Category: Uncategorized

When I pointed out that the large company index the FTSE 100 which people use had gone up sharply post the referendum, the Bank of England and the doom mongers on this site said we needed now to look at the FTSE 250 index of smaller companies with a large UK focus.

So I hope they now recognise that this index too is doing better. Today it is at 16 333, well above the February low of 15 178 recorded before the referendum when the City anticipated a Remain vote, and above the August 2015 low of 16 214.

The FTSE 250 is now at the level it reached in the middle of June pre the vote, following its recovery from the February global sell off which brought down all advanced country stock markets.
The doom mongers are finding it is quite difficult talking some markets down.

Government and the Bank cannot control the level of the pound. The last time they tried to do this in the European Exchange Rate Mechanism it was a disaster, leading to a big devaluation and a recession. We do not want that again.

The Bank and government can, however, influence the level of the pound. In recent weeks the Bank has done its best to encourage devaluation, by talking of the likelihood of a decline, talking about the decline as it happens, and signalling still looser money and lower rates. These policies seem to be designed to drive the pound down further.

I do not have in mind an optimum level of sterling which we then need to hold. I do however think the decline we have seen should not be pushed further by official action or encouragement. We need a sense that the authorities think it has gone far enough. There should be doubt in market minds as to whether or not the authorities might buy pounds in the market. The Bank should not decide in advance to cut rates.

According to the press, and from reading the latest Bank statement, Mr Carney thinks there is a decline in confidence in property and consumer spending which warrants a strong monetary response by cutting rates and printing more cash. This week British Land sold its flagship store on Oxford Street for a remarkable £400 m, on the very low yield of 2.75%. At recent commercial property auctions property has sold well, above guide prices. In response to my consultation on this site several people wrote in to report lively business in residential property in their local areas. There are many people and institutions sitting on the sidelines with cash wanting to buy any bargains that the property funds might offer as they seek to meet redemptions.

Retail sales were remarkably strong in May and could have fallen off a bit in June and early July. However, employment levels are high, and real wages are rising, so there is no obvious reason to expect a medium term drop off in sales. The move from shop to web complicates the picture and needs to be allowed for when looking at individual store group sales.

The economic evidence suggests that the UK economy has just had a stimulus from monetary relaxation and the fall in the pound, which should boost the growth rate next year. It would be wrong of the Bank to take actions now that drive the pound much lower. It is possible to undermine confidence by ostensibly taking action to assist.

We see a whirlwind in the press supporting Theresa May, and on the BBC, of all the negative questions asked of Andrea Leadsom during the MP part of the contest. Readers can see these debated freely elsewhere. In the interests of balance today I will report the more difficult questions asked of Theresa May and her team during the MP meetings and discussions, with a summary of how I understood her answers. I am seeking to be accurate and would be happy if supporters of Theresa wish to add to my understanding of her replies. Not all of these questions were asked by supporters of Andrea Leadsom.

Q: Why during your six years as Home Secretary has net migration risen so high and remained at very high levels, when you were pledged to cut it to tens of thousands in both the 2010 and 2015 Conservative Manifesto?

A: These are difficult and complex matters. The actions taken have reduced the totals compared to what would otherwise have happened. More measures are being considered.

Q: Why will you not reassure people currently legally settled here from other member states of the EU that they can stay following the UK’s exit?

A: It is important to negotiate these matters as part of the total package with the EU, which will take time and will be difficult.

Q: Will you today make an urgent statement saying that future migrants from the rest of the EU will come under new rules which will impose some limits on numbers.

A No

Q Will the Home Office start immediate work on a new system of migration control?

A No

Q What changes would you like to see to taxes, spending and borrowing going forwards?

A The reply made a joke about the individual MP asking but did not give an indication on any of the three possible topics raised

Q How quickly would you seek to get the UK out of the EU?

A Consider options and issues this year. Trigger Article 50 early next year and anticipate 2 years of difficult negotiations about a wide range of issues.

Q Did you deliberately soft peddle campaigning in the referendum for Remain because you were no convinced by their case?

A No. She said she campaigned with full commitment to the Remain cause. She also had to carry on work as Home Secretary. She made the good point that she did not say anything unusual or sensational, so the media did not find her remarks newsworthy.

