Author: johnredwood

          Yesterday’s speech by Labour’s Shadow Immigration Minister, Chris Bryant, was a masterclass in how Blair style spinning can miscarry. Briefing  the newspapers in advance of the speech, a technique developed to try to secure more and better coverage, is often a double edged sword. Yesterday it was a spectacular boomerang which came back to damage its sender.

           Over the week-end we were told that Labour would launch an attack on companies that used recently arrived migrant labour in place of local talent to drive down wages and worsen employment conditions. By Monday morning, still before the speech, the author was telling us that he no intention of fingering named companies for bad labour practices, and went out of his way to praise Tesco as a good employer. We were all left wondering who he  has in mind to prove his case, and why he cannot cite individual examples of the bad practice he condemns.

            We were also left wondering why Mr Bryant wished to make this point, when his party had been so keen on giving our borders over to  the EU and allowing in many more people over a prolonged period, people who of course wanted and needed jobs. Is Labour going to follow this up with apologising for giving away so much power to the EU over migration and recommending we re-establish our own policy and controls? I doubt it. Surely Mr Bryant must understand that under the EU rules Labour signed up to, any UK company has to treat fairly any job application by someone from another EU country?

           Many others have written extensively about the sloppiness and mismanagement of this incident. I want to use it to illustrate  something else. Mr Miliband’s Labour is very unlike Mr Blair’s Labour in opposition. Mr Blair went out of his way to woo the private sector. He saw a Labour government has to get on with big business, and needs to reassure voters with a different view of free enterprise from that of the left wing core of the Labour movement. Mr Milband’s Labour party delights rather in finding more and more ways to attack large companies, often in preference to  attacking   the Coalition government.

          The best example of this is Labour’s one senior figure who has civil servants reporting to her and a serious role in influencing the public sector. Mrs Hodge, as Chairman of the PAC, works with the National Audit Office and is meant to be the prod, spur and auditor of the public sctor. Her main aim should be to expose waste and worse in public sector bodies, and draw attention to places where goverment fails to deliver value for money or good results. Instead Mrs Hodge spends  much of her time trying to find ways to expose all the things about large private sector companies which the Miliband tendency do not like.

          I have no time for businesses which rip off the public, damage competition, or otherwise act against the public good. Parliament has a role to set out a fair framework of law for the private sector, enforce competitive markets and to supervise the enforcement of that law. Mrs Hodge has enjoyed bringing the four large accountancy firms, Starbucks, Google, Amazon, BT and others before her committee. She seems  more interested in putting private sector companies on the spot  than in pursuing waste, fraud and bad spending within the £700 billion spend of the public sector.  

          Labour front benchers are also often happier exposing alleged or actual bad practices of private sector companies than saying how they would curb excess public spending, raise efficiency and quality in the public sector, and reform badly performing public services. They are quick to criticise pay day loan companies, private sector health providers, private sector landlords and private sector utilities. They have been less noisy about hospitals that have high death rates, schools that fail to educate children to a decent standard, Councils which charge too much and tax too much, or social workers who have not been able to save children at risk. 

                Where  private sector  companies are letting people down or doing the wrong thing of course government and the law enforcement system has a role to play. Of course government and Parliament should deal with abuse.  For Labour it seems like a default position to avoid talking about any possible imperfections in the large public sector. It is in the provision of public services where government and opposition have most influence and should have most responsibility. Labour’s wish to talk more about bad things in the private sector, and to ignore deep problems in  the public, is so unlike the Blair winning formula.

To govern the country a party needs to show balance and judgement.  A party also needs to understand that it can and should  amend and or enforce the law where the private sector errs, but where the public sector errs it is uniquely responsible and has a wide range of powers to sort it out.

       The pursuit of recovery has understandably taken precedence over rebalancing the economy. The original idea of the Coalition was to shift from too much reliance on a debt financed public sector, to more reliance on an energetic private sector. Within the private sector, there was a wish to reduce dependence on financial services and banking, and increase the share of manufacturing. I was always very happy with these aims, with the possible amendment that I did not wish to see actions taken to curtail successful activities in the service sector, but rather wished to see better conditions to allow faster growth in manufacturing as the best way of rebalancing within the private sector.

