Category: Uncategorized

Time was when a Chancellor prepared an Autumn Statement or budget in secret. He would of course listen to many representations and show interest in the many ideas that come into the Treasury without giving any hint as to which if any he favoured. MPs would be offered chances to voice their favourite requests to an inscrutable Minister.  Indeed, Chancellors took seriously the need for confidentiality, knowing that were they to let slip a Budget secret they would be expected to resign.

In the run up to the Autumn Statement on 17th November we have been bombarded by a series of stories in papers and on the media claiming the Chancellor is considering a wide range of specific tax rises and spending reductions. We have heard of moves  against benefit recipients to increase benefits by less than inflation, tinkering with the triple lock to lower the pensions uprating, eliminating the Enterprise zones, raising CGT rates, reducing pension saving allowances, freezing income tax thresholds for longer, bringing more people into higher tax bands, taxing electric car use, taxing dividends more, worsening the terms for Non Doms, increasing windfall taxes on energy, cutting grant to Councils  and others I may have missed.

I assume none of these stories came from the Chancellor and I have  no idea if any of them are true. I have not seen or heard the Chancellor give any indication of what he might do beyond the very general public statements we have seen..  I do not however think they were made up, so it does look  as if someone inside government who claims to know what the Chancellor is working on is talking too much. They may simply be reporting an unappetising list of options drawn up by officials. Most of these ideas seem to me to be most unlikely to make it to the announcement, given the obvious political difficulties many of them pose. It would be helpful if whoever is putting all this out was told not to do so, as it does not make for good government and it is worrying to the successive groups of people who feel threatened by these proposals.

There is never any briefing that they might cut out needless or wasteful public spending. So far this government far from cutting spending has announced a very undesirable £11 bn extra for the Bank of England to allow it to take losses on bonds it owns which it need  not sell. Surely that should be a first target for the axe. It has announced extra support for emerging economies with the costs of net zero programmes. It is apparently negotiating to offer more cash to the French to assist with border control across the Channel. We would want more proof of value for money before committing any extra cash to help them police their border. Where are the plans to help more people into work and off benefits, so both the individual and the state will be better off? Why not drive for more revenue from oil and gas by switching more of our demand from imports to domestic production? Where are the plans to build more of our own ships, to make a series of small nuclear reactors using UK factories and technology, to grow more of our own food diverting subsidies from wilding schemes to investment in larger scale market gardening?  There have been many more such ideas to grow our revenues and control our costs on this blog.

Yesterday I joined a call with the Head of Border Force to discuss the extensive use of hotel accommodation and the large  numbers of asylum seekers and economic migrants crossing the Channel. I raised various issues in this call and with Ministers :

My constituents want to see some sense of urgency to transform this totally unacceptable situation.

Unacceptable to taxpayers having to pay £7m a day for hotel bills

Unacceptable to genuine asylum seekers caught in a long queue unable to get their case resolved so they can live and work here

Unacceptable that we allow tens of thousands of people at our expense to stay here not working because we do not get around to making decisions on their cases

Unacceptable that we do not change the law to prevent clever lawyers helping economic migrants pursue false asylum and trafficking cases  for too long and with too many appeals

Unacceptable to burden our hotels with people who should either be helped to find appropriate accommodation here or sent back to where they came from. We need the hotels for their intended purposes.

1. When are we going to legislate to close the loopholes?
2. When are we going to determine claims for people coming from a range of other countries in a timely way, especially those coming from safe countries like Albania?
3. When are we going to do more to safeguard our communities from any criminal element that may be trying to use asylum cover to come here to  commit crimes?
4. When are we going to arrest more of the people traffickers? Why is it so difficult to trade them given the open way they advertise their services? Can’t we follow the money?

Please see below my recent interview with Mike Graham, Talk TV:

There is a myth about the bond meltdown of September that political spin doctors are busily propagating. To understand the market we need to see that as the price of  bonds fall so interest rates rise. If a Central Bank wants to move the long term rate of interest up from 1% to 2%, the price of a bond with no repayment date halves. If you lent the government £100 at 1% there would be a fixed promise to pay the bond holder £1  interest every year. If people then want 2% interest they will only pay £50 for the £100 loan, so the £1 of interest is 2% of the amount they pay for the bond.

