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During his brief  morning stop in Northern Ireland on the way to his three day stay in the Republic of Ireland the President could have held out a hand of friendship to the Unionist community. He could have  said on reflection he had been hasty to encourage an EU/UK deal, as he now saw that one on the wrong terms alienated the Unionist community and undermined  the Good  Friday Agreement. He could have pledged to ask the EU to change their stance to reduce the risk of damaging NI’s place in the UK as well as burdening UK trade between GB and NI with too many  barriers. The deal done has not resolved the problems. it has destabilised NI by re opening constitutional issues that the GFA had put to rest.

Instead he pretended there was no real issue, just unreasonable Unionists. He was not able to have a celebratory banquet for 25 years of the GFA. He could not make a speech to Stormont as it cannot sit. The original ideas behind the visit were cancelled so the NI visit was shortened.

The Prime Minister should  have used the brief encounter to start work on restoring Stormont by engaging the President in the  need to get the EU to change its stubborn and unhelpful stance. He could have made the Unionist case to balance the Republican case implicit in the President’s words and deeds.

He did not do so. He seemed to go along with the idea that the Unionists should accept the EU/Republic of Ireland settlement and live with EU law making in their part of the UK. It was a bad missed opportunity, a tragedy for our country.

The IMF thinks all the western advanced economies will slow down a lot this year. Of course they will, because the Federal Reserve Board in the USA, the European Central Bank and the Bank of England have shifted from very inflationary policies to very tight policies. They have hiked interest rates, stopped buying up bonds and encouraged a credit squeeze. On top of this the UK has had a tax raising budget to add to the squeeze, whilst the Bank of England has gone for an ultra austere policy of selling bonds it owns at losses to drive up mortgages and other interest rates. The IMF as a result puts the UK towards the bottom of the pack for the year ahead after a great 2022. It may be too optimistic about some of the others, given the need for the Euro area to take more action to get inflation down.

These lurches of policy by advanced countries are unhelpful and unnecessary. Switzerland, China and Japan avoided the high inflation figures  of the USA and Europe/UK by not buying up so many bonds and running such a loose policy.  Only the UK has added a large rise in business tax and substantial fiscal drag on personal income taxes by not raising allowances in line with inflation. These tax changes will ensure slower growth. The  business tax rises when added to the windfall taxes hitting the energy sector will ensure weak investment flows in the year ahead adding to the downturn. The Bank of England should reduce the severity of its bond sales, allowing its balance sheet to shrink as bonds fall due for repayment. The Treasury should abandon its tax rises and understand that it will collect more revenue if it allows more growth.

In an interesting recent IMF blog three senior officials advise Central Banks on how to balance counter  inflation policy with the need to avoid problems with banks and non bank financial institutions.

They look at how UK pension funds and liability driven investment strategies revealed “the perilous interplay of leverage, liquidity risk and inter connectedness”. They query how a Central Bank injecting liquidity to ease such a situation could complicate the fight against inflation. They  propose three types of permitted intervention.  Discretionary market wide intervention targeted to segments at risk. Lender of last resort loans. Standing  loan facilities for non bank financial institutions in need.

They go on to stress “Clear communication is critical, so that liquidity support is not perceived to be working at cross purposes with monetary policy. For example, purchasing assets to restore stability while continuing with quantitative tightening to bring inflation back to target may cloud intent and complicate communication. “ Yet this is what the Bank of England tried over LDI.

This  is what the Bank of England did. They deliberately drove bond prices down by announcing  and commencing a large bond sale programme. This led to big losses in pension funds, and more calls for cash on the geared positions in government bonds LDI funds were running.  LDI funds then also sold bonds to meet calls making their positions worse and increasing the losses. The Bank then bought up some bonds to reverse some of the price falls it had helped create.

The truth is the Fed and the Bank of England printed too much money and kept rates too low in 2021.In the last year they rushed to tighten, causing tremors in UK pension funds and some US regional banks. When financial instability  appeared they both eased by supplying money to markets offsetting the severe Quantitative tightening they were still executing. They should both take money and credit growth more seriously and stop lurching from too easy to too tight.

It is strange the leading western Central banks all thought they could create money and buy bonds at ever higher prices to ease conditions without it causing inflation. They were wrong. Now they think they can sell bonds at ever lower prices, tightening money and drying up liquidity without it causing any problems amongst banks, pension funds and other large holders of bonds.  Why?

The sad news of Nigel Lawson’s death gives us the opportunity to remember his great contribution to the success of our country. We mourn with his family but celebrate a life well lived. It was a life which made a big addition  to the debate about how to promote prosperity for the many and how to fuel faster growth with better economic performance. The arguments he deployed are relevant today as we consider how to carry on the great task of promoting greater prosperity for more people.

