Author: johnredwood

      Recently the government has responded to its consultation on “Renewable heat incentive: providing certainty, improving performance”

      Let me give you a flavour of the prose:

“DECC intends to introduce a degression based approach similar to the regime adopted for the Feed-In tariffs scheme. This will involve tariffs available to new applicants being gradually reduced if uptake of the technologies supported under the RHI is greater than forecast. This will be done by monitoring uptake on a quarterly basis against a series of triggers”

In more normal language, the subsidised prices offered for alternative energy will be cut as the popularity of the chosen technology rises.

They are also  allow biomass energy to qualify for subsidy:

“In order to be eligible for the RHI, biomass installations will be required to demonstrate, either through reporting or sourcing from an approved supplier, that their biomass meets a greenhouse gas lifecycle emissions limit target and (from no later than April 2015) land criteria.”

The complexity and cost of all this means the UK ends up with energy which is too dear. It also means we run the danger of not having enough energy available for future needs. Much of this is driven by EU regulations and directives.

I have posted my contribution to the debate on the new Renewable regulations yesterday in a Commons Committee, now available under Debates on this site.

Sometimes a picture replaces a thousand words. This German 2 million mark stamp  from 1923 in Germany reminds us that even in an advanced western country less than a hundred years ago people lived through a dreadful hyperinflation.  By the peak of the price rises in November 1923 the authorities decided to remove 12 zeros from their currency, creating a new or Rentenmark.  In August 1924 the new Reichsmark replaced 1 trillion of the old marks.

                  The fear of inflation has haunted Germany ever since. It lies behind German current reluctance to print too many Euros to deal with the probpems of state and bank debts in parts of the Eurozone.  Germany knows from bitter experience that if you print too many to get round the problem of managing your debts and deficit you can trigger a collapse of confidence in your currency, a rapid move in to goods, and eventually a hyperinflation.

               Creating a new currency that might be more stable and which people trust is the easy bit of recovering from such a situation. The hard bit is the deep recession or deflation that can follow the bursting of the bubble and the creation of the new stronger currency.

              The Euro area does not today stand on the edge of too rapid an inflation – far from it. The main safeguard against printing too many  Euros  to try to stave off the day when state and bank debts have to be paid is the attitude of Germany herself. That image of the overprinted postage stamp is a timely reminder to Germany and the architects of the Euro that there is no easy way out of excessive state and bank debts or large deficits. If you try too hard to inflate your way out of your debts, you can end up with a worse crisis.

The Uk is a generous country. The government remains wedded to its pledge to spend 0.7% of our GNI on aid. Recently Mr Cameron has suggested that more of our aid spending should be used to stabilise countries in strife and assist law enforcement in troubled countries, so that more UK armed forces spending can count as overseas aid spending.

There are international rules on what does and does not count as aid spending. You can spend on teaching peacekeepers or police and that counts as aid, but spending directly on peacekeeping or policing yourself once invited to do so by the host country may not count as aid. Where our forces are helping a civilian population by assisting medically, or in other ways that usually qualifies for aid, it would make sense for that to be included in the totals.

More importantly, the government should look at the large transfers and payments made from this country to developing countries. Surely much of that money flowing to developing countries is doing exactly what aid budgets are doing – boosting incomes, offering financial assistance, providing cash for investment. Whilst UK charitable donations do not count as aid for these purposes, the tax relief granted to charities sending donations can count towards the total as this is state aid. Where the UK pays state benefits to people who then remit some of this money to families in developing countries, this is not counted as aid though it looks very like it.

France and Germany have typically included more of the loans advanced from their countries to developing countries as part of their totals of recognised aid. We need to recognise more of what we are already doing, at a time when public budgets are too stretched. To qualify as aid the state needs to be involved and there has to be a concessionary element to the loan.

Meanwhile the government is right to cut back overseas aid out of taxpayers pockets by removing aid to countries like China and India, as they are now doing. They are right to cut the budget back from the original plans owing to the lack of growth in the economy. It needs less spending to hit the 0.7% target if growth is reduced. How much aid would you spend?

At the Conservative conference last year I called for fair rules to limit benefit, healthcare and legal aid services to people recently arrived in the UK and those coming as visitors, in line with some other EU countries and the USA. (This website October 12th posting; Mailonline 8th October) Today the government has confirmed that it is working on proposals to introduce sensible rules to do just that.
This work was underway before last Thursday, so please spare me the contrbutions saying this has only happened thanks to the voters of Eastleigh!

The falling pound will mean more inflation. Savers are finding it very difficult to protect the value of their savings, let alone to get any real return on it. The government no longer issues index linked National Savings to give people a low risk way of protecting the value of their money. Index linked gilts offer a negative real return at current prices.

The UK spends one third of its national income on imports. It also exports a lot. As we have witnessed a 6% plus fall in the value of the pound in recent weeks, that would imply over a period of time a further increase of 2% in the price level, applying the 6% dearer prices to one third of our purchases.

It might turn out to be less than that. The aim of the lower pound policy is clearly to encourage import substitution. We might be able to buy more from home sources at lower prices, and save ouselves some of the dearer imports. The exporters to the Uk might decide to delay putting up their prices in line with the weaker currency. They might be able to become more efficient to spare us part of the price increase altogether.

