Author: johnredwood

I struck up a conversation on Thursday with a local entrepreneur who had set up a successful company. He had made his own way in the world without inherited wealth and now wanted a good future for his family.

He told me he had opened an office in Dubai and could use modern computing and communications to run it from there. As a result last week was to be his last week in the U.K. He decided his business and his family have a better future in Dubai.

When I asked him why, the tax and regulatory attacks of recent weeks were clearly the last straw. He felt the government does not value or want people like him in the U.K. In Dubai he finds a positive approach to business success, lower taxes and sensible regulations.

I hear on the media that there are many successful strivers thinking like this, and  hear Dubai is just one of several locations making a good pitch to attract U.K. business and talent.

The world does not owe us a living. We are not so full of entrepreneurial energy that we can deter and export it in large quantities. Many of the so called rich are hard working, providing the rest of us with goods and services we need. Who will provide all these if we attack self employment and small companies, overtax employment and take away profits and gains?

Amidst the many figures and forecasts in the March budget there was one that stood out which got too little attention. The Official figures said the Bank of England’s bond buying which had sent the Treasury £124 bn of profits in the early years will end in overall loss of £104 bn when they have finished their fire sale and run off of  the bonds. That is a hidden way of saying they plan to lose £228 bn on bonds. Taxpayers have so far had to stump up £49 bn of this loss by March 2024, with more big bills this year.

This whopping increase in public spending goes undiscussed in Parliament now I have stood down. The last Chancellor wrote a letter saying this is a real cost to the public sector which reduces scope for other spending and or leads to higher taxes. The Bank of England for its part denies that selling all these bonds at low prices is important to its monetary policy. It wants us to believe these sales do not depress bond prices and therefore push up interest rates. The time when they first announced a major programme of £ 80 bn of sales was the start of the big autumn 2022 bond sell off, when the news coincided with a rate hike and triggered the LDI problems.

No other Central Bank thinks it clever to incur big losses by selling bonds they paid too much for at depressed prices they help create by the sales. No other central Bank sends a huge bill to taxpayers. Why do we put up with this? Why do we pay the Governor more than £500,000 a year for being the world’s worst large scale bond trader, presenting us, the taxpayers, with a forecast £228 bn bill?

If the government wants to plunge us into more debt to support investments, it is vital those investments make profits and pay the interest on the debt.

The government needs strong guardrails to achieve this. In each case they need to ensure

1 Any private debt added to a partnership scheme is non recourse to the taxpayer

2. There is a clear stream of future revenue from the completed project that covers the interest on the debt more than twice

3. They should set a minimum target return of say 4% above inflation and explain how this can be reached in the Business case

4 Management should be on a low basic salary with substantial bonuses if profit and cash flow targets are hit

5. The interest on the extra state borrowing should be a charge on the project or company being financed.Dividends would only be paid to the state when appropriate.

6. The state would ensure all necessary permits and licences are available to the project, subject to them meeting the required standards.

Faced with charges of a borrowing splurge on so called capital investment the Treasury says there will be guard rails. They will not borrow all they will be allowed to under their new laxer rules. It would be more convincing if they told us how they choose the investments,how they will control them and what the actual borrowing limit is going to be.

The sad truth is the nationalised industries have  a dreadful record of unproductive and unprofitable investment. A very expensive Post Office computer system sent honest employees to prison and landed taxpayers with a large compensation bill. The Post Office has presented  taxpayers with accumulated losses of £799 million despite or because of the bad investment. HS 2, a nationalised railway, has been unable to deliver an important project to time or anywhere near budget. The project has had to be slimmed down losing its main point of going to the North of England. There will not be enough extra revenue to make a profit or pay the interest. The rest of the nationalised railway spends on capital only to need more subsidy and state support.

All the time roads are nationalised and paid for out of road taxes that greatly exceed road costs there is a case for further expansion and improvement in the network on state borrowing. Unfortunately this government so far has announced cuts in new road spending. Roads are crucial to our economic success as service providers and on line parcel deliveries come by van, ambulances drive to hospitals and trucks supply our factories by road.

There is no need for government investment into most energy projects. Customers are made to pay high prices for U.K. energy. If the government let the private sector make the investments we need in replacing imported LNG and building some additional gas turbine capacity we could boost growth and help lower world CO 2.

The government is right that we need to invest more. There is room for disagreement about what we need to invest in, and how much of it should be paid for by taxpayers.

The government’s current plans include the expensive and wasteful £20 bn for carbon capture and storage. They need to give greater priority to

New gas turbine electricity generators to keep the lights on and power new data centres

A fleet of smaller cheaper nuclear reactors

Several new reservoirs to ensure plentiful future supplies

New drainage pipes with more capacity

More domestic oil and gas to displace imports which produce more CO 2

More broadband and data processing capacity

More bypasses and dual carriageway strategic local roads

More motorway capacity

Digital signalling throughout the railway network to expand train capacity

Many of these projects can and should be privately financed.

The main problem with the Rachel Reeves idea that we can afford to borrow more in the public sector is it assumes the investments made by the state will produce income and profit and will be able to pay the interest and then repay the debt. Recent experience  says this is unlikely. HS2, a new nationalised railway is more than three times over budget, long delayed and little prospect of any revenue let alone profit anytime soon. The nationalised Post Office was given large sums to invest in new computers, only to send its innocent staff to prison and land taxpayers with a large compensation bill. The high spending nationalised railways as a whole lose large sums before subsidy and burden taxpayers with large debts.