Q Will you negotiate firmly with a strong wish to leave the EU?

A Yes, she accepts the verdict of the referendum. She will appoint a Brexiteer to a senior role in the negotiations.

There are some who want to talk the property market down.

It is true that institutional investors have decided to bank some profits, all at the same time, in open ended property funds. These funds have to redeem units for cash. They typically hold 20% as a cash reserve on deposit or in easily saleable bonds and REITs. If more than a fifth of unit holders want to cash up at the same time, they are asked to wait while the fund undertakes the slower task of selling some of the underlying properties. They are not anywhere near bankrupt, they are just illiquid and need time to realise their investments.

Meanwhile in the markets for commercial and residential property there are buyers and sellers agreeing transactions post Brexit just as they did before. Agents say to me there are viewings and offers under way again. June’s house prices rose by 1.3% on the month, though it is true most of the month was before the vote. I am not seeing any sudden marked down bargains in local estate agents windows. Property companies are also reporting that planned lettings prior to June 23rd are still going ahead post the referendum. I have also heard some property investors expressing interest in buying, in the hope that some of these funds will accept lower offers in their rush for the door.

Foreign investors in UK property are reported to be more interested. For them UK property is suddenly 10% cheaper, following the fall in the pound. I would be interested to hear from readers what they are seeing in their local areas in the property market.

The UK has just received a major liquidity stimulus, and a stimulus from a lower level of sterling. Bond yields have just fallen sharply and mortgage rates are low or falling. It would be unusual against such a background to see big falls in property prices, and more normal to see new buyers emerge.

Banks in the EU area have Euro 360 billion of bad debts, according to recent figures. The European Central Bank is telling the worst banks to write off more of their losses on difficult loans, and to raise more capital from shareholders or retained profits to improve their balance sheets.

Euro area bank shares have generally been badly hit this year, with renewed worries about their bad loans and capital needs. Their regulator, The European Central Bank, along with its master, the EU, are looking for private sector solutions. Under recently agreed EU rules there should be no state capital or subsidy going into these banks. Where there are large losses, they have to be met out of shareholder funds and through the bail in of bondholders. People and institutions who have lent banks money may find their bond is converted into shares, or they may have to take a cut in the terms on which the money was advanced.

The Italian banking system is the current eye of the storm. Markets are worried about Monti dei Paschi di Siena, which is in the process of cutting its bad debts. The Italian state has encouraged the establishment of the Atlante fund which bought Popolare di Vicenza. There is discussion of a further Euro3-5 billion bank assistance fund. The EU has discouraged the Italian government idea of state aid as a temporary measure, but has allowed the provision of liquidity assistance.

There are problems with banks in Portugal and Spain as well. The Eurozone’s hatred of subsidies and reluctance to share the surpluses from the northern rich countries with the deficit countries of the south and west remain major problems in the way of successful economic and social outcomes.

The weakness of the Euro commercial banking system, the lack if transfer payments fromrich areas to poor, and the rigour of the bank assistance regime are all reasons why the Eurozone will continue to struggle.

The present government is pledged to cut net migration to tens of thousands. This requires something like a two thirds cut in current levels. Vote Leave argued for slower rates of inward migration than now, with a fair system offering the same restrictions on EU migrants as the rest of the world.

Yesterday in the Commons the Opposition proposed a motion to reassure all EU citizens living in the UK but from another EU country that they may stay after Brexit. Vote Leave asked for such an assurance. It is implied by international law. The UK would be rightly scandalised and seeking to mobilise international law and world opinion if one of the other EU states threatened UK people legally settled in their country.

I explained to the whips that I would not help vote down the Opposition motion, and wanted the Home Secretary to accept it. For some unknown reason she seemed to think the future of EU residents in the UK could be a matter for negotation. Parliament duly approved the Labour motion, so I presume she will now have to change her policy.

Meanwhile I have also proposed that she makes a statement telling EU migrants arriving post the referendum vote that we are introducing a new system which they will need to comply with as soon as it is in place. The Home Secretary needs to make clear that we cannot accommodate a rush of people wanting to gain citizen rights, so she needs to get on with changing the law as soon as possible and defining transitional arrangements to give us reassurances.

