Author: johnredwood

According to the Remain campaign, if the pound falls against the dollar that shows investors have fears about Brexit. In recent days the pound has been rallying against the dollar. They have gone quiet. Is this a reappraisal by investors, who now see the substantial gain to our balance of payments from leaving?   The pound fell from $1.47 to $1.38 between January and the end of February, but has since improved to $1.44.

If we take up the Remain view that investors are mainly moved by Brexit considerations and have been so far this year, then we can see that investors have some good thoughts on the advantages of Brexit. So far this year the number of jobs is up, vacancies are up, and a record number of people are in work. The Remain fears that Brexit worries would damage the jobs market have so far proved inaccurate.

The cost of government borrowing has gone down since the end of last year. The cost of borrowing ten year money has fallen from 1.99% to 1.4%. Why don’t the Remain people hail this as a substantial improvement, and see that implies investors are positive about Brexit? The US in contrast has to pay 1.8%a year  to borrow for ten years.

Then there is the prediction that inward investment will dry up. At a time when German investors are keen to take a majority share in a merged company with the London Stock Exchange ahead of the vote, it is difficult to sustain this argument. Various industrial businesses with five year investment programmes have confirmed they are not going to cancel if we vote to leave.

I think the Remain campaign exaggerate the impact of Brexit on the economy and on markets. Sterling has been falling against the dollar since last summer, as have other currencies, mainly on forecasts of rising US interest rates. The pound fell from over $2 in 2008 to $1.4 in 2009 when we were firmly committed to the EU, so we know other influences can generate large sterling movements. Whilst I would like to claim hopes of Brexit as the main cause of lower interest rates it is as difficult to do so as to claim Brexit caused the fall in sterling. Advanced country bonds have generally been rising in price with the European and  Japanese authorities both heavy buyers of their own paper.

In January, the last month for official figures, the UK imported £202m of steel from the rest of the EU and only £80m from the Rest of the world. The way EU energy, regulatory and procurement policies are enforced in the UK versus the continent allow much more steel to be produced in the rest of the EU than here. This should be one of the prime issues.
As the government looks for a buyer with Tata it should also evaluate Tata’s closure costs so a buyer can have a realistic negotiation over a dowry for the plants.

Yesterday’s figures for the UK’s balance of payments made bad reading by the standards of this worrying series of figures. The deficit reach a new high of 5.2% of national output for last year, and 7% for the last quarter. These are records we do not want to break.

The deficit had three main components. There is first the running deficit on government  account. Overseas aid payments combined with payments to the EU which we do not get back amounted to 1.4% of GDP or one quarter of the total deficit. As government policy is to continue to increase these payments in line with economic growth only Brexit could reverse this trend and cut this part of the deficit.

The second is the gap between money we have to send abroad to foreign owners of property, businesses and shares in the UK and the money UK investors receive as interest and dividends on their overseas investments. The gap is likely to carry on growing. All the time we run such a large payments deficit it means more foreigner buying more UK assets and expecting more interest, rental  and dividend income to be paid to them.

The third is the gap on trade. The UK is still in trade surplus with the rest of the world, but is in massive deficit with the rest of the EU. Common EU policies from fish to steel and from farming to energy are pushing the UK into more and more dependence on imports. We now import electricity which we could produce at home, import steel and steel based products especially from Germany, import more fish as overseas vessels take more of our resource and import food as the vagaries of the Common Agricultural Policy do not always help us.

I would like the UK to adopt a policy of improving our balance of payments deficit. To do so it will be easier once out of the EU. We get the immediate benefit of not having to make contributions. We can then adjust domestic policies to help our industries more than the EU does. I appreciate that the UK has added to some of the difficulties created by the EU common energy policy, but the EU policy constraints are now being used as the main reason we cannot change. It is also the case that the UK feels very circumscribed in responding to the steel crisis by both the state aids rules and the public procurement policy. The problem with interventions in markets like the heavy interventions in energy cause distortions which then lead to the need for other interventions to try to offset them

I want the government to find  a means  for a new owner or owners of our steel industry to keep open our current plants and to maintain a steel capacity in the UK. There are ways government can and should help bring about a new settlement that offers hope of continuing  steel production. Government can and should respond to demands over business rates, energy costs, anti dumping actions and public sector steel purchases.

The Welsh government could give Port Talbot rate relief, as business rates have shot up in recent years. Very high energy costs have been a problem for sometime. The government says it is doing something, but it needs to do more as I have been urging. The EU has taken some action to deal with dumping by Russia and China, but has imposed lower tariffs than some other countries around the world. More allegations of dumping are being investigated. This is entirely an EU competence, so we rely on them for action.

The UK government is working to secure more orders for UK steel works. the large building programmes it has for railways, utilities and property all require substantial quantities of steel. It needs to ensure UK bidders have good access to the possible contracts.

They need to help the management and workforce negotiate with the current owners, Tata, over the terms of transfer of ownership. If no-one emerges for early purchase Tate will face large closure costs, so government can help persuade it to include a dowry with the plants for the new owner which will still leave Tata better off and free of future liabilities.

 

The problems of our steel industry has led to exchanges over Brexit. What is clear is membership of the EU has not protected our industry, and some EU policies have made the problems worse.

