Power outages

I am glad there will be an urgent review of what went wrong with the power system.

It appears from the records that there was a 740 MW drop in gas generated power supply (Little Barford) and a 1000 MW fall in wind supply (Hornsea) in quick succession. This was followed five minutes later by a 1000 MW increase in pumped storage supply,  presumably the quickest acting power that could be brought on.  This all took place against the background of relatively low summer demand for electric power which meant there was plenty of potential capacity available. It is also interesting that though we are using well below domestic capacity levels of electricity we are tending to import power from France, Belgium and the Netherlands anyway.

Questions for the review should include

  1. Now the system is running on high percentages of renewables when the weather permits, does it have enough quick acting stand by plant for when the wind drops or sun goes in? If not can we rapidly remedy this defect?
  2. Why do we continue to import when we are well  below capacity? What account is taken of the different fuel mixes and subsidy patterns for continental power which includes fossil fuel power in its mix?
  3. Given the use of pump storage, how long did the outages last and why did they last as long as they did?
  4. Why did the wind power fail, given the current size and the planned large expansion of this new  plant?

The government also needs to ask the railway industry why it was unable to quickly adjust services  and get trains running as soon as the power was restored.

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An early election?

Labour is currently on a little over 20% in the opinion polls. Were there to be an early election the party would have no clear answer to the question would you take us out of the EU. In Parliament Labour voted to send in our Article 50 notice letter. It then opposed the EU’s Withdrawal Treaty and now opposes the alternative of leaving without signing that Treaty. Why on earth would they want an election in such circumstances? So far they have been unable  to clarify how they would negotiate a better Brexit , what it would look like and why the EU would consent. It leaves them refusing to accept departure with the WA or without it, and refusing to admit they want to revoke Article 50 altogether.

Any election before the UK has left the EU would push many Remain supporting former Labour voters to vote Green or Lib Dem as they offer a second referendum and oppose Brexit. Leave voting former Labour voters would be tempted to vote for the Brexit party or the Conservatives  to get the Brexit they voted for in the referendum which Labour promised to support in the last General election. As in the recent European election Labour would be likely to be badly squeezed. The Conservatives are recovering in the polls now the new PM says we will definitely leave on 31 October, after the crash under Mrs May with her disastrous delay.

Labour now complains that if they could get a majority in the Commons to defeat the government twice on a motion of no confidence within 14 days to trigger an election, Brexit would happen anyway during the election. Of course it would, as the law they helped pass to send our withdrawal letter ensures that we leave. The irony is Labour has much better prospects in an election once we have left and Brexit is behind us. The intense muddle of their current Brexit approach is losing them support from both sides of the argument, and driving people to a clear Remain party or a clear Leave party.

Were Labour to table and win a confidence vote in September they would need to do it twice to conform with the Fixed Term Parliament Act. It is difficult for them to do this in time for an election prior to the 31 October. The honest way to stop us leaving would be to propose that Parliament revokes Article 50, which we know the EU would accept. They will not do that as they know there is no majority in the Commons to reverse the Withdrawal legislation and to tear up the Manifesto promises of both Labour and Conservative from the 2017 election.

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Weak manufacturing in UK second quarter led by big fall in car output

As forecast here, the car industry accelerated  a sharp decline in manufacturing in the second quarter. The overall manufacturing fall of 2.3% in the second quarter compared to the first was led by a 20% decline in car output, which was part of a 5.2% decline in transport equipment generally. The squeeze on car sales from higher VED, tougher conditions on car loans and above all the regulatory  uncertainty created over the future of diesels that I have highlighted have taken their toll. Various manufacturers compounded this by closing their factories for the annual shut down early this year in the second quarter, after building stocks in the first quarter. It is also part of a wider world pattern, with poor figures from China, Germany and other leading manufacturing nations.

