John Redwood's Diary – Page 4 – For freedom and prosperity

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Coalition of the unwilling

March 28, 2025 101 Comments

I am glad the PM and President Macron have been forced to agree with my view. There is no peace agreement to keep in Ukraine. If Russia does agree a general ceasefire or peace they will not agree to UK and French troops stationed along the Russian border to enforce it. The idea of some NATO countries without US backing doing this was always a non starter.

I am now alarmed that the PM and the President of France now think they can form a coalition of forces to offer a security guarantee to Ukraine. As members of NATO with full US backing under Biden both countries rightly declined to offer a NATO guarantee to war torn Ukraine. So how come they now think the UK and France could do this without access to US back up , weaponry and intelligence?

Russia has maybe 1 million troops in or near Ukraine. Ukraine has 800,000 defending their land. How could say 20,000 Anglo French troops be a credible force to deter further Russian aggression ? Why run the risk of Russia testing out the inadequate force? If the UK and France are serious about fighting a war against Russia if Russia invades more of Ukraine then when will they mobilise and supply significant armies that could defeat the Russian hordes? Both countries would need to be put on a major war footing and would need to recruit large armies to drive Russia out of Ukraine.

Privatisation – taken up by the Thatcher government

March 27, 2025 52 Comments

The new Conservative government began slowly, still heavily influenced by civil service thinking. They sold some more BP shares in 1979 as Labour had done in response to the IMF crisis. They went on to sell smaller concerns including Amersham, British Aerospace, Cable and Wireless and Britoil. There was still resistance to undertaking a major privatisation of a big utility.

After the election victory in 1983 I was invited to Downing street to hear the Prime Minister say she was now ready to undertake a larger programme of disposals and wanted me to join her to assist. She approved a Cabinet paper setting out a larger programme, appointed John Moore as the first privatisation Minister in the Treasury and agreed British Telecom should be the first large sale. The aim was to take privatisation from under £1bn of sales a year to several multiples of that. Sales hit £4.3bn in 1984 and £9 bn in 1987. More important than the proceeds was always the possible transformation of these crucial industries, and lifting their growth and investment rates with access to private capital.

The work we did on BT shaped the rest of the programme. Each major industry had its own Bill setting out what was being sold and how, putting in place regulation and sometimes promoting competition. Some were sold whole, some were split up to create more competition. The Treasury was keen to sell BT as a monopoly. From the US experience of breaking their monopoly provider I was sure competition was needed. A compromise was struck with one competitor, Cable and Wireless, allowed for the business market. Competition for the domestic market was only allowed some years later.

The Treasury wanted to maximise valuations in the short term. Those of us who favoured competition expected faster growth and a larger tax base from early introduction of competition. Given the need for large capital spending programmes for the extra capacity and wider range of telephony services competition looked the better path. The UK monopoly kept people waiting to put in a new phone line, only allowed you to rent from a very limited range of phones and struggled with other uses of phone lines. Without major changes nationalised telecoms were going to impede the data revolution hitting business which needed more line capacity for transmission.

Stephen Littlechild had produced a paper on the need for regulation. I agreed with his view that the regulation should be time limited, to be replaced by competition. He proposed a simple monopoly price control for the early years using a price cap of RPI – x. This was adopted for several privatisations. In each case a simple but effective formula was gradually complicated, supplemented or replaced by complex rate of return formulae and detailed Regulator analysis of budgets and capital programmes.These did not improve matters.

The City when I took the early plans for BT to them were disappointing. Many of them harked back to the idea of Busby bonds. Some wanted BT and other large nationalised corporations to raise their own debt capital in markets. This was a bad idea as they would have been made to pay more for it than simply being given cash from cheaper government borrowing, yet there would have been relentless pressure for the state to always bail them out to avoid a nationalised bankruptcy. The Treasury may have accounted for it as non state borrowing, but outsiders were more likely to see it as a liability of the state.

Some in the City claimed the BT issue would be too big for markets, as it was many times the biggest share sale to that date. I initiated work to cut the volume of shares City institutions had to buy, We decided on a three part sale. There would be a sale of some shares to foreign buyers. There would be a popular issue to the public through the post and the conventional offer for sale to City institutions. I knew that would mean City investors could not collectively buy the average weighting of the new share in the index. To make it easier we decided to only sell a bit over half in the first offer for sale. It meant the institutions were short of shares in the biggest ever offer for sale, and helped ensure the shares went to a premium in early dealings. The sale raised a new record £3.9bn with the issue heavily oversubscribed. The City had just become a larger and more successful share market and found new liquidity from the retail share buyers who bought direct.

