John Redwood's Diary
Incisive and topical campaigns and commentary on today's issues and tomorrow's problems

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Energy Prices Support Package

I have received the letter below from the Secretary of State for Business, Energy and Industrial Strategy outlining support for businesses, charities & public sector organisations (such as schools and hospitals) against rising energy prices. Further information can be found on the following weblink: Energy Prices Support Package

Please note that this weblink is regarding support for non-domestic customers only. I will publish the link to updated support for households once it becomes available:

Dear Members,

ENERGY PRICES SUPPORT PACKAGE

Following the Prime Minister’s announcement on 8 September, the Government is today publishing further details of the support we are offering to people and businesses in the face of soaring energy prices. This package of unprecedented assistance for the whole UK provides the certainty families and business owners need to help them manage their energy bills.

Details of the Energy Price Guarantee for domestic consumers and the Energy Bill Relief Scheme for business and non-domestic properties are available on gov.uk. The Chancellor of the Exchequer will set out more details of the costs of the Government’s support as part of his fiscal statement on 23 September.

We have designed the schemes to be simple for energy consumers. Families and eligible businesses do not have to take action or apply for support, energy suppliers will automatically apply the appropriate reduction via their energy bill. Households will receive an equivalent level of financial support wherever they are in the UK. The same is true for businesses across the UK too.

The Energy Price Guarantee for Great Britain will ensure that a typical household pays an average £2,500 a year for their energy, from 1 October 2022 for the next two years. On average usage, a household will save £1,000 a year. This is in addition to the already announced £400 Energy Bills Support Scheme for households across the UK. The most vulnerable UK households will also continue to receive £1,200 of support. For consumers in England, Scotland and Wales who pay for their energy through a monthly, quarterly or other regular bill, the Energy Price Guarantee will be applied when their bill is calculated. The Guarantee limits the amount the bill payer can be charged per unit of gas or electricity, so the exact bill amount will continue to be influenced by how much energy is used.

The Energy Bill Relief Scheme will provide protections for all businesses, voluntary sector and public sector organisations in Great Britain which face excessively high energy bills over the winter period, whether they are on existing fixed price contracts agreed on or after 1 April 2022, signing new fixed price contracts, variable or deemed tariffs or flexible purchase contracts To administer support, the Government has set a Supported Wholesale Price ‚Äď expected to be ¬£211 per MWh for electricity and ¬£75 per MWh for gas, less than half the wholesale prices anticipated this winter ‚Äď‚ÄĮwhich is a discounted price per unit of gas and electricity.. Suppliers will pass the reduction in the wholesale price through to their customers.

The Energy Bill Relief Scheme will run initially for 6 months covering energy use from 1 October 2022 until 31 March 2023. We will publish a review of the scheme after 3 months. This review will consider how best to offer further support to customers who are the most vulnerable to energy price increases. These are likely to be those who are least able to adjust, for example by reducing energy usage or increasing energy efficiency.

As the Prime Minister said on 8 September, the Government is bringing forward emergency legislation to underpin the delivery of our support package. We will introduce a Bill immediately after Parliamentary Recess. It will include measures for the GB Energy Price Guarantee for domestic consumers and Energy Bill Relief Scheme for businesses and non-domestic properties so all of GB receives equivalent support; and enable the delivery of comparable schemes in Northern Ireland. It will provide powers to enable low carbon generators to move onto fixed prices to end the situation where electricity prices are set by the marginal price of gas ensuring consumers pay a fair price for their energy.

With every good wish,

Jacob Rees Mogg

Changing EU rules

One of the most bizarre features of the few Remain supporters who come daily to this site to rubbish anything good the U.K. does or could do with its freedoms is their refusal to analyse the impact of past EU laws and policies. They neither want us to change any of them, nor admit this big panoply of law has been guiding and controlling us in so many ways.As during the referendum itself the pro EU side always played down the ambitious scope of economic, social and political union and the extent of EU power already achieved in its pursuit.

This week they have been in denial that the energy system we have followed came from the EU and was based around the twin objectives of cutting our domestic supply of coal,oil and gas to help net zero policies whilst making us more dependent on imports by encouraging many more interconnectors, pipes and cables. They ignore the recent speech of Mrs Von Der Leyden, EU Commission President, widely condemning the current EU legal and regulatory framework for energy and calling for urgent and radical change. I agree with her and want the U.K. to get on with its own national changes to the common EU regime we currently follow. We can serve our own interests and help the EU by working to restore national self sufficiency.

In all the debates I undertook over staying or leaving the EU I never once was able to debate the EU vision of Union unless it was with someone from the continent. The refusal to admit the truth about ever closer Union took away the argument that European countries would best be governed together. That may well make sense for Belgium, Netherlands and Austria, and for France and Germany, given their histories.If their voters want it I wish them well with it. It never seemed likely or attractive to many U.K. people given our past which is I guess why the Remain contributors here still try to pretend the EU was just some glorified trade arrangement for independent states!

