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Electricity prices
The BBC and other traditional media outlets keep repeating the line that our electricity prices are high but they will fall if we add yet more renewables into our system. Is this sloppy research or net zero propaganda?
BBC Radio 4 did have a promising interview on 24 September on PM when the Head of Great British Energy was asked two difficult questions. Why is UK electricity so dear? How can you expect people to switch from gas heating and petrol cars to electricity when electricity is so. much dearer?
The truth is obvious to many consumers. We are not going to buy heat pumps and battery cars all the time electrical power is four times the cost of fossil fuel energy, and all the time the pumps and cars are so dear. Nor will we believe electricity is going to get cheaper the more renewables there are, as we have been told this for years and the opposite has happened. We have so much more renewable now than 10 years ago, and power prices are so much higher.
Unfortunately after setting out good questions the BBC did not follow up with a critique of the wrong answers. We were told that the surge in gas prices in 2022 and then again in 2026 pushed up the cost of gas generated electricity and this was why electricity is so much dearer.
No mention of the big forces behind ten years of dear electricity. There are now carbon and windfall taxes on gas to make fossil fuel power dearer. The renewable capacity was only installed by offering big subsidies and a system of guaranteed high prices for the power. The system needs to pay a lot to renewable producers to switch off when they generate more than the grid can take. They have to make large payments to gas generators to stay idle but to be available for when the wind and sun switch off.
We end up paying for two lots of capital intensive systems to provide power.An intermittent one given priority when it does work. A fossil fuel one made dearer by infrequency and by very high special taxes.
It is a deeply damaging system hitting consumers and closing our industries down. Why can’t the BBC explain this or at least persist with some of the right questions?
The public sector productivity decline is costing us £ 50 bn
The ONS has been busy changing its productivity figures. It thinks maybe it has been getting them wrong. It has come up with a bit faster growth rate in productivity 2009-19 looking at output per hour worked. The figures are still poor compared to the US which has outgrown the UK and the EU massively this century.
What is not changing is the picture of collapse in public sector productivity that occurred over covid. Where the private sector got back up to 2019 levels and pressed on after covid recovery, the public sector has still not got back to where it was seven years ago. Health and social services sits well down on 2019 whilst accounting for 8% of UK activity. Defence and public administration with 5% of UK activity, and Education at 6% of output are also down on their 2019 levels.
This means that one fifth of our economy in the hands of the public sector to supply goods and services has subtracted from productivity over a seven year period. This has been a time of big increases in public sector budgets with the public sector taking a rising share of activity. The public sector should be benefitting from the large spending on computer systems, as many of its activities are clerical and can be automated, or are services with substantial back offices. It has awarded itself pay rises well ahead of the private sector, enabling it to recruit and retain good people. Public sector pay in the most recent figures was up by 6.3% compared to just 2.9% for private sector pay.
I am all for people being better paid, but recognise to do so they need to work smarter and deliver more. Modern technology can allow this with suitable support and back up. The shame is large pay awards were made without any productivity deals. The scandal of the railways was the big award to well paid train drivers without agreeing a solution to manning in an age of more automated trains.
Paying people more without improving efficiency and quality of work, and tipping ever more cash into services that do not raise their productivity overburdens us with public spending. It creates a need to raise taxes to pay the bills. This government has created a doom loop. A badly run public sector makes too many cash demands. The resulting higher taxes drive talent and money out of the country and burden remaining businesses so they employ fewer and invest less. Public sector productivity should be at least 10% higher today than it is, still allowing for slow growth in it compared to the private sector. That would save us at least £50 bn a year to help control runaway borrowing or buy us £50 bn more services.
A recent podcast about nationalisation
www.youtube.com/@guy.pinsent
My Conservative Home article on UK inflation
The UK inflation rate is now 55 per cent above target. The Bank of England last week revised its forecast up, expecting the rate to be double the target early next year. This is the same Bank that forecast 2 per cent inflation for 2022-23, only to see the rate hit a totally unacceptable 11 per cent .
The politicians talk endlessly about a cost of living crisis, picking up elector disapproval of rising prices and squeezed household budgets. They tell us that the Bank is independent, refuse to criticise its poor performance and lose elections if they are in government as the public holds them responsible.
The exchange of letters last week between Bank and Chancellor was pathetic, missing many of the main points and seeking a common excuse for their joint failure. The Bank has to publish a letter when things go wrong. The Governor signed one that decided to blame the inflation on world energy prices. There was no explanation of why their previous forecast had not factored in Middle East turmoil. The conflict between Iran and her proxies with Israel, the US and others is not new. There was a statement that inflation was going to get worse. The Bank pointed to lower private sector wage settlements and squeezes on companies as giving hope of lower inflation whilst forecasting the opposite.
There was no mention of the big surge in public sector wages, no reference to the continuing poor public sector productivity, to the huge costs and losses of HS2, British Steel and the railways. There was no comment on the huge council tax rises where grants have been reduced, nor of the average council tax rise well above inflation.
