The Chancellor was seeking the mantle of Thatcher in his joint article with the PM yesterday in the Sunday Times. He claimed to be a low tax Conservative, but also a supporter of sound money which he attributed to her. He also says he wants “lighter,better,simpler regulation”.  So what does the track record show?

So far the Chancellor has hiked taxes on entrepreneurs and the self employed through IR35. He has raised National Insurance, frozen Income tax allowances and put in a huge future  increase in Corporation tax. He seems keen to ensure we collect less in tax than he would by setting competitive rates. Margaret Thatcher and her Chancellors cut Income tax rates substantially, cut Corporation tax, made it easer for the self employed and for entrepreneurs. As a result revenues surged, the rich paid more tax and paid a bigger share of the tax, and substantial increases were made in the NHS budgets from the extra revenue.

So far the Chancellor has approved huge increases in money printing proposed by the Bank of England but needing his consent, which have now brought on a sharp rise in inflation. I strongly supported the early pandemic related money boost, but called for it to end last year when the Bank carried it on well into recovery. Margaret Thatcher battled for honest money and brought inflation down from the high levels under Labour. Towards the end she was forced by her  Chancellor  and Foreign Secretary to take the UK into the European Exchange Rate Mechanism, against her instincts and my advice. That led to a surge in money and credit creation by the commercial banks and to a nasty bout of inflation. This was followed by the inevitable bust under John Major who took her job and the then unhelpful  economic inheritance he had  created . This ended the Conservative reputation for economic competence for a good few years.

I look forward to the plan to have better and lighter regulation. More than a year into Brexit there has still been no Bill to change the main huge body of EU regulatory law which we rolled over as a temporary measure. The Chancellor would say he has streamlined alcohol duties a bit. The ones that have gone up are not popular, but it is a minor set of adjustments so far. We await the promised Freeports and trust they will have some good freedoms  in them. Why not one for Northern Ireland?

The Opposition still regards the Thatcherite label as a term of abuse. The Chancellor seems to regard it as a plus, but has misunderstood the nature of Margaret’s policies compared to his own. His approach to tax is the opposite of hers.

During the referendum on the EU the car industry and its Remain supporters were full of fears that if we left the EU without a free trade deal with them the 10% tariff the EU would impose on our car exports would do grave damage to our industry. They did not accept that a zero tariff deal was likely, though one was finalised in the end. Nor did they accept that if there were 10% EU tariffs we could have imposed the same on their cars and made more of our cars at home, substituting  them for the  dearer continental imports. Out of the EU we are also free to take tariffs down on components needed from abroad to lower our total costs of production. I did not  see anyone suggest output of our industry might halve if we ended up with some EU tariffs.

The passion behind these fears makes the lack of noise about the collapse of car output since 2016 more surprising. The near halving of output in the last five years has  nothing to do with Brexit. We can all agree the pandemic measures dented output badly in 2020 and may have had some lingering effects on 2021.  Last year we only made 859,000 cars in the UK. We can agree that the worldwide shortage of microprocessors has impeded production in the last year, as the car industry failed to secure enough supply at a time of maximum competition from the digital revolution companies needing more chips for their successful products.  Apple’s gain was BMW’s loss. What seems more contentious is the impact of the race to net zero on  the domestic industry which most of the insiders seem unwilling to talk about, let alone cite as an important cause of the decline.

In  the last couple of years there has been a collapse in purchases of new diesel cars, and a decline in new petrol cars as a  result of governments in advanced countries especially the UK telling people not to buy them. Advanced countries have been discussing how quickly they can end their production altogether and making it clear to customers they wish to become increasingly hostile to the use of internal combustion engine vehicles. The UK has proposed 2030 as the cut off date. The Treasury has also added its contribution to car output decline with a substantial increase in the cost of VED for a new dearer car. The diesel hit has been particularly tough on the UK industry. With government encouragement not so long ago the UK  had become  an important world centre for diesel technology development and for engine manufacture. Ford for example moved its car assembly out of the UK but built a lot of engines here.