Nigel  Lawson proved that lower tax rates can bring more revenue and higher living standards. Faced with a Treasury that did not want to believe you can increase the income by reducing the tax rate, he made big reductions in the company tax rate and the rates of Income Tax. This helped propel the economy to faster growth. Rich people came or returned to the Uk to invest, to create jobs and make their homes. Large international companies took a more positive view on the attractions of the UK as a place to put their car plant or their consumer   product factory.

The Conservatives took over after a poor decade. Half the car industry output had been lost in the first ten years of European membership. With no tariff protection the Uk industry lost out to continental competition. In the 1980 s with new policies that were friendlier to business the industry was rebuilt by attracting in new overseas investors including the leading Japanese car makers.

He worked closely with Margaret Thatcher  in the early years as Chancellor to liberate the self employed and small businesses, as well as to foster more large company business. I remember being able to draft for a speech of Margaret’s the news that the Income tax rate cuts meant the rich paid more income tax in cash , paid more income tax in real terms, and paid a higher proportion of the total income tax take. The depressing socialist case against tax cuts for the rich seemed absurd. The  way to tax the rich more is to set tax rates at levels they will stay to pay. Nigel was out to reverse the brain drain of the Labour years when successful UK people from pop stars to entrepreneurs left the country in search of lower tax rates. The government welcomed aspiration and recognised the importance  of spreading wealth widely, not confiscating it for a jealous state to spend.

Nigel Lawson had been Energy Secretary and recognised from his experiences that introducing private capital and competition into major national monopolies could help transform the country. The privatisation of gas, electricity and telecommunications unleashed a feast of new investment. It transformed an out of date electro mechanical phone system with electronic technology and extra capacity. It drove down electricity prices whilst shifting from dirty coal to cleaner gas , making it a great environmental as well as business policy. It became possible to get a phone line quickly without having to share it with the neighbours. The UK got cheaper energy to help business compete.Nigel and the Treasury resisted opening the monopolies up to maximum competition, though over time it was still possible to move policy in that direction. I always argued introducing competition would improve outcomes more than just changing ownership, though both were helpful.

Nigel Lawson was an innovative Financial Secretary to the Treasury setting out a new control system for the UK economy which worked well, combining controlling budget deficits with curbing money supply growth. After years of boom inflation and poor output the UK economy started to perform much better. It was a pity that later as Chancellor he lost faith in his own economic policy framework, accepting official advice to seek to join the European Exchange Rate Mechanism. This introduced an unwelcome lack of discipline into money and credit , created a fast inflation and then led to a traditional boom/ bust cycle as the authorities battled with their own past mistakes. It also led to tensions with the Prime Minister who believed the advice she was given that the Exchange Rate Mechanism would be destabilising.

Nigel Lawson achieved a great deal for our country. He showed that a country needs to earn its living, and can only do that when it backs the entrepreneurs and investors and allows lower tax rates to work their magic.  Just as Ireland today shows how a low corporation tax rate gives them a giant advantage in attracting big business, jobs and investment, so Nigel Lawson reminds us just how much we need such bravery again to grow faster and offer better pay and wider ownership to the many. The Opposition parties in Parliament seem to think you can keep upping the tax rates on the enterprising and successful, apparently unaware of the history. Tax too much and the enterprising will leave. Tax too much and the new factories go elsewhere. Tax too much and you will raise less revenue for public services not more. Thanks to Nigel we know what works better.

In interviews about Nigel Lawson I have discovered a lot of journalist uncertainties about shadowing the DM and seeking to join the Exchange Rate Mechanism. Let me tell you more of what I know, based on the advice I gave Margaret as her Economic Adviser /Head of Policy  Unit in the middle period, and as an informal adviser in the later years.

I argued that ERM membership would be destabilising. When the pound was rising money would be created to sell pounds, swelling sterling money and credit. This would prove inflationary. When the pound wanted to go down the Bank would buy up pounds. This would be contractionary. I wanted the government to stick with the Medium Term Financial strategy Nigel Lawson had helped to create. Margaret agreed and thought her new Chancellor accepted the position.She made her view clear.

It later became apparent  to me that despite the MTFS in place, despite the PM’s wishes, and despite the absence of any formal statement to Parliament of a change of economic policy control the Treasury and Bank were shadowing the DM. Interest rate moves seemed to be related to maintaining the exchange rate. I appreciated this was an inconvenient view for the PM but she came to believe it. One day when I was with her in the study she turned on the news only to hear the BBC claim a policy shift based on DM fluctuations. In later years Treasury pressure to join the ERM worsened the relationship with Number 10 more.

It was a sadness that a good reforming Chancellor who worked well with a reforming PM and her advisers on tax cuts and privatisation got into a fight over using the DM exchange rate as the economic control. In the later Thatcher years following the  DM led to excessive money and credit creation and to inflation. The Treasury who never much liked tax cuts tried to blame them for the inflation. In the 1980 s the Treasury and Bank worked closely together and Ministers were involved in interest rate and money policy.

