Author: johnredwood

 

It is still fashionable in leftward circles to think that the only answer to poverty is more public spending. They wish the UK state to offer more public sector jobs, and to offer more transfer payments to more people  so they too become dependents of the government.

The latest ONS figures throw some light on levels of spending  and income  in the 3 countries of Britain. If we take the three countries of Great Britain (Northern Ireland reinforces the case) we see the following pattern of gross disposable income per head:

England    £17066

Scotland   £16267

Wales       £14623

Scotland is 5% down on England, and Wales 14% lower.

If we now compare the proportion of public sector workers to the total in each country we find exactly the reverse order:

England     17.4%

Scotland    22.1%

Wales         24.0%

If we look at public spending  per head, England has the lowest at £8529, compared to £9709 for Wales and £10,952 for Scotland. This means England enjoys 16% less public spending than Scotland per head.

It is impossible to look at these figures and continue to argue that more public spending per head produces more prosperity, or to argue that a higher proportion of public sector jobs produces a better result.  What matters most is the success and vibrancy of the private sector economy, and its capacity to generate enough well paid jobs. All three parts of the UK need sufficient public spending per head to enjoy good health, education and other important public services. They also each need a successful enterprise economy to generate most of the jobs and create those better paid jobs that so many families need and want.

 

 

 

 

I have before explained how, far from saving or creating 3 million jobs, EU policies are destroying jobs we have and stopping new ones we might get. I have just received a copy of an excellent document from Business for Britain which catalogues one of the main job destroyers from the EU, its energy policy.

In “Energy Policy and the EU” they estimate that “high EU energy costs threaten up to 1.5 million jobs in the energy intensive sector alone, with 336,000 of these jobs being at high risk.” They calculate that EU energy regulations have so far burdened  the UK economy with around £90 billion of extra cost.

They accept that some home grown policies have also made energy dearer, but they attribute substantial extra costs  on prices to EU policies. Medium sized industrial consumers in the EU pay about 20% more for electricity than competitors in China, 65% more than India, and more than twice as much as companies in the USA and Russia. The EU also makes it more difficult for us to exploit home reserves of shale which has done so much to cheapen energy in the USA.  This means we have less industry, and have witnessed substantial closures of energy intensive businesses in recent years.

Amongst the casualties so far we can mention the aluminium smelter at Lynemouth, various steel plants and blast furnaces, 22 chemical plants, (since 2009), along with paper, ceramics, glass  and other high energy using facilities. The booklet also lists the 9 power stations forced to close by an EU Directive, giving us dearer electricity and taking us closer to having insufficient capacity for our needs.

Those who like our current membership of the EU tell us the UK has influence and that the EU can help win us more jobs. Why then can’t they get the EU to stop its dangerous job destroying energy policies? Will they accept that there are many industrial jobs at risk? The irony is that the EU is neither cutting its carbon output overall nor promoting industry.

It looks like a other example of an important policy area where the UK would be better off making our own decisions, putting jobs before EU iedology.

 

I recently heard a Radio 4 talk by Professor Bogdanor about the UK and the EU over the years. In it he quoted  from Churchill’s Zurich speech in which he recommended a United States of Europe. He did go  on to admit that Churchill “was ambiguous” about whether the UK would be in the United States of Europe or not , but he and the BBC clearly wished to leave the impression that the great man both wanted a United States of Europe and at least did not rule out the UK joining. He never mentioned Churchill’s clearly stated view that there needed to be a  union of the English speaking peoples for the USA, the UK and the rest of the Anglosphere which would be nothing to do with Europe.

How can a Professor who claims to be independent of party politics and an expert on UK constitutional history believe Churchill was ambiguous about this most central of issues?  Indeed, if he read on in the Zurich speech he would see its conclusion said ” Great Britain, the British Commonwealth, mighty America and I trust Soviet Russia…must be friends and sponsors of the new Europe. Nothing there then about the UK being in it!

I see nothing ambiguous about Churchill’s stance, as any reader of his Fulton speech (The Sinews of peace) and his History of the English Speaking Peoples would know.

Churchill unambiguously did not want the UK to be any part of a United States of Europe, which he saw as the answer to continental wars and divisions. Churchill wanted a union of the English speaking peoples to create  the overarching superpower to keep the world’s peace with the UN.

That is why he wrote a History of the English Speaking Peoples, in four volumes, not a History of the European peoples. As he said at the end of his long work “Here is set out the long story of the English speaking peoples. They are now to become allies in terrible but victorious wars (in Europe). And that is not the end. Another phase looms before us……Nor should we now seek to define precisely the exact terms of ultimate union”.

