Author: johnredwood

European Union membership has done considerable damage to the UK economy and to the reputations of the many economists who have slavishly recommended its economic ways. It has directly caused a major recession in the early 1990s in the UK, thanks to its European Exchange Rate Mechanism scheme. It aided and abetted the banking crash and Great Recession of the last decade by adding the imperfections of the Euro to the poor banking regulation which the ECB shared in common with the US and UK authorities. Many economists have gone on taking a rosy view of the Exchange Rate Mechanism, the Euro, Euro banking regulation and the single market without asking why so many people are unemployed and the growth rate of the Euro area is so low?

For my entire adult life I have found myself in disagreement with much of the UK establishment and the economics profession about three great issues – the Exchange Rate Mechanism, the Euro and banking regulation. In the 1980s as Chairman of a large quoted industrial company I was so worried about what the ERM would do to our employees and customers that I took the company out of membership of the CBI in protest at their support for this job destroying proposal when they were urging it on government. Later as a government Minister I fought a lonely battle with the brave Nicholas Ridley to try to prevent the then government plunging us into the high inflation and recession the ERM was likely to bring about. The economics profession kept their forecasts rosy and claimed that the ERM would curb prices and lead to better growth! Predictable disaster followed.

Then came the long battle to keep the pound. I was more successful with this, with more good allies who agreed that UK membership of the Euro would be bad news for our economy and might even destroy the whole Euro scheme, given the size of our banking sector and economy relative to the rest. I used to argue that the Euro was an ERM that it would be difficult to get out of. Why would we want to inflict on ourselves the austerity of the Euro scheme when we had suffered so much before we escaped from its progenitor, the ERM? How could we avoid the likely boom bust cycle that an inflexible exchange rate would generate?

The Euro proved to be just as bad for many of its member economies as I feared. Vast swathes of the Euro area’s economy are laid waste by the austerity policies, and by the lack of proper mechanisms to transfer large sums of money from the surplus countries led by Germany to the deficit countries of the south and west. There has been a long running rolling crisis for the Euro area’s banks and for financing the deficit countries. None of this has been good for the reputation of the any economists who told us what good news the single currency would be, and how it would transform the subject economies in a favourable way. They did not predict 25% unemployment with 50% youth unemployment in several countries when they set it up, and now seem surprisingly relaxed about those results.

Now we have to debate much of this all over again as we leave the EU. Some say the single market is a precious gem, essential to our prosperity as a nation. They have not studied the evidence. The UK’s growth rate was slower from 1972 when we joined the EEC up to 1992 when the single market was “completed” than it had been in the post war decades before. The growth rate slowed again after 1992 when the EU claimed it had completed its single market. Of course the advent of the full single market in goods came at the same time as the full impact of the ERM recession was felt. The UK has run an almost continuous large deficit on trade in goods with the rest of the EU both before the completion of the single market and afterwards. One of the costs of joining the EEC was the competitive shock administered to UK manufacturing which lost us factories and jobs in the 1970s.

What is so odd is how many so called experts just assert that the single market must be good without examining the data or asking some basic questions. Logic suggests that having common standards and specifications helps manufacturers by allowing them longer production runs and permitting more standardisation of product. However, this is a benefit of the EU single market that all exporting countries to it benefit from, whether they are in the single market or non members. Evidence also shows that the single market in energy, for example, is damaging to European competitiveness because it gives us much higher energy prices than our US and other competitors.

In the referendum the establishment was most upset that Mr Gove and Vote Leave questioned the accuracy of many economic forecasts by the great and good. Today those errant forecasters have another set of questions to answer. Why did they think the UK would experience a drastic slowdown or recession this winter? Why did they revise all their 2016 forecasts down so much? Why are they now having to raise their 2016 forecasts to pre vote levels or higher? Why did they suspend all the usual considerations from looking at money and credit growth, consumer expenditure, retail sales and new homes demand? No wonder so many members of the public now distrust the official forecasts. They have made three catastrophic errors in the ERM ,the Euro and the banking crash. They have now just reminded us how wrong they can be by their silly 2016 forecasts for the UK after the vote.

The polls say Mr Renzi, the Italian Prime Minister, will lose his referendum. He has been seeking a way to ensure that his party, whose Democrat party  polled just 25% of the vote in the last election, can form a majority government in  the Chamber of Deputies and not have to worry about the other parties or the Senate, which will be turned into an unelected chamber with little power.

The reason Italian politics is so unstable is the country is very split between a wide range of parties. Proportional representation increases the pressures to form more parties and run more extreme or pure policies through them. In 2013 the Grillo 5 Star party got the largest share of the vote by a very narrow margin over Renzi’s party, but the Democrats managed to form a centre left coalition. Frustrated by the compromises and limitations coalition imposes on trying to reform and govern, Mr Renzi has come up with a wide ranging  plan to change the way future elections are judged.

The biggest underlying cause of discontent with all the parties is probably the poor state of the Italian economy, with slow growth and mass unemployment,which has hit  the young especially hard. Italy’s state debts are far too high for EU rules, and Italy has to curb her deficit to show some willing under the Euro scheme. Italy has some weak banks struggling to handle bad loans and in need of additional capital.

Some argue that if Mr Renzi does lose over the week-end the way is open for Mr Grillo to take over at a subsequent election, which has to be held before May 2018 and may be earlier. Whilst Mr Grillo is critical of the austerity driven Euro policies, he and his supporters are not the same kind of Eurosceptic force as we see in the AFD in Germany or the NF in France. Whether the answer to the referendum is Yes or No, Italian politics is likely to remain volatile with no clear winner. The public will continue to protest against the consequences of Euro membership but that may not make them ready to want to leave it, as we saw with the people of Greece.

