Author: johnredwood

One of the oddest features of some experts in the City is they worry about the impact of leaving the EU but say nothing about foreign take over of the Stock Exchange. When it comes to Brexit they take a dim view of how the rest of the EU is likely to react.

As they fear retaliation against UK service trade on Brexit, shouldn’t  they should fear retaliation against us even more if we  allow foreign take  over of one of our crucial service sector assets? I think they exaggerate the ability and willingness of the 27 to damage our service trade, as they need access to London and will see passports are two way affairs.

However, it is true that the EU has been trying to move trading in Euro into the Euro area. Inside the EU we have tried to resist this policy. We did  not get agreement from negotiation. We only won last time because we went to court, and they ruled that the ECB does not currently have the power to do it. That could change whether we are in the EU or not.

The Stock Exchange controls various crucial London markets, from main board shares through Aim smaller company shares to bonds and  derivatives. If we allow overseas  control of a merged  body, what ability do we have to stop the new owners seeking to switch business from London to Frankfurt? How long would any assurances that London will remain the larger market and the HQ last for?

There are good competition grounds to refer the planned merger and consider blocking the bid. The two markets combined will have large shares of EU equity and bond trading. There are issues about access to capital especially for smaller companies.

Mrs May proposed  a new policy to protect important national assests from foreign take over. How does the Stock Exchange fit into  the new policy?

John Redwood

In June 34,300 first time buyers took out mortgages, an increase of 17% on June 2015. Total mortgages were up 12% on June 2015, despite a big drop in Buy to let. The BTL fall was  in response to higher Stamp duties and government discouragement. So we now know the run up to the vote and the uncertainty  it was said to cause did not put people off buying a home, nor did the result published with a week to go for the month’s figures.

Today comes news that surveyors have revised up their expectations about house prices, with them now forecasting increases everwhere save London and East Anglia. Thats quite a change from Mr Osbornes referendum forecast.

Many people are quite happy to buy things now, despite all the negative mood music in parts of the media.  The largest cost in my annual budget is the cost of government. My tax bill well exceeds my food bill, or  my clothing bill, or my home costs or  my car running costs. Indeed, my tax bills  exceed all of those together.  It’s the one bill I can’t control.

Helping keep three governments, EU, national and local is an expensive business. I welcome the fact that we have recently voted to discontinue one of the three. Saving the money we send to the EU or spending it on our priorities will help.

I was hoping that as some businesses and forecasters are pessimistic there would be a few bargains around. When I came to buy a UK car to replace my older one, I found myself on a waiting list as they had no surplus stock or early production capacity available. When I wanted to buy a UK made  replacement window to improve the heat insulation of my home I too was told there was a long delay before they can fit in making  the one I needed. There were no special bargains on fears of the referendum. I will wait for the deliveries , as they are good products.

So how is your consumer confidence? Have any of you cancelled or deferred purchases recently, or do you think now is  a good time to buy?

The IFS clearly missed fhe referendum debates. Leave won, making it clear we wish to leave the EU and have no wish to go on paying contributions or accepting freedom of movement.

There is no evidence that joining the EEC or completing the single market boosted our growth, so it is difficult to believe we will lose growth when we leave.

The IFS agreed with  Remain. The official campaign made plenty of false claims and stupid forecasts about what would happen if we voted for Out.  Why don’t they accept they got it wrong and start looking at the facts for a change?

Retail sales figures for July show the strongest growth since January. There’s a surprise for the Bank of England, who had highlighted a major knock to  consumer confidence and was expecting consumer expenditure to nosedive. Instead July saw big increases in eating out, food and clothing sales. The weather helped , we are told, implying people carried on as normal regardless of the referendum result.

The Nationwide house price index rose 0.5% in July, the first full month post the vote. There’s another surprise for the Bank of England, who told us house prices were going to drop after an Out vote. Actual figures confirm the predictions I made here, that there will be no Brexit collapse and no Brexit inspired recession,  nor any  collapse in house prices after the vote.

