UK electorate to leave the EU following a long and thorough campaign where all the arguments were fully exposed by both sides and poured over by experts.
Listening to you this morning, your main worry appeared to be a possible loss of exports orders to customer companies on the continent when we leave the EU and its internal market. You will recall that both the Remain and the Leave campaign were clear during the referendum that a country cannot stay in the so called single or internal market if it is no longer a member of the EU. You will also recall that other member states and the Commission have explained endlessly that if a country is in the single market it has to accept freedom of movement, budget contributions and ECJ control over our laws which the UK electors expressly rejected. Inside the EEA the UK would not be allowed to negotiate free trade agreements with non EU countries, one of the bonuses of our departure.
The good news is we have reason to suppose we will retain good access to the markets of the continent when we leave the EU. 160 other countries around the world trade with the EU, some of them very successfully, without being members of the single market. Many individuals and companies in the rest of the EU are keen to retain open tariff free access to our market, as they sell us so much more than we sell them. If we all unite to offer the rest of the EU a friendly continuation of current tariff free trade they might, after some huffing and puffing, conclude that they should accept as it is strongly in their interest.
If by any chance our former partners are swayed by mean spirits to seek revenge at their own expense for our departure, then we can trade well with their companies and people nonetheless under WTO rules. The average tariff is only 3.5%. Half of all goods will remain tariff free. You were worried that such a tariff would prevent your sales. The pound has fallen 18% from its peak in July 2015 til today against the Euro. Most of the fall occurred well before the vote, but it is down 4% since its low in April 2016. Even this modest fall since the vote exceeds the amount of the tariff, so UK products will still be cheaper than in April and considerably cheaper than in July 2015. I am sure given your world class products and the greater pricing flexibility you now enjoy you will continue to sell to your customers on the continent, whatever the eventual outcome on the basis for our trade with them.
As someone who has in the past led industrial companies selling onto the continent as well as worldwide,I can see no great problems in leaving the EU and its internal market whilst retaining decent access to it under a special agreement or under WTO rules. I was used to dealing with long supply chain issues ranging across EU member states and non member states from a UK base. We were always able to use companies for supply from outside the EU without special problems and often did so where they had good quality, technology and were price competitive.
I do wish you and your employees every success in exploiting the more competitive level of our currency, and adding to your capacity to sell worldwide in these conditions.

Yours sincerely

John Redwood

(I am publishing tomorrow’s blog early as it seems to be topical with the media)

It was good to see the Bank of England confessing its mistakes in being far too pessimistic about the UK’s economic prospects in 2016. As they seek to correct the record, they need to look again at their so called gravity model for predicting the impact of European trade on the UK economy and the alleged damage leaving the single market could do. The model does not seem to attribute enough significance to common language, which is especially important in service trade.

Their conclusion that the UK will be hit over the longer term by leaving the single market is based on a dubious model and inappropriate data. The model assumes that a country trades more easily with a country it is close to. The Treasury analysed the impact on trade for all the members of the EU post war. Of course the EU had a more positive impact on those who joined early, when world tariffs were higher, than it did on the UK which joined later after world tariffs had come under GATT. More particularly, trade was boosted substantially for relatively poor closed economies in East Europe when they joined and started trading properly with the west for the first time. The UK’s experience of gains from single market membership have been much less than these two different dominant cases used in the data.

The numbers show that the UK growth rate did not accelerate either on joining the EU or on completing the single market. It is difficult from this past evidence to argue that the longer term growth rate will therefore slow when we leave.

We now know that the Treasury vector autoregressive model for the first two years after the Brexit vote was also hopelessly wrong. The establishment now accepts this and is busy changing its forecasts for the period June 2016-2018. It is high time they also acknowledged the weaknesses of the model and the data used for the longer term predictions. Had they applied their gravity model to our trade with the rest of the world it would presumably have said we need free trade deals with all those countries, which in turn requires us to leave the EU.

My time as Single Market Minister turned me into a strong critic of the single market we were meant to be creating. I had accepted the verdict of the 1975 referendum where people voted to stay in a common market, and did my best to help bring it about. The more involved I became, the more I realised the EU model was more bureaucracy and government than market. The Single market programme was used to extend EU power and control over more and more areas of business and life, often without helping business to compete or succeed.

