Author: johnredwood

We know most of the main numbers of the Budget. These days they are given to us in the late Autumn (December) Statement, with full forecasts from the OBR. The revisions to these this March are not likely to be large.

The Chancellor may be able to anticipate a bit faster growth, and therefore more growth in tax receipts than planned at the end of last year. He will doubtless wish to increase the tax threshold as much as he dare. He might even allow some of the benefit of this  to accrue to 40% taxpayers as well as to 20% taxpayers.

Growth will come from most parts of the economy. Current public spending contributed with a real increase of 1.7% in 2012, and  a further real increase of 0.7%  in 2013, according to the OBR. They anticipate another 0.4% increase in real current public spending in 2014, with a good pick up in government investment as well that year after  cuts in previous years.  Public borrowing was forecast at £111bn in 2013-14, and at £96bn next year. There may be some improvement in those numbers thanks to faster growth.

There will be various schemes to promote extra growth. We have already been told of the planned new town at Ebbsfleet. This was the subject of my publication “Thames Reach a new city” which made proposals for the brownfields near Ebbsfleet. We are told that Help to Buy money for newly built homes will continue until 2020 if there is a Conservative government elected in 2015. I would expect more tax relief and assistance for companies taking on extra labour, especially of younger people.

The Office of Budget Responsibility may well have to revise its forecasts again to catch up with the reality of faster growth now coming through very visibly. There may also be rises in real wages before the end of the year, after the slump  in people’s spending power in 2008-10 and the continuing stresses on real incomes since.

THOSE SPENDING “CUTS” IN FULL

Total Managed expenditure

2012-13       £701.9bn

2013-14      £717.8bn

2014-15       £730.5bn

2015-16       £744bn     (OBR figures Autumn 2013)

            During the Labour years I responded to their Barker Review into housing supply. That government identified four major areas for housing growth – Ashford, Cambridge, Milton Keynes and the East Thames corridor.

            I agreed with them about the fourth on their list. Fresh from the success at encouraging major development in London Docklands, extending the renewal eastwards seemed a natural idea.  I proposed a new city called Thames Reach to rise between the M25 and the Crossways Park in the west, and Gravesend in the east.

            Piecemeal developments have proceeded in this area, reclaiming land and  filling in old quarries. Now we learn that the Coalition government wishes to turn the Ebbsfleet area into a garden city. That implies lower density developments with good public spaces and a mixture of sizes and prices of homes.

            There is a substantial shift going on in our country from north to south. In parts of the north we have a surplus of accommodation and weak house prices. In   most of the south we have a scarcity of housing and  high and rising prices.  All parties would like to find ways of stimulating more development in the north, and relieving some of the pressure on the south. The problem is the economy of a Cambridge or a Milton Keynes is taking off, creating many more jobs and offering a good market for anyone wanting to set up in business. Just as Liverpool grew and grew  a hundred years ago thanks to the dynamism of its dock based activities, so today Cambridge grows and grows owing to the success of its knowledge based activities.

      We need both to reinforce success, ensuring lack of transport, homes and other infrastructure does not stifle the fast growing parts of the country, and to find ways of harnessing that success to more parts of the country. We will need a new garden city at Ebbsfleet and more besides in the south. We also need more triggers for private sector led growth in  the big northern cities. Meanwhile Wokingham is offering builders scope to construct 12,500 extra homes just in the one relatively small district.

Some of the foundations of modern UK political arguments are absurd spin that does not stand up to any intelligent analysis, yet passes for political debate.

Take the often repeated phrase that divided parties do not get elected to government! The Thatcher Conservative party had a long running battle between Wets and Dries, with endless briefing against the Prime Minister,  yet it won three elections in a row. The Blairite Labour party was scarred by a permanent public feud between the Chancellor and the PM, with the party split three ways between the left, the Blairites and the Brown followers. They found plenty to disagree about but also won three times.

Or take the ridiculous statement that if we try to negotiate a new relationship with the EU or simply vote to leave, we will lose 3 million jobs. This is based on the crazy notion that overnight we would lose all our exports to the EU because they would want to stop all trade with us, yet they export far more to us than we export to them. The German Finance Minister has already said that if the UK leaves Germany would want and need trade arrangements so we could carry on trading as at present.

Then there is the strange notion that more and more matters of public policy, often very contentious, should be given to independent Agencies or panels of experts, as if they could somehow spirit away the genuine divisions of opinion and do a better job than accountable Ministers who have to listen to public opinion or lose their office.

I have dealt with the dangerous idea that a so called independent Central Bank can give us a stable economy with growth and low inflation. What part of the experience of the last eight years did people not understand? I have tried to explain again that you cannot have an independent Central Bank in a democracy.

I will also deal with the difference between leadership and followership, examining  how you can use opinion polls and media lobbying  intelligently to try to improve your understanding of the public debate and needs. Alternatively  you can slavishly follow them and end up with an erratic and often unsuccessful policy  based on the twists and turns of papers and media outlets seeking variety and novelty.

The lecture is being filmed so I will try to post it here afterwards.

