Author: johnredwood

In a global economy experiencing rapid technical change there are plenty of opportunities to start new businesses, create large and growing companies, exploit skills and talents for a worldwide audience, and generate jobs. A few even manage in their teens and early twenties to become multimillionaires by being internet revolutionaries.The US has been especially good at riding this new wave.

UK sports, singing and film stars benefit from global media exposure, earning fabulous sums as they can now entertain the world, not just the UK. UK bankers, lawyers and business consultants can earn large salaries and bonuses by offering their services to a worldwide clientele. Famous brands offering everything from cosmetics to clothes, and cars to watches can command premium prices from the rich in many countries. Some of the world’s wealth rubs off on the UK economy.

This more globalised world is richer overall than the world of more entrenched nations with more enclosed economies it replaces. National governments have been losing power, as more and more countries join the global marketplace, their people seeking access to the opportunity, the products and the services that the market generates. The biggest change came with the ending of the USSR, followed by the gradual transition of China to a more capitalist model of economic development. When people demand the advantages of the global market, a government’s opportunity to control economic life and information flows is reduced.

This transformation has posed big political issues for many of the countries caught up in it. Given that the active and successful rich will get richer, as they benefit from a much larger market with many more better off people and companies to sell to, how do we take care of thsoe who cannot do that? It has also posed a big political issue about how government is conducted. Given the limitations on any individual nation, should a nation join a major continental grouping, or should it pursue its interests by Treaties entered into with the wider world community?

I wish over the next few days to explore the first of these quesitons. My answer to the second vis a vis the EU is well known and often rehearsed. I do not see why, just because we have to accept limits on the UK government’s freedom to choose placed by market influences, we should surrender even more power to a mezzanine regional government. The world market does limit what we can charge in taxes and what types of goods and services we produce, but that is no argument to give up our still considerable powers of self government.

The Uk economy has performed quite well recently if you take into account the damage done by declining oil and gas production, by the impact of the financial crash on the lead financial sector, and the collapse of construction activity which is also the direct result of the boom and bust building and investment finance of the last decade.

As I have argued before, there is no “productivity puzzle” as the Bank suggests. UK productivity has fallen and employment risen in the last two years owing to large structural changes in the economy. It is good news that there are many more jobs, reflecting growth in numerous UK sectors.

A further decline in oil and gas output means the losss of highly productive and valuable output and some of the jobs with high wages traditional in the sector. In 2012 gas output from UK production fell by 14.1% and oil output fell by 14.3%, an unusually large fall. Quarter 4 2012 oil and gas production was 20% down on Quarter 4 2011. Most of this decline was unavoidable, reflecting the ageing reservoirs with much of the valuable material extracted in earlier years. A more favourable tax regime introduced recently may stimulate enough oil and gas exploration to stop the decline or reverse the decline in due course, but the previous government simply presided over decline.

The financial services and banking sector grew at twice the pace of the economy generally in the decade up to 2007, and generated large amounts of tax revenue to pay for welfare and public services. It was Labour’s favourite helper with the expansion of public spending, with Labour politicians especially keen on promoting RBS and Northern Rock from their northern bases. That went into sharp decline during the crash, and fell 10% by 2010. It is still unable to grow and produce profits and tax revenues in the way it did, with the largest bank still mainly owned by taxpayers and making losses.

Construction too has been struggling. Housebuilding collapsed along with the crash of the mortgage market and the distress of four major mortgage banks during the Credit Crunch. Labour cut public capital spending just before leaving office, cuts which the Coalition largely accepted. Private sector investment has also been constrained by a lack of confidence resutling from the Crash and by the fall in domestic demand the Credit Crunch created.

If you allow for these large falls in activity in three important areas, it shows that the rest overall is growing. We know the public sector has made a real contribution to economic growth, but so has much of the rest of the private sector. The task of recovery would be easier if tax changes kick in sufficiently to promote more oil and gas exploitation, and if more action is taken to allow profitable but this time sustainable financial sector activty to make a bigger contribution as in the Labour years before 2007.