British Gas followed in a similar way in 1986, followed by British Airways and others in 1987.

The water privatisation in 1989 was disappointing, as the government accepted the argument that water was a natural monopoly. In practice it is a monopoly created by Statute, confirmed by the privatisation legislation. It is quite possible to have competing water suppliers using common carrier pipes as with gas. It is possible to allow challenger suppliers to take on new developments with new pipes or put in new pipes in existing areas. Water competition was introduced for business in Scotland. The privatisation of the water monopolies left a very regulated industry with continuing arguments over the pace of modernising and enlarging pipe networks and the prices to be charged to cover those costs.

What do boys want?

March 26, 2025 37 Comments

Today my new short book What do boys want? is available on Amazon.

This is based on my recollections of childhood. The book explores how adults often fail to see or understand what the child sees or thinks, explaining how a small boy has a very different perspective to his mother. It also captures social history, contrasting adult views of boys when I was young to changed views today.

It charts some of the more crucial moments when I learned an important truth about the human condition. It reveals the problems learning to walk, the need to go mountaineering on furniture made for giants, the frustrations of not being able to do things, and the problems of responding to grown ups who whilst trying to be nice were patronising or asking impossible to answer questions. I saw my bedroom as an action set for my cars, toy soldiers and model aeroplanes, whilst my mother saw it as a challenge to try to make it a tidy bedroom.

I never wanted to play with dolls, choosing boys toys out of preference. From an early age I was drawing what my car might look like when I was grown up.

The Spring Statement

March 26, 2025 58 Comments

Please can we spared the misleading presentation of the government’s budget difficulties today. Their problem is not a shortage of money to spend, but an inability to spend the money wisely. Their numbers are damaged by no growth brought on by a confidence shattering tax raising budget.

The last budget boosted spending substantially, then put up taxes and borrowings to pay for it all. The higher taxes undermined business and led to a reduced demand for new employees.

The waste of public money is distressing. Net zero subsidies and excessive capital for carbon capture and storage are a bad idea. Allowing a million young people to avoid work, training and education is not good.High Speed Rail has become High Cost rail with plenty of delays on the line.

The Chancellor needs to revolutionise the government’s management of the public sector, and rein in its poorly performing offshoots.

Questions to the Chancellor before the spring statement

March 25, 2025 64 Comments

Growth

Will you remove the deeply damaging Jobs tax which has hit confidence and undermined investment?

Will you remove the tax attack on family farms and small businesses, as you need them to expand to get growth?

Why do you think the US has been growing twice as fast as the UK? Will you copy their success, based on cheap energy and lower taxes?

Public spending

Have you calculated how much it costs to provide subsidised housing, NHS service, school places and other public sector capital and services for each no income and low income migrant? How many can we afford?

Why is public sector productivity down 8.5% since 2019? When will it return to 2019 levels?

What action are you taking to boost public sector productivity? Why is there no recruitment freeze in place apart from medics, teachers and uniformed personnel?

Spending cuts

Why do you accept the need to reimburse the Bank of England for tens of billions of losses each year?

Why do you not take action to stem the losses and cost overruns at HS2, Network Rail and the Post Office?

Why do you want to cut disability payments and pensioner fuel allowance when there are so many easier and larger targets for savings?

Privatisation – the beginnings

March 24, 2025 74 Comments

John Redwood Background

I first met Sir Keith Joseph at All Souls when I was first elected a fellow at 21. He was a distinguished fellow and a Cabinet Minister in the Heath government. I dared to tell him I thought the government’s lurch to price and income controls, its inflationary monetary policy and ill judged dispute with the miners would mean losing the election. Keith took my insubordination well whilst assuring me they were bound to win. The government did not understand market economics or how people felt. When the Conservatives asked the question Who governs? over the miners strike, the people responded “Not you”. The miners had a good case for a pay rise given the general inflation and the OPEC induced oil price surge.

After the election defeat Keith generously remembered my worries. He saw the damage caused by the policies they had followed and embarked on a radical rethink. With Margaret Thatcher he set up the CPS to champion the new ideas. He appointed me to advise the public spending and Treasury Committee of the Conservative Party in Opposition. Setting future budgets and economic policy was central to the rethink of Conservative values, aims and policies which he chaired. I took to them a way out of the financial problems they would inherit Faced with sky high taxes, excessive spending and borrowing I proposed denationalising many public sector trading enterprises to remove their capital budgets and losses from the state budget and to bring in receipts to the Treasury. Keith asked me to chair a committee on denationalisation at the CPS . The CPS gave me plenty of encouragement as together we set out detailed plans for a private future for most nationalised industries. I also chaired seminars for Nationalised Industry chairmen to prepare them for ways of raising more money and having access to private sector funds for the large modernisation programmes many of them needed. In 1983 Margaret Thatcher appointed me to help her drive through a much enlarged privatisation programme in Downing Street. I continued to advise and press for more sales as Head of the Policy Unit and then as an MP and Minister.

