Author: johnredwood

           Yesterday the media took me on a trip down memory lane. The past is a different country.  1984 was a year of struggle. Mr Scargill forced through a miners’ strike seeking to stop the Coal Board closing pits when they judged them to be uneconomic.  Mrs Thatcher saw the challenge as a continuing one from the Union movement to an elected government.

        It is difficult from today’s vantage point when there are different demons and tensions, to remember the intensity of the fears and worries on both sides of the Union dispute. Union action had prevented the 1960s Labour government from reforming industrial relations as they saw fit, and had helped speed the end of that government. A miners’ strike had finished off the Conservative government of the early 1970s prematurely. Finally, public sector unions brought down the Labour government of the 1970s, ending its authority and its mandate through the winter of discontent, 1978-9.  Margaret Thatcher had no wish to confront the miners, and backed down from doing so in her first Parliament as PM. By 1984 she decided there was no choice but for an elected government to make a stand against union power. If the choice was Mr Scargill dictating terms or the elected government making judgements, most people knew where they had to stand.

          In my role as her Chief Policy adviser I sought to prevent the use of troops to move coal or otherwise be involved in civil matters. I advised  to keep the Cabinet out of negotiations with the miners. The dispute had been framed by Mr Scargill, who insisted the Coal Board should have  no right to close pits on economic grounds, and by Mr Macgregor, the Coal B0ard Chairman, who insisted management had to be able to manage the industry as they judged right. I felt that if Cabinet members became involved in detailed discussions between employer and miners it could intensify the bitterness of an already very bitter dispute and lead to more muddle and threat for the country. The issue of closing uneconomic pits was not one for politicians, who rightly delegated commercial decisions to the NCB.  My hope was enough miners would see that Mr Scargill had chosen the wrong issue at the wrong time of year to inflict another defeat on the Coal Board and indirectly on the government. Instead the bitterness increased as some miners went to work and others did not.

         I was able to offer some help to the government as they sought to keep the lights on, by working with the electricity industry to maximise the use of nuclear and oil to reduce the claim on coal stocks. I  wanted to avoid a three day week or mass lay offs of people in other industries owing to a shortage of power. There were enough miners families in misery without plunging many more workers into the same situation. The sad truth of the industry was a long continuous decline under Labour and Conservative governments. 410 pits were closed between 1960 and 1971-2, mainly under Labour.

               At the end of the dispute I tried to get the government to offer the miners the right to work a pit the Coal Board claimed was uneconomic for themselves, as I was suspicious about some of the pits the Coal Board wished to close. I wanted a magnanimous aftermath. John Moore the privatisation Minister worked up some proposals but they got into the press before they were fully thought through or cleared with the PM, so the whole  idea was lost.   It was not until I was in the Cabinet myself that I was able to help one group of miners do just that, at Tower Colliery. They demonstrated that free of Coal Board control it was possible, at least in their case, to run the pit for longer .

           During 1984 I offered Mrs Thatcher direct advice on a wide range of domestic topics, sending her papers to help with each day’s meetings when she was in London. . It is curious that the  memo I wrote which has excited attention was not designed for the PM herself, but for the Policy Unit members. It was a fairy tale version of what I thought would happen to the Stock Exchange once the government told them they needed to reform themselves and remove their restrictive practices. The official advice I gave on the topic does not seem to have seen the light of day, probably because it was  not  written mainly  for fun as the fairy story had been.

         Peter Oborne in his column  has referred to the absence of a piece of advice on the main privatisation programme. The principal paper which got Mrs Thatcher interested in a substantial programme was retained  by her and not filed with the official papers as she liked the paper I wrote and wanted to keep  it as a reference. It has found its way into the Churchill College archive in Cambridge directly from her own papers. There was plenty of other advice offered by myself and other Policy Unit members on the general privatisation programme.  but that will need researchers to find it amidst the voluminous papers of a busy government.  

          I see that in Scotland there is criticism of so called “secret cuts” to the Scottish block grant. There were no secret cuts. The Treasury proposed a cut on  the grounds that Scotland got favoured treatment, which the Prime Minister rejected. The Scottish block grant that was agreed was reported and debated fully in the normal way!

The Prime Minister’s favourite phrase is that we are in a global race.  It’s not a phrase I would have chosen myself,  as images like this can bring in irrelevant or misleading thoughts to people’s  minds. However, his phrase does get across two very important truths which do have a big bearing on our situation. I support the intentions behind the use of the saying.

