Author: johnredwood

Sometimes economics and politics come into conflict. Some economists tell you  governments fixing wages higher than the market wage run the risk of reducing the number of jobs. Politics tells you trying to secure higher wages for the many is popular, as none of us likes to see people badly paid.

The economics of wage fixing appears simple. The market should find the lowest wage level for the least productive jobs that are worthwhile for the employer to offer and for the employee to accept. If government says the lowest permitted wage should be higher than the market level, then there will be fewer jobs created and accepted.

The first round effect of a higher minimum wage might therefore be to destroy jobs. The independent body that sets the Minimum Wage has always thought so, and has used this argument to keep the minimum low. We need to ask what of the second round effects?

There may well be better results than the first reaction of a market economist. We need to consider what the winners do with their extra money they get paid. They are likely to spend it, and some of this money will in turn become income in the hands of other people in the same economy. That can help create or protect jobs. Some will be lost to the economy through buying imports. Some of it may displace money that shareholders would otherwise have spent or lent on to others.  There could also be a spurt in productivity. Employers do not have to respond to higher wages by cutting jobs. They could respond by boosting skills and output per employee to justify the higher wage.

When Labour first introduced a Minimum Wage Conservative opposed it, arguing that either it would be set at a low level which would do little or nothing to raise wages, or it would be set too high and destroy jobs. Conservatives instead proposed a minimum income, made up of market wages topped up by tax credits. Labour argued against, demanding employers paid more of the minimum income. Labour then went on to implement the minimum income scheme with much extended tax credits, offering effective pay well above the Minimum Income for people who qualified for the credits.

Thanks to tax, tax credits, state employment and state pay and many other government interventions the jobs market and wages are far from the free market of supply/demand theory. Most think that government offering to put the Minimum Wage up to say £25,000 a year or to current  average earnings would destroy jobs which is why no party suggests doing it. There is more uncertainty about the consequences of the lesser rise the current government has in mind. I accept we want a better paid workforce, and understand the government’s wish to force the pace. Let us hope it generates the productivity gains and better skills and training it needs to do successfully, without job losses. Big companies can help by working with their employees to ensure they work smarter as they work for better pay.

If on a whim I decided to go to Leeds on a weekday morning it would cost me £96.80 standard class to catch the off peak 11.05 am. If I could delay my journey for a month I could buy a ticket on the same train for just £22.95. If I went on the 11.35 in a month’s time it would cost me just £14.60.

If I wanted to go to Manchester it would cost me £80.60 standard class. If I wanted to go after 3.20pm it would cost me £164.50. If I book in advance to go to Manchester off peak in November it would cost me just £20.

Rail fares are bizarre. Half of them are regulated, mainly to try to prevent the rail industry overcharging for scarce commuter seats into London at the peaks. Regulation has not stopped the imposition of high fares on popular commuter services. The railway gives people huge discounts for buying tickets well in advance, charges the traveller buying a ticket on the day high prices, and imposes a simple cliff edge on fares with big increase in fares at around 3pm and a big drop around 7pm, with a similar peak in the morning.

This system leaves commuters feeling they pay more than their fair share of a heavily subsidised industry. It leads to heavily overcrowded trains on popular routes on the first train after the ending of the peak fare, and still leaves the main commuter lines with insufficient capacity. It clearly fails to maximise revenues or sell the many empty seats I see on many of the trains I use outside the London and Reading area commuter services.

It is curious that the very low advance fares are not more successful in selling off peak seats on long distance trains. Maybe they are insufficiently known. Maybe there is simply too much capacity on these routes. It is also curious that many pay the high single and return fares charged if you buy on the day of travel, given the high premium charged for late purchase.

What seems likely is a revised pattern of fares and service provision could improve seat sales, reduce costs, and give commuters a fairer deal. Can the rail industry rise to that challenge?

The complex system which fails to deliver enough seats on busy routes at popular times and provides many unsold empty seats elsewhere is a reminder of how price regulation can both be well intended and unsuccessful. We need more competition in the railway, to innovate on services and bring in more popular fares and services.

Leaving will be better for business.

Business now agrees we were right to quit the Exchange Rate Mechanism, which damaged jobs and closed factories.

Business now agrees we were right to say No to the Euro, which has helped to create mass unemployment and property crashes in several countries of the EU.

Out of the EU the UK can negotiate her own free trade agreements with China, the USA and India, after 43 years in an EU which has stopped us doing that and has not done it for us.

Out of the EU the UK can decide what regulations and taxes to impose on all our domestic business and all our exports to non EU countries, which represents around 85% of our total income and output.

The UK will continue to trade with the EU, and they will not wish or be able to impose new tariff barriers on us and certainly will not want us imposing barriers on them.

The UK will avoid new taxes like the Financial Transactions Tax, and unfriendly changes to Corporation Tax and VAT which the EU currently carries out.

Some have wrongly argued here that the government has failed to set out what it wishes to achieve from the current renegotiation with the EU. This is not the case, so I will remind people of what the government has said about its plans.

My view is I want “the fundamental change” in the UK’s relationship with the EU that the PM talked about. I want to trade and be friends with them, but to be outside the centralising treaties which force laws and policies on us that we would not choose for ourselves.

More recently the government has identified four big areas for change. They say they are negotiating over each of these areas.

Competitiveness and Regulation – the government wants an EU based on the primacy of more jobs and prosperity, that regulates and interferes less

Sovereignty and competences – the government wants powers back and more ability to stop mandatory policies from the EU through the actions of national Parliaments

A new and clearer relationship with the Eurozone – so the Uk does not have to accept Eurozone requirements on banking, finance etc

More UK control over migration and access to welfare – removing the “pull” factors that are swelling migrant numbers into the UK.

The current debate is over whether the government is asking for enough to satisfy the many voters in the middle of this argument who have not made up their minds on whether to leave the EU or not, and whether the EU will give the UK anything meaningful under these various headings to enable the government to recommend the deal. The government recognises that Treaty change will be needed, but may settle for a promissory note on treaty change which then raises the issue of the powers of the ECJ, what happens in the interim, and the ability of the rest of the EU to deliver given the complexities of securing the consent of all 28 to treaty changes.

Many will conclude leaving is an easier way of resolving the lack of power and democratic control the UK currently suffers from under the present treaties. If it looks as if the UK will vote to leave there will be more chance of securing that fundamental change Mr Cameron has talked about.

Out of the EU the UK will regain her own seat on the World Trade Organisation, and be able to press for world agreements that we want.

The UK will gain a seat or have more influence on world standards bodies which in turn inform EU standards.

The UK will have her own seat and policy at World Summits like the World Climate summits.

The UK will be better treated by France and Germany who will need our support on various issues in the future and will not be able to outvote us in the EU to stifle our opinion.

The UK is the world’s fifth largest economy and one of the world’s most important military powers after the USA, China and Russia. It is high time we were fully represented in our own name in all important world fora.

I would be interested to receive comments on Mr Corbyn’s “new style” of handling PMQs.