The case for privatisation

It seemed obvious in the mid 1970s looking at poor technically backward bankrupt U.K. seeking loans from the IMF that we needed big changes. As an investment analyst I looked enviously at large profitable competitive US companies in important sectors like telecoms and energy and saw how far ahead of our nationalised industries they were.

The U.K. state owned and ran the railways, the postal and phone systems, gas , electricity, coal, shipbuilding, aero engines, steel, weapons manufacture, some car assembly, some oil, water and waste water, refuse collection and much else. Many of these industries were starved of capital investment, made major strategic misjudgements and often generated losses. They added to state deficits and the overall state debt burden. Why not free the state of the heavy financial demands and free the businesses of the heavy hand of state control?

I set out in books and articles how the UK’s post war big nationalisations like coal,rail and steel had led to many lost jobs, to large losses for taxpayers, and higher prices for customers. Privatisation could lift much of the financial burden, cut the chances of job loss and improve the quality and value for money of the goods and services.

As soon as industry was privatised all its investment spending dropped out of the state budget. No longer was an improved telephone exchange or a renewed blast furnace competing with money for the NHS. The industries could increase their investment if they could satisfy markets it was a profitable venture.

Out of state control their losses no longer fell to taxpayers to meet. In the private sector they were more likely to be profitable so they would contribute more by way of business tax. The sale itself would generate a one off capital receipt which appeared as negative public spending in government accounts.

The performance of privatised industries usually improved substantially after sale. Managers were paid bigger bonuses for better results. Many employees became shareholders or were given bonuses to align their interests with success of the company.

As the state privatised it could introduce competition into monopoly services. Competition is the best regulator. As many critics of privatisation feared bad conduct once in private ownership the larger monopolistic businesses also could be given industry specific regulators to preserve services or features people claimed to value.

The battle of ideas in the 1970 s

Most establishment and academic opinion in the 1970s believed the great nationalisations of the mid century were the right way to proceed. There was little analysis of them as trading businesses and an unwillingness to contrast them with private enterprise comparators in the USA. I sought with the CPS and others to set out just what had gone wrong and how the state,the employees and the customers were suffering.

Our steel industry had attracted large public investment to put in five big modern integrated plants only to spend the 1970 s and 1980 s seeking customers to justify the large potential production. Political debate was all about progressive closures under Labour and Conservatives.

Our telecoms industry was still putting in electro mechanical switching from a British produced system the telecoms monopoly wanted which did not sell abroad. The US was well advanced with electronic switching.

The water industry had a network of ageing pipes for a smaller Victorian population. It could not get the large sums needed to expand and renew its networks.

The electricity industry depended heavily on coal power stations that posed air plllution issues and were only 32% thermally efficient.The rail industry was in retreat, losing much of its freight business as well as experiencing declining passenger travel. The coal industry was constantly closing puts claiming they were no longer economic. With the advent of North Sea gas it lost market share rapidly.

All this needed explaining to counter the nationalisation bias and optimism. The nationalisers where they did accept problems usually blamed a shortage of subsidy and investment money from the government. It was remarked at the time we did not own the nationalised industries, they controlled us. The Chairmen were in a powerful position to demand the state covered their losses as they could threaten cuts or big price rises in crucial services. Most were not in a strong enough position with clear enough plans to implement large scale modernisation investment.

By 1979 the CPS had plans a plenty to sell assets, spin off businesses, privatise whole concerns, introduce competition and raise expectations. I produced a grid of all the nationalised industries, setting out their financial results, their investment needs, the assets they could sell, the opportunities to sell all or part of the business, the way employee shareholdings could be introduced and the main issues a privatisation would arouse.

Why is the UK economy debate so distorted?

March 24, 2025 30 Comments

The government behaves as if UK taxes and public spending are too low. It complains about past government austerity. It sets bizarre fiscal rules based around OBR forecasts of five years hence that are bound to be wrong. It puts up taxes on jobs and assets that were bound to destroy growth and lead to an exodus of wealth and talent. The media helps them frame a debate about this illusory world of past austerity and present false choices.

