Author: johnredwood

I have often argued that cheaper energy available in plentiful supply is crucial to any industrial strategy. Much of industry needs large quantities of energy to heat, cool, transform materials and power machine tools. Petrochemicals needs fossil fuels as feedstock. Many manufactures contain fractions of oil transformed into materials.

President Trump oversaw a major expansion of domestic oil and gas production in his  first term. This helped keep prices of energy, especially gas, lower in the US. It gave US industry a huge competitive boost compared to the U.K. and EU.

When Putin invaded Ukraine the EU was desperate to replace Russian gas and oil with imports from elsewhere. The Trump increased output saved them as the US made available more exports to them.

The U.K. has substantial potential resources both on and offshore but this government is determined to keep them in the ground. It means we import instead. All that tax revenue and  well paid jobs go abroad.World CO 2 goes up. It is a deeply damaging economic policy and a stupid environmental one. Will President Trump persuade  the U.K. government to copy his America First example?

The two lead issues of the economy and illegal migration were issues where President Trump and the Republicans were on the more popular side of the argument. I have not commented on their election during its progress but am not surprised by the likely results.

The mistakes of western governments over Covid lockdown reinforced by the big errors of the Fed, the Bank of England and the European Central Bank over inflation, money and interest rates were bound to lead to bad election results for them. We have seen the governments of France, Italy and the U.K. fall, to be followed by the US and probably  Germany next year. Electors hold governments responsible for inflation as they cannot throw Central Bankers out when they get it hopelessly wrong.

The surge in civil service numbers since 2016, up by a third has been coupled with plenty of grade creep. We have a much larger more top heavy civil service.

One of the reasons is departments always want new  people and new resource for any new policy or Ministerial initiative.There is  a reluctance to wind up old initiatives and transfer all the staff to the new. Another reason is people are kept in any given post for too short a time. They are regularly transferred and promoted, with their old roles being filled by  someone else caught in the  eternal reshuffling.

It means at any given time there are numerous people recently arrived in a new area needing to spend time trying to get up to speed, and others getting ready to move with diminishing interest in what they are still meant to be doing. There is a strong reliance on collective working entailing several personnel and layers of management being involved in framing advice to Ministers or making administrative decisions.

The danger of this system is no one ever feels responsible or can be blamed for an outcome. It means people with too little experience or  knowledge of the issues is involved in the work. It makes officials dependent on others often outside the civil service to be informed. It encourages duplication by hiring external consultants to do much of the task that an experienced official could do without outside help.

At the age of 21 I won two elections that changed my life. In the autumn I was elected to a fellowship of All Souls  College by examination. In the following spring I was elected as an Oxfordshire County Councillor in the newly enlarged  County incorporating Oxford City and a part of Berkshire.

At All Souls I met Sir Keith Joseph, a Distinguished fellow of the College and a Cabinet Minister. I predicted the Heath defeat, being an opponent of the Price and Incomes Policy he brought in and appreciating the difficulty of refusing the miners better pay when inflation and energy prices were surging. After the defeat Keith helped Margaret become leader  and suddenly became interested in my views, recognising I had been uncomfortable with the Heath u turn from a free enterprise Manifesto to  the intense failing detailed  interventions he made in the economy.

Keith was put in charge of the policy rethink. He made me adviser to the review on public spending and the economy. Margaret and Keith knew Labour was overspending badly and thought it would prove unsustainable.They did not have to wait long as 1976  saw the need for an IMF bail out and spending cuts. The  Shadow Cabinet and Policy review  had been running shadow budgets  just in case the  government collapsed. They told the public they would spend less but kept the detail private.

I advised them not to cut NHS and education but to save billions by changing management and targets of the nationalised industries and selling many of them. To be continued.

I will give a few thoughts on Parliamentary Opposition now there is a new Leader.

The task of His Majesty’s Opposition is to oppose when the government is doing harm, proposing bad laws, mismanaging the public sector or imposing bad taxes and charges. It is to support when the government is doing the right thing. The Opposition should not run down the country or damage relations  for the U.K. abroad out of narrow partisan interest.

Maybe four years before a new election the Official Opposition should not have a full set of detailed policies, budgets, tax proposals and  the like for a possible entry into government then . Many things will change in the next few years, and the Opposition needs time to think about what it did badly or what it failed to do last time in government, to ensure it does better when next given the opportunity.

