Author: johnredwood

The sharp falls  of the domestic Chinese Stock exchange and the oil price in the first full week of the new year have caused some to raise the alarm about world economic prospects. Some fear another banking crash, some fear a commodities led collapse, some think this time the worst of the crisis will  be amongst the emerging markets.

The economic establishment takes a different view. The main forecasters expect the world economy to continue growing at around 3% this year, led by India and China amongst the emerging economies, and by the USA and UK amongst the advanced economies, much as 2015 saw.  The consensus sees interest rates staying low in Japan and the Euro area, and edging up a little if at all in the USA and UK. Euro area and Japanese monetary policy will remain very accommodating, whilst credit will advance a bit in the USA and UK.

It is true that the establishment view is usually wrong when a crisis looms. They did not forecast the crash of 2008, though it was the erratic monetary policies of the USA, the Eurozone and UK which  brought it on in a very predictable way. I do not see the same mistakes being made this time by advanced country central banks, so I do not expect a western 2008 style crisis in 2016.

The three problem areas that do cause concern in 2016 are commodity based activities, some emerging market countries, and the continuing political and economic stresses in some Euro area countries.

We still have not reached bottom in commodity markets. We are awaiting the closures of mines and oil wells on a sufficient scale to remove the excess production. Then prices can rise and commodity backed companies and countries start to earn better money. Whilst we wait there will  be further harsh cuts in energy and commodity investment with knock on effects for manufacturing. The main advanced countries gain benefit from lower prices of raw materials and energy and from the disinflationary effects allowing continuing loose money policies.

The worst placed emerging market economies are in Latin America. Brazil, Venezuela and Argentina in their different ways are all struggling to run more prudent policies that will escape inflation and recession. They are not big enough to bring down the world economy, but are painful for their citizens and unhelpful to world business activity and banking credits.

There remain difficulties in getting governments in Greece, Portugal and Spain that will deliver the austerity policies of the Euro. Given the willingness of governments and citizens of a wide range of opinions to wish to stay in the Euro, I  do not expect a Euro break up this year, but there could be another phase to the rolling crisis.

And what of China? China with $3.3 trillion on the reserves has options. I expect the Chinese authorities to cut rates more, loosen credit, and seek to reflate the economy. The economy there may be past the worst, though the domestic stock market  remains unhappy with reluctant holders still owning  shares.

If you fly over England at the time of the morning peak you will see busy main roads into cities and towns with cars often bumper to bumper. You will also see near empty railway lines, with a couple of miles gap between trains. Hundreds of cars an hour pour into our urban areas, whilst just 27 trains an  hour make it over our main line tracks.

So why do we need such large gaps  between trains? After all, trains on the main lines are all going in the same direction on any track, so there is no danger of a head to head crash. They all have  drivers and brakes, so they should all be capable of closing the gaps without endangering passengers.

The main reason is Network Rail still uses an old fashioned signalling system based on fixed block. This means that signals keep a second train out of a section of track all the time the first train remains in it. Because there has been a history of train drivers passing red signals there are various automatic warnings and braking devices to try to stop trains ending up close to each other.

There are now new systems based on radio links, computers and satellite positioning that enables an individual train to know where it is and how far it is away from the  train in front. As these systems become  more commonly adopted it should be possible to run 30 or even 33 trains on the same piece of track, providing a 10-20% increase in capacity.

All of this is still far from ambitious. It should be possible with new computer aids to run up to 40 trains an hour safely over  the same track. It is clearly easier to do that  if all the trains have good braking systems and similar speeds. As soon as you introduce slower trains into the system you need by pass track and better controls.

These new systems offer us the best way to a safer railway with more capacity.

Let us assume the PM secures all his negotiating objectives. There will be huffing and puffing over the fourth, the 4 year ban in welfare payments to EU migrants, but doubtless there will be some bridge, some fudge that claims symmetry between UK benefit recipients and those from the rest of the EU around a four year delay.  The trouble is, without Treaty change there are  no guarantees, no change to the underlying UK/EU relationship, no protection against future penalties and policies that the UK does not like.

Any deal depends on the view of the European Court of Justice anyway. They could overturn the apparent success in a future case. Any part of our welfare system, reformed by the deal, can be found to be against EU rules, or can be altered by future EU rule changes that we might not be able to block.

