Governments and all the UK parties in Parliament want to cut UK CO 2 output. I have been arguing against some the damaging self defeating policies they propose to do this. Stopping UK gas and oil extraction in order to import oil and gas increases world CO 2 as well as cutting our jobs and tax revenues. So does stopping food growing here so we import more. Blocking roads and deliberately creating traffic congestion boosts CO 2 from delayed vehicles. Today I will give my top picks on popular policies Ministers could follow to cut UK CO 2.

1. Reduce legal and illegal migration. Every extra person has a carbon footprint, and needs a  home and public service provision that also generate CO 2

2. Tell the public sector to substitute on line meetings for foreign travel to international meetings in most cases.

3. Install solar panels on most public sector roofs

4. Replace public sector gas central heating systems with heat pumps to create a market for them, which should then drive down prices and improve effectiveness of these unpopular products.

5. Step up bypass and better junction construction on roads to improve average fuel economy on journeys and remove more traffic from congested urban areas

6. Cancel work beyond current firm commitments on  HS2. It is very carbon intensive.

Windfall taxes make the things taxed dearer. They reduce investment and output in the items taxed, cutting supply.

We were told that the very high prices of gas and oil that resulted from Putin’s invasion of Ukraine and from the West’s decision to stop buying Russian energy were generating windfall profits, both by the fossil fuel companies and by the renewable generators whose prices of electricity reflected the gas price. Gas remains the largest fuel source used in UK generation.

It is true there were such windfall profits as the gas price soared. Today the wholesale gas price is 85% lower than the peak it reached at the worst point after the outbreak of war. The oil price is also down by a third from Ukraine highs. If you impose a windfall tax based on a one off shift in prices that gives companies a bonus, shouldn’t you remove the tax when that price change disappears? It was a weakness of the windfall tax that it did not describe the  nature of the windfall or seek to fairly reflect its size and duration going forward.

Few will be sympathetic to large energy companies who have recently been making large profits. However, if the UK perseveres with a level of taxation that is materially higher than elsewhere for energy, and demonstrates an unwillingness to remove windfall taxes after the windfall has gone, we will find it more difficult to attract the investment and jobs we need to produce more domestic energy. Customers end up paying the higher taxes and business will migrate to lower taxed countries.

The government is pressing ahead with carbon capture and storage projects. When I asked on Thursday who was paying I think the answer was taxpayers, though the Minister delphically said they will “socialise” the costs.

Normally when a business makes an investment customers pay for the output from the facility being installed. In this case the output is storing a lot of CO2, where the customer seems to be the state. It raises the question whose CO2 is it storing? Is that a cost of whatever caused the extra CO 2 in the first place? Some of it will indeed be CO 2 generated by the state itself, with all those heating systems in public sector offices and all that travel of public officials.

Overall the UK government needs to review just how much extra cost it is imposing through windfall taxes, carbon taxes and now these carbon capture schemes. It needs to get off the import best model. Current carbon accounting based on national boundaries still seems to encourage Ministers and officials to close down or drive out carbon dioxide generating activities in the UK, only to import the goods needed from abroad who can then account for the CO 2 in their national figures. This makes  no sense for controlling world CO 2 and is damaging to the UK economy and business.

The present international carbon accounting could have been designed for April 1st.

It is strange that the Bank of England has a Monetary Policy Committee yet  declines to set targets for money and credit expansion. It does not  normally comment on money and credit growth in its Reports, preferring to concentrate on past figures for GDP, inflation, estimated capacity utilisation and unemployment. Its forecasting record has been poor in recent years. It confidently expected inflation to stay down around 2% following its big monetary expansion and bond buying policy of 2020-21. It has only recently accepted inflation has greatly overshot its target and forecasts, waiting for the overshoot before admitting it. It now forecasts inflation to fall well below target in a couple of year’s time, yet still hiked interest rates higher as if it did not believe  its own forecast.