Tesla has turned out to be the winner so far in the expensive end electric vehicles. Tesla makes no cars in the UK. The UK based brands have been slower to compete, and the UK is struggling to  catch up with battery production investment, essential if the UK is to be a serious producer of electric vehicles. Maybe it is time to assess the progress of these policies, and to ask how much more damage there is likely to be to an industry which used to make twice as many cars here.

Today I publish  four answers I have received to energy questions. They reveal a  slow and painful transition to a more realistic stance on UK energy capacity and needs. On the positive side the government is now recognising the need to replace the current nuclear capacity it is closing. It had already  committed to the expensive Hinkley C  which should come on stream this decade and will offset part of the loss of capacity from nuclear plant closures. It now wants to put in Sizewell C which is also likely to be very expensive and is unlikely before sometime in the next decade. It is also working up plans with Rolls Royce on small modular nuclear reactors. These could be in series production in  the next decade and could make a useful contribution to capacity. They are currently thought to be considerably cheaper than large nuclear. That still has to be grounded by establishing a scalable prototype.

The government’s estimate of how much electricity we will need this decade reveals relatively slow rates of growth after 2025 and  practically no growth for the first half of the decade. This may be realistic, but it implies the government does not expect many  additions to the electric vehicle fleet or to electric home heating before 2025 and a slow rate of climb thereafter. I would have thought they would want to have more capacity available in advance of the breakthrough in the electrical revolution they urge, to reassure potential users that there will  be sufficient power for  the explosion in demand they want to engineer.

Their approach on gas has shifted a bit, with more recognition of the importance of gas to our current energy needs, and recognition of it as a transition fuel. I believe Ministers also now see the need to produce more domestic gas instead of burning imported gas. However, this answer still leaves open the probability that the Regulators will weight the need to run down gas more highly than the obvious need at the moment to produce more of it at home. They clearly still want to end the three coal power stations that have kept the lights on at times of little wind this winter, which is worrying.  Officials seem wedded to energy insecurity as a policy allied to maximising imports. Ministers need to press harder. 

I will continue to press the issues of our vulnerability, both because we rely too much on imports and because their forecasts of growth in demand are so small. We need more domestic capacity.

 

Question:
To ask the Secretary of State for Business, Energy and Industrial Strategy, what estimate he has made of trends in electricity demand in the UK up to 2030. (105322)

Tabled on: 17 January 2022

Answer:
Greg Hands:

The table below shows the Department’s latest published projections of total electricity supplied by UK generators from the year 2021 up to 2030, net of storage and imports. Supply is modelled to meet projected demand and takes account of demand trends.

Year	Total electricity supplied (net of storage & imports), TWh (terawatt-hours)
2021	313
2022	313
2023	312
2024	313
2025	315
2026	319
2027	323
2028	328
2029	334
2030	340

These figures are based on central estimates of economic growth, fossil fuel prices and contains all agreed policies where decisions on policy design were sufficiently advanced to allow robust estimates of impact as of August 2019. Further details can be found at https://www.gov.uk/government/collections/energy-and-emissions-projections. Figures provided are extracted from BEIS Energy and Emissions Projections: Net Zero Strategy baseline (partial interim update December 2021) Annex J, Total electricity generation by source.

The answer was submitted on 25 Jan 2022 at 17:16.

 

Question:
To ask the Secretary of State for Business, Energy and Industrial Strategy, what plans he has to grant permits to allow companies to develop new gas and oil fields that have investment plans and proven reserves; and what the timetable is for the granting of those permits. (105318)

Tabled on: 17 January 2022

Answer:
Greg Hands:

The UK offshore oil and gas sector is important; it continues to heat homes, fuel cars and underpin security of supply while the Government grows its renewables sector and develops its low carbon infrastructure. As the Government moves to a low carbon future, the sector needs a managed transition, to avoid losing the employment and expertise which will help us achieve the energy transition.

