Category: Blog

<p>Yesterday Parliament debated the great European take away. The rebate of our contributions, so brilliantly negotiated by Margaret Thatcher against the odds in 1984, was thrown into the dustbin of history for extra spending on the enlarged Union. Our partners succeeded in overcoming the UK veto on preserving the full rebate, so the other rich countries of Western Europe could pay less..</p>
<p>The Chief Secretary to the Treasury showed his respect for Parliament by doing the bill himself. It is unusual these days for a Cabinet Minister to get their hands dirty, preferring to leave such matters to their juniors. He also went to great lengths to set out the governments case as well as it could be done. I admire hi pluck, for the case was threadbare, hanging in tatters before the Opposition got to it.</p>
<p>We were told it represented a good deal for the UK because the value of the remaining rebate would continue to rise. Even a Labour MP exploded at that, pointing out that was only true because our gross and net contributions were going up so much.</p>
<p>We were told it was essential for enlargement to go ahead ?? yet it was agreed after enlargement had taken place.</p>
<p>We were told it was essential to give more money to poorer parts of the EU out of a sense of justice. Yet the issue in dispute did not affect the overall amount being spent on the poorer parts of the EU: it related only to the UKs share of the cost compared to the shares paid by all the other member states.</p>
<p>We were told that it represented a good outcome from a tricky negotiation, comparable to Margarets success in gaining the rebate in the first place. As I had to point out, there is all the difference in the world between winning a big rebate from the other member states when anyone of them could have vetoed it ?? as Margaret Thatcher did ?? and giving away some of the rebate when we had a veto over such a move! The first negotiation against the odds won a huge victory for UK taxpayers. The second will cost taxpayers dear, and need not have happened at all.</p>
<p>It beggars belief that a government in this amount of financial trouble, with a massive public deficit and sky high taxes, should choose this moment to give away at least ?1 billion a year to the EU for no good reason. Whenever I ask for lower taxes or say we should spend less, Labour Ministers always tell me that is impossible because every pound of public spending is so essential Last night Labour Mps voted through a totally unnecessary long term spending commitment that we cannot afford. Yet again they showed they do not look after our money, and are craven in their approach to EU negotiations.</p>
<p>Click <a href="http://www.johnredwoodsdiary.com/category/press-releases/">here </a>to read John Redwood’s speech in the House of Commons on this subject.</p>

Yesterday, speaking to a sixth form in a school in my constituency, I tried a new approach to combat negative feelings about politics.

I reminded my audience that they were all volunteers. Whilst it was true that at 9 am on a wet Monday morning they were told they had to be in an hour long class with their local MP, they were all of an age where they could decide to leave school and do something else. In the light of their choice to stay and accept the discipline of their courses, surely I argued it was sensible to get something out of the hour with me – and the hours that would follow with representatives of the other main political parties. The challenge was more theirs to use my time productively for their purposes, than for me to lecture them that politics is important.

I put to them my thoughts on compulsion for 16-18 year olds from yesterday’s blog, and invited discussion. I am pleased to say there was a good flow of questions and points, on a wide range of subjects. I told them that as they apply to leading universities they are in competition with people from the leading independent schools, where there are strong traditions of taking an interest in public affairs and in grilling external speakers. I want to help in a small way to balance the competition at the university gates and urge other adults in the community to offer their encouragement to do the same.

The debate about Northern Rock on Newsnight yesterday failed to produce a thought through alternative to nationalisation, to protect the taxpayers interest and avoid more damage to markets.

As readers of this blog will know, there is such an alternative. Maybe I have to spell it out again.

The government and the Bank should set Northern Rock targets to

1. repay debt
2. generate cash and profit
3. sell assets

These targets should be tough but achievable. The rate of asset sales should be geared to what the mortgage market can absorb, so the assets can be sold for a reasonable price, leaving the taxpayer with sufficient cover to get our money back.

Putting Northern Rock into administration could lead to a fire sale of assets, and might result in taxpayers not getting all our money back.

