Author: johnredwood

I am no pacifist. If a terrorist is about to  fire on us or about to blow us up, I am all in favour of our uniformed services shooting him. If a foreign power is about to invade us I support us having formidable fire power by air and sea to prevent or deter  the invasion. I accept that  the knowledge that we will retaliate is important to deterrence, so we need to keep open the likelihood of  retaliation against violence. The nuclear deterrent of course rests on understanding that in extreme circumstances a UK PM would retaliate. It works for us every day it is not used.

I also believe that violence can beget violence. I believe that politics and diplomacy is a better way forward in most cases than fighting. If you choose to  fight a war you also need to plan ahead for the peace. You need not only to see how you can win the war militarily, but also see ahead to how victory can lead to a better political settlement afterwards. Why enter a war you cannot win, or force a peace which is no better or worse than what it replaces? If you are retaliating you need to know who is causing you the trouble in the first place, so that the retaliation goes to the right place. Only a war of national self defence should alter observance of  these simple rules.

Some seem to be arguing that we have to respond to the terrorist attacks on France. They argue these attacks were outrageous – I agree – and that therefore we must do something. I also agree we need to respond to the current terrorist threat, and could do more to improve our resilience and reaction to it.

They then move to saying the thing we have to do is to bomb ISIS in Syria. This is a curious response to the French attacks. The terrorists in Paris came from France and Belgium. Those keen to bomb presumably wish to do so both to kill potential future bombers, and to retaliate for Paris. Fortunately they do not recommend bombing the suburbs of Brussels and Paris from whence the bombers came –  I would regard that as inhumane and counterproductive as I assume they do. But why then do they want to bomb the suburbs of Raqqa, when the terrorists did not come from there in this recent case? Are lives there of different value to lives in Europe? How can bombing ISIS embedded in a community help without ground troops to deal with them house by house, flat by flat?

The UK authorities also need to answer the question what magic could UK bombs do that US and French bombs have not already done? Why has bombing ISIS for months on both sides of the Iraq/Syria border not killed enough of them yet? It does not seem to me that Syria is short of bombs and bombers. It is very short of decent political leadership and good government.It is also still well short of a reliable army on the ground that could regain control over all of Syria with a  view to creating better government for the whole country.

I have no problems with  killing known terrorist organisers in the Middle East who have been responsible for organising mass murders there and abroad. Co-operation with the governing powers where they have authority is important when doing this. I do have worries about more generalised bombing campaigns seeking to kill imperfectly understood groups of terrorists embedded in civilian communities in Syria without the permission of the Syrian authorities and without clear intelligence on the ground from having enough people there observing targets. I do not wish my country to be involved in seeking change in Syria by force without having sufficient control or knowledge of local conditions. I dislike ISIS as much as the next person, but I do not think ISIS is the only or uniquely unpleasant extremist organisation we face.  If we intervene we need to back forces on the ground strong enough to take over in  Syria.Then they with our assistance  need to be able to put in place a government for the whole of Syria or for constituent parts of Syria that could command the support of the people it is governing and could govern peacefully.

Next week’s Autumn Statement is about how to divide up the planned overall increases in public spending. Just to remind readers, the Chancellor plans to lift total public spending from £735 bn last year to £804 bn by the end of this Parliament.  That’s a total rise of £69 bn in cash terms. Inflation is currently zero. To ensure this increase gives us a good real increase in spending it is of course important to keep public sector costs down, just as the private sector is having to do in very competitive world markets.

Public spending rose again in cash and real terms last month, and for the year as a whole. When will all the austerity mongers accept that total public spending is rising, and has been rising modestly since 2010?

This time the increase is led by capital spending, but also includes rises in pensions, health, schools, overseas aid and European contributions. Over the Parliament as a whole a number of high spending priority areas will be given extra cash, so the Chancellor needs to find savings elsewhere to stay within the agreed increased totals.

As a result borrowing rose compared with the same month last year, and is leaving the government with a difficult task to keep borrowing down to the limits set in the last budget. As always, the strategy of cutting the deficit rests largely on rising tax revenues. This time corporation tax was not as buoyant as hoped. This is not surprising, given the collapse of revenues in the commodity and energy  areas, the continuing reductions in types of banking activity as the regulators squeeze banks more, and the very competitive conditions in areas like retail.

