John Redwood's Diary
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What does a growth policy look like?

Labour, Conservative and Reform on 80% of the vote want a growth policy. Greens and Lib Dem’s are not so sure.

So what do we think of the ideas for growth?

Taxation

Countries grow faster that set lower tax rates. Ireland has shown how to hoover up overseas  investment by setting a low rate of business tax. They collect so much more per head as a result. The U.K. had many more self employed before bringing in IR 35 tax. More self employed means a more responsive economy and a bigger nursery for growth businesses. High taxes on wealth, savings income and gains drives rich people away and assists a brain drain. The more you tax Non Dom’s  the fewer rich people stay to pay. If you introduce so called Windfall profits taxes and forget to take them off when the windfall dwindles you put companies off investing or even coming to your country.

If you want faster growth you need to be realistic about progress to net zero. Charge high carbon and emissions taxes and you close factories and power stations. Ban fossil fuel products too soon and they will be made somewhere else. Keep your own oil and gas in the ground and you will import your fossil fuels, losing well paid jobs and tax revenues at home.

If you want faster growth you need to keep regulations under control, leaving companies free to direct themselves more. Common law systems work better than code systems, allowing you to do anything you like that is not banned where Code systems only allow what the lay down.

There needs to be a sector by sector review of damaging taxes and over the top regulation. The government needs to get better at buying things, encouraging more U.K. supply by its purchasing. It needs to switch farm subsidies from wilding to food production. It needs to take back control of more of our fish and promote a bigger industry. The vast national forests need to grow and harvest more softwood. Steel policy needs to change to keep U.K. blast furnaces. We need to build a new fleet of medium sized nuclear power stations and urgently commission more gas generation back up. We need to get more of our own oil and gas out of the ground in place of imports. We need to expand our water and waste water capacity.

That is a few of the things that would speed faster growth.

Unpopular parties could get a bad result for the U.K.

The latest polls show around 41% wanting Labour, down on the start of the campaign. 38% want Conservative or Reform. So one fifth of the electorate wants something different, two fifths want Labour and the two fifths of a Conservative nature are having a row about policy and who should lead the right.

With numbers like that it will be an unhappy country if it sees an outsized Labour majority, a squeezed Conservative opposition and a handful of Reform MPs which is what pollsters are saying. The truth is the outcome rests on those millions of former Conservative voters who are currently undecided and excluded from regular poll results.  If they stay at home or vote Reform then we get the outsized Labour majority. If in the end more of them vote Conservative we get a bigger Conservative party.

The most important takeaways are how 60% of the public do not want a Labour government and how half of past Conservative voters feel let down by the current government. If an election was just a verdict on a government then it is clear the Conservatives would fare badly. As it is primarily a choice of a new government it is more difficult for voters. You often have to vote for a government that is far from perfect to avoid one that will be far worse.

Some former Conservatives say they want their former party to do badly to force change. It is difficult to see how Nigel Farage could take over the leadership of the Conservative party as he hints if he did win a seat whilst  many Conservatives lost. The ones who survived would not be feeling friendly to him and as a non member of the party he would be ineligible to lead it.

I find this election difficult to call. If the polls are right the U.K. will suffer from a Labour government a majority do not want and an Opposition too small to make much impact. Maybe voters will surprise. Do you want this out turn or can you see a way to stop it? What do you think all those undecideds will do?

 

Great Brexit wins

8 years on from the Brexit vote let us celebrate the great Brexit wins.

By far and away the most important is we are now free to make our own decisions through elections and Parliament. The fact that so far governments have made little use of this cannot take away from the great liberation that comes from knowing we can now if we wish.

It is a great win that the EU is busily borrowing an extra Euro 800 billion and none of that now will add to our debt pile. Our share would have proved very costly.

It is a great win that thousands of new laws, regulations and decisions have been made since we left and none of those apply to us. The EU for example will not be able to receive the latest Apple technology on Apple devices  owing to their regulations.

It is a great win that the UK has now become the world’s second largest exporter of services, and services are the biggest part of our trade. The new and rolled over trade Agreements we are signing have chapters allowing greater freedom of trade in services which the EU used to ignore in its trade agreements for us.

It is a win that VAT has been taken off green products and off female hygiene products. We had to impose it on them under EU law.