Nationalising Northern Rock could lead to huge losses for taxpayers, as taxpayers became responsible for all the rest of Northern Rocks assets and liabilities, including paying the staff, any redundancies, and the pensions shortfall.

Northern Rock has started to follow this managed run off strategy, selling ?2 billion of mortgages recently and using this to repay some of the taxpayer debt.

The meeting today at Northern Rock has been called to try to limit the managements scope to make decisions. This could be used to limit the Companys ability to reduce its debt to taxpayers, so it is not a helpful development from the governments or managements point of view.

The meeting is also a reminder to those who think nationalisation is an easy option, that it could be bitterly fought by existing shareholders. Taxpayers would not take kindly to existing shareholders being offered a good price for their shares, whilst existing shareholders are likely to contest nationalisation for a nominal or low price. I cant understand how anyone sensible can think this would be a good route to follow.

The Education Bill we will debate today in the Commons contains the worse kind of gesture politics. Frustrated at the lack of progress in raising standards in schools, and worried by the continuing difficulties of getting 16-18 year olds into work where they are not studying A levels, the government has come up with the proposal to require 16-18 year olds to study and train, whether they wish to or not.

The government protests when we say we oppose raising the school leaving age form 16 to 18. They point out that the compulsory education for this age range could include day release courses and properly structured apprenticeships, as well as staying on at school.

None of this apologia overcomes our main objection to the scheme. If you compel young people to study at school or College, you recruit unwilling learners into the midst of academic institutions, sixth forms and Colleges ?? that have ben used to working with volunteers.

There is no evidence that you can compel people over 16 years of age to learn if they do not want to. Indeed, if you are to succeed at adult learning you will only do so if you really really want to yourself. Another party, TV programme, drinks with friends, or even hanging around on street corners will always seem a better option than reading the extra book, revising the coursework or struggling with something you do not readily understand. Those who do make the academic effort do so because they want to succeed, and believe that they will be able to do so.

There are several general reasons why too many young people do not wish to stay on at school and do not sign on purposefully for further training.
The first is that too many 16 year olds do not read, write and use figures with anything like the amount of skill needed to be able to undertake a proper course of further study. The remedy is not to compel them to work at their schoolbooks when they have already failed, but to get them to master the basics at a much younger age when adults do have more sway over them and when we all agree they should be required to be at school.
The second is that too many have been told by the system that they are not expected to succeed. Their background and social circumstances are used as excuses for low performance in earlier years. Unwittingly teachers and other adults in the community set low expectations and discover even these are not met. We should not expect less of a child from a low income household, whilst recognising that they might need more support and encouragement to rival the child from the self confident household.
The third is that some of these young people do not believe the school work or skills training will lead them to a job they want to do and could do. There have been too many disappointing government schemes getting young people through courses that have little economic value. There is too much of a temptation to design a course that people can pass instead of designing one that it good and useful to employers and then discovering how to teach so people can pass.

Professor Wolf, writing for Policy exchange, debunks the governments claim that this measure will increase National income by ?`1.6 billion a year, getting many more young people into productive work at 18. She believes it will reduce output by ?1.7 billion a year, as she fears many small businesses will decide they can no longer afford to employ 16-18 year olds and have to work around the compulsory education and training that will punctuate their working lives. She also fears that the governments qualifications from this scheme will have little value. Her fears needs careful examination by the government. She will be right if this is just a cynical exercise in massaging the unemployment figures, and if the government concentrates on numbers and not on the quality of what is being done.

The best guarantee that quality will matter and courses will be designed with employer needs in mind would be to allow choice and not impose compulsion. The other day a businessman came to service my gas boiler. In the past he told me he has not expanded his successful business as much as he would like because he could not find the high quality young gas engineers he needed to keep up the quality of his work. This year he told me he had taken on two. They both had things in common. They both had really really wanted to be gas engineers, they both had undertaken a serious course of study to achieve their aim, and both had paid their own money for the course. That level of commitment persuaded a reluctant employer that they can make a contribution.

