Author: johnredwood

So now it’s official. The UK grew at 2.3% in the year to end September. Growth continued at a good pace in the three months after the EU vote, contrary to most official forecasts and many private sector estimates. I am enjoying watching all those big Investment Banks and official bodies having to admit they got their 2016 forecasts very wrong. They are now writing the immediate sharp shock and recession out of their scripts, and accepting that the UK is likely to be the fastest growing advanced country economy this year. I stuck with the Treasury March budget 2% forecast, which looks pretty good now. The growth rate can tail off a bit in Q4 and my forecast will still be hit, and the UK will still be the fastest growing G7 economy.

The economic good news keeps coming in. This week I noticed the consultation from Hammerson for a £4.5bn investment in Brent Cross and Cricklewood. This will include a £1.4bn expansion of the Brent Cross shopping Centre, adding 1.4 million square feet of retail space to what they already have. This comes after the development of the two large Westfield London shopping centres in recent years. The plans have not yet been passed, but they are a big statement of confidence in the economy. I also caught up with the news that there is a contested planning application to put major concrete and concrete bloc capacity into the Bow East Goodyards site, to keep up with burgeoning demand for building materials. Southampton Port is seeking permission for a major expansion of their facilities at Dibsen.

The latest earnings figures show good growth in earnings around the whole country, with people on the lowest incomes getting the biggest percentage boost in recent months. This will help the retail sales and service sector figures. Nissan yesterday confirmed it will put two new models into its brilliant and highly competitive Sunderland plant.

Some of the forecasters want to remain pessimistic about next year, now shifting the bad news from this year. It is difficult to see why there should suddenly be a sharp downturn next year, given the growth in jobs, income, credit and money this year. Unless the UK authorities behave in a particularly damaging way to arrest the upwards progress of the economy, it looks as if there will be more growth next year. It could even be the case that construction, which was weak in the latest figures, picks up on the back of the various housebuilding and commercial development schemes now being examined by the main property investors and developers.

I thought my source of leaks from deep in the official government machine had dried up. I was delighted and surprised to be sent an undercover copy of the latest instructions from Dame Lucy Doolittle to her team, and reproduce it here as I think it deserves a wider circulation. She has written:

“It is most important we provide a good service to the new government. They have been swept into office on the back of the disruption caused by the unexpected vote in the referendum. They had to set up a new unit to deal with the aftermath, and we should co-operate with the Brexit department within the Cabinet Office.

We must also understand as independent civil servants that it remains our duty to set out the many unfortunate and difficult consequences of the referendum outcome. We need to stress to Ministers that the UK has many and complex arrangements with the EU and all its member states. It will take us time to do a professional job mapping all the Directives, Regulations, ECJ Court judgements, EU bodies, budgets and grant programmes that have a bearing on the UK. We need to stop Ministers rushing headlong into an Article 50 letter and rapid negotiations, given the enormous complexity of our deep and wide ranging relationship with the EU. We have worked tirelessly for many years to ensure the UK does participate fully in the single market, in the large legislative programme, and the many pan EU initiatives from Open Skies through the Common Fishing Policy to the Competition regime. I would be grateful for you all to advise me of the many other areas of joint policy and EU jurisdiction.

Ministers need to be told that they must not press ahead all the time there are court actions over the legality of sending any Article 50 letter. Even if the court finds in the government’s favour, we need to be ready for an appeal which will delay matters further.

We have been asked to work on a Great Repeal Bill to remove the powers of the EU enshrined in the 1972 Act. We need to remind Ministers that the UK has Treaty obligations regardless of the Act, and that they must follow the process set out in Article 50 anyway. We need to warn Ministers that a Repeal Bill cannot be short and based on principles. It will have to be more detailed, listing all the relevant Regulations and court judgements, and going into detail about replacement regimes in agriculture, fishing, competition law, aviation and many other areas which will need certainty. None of this can be done quickly. I can see this lasting up to the next election if we are to do it thoroughly.

There are those who argue the Repeal Act can be short and simple because the 1972 Act to take us into the EEC was itself principles based and short. This is a misunderstanding of the position. The UK was then joining a much less wide ranging body. Standards were then lower for legislation. We now need to provide much more detail which will require considerable study.

Business and some Ministers are concerned about the UK remaining part of the Single Market. We need to stress that this would be the best course, and that will require wide ranging negotiations with compromises over issues like migration and budget contributions. I expect you all to be talking to your opposite numbers on the continent about all the things the UK will need from any Leaving Agreement, which will provide the context for Ministers needing to start offering concessions and compromises. It is important our partners in the EU are aware of just how much the UK will need in its Agreement, and ensure they understand the full range of complications they need to consider.

The mood in the Commission is not favourable to the UK. Commissioners do think the UK has to be taught a lesson if it continues with the idea that it can simply leave the EU after all these years of joint working without adverse consequences. We do need to get this important point across to Ministers. I will be writing to you again soon about the role of the Treasury. They are understandably sticking to their judgement that a Leave vote will do damage to confidence, trade, output, house prices, property and much else. We need to remind Ministers of this, given the wish of some of them to believe the surprisingly positive figures about the economy which we are seeing. We need to help the Treasury get across the message that things will go wrong at some point in the future.

