Category: Blog

Labour is out campaigning against 1.3 million alleged public sector job losses and compulsory redundancies. The government needs to put the record straight promptly before this camapign gets out of hand.

The official figure for job reductions in the puboic sector over the next five years is 600,000 according to the Office of Budget responsibility. This is around 10% of the public sector total. As 300,000 or so leave the public service every year you could save 600,000 with no compulsory redundancies at all. Where quangoes and offices are being closed down the employees could be offered something else elsehwere in the large public sector, as jobs become vacant.

Labour’s figure is 1.3 million or 20%. Over five years that is around the likely level of departures, but as far as Labour are concerned would entail redundancies as well. This figure is made up. The leak to the Guardian of “secret Treasury figures” was a leak of wrong Treasury figures. There is no secret plan to sack more than the OBR forecast. The OBR figure remains the best forecast. We can calculate a more accurate figure once we have seen the autumn spending round conclusion. That will depend on the balance between benefit bill reductions and the rest.

The government needs to be careful how it presents all this. Getting too many of your staff offside too soon when you need them to help you change the way public service is delivered would not be a good idea. They need to stamp on Labour’s attempts to whip up the public sector Unions.

I hear Danny Alexander has asked each department to tell him how they might cut 40% from their budgets – save the ring fenced departments.

I suppose it’s a useful starter to the conversation he needs to have with each to settle their figure for next year. I am not sure it is so useful to have people condemning such savage cuts, when the totals in the budget tell us there is no need to cut anything that matters by 40% or anything like that figure. The totals show spending going up every year in cash terms for five years. That hasn’t changed. There is so much newspaper space being wasted over the cuts that will never be. Please leakers spare us the parade of the bleeding stumps in public. It’s such a stupid old hat way of conducting a review of public spending.

The politics of bashing banks is good. They are widely blamed for the last collapse. The people who regulated them, and the Central Banks who set interest rates and rushed from boom to bust with the money supply have escaped much of the blame. Many of the commercial banks’ Directors and senior executives earned too much money for most people’s stomachs, and then had the temerity to carry on paying themselves bonuses after the crash. Some banks profits have roared back strongly after the losses of 2008-9, whilst taxpayers remain sandbagged by the worst debts.

Against such a mood and armed with such lopsided analysis it is popular for governments to demand controls on bonuses, taxes on profits, and require banks to hold more cash and capital. The first of these does not seem to work, the second will reduce banks cash flow as they try to rebuild their cash and capital positions, and the third will cut their lending.

The sad truth is, whether the politicians hate them or loathe them, we need the banks and we need them to finance a recovery. Some bloggers say they do not want more credit to be extended. I have to tell them, without more credit there will be little growth and fewer new jobs. Some critics say businesses do not want to borrow more money, because they do not enjoy the demand for their products. They should note just how strong growth is elsewhere in the world, and how there are already shortages of product at home in the UK early in the cycle. We do need UK business to make more here to susbtitute for imports,and to export to faster growing countries. That requires working capital and investment finance.

The world’s governments and regulators genuflect to the idea that they should switch from pro cyclical regulation to counter cyclical regulation. They now accept, looking back, that in the upswing in 2005-7 they reinforced the credit boom by relaxing controls, and in the downswing, 2007-9, they reinforced the fall by being tougher. So why can’t they now agree that this is still somewhere near the bottom of the cycle? Isn’t this the time to say we have done enough to rebuild the cash and capital of most banks? The UK Tier One ratios now average around 12%, well above the levels of 2006-7, and good enough for the first phase of the upswing.

The sad truth is governments have to allow banks to make more profit to rebuild their reserves and pay off past losses. It will not make either the banks or the governments popular, as people resent bank charges and interest rate premia. It is however essential to get a well financed recovery. If we had more competition in the UK banking the charges would be lower and the costs better controlled. A lack of sufficient competition leads to high bonuses and high salaries.

It’s time for regulators to say, job done for the time being. They should look again at the adequacy of cash and capital once we’ve had some growth.

When Ken Clarke was Chancellor he was lucky. He took over after all the difficult decisions had been put in place by Norman Lamont to get the then deficit under control. Reducing the deficit was a necessary but not sufficient condition for recovery. He took over when world trade and the world economy were going well, and the British banks were able to lend. As a result the economy grew well and the deficit shrank.

George Osborne has to do the same on a bigger scale. He needs to make his own luck. He has done the difficult thing, setting out a new path to cut the deficit. He now needs to make it more lilely the private sector will grow as fast as is needed to do the rest. World trade and the western economies cnanot be relied on to grow as quickly as we would like given the state of Euroland and the wobbles in the US. Meanwhile the UK banking system is not delivering the cash and credit to UK industry and comnmerce that it needs to be more confident and to put in more capacity.

The government needs to make changes to the banking industry to ensure more competitive credit is available to finance recovery. It will not wish to pre-empt the important Vickers review of retail and investment banking, by expressing a view on whether the two should be split. It could conclude now that the UK retail banking market is not competitive enough and start to do something about it. We need the banks to deliver more now, not in two years time.