           As we have seen over the last three years the government  has not stuck to the task of rebalancing. Real public spending continued to rise, with the pace only recently slowing down.  Instead of just being bombarded with complaints about too little spending, there have been many still writing in against HS2, high overseas aid budgets, the waste of the European budget, misdirected spending in a variety of public services and much else, whilst the modest steps so far taken to curb the gr0wth in welfare spending have led many to want the government to achieve more in cutting welfare bills.

           Nor has the government done enough to trigger a major manufacturing revival. The task has been made more difficult by the continued recession in Euroland, a prime market for industry. It has also been deferred by the high and rising energy prices, which have made high energy using industries less competitive and also made it tougher for any well automated factory. There has been no breakthrough with reducing the costs of EU regulation. The Coalition has watched as new law is heaped on new law, often making it dearer to do business in the EU. The policies needed to raise educational and training standards and produce a new generation of engineers, physicists, chemists and mathematicians of the kind modern industry needs by definition will take time to come to fruition.

                   The government does need to concentrate on a supply side revolution. Productivity has been poor in the UK since the crash. There are still sectors where competition is weak or non existent thanks to government interference.  Our transport networks are not as good as we need. The government is now turning  its attention to water, to power, to roads and to broadband. It needs to do so. The march of the makers the Chancellor vividly wanted will depend on a better approach to education and training, to transport, to energy and to competitive markets. Above all it needs cheaper energy to  bring about, something the Chancellor is keen to achieve.

The world’s economic advance is increasingly spearheaded by the great cities of the world. Europe only has two of them, London and Paris (and there is Moscow). The USA has several, whilst rising Asia is pitting  its traditionally successful city states against a new tide of fast growing cities in India, China and elsewhere.

If we look at the OECD list of richest regions in the world as measured by GDP per head, it is led by London (Inner west) at a mighty $152,116 a head. The District of Columbia around  Washington USA comes second, at $131,343. Paris is the best of the continental cities, at a very successful $76,146 for the city as a whole. Edinburgh appears high up with $49,970, parts of the UK Home counties do well and Inner London east is there at $47,470.

Germany is not well represented. Its best performers are Hamburg and Munchen at  just under  $47,000.

It is another way of looking at the German/UK comparison we tackled yesterday. If the successful world model today is the large conurbation that attracts people of all types and languages to bring their skills, energy and money, the UK , US, and France have what it takes and Germany does not. To succeed a world city needs to encompass a population of  around 10 million in the city proper and close surroundings. It needs to be very open to talent and money from outside. It needs to have premium properties available for foreigners to buy. It needs a  great ambience, plenty of good high specification modern commercial space, and preferably some iconic older buildings and symbols of the city. It has to have great food, great drama and music, great art, and generally great entertainment.

Some object to this model of development. The gaps between the typical income in say central Paris, and poorer rural France can become very large. This is, however, no greater a gap than that between the eastern regions of united Germany and the richer south west. Mr Hollande’s attempts to curb the inequalities by imposing higher taxes on the successful has led to difficult court challenges and to a big exodus of well paid people, reminding him that if he wants France to keep one of the world’s great cities it has to understand the need to remain competitive.

             I missed the BBC propaganda movie arguing it’s better in Germany. Apparently the German emphasis on more rented housing and industry makes for a richer and more successful economy and society. Let us examine that proposition.

                If we look at the income per head figures the comparisons are interesting. In Europe the two richest countries are non EU members, Norway and Switzerland.  They are more than $5000 a head richer than Germany. Norway manages it thanks to great natural resources, fish and oil, that stay outside the clutches of the EU. Switzerland manages it thanks to excellence in selected industries like watches and chocolate, complemented by banking and financial services.

                  All the surveys also show that the USA is richer per head than Germany or the UK, by around one quarter or $10,000 a head. If the BBC is keen to see how we can live more prosperously, it might make the odd film that was complimentary about the USA.

