It has been fashionable for many years to set up so called independent state financed bodies to carry out functions of government away from direct Ministerial supervision. Thus transport Ministers created a Highways Agency to run the main roads, the Environment Department an Environmental Agency to run water, anti flooding and a range of other environmental policies, and the Treasury set up the Office of Budget Responsibility and a so called Independent Central Bank to limit Ministerial control over economic policy.

Some MPs seem to want to transfer more and more things to such bodies. The ultimate of course was the mass transfer of powers to the EU. The public often say this trust the experts approach is a good idea, until the policy miscarries or mistakes are made. Then they expect Ministers to intervene, sort it out and take the blame.

The problem is independent civil service activity often does go wrong. I have chronicled the bad mistakes of the Bank of England in recent years which helped create the ERM recession, the banking crash and the recent economic slowdown. The Environment Agency policy of discontinuing pumping and dredging led to bad floods in Somerset and the need for Ministerial intervention. The EU invented the Common Fishery Policy which did so much damage to UK fish stocks and to our fishing industry.

Well paid senior civil servants in or out of quangos are set targets and asked to run particular programmes or services. There is nothing political about ensuring high quality and efficiency in most cases. Should these targets be used to influence promotion? Is there a level of  performance so bad that it warrants loss of job? Should  senior civil servants stay put in a role for bit longer than the current average, with named responsibility for what they are meant to be managing?

In a democracy there can be no independent branch of government. The public through their Parliament or Congress can demand that anything changes or gets better. Ministers cannot go on saying a branch of government is independent of them when it is doing harm or failing to perform.They will be forced into changing the structure and or the personnel, in order to get the change of policy people want.

The Bank of Japan has promised “ample liquidity”  whilst the US Fed says “We will use our tools and act as appropriately to support the economy” .

The theory is straightforward. Ministers decide on policies they wish to see implemented, or identify problems that need government solutions. Civil servants advise on the best ways of implementing a policy or solving a problem. Ministers decide between these options and civil servants get on, implement and administer the policy.

Civil servants can  refuse to implement only if the Minister is wanting to do something  illegal or contrary to the agreed view of the government. They are not meant to let their own personal preferences and political views get in the way of carrying out a governing party Manifesto or the agreed wishes of the Cabinet or  of a Minister with devolved power.

It is further agreed that only Ministers speak to the public and Parliament to explain and defend the policies and actions of the government, with the exceptions that civil servants may be employed as spokesmen and women to put across the agreed government policy in off the record briefings or occasionally as  nominated experts on the record. Ministers do not reveal what advice they were given and civil servants do not brief out their views on the advice and on how the Minister took the decision.

This system sometimes breaks down. Ministers can let fly about civil servants and civil servants can brief against Ministers. Throughout our period in the EU our membership of the EU has created a substantial tension  between Ministers wanting to govern the country and a civil service keen to maximise the constraints the EU imposes on self government.

The civil service as a whole admires the EU and likes the behind closed doors approach to legislating in the Council. Ministers are often told they cannot carry out their promises or meet the wishes of many UK voters because to do so would violate some EU Directive or regulation or Treaty requirement.  When I was a Minister and since then the civil service preferred method of dealing with the EU is to find out what it wants to do next and tell Ministers they should welcome it  or go along with it.

The current rows between Ministers and officials are related to the wish of the majority of the public to “take back control”. The paradox is the civil service does not wish to do this, but has used every opportunity in the last three and half years to try to recreate many features of current EU governance once we have “left”. Instead of preparing us for the opportunities of exit they have run a Remain based Project Fear machine. We have seen the results in  some published statements and reviews, and in leaks. Much of it is shoddy and alarmist, unrelated to the reality of what is likely to happen.

So we have the Home Office trying to dilute the borders policy to recreate free movement of people. We have the Treasury trying to bake Maastricht debt controls, the austerity policy, back into a domestic version. We have some in  the Environment Department trying to perpetuate EU fishing and farming policies. We have some Defence and Foreign office officials wanting to bind the UK into common defence procurement and more common operations with EU forces to make a European army  more feasible. We have Trade and FCO officials not wanting a US trade deal for fear of it annoying the EU. There are of course many able and good individual civil servants and some who do like Brexit, but overall the civil service wants to take no risks by the UK doing something the EU may not approve.