The spinners  claim the market fell away sharply owing to the Kwasi  Kwarteng decision to announce tax cuts without forecasts. They do not mention the fact that the energy price package was far dearer than the estimated impact of the tax cuts.  They claim the Kwarteng strategy damaged the economy and put up mortgage rates. They need to understand that mortgage and other rates were deliberately driven up by the Bank over a period of many months, as it battled to correct its over lax money policy of 2021. The ten year interest rate started 2022 at 1% and was at 3.5% before the Chancellor spoke. It is at 3.55% today.

I agree the Chancellor should have put all three elements of his growth Plan together – tax cuts, spending proposals and the supply side measures. It would have been sensible to have some forecasts of borrowing and show  interest in keeping borrowing to realistic levels. I do not agree that this was the only or  the  main cause of the falls in the bond markets. The main causes of the rises in rates were the actions the Bank of England and the US Fed.

The bond market was falling well before the Mini budget thanks to the stated intentions of the Fed and the Bank of England to put up interest rates. On 21 September the market fell in response to a very hawkish Fed, where the US was leading advanced country markets down and rates up. On 22nd September the bond market fell again on the announcements from the Bank of England. The market was particularly worried when the Bank announced its plans to get rid of £80 bn of its portfolio of UK government bonds, selling too many onto a falling market. On 23rd September concerns  about the mini budget led to further falls.

The falls were larger on 26th and 27th September . On those days the dominant conversation in markets and media was not the mini budget but the need for many pension funds to sell bonds or shares to find the cash to pay sums to LDI funds. These are funds bought by pension investors allowing them to own more bonds than the fund can pay for by buying bonds through the fund on margin. When bonds fall in price the funds demand more cash payments to cover the losses.

The Bank stepped in to reverse its position of selling bonds into a falling market and announced it would temporarily buy up bonds again to deal with the special selling pressures from the pension funds. the market rallied strongly on the news. By 27th October the interest rate on the 10 year bond was back below the level it had reached the day before the mini budget.

There are suggestions that Presidents Biden and Macron would like to see a negotiated settlement with Russia over Ukraine. German Chancellor Scholz has been on a visit to China, Russia’s most important ally. I would be interested in your thoughts on how the Ukraine war might end and how it should end.

The government and people of Ukraine have been brave in resisting Russian aggression. They saw off an attempt to seize their capital and to replace their government, and they have made Russia fight hard for every mile of territory in the south east of the country that has become Russia’s more immediate target. The West has supplied weapons, training and some support, but has not committed forces of its own to the conflict. As Ukraine has fought on without allies in the field, it will be Ukraine who decide when and whether to hold talks with Russia. So far Ukraine has stated that she cannot negotiate all the time Russia is pushing ahead with  the invasion and lays claim to parts of the country.

The NATO allies will find it difficult to persuade Ukraine otherwise. Ukraine does depend heavily on western weapons and some other supplies. Were the West to restrict that  support all the time Ukraine wishes to defend her territory it would aid and encourage Putin.  It is probably Putin’s strategy to seek to split the NATO allies from Ukraine or to create divisions within NATO over the future. Any unwillingness to support the defence of a neighbouring country from invasion would  be seen as weakness by Russia and invites more incursions in more countries and provinces close to Russia’s borders.

Mr Carney blames Brexit for the current high inflation. This is the same Mr Carney that predicted on Brexit house prices would fall when they rose, that unemployment would rise but it fell, and GDP would decline when it went up. Funny he now just blames it for inflation when the EU has the same high rate as us, and the USA is not far behind. The pound did fall against the dollar in recent years, but so did the yen and the Euro, so it is even difficult to blame that on Brexit.

Truth is the EU, the UK and the USA have this in common. All three have Central Banks which kept interest rates close to zero and printed huge quantities of euros, pounds and dollars. They used the extra cash to buy government bonds at ever crazier prices to keep longer term as well as managed short rates very low. No wonder we have inflations. Most of the Central Banks now blame Putin’s war for the inflation and its impact on energy prices. The Fed sees blaming Brexit would look silly. The trouble with blaming energy prices is Japan, China and Switzerland also import plenty of energy at world prices but they have inflation  at 3%, not 10%. Could that be because they did not bloat their money supplies as the UK, US and Euro area did?

Now the Bank of England repents and threatens to overdo its tightening after being far too loose for too long, the Treasury needs to offset undue severity by the Bank. Far from putting up taxes it should selectively be cutting them to make the UK more competitive and attractive to capital. Some lower rates produce more revenue. Nor should it be slashing productive capital investment, as we need the public private partnerships and the new infrastructure to power growth. The Chancellor and PM  need to resist a remorse or revenge budget strategy by authorities who got 2021 comprehensively wrong and have created an inflation as a result. Inflation was almost three times target before Russia sent troops into Ukraine.