To those who think nationalisation offers a simple solution, I suggest they read the sad history of nationalised British Steel from its establishment in 1967. Government had a bold vision of five new large coastal works to produce and sell 35 m tonnes of steel by the end of the 1970s. They embarked on a huge capital investment programme to construct the plant necessary for the task. The private sector industry they took over produced and sold 27 million tonnes in 1965. Output from the nationalised industry slumped from that figure, despite the large investment in new capacity. In 1972-3 British Steel Corporation  produced 25.1 million tonnes, in 1975-6 just 17.2 million tonnes, and in 1978-9 17.3 million tonnes. In the early 1980s a new Chairman concluded he had to plan for just 14.4 million tonnes of output, 59% less than planned output under the investment programme.

Thousands lost their jobs both under the Labour government of 1974-9 and the Conservative government from 1979 onwards. The workforce of 250,000 in the early days of nationalisation became just 50,000 in the early 1990s. Large numbers of redundancies were needed both because capacity had to be reined in so much and because UK steel productivity was well below US and Japanese levels. Bilston, Cleveland, Consett and Corby all had to be closed. There was still far too little work for the five main new coastal facilities which ran up colossal financial losses for taxpayers. The Conservative government  decided to keep Ravenscraig open despite advice from the Corporation that they  had too much capacity and Ravenscraig had the highest cost base.

Today of course the EU  rules on state aids would not allow any government to pay the huge losses successive governments paid for in the 1970s and early 1980s. They would not allow the £2bn of public dividend capital which turned out to be free money for the business nor the large capital write offs which BSC enjoyed in the 1970s.

1970  21,443 fishermen                    2914  11,845 fishermen

The EU has been most damaging to UK business. The more closely it has been involved, the bigger has been the collapse.

Consider our fishing industry. In 1971 just before entry we produced around 1 million tonnes of fish with a thriving industry in England  as well as in Scotland. There were 21,500 fishermen.

Last year we caught around 600,000 tonnes, with just 11,845 fishermen. The English industry has been very badly damaged, with our fishing now concentrated on Scottish waters. Overfishing and regulation combined have done grave damage to the English fishery in particular, as the EU made our fishing grounds into a common resource with free access for all EU member states with dreadful results.

The UK now imports more fish than it exports, and has witnessed a collapse of the cod,haddock and plaice fishery.

 

Steel Output   1972     25 million tonnes     2013     12 million tonnes

Consider our steel industry. Output has more than halved since we joined the EU, whilst Germany’s at 43 million tonnes has been much more stable and is now 3.6 times the UK’s.

The current state of crisis in the industry has been brought about in part by very dear energy prices from EU energy policies, and from the inability of the UK to buy enough UK steel owing to EU procurement rules. Other states do not seem to enforce them in the same way.  EU state aid rules now also prevent  helping the industry at a time of crisis made worse by cheap Chinese steel.

The UK has become a heavy net importer of steel.

 

Aluminium output

1972  300,000 tonnes   2015  43,000 tonnes

Both the UK’s large smelters at Anglesey and Lynemouth have closed. High energy costs resulting from EU and UK energy policies have been the main reason.

So can we say the EU has been good for business? It has certainly been good for continental businesses, who have come in and taken our fish and sold us many manufactured products. It has promoted imports to the UK, but has helped or caused the collapse of important industries at home. The Fishing decline is wholly attributable to the EU, as throughout the time we have been in the EEC/EU they have controlled it through their common policies and have insisted on others exploiting our natural resource.

 

 

 

 

 

 

I have done many debates and briefings for the business community in recent weeks. They all have some  things in common. There is a strong wish to learn, as many in the business community have  been starved of honest accounts of what powers the EU has and what policies it is following. There is an ignorance of the Leave campaign, as the media crowds out our positive message by endless aggressive interviews asking us to rebut the latest absurdity of project fear, or they seek to turn the whole thing into a Tory split story. The business community and many others are getting fed up with this silly treatment of a big national issue.

 

The first thing few grasp is this is about much more than trade rules and how easy it should be for Germany to sell us her cars. It is about who makes our laws, who levies taxes, who spends our money, who controls our borders. I have to explain just how much power the EU now has over VAT, Corporation Tax, energy policy, business regulation, criminal law and much else.

 

The second thing I notice is even the big  banks and foreign investment houses who say they analyse economics do not understand the need to analyse the favourable economic impacts of saving a £12 bn outflow on balance of payments and a £11bn contribution which is spent on the continent which could be spent at home. When I point out we get a 0.6%boost to GDP from spending our own money no one disagrees but no one  includes this  in their analysis.

 

The third thing I notice is they assume we will follow the Article 50 route out if the EU but do not then realise that means no change for the first two years. They are usually unsighted on the UK Parlianentary route allied to a faster negotiation timetable.

They find it difficult to understand that Article 50  is designed more for the convenience of the Union than of the leaver. That’s why using UK legislation to restore our veto before entering a faster negotiation would give us more leverage.

Many of them  assume we will do a Norway and seem not to have heard the clear  statements of the Leave campaign that we will not pay contributions in or have free movement once we have left.