We no longer have to have open borders with the continent. The government failure to control legal migration in recent years was an unwise UK choice, which is now being corrected with tighter restrictions on the issue of visas. We can now set a fairer policy that has the same conditions for people from the rest of the world and from the EU.

After a too generous deal on exit the UK is now saving its large annual contributions to the EU budget. As the EU budget continues to climb so our savings mount. The NHS is getting far more than an extra £350 m a week as set out on the side of the campaign  bus.

We have removed tariffs from 20% of our imported product lines completely on top of the 27% that were EU tariff free, making things cheaper for customers.

We have joined the large and fast growing Trans Pacific Partnership which the EU has not joined.

We are planning new laws to improve animal welfare and limit the transport of live animals which we could not do in the EU

We have increased our fish quotas for our domestic  industry and need to restore more at the end of the transition period.

We have introduced more Freeports with more relaxations of trade rules than the EU would allow, with a more generous package to promote their growth.

 

The Supreme Court sets an energy policy

The Supreme Court judgement which says anyone wishing to extract oil and gas in the U.K. or any licensing or planning authority wishing to let them has to consider the CO 2 burning those fuels is a bad call.

The truth is this country is going to need large amounts of gas for home heating and industrial processes for a good many years. It is going to need oil products for vehicles and other purposes. It will take time for people and business to convert that to electricity and time and huge money to put in the grid, renewable generation and storage it would take.

So the decision today is do we import all the oil and gas or do we try to use what local resource we have? It is a no brainier that we should prefer to use our own. The Supreme Court needs to grasp that lowers world CO 2. Imported LNG gas gives off far more CO 2 than piped home gas, given the energy needed to liquefy, gassify  and transport.

Home fuel brings many well paid jobs to the U.K. It bring big tax revenues. If we switch to importing we pay the taxes away to foreign governments, and pay the salaries for jobs elsewhere.

It also leaves us dependent on the goodwill of foreign suppliers, which can prove difficult and expensive as we saw over the Ukraine war.

The Supreme Court should not set energy policy.

This website

As the title page makes clear this is the John Redwood website.

It is not a Conservative or election website. I am not a candidate in the election and no longer have any formal role in the Conservative party.

My aim  is to contribute independent and original analysis of economic and political issues of wider interest. My work on the Bank of England, OBR and Treasury poor forecasts, wrong frameworks and bad  out turns is an example of what I am offering to those interested.

The Bank of England insists on getting it wrong

Headline inflation has come down to 2%. The European Central Bank has made its first cut in interest rates. Suspicious Conservatives think the Bank wanted to deny them a rate cut before the election , to offer up an introductory one in August to the new Labour government all the pollsters and most commentators say we are going to get.

It shows the difficulty for a so called independent Central Bank to keep out of politics. To the main parties this decision was a crucial one.Cut rates and reinforce the Prime  Minister’s message that we have turned a corner, the economy is on the mend. Leave rates up for a few more weeks and reinforce the Opposition view that it is all a mess.

So let me show balance. The Bank given the ludicrous way it seeks unsuccessfully to keep inflation  down followed its own method in deciding on further delay. It could argue that service sector inflation is still elevated and not coming down as quickly as the forecast it made so the Bank needs to be cautious. The Bank also of course yet again needs to thoroughly review how it forecasts inflation as it got it wrong again.

Housing inflation remains elevated within services.Rents  keep rising in part because migration still runs hot. Owner occupiers face mortgage hikes thanks to Bank policy. There are “ reasons” for the Bank to hang tough.

The disgrace however comes in the key Bank policy most media and politicians refuse to talk about – the Bank’s wrong decision to keep selling bonds at huge losses and send the bill to taxpayers. No other Central Bank does this. Even the Fed, cutting its bond portfolio aggressively as bonds mature has reined this in in recent months, realising the damage it can do.

When I was asked to comment yesterday on the lack of rate cut the media would not consider the far more important Bank decision to keep on selling bonds. Why?

Just one billion more

If putting more money into the NHS solved its problems we should see much reduced difficulties now. Record amounts and large increases in cash have been provided since 2019.

The truth as Labour acknowledges is you need reform, improvement in how it is spent, as well as extra money.

