I awoke to an odd headline yesterday in the Sunday Times. The Chancellor we were told is going to set up a £60bn Brexit fighting fund.
Fortunately the Chancellor’s own words in the same newspaper said no such thing. It was a silly headline. The government is scheduled to continue borrowing a bit more each year up to 2020, beyond our likely date of exit. The additional borrowing each year is now well down on the peak rates of the previous decade, and will continue to fall this Parliament. All the time we are adding a bit to state borrowing we cannot create a fund out of tax revenues.
Nor did the Chancellor write that there can be no net increase in spending in the March budget. He acknowledged that growth has come in faster and the revenues higher than forecast in the Autumn Statement. He has pre announced more money for vocational training and hinted at more spending on social care. He of course states his wish to see continued progress this Parliament in cutting the deficit further but has not said he wishes to stop all new borrowing. He will have some options as the Treasury and OBR correct some of their forecasting mistakes from the Autumn.
The headline about a Brexit fund is doubly misleading. The sum involved just happens to be the sum the rest of the EU would like us to pay as an exit payment. That is why we must rush to explain to them there is no such fund, no such money, as well as telling them there is no liability for us to have to pay. Nor does Brexit require a special fund. The future path of the UK economy is going to be mainly influenced by interest rates, the performance of the US and global economy, world commodity prices and their impact on inflation, and by the balance of domestic fiscal and monetary policy. In other words after Brexit as before the main determinants of our performance will have nothing to do with whether we are in or out of the EU, just as our past performance clearly got no visible benefit out of being a member of the EU internal market. Inflation is rising as many have predicted, but so far UK inflation has risen in line with US and German because it is led by world oil prices, not by the fall in sterling.
In the EU we experienced two great crashes. One was caused directly by EU policy when we fell out of the mad and dangerous Exchange Rate Mechanism and plunged into recession. The second, the Great Recession and banking crash of 2008-9 was a common crash in the USA, the Euro area and the UK brought on by similar Central Banking and commercial banking mistakes in all three zones. The EU did not cushion or ameliorate the problems, and then added their own twist of the recessionary knife with the Euro crisis that followed.
Let’s hope our authorities have learned from these bitter experiences so we have a good economic performance as we leave the EU. To do so we need interest rates that allow continued expansion without damaging the pound further, as the US hikes her rates. We need some relaxation of credit for good projects, home purchase and other affordable purposes in the private sector, and we need accelerated rates on investment in infrastructure to catch up with our needs.
March 6, 2017
And the Chancellor seems to be softening us up to accept post Brexit payments to the EU. Despite your assurances I believe Establishment will find a way to continue contributing to reduce the financial pain to their ‘pals’ over the Channel.
March 6, 2017
@Nig I
Well somebody has to fund the pensions of the likes of Baroness Ashton, Lord Mandelson, Lord Patten and the Kinnock family.
March 7, 2017
Well that is clearly the EU’s responsibility. Either they pay them or they do not get paid. If paid they should be taxed in the UK though & at the same rates as everyone else (or perhaps rather higher as they are largely undeserved).
I suspect most of the electorate would regard these people as traitors rather than deserving of gold plated pensions (& currently tax preferentially).
March 6, 2017
I am not sure that it is right that we plunged into a recession after we left the ERM. The recession started in 1988 when Mr Lawson kept interest rates low to shadow the Deutschmark with a view to joining the ERM, creating an unnecessary bubble, which burst in mid-1988. Joining the ERM in late 1990 made things worse, but leaving it led to growth and recovery.
March 6, 2017
Indeed the recession started to end when interest rates fell rapidly after we left
I remember the politicians and experts lying? To us that rate would have to rise further if we left they had already got to 15% under the idiot leadership we had. Still no apology from the man.
March 6, 2017
Off Topic, just wanted to know if this is true?
YEARS? Brexit negotiations could take JUST 10 MINUTES ‘and Ivan Rogers admitted it’
ARTICLE 50 negotiations could take “just 10 minutes”, not the two years everyone thinks, according to a former Tory cabinet minister
March 6, 2017
Rogers reply to the 10 minutes comment: “Yes, on tariffs, in principle that is right. The problem is non-tariffs.”