Were the UK to vote to stay in the rest of the EU will claim we have been given very special treatment and will then wish to reverse as many of  the concessions and special deals we enjoy as they can. There is continuous pressure to get us to drop what remains of our cash rebate. The UK government regularly gives into pressure to transfer more criminal justice powers to the EU. Part of Mr Cameron’s deal is to increase EU powers in business regulation and services. The Germans always make clear that they see the Euro as a necessary part of the single market. Most EU countries want the UK to be fully part of the common borders policy.

If the UK is foolish enough to vote stay it needs to understand what it is staying in. It is an emerging state called the EU, with the full range of state powers. It is a wild ride to political Union.

Mr Caneron’s renegotiation also shows how it is impossible to combine national democracy with EU sovereignty. If after every election in a member state that state needs treaty or policy change then the EU becomes  unworkable. If instead every country accepts it cannot change any law or policy from the EU by a General election it us no longer a national democracy.

Network Rail is a costly, inefficient public sector body now being put under new management. I have been making some proposals for better financial, operating and engineering performance .  I will share some with you today and others in a later posting.

I am pleased that Network Rail is  now rightly categorised as an arm of the state. All its debts now count as part of the state’s indebtedness, and all new borrowings will be state borrowing. This also means that in future management will need to clear its spending and borrowing plans with Transport and Treasury Ministers, which is only right as they are spending taxpayers money and pledging the nation’s credit. I  lobbied for this change.

The  positive results of this change include no further borrowing by Network Rail in foreign currencies. This is a potentially expensive and risky way of borrowing, as we saw towards the end of the last decade when sterling devalued substantially. It also means that Network Rail will not take out additional derivative exposures, which have proved expensive in recent years. There remains the outstanding issue of what should Network Rail do with its current open derivative positions on foreign currency and interest rate exposure. The sooner they wind all this up the better. The government does not have a policy of paying investment banks to  hedge its own interest rate or currency risks.

The new management is also rightly being charged with doing a better job at managing the large property estate. The government should expect to see more sales proceeds from selling surplus or development property, and to see a more enterprising approach to the use and improvement of its extensive land holdings. In the past Network Rail has often been reluctant to work with developers to improve important real estate holdings, or even to allow the development of adjacent private sector land by making access or bridging the railway expensive or impossible.

Network Rail owns land in many town and city centres which could  be helpful in mixed use developments close to the railway. The business can get free or subsidised station rebuilds, additional car parking and bridges to replace level crossings out of suitable development projects. It needs to be more positive and friendly in its approach to such improvements.

Network Rail needs to clean up and tidy the railway estate. As I travel around on the railway I see all too many abandoned piles of old rails and sleepers, weed throttled sidings, piles of building materials and other waste just left by the side of the tracks. Some of this has scrap value. Some can be used. Some of the sidings could become useful track for mainline by pass, or useful sidings to park working trains. Some of the land may be surplus to railway needs.

On many provincial stations there is all too little retail and service offer.  On some stations at night there is not even a working toilet, let alone a  café or newspaper and magazine shop to help while away the hours of waiting and travelling. Commuter stations often lack shops to buy a ready meal or pick up  breakfast in the morning. There are business opportunities to  be seized by franchises.

The Environment Agency has issued a topical paper. Entitled “River maintenance pilots. Findings Report” the EA this January tells us how and why the pilots to dredge, weed and cleanse 9 pilot areas have not worked well. This was something initiated by Ministers in the wake of the Somerset levels disaster, when Ministers required the Agency to do more to increase the capacity of rivers in areas prone to flooding.

The Report tells us these pilots have told farmers and landowners more of what the EA does do, and told them how to carry out work “in an environmentally sensitive way”. They say that some 61 km of river maintenance work has been done or is planned as a result.

However, they also report that in 2 areas no work was carried out. There were objections from landowners and farmers in pilot areas  because they were restricted to working on only 20% of the river on their land. Several reported that because there had been no dredging for so long there was too much silt to remove in a normal private sector maintenance  operation. Rules on methods of clearing and disposal of silt are worrying, complex  and expensive for landowners.

The Report demonstrates that the EA remains opposed to much dredging. The pilot areas were areas where they had discontinued dredging themselves, and where they did not plan to reinstate their dredging programmes. They then impeded the private sector’s wish to see these areas dredged by offering no cash and help, and or by issuing strict guidelines about how to do the work, and or by limiting the work to only one fifth of the affected river. As a result many farmers and other landowners concluded they could not do sufficient work to improve the position, were under some duress over how to do the work, and had a large inherited expensive and difficult task thanks to the EA’s abandoning dredging some time ago.

This was a masterly performance of Yes Minister. Elizabeth Truss should call them in and ask them to do better in future.