The government needs to study ideas to make it less easy for young people who want to live on benefits and who do not have that determination to do something with their lives. That would be a better contribution than trying to think up exams people can pass that they claim represent good training which may not be so seen by employers.Insisting on better achievement when young with remdial classes and extra work for those primary school children not managing to read and write would also be a better and cheaper solution.

It appears that the government is flirting with nationalisation because it is having trouble persuading the shareholders of Northern Rock to see things its way. It is a very cumbersome and potentially very expensive device to try to get shareholders to do as the government wishes, when the government has a much easier way of doing it.

The government still does seem to have grasped how powerful its position is as Northern Rocks bank manager. It stepped into this role, and is now committed massively to it. As of today it is clearly the only bank manager Northern Rock has that is prepared to extend the huge sums needed for the bank to be able to carry on trading.

As bank manager the government needs to assert itself in the following ways:

1. Set out how much asset cover it wants for any additional lending ?? and make sure it has taken enough asset cover for the loans so far.
2. Set out how much money it expects Northern Rock to repay on specified repayment days.
3. Establish targets for cash generation and profit in the underlying business with management, and make them report variances with explanations of action to be taken to get back on target.
4. Establish the usual banking covenants that Northern Rock has to hit to keep its facility

I read that the shareholders are not happy about selling assets. There should be no argument about this. The government/Bank of England should tell them what repayments they expect. Northern Rock then has four ways of making those repayments:

1. Sale of whole business to an owner that can meet the repayments
2. Refinancing of Northern Rock in the private market to repay the state borrowings
3. Cash generation from the business
4. Sale of assets

The government should just insist on the repayments. It is up to the shareholders and management of Northern Rock to do the hard work and decide how they can meet the need for such repayments. If selling assets is the only option ?? as it appears to be at the moment ?? then they must do that. The government does not need to dictate how Northern Rock refinances itself ?? just has to insist on the taxpayers getting their money back in sensible tranches over a realistic time scale.

As I stated on this blog before, the taxpayer should also be rewarded for making these huge loans that no commercial business would make in the event of Northern Rock recovering well. That can be done by the government taking options to buy shares at the current price at any time over, say, the next five years. This should also be a condition of continuing the lending to the company. Should it then do well the government can buy the taxpayer shares at a favourable price and sell them on to make a profit as a reward for carrying so much risk for so long. I read that this idea is now being taken seriously by the advisers.

There are at least ten good reasons why Northern Rock should not be nationalised:

1. It is bad enough for taxpayers to have ?57 billion at risk in Northern Rock. Nationalising the bank would put more than ?100 billion at risk, a very large sum even for the government and taxpayers.
2. Once nationalised, taxpayers become liable to pay all the wages and salaries. Ministers would have to sanction redundancies if these are needed to cut costs, and taxpayers would have to pay for them.
3. The taxpayer would become liable for the whole pension fund, which has a deficit.
4. The management of Northern Rock appointed by the government would doubtless expect substantial new funding from taxpayers to invest in and develop the business, adding to taxpayer woes.
5. There is nothing the nationalised management could do that cannot be done now to try to cut the liabilities and repay some borrowings.
6. Nationalising would make it more difficult to persuade the management of the bank that there is a crisis which requires exceptional efforts to increase business revenues, cut business costs and sell assets to repay borrowings. It would take the pressure off.
7. Politically it would become a long term reminder of the governments failure to handle the credit crunch well. The bank is unlikely to have been privatised again before the next election.
8. Given the growing pressure on public spending ?? difficulties in finding money for police pay, hospital improvements and the rest ?? it would be an embarrassment to see spending rising on a nationalised bank at the same time as cuts elsewhere.
9. The pay of people at the top of such a bank is likely to be high even by the standards of modern higher pay in the public sector, leading to further embarrassment, especially if they do not perform well.
10. All the spending on Northern Rock would then have to be accounted as public spending, whereas at the moment it is kept off the governments balance sheet to make the public accounts look better.

Today we learn that some Labour MPs are very critical of parents who arrange the baptism of their children in to the Catholic Church so they can go to a Catholic Church School.