All this provides the  backdrop for the Spending Review to be announced next week. I am looking for some abatement of the proposed reductions in tax credits, as the cuts in these benefits for the lower paid need to follow wage growth and tax cuts, so people are not worse off as the changes come in. There is considerable comment about how the elderly are better protected with the reforms to the State retirement pension offering a better deal with rising real pensions and all the universal benefits guaranteed by Manifesto promises, compared to younger people in work. Maybe the Chancellor should carry his reform of public sector pensions further, to limit future rights to accrue more entitlements under favourable past provisions. Maybe he needs to look again at the state  retirement age, as on average people are living longer and staying healthier for longer, meaning an unexpected increase in total pension payments as well as great news for us all that on average we will live longer.

There are parts of the public sector which I have highlighted here which could do more for less. The two that spring most readily to mind are Housing Associations, and Network Rail. I trust there will be new proposals on their financing, to provide better  value for taxpayers money.

The reporting of the Spending Review will doubtless follow the usual Labour line of highlighting apparently large cuts in the unprotected programmes, taking a five year percentage decline in real terms or against previous budget. Few commentators will point out the modest  cash and real increase for the period as a whole for total spending , or remember the rises in some of the protected programmes. Most years I have been in Parliament the stories about public spending have been about the “cuts” yet every year total spending has gone up. Industry cuts its costs every year, doing more or the same with less. The possible gains in the public sector from applying modern technology could be substantial.

This week Portugal managed to borrow one year money at a negative interest rate. Yes, that’s right. The lender has to pay a small sum for the privilege of lending to Portugal. You have had to pay Germany for the privilege of lending to her more often in recent months and over longer term loans,  but for this to happen for Portugal as well is surely a matter to examine.

Portugal currently does not have a Prime Minister. The recent General election did not deliver a majority for any party. The outgoing PM and government was allowed to stay in office by the President, so the left wing parties who thought they had “won” the election voted it down. The President is thinking about what to do next. The outgoing government accepts austerity and the full Euro package of policies. The left wing opposition is anti austerity, though much of it is pro Euro. As we have seen in Greece that is a difficult combination of views to hold. Could the left wing parties come together to form a governing coalition? What would their approach then be to the policies required by the Eurozone?

Portugal is another piece of evidence in the case of the diminishing importance of national democratic choice in the Eurozone. When so many decisions about budgets, taxes, spending and borrowing are made for a country, much of the substance of normal elections is removed from decision by the electors.

Portugal has more than 11% unemployment, with more than 31% youth unemployment. It has only managed a growth rate of 0.4% a year since 1988, and suffered a nasty recession in recent years. Yet despite this, it can now borrow at  no cost.

As the US and UK attempt to distance themselves from Quantitative easing and in the case of the US contemplate an interest rate rise, monetary action and conditions remain anything but normal in the Eurozone. As the zone still finds growth hard to achieve and sustain, and as the scars of the crash and Eurozone crisis are still all too visible in unemployment and poor economic performance, the European monetary authorities experiment further with unorthodox interest rate and borrowing policies. Who would have thought the Germans would do that? Does risk lie ahead as debts are built up with no interest cost.? Why should people save and be prudent in such a world?

The long awaited speech from the Energy and Climate Change Secretary arrived yesterday.

It does represent a shift in thinking, to give greater prominence to security of supply and price compared to controlling carbon dioxide. The government still has the three aims of enough power, cheaper power, and less CO2. Past governments have found it impossible to deliver cheaper power, or even enough power, given the ways they and the EU have chosen to pursue lower CO2.

First the good news. The government now recognises that we do not have sufficient power available. There are risks if a day of no wind or  high wind coincides with low temperatures and power station failures. To overcome this the government is organising further “capacity auctions” to offer contracts to power suppliers to have more power available. These need to encourage more gas capacity. The speech does  not go into the detail of how this might work.