It is this culture of EU best and EU first that some good Ministers are trying to change. Expect more sparks to fly. I know  which side I am on.

I have written many times before about the way the UK economic establishment has been wedded to the EU rule that we must bring state debt down to 60% of GDP. This has been the main constraint and guide on economic policy for the last decade. We need instead a new central aim of promoting faster economic growth whilst keeping inflation low.

I have also drawn attention to the Establishment’s unhelpful use of two pieces of economic theory, the Phillips curve and the Laffer curve. The Phillips curve which says inflation rises when unemployment falls has not been adjusted for the global economy we live in, failing to understand how inflation has been kept down by large inward movements of low wage labour and by importing substantial quantities of cheaper goods and services. As a result money policy has been tighter than needed.

The Treasury used to deny the Laffer curve, which states that if you raise a tax rate above an optimum level revenue falls. Now they accept the theory but choose to assume the optimum rate is much higher than experience tells us it is. As a result they have had bad shortfalls on taxes like Stamp Duty and have failed to maximise tax on higher incomes.

Since the 2016 referendum the Establishment wrongly forecast an immediate recession, and then has gone on and on about an alleged hit were we to leave without a trade deal. Meanwhile they have continued to tighten the fiscal policy of the UK and keep money tight , which has predictably slowed our performance whilst still in the EU single market.

The government has added to the difficulties by successive Chancellors making a tax raid on property through higher Stamp duties, and on new car purchase through higher VED. This has predictably hit both the housing and car markets, the two largest purchases people make.

It is time to relax policy to promote growth, and to set tax rates that allow enterprise and activity to flourish. The external shock of the virus means the case for tax cuts is even more urgent now. There is both a demand and a supply shock. Tax cuts can help a bit on the demand side. Lower interest rates are less useful. We are getting lower rates for government borrowing anyway.

This blog raises some questions and seeks your thoughts. Contrary to the assertions of a  couple of my recent correspondents I do not have a view of what is the right course of action for the UK authorities to take, and this piece does not offer a solution to the problems posed.

Let’s begin with the way the government is proposing to handle this.  Chris Whitty, England’s Chief Medical Officer is an epidemiologist who has studied contagious diseases. He will lead for the government in keeping us informed of how many cases there are, what the current state of knowledge is concerning the virus and its transmission, and progress with diagnosis, testing and a possible vaccination in due course. He will also give advice on how government and private sector should respond to contain and defeat the virus.

Most of us who are not  medical experts will listen carefully to him. I have also taken advice from two doctors so far on this issue, and have talked to my local NHS General Hospital about their response.

To yesterday Chris Whitty  has reported 19 cases in the UK, all thought to have been caught outside the UK. The latest four come from Italy, Tenerife and Iran, showing the spread of the disease worldwide.

The Secretary of State will announce governmental decisions based on the advice, and will be responsible for informing Parliament, passing any  necessary legislation and ensuring the NHS has the resources needed for its role. The Chief Executives of the NHS in England and the devolved Administrations will be responsible for planning for contingencies, providing sufficient capacity for patients, and balancing resources should numbers escalate substantially.

Whilst the politicians will lean heavily on the professional advice, they ultimately will have to make crucial and difficult  judgements. As Chris Whitty has said recently, a policy like closing all schools or cancelling lots of sporting events and entertainments might be needed, but they do not yet know they would be a good idea. As the CMO said  “We do not know yet. We need to find that out. … How likely are they to work? What’s the evidence? What’s the cost?”

The problem for both the experts and the politicians is that they do not know enough about the virus. Will higher temperatures kill it off as they do many flu strains? How long does it rest in someone without symptoms, and how catching is it from that person? Is it true it little affects young people?  Can we believe the Chinese numbers implying they are gradually getting in control of it in Wuhan at the centre of its  genesis?  Is the death rate the same or lower than conventional flu, or is it worse?

Current advice is to self isolate and to ring 111. It is also to wash hands thoroughly and frequently as a likely route for infection. Are there additional measures which could usefully be taken to try to prevent further transmission?

How far should a free society go in banning flights from affected locations or requiring people who may have been in contact to be isolated for 14 days?

Current policy also hinges on tracking contacts of anyone confirmed as having the virus. What happens when someone with it has been on the tube or attended a football match?