The truth is the last six years have seen an explosion of public spending, up 55% in cash terms and up strongly in real terms. Inflation was around 25% so the real increase was around 30%. There has been a major expansion of the civil service, of NHS staff and of employees in the wide public sector. There has been no shortage of cash or people. There has been a collapse in productivity.

At the same time there has been a large increase in low income and no income legal migrants, and in illegal migrants who get to stay. This has driven up demand for subsidised housing, utilities and a wide range of public services.

The way to control public spending is to put an end to mass migration , and to engage urgently and purposefully with the need to get productivity above 2019 levels again. The state should not be spending more but spending better, It should not be inviting in hundreds of thousands to add to housing and NHS waiting lists.

The Labour government misled us in the original EU referendum

March 23, 2025 77 Comments

The Labour government of Harold Wilson sent every voter a pamphlet advising us to vote to stay in the EEC. A crucial promise was made

”There was a threat to employment in Britain from the movement in the Common Market towards an Economic and Monetary Union. This could have forced us to accept fixed exchange rates for the pound, restricting industrial growth and so putting jobs at risk . This threat has been removed”

Well it was not. As they rightly forecast EMU would destroy jobs which is what happened when the UK was pushed into it by all 3 main parties.

The tract also assured us we would not lose our Parliamentary sovereignty. It said

”It is the Council of Ministers who take the important decisions…The Minister representing Britain can veto any new law or tax if he considers it to be against British interests”

Instead the EEC/EU went over to qualified majority votes where we could be ignored or overridden.

The EU are still out to ensnare us

March 22, 2025 103 Comments

I find it odd that hardened Remain supporters claim moral and intellectual superiority whilst reading and understanding little of the EU or our relationship with it.

They think the Uk can only grow if we sell more goods to the EU. At the same time their net zero policies ban the oil, gas, oil products, petrol and diesel cars that made up the leading items we exported. I set out yesterday for them the big surge in service exports to non EU and how our trade is now dominated by services and non EU markets, but they will ignore that.

Now they want the Uk to be able to get some money and orders out of a borrowed fund of 150 bn the EU plans for weapons they are buying.Why? We have our own money to buy weapons. We need to use that to expand our own weapons industry. If we joined in their fund we would need to take joint responsibility for all the extra debt. They will need to buy from UK companies if they want certain products anytime soon. If they refuse it will be their loss.

The PM has shown how divided over Ukraine the EU is. He has demonstrated that NATO remains our best way of encouraging defence collaboration. He has also proved that as in 1940 the UK has to arm to be able to defend our islands without European help.

France wants to grab more of our fish, and prevent us rebuilding our once self sufficiency with our own trawlers. We need to take back control as transition in fish ends. They have plundered our seas and taken most of our fish for far too long.

They want to put us back under their laws , pretending that would be good for trade. UK companies need to be free to design and make things for global markets, not impeded by the EU single recipe.

The issue of trade

March 21, 2025 83 Comments

The bulk of our economic activity is home output for UK people. More than half our overseas trade is with non EU countries and over half our trade is in services, not goods. Yet many in government go on and on about how to get growth we need to boost exports of goods to Europe. Remain supporters cling to the long disproven idea that our goods trade with the EU would fall with Brexit and lead to lower GDP.

The main reason the UK is not growing today is the anti business budget last year which stopped a good growth in the first half of the year and threatens more damage to UK business when the jobs tax kicks in in April.indeed, growth in just the first quarter of 2024 was more than the Bank of England forecast for the whole of 2925 after the disaster budget.

Since 2016 when we decided to leave the EU exports are up from £575 bn to £837 bn or 45%. Since we left in 2020 they are up from £624 bn or a third. They are up by more with the rest of the world than the EU and services are up by more than goods, but that was also the trend in our later tears in the EU. The EU has been growing too slowly. The rest of the world has been growing faster and is keener on our exports.

Trump tariffs have not yet had any effect on the numbers. Their inflationary effects will be the US, not on us. The UK did scrap all EU tariffs on intermediates when we left the EU and all tariffs on goods we do not make, to stop taxing ourselves. The UK should drop the damaging carbon border tax or tariff which the EU proposed and which we have still not dropped. It will put up our inflation and anger the US, inviting retaliation.

Current Uk industrial and energy policies are designed to drive down our goods and oil exports by banning oil,gas, petrol and diesel cars and by giving us such dear energy our high energy using industries cannot compete. It is the net zero policy, not Brexit that will lose us national output and exports.