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The Office of Budget responsibility is a recent invention. George Osborne wanted a body that was said to  be independent that could assess government economic policy and set out in forecasts what the results were likely to be. To do this he transferred the Treasury model for forecasting the economy and some Treasury officials to this new body. It was given the privilege no other forecaster has of getting prior access to budget measures so when the budget is published the OBR can publish a set of forecasts that include the impact of the latest budget measures. Other independent forecasters can then catch up, putting the new budget measures into their models and running them to see what change results. The OBR forecasts and the average of private sector forecasts are often quite close to each other, with the old Treasury model still having some sway with a range of external economists.  Treasury officials clearly work closely with OBR ones, as they used to do when they were all part of the same organisation.

The main problem with this system is the failure of the POBR to come up with reliable and accurate forecasts of the budget deficit. This matters hugely because their wrong forecasts unlike other people’s are used to mark the government’s homework. The main economic policy control is a derivative of the old Maastricht debt and deficit controls. The government aims to have debt falling as a proportion of GDP by the end of the five year forecast period if not before. This relies on the OBR forecasts of the difference between two large numbers, total spending and total revenue, five years hence.

In recent years the OBR has been £100bn or more out in its same year forecasts, let alone in its five year forecasts. The OBR presumes to say the government needs to raise an extra £10 to say £30bn in taxes, when its deficit forecasts swing by far more than these sums year by year. Observing the pattern they tend to greatly exaggerate the deficit when the economy is growing and underestimate it when the economy is slowing or shrinking. The main errors occur on the revenue side. Their model does not seem to take much account of the behavioural effects of higher tax rates which may depress tax take, or the way in which lower tax rates may boost tax take. It certainly doe snot seem to recognise the great sensitivity of revenues to gr9wth rates.

The independent OBR should follow what the Bank has decided. faced with its own failure to forecast inflation, crucial to its task, the Bank has announced a review of its models. The OBR needs to do the same, as it models cannot forecast deficits sensibly, leaving no sound basis for their advice on tax levels.

The Bank of England has been up to its old tricks, hiking rates and selling bonds to hike mortgage rates some more. They think taking money away from mortgage holders will squeeze their ability to spend which will cut inflation by reducing demand.

Will it? The extra money mortgage holders pay in interest certainly cannot be spent any longer by them on goods and services. The money however does not disappear. Much of it is passed onto savers who have deposits in the banks that lend the money. They will have more income to spend. Some of the extra interest is extra  bank profit, which leads to higher dividends so shareholders will have more money to spend.

Higher mortgage rates therefore will not limit demand for goods and services as much as the Bank seems to think. It is possible the savers will not spend all their extra interest income, whilst it is likely the mortgage holders would have spent more of the money they now have to pass to the lenders. This is however a matter of degree. It is also likely the savers who tend to be older may well pass some of their deposit interest gain onto their children with mortgages to help them out.

The further sell off in bonds underwrites my argument that the high mortgage rates come mainly from Bank of England rate hikes and bond sales.

We already have digital money. You and I have money held in a commercial bank which is just an electronic line in their accounts. We can use it to buy something, transferring our digital money to someone else’s digital account electronically. We have a digital credit card which we can wave at a machine to pay. If we save money in a deposit account that too is digital. The banks do not keep all our monies in bank notes, just having enough till money to meet usual demands for physical cash with a margin.

Some people have created different digital tokens like Bitcoin. These do not fulfil the normal characteristics of money. You cannot use them to buy things. Most shops and websites decline bitcoin. They are not a store of value as a sound major state currency is, with wildly fluctuating values. They are not  a standard of measurement. Few quote  prices in bitcoin where many quote them in dollars or pounds.

There are things called stable coins which seek to link their value to a well known currency. Some achieve this, but there could in some cases be failures to do so. If they succeed what advantage do they have over holding  the currency itself?

The Bank of England and other leading central banks are thinking of issuing digital versions of their own currencies. Given the way commercial banks already do this I assume it means the  Central bank itself offering a current account to regular customers. This would be a big diversion  from their current functions and would not offer much that a commercial bank does not already offer.