The phrase reminds us that if we want to carry on enjoying  the first world living standards we are used to, we have to compete successfully in the global marketplace. It reminds  us that the world does not owe us a living. There is no global social security system to top up our incomes to the levels we want. We have to earn our lifestyle in an increasingly competitive world market.

The message is usually tempered by more positive and helpful messages, and needs to be.  If we are all in this race, people need reassurance that the government will be on their side and will help them to win it. The purpose behind policies to promote better schools and better training is to equip more of us to find productive employment at better salaries so we have a better lifestyle.  The idea behind welfare reform is to ensure people who cannot get jobs are looked after, whilst there is a better incentive for the many who are capable of work to get a job and contribute to producing the output the nation needs to earn its living standards.

The Prime  Minister has been especially active in helping the business community to export. He has led the way in showing the opportunities in the large Asian markets, at a time when the UK’s traditional goods markets in Euroland have been under pressure from falling demand. He wishes to get across the need for the UK to widen its base of goods and services for sale, and widen its markets abroad so we  tap into the faster growing emerging economies.

The problem remains that the UK’s ability to compete properly in  this global race, particularly in the production of goods, is being impaired by high energy and other costs imposed by the EU government as well as by domestic policies adopted in the previous decade. The UK is also having to battle against heavy handed but unsuccessful EU regulation of services  pushing more of the UK’s success story in global markets offshore from the EU.

The UK also suffers from the political attacks of those who dislike any success. Now the economy is recovering critics are out and about condemning the rise of London, disliking the recovery of financial and business services, and objecting to any house price rises.

      Today’s guest editor of the “Today”  programme produced a series of items where she required the interviewee to speak or sing or recite poetry as they wished to get their points across without the tedium of having to respond to a probing interview.  This might have been interesting if the items chosen had shown range and different viewpoints, or if normal journalism had required a right of reply or an alternative voice to follow the monologues. Instead we were treated to a series of  her prejudices.

          Government was given no right of reply for alleged torture in a past decade, nor was it cross examined to see if it were true and why it happened. No-one was asked to make the case for running the risk of some soldiers being badly injured because the national or international interest required military engagement and more lives could be saved – and I speak as one who has often opposed us using military force as often as we do.  No-one was brought on  to expressly make the case for the City of London and the tax revenues and jobs it brings after a piece knocking it. Instead the Business slot had to be taken over in a poor attempt to provide a little balance.

             I doubt if any Eurosceptic or free marketer will be offered  a Guest editorship to provide some balance to PJ Harvey. If they were I trust they would wish to observe the rules on balance, and would interview people who disagreed with them to explore their different position, and would submit themselves to independent interviewing by a professional journalist. This was a new low for the Today programme.

How would sharing and trading more electricity with the rest of the EU help us, when all the EU is under the same regulations insisting on dear power? I could understand how importing electricity from the USA would help, if only we could build a long enough interconnector and if they were willing to sell at their cheaper prices, two very unlikely developments. Having the chance to buy more dear European power from the continent will not solve our problem. It would also be good to produce our own power, as that way we minimise transmission losses and maximise jobs at home. The problem Mr Davey is not a lack of a European market, but the presence of EU laws which drive the price of power too high.

      We need to deal with the big lie of the federalists, that the EU supports or creates 3 million jobs in the UK and the single market is an enterprise friendly job creating bonus to us.

       The single market may have started out as a well intentioned project to allow freer trade between EU member states, but soon became a power grab by regulators and governors out to limit and control economic activity from the Brussels centre of the emerging European government.  The lie of the 3 million jobs is so obvious that it is amazing how many commentators and media interviewers still allow the dwindling band of Europhiles to trot it out as fact.  If the UK was not in the EU we would still be exporting to the continent, because they would still want to export to us and would have to reach a sensible arrangement on terms and tariffs. It would also be regulated by international trade rules anyway, preventing retaliatory tariffs and other impediments to trade.

           Worse than the lie is the deception over the single market. The EU’s economic and business rules now have destroyed and will destroy a large number of jobs in the UK. They do so by four main routes.

1. The imposition of physical quotas or restrictions on what the UK can produce. Thus we are prevented from producing all the milk we need, British b0ats  are prevented from fishing above a certain quota, and we are limited in how much electricity we can generate from carbon based fuels.