                     The Penn (Pennslyvania University) World survey shows the UK just ahead of Germany in income per head by $300. The IMF shows the UK a little below, by around $2000. All the main surveys agree that the UK and Germany are usefully ahead of Italy and Spain, and most put the UK ahead of France and Japan. There is nothing in the figures to suggest Germany is way ahead, or that Germany is anywhere near catching the USA, Singapore, Norway, Switzerland  and the other world leaders. Germany is also usually ranked below Sweden and Denmark ,  non  Euro members of the EU. On the numbers there is not a great deal to explain about alleged superior German performance.

            I cannot see how having more rented housing is a magic ingredient that helps Germany. The UK has experienced a rising private rented sector in recent years, but these have been poor years for overall growth of the economy. Most people still have a strong preference for ownership, and there is nothing wrong with an economy that seeks to satisfy that natural wish for as many as possible.

          It is true that Germany has a strong and successful engineering sector, larger than the UK’s in many segments. Where the UK is strong in aerospace engineering and defence related, Germany is larger and stronger in cars, heavy plant and machinery. Where Germany is strong in basic chemcials, the UK is strong in pharmaceuticals. The UK relies on a bigger and more successful service sector, especially in business, legal and financial services.

           As someone who has in the past  run companies with engineering plants in the UK, the US, Germany and elsewhere I would urge people to beware of facile generalisations. I have seen poorly led German factories where Anglo Saxon managers can teach them things, and I have seen brilliant German factories with state of the art equipment. There is a bigger spread in quality and achievement within both Germany and within  the UK when it comes to factories, than between the German average and the UK average. USA  productivity is on average higher. The BBC should go and find out why, by talking to some US workers.

             One of my most poignant memories of being a Minister was trying to secure some benefits when I offered more money to the Welsh NHS in their budget settlement. I wanted them to appoint more Consultants, doctors and nurses to clear hospital backlogs and shorten waiting lists.  As soon as I revealed I had found a substantial sum from other budgets to offer  to the NHS, a vanishing trick started with plenty of other ways appearing to use or lose  the money on offer without hiring more medical staff.

             Listening yesterday to the offer of £500 million extra over two years to the NHS in England made me ask what will we  buy with this?  The politics was well thought through. The offer of extra money demonstrates Ministers’ concerns. It tackles head on the likely response to the question why are A and E departments under too much pressure. If the NHS counters by saying their budgets have not gone up enough to cater for demand, the extra money answers that criticism. Minsters can say they cared, they did what Ministers can do by voting the money. Now it is up to the NHS managers to deliver with better A and E services.

          Then I heard the usual efforts to claim that £500 million would soon vanish. Some said it would be diverted to paying for social services, so more elderly people could be taken care of in the Community and not sent to A and E. Some said it was simply not enough. Others implied they would not be rushing to spend it on more Consultants and nurses to ensure the work could be done in  a timely and professional way.

           The government has said more money must be allied to reform. That was Mr Blair’s mantra, though he failed to deliver much of the reform. They say this, as they understand the problem. If every problem is perceived to be  caused by a lack of money rather than by bad management, failure to run an efficient and high quality service, or failure to spend wisely on technology to assist good staff, then it will always be possible to use that excuse. If the government gives £250 m and there are still problems in A and E the answer can still be that £250 m was not enough.

         The money we learn is to be given to a limited number of A and E departments that are under particular stress. That makes sense if it is the result of varied levels of demand compared to the size of the unit. It is less sure footed if it means more money is given to the departments and hospitals which have performed worse. There is a danger that awarding more money selectively can reward poor conduct and penalise good practice.

           It is easier pointing out the problems than solving them. The government does need to insist on sensible reforms to make sure this time the extra money buys something  we want and need. It should ensure that extra money is allied to better performance in those A and E departments that are struggling.

        I can understand why savers are not happy this morning. They heard yesterday from  The Governor of the Bank of England   that Base rates are going to remain nailed to the floor for the time being. There is no relief in sight for savers, who have had a rough deal on savings rates ever since the crash in 2008. It will be the borrowers, including the state, that spend us out of the  crash and slump of the last decade. They will enjoy  more cheap borrowing this decade to spend beyond their means. The savers will not be allowed much return on their money, so they will lack spending power. They indeed will spend much of their time awaiting the knock at the door from the taxman, ever more inventive in finding  ways of parting savers from their money.

