As readers of this website could see, I took many ideas to the government in the run up to the budget. Accepting the government was staying with the OBR controls in place and prepared  to  cut taxes if they could  keep borrowings down, I set about showing them how there was more headroom within those constraints to cut taxes. In particular I identified three large areas of spending in their accounts that could be reduced. They were the missing productivity of the public services, the large losses on the Bank of England bonds, and the high costs of bringing in low paid migrants whilst supporting many already in the UK to be without jobs instead of helping some of them to take the jobs available..

The government liked the idea of tackling the lost productivity. It now seems from  the budget figures that they also accepted my general delineation of the problem. I had drawn from ONS figures a lost 7.5% 2020-2023. The government now says there is a lost 6% to today. I estimated this as around £30 bn, in annual cash cost a low end figure from my calculations based on the published public spending figures. The Chancellor said tackling a 5% fall in productivity as he wishes to do would gain him  £20bn. This was surprisingly right in line with my £30bn for 7.5%. I am pleased he is seeking to unlock £20bn of the losses and this contributed to the so called headroom to allow some tax reductions.

In contrast my public comments on the Bank of England bond losses, £34 bn to date this year, did not result in any action to rein them in. I recommended that the portion of the losses that result from selling bonds at depressed prices on the market should be ended, as there is no need to sell these bonds. The ECB that made the same mistake as the Bank of England in buying too many bonds at very high prices and sparking an inflation is not foolish enough to now sell them at lower prices for a loss. They can be held to maturity when they repay with a lower level of loss. I assume the Chancellor did not do this obvious thing based on a misunderstanding over Bank of England independence. The Bank is independent to set the base rate that controls other short dated interest rates. The bond portfolio required government sign off and guarantee and was always a joint policy. The  Bank says it acts as agent of the government for the bonds.

The government was well apprised of the need to do more to help people out of long term unem0ployment into work, and developing good programmes to assist people in need of extra help to do so. I urged them to speed them up. They also came round to the idea of cutting back sharply on legal migration. I await official figures to show just how expensive to taxpayers it is to invite in low wage employees who usually need subsidised housing NHS care, school places if they have children and a full range of free public services. Invite in one such migrant and the facilities can be found. Invite in 1 million and you need to build several new cities for them. I continue to follow up to see what progress the government is making with cutting the numbers and relieving the pressures on homes and services. I have in the past set out my own rough estimate, based on the old EU one of 250,000 euros for set up capital costs and early years for one migrant.

John Redwood (Wok, Con):

 

I am pleased that the Chancellor started by reminding the nation that, under Conservative leadership, Governments since 2010 have presided over the creation of 800 new jobs every day, every week, every month and every year, and have halved unemployment. The scourge of worklessness, which was inherited, has been banished. We now have the less worrying problem that we cannot get enough people to fill all the jobs, rather than the other way around of not having enough jobs for the people.

I am pleased that the Chancellor reminded the House that, in growth, we have outperformed all the major European nations, although I am sure he would agree with me that that is a feeble target to set ourselves; we are now free to do so much better. The question we need to ask is: why has the United States of America outperformed Europe so comprehensively for so long, and what can we learn?

The first thing we can learn from the United States is a better system of economic policy guidance and control. The requirements on the Federal Reserve Board, the US central bank, are a balanced mandate: not just 2% inflation, which is a necessary target that we share, but the promotion of growth and of growth in employment, so the board understands the trade-offs and can adjust policy accordingly. As our way of steering the economy, I would love us to get rid of fanciful, made-up figures by the OBR for five years’ time, which are always wrong, and to have two main aims: that 2% inflation target binding not merely on the Bank but on the whole Government, because Government have a big impact on prices and wages; and a 2% growth rate target, or a considerably higher growth rate than European countries have been achieving in the past decade. That is achievable if we take the right actions.