Changing the way the debt control is calculated to allow more investment only works if all the investments make money after paying for the debt. If they turn out to be like the railways or the Post Office borrowing more means more debt, more burdens and higher taxes.

 

It is always better for governments and politicians to tackle problems they can do something about. Turning themselves into bad historians to posture about long past evils is pointless.

We can all condemn the eighteenth century slave trades. If we do it helps to remember not just the European slave traders that profited from evil, but also the African leaders who sold people to them. The Barbary pirates raided English towns and attacked English ships to enslave English people. We also need to remember the crucial role played in the nineteenth century by the U.K.  in abolishing much of the trade. The Royal Navy enforced new laws against it.

The problem with the past is it teems with slavery. The Romans relied on slaves  and enforced their imperial government on subject peoples like the English with a brutal army. The Normans killed our King and imposed serfdom on many English people, stealing the lands from their English owners. No one suggests these wrongs can or should be tackled by compensation or apologies.

The past is a foreign land no one can revisit. We can study it, learn from it and seek to understand it. We can also all agree slavery is wrong. That should lead us to tackle it now in our world.

A recent poll puts Labour down to 27% from their poor election showing of 34%. It puts the conservative opposition on 48%, split between the Conservatives on 27% and Reform on 21%.

The large Labour majority on a reduced vote share from Jeremy Corbyn’s was only possible because many conservative voters felt let down by the Conservative Party, staying at home or voting Reform.

Labour has lost support rapidly. It has revealed a wish to tax people and businesses excessively which it concealed pre election. It has found governing extremely difficult and has impaled itself on the freebie row

As we are likely to have four more years of this government this site will concentrate on what the government is doing and how it can serve us better. There will be jostling between Conservatives and Reform over who can best oppose which will delight the government, hoping to be re elected with less than a third of the vote and less than a fifth of all electors. Those who are primarily interested in the Conservative/Reform struggles should go onto their sites to debate. I will not usually be posting Reform criticisms of Conservatives or Conservative criticisms of Reform.

Any airtime Conservatives or Reform get should concentrate on what the government is getting wrong and what it can do to improve. There can only be a different government when enough Reform voters back the Conservatives or enough Conservatives shift to Reform.

This site all the time we had a Conservative Party government concentrated on the government and how it needed to change policy. It rarely commented on how the Opposition did its job.We need an opposition which can combine well researched criticisms of government actions and results with a better vision of how the U.K. could benefit from policies that promote freedom and prosperity.

This site is mainly about the conduct of government and the evolution of policy.

 

The health Secretary has said a few bold and sensible things. He has said you do not just tip more money into the. NHS without reform. He has said maybe they need to buy in more private sector help to deliver more and better free care to patients.

More contentiously he has said the NHS is broken. Instead of getting on with mending it he now proposes a long and large consultation with staff and patients to see what to do. It’s like asking the audience on a quiz show if the contestant hasn’t a clue about the answer.

Patients will tell him they want less waiting time, easier access to GP appointments and better treatment when they need it. Staff will tell him they want more pay, better hours and better working conditions. No great need to go to consultation on that. Consultation with staff should start when he as their top boss decides what changes he wishes to make to working practices. Consultation with patients should start if he wants to change the way they access treatment.

His instinct that there needs to be change is a good one. History is littered with well intentioned Health Ministers who found guiding change was expensive and difficult. Wasting much of the first year on asking the obvious is not a good start. The NHS needs help now in spending its huge sums in the best way, and in hiring and motivating the right staff to get more work done. Firing the Chief Executive of NHS England would be a good beginning to underline the message that currently senior management are not boosting morale or productivity in the way we need.

Last weekend Moldova voted on  a plan to write applying to join the EU into its constitution. The result we are now told is very close to 50/50, not the big endorsement of membership the government expected.

The papers and media have  been running weeks of stories of higher taxes, on savings, on pensions, on private equity, on leaving money on death, on buying and owning property, on making profits on a business or from owning shares, At any point the Chancellor could have ruled out some or all of this speculation. Instead she seemed to delight in the array of ideas being generated to tax anyone more who dared to work hard, save more, succeed in business or own assets,

She has given interviews in the past querying tax breaks for ISA s, complaining of private equity carried interest, displaying a hostility to wealth creation and ownership. The only constraint on her wish to tax higher incomes, better pensions, more wealth may be the thought that putting the tax rates up too high could lead to a loss of revenue  and a further exodus from the country. This weak view of the Treasury does not extend to the valid view that lower tax rates on income, wealth and transactions can usually boost revenues.

It’s the politics of jealousy, the economics of misery. Offering people tax incentives through ISAs to save is a good idea. No need to discourage it. Making it attractive for private equity to invest here is good for jobs. Don’t send them abroad. Letting people build a decent pension pot allows them to look forward to retirement and avoid claims on the state. Why be jealous? Allowing relief from Inheritance tax for some U.K. assets encourages investment. Why risk it?

Tax rates are already too high in the U.K. Non Dom changes have driven rich people out. Tax changes to property is reducing the number of rented properties. Limits of tax relief for pensions led some like doctors to retire early. Tax rises will slow growth. Particularly clumsy ones will reduce tax receipts. As a supporter of the government’s faster growth aim I urge the Chancellor to think again before hitting the strivers, savers and investors.