People worry about the way the state could use a CB digital currency to increase surveillance over people and even control their money. I cannot see them making everyone have a CB account as the  Bank of England would not  want millions of small accounts. Existing digital money through commercial banks is already under plenty of surveillance to prevent crime and money laundering.

I voted against the HS2 project when Parliament made the decision in principle to go ahead. I have always thought it a bad investment. I proposed alternative ways to increase rail capacity for a fraction of the cost with much speedier results.

I am told they are going ahead with one of those ideas. Improved digital on board signalling means a train can see what lies ahead and be warned of blocked lines in real time. Central controllers could slow or stop trains approaching danger if the driver has missed it.  It would be safe to run at least 25% more trains on a given line with smaller gaps between trains. As they are all going in the same direction on most tracks and if they see what lies ahead and what speed it is doing we can run more trains. We run far more vehicles with very little separation on busy roads just based on driver eyesight and judgement.

They could also do more to provide many more short sections of bypass track. Non stop express trains need to be able to overtake slow frequent stopper services when timetables get stressed. Again digital signals and intelligence on track positions would facilitate this.

The collapse of five day a week commuting post covid has undermined whatever business case there was for HS 2 . Much rail travel going forwards is going to be leisure and pleasure travel where high speed is less necessary and high cost cannot be repaid by premium business tickets. The government should reconsider the very expensive much delayed Euston and inner London part of the project. Spending a fortune on rail in London was always bizarre for a levelling up project to help the north.

Perhaps given the huge delays in construction and planning this should no longer be called High Speed 2. It is taking years of delay for the first train. HC 2 , High Cost 2, would be a more accurate description.

The inflation was brought on as a result of excessive money creation, bond buying and ultra low rates. It was compounded by shortages of energy, food and other basics. The inflation will now come down as money and credit are much tighter. Inflation is however proving obstinate because there remain some difficult supply shortages, price controls have delayed energy falls in the UK and public sector productivity has fallen a lot leading to too high a level of public spending.

The Bank’s policy is to squeeze demand by raising the price of borrowings. This will put off investment, cutting demand for investment goods and construction.   The main impact is on mortgages,  narrowly targeting the worst hits on the 2 million or so who will need to renew their mortgage loans before the election, and on potential first time buyers who will be excluded from the market. It will take time to hit overall demand as the hit to incomes only occurs at the maturity date of the old lower rate mortgage. Meanwhile the millions of savers with money on deposit will enjoy an increase in income facilitating more demand from them. The Bank is hitting mortgages especially hard by selling £80bn of bonds a year, given the way the price and rate on the bonds of the right maturity  is directly relevant to fixing commercial mortgage rates.

To get inflation down the government needs to undertake a series of supply side boosting measures. The UK can extract more of its own oil and gas with a big boost to its revenues and reduction in the balance of trade deficit. Grants to farmers not to farm should be replaced with grants and loans to encourage a big increase in domestic outputs, especially of fruit and vegetables where we have lost a lot of market share this century.

Reform of IR 35 allowing more people to work for themselves and to attract contracts from companies could lead to a reversal of the big decline in self employment and greatly add to capacity and flexibility in a range of markets. Raising the VAT threshold from £85,000 to £250,000 would lead to a same year boost to output by many small companies that decline business or have a  temporary shut down to avoid going through the threshold.

These two tax measures will be costed as losing revenue, which is debatable. To cover estimated Treasury costs of say  £4bn the government could rephase and reduce the £20bn carbon expenditures, suspend the free smart meter programme to save £1bn a year and transfer more of the costs of housing new migrant arrivals to the Overseas Aid budget.

There are many other ways of creating some fiscal space. It would be good to immediately cut inflation by temporarily taking VAT off vehicle and domestic heating fuels. There will be savings on the interest rate programme for a lower inflation rate, given the way the Treasury accounts for the non cash item of indexation costs on Index linked gilts. The government should press on with asset and property sales to release cash and lower spending.

Expanding supply with selective tax cuts paid for by spending controls is the best way to cut inflation whilst allowing some growth. Growth is the best way to get the deficit down.