I have two suggestions. The first is to hold a competition for new banking licences for suitable companies and consortia to aply for, to give a push to the rumours that there are people and businesses wanting to set up as banks. They can apply anytime anyway, but it would show the government is keen and will listen with their Regulators to the needs of the wannabes to get something going.

The second is to package up two, three or four UK retail banks from within the RBS and Lloyds/HBOS empires for sale. These conglomerate banks hold many brands and franchises, ranging from Nat West and Halifax to Lombard, Cheltenham and Gloucester and Birmingham Midshires. Some of these have been fully integrated, others still have some independent identity wthin the global banks. It would be possible to make up a package of branches, assets and liabilities in each case, sell them on to the market with a new quote, and raise new capital to give them growing room at the same time.

The UK needs say five new banks with starting capital of say £5 billion each, allowing them to establish a combined balance sheeet of say a conservative £200 billion. That would allow a useful injection of new cash into suitable UK business projects. We have a more competitive pound, lots of empty buildings and plenty of unemployed labour. We need the cash to get it back to work.

The outgoing PM in Australia serves as a warning to incumbents. If you combine unpopular climate change legislation with a big tax increase, you lose your job. The legislation was defeated, and the tax increase on mining has now been abated.

I asked about replies. The answer is:

“Sorry to hear that some are having issues with the new comments system. The problem with the old one was that it simply broke and became both insecure and inoperable, so unfortunately a return is just not physically possible at this point. The new system does provide greater security for both you and your regulars as well as greater backend stability in terms of backing up the data.

It is a shame that the system is struggling to support long comments and I know the vendors are working on this to find a way around restrictions. I hope they will find a solution in the near future and I am monitoring developments as well as examining alternatives. For now, though, commenters are inadvertantly restricted to around 6,000 characters, which I understand works out to nearly 2 sides of A4 paper if it were written out – still a generous amount and far beyond the limits of commercial operators such as the Guardian, Sky and Telegraph for example. Systems will always struggle with this level of data whilst also balancing security and stability, however I hope we can find a solution soon as I know your audience does demand longer comments.”

Recent days have seen a big sell off in world equity markets.

Markets are never wrong, but they can change their mind tomorrow. Like daily elections, they represent the combined wisdom of everyone involved. We trawl through them , trying to interpret them, because they are the best indicator we have of what people think will happen next, and what might happen next.

If you look at what forecasters and many individuals say will happen, there is no great need to worry. The official wisdom says the US economy will continue to recover, the Chinese and Indian economies will grow rapidly, and even the larger European countries will edge forward. No-one expects a run on a major bank or a repeat of the severe financial dislocation of 2008. Expensive property in London keeps attracting rich buyers, fine wines and precious metals reach new giddy prices and company profits look much better than at the bottom of the recession.

So why is there so much worry? It is true the Euro crisis is far from helpful. Countries which are not sovereign should not issue so much “sovereign” debt, as they can’t print the money to pay it back. It is true the Chinese authorities have been squeezing their banks to try to control inflation, and the rest of the world now feels the wash back from their actions. Some recent US figures have implied slowing, with some fearing double dip.

I suspect the main problem that underlies it all is the continuing perversity of the major countries in their approach to bank regulation. At the very time when they say they want a recovery, and when they forecast one, they are still demanding ever higher levels of cash and capital from the banks under their control. As a result, money growth is still too low in the West to pay for a decent recovery. You always notcie a shortgae of money first in the financial markets. If these governments truly want a decent recovery they should mend their ways in their approach to the banks. They may not love the banks, but they need them to spread some more money around to finance higher growth.

Sterling continues upwards against the dollar, as markets feel more reassured about the trend of the UK deficit.

Our foreign policy priority must be to transfer responsibility for Afghan security to their local army and police as quickly as possible. Our wider foreign policy must embrace stronger links and more diplomatic interest in the emerging powers. I welcome today’s change of emphasis in foreign policy.

You could have read it here first. The following was a post from the second week of May:

“This morning we learn the new Foreign Secretary has been booked to go to Washington, and we are assured he will shortly thereafter be visiting Paris and Berlin.

If they wanted to show they understood how the world is changing, Foreign Office officials would buy him a ticket from Washington to Delhi,and then on to Beijing.

The UK needs to build a deeper and stronger friendship with India, the world’s largest democracy. It must be good news for the UK that India has a fast growing market of 1200 million people, in a country where English is the second language of many.

The Uk needs a good relationship with China, its bank manager and supplier of so many goods. As the Coalition government understandably plans to take time to cut the deficit it needs to know the views of the world’s main creditor who will be needed to buy some of the debt.

Economic power is shifting and will shift dramatically. There are 300 million consumers in Europe, in a very slow growing area of the world with substantial debt and currency problems. There are 2500 million consumers in India and China, with a combined growth rate of almost 10% per annum. China has $2 trillion in the bank. The UK’s commercial future lies more in Asia. If we are to earn our present living standards and grow them faster we need to go east. “

This is a reissue of my letter to Nicholas Clegg – others should write in to the formal consultation. The government has announced their intention to abolish all or most of items 4,16,17,18 and 27 so far. Please feel free to use the parts of this you support for your response to the consultation.