To do that, we need the Bank of England to work in sympathy with the Government’s policy. I remind the House that there is a dual mandate on the bond portfolio, the so-called APF or asset purchase facility. The Bank of England, having bought far too many bonds at ridiculously high prices on very low yields and run a very loose policy that gave us inflation, has now lurched too far the other way and is running too tight a policy, selling far too many bonds at much lower prices—prices it deliberately lowered in the market—and saddling us with losses. The Budget documents confirm that the accumulated losses paid so far, which taxpayers and the Treasury have to pay, amount to £49 billion since the thing flipped over in 2022. The last figure I saw was £34 billion, year to date—unaffordable and unnecessary, quite the wrong policy, meaning that we have less growth and a far bigger bill.

I am glad that the Government have decided to major on productivity in general, and in particular on public sector productivity. Some months ago, I stumbled across a well-concealed Office for National Statistics figure saying that in the three years since covid, we had lost 7.5% productivity in our public services. I did a quick back-of-the-envelope calculation, and that is roughly £30 billion, which means that it costs £30 billion more today to produce the same level and range of public service as it did before covid, as well as the many tens of billions more on top of that we had to pay because of all the inflation. It was a £30 billion hit.

The Government now more or less agree. The Chancellor has costed the loss in his figures at 6% rather than 7.5%, but he has said that he wants to eliminate a 5% productivity shortfall out of the 6%, and he costs that at £20 billion, which is exactly the same as my £30 billion for 7.5%. That is felicitous indeed. The issue is, how will they go about doing that?

I hear that the scheme for the NHS is elaborate expenditure on wide-ranging centralised computerisation—good luck with that—but I would not rely on that alone for my productivity package for the public services. We do not actually need new investment to get ourselves back to the productivity level we were at in 2019. We do not need to use all today’s wonderful artificial intelligence; we just need to use what we already had, which we had in 2019. It is about management, personnel and giving the personnel the right tasks. We have seen a huge increase in managerial and administrative positions, but far from managing things better, they are being managed less well.

We had a shocking case in the press recently, where an awful lot of managers were presiding over a prison that had gone wrong. They were not able to do the more important day-by-day things that were needed in order to resolve the problem. If we look at the huge expansion in the civil service and other public administration during the covid period, we will see a big increase not only in numbers, but in those who have been promoted up the grades for whatever reason. We need enough people for someone to supervise, however, and we do not need all supervisors, because they are often too posh to do the work. We need to manage things better, and that is the productivity challenge before us.

I also urge the Government to abolish UK Government Investments. It is a very expensive body that has a completely dreadful track record. It presided over the Post Office and did nothing to deal with the sub-postmasters; it presided over £1.4 billion-worth of accumulated losses, bankrupting the corporation; and it presides over Network Rail, and the whole rail industry, Network rail and High Speed 2 are absorbing £33 billion of public money this year. I do not think we are getting value for money for that.

My time is up. I urge the Government to redouble efforts on productivity, to understand that it is mainly about whom we hire and what we ask them to do, and to get rid of UKGI, and I ask Ministers to take responsibility for the dreadfully badly performing nationalised industries.

The Department for Transport has provided the following answer to your written parliamentary question (15521):

Question:
To ask the Secretary of State for Transport, what criteria are used to determine when temporary air quality speed limits are used on the M4 near Heathrow. (15521)

Tabled on: 26 February 2024

Answer:
Guy Opperman:

National Highways implemented a speed restriction of 60mph on the M4 westbound at junctions 3 to 4 in December 2022 to achieve nitrogen dioxide (NO₂) compliance in the shortest possible time.

The answer was submitted on 04 Mar 2024 at 14:32.