Worse still, when the one sided analysis gave way to conclusions about what the Bank should do, the author clearly needed to break off from the home computer and end in a hurry. I assume that, as the Governor is paid £500,000 a year, he has people to write his letters for him. We are simply told keeping the interest rate where it is will bring inflation back down to 2 per cent sometime after it has hit 4 per cent. How? Why?
There was no mention of the MPC ‘s momentous decisions to loosen monetary policy by selling fewer bonds in the market. The Inflation letter tells us the monetary stance will, in due course get inflation down, keeping the base rate at 3.75 per cent. Why was there no mention of getting the 30 year rate down a bit by cancelling long bond sales? How does that fit in? I happen to agree with that policy, whereas the Bank since 2022 until now has helped force long bond interest rates up a lot, without seeing that as part of its counter inflation policy.
The Chancellor’s reply was pathetic. He offered no constructive criticism to help get inflation back down. He decided to cower in the Bank’s shelter, claiming alongside them that inflation was the fault of an unruly and unpredictable Middle Eastern oil market. He thanked the Bank for its work, did not condemn the further forecast rise in prices and accepted current policy would come right eventually. Had he noticed inflation might not be back down to the 2 per cent target by the next election? Did he know Labour took over in 2024 when inflation had got back to target?
He assured the Bank – as if they were the bosses – that he will avoid excessive borrowing. Did he know he plans to borrow over £300bn next year to cover extra spending and debt repayment? He said the UK will help re-open the Straits of Hormuz. When and how? Will he borrow some warships to do that?
His absurd contribution to the price surge was to remind the Governor of £1 off some bus fares and the temporary VAT removal from electricity. The bills still go up, of course. No mention of the excessive expense of renewables, the cost of keeping stand by gas and the carbon taxes which lumber us with the dearest electricity of the G7. No mention of the way government is pushing up public sector costs, charges and taxes.
Both the Bank and the Treasury have a poor track record on inflation this decade. The government is fuelling it with its lax approach to public sector costs, its tax rises and its high borrowing. A mayoral tourist tax will see more rises in holiday costs. The Bank has lurched from an excessively easy monetary policy to a much tighter one. The Monetary Policy Committee offers little or no commentary on the rate of growth in money and credit and lacks interest in the role of money in inflation.
The recent exchange of letters does not instil confidence in their policies and show no understanding of the role domestic policies have played in driving prices higher. Once again they leave us well above the target they are meant to hit. Policy meanwhile drifts and the Chancellor fails to take action to rein in the cost of living pressures on a large enough scale to have a useful impact.
Should there be an early election?
Some think Mr Burnham is clearing the decks for an early election. They see him stuck with a long list of spending wishes and too little money to pay for them. So far his risky adventures have won him a seat in the Commons and got him the position of Prime Minister without having to spell out an agenda. He has changed very little that the previous Cabinet was doing. So why not throw the dice again, they ask. Others think he should soldier on as he has a good inherited majority, so why take the risk of throwing it all away? Backbenchers in marginals can see the current polls do not look good for them. I have no idea how they will decide this.
I have been offering him advice on how to manage the government better as I would like our government to be better run. I cannot give him advice on when to go to the country or what platform to stand on. I think the new Conservatives under Kemi offer a much better prospect of running things better. So instead I will sketch a campaign the Opposition can run were Mr Burnham to decide to bet on an early poll. It would give us a good opportunity to change government before more damage is done.
The first claim to make is it would be a cut and run election. It implies that if he waited so we could see his agenda for the next two years and his Plan for the next ten his popularity would decline. What is he hiding? Why doesn’t he set out his plan for government first? Why doesn’t he want to achieve some of his plan for government to show people it can work? Going early looks as if it is based on fear, not on bravery.
If he goes soon, cancelling the budget, the Opposition can say he did it to avoid the tax bombshell budget he has been planning. The Chancellor has refused to rule out yet more tax increases in the budget. We read of more people having to pay a so called Mansion tax, often on modest properties in London and dearer property areas. We see a big hike in capital gains tax given a good outing, a tax on enterprise and successful business. We await the new Tourist tax to be imposed by Mayors, another levy of maybe 5% on top of 20% VAT to cut jobs and close premises in the hospitality business. We read of bank taxes, more fossil fuel taxes and much else.
The Opposition can also say the early election is probably to tear up the old Manifesto pledges not to increase Income Tax, VAT and National Insurance. The Treasury will be telling the Chancellor there is a large black hole to fill and Mr Burnham will be demanding more spending. The Chancellor needs to fill in his own black hole created by his spending needs for defence. That will add to the fuel on the fire of the tax bombshell story.