Whilst it is true that any given monetary measure may become distorted if it is a target or prime interest of a Central Bank, it is also true that if we look at any of the great inflations they have been accompanied or caused by excessive money and credit creation in their early stages. Given the Bank’s wish to interfere in the bond markets and to manage interest rates for various periods of borrowing from overnight to 50 years, you would have thought it would take an interest in how much money and credit is in circulation and in how far that might expand  given its actions. If inflation is agreed by the Bank to  be too much money chasing too few goods, they should not only study the too few goods (capacity) but also the too much money. Traditionally Central Banks have tried to control money and credit by moving interest rates, expecting commercial banks to lend less when rates are higher and lend more when rates are lower. More recently Central Banks have directly boosted money supply by creating bank reserves to buy up bonds. Much of this money initially found its way into asset prices, creating inflation in bonds, shares and property. More recently the inflation has spread into goods and services, as the money freed from the bonds has been spent.

The Bank should introduce some paragraphs in its commentary on rates of money and credit growth. They should explain why they think fast growth in these aggregates will not on that occasion produce inflation. Today they need to comment on whether there is enough money and credit around, given the slowdown and the dramatic change in money policy they have put the economy through.

Keeping inflation to 2% is a crucial role of the Bank of England, ECB and Fed. As events in the USA have just shown, it is however less important that avoiding banking collapse. Since Silicon Valley Bank got into trouble the Fed has made a huge change to its money policy, flipping from ultra tight with plenty of money withdrawal by selling bonds, to a large easing   with $300 bn of loans to commercial banks. It had to make the switch as it is the first duty of a Central Bank to provide cash to commercial banks so they can honour their deposits if a lot of people all want to withdraw at the same time.

The decision to shift to a much easier money policy in the short term was screened by still continuing with a 25 bp or 0.25% interest rate hike. The Fed wished to reassure some that it is still battling inflation, whilst reassuring others that their deposits are safe. Silicon Valley Bank had got into trouble because the Fed has raised rates so much, losing SVB money on the bonds it held. It is a reminder that shifting money policy to too tough brings different kinds of problems.

All the Central banks need to review where they are in money tightening and in bringing down inflation. There are always lags – it takes time to get inflation down by raising rates and throttling credit. It is important not to overdo the tightening as that can undermine banks as it  hits the affordability of credit and the value of bank investment holdings in bonds. They will all need to make sure plenty of cash is available to any bank that comes under unwelcome pressure to repay deposits, as that is the way to make sure there is no such run.

The government is currently concentrating on illegal migration with its eye catching and contentious promise by the Prime Minister to stop the boats that bring many of the illegal entrants to the UK. The Opposition parties oppose him strongly, demanding more safe routes for migrants and asylum seekers to come, and easier processes to allow people to enter more rapidly.

Most Conservatives believe the UK should provide refuge for some people fleeing violence or oppression elsewhere. This should be an offer as part of a wider offer by many richer countries to spread the  responsibility and to provide geographical choice to those seeking a new home. Many of us also believe the UK has been offering too many economic migrants a home and a job here, seeking to perpetuate a model of growing the economy by recruiting plenty of lower paid labour from abroad. Instead we would prefer to see investment in machines, computing, training and higher standards to get more of the work done with fewer better paid people. We want more better paid and high quality jobs for people already living here, backed  by the investment it takes to raise productivity and therefore wages.

The low pay model is not a great one for the people coming nor for the taxpayers who need to foot much of the bill for so called cheap labour. Paying people too little means state subsidy to provide them with housing, income top ups, health and education provision and a range of infrastructure and other public service provision. Last year we added 500,000 more people to our totals. To ensure they have a decent life that will take a lot of new housing, public sector facilities, roadspace, electricity and water capacity and a range of other capital intensive service provision. The EU some years ago suggested it took Euro 250,000 to provide for a migrant family or individual coming to the EU to provide all the facilities needed.

Just like government explaining its line on the pandemic, the Bank tells us its decisions are driven by the data. As someone who does seek to provide sensible forecasts of inflation, growth and deficits going forward, I agree you start your task by assembling good data. You seek to understand the figure you are forecasting, so you are aware of the way it is compiled and what affects it. You need  also to be aware of the imperfections in the data, and the quirks from the judgements made about how to define and compile it. As we saw in trying to compare different countries handling of the pandemic the definition of a covid death and  how strenuously the authorities sought to record them mattered a lot to data outcomes. Forecasting inflation produces different results depending on whether you use CPI, RPI, core CPI or some other index.

