Author: johnredwood

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.

 

The government has just changed the Immigration rules again, to make clearer certain important elements to the rules.

Refugee status will be withdrawn if someone obtained that status by deception. It will be withdrawn if the protection is no longer needed. It will be withdrawn if the person commits a serious crime, or becomes a threat to our national security.

New rules highlight the fact that no national   arriving from the EU  can make an asylum claim. Under EU law all EU countries are deemed to be safe, so any claim for asylum should be inadmissible unless there are exceptional circumstances. In future the UK will normally regard any EU national claim as inadmissible. If they present a case that they are exceptional it will be considered but there will be no right of appeal against a decision.

These and other changes are to tighten controls under existing EU rules, and may be helpful at the margin. Clearly they cannot and do not deal with the bigger issue of freedom of movement.

The French President reacted strongly to the barbarous attacks on  Paris, saying that France is at war with ISIL. Responding to terrorist mass murder is never easy, and his  language may well have caught the mood of anger of the moment. We need, however, to consider carefully what is the best response to this and similar outrages. We can learn from history.

There are three main ways established states and governments can respond to terrorism on home territory.  Terrorists can be treated as the most brutal kind of criminals. Their conduct is against the criminal law code of all civilised countries, as well as against the morality of most people in advanced societies. It is best under this approach to find, arrest  and prosecute them. It may be essential to kill them if they are caught during an  attack and threatening to kill more people if not stopped by force. The aim is to respond under our rule of law. Terrorists and suspects also have the right to a fair trial if apprehended, but can be killed legally by our authorities if they are an immediate threat to the rest of us. We do not licence our authorities to go round killing suspected or potential terrorists here in the UK who are  not an immediate threat, but wish to put them on trial or to deport them.

The second approach is to see them as warriors fighting against our society. One of the problems with this approach is they do not usually qualify as war fighters under international law. They do not normally wear uniforms so they can be  easily identified, may not carry identification documents, and do not fight on behalf of a recognised state that has declared war on us first. As the West is busy denying that ISIL is an official state, the act of identifying them as soldiers in a war in France is to undermine the argument that ISIL is not a proper state. Allowing them the dignity of soldiers also implies that we should expect retaliation against our society. When German bombs fell on London people did not rail against the criminality or illegality of the action, as we did  the same to German cities. It was brutal war where you had to accept retaliation. It seems to me unwise to glorify these mass murderers as soldiers with the implied recognition of their so called  state. We should not allow any justification of this monstrous violence.

The third approach which has been adopted for some past terrorist movements – which I am not recommending for today’s  ISIL – is to see that they have a political agenda which has some justice if pursued in a non violent way, and to initiate political talks to see if a new peace can be created where the terrorist groups come to play a peaceful political role. Some thought of the ANC as a terrorist organisation, but the world came to see it as a legitimate expression of opposition to apartheid which could  become the elected government of South Africa. The IRA were brought into the peace process in Northern Ireland and turned to political action.

So how should the West respond to ISIL and related groups spreading their criminal deeds from the Middle East to the streets of Paris or London?  There are a number of things our governments must do.

The first is to redouble the efforts to secure good intelligence. There has to be deep and constant scrutiny of those most likely to be terrorists, where there is reason to  be suspicious.

The second is to have stronger  border controls than we currently have, to prevent the entry of those who might be a threat to our society, and to monitor or control the re entry of British citizens who have chosen to go on prolonged  visits to places where they have access to terrorist and extremist training.

The third is to make sure we have well armed rapid reaction forces close to likely targets and in our main cities capable of deploying very quickly should a terrorist attack begin.

The fourth is to evict on evidence more from our country who do not wish to live by our rule of law after coming here, and who may represent a threat to us.

The fifth is to ensure our education system in secondary schools and Colleges is free from extremist and hate based influences.

All this is a sensible programme of security for the UK,  based on the enforcement of our criminal law.

This leaves open the large question of what if anything   the UK and the rest of the West can do to help stabilise the situation in Syria? The UK has to accept that we should not and could not lead an invasion of Syria ourselves to defeat ISIL and other rebel and terrorist groups, in order to install some new administration. The US could do that, but under President Obama has no intention of doing so . The Western allies are agreed that any ground war fighting in Syria has to be done by Arab forces,  not by the US or UK armies. The US is providing some air intervention, but so too now is Russia. Until we have a clearer idea of the ground forces that can win and need our help I do not wish to see UK planes or drones doing this job. The lack of any invitation to do so from the official government of Syria is not just a legal  but also a practical complication in the way of bombing campaigns, making access to the ground to target bombs well and follow up to check results that much more difficult. The nature of the official Syrian government is a major obstacle in planning intervention in the Syrian civil war.

I welcome the opening of a peace process. Syria needs more political energy and fewer bombs.

 

 

We all send our sympathies to the people of Paris who faced a series of barbarous attacks last night. Our thoughts are with the families who have lost loved ones.

The western intelligence agencies do often intercept and prevent such atrocities. When an attack gets through it provides additional incentive to improve and augment the Intelligence effort. Such events lead governments to take action after the event which may be counter productive. Disrupting the lives of many and changing the normal pattern after all the attackers are dead or arrested gives the terrorists an extra win.