Ministers do have a concern about the continued large flows of migrants into the UK . The Treasury might be able to help here by getting out their message that the UK will no longer be able to create new jobs and provide such a favourable economic background for them. Perhaps the Treasury would set up a special unit to communicate their realistic worries about the UK out of the EU to the countries losing migrant people. This might help Ministers in their difficult task of replying to those who want more control over UK borders.

I was pleased that the PM did stress we remain full members of the EU and intend to participate fully all the time we remain members. I trust officials will put forward sensible proposals to show just how positive the UK can be in its handling of EU matters, as a counterpoint to much of the negative comment about the EU we have witnessed in recent months.”

It is becoming more popular to criticise the Bank of England. Michael Gove has recently added his lashing to that from Jacob Rees-Mogg. There is now a strand of criticism which regards the end July announcement of more Quantitative Easing and the further cut in interest rates as an unwise move.

Most commentators and politicians are still hung up on the idea that the Bank is independent. They clearly do not read the formal letters that go between the Chancellor and the Bank which put beyond doubt the fact that the Chancellor signs off all QE, and the government sets the targets the Bank has to hit when it chooses interest rates. Nor are we or they privy to the endless discussions that go on between Treasury officials and Bank officials day by day, or from time to time the private conversations of Governor and Chancellor.The strong agreement over a set of wrong short term forecasts for the economy this year between the Bank and Treasury implies some joint working, not just coincidence of error.

The joint decision to create up to £170,000,000,000 of extra new money was strange. Money and credit had started to accelerate before this decision was taken. Over a month had passed since the people decided to leave the EU, with no falls in consumer spending, general economic output or house prices, despite the Bank’s negative predictions of an immediate collapse of confidence.

The Bank advised and the government decided to print up to £170 billion and spend it on a mixture of second hand government bonds, second hand company bonds and cheap loans to banks. It was part of a concerted effort to get the interest rate down further, which it did, and presumably also to get the pound down more, which it also did. It is difficult see how the Bank could have thought this policy would be good for the pound, given the large numbers of extra pounds they decided to create.

At a time when the USA is contemplating further rate rises, deliberately putting our rates below those of the USA was an invitation to people to switch their money into dollars. Creating more of anything is usually a way of lowering its price. Monetary policy since June 23rd has helped fuel further gains in share and bond prices and some parts of the property market. It will also lead to higher shop prices for certain imports which the Bank as custodian of the need to keep inflation down should worry about. The pound now looks very cheap and could do with a helping hand from the Bank. Ruling out further rate cuts and QE would help, as surely even the Bank cannot think any more is justified.

Yesterday Civitas published a useful piece of research cataloguing how much money the rest of the EU would have to pay for tariffs on goods we import from them if they opt for the WTO trade option instead of wanting to carry on tariff free. I have drawn attention to this before, and have heard the figure for our tariff revenue is around £15bn, more than twice as much as the tariffs our exporters would have to pay. Civitas produced a detailed calculation which says we will collect £12.9bn of tariff revenue on EU exports to us, and will have to pay out just £5.2bn on goods we export to them.

This is of course before the adjustments you would expect as a result of these differential tariffs and as a result of the depreciation of the pound. You would expect the UK to substitute UK cars for foreign ones, UK cheese, beef, milk and other farm products for EU ones, and to keep more of our own fish, amongst other obvious targets for improvement. So as we adjust then the tariffs we receive will come down a bit – say to £10bn or twice the tariffs on our exports. Our exports are likely to go up, but we are better at non tariff items which figure more predominantly in our export profile.

I trust the UK based motor industry is gearing up production to meet the extra UK demand that is likely. With continental cars already around 15% dearer thanks to the pound, another 10% on top from a car tariff should mean many more people will see the advantages of a UK built car. On the last two occasions when I have traded in my older UK vehicle for a new one built in the UK I have experienced a wait for the new car, showing they are already short of capacity. This is a great opportunity for the car makers which I expect them to exploit.

The figures show we are in major deficit with all the main continental countries on goods including the smaller ones like Austria,Finland,Slovakia, and the Czech Republic. Indeed we only have a goods surplus with Croatia, Cyorus, Estonia,Greece and Malta, of around £0.5 bn in total from them compared to the overall deficit of £103 billion. The deficit with Germany alone is £37bn.

It is difficult to believe they would want to make these large exports to us dearer. If they do then we will have the money to give in one form or another to our exporters as compensation for the tariffs they will pay. That will leave us several billions to the good. How would you like to spend that?

Pity the poor people of Aleppo and Mosul. Pity the poor children. Our hearts go out to those who face the bombs and bullets, and try to survive in such war torn cities.

The west is rightly united in condemning the atrocities in Aleppo. The UK Foreign Office has made clear its fury, stating that “The actions of Assad and Russia are driving radicalisation and fuelling terrorism, not tackling it”. Many have protested to demand the West does more, and many MPs have spoken in the Commons of the need to relieve the pain.