All this shows that the response is a matter of judgement. Currently governments and experts seem to be relying to a considerable degree on the World Health Organisation, who are spreading information and helping co-ordinate work on this infection. I wish them all well in researching it more thoroughly so we do know exactly how it is transmitted, and can produce a vaccination to ward it off.

Meanwhile the government will also need to weigh the practical consequences of any advice or regulations they bring in. Closing all schools means many parents having to stay at home to look after children. Imposing more movement restrictions and flight cancellations has an economic cost. If safety clearly requires it then it should be done, but Chris Whitty’s questions about efficacy and cost need answering before any such decision. There is also the issue of fairness related to efficacy. Is banning a play or sporting event fair if we are not banning conferences or demonstrations? Parliament itself could be a good way to spread the virus but presumably we wish  to keep it meeting.

The UK 10 year state borrowing rate fell to 0.43% today. Meanwhile the German share index was one of the worst performers, falling another 4.6% as some in the markets pencilled in a German recession.

Still no new economic actions  from western governments or Central Banks.

During my adult life so far I have witnessed three major UK recessions which did great damage to businesses and individuals, all from predictable policy errors. I have also lived through the false forecasts of a large rise in unemployment and fall in activity in the first two years after a Leave vote, where despite unhelpful policy the UK economy did not fall into a recession in those two years.

So we need to ask why has the UK economic establishment at the Treasury and Bank had such a bad time of it? 

One of the recessions occurred under a Conservative government and two under a Labour government. Clearly none of the Chancellors and PMs involved set a policy to have a recession, and in each case they relied on the professional advice at the time. They were told right up until the recession had started that there would be no recession. 

It is the case the Labour Ministers  made the 1975-6 crisis worse by insisting on very high levels of spending and borrowing, which led to the run on the pound and the visit to the IMF to force a change of economic policy.  In 2007-9 Labour Ministers seemed to be in lock step with official opinion, with both arguing for the wrong  approach to managing banks cash and capital at a time of overextended balance sheets. Conservative Ministers willingly implemented the European Exchange Rate Mechanism policy which led to the humiliation of sterling, basing their case on the official and business  advice in favour of membership. Ironically they called the ERM “the golden scenario”, stating it would bring low inflation and growth. Instead it brought an expensive spike in inflation and recession.

So we do need to ask if senior officials specialising in economies should be under any pressure to get their forecasts right and to correct their positions if they are going wrong?  I do not recall anyone in the Treasury or Bank  apart from Ministers losing their job as a result of the disasters which hit the UK economy, though many hundreds of thousands of other people lost their jobs as a result of bad policy. 

In each case the errors were mainly monetary. In the 1970s the UK lurched from too fast a build up of credit and bank lending to too hard a landing, leading to a property crash and a general recession. In the ERM again as I predicted the mechanism encouraged too rapid a build up of credit, triggering inflation, and then forced too rapid a correction, bringing the economy down. In the banking crash the same thing happened. Bank policy was too accommodating in the run up, as the Parliamentary opposition and various commentators warned. Then the authorities switched to too fast a correction, causing a great recession as I feared.

Tomorrow I will look at more recent Treasury and Bank thinking on the economy and ask if it is fit for purpose, and question why we have cut ourselves off from what Central Banks in the rest of the world are doing. Meanwhile we are looking at another Establishment error, as they watch and do nothing about the current problems.

Some people tell me UK state debt is too high and we need to take tougher and more urgent action to bring it down. I disagree.

According to the ONS at the end of the last financial year UK state borrowing was £1821bn or 84% of GDP. This is well below Japan, Italy, Belgium and some other advanced countries and not very different from the USA and France.

It is not, however, a very meaningful figure. The Bank of England has bought up £435bn of the debt. As the UK state owns the Bank of England and receives dividends from its interest receipts we should deduct this part of the state debt from the total. That brings it down to £1387bn or 64% of GDP actually owed to people and institutions outside the state. This is a perfectly manageable figure.

Today the UK government can borrow at 0.5% for 10 year money and at below 1% for 30 year money. These are very low rates, showing markets think there is little risk in lending to the UK state. In the 1970s when the Labour government was spending and borrowing too much they had to pay more than 15% to borrow. They ignored these warnings and ended up at the IMF begging for a loan. The IMF demanded spending cuts and a lower deficit.