Time to reverse EU damage to our industries and economy

It is necessary for government to offer some cash help to business to stave off more closures forced by sky high energy bills. I do not welcome more public spending on subsidies, but  it is the price of failure of the EU energy policy we have been following.

I want the Business Secretary tomorrow to set out a much better U.K. energy strategy that puts domestic self sufficiency and security of supply back as the prime aim, replacing the 2019 EU legal framework based on more imports from EU countries via interconnectors, interdependence and ultimate reliance on EU imports of Russian gas. Relying on more imports from an energy short Union of states was always a dangerous risk to run. The EU claimed to put decarbonisation as the main aim, only to need more coal and gas when the wind refused to blow.

In a necessary drive to cut the costs of energy he should confirm the removal of the green levies, suspend the carbon tax and carbon emissions trading , with the Chancellor removing VAT on domestic fuel .We need a new regulatory framework for power generation with more back up for intermittent renewables.

There are so many industries damaged by EU laws still in place in our law codes. The Business Secretary could abolish the droit du suite and VAT impositions the EU used to divert part of the global art market from London to New York.Maybe they thought it would help Paris but it just made the whole EU less competitive.

He could lower costs of buying a home by removing anti money laundering checks from any U.K. citizen  buying and selling their main home and using a U.K. regulated bank. He could make energy certificates for homes a matter of choice for buyers and sellers.

He could work with Defra to use farm grants to promote growing more food here and to foster investment in more glasshouses and new farming techniques instead of subsidising wilding policies, and relying on more imports from the EU.

He could simplify the expensive bureaucracy  created by the EU data protection legislation.

He could repeal the EU Ports Regulation which was widely opposed by our ports when it was introduced. It gets in the way of port investment and expansion.

He could repeal the railway rules which require the separation of track ownership from train ownership.Integrated ownership of routes by private companies should be an option.

He with the Treasury should allow more people self employed tax status, removing the penal elements of IR 35.

He should repeal the on line digital tax.

Treasury orthodoxy and Black Wednesday

As published in Telegraph:

The new Prime Minister and Chancellor are clear that we need to challenge Treasury orthodoxy. They want to do so not because they want more inflation, or care less about the prudent management of the public finances than those who went before. They recognise that the current orthodoxy has failed. It has given us 10 per cent inflation and put us through several violent cycles in the past few decades that could have been avoided.
Indeed, yesterday marked the 30th anniversary of Black Wednesday, when the UK crashed out of the European Exchange Rate Mechanism (ERM). Part of today’s orthodoxy is derived from the self-same Maastricht Treaty thinking on debt and deficits which caused our grief in 1992, allied to the exchange rate requirements to prepare us for the euro.
The ERM was a case study in Treasury groupthink. It recommended joining the ERM strongly to successive chancellors. John Major finally drove the policy through against a prime minister who knew it was wrong. I had advised Mrs Thatcher that the ERM would be destabilising, lurching from creating too much money and credit to too little. Nicholas Ridley was a lone voice in the Cabinet making the case against joining. I wrote a pamphlet describing the possible difficulties. I took the listed company I chaired out of the CBI in protest at the group backing the ERM policy, telling them it was bound to damage business and the rest of the country. And so it proved.
But the ERM disaster was not unique among official advice in the last 50 years. There was the early 1970s secondary banking crash, made worse by the Opec oil price hike. There was the end of 1970s policy depression meant to purge the high inflation that loose monetary policy and Labour’s fiscal policy caused. There was the great banking crash of 2008-9, which followed a period of over-easy money when we were told by government that banks could lend far more without bad consequences. These were all boom-bust cycles like the ERM one, all of which harmed us and slowed the longer term growth rate.
Treasury orthodoxy has evolved as it has drifted from one bad international fashion to another. If there is a single leaden thread, however, it has been an unwillingness to take money and credit growth seriously, ending in them each time expanding excessively and then contracting too far and too fast in shock at the error.
Today the orthodoxy that needs changing is the one which said it would not be inflationary to carry on creating money and buying bonds. The Treasury throughout the last 13 years ignored inflation in financial assets. It was only a matter of time before asset inflation spread into general inflation. I assume the new team will rightly rule out any more special bond buying . The Treasury also needs to grasp that lurching from excessively easy money as in 2020-21 to excessively tight money is the way to bring on a slump.
Steering the economy to achieve lower future debt ratios when forecasts are often wildly out on tax revenues and inflation is also not a good model. In the last two years, revenues have outperformed the official forecasts, meaning we borrowed a lot less and worried needlessly about the deficit. In the recession which official policy now seems to favour, the opposite is likely to happen with revenues falling short and the deficit rising. The new policy needs to take money and credit seriously. But it also needs to set tax rates that help grow revenue, not stifle it, as well as removing obstacles to growth throughout the private sector, which the old rules failed to do.
Leaving the ERM allowed us to reduce interest rates and get out of the recession it created. Today, we have to see off the recession the Bank is forecasting. That requires new thinking. The only way to work our way out of our present difficulties is to produce more energy, make more, and sell more.

