Author: johnredwood

The run up to the referendum was characterised by some very sloppy investment research, often put out by large US corporations who wanted to side with Remain. Instead of wisely staying neutral and seeking to put out balanced well informed commentary some of them put out scare stories to buttress Project Fear. Few of them seemed to read the Consolidated Treaties, or bother to understand the intellectual and research underpinnings of the Leave campaign. Most of them put out forecasts that had plenty of bad cases for Leave but no good cases. Some of them have had to eat their forecasts already, as they anticipated a sharp fall in shares, output and much else immediately following a Leave vote.

Since the vote there have been huge short positions taken out against the pound sterling, as certain market participants have decided that looked like the easiest bet to place that would allow a negative view of the UK’s future. Whichever institutions have done it they remain short and are desperate to try and talk the pound down further. They soon gave up on shorting bonds, as bond prices shot up contrary to some of the original expectations. Nor could they long sustain their bear positions on UK equities. With the Bank of England they gave up on talking the FTSE100 down, but tried for a bit longer to resist the upwards momentum of the FTSE 250. Anyone who followed the investment views of Remain would have missed out on a sharp rally in UK asset prices since June 24th’s mark down. Now we hear from unnamed sources that the damage is delayed, that a “hard” Brexit would be bad news, that maybe some businesses will leave the UK. Doubtless some of these briefers were briefing something similar in the run up the Euro, when we were told London would lose out badly if we did not join.

One US bank after the vote put out a piece of badly researched commentary attacking what they said were my views. They clearly had not read much of what I have written and published on Brexit, and did not bother to ring me to check their allegations. They claimed I did not want the UK to send an Article 50 letter, failing to observe that I did and had published a draft letter to send! They also thought I would be happy to lose passport access to the single market, ignoring the extensive comments I have made on how and why I think we can keep the present passports or the equivalent.

I have written to them asking them to correct their material as I thought they would wish to observe professional standards and would wish to reflect properly the views of anyone they were commenting on. Their failure to do so so far leads me to write this piece. I think it is bizarre that a well resourced investment bank cannot be bothered to check the facts at best,but thinks its clients and the wider public need an incorrect appraisal of my views.

I am contacting the Treasury and the roads Ministers following the Chancellor’s indication that he wants to see more smaller capital projects to improve our transport systems as part of a package to lift productivity and improve the prospects of the economy.

There are four main areas where fairly rapid schemes could make a big difference.

1. Removing more vehicles from parking on the highway restricting inadequate roadspace and causing blindspots for drivers and pedestrians coming out from behind cars. We need more car parks off highway to replace lost on road places and to increase the number of easily available spaces, to cut down on traffic travelling around an area in search of a parking place. More main roads can be made clearways or have double yellow restrictions as we supply more offstreet parking.

2. Improving the safety and capacity of junctions. Rephase lights to give more priority to main roads, with traffic sensors for sidestreet entry. Put in more turn right lanes to segregate traffic. Replace more light sets with roundabouts which often flow better. Abolish all red sequences for traffic.

3. Provide more bridges over railway lines and rivers, as crossing tracks and rivers is often the main cause of bottlenecks into and out of many of our cities and towns.

4. Provide more bypasses for villages and town afflicted by too much traffic on mixed use streets passing through the centres of settlements.

Jeremy Corbyn yesterday swept to victory again in the Labour leadership election. He strengthened his hold on his party and made the rebel MPs look both foolish and factious. UK democracy needs a strong opposition to challenge government when it is wrong and to unify in the national interest when that is right. Given the small Conservative overall majority the Leader of the Opposition and how he flexes his three line whip can matter.

I wrote just once about the substance of the campaign, as it always looked like a one horse race. I concluded “Mr Owen Smith…would drive Leave voters who used to vote Labour in their droves to Eurosceptic parties who do accept the verdict of the British people (in the referendum)..,.. That is why he is my favourite for Labour leader. I don’t expect my dream to come true”.

It was a bizarre campaign from Mr Owen. He tried to pose as the unity and future victory candidate, yet he challenged an incumbent leader who had very recently won a huge mandate from the party and who had enjoyed unprecedented success in enrolling many new members during his first year in office. He adopted many of Mr Corbyn’s left wing policies, recognising their popularity with the Labour membership, yet allied them to his toxic views on Europe and party unity. He has done more to cement the party’s drive in the very direction his followers fear.

Mr Corbyn’s task is a big one. Can he reunite Leave voters in the Labour heartlands with his party? Does he have a policy on borders, migration and access to public services that can attract enough electors to stand a chance in 2020? Can he get enough of his wayward MPs to work with him, to fill the posts of Shadow government and to do the detailed work Bill by Bill, SI by SI that proper opposition entails?

Mr Corbyn should not be underestimated. He has shown a unique ability to lead and mirror the mood in the modern Labour party, and he has tapped into wider worries amongst left of centre voters. He is able to mobilise and motivate socialist voters in ways which eluded previous Labour leaders. He may just want to run a widely based radical left movement with a Parliamentary arm. He still has a long way to go to bring together an effective Opposition and make it look like a credible alternative government. Meanwhile the membership base of the Labour party is testimony to his strength as the recruiter of a political movement.