I accept the apparent Bank of England view that longer dated interest rates around 4% are quite high enough. I urge them to stop selling bonds at big losses, as this implies they want these longer rates higher and bond prices even lower, which is wrong.

I think Base rate should be higher. The Bank says it will go higher over the next meetings but leaves us guessing by how much. They should have hiked to 3.75% or 4% if they think that necessary and said they would then let the new higher rates bring inflation down, as they will do. Why wait? Why did they make the mistake of keeping rates far too low for too long?

Which brings us to the Treasury. Given such a major tightening of money and credit it would be wrong to raise taxes and cut spending on top. The Kwarteng tax and spend package did go too far, especially the energy support which was costed at more than twice the tax cuts. This new government is right to review the energy package after April to make it cheaper. I think they should limit  the subsidised energy by volume so a typical family gets it all at lower prices but those with heated swimming pools, fancy garden lighting and very large houses pay full price on the extra energy they use. They also need to reduce poor value and inessential spending. I have set out billions of savings in previous blogs.

They should not impose new taxes, but promote faster growth and more enterprise. They could postpone social care reform which was designed to boost inheritances. They need to recruit and deploy more nurses, doctors, and care workers.

The budget should launch an affordable growth plan, striving to abate or offset the recession the Bank is now forecasting. Austerity 2 is the last thing we need as the Bank brakes the economy sharply to try to correct its big inflationary mistake.

According to the government and all the political parties the Bank is independent and responsible for keeping inflation to 2%. Inflation is currently at 10%.

The constitution of course makes the Governor of the Bank report to both the Chancellor and to Parliament. Chancellors have private review meetings with the Bank and Parliament summons the Governor to be questioned by the Treasury Committee. Presumably these contacts are designed to influence and criticise the Bank, otherwise they are a waste of time.

The structure recognised the Bank might follow bad policies which could lead to too much inflation. If that happens the Bank has to send a public letter to the  Chancellor and Parliament explaining why and setting out how they will handle the problem. The Chancellor then sends back a public letter commenting on the Bank’s approach. The exchange of public letters allows for private exchanges to agree a common line. The Treasury Committee Chair could institute a review of the Bank failure.

On September 22 2021 the Governor wrote the  first of a long series of letters reporting faster inflation. He reported inflation above 3%, forecast a further rise to 4%, said it would be temporary and proposed doing nothing about it. The Chancellor, Mr Sunak wrote back agreeing to inaction. Neither letter writer referred to the excessive money printing and ultra low rates that some of us thought likely to trigger inflation. They preferred to blame companies and markets for the  price rises.

The Bank was clearly wrong and did not listen to those of us who said don’t carry on printing money and buying bonds. The Chancellor could have insisted on a change of policy in private or sent a more critical and tougher letter in public. The Treasury Committee could have woken up and led a public enquiry into the Bank’s policy failure.Is 10% inflation the nearest an independent Bank can get to a 2% target?

To become a President or the leader of a majority party modern democrats need to assimilate enough populism to win. The elite establishment view is based around the iron discipline of accelerated progress to net zero, whilst  including political correctness and  the boom/bust lurches of their economic advice. The elite currently favour recession to tame the inflation their damaging over extended experiment in money printing brought us. This is not a winning ticket.

Populists of the so called right have been adopting some socialist policy features, favouring price controls on basics, subsidies and even  windfall taxes. Their more unique and positive remedy of lower taxes is a good selling point, as is  their opposition to government lecturing and regulating so many aspects of our lives. They see use of a car as part of our freedoms, and resent culture war thought controls.

Populists of the left want to tax the rich more. Their selling point is the offer of more free money to more people, as they work away at proposals to shorten working weeks, offer minimum incomes and promise ever more “free” public services on a universal basis. They are happy with taxing and regulating cars off the road and with making it more and more difficult to run a free enterprise business.They recruit plenty of thought police.

An incoming leader like Rishi Sunak has difficult judgements to make. He sits at the top of an establishment official and quango ridden government which will wish to expunge populist traits from his policy mix. If he lets them do this he will not rescue the opinion polls. If he insists on too much populism the elite will seek its revenge.