March 6, 2017
Brexit negotiations could be called using the current popular term “fake news”. My simplistic understanding of the Lisbon Treaty is A50 is triggered, the country leaves in two years and there is no negotiation mechanism. The EU will continue to demonstrate its unwieldy and cumbersome structure of 27 countries, 5 presidents, the commission, two location parliament in any post A50 triggering arrangements and commitments. The nationals debate highlights the realities of the EU.
March 6, 2017
The £60b Brexit fund comment was clearly briefed by the Chancellor so you shouldn’t blame the newspapers for reporting it. His motives for doing so remain opaque but it is certainly poor negotiating signalling to the EU exactly what they can get.
March 6, 2017
That was my impression too Roy.
There need not be any stormy waters for the British economy post Brexit, and it is fundamentally wrong for anyone going into a potentially problematic negotiation with the sharks in the EU, to suggest, or even hint that it might be otherwise. Even nuances can be misconstrued and seized upon by those with an agenda to push, such as the BBC, who will play it for all it is worth.
Tad
March 6, 2017
Dear Roy–The idea was I think to make it plain or at least plainer that we will have Reserves against whatever they might try to do to us
March 6, 2017
Is this true JR was it briefed by the Chancellor/Treasury?
March 6, 2017
What evidence do you have for your comment?
March 6, 2017
The housing, and in particular the construction market, is in no position for large interest rate rises. A quarter of one percent might be OK, with other increases fed in gradually, but large scale movements will definitely crash the market, the construction industry and the economy.
The UK government must find other means of releasing capital. One such way is to get rid of the Climate Change Act or, amend it so it is less damaging to the UK economy. To me, this is enemy number 2 after Big Government.
March 6, 2017
Sorry. Good morning. 🙂
March 6, 2017
Indeed cut the nonsense expensive energy religion and get banking margins, fees and red tape down with some real competition in banking too. Cut the OTT building regulations and relax planning too. Also address rip off charges for utility connections .
March 6, 2017
US rate hikes are actually fundamentally pulling the $USD down in value. Higher interest rates feed into costs and therefore prices. If the BoE hiked rates to 1000% tomorrow, for example, the rate of inflation would immediately be roughly 1000% annualised.
Moreover, banks lend based on income, interest rates don’t influence bank lending the way fiscal policy and regulation do.
Ceteris paribus, cutting interest rates reduces inflation and hiking rates increases it. Totally the opposite to what the mainstream believes.
So let’s keep 0% interest rates permanent.
March 6, 2017
No, interest rates have been too low, too long. Why should the feckless who over borrow be feather bedded, while the careful who put money aside and are not a burden on the State be penalised?
Maybe in your economic theoretical world it may be o.k. but in the world where people actually live it is not. Was it not reckless borrowing and lending and the fraudulent bundling of badly managed debt being sold on which caused the great crash?
I agree the link between BoE rates and bank lending was broken years ago, but you can be sure the banks will increase rates if the BoE were to. The banks have had free money too long with practically zero interest rates and QE distorting the market
at the expense of depositors. When the banks get back to lending what they get from depositors rather than the government, the economy will be on a more even keel. Personal borrowing is way too high and another crash will come sooner rather than later. Something the Remainers will be able to blame on Brexit.
March 7, 2017
I don’t support the idea that low interest rates cause unsustainable bank lending. If you want less lending, support hiking capital requirements not interest rates!
And the recession was caused by the government deficit being too small to sustain the private credit structure (or “credit bubble”).L, not private sector borrowing per se.
But I agree people are being hammered by austerity and need support. Making the overnight interbank rate artificially above its natural rate of 0%, though, causes more harm than help by keeping inflation elevated. So I support making ZIRP permanent but with the caveat of massive tax cuts and extra spending to offset the deflationary effects of zero interest rates.
March 8, 2017
So why is Zimbabwe not the most successful country in the world?
The crash was totally about private borrowing, mostly in America where people were sold property which they could not afford.
Still want to know why savers should pay for borrowers.
I think your economics are a bit bonkers. LSE student perhaps?