It may, however, strengthen its opposition to current policy if it not only explains what is wrong,  voting against,  but also suggests a better course of action for now. So whilst it is right for it to oppose vigorously a set of tax increases that will hurt growth and damage jobs and incomes, it would help to set out offsetting reductions in public waste and needless spending to show the government it could have its spending rises for schools and the NHS without tax rises or extra borrowing.

I have regularly  set out several tens of billions of reductions, starting with the £19 bn of carbon capture and storage and over £10 bn a year of needless Bank of England losses on bond sales. There are several others.

I am going to write some pieces on better public sector management. The government says it is going to increase productivity by 2% a year. Its plans need at least that. This century so far there has been no overall public sector Labour productivity growth. So the bi* issue is how will they do this?

It will need examination of the range of activities carried out to see if some are redundant and if others could b3 performed better with more use of contracting out.

It requires better management of staff, with better incentive pay an£ performance review.

It requires better management of computerisation, use of AI, robotics and other investment to assist employees.

It needs review of the number of layers of management and  promotion policies, and of the n7mbers of quangos involved as well as departments.

Please use this blog as an opportunity to express your views on what could deliver a more efficient higher quality public service offering

The National Wealth Fund has taken over the U.K. Infrastructure Bank, set up by the previous government. The new government is adding £5.8 bn in current plans to the £22 bn of inherited investment potential in the Infrastructure Bank and widening its remit and powers a bit. The Infrastructure  Bank lost £22 m in its last reported year, 2022-23.

The idea is to finance projects and ideas the private sector is nervous about, and to crowd in private finance to projects by putting up some of the capital or offering guarantees. Taxpayers should expect returns from these investments at a minimum to cover the taxpayer costs of borrowing all the money to put up the capital. Let us call that 4.5%. It would also be good to provide for capital repayment at say 3% a year. A private investor would clearly  expect  a risk or equity addition to the return, say at least 5%. That takes the total to 12.5%.

It seems unlikely the National Wealth Fund will aim for this. They may well be satisfied with a low single figure return, and may at least in early years run with more losses. They need to guard against being seen as the  last resort for high risk projects the private sector thinks will go under or as a first resort for a potential private sector consortium that sees the Fund as capable of absorbing risk through guarantees or high risk debt tranches which gives the private investors a less risky ride.

The state borrowing at 4.5% to invest in projects should ensure that the overall portfolio can avoid losses and pay for the borrowings.

Labour have been good at abusing the word investment. Traditionally it refers to a decision to spend money on equipment or property that allows you to supply goods or services over a period years. This spend can be accounted for as capital spend, with building or equipment included as an asset in the balance sheet. If an enterprise spends more on employing people or on energy that is a running cost  to be included as a cost in annual accounts.

You can argue that spending on training or research is an investment as they may yield benefits in future years that add revenues.

If you do spend on capital items you often have to borrow to pay for them. You put both the value of the item and the loan to buy it on the balance sheet. Businesses expect to earn sufficient money by having an extra machine or a bigger building to be able to pay the interest on the loan to buy them, to repay the debt over a period of years and make a profit.

The government often makes investments that cannot do this. It may be good to build a replacement school but there will be no extra revenue to pay the interest on the debt or return a profit. Plenty of investments in free services paid for by taxes need some other way of appraising their contribution.

The state also makes investments that can and should be appraised like private sector investments. New railway lines need to generate new and additional rail revenue to justify their capital costs. Green investments by Great British Energy or the National Wealth Fund need to be cash generative. I will discuss how in a future blog.

The new government’s policy to the NHS so far looks like the old one’s. Tell them getting waiting lists down is the priority, and then give them more money to do so.

There are to be new hospitals on capital account. Boris promised that but despite record funding little was completed and a lot was not started.What will be the change to get to construction contracts faster?

There is to be £1.5 bn of extra equipment. There always is a substantial equipment budget. A bit more might remove a few bottlenecks as people wait for tests.

The obvious think lacking is hospital beds or surgery small operations capacity. Of course beds need staffing, but the NHS is always recruiting extra staff.

There is some talk of the NHS making more use of private medical capacity as Blair and Milburn started. It is certainly a good idea to explore if the private sector could for example tackle a lot of cataract removals or knee joint repairs in dedicated facilities contracted to perform NHS work to a high standard. The patient would still be treated free.

There are some obvious money saving things to do to help bridge the gaps. Foreign visitors should pay for any use they need to make of the NHS, though that often does not happen.

The NHS should accept returns of equipment suitable after cleaning for reuse, like crutches  and frames. It should get better at controlling stocks and reducing wastage of foods and medicines.