Author: johnredwood

I am relieved that Southern Rail does not serve my voters. All too many commuters having been paying up to £5000 for their season ticket out of taxed income, only to discover the service is poor and often non existent, when there is another strike day.

The dispute is incomprehensible to anyone working in the competitive private sector. It is the fact that the train company has a monopoly and operates within a very controlled framework provided by the public sector, that it can indulge itself in the luxury of antagonising all its customers. They have nowhere else to go. They are prisoners of the system.

Apparently the dispute is over what duties a guard or train manager has on board the train. The company wishes the drivers to control the highly automated system of door closing and locking, as they do on other railways. The Unions say the guard needs to keep this duty. We are told no jobs will be lost if the management changes go through, and the passengers will get a better service. The Unions decline the offer and argue the train would be less safe if the driver works the doors.

Trains are best at moving large numbers of people at rush hour. Then the high capacity of a train coupled with the freedom from pedestrians, cycles and junctions that train track enjoys means it should offer the fastest way of getting into your place of work or back home again. The large numbers wanting to travel means the railway can offer a good timetable for rush hour periods, with frequent trains. The main constraint is the technology of our railway which limits the numbers of trains that can use popular track below the levels the demand would justify. It will take lighter trains, better brakes, and modern signals to increase the capacity of the commuter network.

In the meantime management and Unions need to learn to work with each other to give their passengers value for their high cost season tickets.

Many advanced economies, especially on the continent, have struggled since the crash of 2008-9 thanks to the failure to mend the commercial banks. The main authorities of the advanced world lurched from being far too lax with how much banks lent compared to their capital, cash and reserves, to being too tough. As a result we have had slow growth or no growth, depending on the relative weakness of the individual national commercial banking systems. The US and UK fixed their banks more quickly than the Euro area, but still demand levels of cash and capital that makes normal levels of credit expansion difficult in this cycle. On the continent in the recession ridden economies of Italy, Greece, Portugal and until recently Spain, past excess has led to a long period of credit starvation.

All this cramps growth and opportunity. No-one is suggesting the banks should lend more to individuals and organisations that can’t repay the last lot they borrowed. This credit squeeze is also preventing new loans to individuals and companies that are not over borrowed, and stands in the way of the normal use of credit to grow demand for larger ticket items, and to expand business capacity to respond to rising demand.

I have long argued that I would rather the governments and Central banks since 2008 had concentrated on fixing the banks, than on Quantitative Easing as a palliative for not fixing the banks. I can see that QE could be better than doing nothing. However, one of its adverse side effects was to lower long interest rates, making it more difficult for banks to make a profit. This delayed their balance sheet recovery, as they need more retained profits to provide the buffers against future losses they need before lending more.

The arrival of Mr Trump may change all this. It offers an opportunity to turn our backs on excessive austerity banking, and to find some possible agreement between the Europeans and the USA over what the next phase of world banking regulation should look like. Basel IV, the possible further tightening of demands for bank cash and capital, is in dispute now. At the same time Mr Trump’s team may soon develop proposals to amend Dodd Frank and the US bank regulatory code that came in following the crash. Mr Trump will want to expand the US growth rate in part by making more loans available for good projects in the US private sector. That will require a new bank fix.

I will write more about this in future posts. The way to end austerity and slow growth is to fix the banks sensibly and credibly. The authorities made two big mistakes between 2005 and today. All now agree they were too lax prior to 2007. It is now possible more will come to see they have been too tough and too unhelpful to rebuilding well financed expansion minded banks since the crash. People may not like banks, but trying to punish them as institutions is a kind of self harm, as it depresses economic performance if the banks cant lend.

I heard a passionate debate on Any Questions and Any Answers this week on the latest proposal from some private schools that they could provide free places to lower income pupils if the state paid them the average sum the state pays public sector schools for their places.

Those against argued that the fee paying schools do well out of their charitable status, and should not be given additional state cash. They saw the fee paying schools as seeking talent and money from the state sector to improve their own budgets and talent pools. They argued that everyone needing state support should use the comprehensive places that can be made available, though most fell short of demanding the closure of all fee charging schools for the rich.

Those who favoured the move thought it was a win win. Able pupils from low income backgrounds could receive excellent academic educations in the fee paying sector alongside children from rich parents. The school would subsidise the place, and the state would be spared any above average cost and additional capital cost of providing more places by putting pupils into private sector settings that already have their buildings and equipment. This could represent a decent saving in parts of the country needing to expand provision.

I myself won a scholarship providing a free place at a Direct Grant school. I also had the offer of a grammar school place, so either way would have received an academic education capable of helping me to university. It worked for me, and I saw no harm in it at the time. I would be interested in your thoughts on this suggestion from some fee charging schools.

Some businesses claim they cannot operate unless they can invite in a large number of people from abroad to do jobs for low pay. This can be a dear option for the country as a whole. It also can get in the way of our general aims, to get real pay up, and to get more people into work who are already legally settled here.

When I have been involved with businesses I have usually found it best to pay people well and to give them any training and assistance they need to work smarter. Good executives and directors work to help the company strive for higher quality, better productivity and higher levels of customer satisfaction. That way the company can grow its revenues and afford to pay employees decent pay. A good company values its brand as a good employer as well as its brand as a good supplier. Letting people work smarter means you can achieve what you need to do with without having to recruit so many extra people as you grow. It means you can employ on better pay levels, with all sharing the benefits of higher productivity. Working smarter means putting the right machine and computer power behind the team of people working in the business, seeking to make their jobs both easier and more satisfying whilst increasing output and raising quality. Getting things right first time, proofing systems against error and accident wherever possible, and striving for continuous improvement are well known in modern industry and can be adapted to modern services.