If he had wanted the UK to be in  a European union he would have written a history of Europe explaining and stressing our past links and entanglements with the continent and ending with a forecast of European union, not  our commitment to Commonwealth and empire.

If the history  book is too Delphic for the Professor, then how about Churchill’s  clear statements at Fulton in one of his most famous  speeches?

“This means a special relationship between the British Commonwealth and Empire and the United States “of America..(Not between the United States of Europe and the USA)  He goes on to describe ever closer defence collaboration between the USA and the UK.  “Eventually there may come – I feel eventually there will come – the principle of common citizenship (between the UK and USA)…If the population of the English speaking Commonwealths be added to that of the US…there will be an overwhelming assurance of security”

So will the BBC now apologise and publish a correction to Professor Bogdanor’s misleading statements about  Churchill and the UK possibly joining a United States of Europe?  Churchill saw Britain and her Commonwealth and Empire as an entirely separate force from a  United States of continental Europe. He wanted an ultimate  merger for the UK with the USA  not with Europe. He wanted an immediate defence merger which led to NATO instead.

 

Many analysts puzzle over why UK productivity has failed to grow in recent years. Part of the answer is the sharp fall in North Sea oil output, from 4.5 million barrels a day in 1999 to 1.5 million and falling. Producing oil yields very high incomes and profits which scores as high productivity. Part of the answer is the transfer of some of the highest paying financial activities out of London to the Far East and elsewhere, as tax, regulation and the crash take their toll on this activity which also scores as highly productive in the official figures.

Today I want to look at another part of the explanation. Around 30% of the UK’s output is now public sector activity. Total public spending  is considerably  higher, as it includes taking money from people who earn their own living to  give it to people who are unable to and need help  through tax and welfare payments. We exclude welfare or transfer payments from public sector output, as these become money for private spending and decision.  The largest parts of the public sector output are health and education services.

The main aim of these sectors is to provide better quality services. Many people think the way to do this is to make them more labour intensive. Governments want each teacher to teach fewer pupils – smaller class sizes. They want each Doctor or nurse to handle fewer patients – no waiting lists and manageable workloads. As a politician I agree with them. These are popular ideas.

However, there is a danger that the understandable view that I want my child to be taught in a smaller class becomes transmuted into a general view that all public services can only get better if their productivity falls. There are cases where productivity of the public sector can rise just as it does in manufacturing or private services, by getting smarter at how we do things and using more technology. Generally we can only pay ourselves as a nation more if we do work smarter with more machine power at our elbow.

Take the case of MP services. My productivity was slashed by almost a quarter  at the last boundary review, when my constituency was cut in size from over 86,000 electors to 66,000 electors. I was quite capable of handling the cases and opinions of the larger constituency.  I never had any complaints that I had failed to answer in a timely way or failed to pursue a case owing to overwork. It is dangerous to assume you can only have high quality MP services if we represent fewer and fewer people.

Labour and Lib Dems of course wish to prevent MP productivity rising again, by blocking reforms which would reduce the number of MPs by 10%. It is also probably the case that MP productivity has fallen over the last couple of decades through the recruitment of more staff to MP offices to help them with their workloads. I say probably, because you would also need to research workload as well. Whilst the workload of an MP has clearly reduced through the reduction in Parliament’s hours, in other ways it has gone up, especially with the arrival of email. There are many more organised lobby group email campaigns than there were letter campaigns, as they are easier and cheaper to do.

If we look at the delivery of other public services, there are many ways in which productivity can be boosted with no diminution in quality, or with an increase in quality at the same time. Adopting new digital ways of keeping patient and pupil records, using computer and phone systems for appointments, taking advantage of internet based recruiting, using smart technology in the classroom or surgery can all lower costs and improve performance. We need to make sure that our love of more teachers and doctors for the right reasons does not become an obstacle to raising productivity elsewhere in these services.

As I have written here before in more detail, I see the obvious scope for improving productivity and performance in a public owned  service like Network Rail. Part of the answer to our productivity problem lies with politicians and senior officials in public services developing a healthier interest in doing more, doing it  better and doing it at lower cost. Given the wonders of modern technology, all this is possible. It also means a better trained and better paid workforce to do it. Starting from the current base, achieving steady improvements of a few per cent each year in many parts of the public service is possible and would help to correct the poor performance of overall productivity in our economy.

 

 

 

History shows us the pen is often mightier than the sword. Sometimes the way to defeat an evil ideology is just to demonstrate the better lives people lead with your beliefs. It is difficult to bomb  an ideology out of people, and it cannot be done successfully by force without taking over all the affected territories and completely rebuilding their political and educational systems. Today many people wish us to have a ready answer to how the West can defeat the Islamic State.

