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Dear Kemi

The UK government rightly wants to grow the economy and cut inflation. As Business Minister there are crucial changes you could make to help both aims.

The proposed ban on new petrol and diesel cars will destroy our car making capacity prematurely without replacing it by as much electric car output. Only the UK is proposing such an early write off and closure of so many factories with loss of jobs. Businesses are going to put their remaining petrol and diesel capacity elsewhere. From 2030 UK buyers will import nearly new petrol and diesel cars instead of buying UK ones. Lift the ban to rescue the car industry.

The UK is losing capacity in energy intensive industries like steel, ceramics, glass, fertilisers and much else thanks to having the  highest carbon taxes in the world. These drive up prices and progressively close factories. Suspend the emissions trading and carbon tax regime. You can then save the big subsidies you are forced to offer as partial offsets. This action will save a lot of UK jobs and boost other tax revenue.

As the leader of Ministerial efforts to cut out needless regulation, bring forward the repeal of EU laws laying down product specifications. Keep a strong safety law and allow all goods of merchandisable  quality to be offered for sale. This will boost innovation and competition.

Co operate with the Energy department in expanding UK supplies of cheap reliable energy. You cannot have a successful industrial strategy with dear power, unreliable  power and import dependence.

The EU with an overzealous net zero policy has  hit  our industry hard whilst boosting world CO 2 by relying too much on imports with extra CO 2 in manufacture and transport. Please back made in the UK, and change these damaging policies.

Yours sincerely

John Redwood

My critics here complain that I urge a big rethink of the  UK government’s green policies without challenging their CO 2 beliefs. As I explain so often I am out to get urgent and necessary change so need to find common ground with Ministers.
I can now show some proof that this can work. By making the argument that we will help cut world CO 2 by getting out more of our own oil and gas instead of importing LNG government has been persuaded to change its policy. They now need to get on with production licences for Rosebank, Cambo and the others. These will bring more tax revenue, more well paid jobs and big balance of payments savings.

I and other MPs have persuaded the government to drop the damaging idea of a hydrogen tax, a further levy on already high energy bills. They should also drop the state spending. Hydrogen  technology may well prove to be a good way of fuelling transport and storing renewable electricity. Let the market decide. Let venture capital and large company investment develop it.

Given the large proposed borrowings and the need for tax cuts to cut inflation and expand capacity the government should reconsider its planned huge spend of £20 bn on carbon capture and storage. This is a world challenge where once again we need more private sector investment to see how it can work. At least delay it for a couple of years whilst inflation is brought down and growth improved.

They could suspend the roll out of free smart meters. Most who want one have got one now. Going forward those who want one could agree to its costs being added to future bills, spread out over a suitable time.

We need a supply side revolution. The Bank is shifting us from too much money chasing too few goods, to too little money chasing too few goods. It does not solve the underlying shortages.

The whole government needs to engage in a policy to curb inflation. An urgent substantial reduction in legal migration is needed to curb demand. It would also help them with their net zero plans. We need less demand for homes, water, food, electricity, transport and the rest from inviting in so many extra people. Put up the minimum pay a lot that someone needs to earn before they qualify for a work visa. Concentrate on inviting in well skilled and entrepreneurial people.

The government needs to tell the Bank to stop selling bonds at huge losses which taxpayers have to pay. This policy is driving up mortgage rates more.

The government needs to speed the implementation of its new policy of licensing more oil and gas output from the North Sea. I am glad I and others have persuaded them so now do it. It brings in lots of tax that otherwise is paid away to a foreign supplier and cuts CO 2 for them.

It needs to shift farm grants away from stopping food production to boosting food growing.

It needs to allow the water companies to get on with new reservoirs and the grid company to speed more capacity.

It should delay the big planned spend on carbon capture and storage. We need less spending and lower taxes, not more costly state disruption of our energy markets.

It should suspend the smart meter roll out to save £1bn a year.

It should impose a freeze on all new external staff appointments in the government employ other than front line workers like nurses, teachers and police.

We need growth and investment in capacity. We need tax cuts paid for by spending reductions and other revenue growth.

https://www.bbc.co.uk/iplayer/episode/m001n3px/question-time-2023-22062023

The debate over mortgage rates and the high rate of inflation is made difficult by the general view that the Bank of England is independent. This discourages politicians and media from debating their actions and thoughts, and impedes government action.