Some say areas like fruit picking will always need plenty of cheap labour to ensure sensibly priced fruit in our shops. Technology is now well advanced with vacuum pickers and other methods to allow machines to pick fruit. There are also better techniques for growing and shaping trees, fruit bushes and strawberry plants to make picking much easier or to allow machine picking. Agriculture has mechanised corn and wheat production and will not set about mechanising fruit and market gardening activity more.

The problem with more cheap labour carrying out tasks with insufficient training and investment to back up the staff is it also places many extra costs on taxpayers. Every time we invite in additional people to take low paid jobs we place an aggregate larger burden on the taxpayers. The studies which show new low paid migrants adding to national income ignore the need to provide GP surgeries, hospital capacity, school places for children, extra social housing or rent subsidy, more road space and train capacity. We want those we welcome here to live to decent standards, so we need to make substantial investments in extra public service provision. If we invite in a reasonable number each year some can be absorbed without building whole new schools, hospitals surgeries and roads. If we carry on inviting in 335,000 additional people every year the investment we need to make in public capital is great. Each new arrival who needs a school place for a child will need around £5000 a year for the running costs of the school place anyway, but if you need to build a new school then the extra capital cost is on top and substantial, at around £20,000.

This year the government will spend £11,763 per person, or £40,958 for every family in the UK. The Taxpayers Alliance have been going through the government figures and bringing out some of the highlights. Amidst all the debate about rates of change in financial provision, arguments about whether a cash increase is still a real cut, and an overlay of debate about austerity, we often lose sight of just how much money and resource the public sector commands.

Each one of us has an average state debt of £24,444 and a share of £22,754 in the public sector pension liabilities. This does not of course include future state pension payments, which will fall to be paid for from future tax revenues. Total spending this year does include this year’s pension payments as they are met on a pay as you go basis.

England receives less spending per head than the other three devolved countries and provinces in the Union. (2014-15 figures, two years earlier than the other figures). The lowest spending is in South East England at £7756 per person. That is 69.8% of the Northern Ireland figure, 74.7% of the Scottish figure and 78.3% of the Welsh figure. No English region gets as much as Wales, which in turn gets less than Scotland.

The largest individual budgets within the totals are welfare and the NHS, which between them make up half the total spend.

It reminds us, as the TPA wishes to do, that a great deal of progress can be made by spending the money more wisely and by lifting productivity in the public sector as part of the campaign to improve productivity generally in the economy. It also reminds us that more can and will be done to get more people into work and into better paid jobs, to whittle away the need for welfare reliance.

So many critics of Brexit in the UK have dominated the debate, that it has been mainly about the UK’s position. More interesting and more useful for us as a country is to explore what is and should be the EU’s position? How easy will it be for the 27 to agree one? How quickly will tensions emerge between the member states who need goodwill and trade with the UK, and some in the Commission who want to make a political point that no country should be allowed to leave?

The aim of the EU is pretty clear. In their make believe world they want to try to make the terms of exit difficult so the Uk suffers on exit. There is of course no way they can do that. All they can do is damage the member states who remain. Their problem is the UK gets such a poor deal out of the EU that leaving even without an agreement is much better than staying in. On leaving we save our big net contributions, we get back control of our own laws, and will be the winners from the modest tariffs on our exports against the much bigger tariffs on their sales to the Uk under WTO rules. We will be free to lower tariffs with the rest of the world, to buy cheaper food from emerging market countries helping them and us, and be free to regulate and promote business as we see fit.

The EU of course talks in a contradictory way about Brexit. It both argues it is better to stay in, and argues if we leave more might want to leave! So which is it EU? Is it so good in the EU that any other country would be mad to leave? Or is it so bad that once we have dug the escape tunnel others will want to use it? One of these propositions must be wrong, or possibly both. Their cruel and unpleasant rhetoric about punishment, like their many threats to us all the time we were in the EU, makes it less easy for them to strike a good deal for their member states.

The member states are altogether friendlier and more circumspect. No member state government has said it wishes to impose WTO levels of tariff on our exports to them, because they know it will be more damaging to their exporters. They not only sell us more in total than we sell them, but the rest of the EU sells much more of the agricultural goods and cars that can attract higher tariffs, whilst we sell many goods and services that remain tariff free under WTO rules. Most of them understand that their many exporters to the UK do not want the EU and their government getting in the way of an important trade.

Of course the EU would like us to make contributions into the budget, but no other country outside the EU and EEA does and there is no need to do so to trade with them. If they want us to contribute to export to them why not they pay to export to us? Of course they would like us to continue to generate lots of jobs for their unemployed workers. That is something we wish to limit. Of course they would rather we accepted all the same laws and rules as them. There is no need for us to do so for all the trade we do at home and with the rest of the world.

I want us to be friendly and generous in our offer for after exit. We should tell them we want to stay friends, to maximise our mutual trade, and carry on without tariffs and new barriers. They also need to know there is no way we can or should offer to let them control our migration policy, or to carry on placing levies on our budget. I suspect the member states will welcome our friendly and helpful approach, but if they don’t it will still be good news for us.