It remains to be seen whether Mr Corbyn is wise enough and strong enough to reconnect with all those Leave voters in the Northern cities, or whether just as in Scotland Labour is about to discover it can lose more of its old heartlands. With Mr Owen they had no chance.

Why has the west failed to resolve the Syrian crisis? I am no apologist or supporter of the Russian actions, but it is clear today that Russia has placed herself in a much stronger position than the USA to influence and shape events in that worn torn and distressed country.
The main reason is the West’s indecision about who to support and who to oppose in this complex, long and devastating civil war. First the West was inclined to side with the forces against Assad, seeing the end of his regime as being a step to a better Syria. Then, with the emergence of ISIL, the West decided ISIL was even worse than Assad, and switched its attention to trying to defeat ISIL. This is difficult to do without committing ground forces, and without having strong local ground forces in alliance. As the West certainly did not want to side with Assad, the main opponent of ISIL on the ground, it made it complicated to intervene. Russia decided early on to side with Assad as the lesser of the evils, and to accept or live with the brutal methods that Assad was using to try to quell the revolts in his country.
Western policy tried to support and create a third force in the maelstrom, a force of so called moderates or democrats who would be able to see off ISIL on the one hand, and to deal with Assad on the other. Given the extreme methods of ISIL and the large forces of Assad using the armed services of the Syrian state, this was always going to be unlikely. It is difficult to recruit and train enough united genuine moderates who will show common purpose and military ability against such dreadful forces set against them on both sides. In a Sunni/Shia civil war there is no obvious third way. In ISIL controlled Syria ISIL is the main enemy, and in government controlled Syria Assad is the main enemy. All too often weapons sent in to help moderates fell into the wrong hands. All too often the so called moderate forces disappointed in one way or another. The Kurds, with one of the biggest contributions to the third force have their own agenda of self government and territorial division, and are opposed by Turkey, a NATO ally of the West.
The West under President Obama in the dying days of his administration is trying to broker a peace. Diplomacy is important. In the end if the various combatants cannot force a complete victory and realise they cannot, they have to talk. They need to give politics a chance. The problem is with Russian support and with the US and NATO effectively out of the military activities, Assad probably thinks he can win or can make considerably more progress against his various enemies. He does not seem to mind destroying the physical buildings and facilities of his homeland or killing many people who ought to be his citizens.
Like many people who look at Syria from afar and grieve over the pictures and reports, I have no obvious answer. Many of us in the west would like there to be answer we could influence or deliver, but it is difficult to see one. Those who say the West should be prepared to use more force to balance things up have to answer how would more bombs and more deaths help? How could the west defeat both ISIL and Assad, whilst leaving a country and people who could then pick themselves up and create peaceful government? To those of us who say give diplomacy and persuasion more of a chance, it is a fair riposte that it seems even now the warring sides are still not yet ready to try to find a political solution.
Sometimes the best the West can do is to do no more harm.

Mr Juncker’s State of the Union address this year was downbeat and worried. He said the Union needs a vision. He offered to supply one drawn up by the Commission. It will only be available next spring. The urgency of his words about the need to pull the union together does not seem matched by the laid back timetable for the basic words. Surely the Union needs a vision now?

Mr Juncker’s speech combined the very general and wide ranging, with the specific and detailed. In his general remarks he complained that there was now a yawning gap between what many voters and member state governments want, and what the EU is serving up. He condemned populist politics, as if the voters expressing a view different to that of the Commission is some crime or ill considered liberty. The Commission still does not get democracy, or prefers administration of the elite by the elite for the elite of big government and big business.

In a way I am glad he did not go on about Brexit, yet a speech on the future of the EU without any substantive comment on the departure of one of its largest members over the issue of too much EU power seems curious. Nor did he sketch out how with the departure of the one major country that always had grave reservations about creating a political union with military capability it might enable the remaining states to make more rapid progress towards their goal.

He did reflect on how his role as President of the EU differs from that of the President of the United States, without pausing to mention the obvious difference that one is elected and has a popular mandate and the other is not. He seems rueful that the EU still does not mirror the powers of the federal government in the USA, yet is aware of the strong forces seeking to divide the 27 members of the present Union.

The extraordinary thing about the speech was the absence of any proposed ways of sending more money from rich to poor, of beefing up spending programmes to foster public sector led growth, or fixing the banks more quickly to foster private sector led increases in employment and output. Nor did he have a way forward over the vexed questions of the borders and migration.

The speech seemed to be delivered into a vacuum. The voters of EU states cannot engage, and the national Parliamentarians cannot engage. The rules of the European parliament seem to conspire against holding Mr Juncker properly and daily to account. Organising a procedure which lets a President’s speech go out unchallenged, may just create a sense that the President’s speech does not matter. It is the endless noise and criticism of Prime Ministers and Finance Ministers in lively democracies that amplifies their message, acts as a check on their actions, and forces them to have answers to main criticisms. Mr Juncker’s speech in contrast seemed to pass most people by.