The state funeral

Royal status cannot protect from death. Today we bid our last farewell to a loved and admired Queen. On her passing so the monarchy lives on,  passing  to her son. She has left a legacy of how to lead a life of service.

The presence of so many Kings and Queens, Presidents and Prime Ministers from around the world is testimony to the reputation for friendliness  and great diplomacy which Elizabeth II enjoyed.

The long procession of so many people to bow their heads to her coffin lying in state in Westminster Hall is proof that her work did not go unmarked or unappreciated.

There is a sense of a passing of an era. She was our national link to the sacrifices and disciplines of life during the Second World War, and a reminder of the hopes she embodied for a peaceful and more prosperous life for many as post war rebuilding got underway. She spoke for us in times of joy and sorrow. Most of us have only known her as our monarch.

She led a Commonwealth that offered support and recognition for countries leaving the Empire. She readily accepted their Heads of State as her equal and made them feel welcome in the special global family of people representing nations.

May her dedication to selfless public service inspire others in public life.

May she rest in peace.

 

Reflections on Queen Elizabeth II

Tonight I will attend a service of remembrance in Wokingham.

It will bring on again that sense of loss we feel . The only monarch we have ever known, a constant in our changing lives, is to be buried tomorrow. A funeral brings a finality, an ultimate reckoning that someone treasured will not return. Never again will we see her on our tv screens or at an event we attend. There will be no more wise words or amusing encounters with Paddington Bear.

In my mind will flood the poignant images and memories of the short service and opening vigil in Westminster Hall. As I stood there with other Privy Counsellors I was overwhelmed by the sadness, the solemnity, the silence awaiting the arrival of the Gun carriage. No-one spoke. I wanted to think about our late Queen and take in the austere beauty of the Hall awaiting its dead sovereign.  The grey stones of the walls and floor  needed the explosive colours of the flag draped over the coffin and the gold, yellow and reds of the uniforms of those to guard her to bring it to a stunning  magnificence. That mighty room was dominated by its new centrepiece, where all eyes were fixed.

The sun rushed through the yellows of the North window, commemorating her Diamond Jubilee. The tolling bell and the orders of the military occasionally broke the silence.  No-one entering that place could be in any doubt that we marked the passing of a great lady, who in death as in life was seen in regal magnificence. No-one stirred, spell bound by the scene and the silence.

A better Treasury orthodoxy

I have looked at how the Treasury needs to take inflation- and deflation Рmore seriously by considering changes in money and credit in my Telegraph article today which I will publish later. The Treasury  also needs to reconsider how to get deficits down. On the revenue side there needs to be much more understanding of the depressing effects of higher and more taxes on activity, and of the growth boosting effects of lowering or removing taxes. In technical language the Treasury and OBR need to include behavioural effects of lower and higher taxes in their models, as many taxes are easily and legally avoidable. They need to create a dynamic picture of deficits, not a static one based on telling us how much a certain tax rate currently raises.

Whenever the UK has cut the higher rates of Income tax better off people have paid more tax and paid a bigger proportion of the whole, as more rich people come and invest here, do more work and set out more businesses here, and undertake more transactions here. When a country as in Ireland cuts corporation tax to low levels it is inundated with companies wishing to set up their headquarters there and book business there. The way to tax the rich and business more is to set rates of tax they will stay to pay. When the U.K. set an 83% Income tax rate and a 98% rate on dividends we had a brain drain from the UK and the country was a lot poorer. We didn’t even keep our pop groups who grew famous with UK fans.

On the spending side there needs to be reappraisal of what the public sector needs to do and what can be left to private sector activity or private capital to provide.  Benefits and pensions to individuals account for a large budget. The incentives and support for more people to be in work at a time of many vacancies offers scope for reduced spending and better lives for those who take these opportunities up.   The pension age should reflect longevity, balancing the number of years you have to contribute with the number of years you are likely to draw down.

Where we want and vote for important public services as with the NHS and education proper financial provision needs to be mirrored by management leadership that puts quality and value for money in central position. The Treasury argues they do that, but the  numbers show there has been no overall public sector productivity gains since 1997, despite the application of large amount of investment in areas like digital processing and on line service. I find it bizarre that the DWP with a large workforce to assess and distribute benefits should have lower productivity today than in 1997, when it must have been a big beneficiary of many switching to digital forms and transfers. I have heard many accounts of the NHS buying badly, wasting stocks, and not controlling spending on external contractors.