Practically every item we were asked to negotiate caused problems to UK businesses. I was regularly lobbied to put off, amend or water down the proposals by large companies. A good week’s work was successfully lobbying other member states and the Commission to make sure something adverse did not happen. Various proposals were kept in limbo for many years, as lots of member states agreed with us they were not desirable. Other proposals were more difficult to arrest, as a majority of member states would go along with them. The careful construction of a blocking minority took time and effort.

The whole structure was based on the misleading idea that you need a comprehensive set of law codes regulating so many facets of life to be able to trade with each other. As far as I was concerned all I wanted to complete the common market others had voted for was the acceptance that if a product was of merchandisable quality in one country, the home country, it could be offered for sale in the other countries in the Union. Customers would make up their own minds as to its quality, desirability and value for money. Instead the EU wanted to control in minute detail not just the products, but also the workforces, environments, transport systems and much else vaguely related to producing the goods. Soon the Union also wanted a defence policy, a security policy, a foreign policy and all matters that a state undertakes.

When negotiating there was an assumption shared by most that the EU did want an agreement. The Commission had hundreds of ideas of things it wanted to control and regulate, and it kept pushing them forwards to get them ticked off its list of things to do and powers to assume. It exploited the weakness of member states in the structure. Only the Commission could make and draft a proposal. The Commission could use the rotating Presidencies to push different draft laws, depending on the preferences of each Presidency country. It was one way traffic towards ever more EU power.

The Commission was not interested in repeal or amendment of past laws that did not work well. When pressed for repeals, they usually came up with the idea of creating a large portmanteau Directive in place of lots of more limited ones, so it could both announce various repeals and still end up with more power overall. As the figures show, there was no increase in the UK growth rate in the years after we joined the EEC, and no improvement in the growth rate after they completed the Single market in 1992. Indeed, the longer term UK growth rate fell after 1972 and again after 1992. That was not surprising given the nature of the law making programme they jokingly called a market. Common EU policies like the Fishing and Agriculture policy were damaging to us, and the dear energy policy has made the EU less competitive. The European Exchange Rate Mechanism and the Euro of course conspired to depress growth for many member states.

Muddled thinking seems to rule in those who condemn it. To me muddled thinking is the idea that we need to negotiate returning control over our money, borders and laws. There are some in the government machine and in business who seem to think the UK should be willing to negotiate over taking back control. They need to grasp that this is very muddled thinking. You are not taking back control if you need someone else’s permission, and if you compromise on that control.

We are told we need to hang on to the knowledge and skills of those who have handled our EU negotiations in the past. That too is muddled thinking. How does it help to adopt the techniques which gave us such a poor result to Mr Cameron’s bid to get the UK a deal we could live with to stay in the EU? It was quite obvious that the bare minimum to get a majority for stay would be to stop free movement and to gain full control over our benefit system. The wise advisers persuaded Mr Cameron not to even ask for the end of freedom of movement, and helped him water down the benefit changes until they were minimal. We should learn from this. The EU will pocket any compromise you offer, and then expect you to make a further sacrifice.

The way to negotiate this issue is straightforward. We need an Ambassador who understands that the UK should not negotiate at all over taking back control. We have the right to do that, and the public voted to do that. The issues we can discuss relate to our future relationship with the rest of the EU after we have left. We can discuss future trade and future collaborations. There is no need to have a lengthy negotiation about trade. There are two ready made models. Carry on as we are, or shift to WTO most favoured nation. We offer them this friendly choice, and they can decide which they want. They are likely, after much grumbling and posturing, to opt for the tariff free version as they have so much more at risk than we do.We have a profitable and successful trade with the rest of the world based on WTO tariffs and rules.

As the outgoing Ambassador rightly says, good advisers tell truth to power. That is why more of us need to explain to our Ministers that negotiating the Cameron way will end in a poor result. The Prime Minister should not set out any compromises over money, law making and borders, because it is our right and necessity to take back control. The new Ambassador needs to understand this. He or she would add value if they have good contacts and are liked by the other member states, and if they grasp that the art of negotiating is to narrow the areas that need negotiating at all.