Please find my interview below between 1:08:00-1:20:00 where we discussed immigration

There are many people heating their homes with gas who hope that the gas suppliers will develop hydrogen to replace natural gas, or to dilute it sufficiently in their networks to satisfy those who wish to drive to net zero. People are told modern gas boilers will take hydrogen with or without some modification, and will  be cheaper and easier than a heat pump. Some hope that direct drive  hydrogen vehicles as developed at the  big end by JCB will be available instead of electric vehicles. Toyota has developed hydrogen cars.

There is considerable interest in the idea that hydrogen could help solve the problem of interruptible wind energy. When the wind is blowing well green hydrogen could be made and stored, to be used on windless days when we are short of electrical power. It could even  be burned in generating stations. Various governments as a result of these developments are spending taxpayer cash on experiments and trials in the hope that they could push these matters forward.

Meanwhile there are customers who do not want to end their use of traditional gas boilers and petrol cars on the grounds that they are affordable and  work well . There are rather fewer consumers who buy fully into the green revolution and wish to buy a heat pump and an electrical car. There are many others willing to be persuaded that a hydrogen or electric answer to their heating and transport problems will work well, but think improvements need to be made before they will  be ready to buy one.

The governments that are driving the transition have to accept they are falling behind in getting in the capacity it needs to change the way most people travel and heat their residences. Grids and power stations cannot meet the potential demand if a serious number of people decide to shift. One of the reasons they are finding it difficult to get in the capacity is the doubts and options over which is the best system or combination of systems to displace petrol for cars and gas for homes. It will take a huge infrastructure of gas production, storage and pipes if we go for hydrogen, and a huge grid and cable expansion if we go all electric. Lots of countries are carrying out limited scale experiments, some overlapping with others. No country has yet come out wanting a hydrogen solution to the main demands. Several countries have backed wind and solar energy but still have not cracked how to store and spread the power from hot and windy days to nights and windless hours.

Do you have any advice for those who are designing away to find a road to net zero?  What role is there for hydrogen, and how can renewable power be stored? Who should pay the costs of experimentation and investment in the roll out of any of the answers?

The NHS Chief Executive for England says as a commentator might that she would like the government to settle the  nurses and doctors pay dispute. Many of us would like to see that happen, as it will take a happier workforce to deliver the targets to get waiting lists down , treatments and operations up.  A backbench MP can say that, a member of the public can urge that, a journalist can write articles about it. I find it most odd that the CEO says it. She after all hires and fires staff members, settles pay and job gradings, supervises promotions and training, and directs staff to the places where they can do most good to deliver the services  the NHS needs to look after  the public well.

To suggest that there is a simple row between medics and Ministers over how large a percentage increase in pay there should be leaves open the question of what is the CEO’s view of how much such a rise should be? Surely she and her advisers know what the jobs market tells them about pay levels, and her daily contact with medics should give her insight into what they want by way of pay and conditions to end their strikes. She also knows what increase she has agreed for her budget this year and must  have a view on what is affordable. Management is usually about making difficult decisions about how many people to hire, how much to pay them, how to deploy them and how to energise them to raise productivity. With over 400 senior managers on six figure salaries there are people who can help her with these decisions.

If the CEO is working well with Ministers then you would expect her to be influential over helping set a pay offer. This advice would be given privately and she would either win the argument or accept the Ministers judgement having put her case. This would then be a united NHS management offer, bringing together both politicians and senior managers. More importantly many of the demands of the medics in the public version of the pay negotiations we have all heard are about non pay issues. They want better work rotas, more support from other staff, better conditions and the right supplies and equipment. These are all issues that fall to the managers more than the Ministers to resolve, working within budgets and signing contracts with external suppliers.

Ministers rightly have to take the overall responsibility for what happens and what is achieved. They need to work with senior managers closely. I hope the managers will find a way to influence and then support Ministerial policy, which tends rightly to concentrate on overall aims and targets. Real and cash health spending have shot up since 2019. The issue is what are patients getting for it, as well as why cannot all that money buy more contentment with jobs and remuneration packages?  £233 bn for public sector UK health is a lot of money which needs to buy more happiness.