Author: johnredwood

              I have now received a detailed reply to my letter to the Secretary of State for Transport about HS2.

              We seem to be in agreement about current use of the line. I have long argued that there is low demand for long distance travel from London in the morning peak and back into London later in the day. The Secretary of State now confirms this, saying ” You mention outbound trips north of London in the morning peak. At present the attractiveness of commuting on long distance services out of London is relatively low”…. This seems to me to be important, as part of the case for HS2 is to spread business activity out of London.

             We are also in agreement that capacity is too small for shorter distance commuting into London, both on the lines northwards and on other lines into London as from the west via Paddington which will not benefit from HS2. The Secretary of State draws attention to other plans to deal with capacity shortages for these lines.

            The Secretary of State argues that commuters into Euston already face insufficient capacity and many have to stand. He agrees that lengthening trains can help, and is continuing with the plans to do this. The recent existing railway upgrade has increased the numbers of trains using the West coast mainline as well.  He says that an additional 36% capacity could be bought for £20bn by making further improvements to the present railway, which he thinks is not enough.

           He agrees that the forecasts for  passenger use of HS1 were too optimistic. He lays the blame for these mistakes on the fact that it was “an entirely new international service” and on the impact of low cost air travel as a competitor. In contrast he thinks that if anything the forecasts for passenger demand for HS2 are likely to prove low.

             This where our agreement runs out. The forecasts for passenger demand for HS2 rely heavily on people who would otherwise have used existing railways using HS2 instead. This is likely to lead to a fares war, which is not assumed in the forecasts for revenue and use in the HS2 prospectus. HS2 produces a huge increase in capacity, which will prove very difficult to fill in its early years.

            Currently without HS2 I have been offered a £12.50 fare to travel to Manchester Standard class, on a good range of pre booked trains on future days . Imagine what might happen to fares if there is  a very large increase in capacity. The Department has to understand that HS2 is very vulnerable to mainline price competition from  trains, just as HS1 is vulnerable to cheap airline competition. 

              Conscious that there need to be economic benefits from HS2 in the northern areas it serves, he has set up a Taskforce to work out what economic advantages a new line could bring. Other critics have said that the assessment of economic benefits attributes very large gains to relatively few extra rail journeys to there major cities.

               On Wednesday I headed west to the Forest of Dean to give an evening talk on the EU and current UK politics. My outbound train to Bristol was pretty full. The train from Bristol to Gloucester was just two carriages long, with standing room only for part of the journey. The long train to take me back at 10.30 from Bristol was practically empty. The railways have great trouble in matching capacity to demand. It seemed odd that there could not be an extra carriage on the short commuter train, and odd there were so many carriages on the late train with all the wasted cost and fuel that implied. Some say it’s to do with the need for more carriages in the morning, yet they seemed to be running fairly empty trains in both directions!

              It is also interesting when the main capacity shortfall is clearly commuting seats into London in the morning peak and out of London in the evening peak, that the answer is thought to be a new railway line to the north of the capital, but improving the existing lines to the east, south and west.

            Ever since Mr Carney, the Governor of the Bank of England, offered his forward guidance that interest rates will stay low for along time, the markets have been trying to prove him wrong.

            I have written before how the interest paid on the  10 year government bond or loans rose. Markets said there would need to be an early upward adjustment to the cost of government borrowing for anything other than the very short term, despite the Governor’s view. The 10 year interest rate which went below 1.5% at one point is at 2.8% today.

            Now market commentators are saying the official 0.5% short term rate will have to go up earlier than Mr Carney implied, maybe as soon as 2014. Whilst there are many savers who would welcome this, people on mortgages would not. The commentators are saying this because Mr Carney said he would not consider higher rates until unemployment fell to 7%, thinking that might not be until 2015 or 2016. Instead, unemployment has fallen again last month to near 7%, and  many think the 3 month figure could be down to 7% next year.

           Markets should remember, however, that Mr Carney did not say interest rates would be automatically raised as soon as unemployment fell. He went out of his way to say that when unemployment reached that level, the MPC would merely look again at all the facts and forecasts. The most recent figures show inflation falling at last, to levels that do not require more monetary action to curb price rises.  (Fuel prices are a different mater that we have discussed before). I suspect the Bank, should unemployment reach 7% next year, will still be reluctant to raise interest rates, until the growing recovery is well advanced.