During our long membership of the EU there have been too many in government and business who have advocated giving in. They are all too ready to offer compromises in what we wanted, without insisting on real change in the EU demands. Let’s not make that same mistake on leaving which successive governments often made when staying. As someone who does not want to be Ambassador to the court of Brussels, who had to handle all too many EU negotiations as Single Market Minister, I can assure you it was always wrong to offer a compromise we did not like.

It is now conventional wisdom amongst economic forecasters, pundits and many journalists that 2017 will see substantial price rises thanks to the fall in the pound, leading to a squeeze of real incomes. The recession many of them foresaw for this winter has in their minds just been delayed – and maybe moderated – into 2017 as they await the bad news they confidently forecast.

These gloomsters underestimate several trends. The first is they fail to acknowledge that more of the fall in the pound occurred between June 2015 and April 2016 than has happened since the Brexit vote. They need to tell us why shop prices were still down at the end of 2016 compared to a year earlier, when over a year had already passed from a substantial fall in sterling. The second is they underestimate the very competitive conditions in world goods markets. China and others have been in large oversupply for many months, leading to weak prices for their goods.

The third is they have not caught up with the huge competition in UK retail stemming from big increases in floor space in recent years. The advent of whole new large shopping centres like Westfield in London have intensified the pressure to capture the consumer pounds and forced more price competition on shops. The fourth is the even more intense competition coming from internet retailing. The large retailers themselves are having to cut their own margins and prices on traditional sales in stores just to keep and grow their share of the digital pound.

Some of the prices being offered eighteen months after the pound began its fall and six months after the Brexit vote are very good, providing cheap products well below the prices of mid 2015. Overall last year shop prices fell again. Retail is about endless promotion, with continuous offers, discounts and email communications to long mailing lists of people who have once bought in the past from the retailer in question. Price is central to many of the offers, and retailers are afraid any increases in price will lose them valued market share.

Whilst it is certainly true that the RPI will rise this year, much of this will be due to the oil price and other commodities which have started rising sharply in recent months. The effect from lower sterling is likely to be more muted, as it has proved so far from a currency devaluation that started eighteen months ago. With jobs up, overtime up, bonuses up and wages up I expect real incomes to end 2017 higher than they began despite the rise in petrol and diesel prices.

Most of my time in Parliament and government has been spent against the background of high states of alert. We have always been told there are real threats of terrorist violence against the UK state. Can we ever look forward to a time when this is no longer true? Is there a danger that the currency of a heightened state of alert is devalued by its longstanding nature?

I took the threats very seriously when they came from the IRA. Escaping from the bombing of the Grand Hotel in Brighton unscathed, and avoiding the attack on Downing Street made the threats real and visible. The more generalised threat from ISIL has so far not materialised in the same way in Westminster and Whitehall, though the government would accuse people of complacency if they think its lack of success so far means it is not an effective and real future danger.

The problems with a continued heightened state of alert are how do you keep people suitably vigilant against an evil day when the threat takes on material form? How do you answer the criticism that open borders makes the threat more likely, as there are patterns of behaviour with extremists coming and going to training grounds and command groups in Middle Eastern countries before entering the UK to undertake violent assault.

The dilemma any democratic state faces when responding to a terrorist threat is how do you balance the wish to keep open your society, to preserve your freedoms of speech and assembly, without creating such easy conditions for evil to flourish. If the state tightens security too much and interrupts normal life in the interests of security it can lead to a backlash from those who cherish civil liberties and become suspicious of the extent of the threat and the best way to respond to it. If the state does too little, and there is an assault, then the converse criticism holds sway.

I come to the simple conclusion that as democrats we believe in talking through and voting on our differences, not allowing resort to violence to prosecute disagreements. That is why we need to offer diplomacy and education rather than bombs as our contribution to the various peace processes underway in the Middle East. That is why we need to ask whether violence does simply beget more violence of a kind which can damage our own social fabric. In the meantime we need to be grateful to those intelligence services that have intercepted past plots, and hope they continue to do so. We also need to improve our border controls to deal with extremists wishing to come here.