Constitutionally this is incorrect. The Bank does have the independent power to fix Bank rate following consideration by its Monetary Policy Committee. It is set a target of getting inflation to around 2% a year, a target last revised by Gordon Brown who changed it. I am not proposing they should lose that power. Otherwise it is deeply involved with the government.

The Bank is 100% owned by the state. The government of the day chooses the Governor. The Governor reports to the Treasury Committee of both Houses of Parliament, where he is subject to scrutiny over the work of the Bank. The government bails it out if it loses too much.

The main agent of monetary policy since 2008 has been the Bank both greatly increasing its balance sheet then contracting it. As it expands it buys bonds at ever higher prices, driving interest rates down. As it contracts it sells bonds at losses  driving rates higher . The Bank’s decision to make a large sale of bonds just before the Kwarteng budget along with the rate rise pushed bond prices down. This was compounded by the difficulties of LDI funds owned by pension funds having to sell to cover the calls as the market fell. The Bank’s decision to reverse the sales policy and buy some bonds again rallied the markets, showing how much control the Bank has over it.

This policy is a dual control policy. The Chancellor signs off on the bond programmes. The Treasury provides a full guarantee to the Bank against losses on the bonds. The Bank says it acts as an Agent of the Treasury when doing this.

The Bank overdid the bond buying in 2021. I supported its £300 bn to see  us through lockdowns but thought the subsequent additional  £150bn was risky, likely to bring on inflation. Clearly the bond buying created an asset price inflation, boosting bond prices and in turn shares and properties as the people and firms who sold the bonds to the Bank reinvested their money. In due course money got into wider circulation, and the money the government gave to people and companies based on ultra cheap state borrowing also helped stoke inflation.

Supply was constrained by the after effects of lockdown, by changes in the labour market and by world disruptions brought on by the Ukraine war. Too much money was soon chasing too few goods, scarce energy and food. An inflation set in, leading understandably to people wanting pay rises to limit the damage to their spending power.

The Bank has now said it will review how it forecasts inflation and how it runs its models and makes its decisions on rates. That is a necessary task, as its models gave very wrong indications saying inflation would stay at 2% and then saying higher inflation would be transitory.

The Bank also needs to take an interest in money and credit. It needs to look at the way expanding its balance sheet is inflationary and contracting it too fast may produce a recession. It should ask itself why China has inflation of 0.2% , Switzerland 2.2% and Japan 2.7% when they all import substantial amounts of energy. Their Central Banks followed different policies when dealing with covid and Ukraine.

Prices rise when too much money chases too few goods and services. As economists would say, when potential demand outstrips supply, prices rise.

The Bank of England has presided over a big expansion of the amount of money and credit available from March 2020 to 2022. There have been supply shortages of energy, food and much else, with a rush to import. We import LNG gas instead of producing more of our own, losing tax revenue and causing more CO2 worldwide as a result. We import too much food, giving grants to farmers  not to grow more instead of boosting our home output. We make it difficult to produce steel, make ceramics and stay in other high energy using businesses, only to import the products we need with more CO 2 produced by the foreign factories as a result.

The government needs to take action to get inflation down. Short term measures include taking VAT off fuel, and raising the VAT threshold for small business  to allow them to expand more quickly. Longer term measures must entail regulatory and tax changes to make and grow more at home, and to produce more domestic energy. Lifting the IR 35 tax on the self employed could regain some of the lost 700,000 self employed of recent years. They will serve us well and generate more taxes of other kinds as a result.

The UK has too few producers.  Now is a good time to flex rules and lower tax rates to free the makers and service providers to do more. Government must help get prices down. The Bank must be careful not to lurch from far too much  money and credit to too little.

I have great news for the government. All the bad things that Artificial intelligence could bring are already crimes. They can be prevented or prosecuted just as their less technically sophisticated versions can be. Theft or fraud by a computer programme is theft or fraud by the person who set the computer up to it. Misrepresentation or libel of an individual is every bit as much a crime if nominally done by a computer, where a person will remain the criminal for putting the computer up to it.

Artificial Intelligence will be a series of crucial  breakthroughs in computing power. It has been in development for a decade or more. First a computer programme could beat a Grand Master at Chess. More recently a computer won at GO against a great player in this more complex of games. Computers can now take instructions in English and convert them into computer software or into extensive and rapid searches of vast data banks as they seek to provide a good reply at lightning speed. Many more people will come to have an assistant with access to great data, capable of sifting, searching and selecting from it to help the human boss. The UK should indeed try to create the conditions where we can play host to many companies pioneering these exciting developments.