2. The enforced closure of UK plants that do not meet specified standards. We are in the process of closing eight power stations owing to an EU Directive, even though these stations produce cheaper power than their replacements. The slaughterhouse industry was subject to a large number of closures under EU rules.

3. The insistence on dear energy. This is probably the biggest single job destroyer the EU has so far come up with. We are living through a closure programme affecting petrochemcials, aluminium, steel, and other high energy using industries.

4. Banning or over regulating particular products. For example,  the herbal medicines and food supplements industry and retail  has been hit by the application of much more expensive regulations affecting these businesses.

           You could have a successful free trade area between the leading members of the EU. All you need is the simple rule that if something is of merchandisable quality in country A it can be offered for sale in country B.  Thus English cheeses, regulated by the UK authorities, can be offered for sale as English cheeses in France without additional French or EU regulation, and in turn French cheeses can be offered for sale in the UK without additional UK rules. What more do we need? Customers should decide what they like, based on reading the label which should include the country of origin.

                  2014 could be a good year for many in the UK.  The long shadow of the Credit Crunch, Labour’s spectacular boom/bust of the last decade, is receding at last. 2014 could see more people getting work, some rises in wages and even growth in living standards after a long period of squeeze.

                  The economy ends 2013 in much better shape than in recent years. People are more optimistic, with businesses now more inclined to invest in future products and capacity. The rate of new job creation has been good, and now more of those jobs are being taken by unemployed people already settled here rather than by recent arrivals.

                  Some already complain that we are sowing the seeds of the next bust. They complain that people are borrowing too much money. As the numbers living here expands, and as the numbers in work increases, so you would expect total private sector borrowing to rise. There is  nothing wrong with people borrowing against their incomes to buy a home or even a car. They need them to lead their lives and cannot afford the full cost or anything like it all in one go. It’s what has driven living standards higher in  past decades, and will do so again.

                  Of course individuals, companies and the state have to be careful not to overdo the borrowing. Businesses have overall cut their borrowings substantially and generated more cash in recent years. They can afford to borrow more if good investments present themselves. Many individuals have cut their credit card and other expensive borrowing. As home ownership expands again we should expect to see debt levels overall rise. Individuals and their mortgage advisers need to make sure they borrow amounts they can afford to service when interest rates rise again, as they will one day.

                        The state is the most exposed, as the state has built up its debt much more quickly in recent years. It has also benefitted greatly from buying in its own debt, keeping the interest charges low. This has come to an end and is unlikely to be revived, so it is even more important now that the state cuts its deficit and gets its debt to affordable levels.

                            I wish you all a happy and prosperous new year.

Some of you here are critical of the coalition for not cutting more and not removing the budget deficit in this Parliament. Some of you are critical of the tax rises that were put in as part of the policy to get rid of excessive borrowing.

The choice before us in May 2015 is a simple one. The Conservatives offer the end of the whole deficit within the life of the next Parliament, whilst Labour only wishes to remove the current deficit, borrowing more for capital expenditure.

Both parties want higher ages. Labour offers an increase in the minimum wage, with the Conservatives likely to increase it by a similar amount by relying on the independent system of fixing it currently in place. Labour wants to take more action to enforce it and to prevent undercutting by migrant labour behaving illegally, which Conservatives too have said they wish to do. Conservatives wish to cut the flow of new migrants significantly. Both parties want benefit reforms within the EU to reduce amount of benefit the UK has to pay to newly arrived EU migrants.

Labour wishes to collect less tax from the rich by putting Income Tax up to 50%, where it collected less than at 45%, whilst claiming that next time round the higher rate will in some mysterious way raise more. Labour also want to tax dearer homes with a so called Mansion Tax.

The issue is therefore a simple one? Will spending, taxing and borrowing more generate more wealth and income, or will it, as in the past, generate less? If you want more taxing spending and borrowing then Labour is your party. If not the Conservatives offer the alternative.

                 There have been recent fears expressed that the No campaign against Scottish independence is too complacent and could lose. I would be most surprised if that happened. My recent visit to Scotland found a business and professional community worried about the idea of a split from the UK, but a community cowed into public silence by fears of  the Scottish government’s displeasure  if they spoke out.