When Iain Duncan Smith was asked if he could live on £53 a week he answered instead of sidestepping it as a politician is expected to do with such a question. The better answer for an MP and Minister on a good salary faced with such a question would be to say “I do not want anyone to have to live on £53 a week, which is why we are promoting work to raise people’s living standards, and why we have a range of benefits and pensions for the disabled and elderly higher than £53 a week”.

The Coalition government has pointed out that benefits to people of working age amount to £90 billion a year. That takes one sixth of all the taxes we pay. Most people agree that it would be better if more people on these benefits could find work, and most people agree it should always make people better off to opt for work rather than for staying on benefits, where work is available.

The government has made some changes to try to make it more worthwhile to work. Taking many people out of income tax altogether is the positive way of doing this. When people return to work they now face benefit withdrawal but no income tax bill at lower income levels.

The government has also introduced two caps to benefits. The first is a cap to Housing Benefit. No-one can now claim more than £400 a week in Housing Benefit. So if someone living in a very expensive rented property needs help with the rent, they now have to find a property at a lower rent if they want all the rent paid by the state. The second is a cap on total benefit payments, at £26,000 a year for families and £18,000 a year for a single person.

The £26,000 a year cap is much higher than the £53 a week of recent debate, working out at £500 a week. Neither figure is representative of what many on benefits receive.

How much do you think we should pay to those who are not working? How far should the state go in helping and checking up on people’s wish to find a job? The level of benefits is designed to help people over a rough patch, not to become a lifestyle choice. Many people on relatively low benefit incomes will go on to find work and enjoy better lifestyles as a result.

In all the debate between the Churches and the government, Labour is reluctant to engage. We do not know which, if any, of these Coalition measures a Labour government if elected would want to reverse. Labour just keep complaining about the cut in the 50p tax rate to 45p. They remain silent when asked why they now favour a 50p tax rate when it means the rich pay less tax. They remain silent when asked why for practically their whole time in government they correctly thought 40p was a better top rate. They remain silent on whether they would restore the 50p tax rate if in office. They just try to whip up anger over the 50p tax rate to avoid discussing the tough issue of just how much we should pay people of working age who do not have a job and how we should reform our welfare system.

Prior to the last election I argued that the MPs’ pension fund should be closed, preventing any new members joining and stopping further accrual by existing members. I suggsted it be replaced by a modern money purchase scheme similar to the experience of most private sector companies. There are few final salary schemes left for new members in the private sector. This could be the prelude to a wider public sector pensions reform to limit future costs to taxpayers by changing the terms on which future contributions could be committed.

My view did not prevail. The Coalition government did, however, agree that public sector pensione generally were unaffordable. They recommended higher contribution rates for MPs and others in the public sector, and said these would control the costs of provision.

It is interesting to compare the costs of public sector pensions in the first Coalition Red Book in June 2010 with the costs in the latest version, Budget 2013:

2010 forecast £5.8bn 2012-13, £8.9bn 2014-15, £10.3bn 2015-16

2013 forecast £10.5bn 2012-13, £12.4bn 2014-15, £13.6bn 2015-16, £16.2 bn 2017-18

Michael Johnson and the CPS have done good work on this, setting out what they see as the pensions cost timebomb for taxpayers and making proposals to tackle the issue. A small part of it is the state assumes responsibility for the Royal Mail pensions scheme payments (£1.3bn). The rest is the rising cost of pensions in payment compared to contribution income.

The Red Book certainly reveals that action to date, seen as tough by some in the public sector, has not been sufficient to avoid a very large increase in taxpayer contribution to public sector pensions.

Today various papers and commentators have come out to say the Coalition government is dismantling the welfare system, cutting it beyond recognition. It is difficult to reconcile these extreme claims with the figures.
In 2009-10, the last Labour year, social security benefit expenditure amounted to £163.7bn and tax credits were £22.9bn. The forecast for 2013-14 is £180.4bn on social security benefits and £29bn on tax credits, an increase of 12.2% in cash terms. This is after the creation of many more new jobs and a small fall in the unemployment benefit claimant count.
Those who say they do not like Coalition attempts to reduce the pace of increase in benefit expenditure should tell us how much more than £209bn they wish to spend on benefits and tax credits, and where this money would come from.