March 6, 2017
They really must think that we are particularly dim…. If you don’t believe in ‘brain washing’ or mind conditioning, this should disabuse of you of your mindset. This was planted on purpose to set in motion the idea that our ‘Brexit fund/bonus’ of £60bn ? is there for the taking….. and will be referred to continually as our way of ‘buying access’. This must be fought tooth and nail. As John says, there is no surplus, and we still have a deficit. OK, it might be shrinking, but it is still adding to the debt, and I do not want the EU benefitting from our bettter finances under some bogus ‘Brexit fund’ nonsense!!
Just as Trump has his fifth columnists, so do we in the Civil Service…..
zorro
March 7, 2017
In the Civil Service indeed but also in the Lords, the Commons, the judiciary, the BBC, Channel 4, many newspapers, academia, many charities ……
March 6, 2017
When we were in the Exchange Rate mechanism the pound was worth the equivalent of €1.45. If we had joined the euro in 2000, the pound would have been converted into euros at the rate of about €1.64. This morning the pound is worth about €1.16.
So, if we had managed to stay in the ERM our wages, pensions and savings would be worth about 25% more than they are now. If we had joined the euro they would have been worth about 40% more. Our economic policy has not been a success.
We should maybe look more critically at what we are doing, in particular about increasing productivity. That is not helped by having a frequently falling currency which makes it sensible for many employers to rely on cheap labour rather than investment in better machinery.
About the only good consequence of Brexit that I can imagine is that it may cut off the supply of cheap labour, forcing our employers to invest in more intelligent machines, but I don’t have much hope for that.
March 7, 2017
Alan
You are not surely suggesting we should have joined the Euro are you !
I thought the Euro argument was dead and buried.
March 7, 2017
And we would have been screwed just like France,Spain and Italy + the hard cases, with prices too high to compete with Germany and consequent high unemployment.
March 6, 2017
The Chancellor Mr Hammond gave more than the impression on the BBC Marr Show 5th March 2017 he intended to pay the EU huggins of money for permission to trade but directing it diplomatically into joint projects. Face saving.
This face saving device has been stated by the Brexit Team for some time. Basically, how to continue payments to the EU without it lookingobvious to the British electorate.
So long as the Brexit Team uses its own resources from their personal bank accounts I feel there should be nothing stopping them. Direct Debit may be the most convenient method.
March 6, 2017
The Telegraph runs with the £60 billion story today. I sincerely hope we are not being softened up for bribing the EU. With no money for social care and a skeletal armed forces the voters would be very unforgiving.
I see Texts is about to out perform Saudi Arabia in oil and gas production so in an era of cheap fossil fuel we build more useless windmills.
When are we going to get the CCA repealed and give industry a leg up.
March 6, 2017
sorry Texas
March 6, 2017
Misleading headlines in British newspapers are nothing new. It’s now called “fake news”, previously justified as “click bait”.
March 6, 2017
Quite agree nothing on Bloomberg CityAM or FT
Most likely Eurocrat trying to talk down the Eurosceptic Lawyer who first broke the story about not paying a penny. More speculation in the MSM the more people would believe we need to pay a huge exit cost to make Brexit seem negative and staying in the EU positive.
March 6, 2017
Use of the term ” Brexit Fund ” shows just how silly it is to make statements and to regret making them afterwards . I certainly took it to mean a provision to cover the cost of a post-Brexit fine from the EU ; it suggested that we would cough up if confronted with such a bill .Naturally as a strong Brexit supporter I was incensed at the news and was contemplating what little I would be able to do and say as a result . At the moment I want Hammond to go public and now explain exactly what he meant .
I am now satisfied that the Lords have signed their death warrant . The audacity of them to elect to say that they are the only ones who know what the public wants and to ignore the result of the referendum – and the ruling of the Supreme Court ( – equally superfluous body ), confirms that their function is meaningless , costly and undemocratic . I want to see all such bodies sent to the grave asap .
March 6, 2017
I am surprised the wish list in your final paragraph does not include reform and simplification of the tax system, particularly on the personal side.
March 6, 2017
Taxpayers should not be be required to pay for vocational training which will only perpetuate the ‘prestige gap’ between academic and vocational qualifications.