This is the pot of money which helps Councils to close and narrow roads where they choose bad schemes:

 

The Department for Transport has provided the following answer to your written parliamentary question (15524):

Question:
To ask the Secretary of State for Transport, how much funding his Department plans to provide to local authorities for active travel plans in the (a) 2023-24 and (b) 2024-25 financial year. (15524)

Tabled on: 26 February 2024

Answer:
Guy Opperman:

The Department for Transport is currently providing £70 million of dedicated funding to local authorities in 2023-24, for developing and delivering local infrastructure schemes and to boost capability and enable higher levels of walking and cycling. Funding for local authorities in 2024-25 is subject to final Departmental business planning decisions.

The answer was submitted on 05 Mar 2024 at 09:28.

I asked this question to find out why speed is restricted for air quality reasons near Heathrow.No wish to engage.

 

The Department for Transport has provided the following answer to your written parliamentary question (15522):

Question:
To ask the Secretary of State for Transport, if he will make a comparative estimate of the average contribution to air pollution of (a) vehicles on the M4 and (b) air traffic at Heathrow. (15522)

Tabled on: 26 February 2024

Answer:
Anthony Browne:

The Department for Transport has no plans to make a comparative estimate of the average contribution to air pollution from vehicles on the M4 and from air traffic at Heathrow.

The answer was submitted on 05 Mar 2024 at 12:39.

There we have it. I will post my speech today in the House for tomorrow morning when it is available. Happy to read your thoughts.

I am glad they accepted advice that they need to rescue public services from the £30 bn hit to productivity I identified sometime ago on this site. The Chancellor said he would tackle £20bn of this hit. I will comment in a later post on the chosen methods and timetable.

There is an overall tax cut, mainly in the form of the NI reductions.

There are also a series of increased tax measures  including a new vape tax, increased tobacco duty, increased air passenger duty, higher tax on holiday lets and an extension of Windfall oil and gas tax. I did not propose any tax increases and am concerned about the holiday lets one in  particular.

I will add to my thoughts after the budget.

As readers will know I have done a lot of work on how to bring inflation down and grow the economy faster and put this to government in recent weeks.

Reform to deliver low inflation and faster growth has to start with a change of Bank of England policy. It needs to end its lurch to tight a money policy now inflation is falling. It must end its damaging sale of bonds. This would spare the Treasury large payments for the needless losses they are incurring and ease conditions a bit in the mortgage market.

Government policy must intensify to sort out labour market problems. They need to tighten the rules against low income migration further and do more to help people already legally  settled here into work. There will be substantial savings on public expenditure from this.

Tax cuts  need to be targeted on getting energy costs down to make the UK more competitive and ease the squeeze on the cost of living.  There need to be cuts in tax for small business and self employed, and some increases in the Income Tax thresholds as too many people are paying higher rate tax.

The absurd policy control based on the 5 year out forecast of the OBR needs replacing with a control based on a target of 2% inflation and 2% growth.

John Redwood (Wokingham) (Con):

I am a strong supporter of the recent initiatives of the Secretary of State and the Prime Minister to make food growing far more important. What are the targets for getting much more self-sufficient in food, and will it not need further reorientation of the money away from the environmental land management scheme and wilding, and towards proper food promotion schemes?

Fay Jones:

My right hon. Friend pre-empts me. I will certainly come to talk about that point in just a few moments, but let me first talk about further reforms that the Government are introducing, particularly in the field of farming mental health.

We will make up to £500,000 available to charities to deliver projects that support mental health in the farming sector, building on the support already on offer through our farming resilience fund, which has benefited more than 19,000 farmers to date. Mental health in agriculture is a key concern for the Department, so much so that my right hon. Friend the Farming Minister regrets that he is unable to be with us at present, as he is hosting a roundtable on mental health in agriculture. I know that shadow Ministers will agree that that is a commendable thing to be doing. Altogether, the work to change our approach will build a better and more supportive system around farmers, so that they can get on and do what only they do best.

Before I talk about our final strand of work, I want to congratulate my hon. Friend the Member for Bosworth (Dr Evans). Today his campaign for online retailers to carry a specific “buy British” button has achieved another success, as Ocado has become the latest retailer to adopt the tool, joining Morrisons, Aldi and Sainsbury’s. I congratulate him on his campaign.