           The official forecasts have long predicted that gilt yields or the government’s own cost of borrowing will go up. It is doing so and may do more. That is part of a long process of adjusting to the end of the Bank’s big programme of buying up government  bonds, and artifically raising their price and lowering the interest charge. The main concern of the Bank, subject to no inflationary danger, is to promote recovery. That requires skilful exit from the extraordinary actions of recent years, as Mr Carney well knows and is seeking to do.

              This morning  I spoke at the India Summit.

               I said that in Opposition when working on the Economic Policy Review for the Conservative party, I set out the likely rapid growth of India and China.  Just carrying forward recent growth rates for these two large economies, alongside the very poor growth of Euroland and the slower growth of the US and UK, demonstrated that India and China are going to play an ever increasing role in  the world economy and come to represent a much higher proportion of world trade. They will also wish to see this rise in economic power reflected in their position in world politics and by their representation in world fora. At a time when EU trade is performing weakly, Asian trade is rising strongly.

             The  Coalition was very receptive to this thinking. The newly elected government set out in its early days the need to strengthen the UK’s diplomatic ties and contacts with Asia. There were to be more Ministerial visits, better diplomatic representation, and more suport for the all important two way business links.

              So it has proved. Today as we met in London, the Prime Minister was on his third official visit to India with trade and investment in mind. He is planning a new British business centre in Mumbai, and taking a lead to help UK companies win contracts in the Bangalore-Mumbai Economic corridor, as India steps up its infrastructure investment.

              The UK has a lot to offer India. As India embarks on a major infrastructure programme, the UK can help plan, organise, finance and engineer major projects. India has already shown her talent as an investor in the UK, with success coming in  particular to its investment in Jaguar Land Rover.

Labour introduced the idea of a pre Budget budget in the late autumn. The old routine was to fix the spending levels in the Auutmn Statement, and then raise the money to pay for it in the budget. Post Mr Brown, the Chancellor gives an overview of spending and taxes in the Autumn Statement, as a prelude to the Budget.

Mr Brown wanted to get credit for announcing something twice. He then developed  a passion for announcing future years tax changes in advance as well, if they were favourable.  Then you could announce something several times over. There are, however, some advantages to this system. Giving people more notice than a year for changes can be helpful. Provoking discussion of tax ideas in the autumn before putting them into law the next spring can allow greater consultation. The present Chancellor set out a long term plan to cut Corporation Tax, maximising the favourable impact the cuts can have by giving current and future investors in the UK a longer view of what they will be paying.

In this spirit people can put forward their ideas for the Autumn Statement as the Chancellor mulls his judgement. It is that time of year again.

Many of you would doubtless like the Chancellor to cut spending more. Ending HS2, reducing overseas aid, making more inroads into welfare spending as jobs pick up and others spring to mind. This would allow more scope for tax cuts. How far would you go next year with spending controls?

Finding ideas for tax cuts is the relatively easy bit.  The UK is overtaxed, like most EU democracies. It has two governments for the price of three, thanks to the ever increasing tax and regualatory cost of the EU.

I favour cuts to tax rates on income, enterprise and saving. A lower CGT rate would increase receipts from this tax. Tapering Stamp Duty could help the government’s plans for more people to own their own home. Taking more people out of tax altogether, and allowing people higher up the income scale to also benefit from a higher tax free allowance, would make working more worthwhile. Rolling back green energy levies would be popular.

What are your own preferences?

Europe has a problem. Dear energy makes European industry much less competitive, at a time when Asia is challenging and the USA has opted for cheap gas. Dear energy squeezes the budgets of individuals and families, at exactly the point where wage growth is also being cut by the rigours of the Euro and the pressures of global competition.

Politicians have assumd that most people in the EU agree with global warming theory. They have assumed that people will therefore buy into the “solution”, burning less fossil fuel. The politicians who believe that this crusade is the most important task modern humanity faces, have been altogether quieter about explaining that their policy means dear energy, which in turn means lower living standards.