The departure of David Miliband for the USA is a wise move for the Labour party. As David is said to believe, his continued presence would add to speculation against his brother and allow all sorts of stories to run about disagreements, splits, and fraternal unhappiness, whatever the truth of it all.

I never thought Labour elected the wrong Miliband as their Leader. For all his abilities and charms, David Miliband had one fatal flaw in someone wishing to lead the UK. He remains a convinced Europhile. I like to think that the UK is now such a Eurosceptic country that anyone serious about leading it has to show a willingness to challenge the current EU orthodoxies, and talk about a new relationship for the UK as Euroland hurtles towards greater union. David Miliband is stuck in the past over the EU vision.

Rumour has it that Ed Balls has had to battle against David Miliband over Labour’s stance on the EU. More pragmatic and hungrier for power than David Miliband, Ed Balls has sought to move Labour away from unthinking support for all things European. Ed Balls after all wanted Labour to join Conservative rebels to vote for a smaller EU budget, an argument he won. There could also be pressures from within Labour to match Mr Cameron’s offer of a referendum on our membership of the EU in the next Parliament.

The pound was only safe and the Euro defeated in the UK when those of us pressing to keep the pound secured a pledge of a referendum before joining from both Conservative and Labour leaderships. It was the cross party support for such a move that made the pound safe. Mr David Miliband’s withdrawal from the fray is an important loss for the out of date Europhiles, unwilling to see that the new Euro government emerging is something the UK cannot be part of. Now Mr Ed Miliband has the chance to offer a new deal with the EU to reflect the growing impatience with the curreent EU here in England. Is he able to take that chance? Does he now see he is liberated to take his Europhile party nearer to the healthy and sensible scepticism of most UK voters?

I am taking a break from the Budget pieces today. I am inviting views on retirement.

Some people eagerly await retirement. They seek early retirement. They like the idea that they no longer will have to rise early and get to the office, shop or factory.

Others fear retirement. They fear they will miss the company of colleagues at work, the routine, the sense of achievement – and the income that comes from it. They are trying to extend their time in a job.

Both groups face the same problems when they do decide to retire, or when their employment is terminated for them. They have to find ways of spending the time agreeably and usefully, within the budgets that their pension permits. There seem to be four broad approaches.

Some choose to travel and visit to the full extent that their budgets allow. They go on cruises, coach trips or mini bus outings. They visit old buildings, take trips to entertainments, see countries they had not seen before.

Some take up a new leisure activity. They become leading members of the golf or bowls club, join a book circle or learn a craft at an FE College.

Some seek surrogate work. They often end up doing something similar to what they did when in full time employment. Sometimes they are paid modestly, sometimes they do it for free for a charity or local association .

Some do very little. They end up occupying themselves with the daily chores, and lots of tv, newspaper reading and the like.

Many of course mix up parts of all these approaches.

Do you think there is a right answer to what to do in retirement? Have you retired yourself, and how do you spend the time? Do you want to retire early? If so why?

PS I am not planning to retire early myself.

          Recently  I met the senior management of Thames Water.

          They told me of the costs and delays they are experiencing in preparing all the necessary documentation for their new London sewer tunnel. They argue that this large  civil engineering project is essential if we are to handle the volumes of dirty water London now produces, without having to put dirty water into the river when there is rainfall swelling the drains with surface water. The volume of paperwork and the detail of the presentations is such that millions have to be spent on the application, and much time is absorbed in the authorities coming to a decision. This is for a project which will be underground.

         Of course every major project should be properly considered, with objectors having their chance to say “No”.  Of course a large company wishing to put in such a facility needs to offer guarantees and assurance about how it will handle site works during construction, and how it will protect the interests of property owners affected by its project. All this need not take as long and be as complicated as it now is.

          I pushed along with other MPs present for an early decision on extra reservoir capacity in the South East. It seems quite obvious that in dry summers (we might have one again sometime, with all the global warming we are promised)  we are already short of water. As the population grows and people want to use more water we will need bigger supplies. Adding emergency water desalination plants is not as good a solution as simply collecting more of the rainwater in our rivers at times of flood and plenty. We have had more than enough water in our rivers this winter to fill many times the reservoir capacity we currently enjoy.