         When Mr Carney first thought of offering guidance about interest rates, he probably had in mind the need to tell people interest rates would be low for a long time to try to kick start the UK recovery. The background was worries about triple dip recessions, forecasters revising their growth forecasts down, and general pessimism about the UK’s prospects.
 
             As he was preparing to take up the job, the need for future guidance also seemed to be underlined by the market wobble over the question of when and how Quantitative Easing would be reduced and stopped in the USA. A few words from Mr Bernanke at the Fed caused a sharp fall in markets, as people rushed to the premature conclusion that quantitative easing would stop and interest rates would go up  before the end of this year. Mr Carney probably thought he needed to tell the markets that whatever happened to US rates, UK rates were fixed to the floor for the time being.
 
          So it is one of those ironies of history that by the time Mr Carney came to give us his conclusions on forward guidance the backdrop was transformed. The UK was no longer going sideways, facing treble dip or suffering from an insurmountable  double dip. The outlook as measured by second quarter GDP, forecast third quarter GDP, confidence indicators for manufacturing and services, and retail sales was suddenly bulllish. Forecasters are all busily revising up their 2013 and 2014 forecasts for growth. The OBR had  to correct the misleading impression of double dip that the historic figures showed.
 
             By the time Mr Carney spoke yesterday the question was not could he by his words bring the UK economy to life. It was rather, could he by his words avoid damaging the faster recovery now underway? Could he even satisfy the minority of  his critics who were massing on the other side of the argument, to say that the danger now is too much cash and credit in circulation, too many pressures leading to  asset bubbles and general inflation?
 
             As it turned out Mr Carney’s statement was well judged, and should do no damage. It alters the reality of the position very little if at all. Most of us assumed the UK authorities were aiming to keep Base rate down at 0.5% this year and next to give the recovery a fair wind. Most of us forecast that the authorities will allow some growth in asset values  as part of confidence boosting measures, without it getting out of hand any time soon.
 
              The new Governor has said interest rates will stay down at 0.5% all the time unemployment is above 7%. He has forecast that unemployment will not drop below this figure this year next year or into 2016. The Bank would only reconsider this position if inflationary expectations rise too far too fast, or if there is potential damage to the financial system ahead, or if forecasts of inflation rise too high. These statements are delicately balanced. It means there are several circumstances in which short rates could have to rise earlier than planned. The central case of the Bank’s forecast is that short rates remain at 0.5% for at least two more years. That should not come as surprise to anyone who has been following this debate.
 
          Now all that remains is to worry lest the economy does too well! Only if asset prices take off, activity puts upwards pressure on prices, and inflation expectations surge should borrowers worry about rising short term interest rates. That sounds much like the world we thought we lived in yesterday. It does not change my forecast of a reasonable recovery this year and next. Nor does it lead me to think, as some of the critics suggest, that the Bank is yet taking too much risk with excessive money and credit. It needs to be watched from here, but it is not yet a nasty bubble in the making. Meanwhile , pity the poor savers. They have to sit tight for very little, or take more risk in the hope they win rather than lose.

The retail sales figures were better this month. They confirm the feeling that the UK economy is now recovering at a faster pace. The forward indicators suggest we will experience reasonable growth again in the third quarter of 2013, with the service sector looking good.

It is true that many household budgets are squeezed. Labour wish to highlight this, but they should remember the worst of the squeeze occurred in  2008 and at the end of their period in government. Since then wage growth has been very subdued, whilst price rises have still been of concern.

It looks as if there will now be more confidence. Consumers have more confidence to buy things, probably because there is now less fear of losing your employment. Companies have more confidence, leading them to invest more and spend more on marketing and training. Homebuyers will have more confidence to buy a first home or trade up.

The industrial revival we also need still requires policies that promote cheaper energy. The recovery will be easier if more is done to mend the banks and to permit them to lend sensible extra amounts of money.

Mr Carney the new Governor of the Bank of England  today needs to be careful. Issuing forward guidance is difficult, as it has to be credible and adaptable to changing conditions. He needs to avoid offering any nuanced or complex guidance which makes some people think low short term interest rates could end sooner rather than later, if he is to succeed with his aim of encouraging more spending and investment by reassuring spenders and borrowers that rates will stay down.