If students can be allowed to borrow from the Student Loans Company to help finance a degree course, then why shouldn’t the same system be available for students wishing to engage themselves as apprentices? In the bulk of cases the apprenticeship will involve less debt, will provide a better return on investment to the nation, and is rather more likely to be repaid.
March 7, 2017
Laurence
In decades past when I completed my fully indentured apprenticeship, my Company paid all tuition fees to the various colleges and examination boards required for all of my professional training.
Hence the reason we went through selection, aptitude tests and examinations before we were taken on as apprentices in the first place.
In turn we agreed to be paid lower than normal wages for the apprenticeship period.
The idea of students paying was never even considered.
March 6, 2017
Another thing Hammond needs to address urgently is the huge damage being done by the government and the courts attacking the very efficient “gig” economy. This with attacks on their self employment status, the absurd red tape and silly English tests for drivers.
Also what is the possible justification for preventing some taxi’s from using bus lanes yet allowing others to? Indeed what is the justification for not allowing private cars to use them? After all private cars are more efficient than taxes as the latter often make two trips for one useful one and need a driver.
Of course we actually know the justification. It is that governments can raise £31 million PA in bus lane infringement taxes/camera fines, this by constricting the roads in this absurdly inefficient way (half the road for say 3% of the traffic). Thus increasing pollution and delaying the productive sector in doing their jobs.
March 6, 2017
Thus damaging productivity, company profits, wages and actually reducing overall tax receipts. Governments are just brilliant at finding endless ways of shooting themselves (and the economy) in the foot.
March 6, 2017
Following on from my previous comment about unpatriotically defeatist media coverage I am also increasingly concerned that the Sunday Telegraph articles by Christopher Booker may be having the same kind of effect even if his motivations are not the same.
Yesterday he ended with a Project Fear Mark 2 warning that “It could be a catastrophe beyond imagining” if the government does not agree to follow the multi-stage exit plan which he and his collaborator prefer. I am not significantly concerned that this will happen – yes, it “could”, in theory, but it is beyond belief that there would be such a level of stupidity on the part of the governments concerned – but I do worry that it may contribute to the immediate intended effect of keeping us in the EEA, with the later effect – intended or unintended – that continued membership of the EEA turns out not to be just a staging post on our way out of the EU but either our final, unsatisfactory, destination, or even a point from which we could more easily return to the EU.
Christopher Booker may well be right that MPs don’t appreciate all the complex details dug up by his collaborator, but then that is primarily the task of the numerous civil servants who will be drawing up the withdrawal plans, including the contingency plans; part of the role of the MPs should be to continuously probe how far they have got with that work.
March 6, 2017
BBC Countryfile at it yet again. If it isn’t “man made climate change” it’s “…the Brexit effect.”
Last night’s was on Brexit’s impact on Iceburg Lettuces. After lots of Tweets beginning “Here we go again – Countryfile…” one viewer Tweeted “#countryfile why is Brexit to blame again for crop failure Spain?” as another tickled: “#countryfile no cabbage and broccoli during the winter? My kids have just become #Brexit supporters.”
March 6, 2017
Pity your talents are not fully utilised in the Treasury.
March 6, 2017
Indeed the treasury is just making the same dire mistakes as they made with tax borrow and piss down the drain IHT ratter Osborne. Taxes need to come down to at least the Laffer rate and be hugely simplified, central wage controls are economically illiterate.
March 6, 2017
There are all sorts of reasons for setting up a fund, if this is what has been done. These reasons may or may not be connected with Brexit.
As it is clear that we don’t have to pay the EU to leave, the only point of a ‘Brexit Fund’ could be as a contingency plan to assist this country or businesses with any short term problems which might arise when we exit the EU.
To me it would seem a sensible move.
March 6, 2017
All good points and common sense. I do hope you’re regularly in touch with the Office for Exiting the EU, do you know if they see notes like this?