The Bank should have waited a few days for these real  figures on what happened in the five weeks after the vote, instead of plunging in with its monetary package. There was no need to cut rates further or to buy up more government bonds. The UK government interest rate collapsed after the vote anyway, before the Bank announced its passion to buy up yet more   government bonds. The government had to pay 1.37% to borrow 10 year money on referendum day. That halved in the month following the vote. Yesterday it slumped further to just 0.6% with the Bank’s package adding to the bond  bubble pressures already in the system.

The Bank’s big shift from forecasting a recession (see their May statement and press comments) to forecasting a slowdown in growth for 2017 was picked up by some in the press and media. The Bank is now forecasting 2% growth this year and 0.8% next year. This 2017 forecast is far too low, and would have been even without the special stimulus now released into the system.

Now is an excellent time for people to shop and to buy British goods. Employment is high, real wages are growing, and the dearer imports will be cushioned for a bit by forward cover on currencies taken out by importers and retailers. Many retailers have been discounting and making special offers available for many months, from way before the referendum became an issue. The progressive power of the internet is helping control retail prices and offers competitive choices to shoppers. That is going to continue.

Doubtless retail sales and residential property transactions will fluctuate after the vote as they did before. The general pattern given the economic background remains positive for both. You would expect the usual seasonal lull in August, but should not expect a big fall in prices or output.

The tragedy of the Labour leadership contest is they are not debating what really matters to the country and to their party for the future. It cannot resolve most of the big questions, as they are not  being posed.

The Labour party in Parliament is bitterly divided over what it stands for, what it should oppose and what it should support, and what it should offer electors in 2020.

Some think it should return to more Blairite ways, agreeing with the Conservative government over matters like lower tax rates, keeping a nuclear deterrent, and running budgets that keep tax revenues related to spending with modest deficits. They recall they won in 1997 by promising to keep to Conservative spending plans, running a surplus in their early years, and keeping Income tax rates at inherited levels. They think Mr Miliband was too left wing.

Others think the last leadership compromised with the Blairites and with the Conservatives too much in 2015. They want a more radical socialist alternative, that opposes nuclear weapons, proposes much higher Income and Wealth taxes, argues for larger public deficits, advocates more wide ranging nationalisation from railways to health and offers a substantial strengthening of trade union rights and influence.

Both these are legitimate positions worthy of debate. It is not obvious looking at the current state of UK politics that either offers a clearly winning formula to give Labour 40-44% of the vote and a possible General Election victory. The problem is this last century debate misses out on matters that worry modern electors a lot. Both sides in the debate would prefer  continued membership of the EU despite many Labour voters and a large majority of all voters in heavily Labour areas agreeing with the national verdict to leave. Neither side has a positive view of what to do about unlimited immigration. Neither side dares mention the word England, sicking to their outdated lop sided devolution for Scotland, Wales and Northern Ireland with nothing for the largest country of the Union. Neither has good ideas on  how to win back votes from the SNP in Scotland nor how to stop more votes for Conservatives and UKIP in England.

Even more strange is this leadership contest is between two people who largely agree on all these matters. Both Owen Smith and Jeremy Corbyn subscribe to the view that Labour should shift leftwards on employment rights, pay, tax levels, and more nationalisation. They do not yet have any disagreement on migration, the EU or the problem of English identity and government. It’s an argument about personality and style more than about substance.

Mr Corbyn can claim that Mr Smith is splitting the party and trying to upend a legitimately elected leader. Mr Smith can claim that he has the support of more MPs than Mr Corbyn, who finds it difficult to staff an Opposition front bench given the way many Labour MPs are on strike against the current leadership. Mr Corbyn looks the most likely to win. This poses  big issues for Labour MPs, who have to decide if they then will get behind their duly elected leader.  Can they suddenly discover confidence in him where they had none a few days before? If Mr Smith suddenly does better and surprises, then he will have a very unhappy party in the country trying to drive him to more Corbyn type policies when the MPs may wish to tack back to try to win more English and middle class votes.