I assume  no-one seriously believes that you could or should try to attack  one of the world’s great religions, which have always shown considerable resilience and inner strength when challenged by armies. The problem with Islamic fundamentalism as a political movement is it seeks to ally itself with a great religion. Islam   is supported by many millions living in various countries around the world and in most of its manifestations is part of peace loving communities.

Let us consider the most recent case of success in eliminating an ideology that fathered mass deaths and executions, a belief which kept many people in poverty and tyranny. I am thinking of communism in eastern Europe. Here too there were many communists around the world who accepted much of the doctrine, but who did not support the eclipse of liberties or the savage butchery of political opponents reported from the dark days of the Soviet Union. There were many well intentioned communists who had no responsibility for the mass killings or starvations in some communist states.

The West wisely did not attack with military force  the political centre of the ideology, the Soviet Union. Indeed, we had to ally with the Soviets to help defeat Nazi Germany. When there were democratic revolts in Hungary, Poland and Czechoslovakia the West concluded it would be too dangerous and counter productive to go to their rescue. Yet 40 years after the  widespread adoption of communism  in Eastern Europe, the communist empire collapsed in a  series of spontaneous and internal democratic revolts. These were facilitated by a political establishment at the top of the Soviet Union who had reached the conclusion that their system was falling far too far behind the west in  technology, weaponry and living standards.

The reasons we won the Cold war were several. The first was we did spend enough on our own defences so the communist empire would not attack us. The second was the Soviets had increasing trouble preventing their citizens seeing the superior technology, living standards and freedoms of the West and asking why they could not have something similar. The third was the West continued to research, write, make films and produce broadcasts that demonstrated the superiority of a free enterprise democratic system. The best of these broadcasts or films were not seeking to make a political point. They were not propaganda. Just showing our lifestyles and political approaches, warts and all, was statement enough for those in the Soviet empire thinking about what would be their best future. When the Berlin Wall came down, one of  the main demands of the easterners was to be able to buy and enjoy the many western brands and products they had seen somehow despite the censorship of their media.

Today we need to develop a new  relationship with post Soviet Russia, which I will talk about in another post. Meanwhile the way forward with IS is for us to show there are better ways of living at peace and in prosperity, and to leave the main politics of the problem to the people living in the affected region. We should be there for those who want and seek our help and advice, but we should not think we can remodel the Middle East and eliminate  radical politics by dropping bombs on people.

 

Amidst all the clamour for the UK to take military action in Iraq again we should pause and ask ourselves whose side are we on? What would we be fighting for? These questions are equally acute if we simply supply arms, logistic support and intelligence to others to do the fighting.

I do not think the UK should back either the Sunnis or the Shia in the underlying Islamic struggle. Nor do I think we should fight to ensure the current borders and patterns of states remains immutable if people who have to live there no longer like the current lines on a map. After all we are just having a democratic vote in part of our country to see if our country still suits all its inhabitants.

Past UK policy has been incoherent, expensive in lives and money, and unhelpful to settling the future of the Middle East. The UK has wanted to keep current Iraq together, but has wanted to help the opposition forces in  neighbouring Syria who wish to dismember the Syrian state. Now the UK is considering sending weapons to the Kurds, whose ultimate aim is an independent Kurdish state. Is that now the UK’s aim? Have we sounded out our Turkish allies in NATO  on this matter? If a Kurdish state is split off, do we need then to support other divisions within former Iraq? How do we avoid a Sunni state in part of the territory?

I hold no brief for the current borders of Syria and Iraq, nor do I  think the UK should participate in a war either to maintain  the current lines or to create new states there. The huge instability, the wide range of factions and armies and the intensification of the civil wars in both countries makes stabilising a new settlement extremely difficult. Sending more weapons in is unlikely to  make it better. Many US weapons sent to the government of Iraq to defend the Iraqi state are  now in the hands of IS who wish to establish a new Caliphate state.

The people who say we should arm the Kurds need to answer some other questions. The Kurdish peshmerga forces have KDP and PUK wings who disagree with one another. Which of these would we favour, or would we arm each equally? What would we do if the Kurdish forces did seek to establish an independent Kurdish state as the reward for fighting the IS forces? How could we support them sufficiently to avoid capture of some of the new weapons by IS forces?

Not so long ago I urged the government with a group of Conservative colleagues not to intervene militarily in Syria. We were successful when Labour eventually joined us in opposition to such intervention. One of my reasons for opposing intervention was I did not see how our support for the opposition forces could  be confined to the so called moderates as the government hoped. It seemed obvious we would also be helping the extremists, as IS was an important part of the opposition to Assad. I have no time for Assad and his brutality  either. The irony of today’s position for the west is opposing IS forces means helping Assad, who is one of the principal forces of resistance to IS.