In this election various parties offer a few billions here and there to solve problems in the NHS or other public services. They offer to “pay” for this with tax hikes that they hope will just hit the rich, leaving most voters unaffected. It is nonsense to suppose these modest sums in relation to the total will make much difference.

In order to properly fund the NHS we need large sums, tens of billions, to pay the big bills. In recent years there has been plenty of wasteful spending.

The government paid a large sum to provide Nightingale hospitals, then scarcely used them. If they had been used for COVID the main hospitals could have done other work, providing more timely treatment and keeping waiting lists down.

The government spent a lot on taking over the capacity of many private hospitals. The NHS then failed to use all that capacity for non COVID cases, wasting much of the spend. Worse still the private sector couldn’t perform operations in its own hospitals, adding further to waiting lists.

PPE was in short supply worldwide. Taxpayers had to pay large sums to get PPE from worldwide suppliers where they could. Why didn’t the NHx have bigger stockpiles?  Why didn’t the NHS have flexible contracts with long term suppliers that allowed bigger deliveries in a crisis?

The NHS has been underpaying some medics. As a result expensively trained staff have got medical jobs abroad where pay is higher or have left for other occupations. The NHS hires staff back as contract staff at much higher rates.

There is no easy answer to improving management. I am not proposing another expensive reorganisation, What we immediately need is to make key managers more accountable and to get to tackle the staff, property and supply problems which are still widespread.

Posting to this site

A few people are going in for more and longer contributions. I am going to start deleting some for length and multiple posting.

Some want to make comparisons with Hitler  and Nazis. This is usually inappropriate. Make points using proportionate language,

One wannabe poster every day submits a variant of the same posting alleging a couple of billionaires run the world and control the governments. We have discussed this in the past. I have no intention of posting these. Go elsewhere to pursue.

War and defence

Those who think about the war in Ukraine see four possible out turns. The most likely is the current brutal war marches on with little change of territory, with Western cash and weapons supplied sufficiently to sustain brave Ukrainian resistance. In the last week the West has produced another $50 bn loan. The USA has signed a 10 year defence partnership and has relaxed its rules on use of Western weapons.

Some think both sides will be brought to see the need to compromise. If neither side can deliver a knock out blow it is possible they could agree a new border for Ukraine. To date Ukraine has been firmly against this. There is the option of NATO offering membership to the new Ukraine to emerge from such an Agreement, along with full security guarantees. One of Ukraine’s reasons for not wanting such a peace would be the threat that Russia could come back strengthened to try another invasion. Many Ukrainians and allies do not like the idea of ceding land to Russia as reward for an invasion.

Some think NATO should intensify its financial and military aid to increase the chances of a Ukrainian victory. Given the Russian war time economy  and willingness to accept large losses of troops this would come at a price but offers the best deterrence against future Russian aggression.

The fourth outcome is Russia taking more territory and forcing an even more favourable peace for itself.

Some military experts think going all out for victory by Ukraine would be best. It would avoid the costs of early future conflict and reduces the security need. The more that is ceded to Ukraine the more aggressive Russia might become.

 

The Ukraine war has made clear the inadequacy of NATO weapon stocks and the need for much more western weapons and ammunition manufacture.When will this be put in?

The West is considering using Russian money held in Western banks to help Ukraine. This poses legal issues which still have not been resolved.

What should NATO do now about Ukraine? Which outcome do you expect?

Look at Labour and Lib Dem Councils to see what they believe

It is often best to judge people by what they do rather than relying on what they say.This is certainly true of political parties, who often change their minds in office from their election promises.

I see at first hand what Lib Dem led Wokingham and Labour led Reading do. Both pursue a relentless vendetta against motorists, closing roads,  narrowing roads, restricting junctions, imposing more rules and speed limits. Both are spendthrift, claiming they do not have enough government money.Both allow the growth of potholes.

Both put up parking charges and make access to their towns difficult for those coming by car. Both claim a shortage of money despite receiving substantial national grants.

Both put up Council tax by the maximum.

Devolved government in Wales and Scotland sends the same message. Labour in Wales and the SNP in Scotland preside over a slower growth rate than England. They concentrate on getting more national tax per head to spend than England, yet their public services are often worse and their economic performance poorer.