This is where the Retained EU laws Bill has a crucial role to play. This allows the UK to return to common law, where anything is permitted unless the common law says it is prohibited. The EU Code Napoleonic model needs the law to specify what you are allowed to do. This is far less flexible and can badly impede innovation. It is difficult to know exactly what AI will be able to achieve or how it will achieve it in the next few years. Applying the common law to prevent crimes and abuse but not laying down in advance what is permitted is the best approach. The US which is the outstanding world leader in AI, the  Cloud, social media and software uses a common law system which helps build its advantage over the EU and other code based legal systems. One of the things that most worried me when I was the UK’s Single market Minister was the way the EU produced much detailed product and process regulation which specified a way of doing thigs leaving other ways and innovative ways outside the permitted law. It is a system designed to defend existing large companies against competitive challenge, leading to slower growth and ageing activity compared to the more dynamic USA. The EU has no Microsofts, Alphabets, Apples or Amazons of its own as a result.

The number of speeding offences has shot up as a result of introducing numerous 20 mph zones. Whilst it is most important that people do not drive fast in busy areas where there is a danger of children or adults stepping off pavements or otherwise coming into conflict with vehicles, the comprehensive and extensive use of these zones at all times of the day and night is unnecessarily restrictive, impeding deliveries, people getting to work and other essential journeys.

The Department for Transport has provided the following answer to your written parliamentary question (189129):

Question:
To ask the Secretary of State for Transport, what data his Department holds on the number of 20 mph speed limit zones in effect in England as of 13 June 2023. (189129)

Tabled on: 13 June 2023

Answer:
Mr Richard Holden:

Local authorities have the power to set 20mph zones (which have traffic calming) and 20mph limits (which rely on signage).

No central record is kept of the number or length of 20mph zones and limits in England.

The answer was submitted on 19 Jun 2023 at 15:46.

The Bank of England has twice forced interest rates up and pushed the prices of government bonds down sharply in recent months. The first time was around the time of the Kwarteng budget, when the falls in bonds the Bank caused by announcing a large sales programme and hiking Bank rate were made worse by the excess holdings  of such bonds through special funds  that pension funds could not afford to own outright. The falls in bond prices led  to the need for some  pension funds to sell more bonds to raise the cash to cover the losses and cash calls on the LDI funds.

A government bond is a savings instrument. The government borrows say £5 bn for 5 years. The people who put up the money are promised a payment of say 4% a year on the money. So if you lend the government £100 you would get £4 of interest every year for five years and would then get your £100 back. If you want your money back earlier you can sell the bond on to someone else. If interest rates have risen since you lent money to the government the price of the bond is less than you paid for it, so the buyer will get a higher return than you were getting. The government will carry on paying £4 of of interest and will repay the £100 to the new owner.The new owner buying at less than £100 will get a capital gain on repayment of the full £100, and will get a higher interest rate than 4% as £4 of interest is more than 4% if the cost of the bond has dropped below £100. Buy the bond for £90 and you get 4.44% interest for the rest of its life, and a £10 capital gain at the end.

In recent days we are living through a re run of last Autumn. The Bank is persisting with a large sales programme of government bonds it bought up in 2020-21 and earlier . It continues with  clear signalling it wants interest rates to go higher . The Bank has the sole power to decide what Bank rate should be, the rate that controls the interest rate on overnight borrowings and deposits. The power to decide the price of bonds is shared with the Treasury, who have to sign off on Bank of England bond buying and selling, and who have to pay all the losses on sales.

The rate of interest a saver can get on a 2 year or 5 year government bond depends on the price of these bonds in the market. When the Bank wants the 5 year mortgage rate to go up it can sell bonds to get their price down, as well as talking the market down. Banks and Building Societies offering 5 year mortgages will set a rate related to the latest government borrowing rate in the bond market.

As my recent PQ revealed, the Bank so overpaid for government bonds when it built its huge portfolio that it may now incur losses of £49 bn just this year on holding them and selling some at very depressed prices.  It would be a good idea if the Bank got to the Bank rate it thinks it needs this week and stays there whilst inflation come down. It should also stop selling the bonds and making such huge losses which taxpayers have to pay. Mortgage holders are facing enough pain without the Bank trying to force up the mortgage rates even more.