There are several requests from countries to initiate trade talks with a newly independent UK. The Cabinet Office needs to have a good brief available soon for the incoming Prime Minister on how to exit the EU quickly and smoothly, and how to keep decent access to the markets of other EU countries in the process.

Apparently on PM orders the civil service did not prepare a brief on how to exit during the referendum campaign, as you would expect them to do. In a General election civil servants do not have to work for Ministers on new policies or announcements. Instead they prepare briefs based on each leading party manifesto of how to implement their policies. In the referendum they should have done the same for Brexit.

We are where we are. They can catch up whilst awaiting the new PM. The good news is the civil service has many civil servants currently working on negotiating new laws, policies and budgets with the EU who can be switched over to handling the transition to self government, and assisting in the negotiations. They know the people and the issues.

The Business Department needs to crack on with setting up a proper trade talks unit. It always used to have one, and has some people working on the implementation of EU trade policy anyway. Some say we need a large number of trade negotiating specialists. Whilst clearly the unit needs high level political and official leadership from people who know how to negotiate and who know the detail of trade matters or have access to those who do, the general issues of trade talks and the detailed issues of tariffs and other barriers can be handled by general civil servants or business people who will soon be expert in the field. There are plenty of model agreements around the world that can be the basis for such deals. The UK after all inherits 53 from the EU as they novate to us and to the rest of the EU on exit. As the UK aim is to reduce as many barriers as possible you start with a list of the current barriers and work away from there. Why pretend it is so difficult?

Yesterday I was talking to various business people from around the EU on how the UK trade relationship with the EU might develop. As I expected, business interests on the continent do not want new tariff or non tariff barriers in the way of their trade with us, and understand they can still have tariff free trade if in turn they do not seek to impose any on the UK. Again I can’t see why people say this has to be such a difficult or long winded negotiation.

I ask again of those involved in business and the government of trade on the continent, what tariffs do you want to impose on us? Do you understand that if and only if you seek to impose tariffs on us then we can impose high tariffs on some agricultural exports from the continent, and a 10% tariff on cars, which I doubt the rest of the EU would want.

The Bank’s Report and measures today are mired in gloom.
I have no problem with the Bank allowing banks to extend more credit to businesses and individuals. I support them making liquidity and foreign currencies available to commercial banks so they can do their jobs.
What I would like to see is commentary from the Bank that is balanced. They accentuate the falls in banks shares, possible problems with property investment and the fall in the pound. They do not think through the lower borrowing costs thanks to the surge in UK government prices. Never has the UK’s credit rating in the market been so high. They do not stress the positive side of the fall in the pound, which will promote exports and inward investment and amounts to a monetary loosening. They do not point out that at lower interest rates the UK government will save money on the interest charges on its debts as it rolls over old debt and incurs new debt. That gives the government the option of a lower deficit or more money to spend.

Whilst we await the first round voting results from the Conservative leadership I feel I should give readers the opportunity to think about the role and performance of the Opposition in Parliament.

I have always regarded the Opposition as an important part of the UK constitution. Any government needs the challenge and arguments good Opposition brings. It leads to better decision taking, to second thoughts when the first proposal is ill thought through, and to the exposure of failings and worse in government management. In recent years the Opposition has in effect been part of the government. Since 2010 much of the big programme of European measures, spending plans and EU laws have been voted through thanks to Opposition support or abstention, at a time when the Conservative governing party has had many rebels on EU matters. I have talked before about the emergence of a grand coalition to keep the EU plans alive. This presumably is no longer needed as we head to the exit.

It takes a lot of MPs to run a good opposition. There needs to be a full team of shadow Ministers, following the detail of each Minister’s actions, and keeping up with the wider work of the departments of state. There need to be enough people to man the Select Committees and the Bill Committees of the House, often working at the same time as other MPs need to be in the main Commons chamber keeping the debate going. There are also the debates in Westminster Hall which require an official Opposition presence.

Mr Corbyn has a large mandate from his own party members. His election win was remarkable for modern politics, winning an outright majority on the first round instead of having to face a run off against the most popular opponent. Most of his MPs were always sceptical about his views and talents. Now the big majority of them refuse to serve in his shadow government, making it extremely difficult for him to lead a credible opposition staffing all the tasks they need to fulfil in Parliament.