Some of the bloggers who write to my site condemn the general outbreak of politically correct speech and writing. Some might like  to break the rules of modern discourse by saying disobliging things about groups or types of people just for the frisson of it. One of the worst aspects of my job in moderating this site is taking out unpleasant generalisations whilst preserving the sense of the argument of the incoming contribution.

I do so not because I have lamely fallen prey to politically correct speech myself, but because I think observing courtesies to others and avoiding harsh generalisations is a good thing for society and for democratic debate. Under the modern rules of  political correctness  differential considerations apply. It is thought unacceptable to make harsh generalisations or issue sweeping criticisms of most minorities and all vulnerable groups. On the other hand it is often  thought acceptable to condemn in general and  unflattering terms the “rich”, members of mainstream parties, senior politicians or holders of other offices of power and influence, types of business, and people with certain views (“climate change deniers”, “Eurosceptics”).

Some of this shows a healthy democracy. The governed should be free to criticise the government, the person in an average  job should be free to criticise the bosses, political opponents need some latitude in condemning their rivals. Some is itself over the top. A fair and open society needs to avoid making exceptions or villains of any group or type of people living within it, other than criminals.Some of it is potentially a libel based on prejudice and lies.

Let us take the vexed case of immigration. Many people and two political parties want it reduced. It should be possible in a democracy to make the case for controlled immigration, and to set out criteria for choosing who might come for jobs and citizenship to our country. What is not  acceptable is to attribute a series of negative characteristics to groups of potential migrants with a view to creating tensions between communities and groups of people in our society.

In the case of global warming it is important we challenge the lazy and politically correct statements that all so often dominate this debate. It should not be offensive to anyone that some people wish to challenge the assumptions of global warming theory, as good scientists regularly test other scientific theories to see if they are right or if some other model provides a better explanation and predictions of the future.

The latest rise in fares reminds us how the dire financial and operational performance of Network Rail imposes a big financial burden on commuters.

We have a  very popular railway – a set out routes and train services into and out of our main cities – where overcrowding and overcharging go hand in hand, as people ride to work standing. We also  have an underused railway, with many long distance and cross country routes offering deeply discounted fares to fill some of the many empty seats available daily.

Broadly speaking, the working age population pay the high fares to go to work, or to go to leisure events at week-ends on special trains, whilst leisure travellers  are more common in the discount seats during the day.

The first task of the railway should  be to get capacity more into line with demand. We clearly need more trains into and out of main cities at busy times. That requires lighter trains, better signals, and some additional bypass track. We need  shorter trains on many other routes. I have written here before about the largely empty trains I sometimes use to get to the main  Northern cities first thing in the morning.

Selling more tickets for the less busy trains would be great.The railway does not seem to understand its customer base well. As an occasional user of long distance trains I regularly am offered  promotion tickets to go to a Northern city. The truth is I have to visit these cities for my work, so it is not ticket price determining  how often I go. If I am going to be attracted to go for leisure or pleasure, then the ticket promotion needs to  be linked to some other offer or attraction.

It was good to hear from the Agency at last on the Today programme. It was perhaps unsurprising that its Chairman was unavailable to be interviewed, and left the job to his CEO. I seem to remember in my days as Chairman of companies an important part of the Chairman’s role was to field any  difficult interviews with shareholders and public. This Chairman not only likes to stay on holiday during a crisis that his organisation has to handle, but then shirks the duty of explaining when he does get back to the office.

The CEO made one important statement that I support. He said clearly on more than one occasion that where policy has to choose between protecting people from flood, and protecting a natural habitat, they will choose to protect the people. The follow up question is why haven’t they followed this principle in more cases.

He also said that dredging can be helpful, though he declined to endorse it in all cases. He said they have undertaken £20m of dredging in the last two years. A substantial part of that is dredging the two main rivers of the Somerset levels after the dreadful floods there, following Ministerial insistence. They had not thought dredging suitable prior to the floods. The EA has always refused my requests for dredging the Loddon in my area, claiming it would  not be helpful.

When Parliament returns I will table some more questions on the large EA budget and their priorities. There is no evidence that they do regard dredging as an important contributor to flood relief in most cases, and every evidence that they short change the dredging budget. Nor do they seem to do much weed removal and bank improvement in my areas, which is probably typical. They also need to examine the resilience of pumps and electricity sub stations, in the wake of the vulnerability of the York system.

The public expect considerably more flood relief for the huge sums the EA consumes each year. I will be writing to them again with my wish list for my area.