Household spending continued to rise, up 0.5% quarter on quarter, and services managed a weak expansion. The economy as a whole grew by 1.2% over the last year, with a 0.2% quarter on quarter fall  after a decent quarter to start 2019.  Gross Domestic Capital formation was weak in the second quarter, as businesses sought to destock after their big stock build at the start of the year in preparation for the March Brexit which the government cancelled late.

The overall performance of the UK economy is good by EU standards, especially considering the combined fiscal and monetary squeeze which the outgoing government  undertook. Germany’s economy is growing at an annualised 0.7% , 0.5% lower than the UK’s latest, and Italy is not growing at all after a recession in  the second half of 2018.  The UK economy can do better  and needs some monetary and fiscal relaxation. Money growth is under one quarter of the rate in the USA and half the rate in the Euro area. The fiscal stance is now going to be loosened a bit, which is important. The US tax cuts drove accelerated growth there in contrast to the European performances. The US has been growing well over 2% with its more pro growth approach, with the President wanting growth above 3%.

The Fed, the ECB, the Indian, Australian, New Zealand, Turkish  and Russian Central Banks are all loosening policy to offset the general global manufacturing downturn. The UK has not yet taken such action.

The global picture for manufacturing remains poor, with Germany experiencing a 1.5% fall in industrial output in June with more poor orders for the second half of the year.

(I have posted this  post  for tomorrow early given the topicality of the item)

 

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Don’t let them eat meat?

The UN report into land use and climate change makes interesting reading. According to the media it is about persuading more people to eat less meat, though they concede it fell short of requiring everyone to become vegans or vegetarians. It claims that the global surface temperature has risen by 0.87 degrees C comparing 2015 with the flat temperature average of 1850-1900, the so called pre industrial period. No-one told the Victorians to remain pre industrial. It argues that further rises in temperature could be damaging. It points out that in recent years there has been more greening  than  browning of the planet overall, though some areas have been dried to the point of  becoming deserts whilst more  places have become  greener and more productive. It rightly states the importance of water and soil management to wellbeing and food production.

The detailed summary for policy makers is wide ranging and suggests various ways to lower the warming gases output of agriculture. It tells us food  production accounts for 23% of the greenhouse gases released by human intervention. Most importantly it reads as a plea to limit population growth. It sets out how the 150% growth in  population from 1961 to 2017 is the single biggest cause of more agricultural emissions. It also points to the 80% increase in obesity as a strain on the system  and argues that livestock account for half of the CO2 from agriculture. It asserts that there are 2bn overweight or obese adults worldwide.

The Report highlights the way that around 30% of food output goes to waste, and states that if this could be brought down it could make as useful a contribution to controlling gases as change of diet might make. It also urges more forests, and the retention of the forests we already enjoy, as good carbon sinks.

It sketches various scenarios for the future. The best is one where the population is stabilised at around 9bn, gets richer and better at managing soils, farming and diets. The worst is where the world population continues climbing to 13bn  with continuing wide contrasts between rich and poor, some persistent poor diets and very varied farming including methods destructive of the environment.

It would be good if this Report triggered a proper debate about population growth, soil and water management as its authors probably wish. Instead the issue of should we eat meat is more eye  catching and invites heated debate in the countries rich enough for meat eating to be a regular option.

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Project Fear now masquerades as a discussion of “No Deal Brexit”

The BBC were in overdrive yesterday peddling the same old arguments that if we just leave the EU they  will not be able or willing to sell us all their exports. No critical questions to the usual suspects stating all this about how we manage to import so much from non EU sources today, or why would Dover and Calais wish to mess up their ports and their businesses by delay?

We go over and over the same absurd Remain arguments that we faced in the referendum campaign. I decided I had to divert today from my plan to carry on with the positives, by reminding myself just how wrong the Treasury and Remain were in the referendum with all their bogus forecasts. I spent much of my campaign refuting their forecasts of falling GHDP , falling house prices, falling share prices and rising unemployment. My replies on their argument that sterling would fall was “Sterling once we are out of the EU will continue to rise and fall as it has done all the time we have been in the EU. It has been very volatile”. That is exactly what has happened with for example a fall off against the dollar immediately after the vote, a rise back to the levels at the time of the vote, followed more recently by another decline. The strength of the dollar, UK money policy and other issues still affect this rate as before.