These Labour MPs seem to think it is wrong that parents should be able to exercise choice. They always blame the parents who take action to get their children into a better school, rather than taking action themselves to raise the standards of the other schools the discerning parents do not favour.

This criticism of these parents is doubly unpleasant. It firstly implies that all these baptisms are arranged just to get a child into a better school. They do not allow for the possibility that parents are believers and think baptism of the child when the child is old enough to have some understanding is a good idea.

Secondly, even if a parent is organising the baptism to secure the school place, that is not an unworthy thing to do. It shows parental concern and determination to do the best for their child within the framework of state educational provision.

To work properly, there needs to be more choice for parents in state education. I am fed up with the apartheid in UK schooling, between the fortunate few who can send their children to excellent schools by paying fees, and the many who have to send their children to local state schools, whether they are good or not. The answer is not to reduce choice and stop people being able to send their children to good schools. The answer is to give more parents more power to choose good schools, so more schools will become good in order to stay afloat. At least the Labour government has not tried the closure of the best independent schools, which would simply force them offshore, but it has sought to damage them by challenging their charitable status.

There was depressing news this week from a survey of teachers attitudes towards Oxford and Cambridge Universities. The survey showed that there are teachers who wrongly think Oxford and Cambridge charge higher fees than elsewhere, and who are unaware of the bursaries and scholarships available for children from low income homes who achieve the necessary standard. The survey also showed some teachers think Oxbridge mainly takes children from independent schools.

In order to break down the educational barriers between public and private we need more confidence in the state system, so more pupils are told they too can go to the best universities if they apply themselves to the task.

Today I have received a draft chapter for a new book on the thinking of the right in the UK. In the first draft I am accused of being muddled because I both object to the erosion of national sovereignty by the EU and assert that a globalised world makes the EU irrelevant as it demonstrates the great power of international corporations. I have written back to the author with the following comments:

I am afraid here you are simply wrong.
The important distinction that I always make but Euro enthusiasts fail to grasp is the distinction between sovereignty and power.
No single country – not even the USA – is all powerful. Every country has to take into account world opinion, the attitude of neighbouring countries and the world institutions, the approach of larger corporations and the variable ability of people from one country to move to another if they do not like their country’s approach.

The USA is clearly more powerful than Iceland as the USA can project its views and values more widely thanks to its economic, diplomatic and military power. However, both the USA and Iceland are sovereign countries, in that their elected governments can do whatever they like in a democratic way without intervention from other countries/ regional blocs. They have to work within the framework of international agreements they have consented to, but they remain free to remove themselves from such agreements and institutions if need arises.

Both the USA and Iceland are natural government areas, where the governed think they belong to the same nation and wish to belong to it, and where they wish their government to make the best decisions it can within the limits of its powers both internal and external.

Members of the EU are no longer in that sovereign position. In large areas of activity they can no longer pass or repeal the laws they wish to, and in many areas they have to accept the judicial interpretation of Treaty law and Directives from the Federal court. As I do not think most people in the UK regard the EU as their country or natural governing area, I have opposed so much power passing to EU institutions.

At the same time I counter the Euro enthusiast argument about power, not sovereignty, that we need to belong to a larger bloc in the world to have more power to stand up for our interests in a rapidly globalising world. My case is that the regional bloc is too small to regulate or tackle the problems of the global market – international banking requires world wide standards and surveillance, not regional regulation for example. The EU is short of energy, so the solutions to its energy problems lie outside its borders. The EU is in long term decline (its own forecasts say it will decline from 18% of world output in 2000 to 10% in 2050 and that is optimistic). The Uk’s future will be based on the global market, and on working with like minded countries to ensure sensible styles and levels of regulation for the new global industries and corporations that characterise this phase of globalisation.