Free and open societies are vulnerable to such madness and badness. Each of the gunmen  was someone’s son, or brother or other friend or relative. The authorities need the vigilance and support of all of us, as they are only as good as the evidence and information they receive or collect. None of us want to live in a society of spies and informers, but we do need to think our neighbours and fellow citizens would report conduct that could be the prelude to mass murder.

The other thing we need from the authorities is a rapid and decisive response as soon as any armed incident is reported. Potential assassins need to know they are likely to be killed before they can kill many.

Living with the EU is like having a constant cyber attack on our law codes, rules and regulations. The system is never stable, with the EU constantly seeking to extend their grip, change their laws, and increase their jurisdiction. They do all this in the name of European integration. They often try to tell the UK that it is mainly needed for the integrity of the single market. This is simply untrue.

To have a successful trade you usually have a system where the customer specifies what he wants, and the supplier explains what he has on offer. If they coincide at a good price there will be a transaction. Sometimes the customer side influences what the producer makes, because of course the producers want to sell more and need to listen to what the customers want. Sometimes the producers influence what the customer wants, because the producer defines a need or offers a solution which the customer finds attractive.

If you want to have a common market between two or more countries you can do so by having the simple rule which has been applied to the EEC/EU. That states that if something is of merchandisable quality in country A, it can be offered for sale in country B, as all countries in the zone accept the standards in each other’s jurisdictions. It does not mean customers will also accept the quality or style of any given product across national borders, but makes it easier for producers to offer their goods and see what happens.

The EU has moved on from this idea to seek to legislate for a wide variety of common standards and specifications for goods and services. They have got a long way towards there being an EU recipe or approved way of designing and making many things. This cramps innovation, may bring EU producers out of line with demands elsewhere in the world, and requires a large national bureaucracy in each member state to enforce the common rules.

The argument over leaving is usually couched in narrow terms in relation to trade and the common market by its supporters. They are old fashioned and out of date in this respect. The EU has long since moved on from being a common or single market, to being much more. They say the UK would still have to conform with EU rules and requirements when selling to the EU from outside. It is of course true that the UK has to conform with US rules and specifications when selling to US customers. Where we would gain from being outside the EU is we would not longer have to apply all those same rules and regulations to our dominant domestic trade in the UK, nor to goods and services supplied to the rest of the world outside the EU.

The defenders of the EU still say we would lose influence over the EU rules and standards for that minority of our output which would be exported to the EU. Even that is only partially true. Some of the EU’s rules comes from global agreements, where the UK would gain a seat at the world table and therefore continue to influence by that means what the EU was going to do. It also misses the point that where the EU is legislating beyond global minima the UK currently has little ability to stop them where we disagree. The UK government has lost a string of court cases over financial and banking regulation in recent months illustrating our inability to steer even in an area where we have the largest economic presence in the EU.

Earlier today I gave a Lecture at All Souls College, Oxford on the subject of Single currencies and political unions. I argued that a successful currency needs to be backed by a political union, which includes transfers between different regions or countries within the currency area.

I enclose a copy my presentation slides, which may be of interest to readers.

Slide 1: Can you have a successful currency union without political union

 

I then went on to debate leave or stay,mat a following seminar,  and drew on the material in these slides

Slide 2: Better Off Out

Is that it? asked Bernard Jenkin of the hapless Minister sent to explain the government’s renegotiation to the Commons. In that simple phrase he summed up the disappointment of many who had hoped for fundamental reform of the UK’s relationship with the rest of the EU. The many admirers of the Prime Minister’s Bloomberg speech wondered how it could come to this, the letter to Mr Tusk that did not seem to seek much change.

The government’s case is they will settle four of the main issues they see causing stress in our current relationship. They will seek a stronger role for national parliaments. They will try to protect the UK’s position as the Euro area moves towards political union and may caucus against us within the wider EU. They seek reductions in our welfare payments to workers coming here under the free movement rules of the EU. They want promises that the EU will both press on more rapidly with market integration in some areas, whilst cutting the burden of business regulation at the same time.

So what’s not to like?

The problems with this list are twofold. There are all the things that it leaves out that are unsatisfactory in our current relationship. Then there is the lack of any convincing mechanism to give authority back to the UK in the chosen areas, to lock in any success in negotiating them.

There is nothing in the proposals to allow us to repatriate our much ravaged fishing grounds, nothing to restore sanity to our farm subsidies under rules that help UK farmers rather than small scale continental farms, nothing to tackle high cost energy under EU energy policies, nothing to stop free movement of people and put all under common migration controls alongside our controls on the rest of the world.

Asking for a stronger role for our national Parliament should be fundamental. At the heart of the Bloomberg speech was a statement that said democracy resides in national parliaments. Fundamental to UK liberties and democracy is the notion that UK voters can influence and lobby their government to do as voters wish. If governments refuse to listen or disappoint, they can be changed by the voters to a government that does as electors want. EU laws and executive programmes are not accountable in this way. If UK voters want to change an EU law they need not only to influence the UK government to want to, but have to help the government influence 26 other governments to push change through which never happens. Uk voters want the UK government to meet its pledge to cut inward migration to less than 100,000 net. That means the UK government and Parliament settling welfare and border policies that can bring this about. Asking for groups of member states to be able through the wishes of their Parliaments to stop a future EU proposal does not tackle the underlying lack of accountability and democratic control over the huge body of EU law and executive action we already have.