The main  short term forecasts the Treasury made were specifically for the first couple of years or so after the vote. They said in their detailed published document on the short term outlook for   after a Leave  vote (not after exit)

1. There would be a recession, with unemployment rising by 500,000, or by as much as 800,000 in the worst case. The Unemployment rate would rise from  the then rate of 4.9% to 6.5% or even to 7.3%.

Outturn   Employment grew substantially, with the unemployment rate falling from 4.9% to 3.8%, a fall of 22%. There was no recession.

2. House prices would fall by 10%, with a worst case possible fall of 18%

Outturn House prices continued to rise for the UK as a whole, at a modest rate, despite the hikes in Stamp duty, restriction on mortgages and tax rises for Buy to let.

3. The “return investors would demand for holding longer term UK government debt or the term premium would rise by between 40bp and 100bp” driving up borrowing rates generally.

Outturn  The 10 year cost of government borrowing has fallen from 1.09% to 0.52%, a halving of the overall rate of interest on such debt.

4. Shares would fall. Whilst no forecasts of the extent were in the document, Remain claimed the UK share market would fall after the vote, and then modified this to saying domestically oriented shares would fall.

Outturn The All Share Index is up 17% since the referendum. The FTSE250, which excludes the 100 largest companies which predominantly earn profits abroad, is up by slightly more than 17%.

So we now know all but the Treasury’s sterling  forecast was wrong by large margins. Why doesn’t the mainstream media revisit this and ask those responsible why they got it so wrong? Why should we believe their tales of gloom going forwards, when they made such a hash of these crucial referendum influencing forecasts?

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EU agrees to buy more US beef

The EU has signed an Agreement with the USA to increase the amount of tariff free US  beef imported  into the EU from $150 m to $420 million a year.

I haven’t seen this much reported on this side of the Atlantic.

Mr Trump said “This is a tremendous victory for American farmers, ranchers and of course for European consumers because US beef is considered the best in  the world”

That’s not what I hear from Remain media in the UK. Perhaps Remain supporters might like to explain.

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How much extra public spending is appropriate for the UK?

There is a change in approach to public spending with the new Prime Minister wanting to tackle areas in the NHS, education and security where more money is needed to recruit more people, improve facilities and ease pressures on budgets. It will be welcome to see more cash for schools suffering from low per capita budgets currently, and to see better facilities and more capacity in the NHS. I have been seeking both these for my local area.

It is important that as the extra  money is released it is made clear how it will be spent to  boost service quality and provision. Ministers will need to be firm about how the money is spent. It is best to ask first what extra personnel and facilities are  needed and why, before then asking  how much they will cost, and considering authorising them.

All of this extra spending needs to fit  into a state budget plan with suitable limits on borrowing.  The extra spend can come from savings elsewhere, from more tax revenue from economic growth, or from more borrowing. There is plenty of scope to boost the  growth rate as discussed here before by tax cuts and a more appropriate money policy.

There is also plenty of scope to cut out wasteful and undesirable spending elsewhere, as I will discuss in more detail tomorrow. Ending all payments to the EU from 1 November provides substantial opportunity to spend more and tax less.

State borrowing at a little over 1% of GDP today could rise to 2% given the world slowdown and the lack of inflationary pressures in much of the advanced global economy.

All this points to the opportunity for a decent boost to core public services and some enterprise and job promoting tax cuts soon. My original Brexit bonus budget did not spend much more than the savings on  the EU contributions.,

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A media which misinforms

Read More »

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Ownership for everyone

Ownership for everyone

Now is the time to galvanise free enterprise and boost the UK economy by promoting wider ownership. The big idea is to encourage and help many more people own a stake in the property and business of the country. The campaign would inform and influence many individual policies and proposals that could assist and encourage people in such a popular direction. The first task is to show how possible it is for the many to be owners, and the second task to create the policies and background to accelerate the trend.