Now the EU is seeing the consequences of its dearer energy policies, the political mood is turning against this approach. Far from people congratulating their politicians for the courage they have shown in pushing European energy prices up to new highs to get people to use less energy, there is now a poltical backlash. Dear energy means fewer jobs. Dearer energy means more inflation. Dearer energy means people are worse off. That is not what most voters had in mind.

The UK has got there first in wanting cheaper energy. The problem is the main forces leading to dear energy are in EU law. By EU law we have to generate more and more power from very expensive windfarms. By EU law we have to close our cheaper fossil fuel burning power stations. The battle of energy will have to become a battle within the EU. For Eurosceptics, it is one of the  best reasons alongside the need to control our own borders and have our own system of justice, to require a big change to our relationship.

         The ever vigilant Bill Cash MP raised the issue of Mr Justice Mostyn’s remarks in the Commons this  evening, as captured in the headline to this item. I supported him and added to his Point of Order.

          In  a case where the UK government won, the Judge said that a Luxembourg court judgement had overturned the Protocol to the Lisbon Treaty designed to  mean European Charter Rights are not enforceable in the UK unless they are put into UK Statute law by Parliament.  The Judge argued that the Charter is now fully operational in the UK, whatever the will of Parliament and Statute law says.

          We are pressing  for  government and Parliament to make clear we do not accept this challenge to UK Parliamentary and court authority. The Lisbon Treaty was sold to Parliament with this crucial protection which is now being undermined. As one who voted against Lisbon, we pressed at the time for the government to be even clearer in defending Parliament’s supremacy to define our human rights, and UK courts supremacy to settle these cases under Statute law. They assured us they had done so with the Protocol.

             As a keen believer in representative democracy, I all too aware of its weaknesses. I think it is the best type of government on offer, but we need to use the freedom of speech it allows to try to keep it honest.

              One of the biggest weaknesses of western democracy is it favours the “something must be done about it approach”, whether the government can and should do something or not. All too many elected Councillors and MPs will feel local or national government has to come up with an answer if a limited number of people put to them a problem.

             Many elected officials find it difficult to reply that government is not able to help or could hinder in any particular case. There is a reluctance to point out that for everyone wanting something to be done there may be three or  four not wanting anything to be done. Sometimes government blunders into fixing the perceived problem, only to find the solution for that problem creates more problems of a different nature for other people and interest groups.

            The something must be done culture is partly created by and reinforced by pressure groups. In the UK the pressure groups that want government to regulate, legislate and punish people more are stronger and more numerous than the groups that want government to do these things less. The pressure groups that want the government to collect  more in tax or borrow more to spend more are more numerous and usually better organised than the pressure groups who want the state to take less of our money in tax and do less. Occasionally a spending promise triggers a lot of protest- like HS2 or some overseas aid – but more normally the email box is full of people who  want extra spending on particular areas they favour or benefit from. Lobbyists specialise in trying to create pressure from the public, and in turn from  groups of MPs, to force the governemnt to spend more. The BBC is also a keen participant in this auction. The BBC rarely grills a Minister for presiding over wasteful or undesirable or not very important spending, but regularly takes them to task for not spending enough.

                Most elected officials agree that they would like to provide public services at less cost and to higher quality, something that should be possible. After all, it happens year after  year  in the private sector in most areas.  The basis  of debate, however, is often framed by lobbyists who regard more spending as good and less spending as bad. This simplified debate makes it  difficult to take the third way of better and cheaper provision, and squeezes out serious consideration of why some elements of public service are so expensive. As we saw yesterday, the railways are a great example of how you can spend collosal sums, because our Net work Rail  on its own admission is 20% inefficient.

           The BBC rushes to find examples of individuals who have suffered because public spending is not high enough. I have not heard an interview following the publication of the £38 billion railway plan asking why it costs so much and why it takes so long to weed out the inefficiencies they have identified. We need more voices who speak up for the taxpayers, who want there to be a sensible limit on how much they have to pay. We need more voices for freedom, who remind us there are limits to how much government can do well.