Today’s problem worldwide in advanced countries is fighting deflation and economic slowdown. Markets are telling governments, companies and individuals they can borrow more for decent projects. There is too much saving and not enough investment going on.

It would be quite wrong as the rest of the world fights recession and the economic impact of the virus for the UK to tighten fiscal policy hastening a bigger downturn. Yesterday we learned that Hong Kong is offering helicopter money. Every adult citizen will be given HK$10,000 to spend, to try to fight recession. That is how bad it is in Asia.

Much of the world is in recession fighting mode. They need to be so, because the advent of the corona virus and the severe responses to it by governments makes recession more likely without action.

The virus has hit international travel and tourism hard, has disrupted Chinese output, slashed the demand for oil and other raw materials, brought freight rates well down and is now disrupting supply chains around the world. It has damaged confidence, and led to investments and orders being put off. Japan had a sharp fall in GDP last quarter thanks to a tax rise, whilst Germany is struggling to grow at all thanks to the anti car policies being followed.

This week the Stock markets of the world have suddenly woken up to the threat that comes from these events. For the first month of serious virus news gold, oil and bonds signalled trouble ahead, and share markets decided it would be short lived and they could look through it. Now they are not so sure.

What can governments and Central Banks do? They can take offsetting action to promote more economic activity, and provide more money to offset cash shortfalls by businesses hit by interruptions to their production and sales.

Taiwan has announced a stimulatory package. China has produced some tax cuts and bank lending at low rates. The Fed, the Peoples Bank of China, the ECB and the Bank of Japan have all put money into markets in various ways to increase liquidity and available funds. China has started to cut interest rates. So far the UK has taken no action to help.

These moves will ease some of the worst features of a slowdown brought on by the virus, but do not deal with the root cause. The best way out is to turn the tide in the battle against the virus by a combination of treatments, vaccinations which are being speeded in research and reducing the spread. That is not easy and we all wish them well in doing so.

As China is discovering, if you go in for lock down and isolation of whole cities after cases have been found you do not stop the spread as some people will already have carried it out of the area, but you do considerable damage to output and activity. It is being debated how feasible and effective lock down is in limiting spread.

In the 1980s and 1990s Ministers and officials in the Home Office administered a relatively successful Immigration Policy. It typically ran at 50,000 net migrants joining the UK population each year. It was never above 100,000, and was at 48,000 in 1997 when the Conservatives were replaced by Labour in government. This level enabled us to be generous over refugees, and to meet the business requirements for special skills or seasonal workers.

The new Labour government wanted policy change to boost numbers. The civil service and the EU were very helpful. It soon rose substantially. Between 2004 and 2007 it ran above 250,000 in each of the four years, some five times higher than the previous government’s preferred level.

The newly elected Coalition government in 2010 appointed a Conservative Home Secretary who made clear her wish to bring numbers down from over 250,000 to below 100,000. Home Office officials were asked to work on various ways to help achieve this. After an early fall to 176,000 in 2012 it accelerated away again to well over 250,000 in each of the years 2015 to 2017.

In the 2017 election the former Home Secretary had her chance to review this policy and targets as Prime Minister. She reconfirmed them, stating in  the Manifesto that “our objective  (is) to reduce immigration to sustainable levels, by which we mean annual net migration in the tens of thousands rather than the hundreds of thousands we have seen over the last two decades”. She also made clear she wished to control EU as well as non EU migration, thus ending freedom  of movement.

We need to ask why was it that the Home Office did not implement policies that met these Manifesto pledges? They had shown how it was possible to run such a policy in the 1980s and 1990s. They could have been in no doubt about the wishes of their Home Secretary, nor of the new Prime Minister in 2017. This failure raises interesting questions about the relative responsibilities of senior officials and elected politicians. Whilst I of course defend the constitutional principle that the Home Secretary has to take the public blame for failing to implement her own policy, we do also need to ask about the wider departmental failure.

Today we read of problems for the current Home Secretary to  get her policies implemented in a timely and helpful way. I would urge officials in the Home Office to see that they had had years to get ready to cut migrant numbers, and soon will have full powers over EU migrants as well as from the rest of the world. Surely they can draw on their experiences in recent years, and on the new powers they can create, to succeed this time round? If not the Prime Minister would be right to allow new senior officials who can.

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