I raised the issue of why the NHS paid to take over most private sector hospital capacity during covid but failed to send enough patients to use it, adding to waiting lists. There is the refusal to take back reusable equipment, the waste of stocks through ageing or the overpayment for items and service delivered. There is reported  failure to charge some  foreign users of the service even though it says it is the NHS, not the World Health Service.

The government says it wants a productivity revolution. It needs to start with its own services. Existing management need to negotiate more stretching targets or give way to those who can deliver.

 

Travel patterns

The Covid lock down and interruption to normal working lives has had a big impact on travel patterns. It has made people keener on personal transport and on road deliveries at the expense of buses, trains and tube.

The latest figures compared to the travel pattern just before covid struck in March 2020 is a complete recovery in vehicle traffic overall. Use of vans is up by 14% and of heavy goods vehicles by 5% reflecting greater on line ordering and road deliveries to individual addresses which trains cannot manage. Car use is 5% down, probably reflecting more home working and on line ordering.

Rail use is 14% down, tube use 33% down and buses outside London down 15%. Much of the decline in tube and other public transport use is probably brought about through less commuting to work and more office workers staying at home part of the week. The tube has suffered most, reflecting the reluctance of many office workers to resume five days a week commuting given the difficulties and cost of these public transport journeys.

The greens who want to discourage travel altogether will presumably be pleased that more people stay home to work as there is less overall travel. They will however be disappointed that the motor vehicle has once again proved more useful and popular and is increasing in use for deliveries. Green Councils will continue to make it more difficult for these important commercial  vehicle journeys to run smoothly and to time. This paradoxically will add to congestion, emissions and fuel use as much needed supplies sit in long traffic jams brought on by traffic mismanagement policies.

Energy prices and regulation

The Prime Minister announced the headlines of a solution for the energy crisis. She proposes removing green levies and capping domestic energy costs per unit of energy, with a matching scheme for business. Presumably taxpayers pay compensation to the energy companies for selling us energy below their costs.

I favour doing more by way of tax cuts on energy, adding an end to VAT on fuel and cancellation of the carbon tax to cut energy costs. The problem with price controls is they might put people off investing in more supply, deterred by lower and unpredictable  returns from intervention. They also blunt the role of price in lowering demand when there is scarcity. It is necessary  to help people on low income with bills, or better to help them get jobs with decent incomes.

The EU was looking at plans of its own to tackle their cost of living crisis. They have been seeking a mixture of windfall taxes, price controls and rationing. It appears they have fallen out over controlling gas prices, with some fearing that would lead to an earlier loss of Russian gas and rationing. They expect Putin to find other markets for his gas. The EU seems to think the answer to dear and scarce Russian gas is even more investment in wind turbines and hydrogen.

It is difficult to understand why they believe this.Without storage wind turbine power is erratic and lets you down all too often. Hydrogen made using renewable electricity is not yet a commercial proposition and will need a vast new distribution network. The  truth is this decade many people are relying on the natural gas boiler for heating and the petrol or diesel car and van for transport. All the time that remains true Europe needs to secure supplies of gas and oil.

The U.K. can do something about this reality as it has reserves to exploit.

The Russian war in Ukraine

This week’s news that Ukrainian forces have liberated an area of eastern Ukraine taken by Russia comes as welcome news in the West. The decision to support Ukraine against a murderous ¬†invasion has been backed by¬†a supply of advanced Western weapons which have helped oppose the substantial Russian forces.

Ukrainian sources tell us Russian troops fled with low morale and in poor order, leaving vehicles and munitions behind. Russia claims it was a tactical consolidation that they ordered. All seem to agree Russia now controls less territory which looks like a Ukrainian advance. Ukraine is now reporting bad treatment of citizens under Russian rule.

This presumably means President Biden and the European allies will be encouraged by this and will continue to supply weapons, financial and other support to the Ukrainian state. The US has warned us to expect a long conflict. France and Germany want a negotiated peace. The Ukrainian success makes it unlikely  Ukraine will offer to surrender territory to Russia. It poses the question what will Russia now do?

Putin watchers do not expect him to sue for peace or to give up his violent attempt to take over substantial parts of the country. He is fighting a military war with Ukraine and a sanctions and commercial war with the USA and her allies. Putin is using the gas weapon to try to split the European allies. He wants to dilute or reduce western support for Ukraine. He is using nuclear pressure  against both Ukraine and the West through occupying a nuclear power station. He sometimes speculates about  the use of more extreme weapons which would put an end to the Putin lie that he was liberating Ukrainian people.

His use of the gas tap has so far troubled western economies with massively higher gas prices,  allowing him to collect substantial revenues whilst selling much less gas. This winter is going to be a difficult struggle both over trade including gas and for the forces seeking to win back lost territory.

I would be interested in your thoughts on what the West should now do. .