Author: johnredwood

Yesterday the Sun on Sunday published an article from me on this topic. I reproduce the blog on it I wrote before the Sun was involved but delayed publishing owing to their interest. This is similar to the article they printed.

I expect the new government to want to increase capital investment throughout the economy. They will be right to order more roads, railway capacity, more power stations, more water supply, more airport capacity and faster  broadband. All these are needed for industrial revival, for better lives, and to keep pace with the big expansion of population that has occurred in recent years.

I would expect this to be done with a judicious mixture of public and private sector money, and with an eye to value for money and to future returns on the investments. Transport, Energy and Business, Culture, Environment and other departments of state will be asked to lift the quality, reduce the price and increase the capacity of the utilities they supervise or own. That is the easy bit.

Before they can get far with any of this, there remain three large legacy projects from the Coalition government which they need to determine. All are contentious, all are very expensive, and all still rest to be finally decided. It is a sign of their difficulty and the state of UK government managing large projects that none of them have been signed off despite ten years or more of study and debate.

Each one is at a different stage of development. In the case of the proposed expansion of Heathrow, it falls to the new government to decide finally if extra southern airport capacity is needed, is desirable, and if so where it should be. I cannot offer a conclusion on this, as we still have not read the long and detailed report and evaluation the Coalition  government commissioned. As a constituency MP I wish to see a better response from NATs and Heathrow to the growing complaints from residents in my area following changes to routes which were not consulted on.

Hinkley Point is a difficult case.
However, the new government had every right to review, and the contract was not signed when they took over. The power pledged is at a very high price, which makes an industrial revival more difficult as cheap energy is crucial to modern industry. Nor does it help bring down fuel poverty. The technology is unproven, and could be subject to delay and cost escalation. There are security issues.

The government’s decision to proceed is understandable, but a costly long term decision for the Uk. The next power stations ordered must offer much cheaper power if we are to have any cha ce of an industrial revival, as this need cheap energy.

HS2 never made any financial sense. There are many better and quicker schemes to improve rail capacity across the country that could be brought forward. This project is the most advanced of the three, but probably the worst value for money of the lot.

It would be a very brave government that swept away all these. It would need to have ready a good list of other projects that could be smarter and yield better returns, with realistic and quicker deadlines for undertaking them.

On Friday I attended the CAB event which followed their AGM in St Paul’s Parish rooms. I talked to the Chief Executive and some of the volunteers who provide such good help and assistance to those in need in our community.
Over the last year the biggest demand has been for help with benefits and tax credits, followed by debt, employment and housing. The friendly and wise advice that the CAB can provide is often important in helping people manage the problems in their daily lives, whether it be about money or disputes, jobs or homes. I am grateful to all of them for what they do.

I found Sir Michael’s statement that he will continue to veto a European army all the time the UK remains in the EU perplexing. Now we are leaving I do not see it is any business of ours to veto what they are going to do when we leave. It just annoys the very countries we wish to be friends with as we depart.
I do wish we would just get on and leave and stop paying our contributions. If we rightly do not go to conferences like Bratislava why do we help pay the bills?
Nor do I understand how Sir Michael can veto something that already exists and the UK has accepted. The EU has established eighteen battle groups, each at battalion strength, with a rota so that any two of them can be deployed at any time by the European Council. As the EU’s own website sets out “The battlegroup concept provides the EU with a specific tool in the range of rapid response capabilities.”
The UK has played its part on the multinational rota to provide forces. None are currently deployed but they could be.
There is also already a Eurocorps, mainly French and German, stationed in Strasbourg with 1000 soldiers.
In parallel the EU does have naval forces in theatre today. Again the UK is signed up to this. Two of the 7 ships on Operation Sophia in the Mediterranean are UK vessels according to the EU website. There is a also a 4-6 vessel force off Somalia in Operation Atalanta which receives UK assistance.
Just as many of us pointed out in the referendum campaign, there is a European military capability and they do wish to grow a bigger and more active army. Some Remain spokesmen told us this was all nonsense. The conversation at Bratislava reminds us that there are already EU forces and they do wish to strengthen them and make them more active.
The UK should leave well alone and ask itself whether it wishes to carry on contributing after it has left. 4 non EU countries are involved in these forces at the moment. Perhaps our defence Secretary could give us some guidance on this more interesting issue, which will be his call along with the PM.

As the 27 meet at Bratislava I thought I should offer the opportunity to all EU lovers to write in with what they would like the 27 to agree as their new “vision” for the EU. All the main players going to the meeting tell us they will pause for serious and honest reflection about the growing gulf between popular wishes and what the EU elites are serving up. It is also a chance for those of us who decided to leave to offer friendly advice to our former partners if we wish.