It is difficult to see what means there can be to stop Euro area member states outvoting the UK and the other Euro outs anytime they like. We have already faced a big bill to lend money to Greece after a political agreement we would not be involved in any Euro bail out. Without clear Treaty guarantees there can be no solution. Even with Treaty guarantees, we will still find the Euro area is on a wild ride to political union, and we will often lose votes as they sweep along.

The EU may grant us much of what has been asked for on welfare benefits, after much huffing and puffing against it. We were told when past treaties were signed that welfare and tax remained “red line” issues, under our continuing control. The reforms of welfare do not go far enough, and do not last beyond the immediate specifics. We need to restore our own control over our own substantial welfare spending.

The EU regularly promises deregulation, but every year which passes sees more regulation, longer and more comprehensive regulations. Regulating and passing laws is what the EU does. It will carry on doing it. The UK does not suffer from a shortage of law. The Minister put it very well when he said many people see the EU as something that happens to them. That is exactly how it feels. Many of us do not buy into the EU because it does not do what we want, and does not give us a working democratic way of controlling it.

The modern EU has as its centre piece and main driver the Euro. It is on a wild ride to political union. That is not a journey the UK wishes to embark on. We do not need an emergency brake. We need to be on a train to a different destination.

Yesterday’s news that unemployment is down to 5.3% and employment up to 73.7% of those of working age was good. There are now 2.1 million more people in work than in 2010. The employment rate is up 3.5% from 70.2%. 760,000 people have moved from unemployment to employment over the same time period.

Wages are up by 3% over the last year, at a time of no overall inflation. Three quarters of the growth in employment has come in full time jobs. Some people are better off because they have found a job, some are better off because they have found a full time or better paid job, and some are better off thanks to pay rises. Now it is important that the government builds on this success, and comes back with revised proposals on tax credits.

In the budget debate I offered the following advice:

“I welcome the emphasis on prosperity in the Budget. I want a party and a Government who drive more prosperity for everyone in our country, and I want that to benefit people on all income levels. I especially want to see more people get into work and find other routes out of low incomes and poverty. The Chancellor is right to say that Britain deserves a pay rise and that we need to reinforce that pay rise as people get it, or reinforce their success in getting into a job and getting a pay packet, with tax cuts. I want tax cuts for all, and I am glad that my right hon. Friend has made a start on the promises made in our Conservative manifesto.

It is crucial that, as the Chancellor goes about the task of getting rid of unemployment and poverty through supportive policies, people are better off. What I want to do when we get to the detail of the welfare cuts is to see what the impact is, because we need to look at the overall impact. If people are going from unemployment to work, staying in work, getting a pay rise or getting a tax cut, those are all positive things that will make them better off, and we need to make sure that they are not completely offset or badly damaged by the welfare changes he is making. I look forward to those more detailed debates.

…………………… People need to work smarter to be paid better. We need a pay rise but we have to earn it, and that is the purpose behind many of the measures.

………….
The economic background to the official forecasts shows that the growth figures are still pretty good and we have had a welcome upward revision to figures for the immediate past. We also see a welcome upward revision to the number of people in employment, which is fundamental to the whole strategy. There has been a modest deterioration in the balance of payments, which shows that there is more work to be done.

The productivity work will link into that to make us more competitive. We have to earn our living, so we need more competitive products. All that growth and improved revenue is taking place despite higher interest rates—the forecast assumes a modest increase in interest rates compared with past forecasts.

On productivity—working smarter and working better —I welcome the scheme that the Chancellor outlined today. It will mean better roads and spending money on railways more wisely to get extra capacity in the parts of the system where we need it and increased efficiency. There will have to be a lot of work on energy, because we will need cheaper and more energy: as the march of the makers begins and the northern powerhouse cranks up, more electricity and more gas will be required. I hope that we will find cheaper ways to produce them than we have under the policies followed in recent years. It is important that we price people back into energy-intensive markets, rather than export all our energy-intensive business to other countries. It is no great win for those who want to cut carbon dioxide emissions if it is poured out of a factory in China rather than one in the United Kingdom. We need to be conscious of the need to be competitive in our energy generation.

We will need more on broadband, and clearly much more on housing, as many people have mentioned recently. I look forward to an investment-led recovery, with much more private sector investment coming in. We need to pay special attention to cheaper energy and to fix the railways, where we are spending too much and getting too little. It is not just a question of big investment programmes; it is a question of managing them better. Above all, we need to make sure that, as we implement the welfare reforms, everyone is better off and gets the benefits of tax cuts and higher wages.”

Therein lies the challenge. When reforming welfare it is often better to cut entitlements for future recipients, but to allow those already in receipt of benefits and relying on them to continue drawing them until their circumstances change.