The problem remains that ultra low official interest rates are bad news for savers. This bad news is compunded if the value of money falls more. The government needs to do more to help savers. There are many more small savers than there are people with mortgages. Mending the banks would ensure more of the newly created money got through to the private sector to finance recovery. It would also enable the UK to set more realistic interest rates to provide a better return to savers, and provide some defence for the value of the currency.

President Obama has done the right thing in signing approval for $85 billion of cuts in US public spending. He is still playing a blame game with the Republicans over who is responsible, but it is his signature on the order. Maybe the only way a democracy can order any cuts in public spending is by blaming someone else for them. It takes a real borrowing crisis in the markets otherwise to create the conditions for real cuts, as in Sweden and Canada in the past. Apparently Mr Obama would rather increase taxes a bit as well as cutting spending. Both reduce demand in their first round effects, so I can’t see how his preferred option is better.

Whilst cutting spending, the President claims that the cuts will be damaging to growth and jobs. He forecasts half a percent off the US economy as a result. It will be interesting to see what happens. I suspect the US economy will keep on growing this year, despite the cuts or because of the cuts. The cuts have clearly got the support of the markets. The many individuals and companies who have expressed their view this week by buying or selling securities approve of the cuts. The US Stock market has gone up, and US bonds have been fine.

The US economy is growing again because they have mended their banks. The commercial banks can lend on the money being created by the Fed. It is growing thanks to shale gas and cheap energy. It is growing thanks to its strong enterprise sector and its good technology. The lost public sector output should be replaced by private sector output in these conditions. More importantly, the fact that the US is seen to be tackling its deficit and future debts is good for confidence, the magic ingredient in any recovery.

I have talked today to the webmaster. He says it should be easy to place a comment, and argues that all you have to do is to log on with your name and email. The system does not permit you to log in with a simpler method as a regular, as he says that could impose more barriers through the need to verify.
It is quite true more than one person can use the same identifier as a blogger – e.g. Chris. I do have to ask for people to use unique identifiers, so could the various Chris bloggers use Chris 1 and Chris 2 etc perhaps?
He is following up on one complaint I have had by email. If you could kindly explain particular problems here in response to this post, he will look at the issues for us.

I have now been able to catch up with back postings. I have been very busy this week, giving four main speeches on different topics, one in Parliament and three outside. I appreciate your frustration if there is delay in posting a comment. The comments that get delayed tend to be long ones, ones with references to unknown outside sites, and ones with personal allegations against people or institutions that need checking, toning down or eliminating. I often just eliminate them as I do not have time to research them to make sure they stand up. I do not eliminate comments because I disagree with them. When I get time to post, the comments that come up first for me to deal with are the most recent.
I have asked the webmaster to see if he can make changes to make it easier to log on, and to keep your unique identity for future postings.I myself do not know how to make changes like this to the site.

Hard on the heels of a £5bn loss by RBS came news of a £570 million loss at Lloyds HBOS. It all goes to preserve Gordon Brown’s reputation as the nation’s worst investment manager. He sold gold just before a huge bull run in the metal. He bought bank shares in time for a long run of losses. The taxpayers are still waiting for the share prices to return to the higher price Mr Brown paid for them.

There has been some discussion here of what should be done with the shares in RBS, with some contributors asking for my view. Assuming the government keeps RBS together in more or less its current form, there are four main options.

1. The government could give the shares to UK taxpayers or citizens, an equal number to each. We could then individually decide whether to hold or to sell. The bank would no longer sit on the state’s balance sheet or have recourse to the taxpayer from the day the shares were transferred.

This proposal has two major drawbacks. The first is the state spent £45 billion of our money on buying bank shares. On this model the state gets no money back for its largest holding, leaving a hole in the public accounts. The second is a large number of people might want to cash in their shares as soon as they could, depressing the share price badly and leaving them feeling cheated if they got very little for the shares in a disorderly market. It has the great benefit of privatising the bank quickly, and giving some prospect of some money to every family in the land.

2. The government could transfer the shares now to taxpayers as above, but say we cannot sell them until the RBS share price has risen above the government’s sale price. On sale we would have to surrender the government’s acquisition price of those shares to the government – or a large proportion of it. We would gain any profit above the reserved price. This model removes the objection to 1 that the state does not get any money back, and helps somewhat to create a more orderly market, by getting people used to the idea that they have to hold the shares for a time period.

3. The government could sell the shares in the market like the 1980s large privatisations. Some shares could be offered more cheaply to employees, and there could be a discount offer of a limited number of shares for each taxpayer interested. The state would get money back from the operation, and the bank would be transferred to the private sector.

4. The government could offer tranches of shares to control the impact of the large sales on the market. It could sell some tranches to strategic investors prepared to take minority stakes in a large global bank.

There is another approach which I tend to favour. The government could require the further break up of RBS. Individual assets and companies, like Citizens Bank, their US bank can be sold off individually. This route has several advantages. It reduces the scale of any individual sale. It creates more manageable units. It could create more competitive banks for the UK market if the main clearing operations were split up.