I must say I much prefer writing about the EU now I know it is no longer going to be our problem or partly our fault. I have long believed that as a good European the best contribution the UK can make is to depart from the monetary and political union. We never wanted either. We have been lied to by some in the UK debate that that is not the EU’s preferred destination. You feel the clearing of the air now the 27 can sit down and discuss the pace and scale of their integration without the UK trying to slow them down or pretending it is not happening.

Mrs Merkel has expressly called for some speeding up of integration. Germany of course wants quota systems for others to help to take the refugees, and more integrated approaches to economic policy so the other states accept more readily firm economic disciplines. France wants to re establish its influence over Germany and to be the main force behind more military union, working on the common EU forces they already have to make them larger and more effective. The Commission as always sees Brexit like all other democratic checks to the EU as a chance to increase Commission power and the range of matters it controls. Mr Tusk makes the most sombre and realistic assessment, as he has to deal with elected officials and the national Parliaments. He wants answers to the growing popularity of Eurosceptic challenger parties of right and left.

My advice to them is to understand that the Euro is the centrepiece of their union, the main achievement of their pressure to integrate so far. The main actions they take must be ones that make the Euro more like a national currency in a major country. These actions are required to tackle mass unemployment in the south and west of the zone. to strengthen weak banks across the zone, and to provide the free movement of capital labour and people that a currency zone needs. Trying to do this without a single official language is always going to be difficult.

To make the Euro more secure and the project more popular, the first need is to set up proper transfer systems so the richer areas can help the poorer areas on a much bigger scale than today. Regional transfers in the UK or US are many times the level of such transfers in the Eurozone, taking place through national benefit rates and schemes, through local authority financing and through large scale regional and sectoral programmes. German, Dutch, Austrian and other richer country taxpayers have to be persuaded that poverty in Greece and unemployment in Spain is their problem too, and they need to make a financial contribution to alleviating it.

The second task is to put in a comprehensive system of bank deposit guarantees that operate across frontiers, and to have a scheme for getting all major banks up to satisfactory levels of capital adequacy more quickly. The EU sovereign and the ECB must jointly stand behind all major banks in the system and be seen to do so. In practice member states customers and investors are on risk, but so also the taxpayers ultimately have to be on risk or be prepared to bridge or prop the parts of major banks that are essential to keep the cash points open. Of course I favour the investors being more at risk than in 2008, with better protection of the taxpayers interests than we then enjoyed. The EU itself needs a broader tax base.

The third task is promote an EU budget large enough and helpful to growth and enterprise. The extreme austerity visited on Greece and some other problem countries in the zone has been a social and economic failure. This needs to be sensibly reformed. Now the ECB has bought up large quantities of member states debts, the overall net borrowing position of many member states is more acceptable.

If the single currency cannot be managed in a way which gets down high unemployment, and spreads better paid jobs more widely around the union, it will be increasingly difficult to get political support for the project. If the richer countries and reigons are not prepared to pay more for the union then it would be best to abolish the Euro.

Just as I predicted, the Bank of England has to admit it has been too pessimistic. Yesterday the small increase in the Q3 forecast was the bare minimum they had to do, as many of the numbers for Q3 are now in and their forecast was looking silly. Retail sales were up a thumping 6.2% in August 2016 compared to a year earlier, giving the lie to the idea of a sharp post vote recession which the Bank implied in May and got into headlines from their news conference.

Meanwhile the government has reflected and decided to press on with Hinkley nuclear power station. Their renegotiation or pause produced some control over EDF selling the investment on and a statement that other measures will be taken over national security for future investments. There was no change to the very high strike price for the power built into the contracts, and no change to the fact that foreign interests will finance it and will therefore take all the spare cashflows as interest and dividends once the station is producing.

When I asked about this the Minister rightly stated that the £18bn inward investment is a positive balance of payments flow during build. He stressed that all the construction risk – risk of cost and time overruns – rests with the French and Chinese investors. I was making a different point. I want the government to find ways for any future power station investment to get them financed in the UK with UK capital. It should be possible for a power station like Hinkley to find UK investors who would put up bond capital, where they did not take any construction and project risk, but would get decent interest payments and eventual repayment of capital when the plant is running. It might also be the case that some UK investors would want riskier capital investments where they did take some project and construction risk in return for higher possible rewards.