It would have been better if a champion of a genuinely different strategy to Mr Corbyn’s had arisen to have the debate they need to have about the future direction of policy and the country. It would also help if both sides thought through the meaning of the EU referendum decision, and showed some respect for the public view. It is going to be very difficult running an Opposition with no new policies on identity and migration, and with a grudge against electors for voting the wrong way as they see it in the EU referendum. Opposition should be  about getting more into line with public opinion, not trying to find more ways of disagreeing with it.

Dear Justine

I was pleased to see week-end press coverage that the government is considering allowing the expansion of existing grammar schools and the establishment of new ones where local communities would like this to happen. I strongly support this policy and urge you to develop plans as soon as possible.

In Berkshire children from my constituency and from other neighbouring constituencies can apply for places at the two Reading grammar schools, and frequently do. There are no grammars in Wokingham Borough , nor in the West Berkshire  Council area. My constituency contains parts of both of these Unitary Council areas.  High achieving students at local comprehensives obtain places at top universities, as well as pupils from  the grammars doing so, so it is not right to argue the presence of the grammars undermines the local comprehensives academically.

The grammar schools are massively oversubscribed and are popular schools. The academically gifted child does benefit from the specialist grammar teaching selection allows, just as specialist sporting, dance and music academies can bring out the best in the most enthusiastic and talented youngsters in those disciplines.  Nationally I read that children of better off families have more success at getting grammar places. This in part reflects the location of current grammars, with a concentration in higher income areas like Buckinghamshire, parts of Berkshire and Kent. It would be good to spread their reach more widely.

I do not accept grammars create an insuperable divide at 11. We need a system which allows those late developers who wish to go to a grammar for a more specialist academic education to have opportunity after 11, and we need to ensure high fliers academically can also be  well served by local comprehensives, as many are in my area. As sport, dance , art and music demonstrate, specialist concentrated teaching and learning helps achieve excellence, as it can  academic success. The bigger divide currently is between those whose parents can afford to send them to a top performing feee paying school and the rest. More grammars will help bridge this academic gap.

I was disappointed to read of delay in implementing the Conservative policy of fairer funding for secondary schools in areas like mine, and hope you will revisit this and reach a timely introduction, in line with our Manifesto promises.

Yours ever

John

Over the 43 long years of our membership of the EEC which  morphed into the EU government has become progressively enfeebled. More and more of our laws and standards are laid down by Brussels. The UK civil service has ben used to receiving its legislative instructions from a foreign power, and has settled down to accepting a large amount of derived law.

It is one of the reasons why people have become more dismissive of Westminster and Whitehall. We have had two governments for the price of three.

Some of it has added complexity and work we did not need. Some of it has produced rules and requirements that we accept or may have invented for ourselves.  The employment rules where the UK had a good record before membership of progressively raising standards for employees by UK legislative action has produced a body of minimum standards laws at EU level. The labour movement likes  these, which any UK government will keep. The Leave campaign recommended keeping them. Environmental laws are also examples of requirements which previous UK governments often wanted, though here we may wish to adapt them more to our national needs.

I have found an increasing number of areas where constituents have written to complain about the way something works where I have had to explain that Westminster did not have the power to alter it owing to EU demands. In such cases people did not readily gravitate to one of their MEPs, sensing that the European Parliament does not have the same power to initiate, revise  and repeal EU laws that the UK Parliament has over UK laws. It is also obvious that any individual MEP has so much less power to initiate and influence EU law than any UK MP has over UK law.

EU law is another kind of rule by experts, where the consultants and large company lobbyists and executives have the power to influence and draft for Brussels. The combination of too much big company government from the continent and too much independent quango government  from home, has created a new priesthood or tyranny by experts which the public decisively rejected on June 23rd.

One of the worst jobs I was given in government was negotiating numerous Directives and Regulations to complete the so called single market. Seeing the construction of this complex web of law codes from the inside taught me that this was no ordinary market. This was a simple power grab by the EU authorities, using the cover of the markets as means of taking over large areas of legislative authority from the member states.