The irony is that his rebellious MPs seem to want to move policy and attitudes further away from those of many members and voters. Mr Corbyn himself seemed to compromise his Eurosceptic views in order to accommodate his former Shadow Cabinet. This drove him apart from millions of Labour voters who voted Brexit in the referendum, whilst not protecting him from accusations of insufficient commitment to the Remain cause amongst his MPs. They claim most Labour voters did vote Remain nonetheless, yet the figures for the Leave vote were very high in many once safe Labour areas.

Mr Corbyn understands the disillusion with elite politics felt by many voters in those Labour areas, but is finding it difficult to concentrate the conversations in ways that will help them thanks to the antagonism of many of his MPs.

What should he and they do next? Can Labour elect a new more moderate leader, given its membership? Would such a leader anyway be able to reconnect with the voters that seem to be drifting away from their old allegiances?

On Tuesday I will vote for Andrea Leadsom. Her message is fresh and exciting. Behind it lies a lifetime of business and political experience.

In recent months she has shown she is a woman of principle, placing the UK’s interests before her own, campaigning for a cause that was unfashionable in the government she served. She did so with passion, with dignity and with effectiveness. Those are the qualities I look for in our next Prime Minister.

I like her vision of a global UK, looking outward to the wider world. To do that well the UK needs to regain her vote and voice on international bodies the EU took us off. We need to have a fair migration system with the same rules for Europe as the rest of the world. We need to be able to spend our own money on our own priorities.

She understands that we need a speedy and smooth transition from EU subsidiary state to an independent UK. She recognises that there are many who want to make it complex. At its heart is a simple legislative act, to reassert UK control over our laws, borders and money. The faster we do that, and the more we reassure our former partners that we do not wish to impede their trade with us, the better.

I spent part of my life as the UK’s single market Minister. Much of the time was used up opposing needless regulations, or seeking to amend clumsy laws. I never thought you needed almost 300 new laws to be able to trade with each other. They said the programme was completed in 1992, but subsequently we learnt we needed many hundreds of extra laws to extend and improve the construction we created in the last century. Trying to agree something sensible and that works with 27 other countries is exceptionally difficult. That is why the EU does not have free trade deals with the USA, India, China or Brazil, four of the largest economies in the world.

I came to see that so much of the so called single market programme was more about creating a common EU government and less about oiling the wheels of exports and imports. The Cassis de Dijon judgement which said that if a product is accepted as of merchandisable quality in one EU country it should be allowed for sale in any other EU country was all you need as the basis of a common market. Some common regulatory standards can be added in various areas, but too much prescription impedes innovation and penalises small and challenger companies. We should worry that for all its laws and rules the EU has not led the digital and internet revolution. The USA has done that, spawning all the large new companies that dominate the market.

As a business woman Andrea understands this. She wants to see more business success, not less. She wants more investment and more opportunities for UK students and employees. She wants the prosperity that business can bring to percolate through every part of our country. She is driven by a charitable wish to help those in need, and by an ambition to offer more opportunity and prosperity to the many.

I welcome that approach and am impatient to get on with it. With Andrea leading us I look forward to an early passage of a Bill to taking control of our laws, borders and money. Far from expecting a Brexit recession or slower growth, I forecast that we will be able to stimulate our economy more with the extra money we have to spend. We will soon be able to negotiate job enhancing trade deals with many other countries. Already since Brexit the markets have given us our best ever credit rating as measured by our very low borrowing costs. That is a further improvement in our public finances. Government bonds at are at all time highs. We should be optimistic with the bond markets, and look for ways to free investors and companies to innovate, train and add jobs across our land.

I have seen Andrea go about briefing herself on all aspects of the EU project. She set up Fresh Start in the last Parliament. She worked well with a diverse group of colleagues. Between them they produced excellent papers charting just how much power had gone, and just how damaging many EU policies have been. Remember the Exchange Rate Mechanism, and the Common Fishery Policy? She now has the chance to use all that work to good effect, leading our team to negotiate a better future,. She will do so with skill, with vision and with control of the detail. I wish to help in any way to get her elected to do so.