The danger of the Hinkley model is a weak balance of payments position for many years to come once the plant is producing revenues. Overseas investors will expect a decent reward in the form of interest and dividends. It’s but a step away from importing our power through the interconnectors, where the whole cost of the power is negative on the balance of payments. With Hinkley a proportion of the very large revenues it generates will flow abroad. We need to put in place some UK power where the plant is here and the investors are here. When the government can borrow at 1.5% for 50 years we could even consider putting some state cash to work for say 3.0% on a low risk priority capital basis and make a turn on the money, though I prefer private sector investment and think it is available for the right bond instruments.

Before the referendum campaign Remain advocates told us the uncertainty generated by the referendum vote would hit our economy. It didn’t. During the referendum campaign proper, the Remain campaign aided by the Treasury and the Bank of England, the IMF and many investment banks, told us the economy would be badly damaged by the vote if it went the “wrong” way. They said there would be short term damage from the shock to confidence. There wasn’t.

So what are these unsuccessful forecasters saying now? Some of them are busily revising up their forecasts for 2016-17 for the UK, though still believing there will be a slowdown. Most have cancelled any thoughts of recession. Now they tell us what they meant all along was it would be the sending of the Article 50 letter that brings on the bad news.

Why so? Surely markets have discounted the sending of the letter by now, as the government has made clear it does intend to implement the views of the people, just as the previous government made it clear it was the duty of Parliament and government to carry out the decision of the voters. Why is sending a letter more of a shock than the UK voters deciding?

I guess they will go on telling us there is some new milestone in our exit which will trigger the bad news they forecast and seem to crave. If you wait long enough there might be bad news for some unrelated reason which they could doubtless cling on to. Over the last week, for example, government borrowing rates have risen sharply here as elsewhere in the world. They are still below pre referendum levels, and they have risen because of remarks of the Fed and the Bank of Japan. The Fed is likely to have more impact on our economic future than the Brexit vote this year and into next.

Yesterday saw more good economic news. Employment continued to increase in July after the vote. Employment now stands at a new high of 74.5% of the possible workforce. There are 750,000 vacancies available, with 31.77 million people in work. There are no signs of the threatened job losses that would follow a vote to leave.

I do not have a vote or a voice in the US election, and am not on anyone’s side. The contest is, however, more than usually interesting and important as Presidential elections go, because the US faces a choice between two such very different candidates. This result will have a measurable impact on our economy and on the state of world politics. My comments are by way of independent analysis, not partisan intervention.

Both candidates are divisive and each are unpopular with around half the electorate. Polls to date have shown Mrs Clinton in a winning position, but recently they have narrowed and a win by Mr Trump cannot be ruled out.

Mrs Clinton has a major problem of trust. The email controversy which has dogged her throughout gnaws away at the wider question of can she be trusted? Mr Trump has also questioned her stamina and health. Her recent collapse at an important national event is therefore a double blow. Not only does it give image to exactly what Mr Trump has been saying about her health. It also undermines the line of her campaign team that her cough is unimportant. It turns out it was pneumonia, not some minor irritation of the voice box. It becomes another issue of trust.

Mr Trump has an equally difficult dilemma. He rose to fame by making comments about migrants, borders and the rest that many thought were dreadful, making him unsuited for public office. He now wishes to show he understands the need to be more mellow and statesmanlike, but does not want to lose the aggressive down to earth image that won him so many friends amongst the angry voters he spoke for. His trip to Mexico worked quite well, allowing him to appear side by side with an elected country leader, and stick to his view that he wants a wall or fence on the border. It was a good enough performance to lead directly to the resignation of the Mexican Finance Minister who had invited him! The aim had been for him not to come or for Mexico to portray him and his policy as unacceptable.

The liberals of the west on both sides of the Atlantic have no trouble in condemning Trump’s wall as barbaric, yet these same people seem to accept the policy of building ever more walls and fences around eastern and southern Europe. The Republicans and conservatives unite to condemn Mrs Clinton’s economy with the truth and refusal to reveal all her documents and emails, yet they seem happy that Mr Trump refuses to reveal all his business and tax documentation in the same election.

Beneath these personality probes, health scares and aggressive rhetoric lies some fundamental political issues. Would Mr Trump talk more and bomb less in his world order? Will Mrs Clinton continue with the aggressive military interventions in the Middle East that she initiated or supported as Secretary of State? Will Mr Trump’s tax cutting agenda allied to making US corporations bring their money back onshore yields more growth and a tax bonanza as he hopes? Or will Mrs Clinton’s beefed up public programmes and higher tax rates for the rich create a more prosperous and more equal society?

The US people have a rich choice, even if they do not like either candidate. We will feel the washback from this decision.