Mr Burnham has indicated he wants a yet closer relationship with the EU and would like in due course to rejoin. This will alienate the majority who voted to leave, and the bigger majorities in polls who oppose the idea of more laws and taxes being imposed by the EU. The Opposition can expose the bad sell out deal Labour are planning in the so called Re set, which is all give and no take for the UK. We end up paying big bills, imposing bad laws and lose our ability to govern ourselves in important areas.
Above all the election allows the Opposition to expose the failure of the government to smash the gangs and to end illegal migration. The Home Secretary proposes an enquiry to study the problem. There is no need for study. We can all see the problem. The government will pay a heavy price for its lack of action. People are angry about the large payments to France when they escort the illegals into our waters. They are angry that the boat drivers are often not arrested, that the illegal migrants are not questioned about who they paid and how they heard about the boats. They are angry they are put up in hotels or former military accommodation with full access to public services often better than that allowed to the settle population. The issue is not where to house them but how to stop them coming and in such a dangerous way. Voters want changes to the law and better enforcement of our borders. All the time the numbers keep coming the governing party will struggle with an election.
So far inflation up, unemployment up, borrowing up, taxes up, government borrowing rates up, energy prices up, taxes up. Not the changes people wanted.
So bring the election on.
Rachel Reeves, the record and the legacy
John Healey with no hint of humour is critical of his legacy. He knows there is a £4.7 bn plus black hole in the accounts. He should know as it was his insistence on higher defence spending with no offsets to pay for it which caused it, whilst still leaving the defence budget short of where he said it needed to be.
Rachel Reeves inherited 2% on target inflation. She left with it standing at 2.9%, a 45 % increase in the rate. Her tax rises and cost increases for the public sector caused some of the problems.
Rachel Reeves inherited 4.2% unemployment, and put it up to 4.9%. Her National insurance rise, Business rates rises, Minimum wage rise all added to the pressures on firms who have had to shed labour.
She boosted public spending by £145 bn more than the Conservatives were planning for 2027-8, which many on her side will see as good news. The problem is they do not think it was enough and much of it was wasted. Runaway bills for benefits, a failure to stop illegal migration, the give away of the Chagos and the costs of Starmer travels abroad all added to the bills without adding to our standard of living.
She planned an additional £97 bn borrowing for 2027-8 compared to Conservative plans. This has helped drive up interest rates, greatly adding to public spending as it becomes dearer to service the rising debts of the state.
She inherited a ten year borrowing rate around 4% and pushed it up to over 5% by her overspending and overborrowing, a 25% increase in costs.
She was part of a government offering 300,000 new homes a year average for five years. With her higher interest rates she did not even manage 200,000 a year.
My response to Mr Lawson
What should Mr Burnham say to President Trump?
He needs to show he is a strong defender of UK interests. The US President despises weak leaders.
He could begin by telling the President the Falklands are British and the people there want to stay British. The UK has the navy and airforce to protect them from Argentina.
He should say the UK is backing the Falklands in getting oil out from the new Sealion field.
He should say he is reversing the give away of Diego Garcia. The UK will keep the freehold of the base and will honour the Treaty with the US over its use.
He should praise the Greenland Agreement.
He should reassure the President the UK is going to meet its NATO spending commitments . He should scold the President for his comments on our navy and remind him of the support and sacrifices the UK military have given in military coalition with the US.
He should seek review of tariffs imposed by the US against the UK and remind him of past intentions to have a free trade agreement.
The overstated green jobs
One of the most misleading net zero arguments is that the UK ‘s policies taxing, subsidising and banning our way to more use of renewable electricity are creating so many jobs. They often claim 1 million or 1.1 million already.They imply that renewable power , batteries and new green products deliver this.
The ONS presumably under pressure from government have had several goes at trying to define and count green jobs. Their latest estimate in March 2016 gave us a figure of 652,100 full time equivalent jobs, not 1 million. Within this total only 69,600 jobs arise from renewables.
The larger total includes 129,000 people in waste management. The bin collectors and tip managers have miraculously been granted green status though those jobs pre date the green policies people usually refer to. It includes 12,600 forestry workers, where tending woods and felling timber predate modern greenery by centuries. 24,700 jobs cleaning up sewage and 37,400 jobs in ensuring good water quality have been recategorised as new green jobs. 8,400 jobs in maintaining and restoring countryside also slide across. 18,500 jobs are government civil servants and quango staff, and 47,500 work for a wide range of environmental charities. That’s 278,000 jobs that have little to do with the net zero policies and would continue if we were not following a green power transition course.
It is true Green transition has created a lot of jobs and new factories to make solar panels, wind towers and turbines. Most of these are in China or Germany. An entrepreneur in my past constituency who had a successful international business making steel bridges invested in a state of the art very automated plant to make wind towers in England. He could not win enough orders at realistic prices owing to fierce German,EU and Asian competition and action. There were no buyers for his excellent plant so he had to close it and sack the employees. He had to write off his substantial investment.