The problem is what can the West do that can make the situation better? A much reviled but internationally recognised government in Syria has asked for Russian help. The area is now well armed by Syrian forces. President Obama has judged that any military intervention by a US led coalition would make the position worse so he is not proposing to try landing NATO troops or inserting more western warplanes and missiles into a highly explosive situation with all too many bombs already. Those the West would best protect might not welcome a full frontal war between the West and Assad, given the intensity of the violence that would require. Assad is able to exploit the unwillingness of the outgoing President to undertake more intense military action, and the delay before a new President. Mrs Clinton might be more belligerent.

Meanwhile the Iraqi government is seeking to evict ISIL from Mosul and the surrounding area by using substantial military force on the ground. Most agree that ISIL is a dangerous terrorist grouping with links to Al Qaeda affiliates. The problem is a military solution entails a lot of death and destruction. ISIL kill, maim and cow the civilian population, They may now take human shields and expose them to more risk as the Iraqi forces draw nearer. Let us hope that the action to recapture lost territory by the Iraqi forces does not lead to an ISIL inspired massacre.

There are no easy answers for this war torn and troubled part of the world. I Just thought I would give you, my readers, the chance to say your piece on these two conflicts. In the end these countries have to be stabilised by a political process. Governing forces have to emerge that can govern by laws and civil justice, not by force of arms. This still seems a long way off. Gaining military advantage for one side or the other does not necessarily speed a peace.

I have found it difficult to take the Court case seriously, but I am assured by many clever people it is entirely serious and is part of the complex argument over how we leave the EU.

To me it is no part of the Courts’ remit to tell Parliament what we do and do not have to vote on and debate. How can we claim to have an independent and strong Parliament if we need to consult judges over what our agenda should be every day?

The idea that the courts need to come to the aid of some members of the public because Parliament has decided not to debate and vote on a topic is bizarre. Surely if you want Parliament to debate and vote on something you lobby your MPs, you do not take up an expensive court action.

There has been no vote to endorse an Article 50 letter so far for very good reasons. The government sees no need for one. It argues it is a prerogative power, and anyway it is mandated directly by the public when they made the decision to leave the EU in a referendum. We had all been told by government and Parliament before the vote that an Article 50 letter would follow swiftly once we voted to leave.

The official Opposition also clearly sees no need for one. The Opposition could have used one of its several Opposition days to table a suitable motion and call a vote on sending an Article 50 letter. They have decided not to do so. I presume that is because they say they now accept the verdict of the referendum, and see that trying to win a vote stopping an Article 50 letter directly seeks to thwart the decision of the voters. Let us hope the judges understand that a free Parliament can vote on just this issue if it wishes, but has chosen not to.

The government is sure of its case and has not therefore set out any contingency plans were the courts to decide against them. I assume were the courts to demand a vote in Parliament before an Article 50 letter the government would simply table a motion and it would pass.

I doubt Labour would want to vote down the letter or the Repeal Bill which Parliament will be debating and voting on. Were they to do so and succeed the PM would have to call an election. The election would be held to elect more MPs clearly dedicated to implementing the wishes of UK voters. On current polls it would produce a strong Conservative pro Brexit majority. That majority could then vote through the constitutional changes necessary to secure an independent UK.

It was good news this week that the Brexit Secretary told us the UK will want a migration policy that is open to talent, skills and entrepreneurship once we have taken back control. He also reaffirmed the Prime Minister’s view that we do need to have our own policy under UK powers, not a policy we negotiate with the rest of the EU.

It was also good news that progress is being made with preparing the Repeal Bill. That will be the way we leave the EU.

More and more businesses I speak to tell me that what they want is more certainty about the direction we are undertaking. That means accelerating progress and getting the Article 50 letter in as soon as possible. It also means reducing the number of issues we need to discuss with our former partners in the EU.

There is a temptation amongst many officials, senior business people in large companies, and amongst the politicians on the losing side, to want to complicate matters more and more. They may be well intentioned in telling us of all the complex relationships we have with people and institutions on the continent and reminding us rightly that many of these need to carry on. They are not, however, helping reduce the uncertainty or supporting a strong UK negotiating position by constantly harping on about possible problems.

Some of them deliberately go further and urge the government to give ground on freedom of movement, or budget contributions. If you want to negotiate well you do not offer any concessions unless and until it is clear that doing so will buy you something you really need. I cannot think of something I so much need from the rest of the EU to want to pay for it, or to give up control of our borders.

Why do people presume to advise on how to negotiate before we have any idea what the position of the EU 27 is, and before we have worked out how few things we do actually need to discuss at all with them.

Some of the fears are silly. Some now say we could end up not being allowed to fly commercial airliners from London to Paris or Frankfurt! That would mean they could not fly their planes to London either. How likely is that?

It’s time for the government to tell us more of the opportunities from exit, and for businesses and officials of goodwill to understand Team UK has to put up a united front to negotiate in a friendly and firm way.