                 The company seems interested in the idea of a new reservoir at Abingdon and has looked at  plans. Whitehall watchers   think a project like this would take ten years to get through planning. It is high time we did better than this. The moderately few people who would be advsersely affected should be generously compensated at an early stage. Surely it is better to pay out at a premium to affected property owners, instead of spending a fortune on fighting them through various rounds of a planning battle only one side can win.  If someone wanted to put a reservoir over my home I would object long and hard. If they offered to buy me out at a decent premium so I could afford a better house I would take the money. I hasten to add no-one does want to build a reservoir near me, so I do not write this out of the hope of personal gain.

It was a sensible gesture of the Today programme to offer the Good Friday “Thought for the day” to the Head of England’s established Church, despite him saying he never listened to the programme himself. You would have thought that on this of all days, the Archbishop would wish to use all his time to explain the importance and significance of the Crucifixion to Christians.
Instead he spent the first part of his allotted time describing the Cyprus Euro problems. He wrongly stated the bail out was Euro 10 billion, leaving out of account the far more contentious Euro 5.8 billion part of the package that had to be raised from the deposit holders and bond owners of the banks there, the very centre of the storm. Perhaps he thinks only taxpayers’ money provided by governments counts. Nor did he mention the negotiation to roll over and extend the Russian loan.
He spoke much more convincingly when he came on to the history and significance of Good Friday. There is a lot to be said for people on the religious slot sticking to religion, especially if they do not seem to know the numbers and issues involved in more modern secular crises.

I see The Financial Policy Committee has decided that the main UK banks need a bit more capital before they are as safe as the new authorities wish. Predictably, RBS seems to be the one in need of most new capital, and that is the one large bank that is still not making a profit. With a main shareholder, the UK government, rightly unwilling to subscribe more money, and no retained profits to fatten the assets on the balance sheet, RBS remains the most difficult of the banks to reform.

The Regulators and the shareholders of RBS need to look for other solutions. The government is right not to put more capital into RBS. It should not have put so much in as new equity at the beginning. What it needs to do now is what it should have done in 2008 when the crisis first erupted – sell off assets and slim the bank down by disposals. RBS was never a natural integrated successful group. It should sell its American bank, Citizens, sell the parts of its Investment Bank that are profitable and free standing, and create new clearing banks in the UK market out of the assortment of branches, assets and liabilities it currently enjoys. The taxpayer deserves to get some money back from the disposals of the good bits. Taxpayers in the UK also need more competitive properly financed banks on the High Street.

Taxpayers may have to remain as the owners of a bad bank that could remain once the rest is sold on. As we already own a large majority share of the bad bits of the RBS Group, that is no new hazard. The prize would be the creation of more competition in UK domestic banking, and a resolution of the problem that banking in the UK still is not backed by enough capital to allow sensible expansion of overall loan books. The UK recovery has been held back by the inability of the UK clearing banks as a whole to expand their loans to new people wanting to buy homes, set up businesses or expand decent small and medium sized enterprises. The Bank’s monetary experimentation has not had enough impact on the real economy owing to the Regulator’s insistence on more cash and capital to be held in the banking system, and owing to the weakness of some of the banks in the system.

Sorting out RBS would be the single most important contribution the UK government could now make to overall economic recovery. The fact the RBS remains the worst placed of all the UK banks on capital, more than four years after the crash, argues for new measures to tackle the problem of too little capital and too little competition in UK High Street banking.

When I visited Scotland earlier this week I was interested to see RBS can still afford a lot of advertising at Edinburgh airport. The advert I most enjoyed was the one on a walkway which announced “In 2011 RBS delivered Moneysense to 67,000 young people in Scottish schools.” I do hope it was a case of do as I say, not as I do. We would not want young people brought up to believe you go out and borrow and spend on a massive scale, then ask the taxpayers to stand behind the bills whilst you carry on losing money.