Labour’s war in Iraq was a bad mistake. Fighting another one would not right the wrongs of that war. There is a continuing lack of clarity over who we support and who we wish to defeat. The West has an unfortunate history of changing sides or revising their view of which is the worst cause we need to oppose. My enemy’s enemy may not be my friend. In the latest case my enemy’s enemy that I was wanting to help last year is now apparently my worst enemy instead. That does not make my old enemy my friend, but if we wish to stop IS Assad may be part of the means to do it. It would also help if our relations with Russia were better, as they too have an interest in stopping IS forces in the Middle East.

 

 

The latest Inflation Report from the Bank is both a mea culpa and a muddle. They admit they got their forecasts wrong for the last year. They thought inflation would stay over 3% but it fell to 1.7%. They thought unemployment would be around 7.6% but it fell to an average of 6.8% and is now at 6.4%. Productivity grew at 0.75% less than their estimate and employment grew much more. They got the level of sterling wrong and the favourable impact of rising sterling on prices. They thought wages would go up by more than they did.

 

We can all make mistakes. Even expensive and well resourced forecasting outfits like the Bank can make errors. It is more worrying, however, if there is something wrong or weak in the underlying approach to the forecasts. I am afraid that is exactly what has been revealed by these errors.

 

At the base of all these mistakes is one simple concept that is difficult to assess and measure. The concept is that of “slack” or unused capacity. In the Bank’s world they can assess and quantify this. If the economy has a high degree of slack then there will be little inflation. If slack has gone then conditions can become inflationary as companies and individuals bid up wages to get people to leave their current job, and as they offer more to get quick delivery of goods and services.

 

So far so good, you might say. There must be some truth in this. There are two obvious problems. The first is it leaves out the issue of money. If the banks create too much money this can drive up wages and prices. If they lend too little and there is too little money around you can have a recession, like the one in 2008 which the Bank did  not forecast before the event.  The second is, how do you measure this slack precisely so you know whether we are in the inflation danger zone or not?

 

This second problem preoccupies current Bank thinking. It lay behind Mr Carney’s opening policy that they would need to look at raising interest rates once unemployment fell below 7%. This was a pessimistic view of the UK economy, where labour shortages would emerge in the fast growing parts, where skills shortages would emerge, and where many long term unemployed would remain out of work. When we rapidly got below 7%, the Bank changed its mind and thought maybe 6.5% unemployment could be the level where they needed to start to worry.

 

Over the last year we saw unemployment fall below 6.5% but still no signs of inflation in average wages, let alone more generally. As a result the Bank has now decided that maybe the UK economy can function in a non inflationary manner with unemployment above 5.5%, not 6.5%. The latest theory of the danger rate seems as little based on evidence as the previous two that have now been rejected.

 

As the Bank explains in its Report, all sorts of things can happen to offset the impact on wages of falling unemployment. More people can arrive from abroad and offer their services, as they have. More people can get out of long term unemployment, partly as a result of recent benefit reforms, and they have. More people who were not working, not on benefit and not even seeking work may change their minds and take a job – and they have. The Bank now accepts these changes disrupt its view that a particular unemployment rate can start to create wage pressures. The Bank should also remember the problem of averages. Average pay may not go up much if there are few pay rises. It may also not go up much if we lose too many people on very high pay, or if we create a lot of lower paid jobs. We have done both, as well as people facing little or no pay rises in various occupations.

 

The whole idea of slack has two parts. The first is labour availability. As the Bank knows, you can have skills shortages that drive up specific wages, and labour shortages in certain places which can drive up local wages without having a general wage inflation. It now has to recognise that the recent remarkable flexibility of the UK workforce means there is more labour around than a single unemployment figure suggests.

 

The second part of their idea is unused capacity in business. This probably has more meaning in the industrial sector, where a factory with machines may well have a rated output above its current production which you can measure. Even this however, is not that precise. Producing more means perhaps ordering more components and raw materials, and taking on more labour or getting agreement to new shifts and overtime. There is a variable response depending on other conditions. Can the suppliers, who may be abroad, respond quickly? Do you have the trained people to supervise the machiness and organise the extra output and orders?

 

It is more difficult assessing the capacity of the dominant service sector. How many more windows can existing window cleaners fit in to their schedule? How many more meals can restaurants serve if more diners turn up? How many more health club places can existing clubs sell before they are full?

Finding a general answer and expressing it as a single figure is not easy.

 

The Bank needs to recognise that its concept of slack has so far let it down badly. It needs both to ask is there a better way of accurately measuring it, and is it a good enough explanation of inflation in the first place? These academic issues matter, as interest rates and our future growth hinge on it. Just asserting we currently have 1% slack left is simply not good enough.