Food security is a vital part of our national security. The primary role of farmers is to produce the nation’s food, and they deserve our gratitude for that—a point echoed to me on many occasions by the Chair of the Environment, Food and Rural Affairs Committee, my right hon. Friend the Member for Scarborough and Whitby (Sir Robert Goodwill), who is away on a Select Committee visit and unable to join today’s debate. Recent years have brought home the truth of that, particularly in an age of climate change, instability and increasingly volatile global food production.

Uncertain times require us to double down on the certainty of our food system. In the Government’s food strategy, we set a clear commitment to maintaining domestic food production at the current level at least, which is around 60% of what we consume. The importance of food security is why we brought in the three-times-a-year food security report through the Agriculture Act 2020. Going further, the Prime Minister announced a fortnight ago that, given the context of the last three years, we will significantly strengthen this work through a new annual food security index. Climate change is increasingly likely to impact on the sector, with more extreme weather events, so it is only right that we step up our monitoring of food security to ensure that we can act swiftly and decisively against any in-year shocks. We expect the work to be UK-wide and will work to achieve that, strengthening accountability across England, Wales, Scotland and Northern Ireland.

Despite covid lockdowns, despite the war in Ukraine, despite destructive Bank of England policy creating a big inflation then seeking to create a small recession, unemployment has gone lower over the last 14 years and many jobs have been created.

Remain said Brexit would mean big job losses. It meant the reverse. The UK ran out of workers and turned to inviting in even more people to take all the extra jobs. Today this presents a better opportunity. Instead of inviting in so many to do relatively low paid jobs we need to cut back severely on legal migration. The government has promised to cut 300,000 but more should be the aim. We need a full commitment to a better paid more engaged UK workforce, armed with more investment to support higher productivity. The higher wages need to be earned.

Physical jobs require fuller automation to take the delays and hard work out of the tasks. Clerical tasks need more AI based automation to tackle all the repetitious and tedious parts of the old jobs.

Labour governments of the past have always left office with unemployment higher. Their boom/bust policies in the 1970s, and in the late 2000s threw too many people out of work. It is good unemployment remains low and job creation has been strong, but we need to do better with raising wages and productivity with the right training, machine support and investment. Public  sector productivity has fallen. There should be an immediate ban on external recruitment into the civil service and public administration.

I find it strange that for weeks we can all  read in the papers of a struggle between the Chancellor who wants to offer tax cuts, and the officials of the OBR and Treasury who do not want him to do that.

These arguments should take place in confidence. The Chancellor should make the judgement having heard all the arguments. Officials should co operate with the decisions made.

This better way of working has been  disrupted by creating a so called independent OBR and then doubling up by adopting a ludicrous control for policy based on their forecast of the debt and deficit in five years time. They themselves would agree that the only thing we can be sure about is their 5 year out forecast will be wrong. No one can give an accurate spot forecast for public borrowing that far distant. Their forecasts for the immediate year which could be more accurate have badly overstated borrowings in recent years.,

OBR forecasts are said to be independent but are formed in an iterative process with Treasury officials guiding them on government policy. If the forecast was genuinely independent there would be no need for the Chancellor to accept it or defend it. He might choose a different independent forecast from a reputable forecaster with a better track record. The insider’s forecast lures the Chancellor into acceptance or submission, however bad it might be.

This budget would be best based around how much government plans to spend next year and how much it might have to borrow in that year. That after all is meant to be the idea of an annual budget. Debt interest will tumble with lower inflation taking maybe £30 bn off peak levels of inflation linked cost. Public sector productivity should be prodded to remove some of the  £30 bn loss since 2019. Credit should be given for the planned cut of 300,000 in legal migration greatly reducing pressures on social housing and public service.

 

If the OBR insist on highlighting the 5 year debt figure then the Chancellor should cut back some of the unfunded spending increases pencilled in for that year.