It is however wrong to say policy decisions are data driven. If they are they will be  always looking backwards. You cannot drive the car successfully by looking all the time in the rear mirror, though that will give you a perfect understanding of all the  hazards you have just missed. You need mainly to observe what you can see through the windscreen ahead, but you need to judge or interpret what you see. Will the green light go amber? Will the child step off the pavement? Could there be someone dashing out from behind the parked  car? Is the road ahead clear enough to accelerate safely? To drive well you need to choose the right data – data about the road ahead, not the road behind, but you also need to interpret it dynamically. So it is with the economy. Knowing inflation has been fast does not mean it will be next year. Seeing oil and gas prices surged last year does not mean they will surge again to keep the inflation rate up. You need to judge how prices will alter ahead. Putting rates up because last month’s inflation was too high is not necessarily a good idea.

To make better judgements  it helps to understand how prices rise. Here the Bank ignores money and credit, yet it is if there is an excess of money and credit around that you are most likely to get inflation through excess demand. The Bank does have a model of what might happen next based on a concept of capacity in the economy. They seek to judge how much capacity there is in the economy to make things and supply services and then compare that with demand. If capacity is fully used they expect inflation, if there is surplus capacity they expect inflation to subside.

There are several reasons why this is a  very difficult way to judge the future. The first is it takes no account of the ability to import, yet an economy like the UK relies heavily on imports for marginal supplies of all kinds, so global capacity matters as well as domestic. The second is it is  very difficult knowing what capacity is. A business may say it can only supply 200 widgets a day, but if pushed and offered more money it might be able to add a  night shift to go up to 300. A restaurant might say it cannot do extra private dining, but could then discover it can hire more staff and open for more hours to serve more meals. Another manufacturer might discover that although he can put on another shift he cannot get an increase in components for the next two months to immediately boost output. To make it easier the Bank often relies on unemployment as the best indicator, assuming higher unemployment means companies could expand easily if there was extra demand by taking on more labour.

I will look in a future piece at why it is wrong to ignore credit and money and how it is difficult to find a reliable proxy for capacity utilisation which works for the future.

Today and tomorrow the Commons will take the Committee stage of the illegal migration bill. There are various amendments tabled to seek to make the decisions about the future of illegal migrants proof against excessive delays  and legal appeals. Whilst it is important that anyone claiming asylum should have a fair hearing and a right to an appeal if necessary, it is wrong to allow so many legal interventions that people arriving illegally get  to stay here for years whilst endless legal processes are explored against the original decision, at the taxpayers expense. It is also important  not to effectively give illegal  migrants some priority or ability to get round the rules and to stay here regardless of where they came from when there are safe routes for legal entry from countries where they are at risk.

The government is promising to look at the suggested amendments with a view to strengthening its Bill. It is important it does so, as people will expect these legal changes to be sufficient so the government can deliver its promise to stop the boats.

Most MPs tell me the Bank of England is independent. They tell me its sole purpose is to keep inflation down to the 2% target Parliament has set it. Yet when inflation runs more than five times target most MPs have no wish to debate why or to venture any criticism of the Bank.

They ignore the fact that government and Parliament appoint the Governor, set the target, approve and underwrite all the bond buying the Bank has been doing which meant ultra low interest rates, and question the Governor through a Select Committee. It has been lonely criticising the Bank for printing too much money in 2021 and now for destroying too much money in 2023, though all this has been approved and indemnified by government.

It was therefore a pleasure to read the Daily  Telegraph yesterday with a leader and a good article criticising the Bank for its role in creating and allowing the inflation to take hold. The paper should go on and criticise the Bank for disrupting the bond market with its large Quantitative tightening programme last autumn, having to reverse it temporarily when it saw the damage it did to  the LDI/pensions market, and ask more questions about whether they have now lurched from money being far too easy to being too tight.

In future articles I will look at why the Bank has got so many of its forecasts of inflation wrong in recent years, how it could improve its track record and how it should now proceed. I will stress that in practice the Bank has three aims, not just one. It does need to consider growth as well as inflation, and above all needs to ensure financial stability in the banking system that it regulates and finances. It  had a bad record in the period 2006-10 doing this.