The job was unsatisfactory, as it entailed endless hours of discussions and debates trying to stop needless rules, or trying to amend badly drafted and over the top proposals to make them something business could live with. I soon concluded it was all based on a false premise, that you can legislate to create a market. Markets require willing buyers and willing sellers. They need some people to be good at defining services and designing products that others will value, and other people willing to shop around with an open mind. You do not need to amalgamate law codes or adopt common laws in order to buy from each other. China’s laws are very different from the UK, yet they manage to sell us a large amount of product.

It is true that there is a benefit in the single market legislative programme. If you have a product which is of marketable quality for country A within the single market, that same product will meet the legal and technical specification needed in country B if also within the single market. This of course is an advantage to countries trading with the EU from outside the zone, as  much as it is to members inside the zone. It also brings the disbenefit to members of the zone that if the EU decides on unsatisfactory requirements and specifications you are lumbered with it, whatever world companies may be able to produce which is better outside the EU specification.

Too many still seem to think the single market is some priceless creation. I remember it being a series of compromises over very often badly drafted texts, where the main aim seemed to be to establish EU control or involvement in the particular area covered  by the draft law. Nor is it true to say you cannot trade with member states if you no longer  belong to the single market. The rest of the world trades daily with the EU without being members.

I read their forecast carefully. It is rightly riddled with uncertainty.

The good news is they  no longer expect a recession. They anticipate 2% growth this year, and 1.8% growth in 2018. It is difficult to understand why they think growth will reduce to 0.8% next year . There was sufficient monetary stimulus prior to their latest set of monetary actions to justify a higher forecast.

Their forecasts are  contradictory, and struggle to find any bad news, let alone enough to justify their extraordinary actions. They admit that they do yet see a material slowing in consumer growth, yet consumption is the dominant part of GDP. They have had to give up falls in FTSE 100, and even in FTSE 250 as both indices are at or above where they were prior to vote, which was itself a high level. So now they point out that a couple of sectors within the index are weak, financials and construction. There are usually a few sectors that lag or do badly when an index rises, but it does not normally herald recession.

They cite unspecified property funds that have closed owing to redemptions. They do not point out that some of those funds refuse to accept new subscriptions! Nor do they point out that lots of funds have not closed, and do not take such a pessimistic view of property values. I don’t think we can take seriously mark downs when we are not allowed to buy the units so marked down! They do admit that maybe residential property will not fall very much after all, much to the disappointment of all those who would like to be able to afford a home.

It looks as if the Bank has decided it has to get away from its absurd pessimism that we would plunge into the recession they talked about prior to the vote. To do so they  both change the forecast to a more optimistic one and take action on money to claim the credit for staving off the recession they forecast. Many people did not believe the forecast in the first place. It is interesting that the Bank now thinks this year will be just fine, and thought it could delay monetary action by over a month after the vote. It is a pity they did not delay it longer, as I doubt it was ever needed.

Just a few weeks ago we were facing recession according to official forecasts if we voted Leave. Now we are told there will be little or no growth instead. These forecasts are very flexible, and doubtless wrong.

The Bank should have waited to see proper data for output and activity for the first quarter or so after the vote before rushing in. It seems as if they are desperate to get the pound down, as the one and only thing that has been performing as they forecast pre the vote.

There is no need to fear, as some now do, that the Bank is running out of options to stimulate. As the Bank itself makes clear, it could have a bigger QE programme, it could widen the range of assets it buys in with created money, and it could expend the bank lending facility. It could also cut interest rates again.

I hope it does none of these things. I do not think they are needed. Triggering more asset inflation is not a good idea, at a time when we would like more UK citizens to be able to afford a home of their own. There is as yet no evidence of a collapse in demand or a serious likelihood of a Brexit induced recession. Real wages are rising strongly. We do not need the Bank to erode them too much by sparking a weak sterling leading to a higher rate of inflation.

The Bank admits it has to control inflation as well as avoid recession. Its latest actions do not seem to take its inflation duty seriously enough.