Since April the UK state has borrowed another £33.8bn. We sent £3.6bn of this as net contribution to the EU, an increase of 8% on the amount we sent them for the same time period in 2015. It is time we sent them the letter,repealed the Act and cancelled the subscription. It is the easiest spending cut to make, and will immediately strengthen the balance of payments.

The overall borrowing figures showed some reduction on the previous year. This once again was owing to a big increase in tax. In August Corporation tax was up by 15%, Stamp duty by 14%, Income Tax up by 12% and National Insurance up by 8%. The UK knows how to tax enterprise and effort and wants to tax all who work and venture more. Over the period April to August the growth in tax was less, with National Insurance still up by 8%, Stamp Duty up by 10%, Corporation Tax up by 5% and Income Tax up by 4%. They are large increases when inflation is close to zero.

State debt stood at £1621 bn. More realistically it is around £1200 bn when you take off the large amounts of debt the state now has bought up, and the planned increased purchases over the next few months. The interest cost is still large, despite the ultra low rates that now apply. Total spending in August was up by 4.3%, though by a smaller amount over the five months.

The pattern this year is likely to be more of the same. The aggressive Stamp duty rates will not prevent increases in revenue. The modest abatements at lower house prices should mean there will be more action in much of the market offsetting the much reduced volumes at the high priced end. More people are in work and more people will earn more, fuelling higher receipts from NI and Income Tax.

The Governor mainly seeks to forecast the Bank’s future actions on interest rates. He decided as Governor that his unique contribution to the role would be public forward guidance of what the Monetary Policy Committee might do, so we would have a better understanding of what might happen next. We were told we would have fewer pleasant or unpleasant surprises.

We learned that rates may rise once unemployment fell below 7%. It duly fell below 7% and rates stayed unchanged. It then fell to 4.9%, so they cut rates.

We learned that rates might have to go up once real wages started to rise. Real wages soon after started to go up, but again rates stayed the same and were later cut, against a backdrop of continuing rises in real wages.

We heard that they might have to increase rates around the turn of 2016. Here we are nine months into that fateful year, and rates are now lower, not higher.

They told us there could be a recession or sharp slowdown immediately after a vote to leave the EU. The Bank has now put up its forecast for Q3 after the vote to show some growth after all.

Far from being unreliable, the Bank is remarkably reliable. It is a contrary indicator of what might happen next.

The question we might ask, is why is the Bank so often wrong in its guidance or forecasts?

There are two possible explanations. One is the institution is just bad at it. They made honest stabs at prediction, but lack the Mystic Meg touch.

The other is they got too close to the Treasury and the government’s Project Fear.

It would be good if the Bank would tell us which it was. We are I think due some explanation of the erratic progress of the forecasts. The only way to start getting forecasts right is to admit when you get them wrong and understand why.

We now know the Autumn Statement will come in late November. It will bring us new forecasts from the OBR of how the UK economy may pan out for the last couple of months of 2016 and throughout 2017. These forecasts will have a substantial impact on how much money the estimators think the government will have to spend and how much it will collect in taxes. If they take too pessimistic a view of next year’s growth then the Chancellor will be told he faces higher borrowing than he might like.

My first advice to him is if the forecasts are for slow or no growth next year in line with the pessimism of the Bank of England and some private sector forecasters, he should be very suspicious of the numbers. He certainly need not raise more taxes or cut spending to try to get the alleged deficit back under control, as in all probability this will be a bogus problem brought on by inaccurate forecasts.

I was going to advise him instead to spend or provide tax cuts to the tune of £10bn a year of extra spending and less revenue, the very annual sum we will save each year as soon as we are out of the EU. This will provide a welcome boost, and the deficit will contract again as soon as we cancel the contributions. It would be a spur for the Treasury to be one of those who push for an early exit. You do not have to take 2 years from sending a letter to get out. If you reach an agreement earlier or get to breakdown in talks earlier then you can cancel the contributions earlier.

I think I am still of that view. I would like to see more spent on the NHS and on immediate road, housing and energy schemes as we are short of capacity in those areas. I want to see him scrap VAT on domestic fuel, tampons and green products, though Parliament will have to date the end of these taxes to the exit date from the EU. He needs to cut Stamp duty further, as the last Chancellor’s large hikes have done damage to the housing market and stand in the way of more supply coming on from people who might otherwise like to downsize or change their accommodation.

However, I am also worried by the size of the recent monetary stimulus. Money and credit growth were accelerating before the recent fall in the pound, which in itself is another stimulus. This was then followed by a grave misjudgement by the Bank of England in cutting rates and making available up to £170 bn of created money on top of the money expansion underway. If the money figures remain as fast and alarming as the most recent in the run up to the Autummn Statement then a net fiscal stimulus would not be a good idea. The government should consider removing HS2 from the spending side, as this is a poor value project which could be replaced by better transport investments for the North at lower costs.