March 6, 2017
Perhaps the fighting fund will be used to mop up the phased transition for a separate migration solution for the EU, maybe £60bn is to allocated to maintain the notion set out by the select committee EU home affairs asking that the
“Government should pursue preferential agreement with EU on future migration … Government should not apply the UK’s non-EU work permit system to EU nationals. They warned that this would disproportionately affect some employers’ ability to sponsor EU workers, and could result in labour shortages”
http://www.parliament.uk/business/committees/committees-a-z/lords-select/eu-home-affairs-subcommittee/news-parliament-2015/brexit-movement-people-report/
Why can’t EU migrant workers use the same immigration process as non-EU
March 6, 2017
Because Juliet, every opportunity will be used to keep us directly or indirectly shackled to the EU.
Hence Hammonds £60 billion Brexit fund.
March 6, 2017
It seems that they want to retain the strongest possible linkage between the EU’s “four freedoms”. Which we need to split, or we could end up like the Swiss – exposed to EU blackmail over trade if we want to change our immigration policy.
March 7, 2017
I agree. It is essential we do not accord any kind of “Special status” to the EU at all. And as far as possible we should refuse to deal with it as a bloc. Immigration should be bilateral and as you say on the same terms as non EU now.
March 6, 2017
“To do so we need interest rates that allow continued expansion without damaging the pound further”
Do we? I would argue that a failing on all sides of politics is to recognise that lower pound isn’t necessarily a damaged pound. The Germans like their currency to be as low as possible to maintain their export surplus. Us Brits seem to like it to be as high as possible to maintain our import surplus or trade deficit.
Sure, if we raise interest rates the R.O.W. will want to lend us more money which will raise the pound’s value but add to the debt and suck in more imports at the same time.
The goal of the UK government should be to balance its trade. That minimises the accumulation of new net debt. But that does require the pound to correctly valued.
March 6, 2017
Orwell, writing in 1944:
http://www.orwell.ru/library/essays/lion/english/e_eye
“All through the critical years many left-wingers were chipping away at English morale, trying to spread an outlook that was sometimes squashily pacifist, sometimes violently pro-Russian, but always anti-British. It is questionable how much effect this had, but it certainly had some. If the English people suffered for several years a real weakening of morale, so that the Fascist nations judged that they were ‘decadent’ and that it was safe to plunge into war, the intellectual sabotage from the Left was partly responsible.”
March 6, 2017
We also need our generation infrastructure to invest in Vanadium redux flow battery technology, to enable our investment in renewable energy sources to reach it’s full potential. This maturing technology is easily capable of storing more electricity than both the exorbitantly expensive & heavily subsidized new nuclear power plants can produce in a day – we could store windfarm electricity over night and feed it into the grid when needed with no nuclear waste problem!
On-shore and off-shore windfarms and blue field & domestic solar will be producing roughly 40% of the UK’s electricity this summer, we need storage capacity ASAP
March 6, 2017
Dear Mr. Redwood,
If may be an odd headline but it is certainly a disturbing one. Brexiters do not forget that May and Hammond were both Remainers. Hammond said a Yes vote would lead to “very significant uncertainty” for years for UK businesses that could have a “chilling effect” on the economy. He backed Cameron’s bogus renegotiation saying “The EU deal gives us the best of both worlds including a seat at the table…..”.
The Daily Telegraph today reports the Chancellor is now praising the economy’s
“resilience” in the face of some gloomy post-Brexit referendum forecasts. How can we trust someone who is able to perform such a volte-face?
If it is a silly headline, please explain why “we must rush to explain to them there is no such fund, no such money, as well as telling them there is no liability for us to have to pay”. If it is indeed silly then the EU will pay no attention to it.
I agree with those on this blog who are uncomfortable at the thought of the UK paying post-Brexit payments dressed up as joint projects. What an extraordinary coincidence it would be if all these new payments somehow equalled the UK’s annual EU budget contributions. And how convenient for Mrs. May and the EU that this amount would be that precisely needed to secure access to the single market.
March 6, 2017
60 billion, they haven’t got 60p, departmental cuts are on going and to rise by 3.5 billion a year with more rises in indirect taxes with student loan book sold off till 2006, as for money going in, not a lot, mainly for big business, nothing for the people as usual, cut to council on going till they get nothing from the treasury, the cost of the bail out has been massive and is still on going with cuts to education now, 2.5 billion and no increases with inflation for the next 5 years which means on going cuts to it budget, as for spending money on good projects, they haven’t got any good projects, what they tend to do is build art gallery, still over 60 billion a year in the hole with 10th anniversary coming up next year, i dare say that the government will create more jobs doing nothing, paying a wage of over a 150,000 a year on thing like the northern power houses.