You have invited contributions of items to include in your Great Repeal Bill. As one who argued strongly over the last decade that we needed substantial repeals, to reverse the flow of law and regulation that is damaging both our liberties and our prosperity, I welcome this. I have pleasure in submitting a few examples of items that should be included in the first Bill. Many of these are taken from “Freeing Britain to compete”, the study of Economic Policy I wrote in the last Parliament. It is available as the last listed download on www.johnredwood.com on the right hand side of the site. Some are taken from suggestions contributed to www.johnredwood.com in my latest consultation.

1. Repeal Working Time Regulations – people should be free to work overtime if they wish. This single item was the biggest extra burden on business in the last 13 years.
2. Repeal Data Protection Act. Keep a requirement on data haolders to look after data, and keep a citizen’s right to their data and its fair handling, but eliminate the quango and licensing regime.
3. Money laundering regulations. Make them less costly and ineffective. Requiring people to supply a passport and utility bill does not stop money laundering but does create a lot of extra cost in the system.
4. Abolish compulsory Home Information Packs – as planned by the Coalition government
5. Mortgage regulation – remove the last government’s detailed mortgage regulation which clearly failed, and strengthen cash and capital regulation of banks and other mortgage providers to avoid future crashes.
6. Remove Gaming licenses for charities
7. Abolish Mandatory horse passports
8. Remove recent over the top regulation of herbal medicines
9.Opt out of Food Supplements Directive
10.Restore statutory dismissal procedures to pre 2000 position
11.Restore social chapter opt out and define UK rules in these araes
12. Repeal compulsory metrication
13. Combine disclosure to the Inland Revenue and Companies House for smaller companies – one form fits all
14 Repeal IR 35
15 Abolish Best Value regime for local government
16 Abolish Comprehensive Performance Assessment regime for Councils
17 Abolish Regional Housing Boards and regional targets
18 Abolish Regional Development Agencies
19 Repeal Legislative and Regulatory reform Act
20 Amend Waste Incineration Regulations 2002 to allow more recycling
21 Amend Health and safety regime to make it more proportionate and effective
22 Repeal Digital Economy Act 2010 cl 11-18
23 Repeal Investigatory powers Act 2000 – too intrusive
24 Repeal Charities Act 2006 – too bureaucratic
25 Repeal Labour’s Terrorism Acts and replace with simpler system which damages the civil liberties of the innocent majority less. Stop long term detention without trial or charge.
26 Cut the use of surveillance cameras and design safer and less congested roads and junctions instead.
27 Repeal the SI requiring 11 million people to have CRB checks before helping children.

These measures would not only restore civil liberties and free more companies to create extra jobs and compete more successfully, but they would also cut public spending on regional and regulatory overhead. More of the detail explanation is available in “Freeing Britian to compete”, pp 53-65 and pp 153-189.

The most popular repeal from contributors to my website would be to repeal the section in the Health Act that bans smoking in all public places, to allow smoking again in specified rooms and areas

Yours sincerely

John Redwood

Yesterday something predictable happened. Then something unpredictable happened.

The unsurprising event was the arrival of a letter from the Head of Public Affairs of Network Rail, Ed Wilson. It was addressed to me as an MP, and doubtless was one of 650 sent to every named Member. It told me how wonderful the railways are, and asked me to sign an Early Day Motion. This Motion says ” That this House recognises that Britain relies on rail transport…….and calls on the Government to consider the economic benefits of rail schemes when determining value for money projects in the Comprehensive Spending Review”.

The letter also enclosed a printed press release in my name as “Local MP”, a copy of the Motion to sign and a text telling me how important the railways are. Mr Wilson also told me that over the next four years they are “committed to cutting the cost of the railway by nearly half compared to five years ago” implying that it is far from cost effective today.

This is the same Network Rail that has refused to develop the obvious property opportunity afforded by its poor quality station and extensive car park in Wokingham ,despite years of urging. They missed the good years when they could have obtained a new station at no cost to the company, thanks to the golden potential of the land they owned which could have attracted suitable planning permission. This is the Network Rail that needs billions in subsidies every year to continue to offer the tracks for use, presides over three cumbersome local level crossings which now generate large congestion owing to the long delays with the gates down, and fails to put in the extra capacity in busy areas that it needs. How come they have money to send out letters and draft press releases to MPs? Do they really think this is a substitute for having a good business case to justify their requirements for public subsidy?

Then a senior executive of a leading quango came to see me. It was one that I have found difficult to get to do anything useful in recent years. He told me they would cut the back office by 30%, amalgamate their offices, use natural wastage to cut staff and direct more of the cash to useful services we do need. He told me the country cannot carry on with public spending at 50% of GNP and that we do have to cut the deficit.

Are you listening Network Rail?