The UK has had kept returning to the idea that there is some independent professional way of managing the economy free of political dispute or Parliamentary disagreement. Like moths to a flame, this has usually proved destructive to the jobs, incomes and businesses of our country.

During my lecture on Monday I will return to this theme. The UK was mesmerised after 1964 with the idea of German economic performance. Many decided that one of the central differences which delivered this better result was an “independent central bank”. The UK first tried to copy this by linking our currency to the German one. This policy led to a spectacular failure on the markets and a nasty recession.

More recently it led to the UK adopting the underlying idea, and seeking to have its own independent Central Bank. This same Bank presided over a huge build up in credit and risky bank balance sheets. It followed this up by starving the markets and banks of money, leading to the largest banking collapses for over a century.

The truth is you cannot have an independent Central Bank in a democracy. Someone has to appoint the Governor and the Board of the Bank. Someone has to establish the powers of the Bank, and someone has to set the Bank its tasks and targets. All that rightly remains the work of Parliament. So Parliament remains sovereign in these matters. You can have Parliament dismissing the Bank officials or changing the Bank’s powers if it ceases to please. You cannot have the Central Bank dismissing the elected government or changing the  government’s powers if they no longer like the government. That remains the electorate’s job.

The German model was  no more independent than the UK Bank has proved. The German Bank gave good advice on the hasty and badly drawn up Ostmark DM merger and was overruled. Even more amazing, the so called Central Bank whose main task was to defend the German currency was then overruled with the abolition of the currency itself! Some independence then!

When the main political parties agree about a policy or approach to a problem, taxpayers should start counting their spoons. Far from  representing some new higher level of democracy, it stifles choice, prevents intellectual challenge to the policy and often ends in expensive tears. Consensus can be a conspiracy against the public or a stitch up  by a professional vested interest.

On Monday I have been asked to give a Speaker’s lecture in the  Speaker’s Dining Room  at the Commons.  One of the issues I want to tackle is the enthusiasm for consensus and the wish to find more and more areas of policy and administration that can be given to experts to decide in place of Parliament and elected Ministers.

The public does sometimes say when  polled they wish the main political parties could get on better together, and work in the public interest. The idea of a finding a common wisdom is attractive. Yet the public speaks with forked tongue on this. When wanting to see Parliament in action, people usually want to see the most party and conflict riven part of the week, Prime Minister’s Questions. There is usually little enthusiasm to sit through a debate on a subject where the main parties all agree.

The same polls that say we want more consensus also can say the public want their MPs to stand up more for them against the government, the very opposite of building consensus around what the government is  doing. One of the privileges of being a democratic politician is you can choose which of the many  and sometimes conflicting views the public holds to advance yourself. Your judgement will then in turn be judged. There is rarely a single overwhelmingly held monolithic public view which you cannot gainsay.

I will explore in the lecture a couple of crucial ideas that have been consensus ones that have gone horribly wrong. The first was the Exchange Rate Mechanism. The second is the idea of an independent Central Bank. which helped give us the massive Boom and Bust of the last decade.

So spare us consensus. Give us choice. Spare us a rush to rely uncritically on external experts. Give us forensic analysis and loads of commonsense. That is what Ministers and MPs are meant to do – to use, criticise and judge external advice, not to give in to one strand of it.

        Mutuals have been muc h in vogue with all 3 main parties in the Uk in recent years. It is true that John Lewis has been trading very well. There is something satisfying about their model of staff participation in the success of the business which attracts both Labour and Conservative to them.

           However, when it comes to the financial sector both the Co-op and Equitable Life have shown a darker side to mutuals. Politicians need to learn from these bitter experiences that the mutual model can be both risky and  unfriendly to customers and employees alike.

           The mutual model has largely disappeared from the Building Society movement. There were too many small societies with insufficient capital. Some got into trading difficutlies and needed to look for larger partners. Others decided that becoming a for profit bank was a better way to expand their service and finance themselves in the future, so they converted willingly. We need to ask why this was so?

            One of the main weaknesses of a mutual is the absence of enough retained profit to give the business balance sheet streength. Mutuals often pay out too much to satisfy their demands of their mutual owners, leaving them weak should profits slump or assets fall in value. Well based banks and insurance companies need a good reserve to fall back on, and sometimes need the support of shareholders able and willing to put in new capital. Mutuals have neither of these safeguards.

               Mutuals can also lack the competitive edge and the close scrutiny of management that occurs in quoted PLCs. Equitable Life was so keen to pay out more to its policyholders that it made them promises it could not possibly fulfill. Its Board and management did not recognise this problem, and allowed promises to be made and liabilities built up over many years before the truth came out about its plight.

                    So too with the Co-op bank. Far from proving to have a superior moral model to that of the profit making PLC banks, the  Co-op Bank managed to build up a large portfolio of assets which were full of  problems. It has now had to make enormous write offs. To cap it all, it hired a CEO who wanted a huge salary, which was unpopular with many of the true believers in the Co-op approach.

                   We should beware of the idea that there is a moral superiority in mutuals when we look at two of the largest, Equitable and the Co-op. We should also recognise that their enthusiaism to pay out too much to co owners made them far more vulnerable to a downturn and to adverse conditions.