Changing attitudes – being positive about ownership

It is time to tell everyone they have the opportunity to be owners. We should want more to own their own home. More people should set up and own their own business.
More people should come to own a share in the business they work for. More employees should be able to buy out their business and run it as a co-op or partnership or employee owned enterprise.
More people could save and own investments for their retirement or for life’s events.

Owning some capital is transformational. It gives you more freedoms to change your job or move your home or set up or expand your business. Owning realisable assets gives you more self confidence, more choices, and a better sense of participating in the wider society. Having some capital enables you to take more control of your life. Owning capital gives you the power to borrow or to release cash from your assets for new purposes.

Too many think ownership is for the few or for the richer half of the country. They think you need to inherit wealth or go to a posh school or university to be a person of property. Government treats those with some wealth as a cash machine for the state, or even as potential criminals who broke rules to come by their wealth. People who make money and save it are taxed on earning and then again on saving it. They may be subject to special enquiries into where they got their wealth, and to endless inspections of their tax returns to make sure they have not undertaken aggressive tax avoidance. Parliament debates how the rich can be taxed more or kept out of our country by tough rules. The impression is created by some in Parliament  that there is something unclean about an entrepreneur or investor who has been successful.

We need a revolution of attitudes. We want a state that promotes and helps the accumulation of assets by individuals and sees it as a good, not a bad to tax. We need to show how individuals who failed at school and who inherit nothing can build businesses, build or renovate their own homes, or get stakes in someone else’s business so they too can participate in the wealth of the economy.

Changing policies to promote wealth and ownership

It will need new approaches to bring about a very British coup, a coup for a new generation of owners to take control of homes and businesses. The policies would include changes to the way we tax and to way we spend public money, to the rules we set over business and capital and to attitudes towards success.

We need to roll back some of the aggressive policies on wealth accumulation. Stamp duties need to come down on acquiring a home or a rental property. VAT needs to be taken off doing up a property. Capital gains tax rates need lowering so there is no great penalty on wishing to move between properties  or change the assets you hold. Mobility of capital and change of uses and ownership of property is a good thing which helps capital accumulation . People can be happier if they can move home to the accommodation and location of their choice without a large financial penalty for daring to do so. Doing up a home and moving to another should not be highly taxed as it improves the building stock and gives people equity in their main asset.

Higher rate income tax needs to come down. More revenue would be collected as more earn higher incomes, working harder to do so. The range of reliefs on your own business should be extended. HMT should stop trying to force people who work for themselves to pay tax as employees. The VAT threshold for a small business should be raised higher.

The state can help build a bigger population of owners by changing the way it operates. It should spin off more of its activities to employee controlled enterprises. These thrive from the unity of interest between the employees and the government, providing a better service at a lower price to the state and empowering the employees. They will work smarter when they work for their own benefit as well, discovering that higher quality service is also more efficient and better value . The John Lewis and the Co-op models should be more widely adopted in bidding for public sector contracts. The employees as business owners will be able to expand their business activities with other clients whilst benefitting from an initial contract to serve the state. This was done, for example, with the Property Services Agency in the late 1980s.

The rules of the business world need amending to allow more flexibility for start ups and small businesses . They are subject to the disciplines of the market and their customers anyway. The totality of controls and requirements is a major impediment to the average business start up.

We need a new wind in favour of people doing well, running their own show and owning property and assets as a normal part of their lives. We want capital and income to reinforce each other and to be flexible . A new generation of owners will then have the means to get better training, to improve their businesses, upgrade their jobs and improve their homes.

 

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Martin Schulz calls for a United States of Europe

The former leader of Germany’s SPD (Labour party) and possible candidate for Chancellor of Germany  has called for a federal Europe and the  exit from the EU of any country refusing to ratify the Union treaty needed.

Perhaps those Remain advocates who said there was no such plan may like to comment, given similar ideas from the President of France.

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  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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