The ERM led to the economic problems of the early 1990s, undermined the Conservative reputation for economic  competence and was the reason for the defeat in 1997. The irony was this bad economic  policy  was supported by the other main parties, the CBI and TUC.

I mourn the passing of Nigel Lawson. He gave great service and lifted the  UK economy   after the bruising experiences of the 1970 s. He showed that lower tax rates, more competition and nationalised industry reform boosts living standards and opportunities for the many.

In 1983 I was appointed Head of Margaret Thatcher’s Policy Unit. I pressed successfully to merge the Economic Adviser to the PM job in with being Head of the Policy Unit. Alan Walters had departed leaving a vacancy for Economic Adviser. As I advised that the main policy task was making sweeping changes to the UK’s wider economic policy and performance it would be good to unite these roles. It was also necessary in my view to change the way the Economic Adviser role was performed. Alan had allowed or encouraged himself to be part of the public story. He got himself involved in the crucial relationship of PM to Chancellor in a way which made it difficult for the Chancellor. Stories of public splits were not helpful to either principal.

I was positive about Nigel’s appointment as Chancellor. I liked the work he had done as Financial Secretary to the Treasury to establish a new economic policy framework. Control of state borrowing allied to money and credit restraint would provide the best backdrop for low inflation and growth. I thought he would be a tax cutter, as big reductions in personal and business income taxes were essential to end Labour’s brain drain sucking talent and investment out of the country. Privatisation and wider ownership were critical to economic progress. Nigel as Energy Secretary seemed sympathetic to such moves, which would help pay for the programme whilst curbing the deficit.

I explained to a nervous Treasury I would give my views only to the PM. In order to be involved in budget planning I agreed to all those papers being excluded from general Policy Unit consideration. Budget secrecy was taken very seriously then. I was delighted with the big reductions in tax rates, which as I hoped brought in more revenue not less. Margaret and Nigel liked the proposals on privatisation, where I recommended John Moore as a Treasury Minister to drive a government wide programme of reforms, sales and wider ownership. Inflation came down and growth improved.

It then became apparent to me that the Chancellor had changed his mind about his Medium Term Financial strategy and had moved to a personal belief that the UK should join the European Exchange Rate Mechanism instead. I warned the PM in private  why this would be a harmful and destabilising course. She did not want to believe Nigel would do that,  but eventually accepted the evidence. It was such a pity, as their joint enthusiasm for lower taxes, more growth and wider ownership was so successful. The move away from a UK domestic financial discipline to trying to harness to German discipline by proxy spoilt their later partnership in office. Ultimately through John Major’s insistence on joining it led to another boom bust and the large Conservative defeat of 1997. The period of shadowing the DM as the main policy guide had itself given the UK an inflationary boom, as it led directly to creating more money to try to keep the exchange rate down. Meanwhile the German cornerstone of the ERM was based on a low inflationary Germany using domestic money targets to keep their own prices down.

Nigel Lawson went on to make a further important contribution to modern politics through the Global Warming Foundation. He sought to spell out the economic realities and challenges on the road to net zero to remind us that the policy comes with a price tag that needs to be affordable and fitted into a cogent economic policy framework.

Today’s Treasury could learn a lot from Nigel’s success with big tax rate reductions, incentives for more self employment and small business and transformational policies to major industries. He will be long remembered for his big contribution to UK economic and industrial policy.

The government says it wants to promote growth. Growth is one of the Prime Minister’s five aims. The latest budget confirming high tax rises on business will not help pursue this aim. I will write a series of pieces over the weeks ahead containing proposals for regulatory and tax  change that could assist growth.

The car industry is under pressure from the wish of the government to ban the sales of new diesel and petrol cars from 2030. This is a bad idea which will  mean premature closure of petrol and diesel car and van making facilities here, with more car companies taking their investment into diesel, petrol and hybrid elsewhere where there is no such time limit on the sales of the products. This ban should be lifted.

The government thinks an early ban will deliver more investment in all electric vehicles. This is proving difficult to land, with the car industry wanting to see established battery making lines here first whilst those considering battery investment want orders from  car companies to make their big investment worthwhile.

They all need more evidence of the wish of many consumers to trade in old diesels and petrol vehicles for all battery models. I continue to meet many people who think the current electric cars have too short a range, are difficult to recharge and too expensive. Our generating and grid capacity is not up to most of us switching to electric vehicles.

The government needs to work with the industry to see what improvements can be made in the electric offerings to make them more attractive to more people. They need a more realistic timetable for expanding the grid and reliable power generation to service more electric cars. A 2030 ban is a  very bad idea.