During the referendum campaign I was asked by some of Remain opponents to name a regulation or rule we would want to repeal once we left the EU. I guess it was one of their trick challenges. They expected the Leave spokesman to fail to name one so they could claim there was no point in complaining about all the requirements we did not like. Failing that response, they hoped we would demand an end to employment protections which were important to many Leave voters.

I was always grateful for this question. It enabled me to remind audiences the Leave campaign recommended keeping all the EU employment protections on leaving. It reminded us all that the Conservative and Labour parties both said they would keep the minimum requirements the EU laid down, as we often exceeded them anyway. In future Parliament will be able to decide how much further to go as we do today.

It also enabled me to start listing the requirements we would like to drop. They usually wanted to shorten the list once I started. I began with proposing the abolition of VAT on sanitary products, then recommending the abolition of VAT on green products, moving on to the abolition of VAT on domestic fuel and wanting to change the EU decisions which had led to substantial rebates of Corporation Tax for some big companies. In despair they would sometimes ask for a non tax one!

I would then get stuck into the fishing regulations, proposing a substantial reform to protect our fish stocks and give more priority to UK vessels. I followed that up with changes to the agricultural regime which had penalised parts of the UK industry in the past.

To those who now write to me and ask how the non tariff barriers and arrangements will work after Brexit, I have an easy answer. We will transfer all current EU regulations and decisions into UK law. After we have passed the EU Repeal Act we will then be free to decide which former EU laws and decisions we wish to amend. I propose we start with the tax ones and move on to create our own fishing and agricultural policies first. Repeal will not include the rules on how products and services have to be arranged to be fit to sell on the continent, as these rules then as now will still apply to anything we wish to export. What will be different after leaving is we will have the right to change the rules and specifications for the majority UK domestic trade and for non EU trade if we wish.

Charity begins at home. Self help is the best way to a better tomorrow.  We need to apply these two truths to improving our lives and economy in 2017.

The UK will continue to be supportive of those in need of help, and needs to be generous to the disabled. It also needs to do more to make it worthwhile to work, and worthwhile for UK companies to pitch for and win contracts to supply us here at home. In 2017 one of the main tasks of government should be to get the balance of payments deficit down, so we no longer have to depend on the goodwill of foreigners as the Governor of the Bank likes to say.

The two elements of the balance of payments deficit, comprising one quarter of it, are directly under government control. These  are the EU contributions and overseas aid the UK government pays away. I want the government to send the Article 50 letter soon, and then progress whatever talks are needed as quickly as possible. We want to stop making those EU payments quickly. There is not a great deal to discuss before we leave and cancel the subscription. The rest of the EU just has to decide whether they want to have tariffs imposed on their exports to us or not, not a difficult question to answer.

Overseas aid entails sending large sums of our money to the EU, and to other international bodies. Some of this in turn is spent with large companies operating from other rich countries. Let’s cut out the middlemen and just give aid direct for the good  causes we believe in. The aid money should be spent either in the region we are trying to help, or on procuring goods and services they need from UK corporations. These changes would reduce the strain of aid on the balance of payments whilst enabling us to target and improve its effectiveness at the same time.

The government’s pending new industrial strategy should have import saving at its heart. UK products are  now 12% better value compared to continental ones thanks to the devaluation of the pound since July 2015. The UK government should show a lead by insisting on a much higher UK content in all the purchases it makes. They can start immediately with defence where EU rules do  not prevent buying from home sources, and move  on to the rest once we have left and can change the procurement rules. Why are so many new Ajax armoured vehicles going to be built in Spain? Why does the steel for our new submarines come from the continent?

Where the UK government is  buying or subsidising the purchase of buses and trains they should be made in the UK. There are ways of doing this even under EU rules.  Where the government is working with Housing Associations to build more affordable housing they should be constructed from UK materials and products. In each of these markets there are competing UK companies that can compete for the work and expand capacity as needed.

Brexit offers us a great opportunity to make more for ourselves and in the process make more of ourselves. Charity begins at home, and self help is aided by good neighbourly purchasing.