March 6, 2017
Will the BoE, treasury and government be celebrating the 8th anniversary of second longest bull market in history created out public funds, should do because it been quite a achievement transferring all that public money to the private sector without public knowing really what going on.
March 6, 2017
Gooey-going, making heads or tails of the EU energy policy and its sanctions against Russia. Is it just for the UK to apply sanctions and buy expensive energy? Hungary extending its Russian reactors and Germany filling its lungs with Russian gas with EU blessing is a wonderment.
http://www.reuters.com/article/eu-hungary-nuclearpower-idUSL5N1GJ2VD
March 6, 2017
I realised yesterday how much I had come to dislike the Conservative party when I heard our remainer chancellor telling us about his plans to improve productivity and my bird came in with the Sunday Telegraph, in which Janet Daley had some bad news for the millions of us who have to waste our time doing income tax and VAT returns. From next year we will have to send income tax in 4 times as often and on digital spreadsheets, whatever they are. Small entrepreneurs will no longer be able to register for a lower rate of VAT and simple returns, as he thinks they are being wicked for taking advantage of this government scheme.
While the Treasury is stealing more death duties through probate. And anyone with a property investment will have to have electrical certificates every year and councils have been allowed to charge for licensing all shared properties, not just the larger HMOs. Mine is doing so.
This conservative government could not make thing more difficult and expensive for their traditional supporters. I hope UKIP will take up the role of supporting enterprise and the self- employed, otherwise, there will be no one to vote for. I would even consider paying a subscription.
March 6, 2017
This budget will be the usual con’ trick like all the others. In fact there are so many pre-announced measures that commence for the 17/18 tax year, that if Hammond added nothing to them, the Osborne austerity legacy changes will be more than enough!
Hammond can spend £60 billion any time he likes. Sovereign currency issuing governments, are never revenue (tax income) constrained; but, they pretend they are to fool the little people and suppress wages. Hammond’s only constraint is will there be any spare capacity in the UK private sector, that he can buy up to boost the GDP? If not, he risks adding domestic inflation to imported inflation due to the Sterling decline.
Getting back control of our country is working fine for Vauxhall Motors, is it not! An American company that owns it, is doing a deal to get rid of it to a French company. Still, that’s what happens when our government sells everything to foreigners. It’s the “free market” you know.
March 6, 2017
The thing is, if the Pound takes a dive in the next two plus years, will the BoE react conventionally and jack up interest rates to defend it? Remember back in 1980 when panic set in at the BoE and it jacked up interest rates to 16%; and, 1990 when we hit 15% again.
The Treasury needs to take back monetary policy from the BoE, clamp down base rates at current levels and control the economy with fiscal policy (taxing and spending) and forget monetary policy (base interest rates, QE ) altogether. Fiat currency economies do not need central banks, they are a throw back to the days when we were on a Gold standard.
March 7, 2017
Acorn
I remember those days well, think the bank rate went up 3 times in one day on the worst day.
I know my Mortgage rate was 12% in the morning,l but by the time I got back from work it was 15%.
March 6, 2017
A mere drop in the ocean ! With those amounts they should be pushing us out quickly to get the monies. What about Vauxhall.
March 6, 2017
The UK has labour shortages with a population of 60 million plus? If so it shows how stupid we are to arrange things here.
I don’t think Denmark with a population of 4 million and Switzerland with 8 million and Iceland with 320,000 are crying out for 60 million or am I wrong?
March 7, 2017
The Treasury and the OBR both produce wrong forecasts, using the same neo-Keynesian principles. So why do we need the OBR? Can we not scrap it? If the Treasury wants a genuinely different type of forecast, based on the degree of free trade and the effects of monetary policy, why does it not instead use the services of Patrick Minford and his colleagues at Cardiff?
March 8, 2017
Such an amazing insight, with such clarity of thinking I don’t know why you aren’t back on the front benches.
March 11, 2017
solar panel installers
A £60 billion Brexit fund?