Then the other news. The government wishes to cut carbon by organising a large switch out of coal generation into gas generation. They need to be careful. Premature closure of all coal will leave us with too little power. They need to have the gas stations up and running before the coal can be phased out.They say they know that, but EU rules are speeding coal closures too soon.

The government has removed subsidies for future onshore wind farms, and cut the subsidies for solar. It still presides over a very controlled and subsidised market. One of the ironies of the present position is that the government will have to intervene and offer favourable terms to get new gas stations. In a free market gas stations would offer the cheapest power, but in a subsidised world where gas stations have to close when the wind blows they end up being subsidised as well. Meanwhile the government is still offering quite large subsidies for offshore wind which will not offer good value for money.

The EU is on a wild ride to political union. Far from representing the status quo, the Better Stay in Europe (BSE) campaign wishes to sentence us to endless rows and uncertainties as the rest of the EU goes about its task of ever closer union.

The rest of the EU is working towards significant Treaty change to increase EU powers after June 2017. Were we still to be in the EU that would trigger another referendum for the UK under our EU referendum Act, agreed by all three main UK political parties in Parliament.

The 5 Presidents Report mapping the future of the Euro and the EU is quite clear on these matters. It states that in the first phase of completing the Union, up to June 30 2017, they intend to “build on existing instruments and make the best possible use of existing treaties” to increase central power and convergence by member states. In Stage 2 commencing in June 2017 they propose “concrete measures of a more far reaching nature…. The convergence process would be made more binding”.

Stage 2 is ambitious. It will include integrating the European Stability Mechanism into the EU law framework. It entails setting up a Euro area Treasury accountable at the European level. It means “integrate into the framework of EU law the Treaty on Stability, co-ordination and governance, the relevant parts of the Euro Plus Pact, and the intergovernmental agreement on the Single Resolution Fund.” This is jargon for saying the Euro now drives the EU, and the Euro’s needs must come to have a central part in the EU’s structure.

In other words, they intend major Treaty change to include the Euro Treaty, Euro area budgets, guarantees and transfers that the UK has expressly opted out from and so far largely kept out of the Treaties applying to all 28 member states. The medium term plan is to use the EU and its legal structures for all Euro activity, and to handle much more of the member states tax revenues and budgetary matters at EU level.

How would the UK keep itself out of all the costs and difficulties of the Euro in such a case? Stay in needs to explain how they might recommend voting on those major Treaty changes, as currently they claim the UK can stay free of the Euro and the tax bills it brings with it. How can you belong to a football club but refuse to play or watch football? The EU is  going to be driven by the needs of the Euro.

Nicola Shaw has recently published her invitation to us all to send in our ideas on how Network Rail should be structured and financed in future.

I will be sending in evidence. My first three conclusions for her are

1. As a business with all UK sterling revenues it should not borrow in foreign currencies again
2. All the time it remains a nationalised business with a full Treasury guarantee it should be lent money by the government  at government rates, borrowed by the government in the gilt market in the normal way.
3. It should stop all derivative hedging and trading.

When I first argued that Network Rail should not trade in derivatives in July 2012 it followed their reports acknowledging substantial  losses  in the year to March 2011, and again  in the year to March 2012.

The year to March 2012 saw £409 million of losses  in derivatives that were not hedge accounted and a further £45m of such losses in the year to March 2013.

I wrote a letter to the members of Network Rail, the group responsible in those days for the corporate governance and strategy of the business on behalf of the taxpayers who pay the bills. I asked them to explain their derivative strategy and why they thought it was good thing to be doing. My own  view was it should  be stopped.

Network Rail continued with derivatives, and reported losses of £982 million on them in 2013-14.  Their response claimed that although some of their derivatives were accounted as trading, they saw  them as a hedge against foreign currency borrowings which for some unknown reason they had chosen in preference to borrowing in pounds, and as a hedge against rising interest rates during a long period of ultra low rates.

Now Network Rail is fully under the control of the Treasury and Department for Transport I am asking again that all open derivative positions be closed down, or matching positions the other way be taken out to stop all future losses on these dangerous instruments.  They have had to ask for more taxpayer cash to put up against some of these positions, so they do matter within the budgets of the state.