                  As the Yes campaign has proceeded it has looked more and more like a campaign for devo max rather than for independence. The so called nationalists want to stick with the pound, the Bank of England, the Queen and the full UK single market and borderless free movement between Scotland and England. Their forecasts  rely heavily on optimism about continuing oil revenues, when decline in Scotland’s oil output is likely. If even the main advocates of independence do not seek  true independence, it would be surprising if the Scottish people voted for it nonetheless. Much would hinge on the subsequent negotiations with England, with the Scots seeking all sorts of concessions having voted for out. The Scottish government is not simply prepared to leave the UK and get on with doing everything for itself.  

                   Meanwhile, our constitution is unsettled for two other crucial reasons. The first is the  continuing federalist drive of the EU and the ECHR, a force that remains most unpopular with a majority of UK voters. The second is the continuing attempts to break up England or to deny England its identity and voice.  Just as Mr Salmond hoped, English nationalism is on the rise in response to both the pressure for more independent government by the other countries in the UK union, and more expressly by the studied disregard for England from the EU and elsewhere.

                   England faces cultural attack from the BBC. They are ever keen to stress independent Welsh, Scottish and Northern Irish identity, but rarely allow England a say or even name us. They are keen along with their friends in the EU to try to split England into a series of artificial regions which carry little support or weight with English people. I am not a “Rest of the south easterner” nor a “South easterner”  nor even a “Thames Valley er” or a “Bucks Berks and Oxon er”. The more they try to make us fit into these varied and meaningless places, the more we prefer to be English.

                        England faced a political attack from Labour in government , but they gave up when they lost the referendum to create an elected government for the then most Labour of regions, the North East. They were forced to recognise the reality, that England does not wish to be balkanised.

                           I predict that the only big force  of unrest with our current constitution in 2014 will be the wave of Euroscepticism generated by  unpopular EU policies on energy, migration, human rights and the rest. Politics in 2014 will be dominated by our relationship with the EU, and maybe more people will come to understand that when we are discussing energy prices, living standards, jobs and even public services, the EU involvement is now big and often damaging.

          As 2013 draws to a close the bond markets have been quietly increasing UK government interest rates. The rate on a 10 year loan by the  government has reached 3%, double the low point of 2012.

            The official forecast by the OBR assumes gentle but consistent rises in the UK government’s borrowing rate. They measure the average rate on the UK government’s debt, and expect this to rise from 1.6% in 2012-13 to 3% next year to 4.2% by 2018-19.  As so often with these predictions, the markets are taking the rates up faster and further than the official forecast suggests. 

              The OBR expects the Bank to keep official short rates down for longer. They are forecast at 0.5% this year, 0.6% next year and 1.2% in 2015-16, before rising to 3.1% in 2018-19.

              The Governor of the Bank of England made a lot of his wish to keep official short rates down to very low levels for a couple of years or so. He wanted to reassure borrowers, and force investors to take more risks, by holding out the prospect of poor returns on deposits, bonds and other “safer” investments. He was keen to see more growth, which he recognised would require more money in circulation and more borrowing.

                   The markets immediately challenged his view by driving up government bond rates, and through a series of comments arguing that the property market would require higher rates earlier to prevent a  bubble. The Governor responded by saying he could always take action other than interest rate rises to deal with any excess credit in the property market. He then showed what he meant by stopping Funding for Lending   money being available for mortgages.  He could take future action to demand higher capital ratios, special deposits or other quantitative controls to slow mortgage lending.

                         Recent polls show that higher interest rates would be popular.This is no surprise, as the number of savers is greater than the  number of borrowers. Quantitative Easing has been seen as a kind of additional tax on the prudent. It has transferred income and wealth from savers to the state. The issue before those making the judgement about whether and when to raise rates is the issue of what impact an interest rate change would have on output and jobs.

                              It seems likely that 2014 will see more of the same that we have witnessed in  the second half of 2013.  Market forces are likely to raise interest rates on government debt higher, given the absence of further quantitative easing.  The Bank is likely to keep official short rates down at very low levels, to be surer of the recovery and to assist with more jobs and better growth.

                            The Bank thinks there  is currently no case to raise official rates to cut inflation. At last, after a period of excess inflation, it is coming down. Persistent weakness in many commodity prices, coupled with recent strength in the pound, gives a better inflation outlook. This implies the Bank will keep official rates lower for longer.

                             Meanwhile, the upwards movement in government  bond rates may lead to some improvement in longer term savings rates generally, which will be most welcome for the prudent.