I think Mr Davis was carefully trying to avoid ruling anything in or out in his answer, in accordance with stated government policy of not revealing the negotiating position until the talks begin.

I see no need to offer any continuing contributions to the EU. Isn’t it odd the way some in the media has leapt onto a non statement and drawn the wrong conclusions?  The one that took the biscuit was the idea that the pound rose against the Euro on this “good news”. It was neither good nor news. The pound has been rising against the Euro for several days. The FTSE fell today, so why didn’t they say “The FTSE fell on fears that the UK would still have to contribute to the EU after exit”, if they were determined to use this wrong story?

Yesterday I published proposals for a new UK economic policy through Politeia. I set out why I think Brexit is a great opportunity to promote more UK growth. The freedoms we gain will enable the UK government to follow policies friendlier to jobs and domestic output.

One of the big themes I suggest is to correct the worst of the balance of payments deficit. 25% of the deficit in 2015 came from UK government payments abroad in the form of net contributions to the EU and overseas aid. The sooner we are out of the EU the sooner we will benefit from that saving on the external accounts. The government should make sure more of the money spent on overseas aid is spent on buying goods and services from UK producers, where the money cannot be spent directly in the country we are seeking to help. \That will boost UK business and cut the strain on the balance of payments.

36% of the 2015 deficit came from the excess of interest and dividends we pay away to foreign lenders and owners of UK assets over the money we receive from our investments and loans abroad. There is no quick fix to this, as the longer we remain in deficit, the more the claims of foreigners on UK assets will build up. However, the government could work to ensure that in future when adding to our power stations and other privately financed infrastructure the investment is offered on decent terms to UK savers and institutions rather than to foreign interests. The Chinese financing of Hinckley will b e a long term drain on our balance of payments.

The remaining 38% of the deficit comes from the deficit on trading in goods with the rest of the EU. The UK is in surplus with the rest of the world on trade account, and in surplus on services with the rest of the EU, but has a huge deficit in goods. Some of this will reduce as a result of the devaluation of the pound. People will look  to buy domestic substitutes or cheaper goods from non EU destinations. Some will reduce as a result of new UK policies. Why need we continue with a deficit on fish, once we take back control of our own fishing grounds? Won’t a UK farming policy be more helpful to UK flower and vegetable growers? Won’t more market gardens flourish?

The government’s quest for a higher productivity economy needs to stop at the railway and the roads budget. Getting around the country is difficult, with too much traffic congestion and delay, and with too few rail seats and fast trains on commuter lines at busy times of day.  We have too little road space for vehicles, and too little use is made of the substantial track space we do have available for the railway.

Tackling the trains requires three main changes. The first is new signalling on board each train, so a train can go closer to the train ahead safely, knowing the position and speed of the trains on the line. Currently we only get around 27 trains an hour on UK track, with less on some mixed railways. It should be possible to get that up to 40 with more precise signalling. The second change reinforces this. Let’s have lighter trains with better braking and faster acceleration, to take advantage of new signal types and to use the track more effectively. The third thing we need is more bypass capacity at places along the main tracks, to allow mixing slower and faster trains more readily, with easier overtaking.

These methods of increasing capacity and improving speed and efficiency will be considerably cheaper than building complete  new track, or electrifying existing track.

Road capacity also needs increasing to cut congestion and improve safety. Congestion and accidents occur most frequently at poorly designed junctions. The government is producing a pinch points fund which could help pay for improvements on main highways that could tackle these twin problems.  Roundabouts often flow better than light controlled junctions. Light controlled junctions flow better if there is a segregated right turning lane. Junctions are safer if there are other ways for pedestrians and cyclists to cross the road without using the main vehicle carriageway, which can also allow faster crossing times for pedestrians and cyclists without the need to wait for a change of lights.

Many places need new bridges to get traffic across railway lines and rivers. Level crossings are dangerous and need to be replaced by highway bridges or underpasses. The congestion in many towns and cities can be traced to a mixture of junctions and a lack of ways of getting over the railway or river.

Being stuck in traffic jams is wasting hours of time for delivery drivers, service providers who travel to their customer homes, builders getting themselves and materials to site and office workers trying to get to their office. The UK will be much more productive when we do some serious jam busting, and put in enough seats on busy rail lines.

I preface this post by reminding people I do not support any  candidate or party in the forthcoming election,  but think we do need to know more about Le Pen given her popularity in current polls.

The NF website in France is critical of the EU, seeing it as a source of unemployment and too many migrants. Arguing that France is suffering from “L’Europe contre les peuples”, the site chronicles the loss of industrial jobs, open borders, dominance of market forces, destruction of public services, poverty, uncertainties and substantial migration as features of modern France in the EU it does not like.

The party disagrees with an ultra liberal world ideology which it thinks is there in the EU to serve financial sector interests at the expense of others. The EU is seen as a client state of big money interests run by powerful unelected officials. It delivers long recessions, mass unemployment, and financial crises as shown in Greece. It has ignored the votes of the French, Dutch and Irish against the original Constitutional Treaty.

France is seen as getting a particularly bad financial deal from the EU. As the EU’s second largest contributor according to the site, the country does not benefit from the Euro and the internal market in the way Germany does. Large scale immigration is seen as lowering wages and destabilising society.

The website proposes that France uses Article 50 to get out of the Euro and to change its relationship with the EU fundamentally. France needs to restore control over her borders and law making, and be able to spend her own money. Control is seen to rest in Brussels and Frankfurt, and needs to be brought back to France herself.

The party offers a range of policies to help and support veterans, to promote economic growth and to improve public services.