I am a defender of sovereignty in the UK as I believe our natural allegiance is to UK governing institutions not to EU ones. I am a believer that we need to work with other like minded countries to influence and improve the global regulatory framework for big business, which is too big to be contained by the EU. I am not a "little Englander" but a "big worlder"

<strong>Click on the link below to download John Redwood’s presentation on globalisation.</strong>

<a href=’http://www.johnredwoodsdiary.com/wp-content/uploads/2008/02/globalisation-2008.ppt’ title=’globalisation-2008.ppt’>globalisation-2008.ppt</a>

I was pleased to hear that Northern Rock is selling 2 billion of mortgages with a view to repaying ?2billion of its debt to the taxpayer. We need to see more of such progress as markets permit – the skill is selling at the right pace so you receive a sufficiently good price to ensure taxpayers get all our money back.

Yesterdays statement in the Commons concerning nuclear power was a strange event. The Conservative benches were full, with many shouting agreement to the governments measures. The Labour benches were not so full, with obvious signs of distress punctuated by disagreement shouted from sedentary positions. The Lib Dem benches got behind their snarling spokesman, expressing disgust at anything with the word nuclear in it.

We have waited a long time for this statement. We were promised a great debate on whether we wanted a new generation of nuclear power stations or not, another one of Tonys grand gestures that never materialised. We have had two consultations, the second necessitated following a successful legal challenge to the first. We now know what we have long suspected from reading the informed briefings in the newspapers ?? the government does think more nuclear power stations should be built.

This government has dithered and dithered for more than ten years without a proper energy policy. They have long known that 19% of the UKs electricity is currently generated from nuclear stations, many of which need to be retired quite soon. The government just stood and watched, hoping the problem would go away.

Now they have said the market can build replacements if they wish ?? but of course they could have done so at any point in the last ten years, subject to planning and licenses. The government would not have been entitled to prohibit a new station, although it could have been difficult about building it in any particular place, or could have required a different design of reactor. In each case it would have needed well based reasons for refusal to withstand judicial review of the decision.

So we have to ask why has the industry been unwilling so far to seek permission for nuclear stations? Why have they preferred gas driven power stations? Has anything fundamentally changed as a result of this government statement?

Over the past couple of decades the industry has shied away from nuclear because it poses greater planning and safety approval issues, because there is a vocal group of people who disagree fundamentally with nuclear power, and above all because it has been more expensive. Today we read that a French company wants to bid to build six stations. That represents quite a change, but of course we need to read the small print and see what their conditions are and how easy it will be to raise the money to do so.

Yesterday clearly has made some difference. It implies that planning permission is likely to be granted, and to be speeded up compared to the experience of most larger projects in the UK in recent years. It suggests the government will licence a type of reactor that it regards as safe and suitable, reducing delays and risks from licensing. The surge in the oil price, which will drive gas prices higher, also makes a difference.

The missing ingredient which the Minister yesterday was keen to avoid is subsidy. We do seem to have elicited from the government that there will be assumption of risk by the state if there were ever to be a major incident ?? something which could prove crucial to securing realistically priced insurance for these devices. We also have been told that creating a sensible regime for carbon pricing is important. Indeed, the nuclear industry when I saw them to discuss their plans made it crystal clear, that whilst they did not need a subsidy, they needed a higher carbon price than the current market one and needed that to be sustained over the life of the project.

It was because the industry expected a deal on the carbon price that I suggested putting the judgement about carbon free and low carbon technologies out to a market competition. I felt we needed to know how the costs of power generated by various renewable methods, by carbon capture and storage schemes allied to other plant, and by nuclear compared. Only if we know these relative costs, could we then make a judgement about the right mix and the balance of risks between the different technologies.

The government claims to know better. It has made a decision about nuclear and told us all in no uncertain terms it wants more nuclear. It will now have to do more work on all the details if it wishes its dreams to come true. The carbon trading system in the EU is a disgrace, creating too many permits on the continent to keep the price down, whilst forcing the UK to pay good money for permits we have to import from abroad! It has proved to be a bonanza for many carbon generating industries over there, and nightmare for some industries over here. It has not established the level of carbon price the nuclear industry told me they wanted. The government needs to go to Brussels and stay there until it has knocked some sense into the partners, and stopped the dreadful unfairness to Britain of the current system. It now needs to do so as well if its beloved nuclear is ever to be anything more than ground hog day in the Commons with the renewable nuclear statements.