Before proceeding to consent, proposals for field development are subject to extensive scrutiny by regulators: the Oil and Gas Authority and the Offshore Petroleum Regulator for Environment and Decommissioning. The Government does not comment on individual projects undergoing the regulatory process. Any decisions made by these regulators are published in due course.

The answer was submitted on 25 Jan 2022 at 17:09.

 

Question:
To ask the Secretary of State for Business, Energy and Industrial Strategy, if he will ensure that the coal power stations currently used when there is little wind will be kept available until the UK has more reliable domestic generating capacity to cover a shortage of wind energy. (105320)

Tabled on: 17 January 2022

Answer:
Greg Hands:

The Government is committed to phasing out unabated coal generation by October 2024. The Government is confident that the Capacity Market will ensure there is sufficient capacity to offset the retirement of the remaining coal plants. The most recent Capacity Market auctions have already secured the majority of Great Britain’s capacity needs out to 2024/25.

National Grid Electricity System Operator has the ability to manage electricity supply and demand, including at times of low wind generation. It can call on a wide range of technology types to do this, including gas, batteries, interconnectors and demand-side response.

The answer was submitted on 25 Jan 2022 at 17:06.

 

Question:
To ask the Secretary of State for Business, Energy and Industrial Strategy, what plans he has to make up for the reduction in energy derived from nuclear power in this decade as the current fleet of nuclear stations close. (105321)

Tabled on: 17 January 2022

Answer:
Greg Hands:

This Government is committed to nuclear power in our future diverse energy mix:

• Hinkley Point C will supply 3.2GW of secure, low carbon electricity for around 60 years, meeting around 7% of GB’s current electricity requirements. Hinkley has roughly the equivalent output to three of its predecessors.
• The Government are progressing negotiations over Sizewell C in Suffolk.
• Our £385m Advanced Nuclear Fund, the Government have awarded £210m to Rolls-Royce SMR to develop their SMR design and are supporting AMR development.
• The Government also announced a new £120m Nuclear Enabling Fund to provide targeted support to address barriers to entry for future nuclear,
• Later this year the Government will publish a nuclear roadmap setting out the government’s strategy in more detail.
• The Nuclear Energy (Finance) Bill will reduce the obstacles to financing new nuclear projects.

The answer was submitted on 25 Jan 2022 at 17:05.

Background

Leaving under Article 50 was on EU insistence a two phase process. There was a Withdrawal Agreement. The Future Partnership Agreement could only be negotiated after exit. The Northern Ireland protocol was a difficult part of the Withdrawal Agreement which looked forward to the future relationship in ways the EU otherwise said were not allowed. The UK signed it, promising to improve it and tackle outstanding problems in the final Agreement on future trading. That Agreement did not in the end change some important contradictions and ambiguities of the original Protocol.

The EU has decided to assert authority and to implement with excessive detail and complexity the bits of the Protocol it likes. This has violated the parts of the Protocol the UK inserted to protect itself. The UK government agrees the EU has now broken the Agreement, and is arguing for revision. This was provided for by Article 13.8 which foresees the need for substantial change in the arrangements. Many only agreed to the Withdrawal Agreement on the understanding that the Protocol would be transitory.

 

Urgent political need

 

The majority community in  NI feels badly let down by the Protocol and resents the way the EU is taking over their part of the UK , diverting trade from NI/GB and requiring strict observance of a widening range of EU laws which they cannot influence. Sinn Fein is currently in the lead in opinion polls for the May Assembly elections. The Unionist parties are desperate for support and action from the UK government that would seek to rebuild the UK internal market in NI and reassert UK sovereignty and democracy as the form of government. The Unionists think the Protocol has upset the political balance and has undermined their Union with GB. They tried to take action to rectify some of the faults of the Protocol. This resulted in the collapse of the Power Sharing Executive with the resignation of the First Minister. The Protocol has caused a constitutional crisis.

 The UK case under the protocol

 

There are good parts to the Protocol which the UK wants enforced.

“The Good Friday Agreement….should be protected in all its parts”  Instead the EU has lost the consent of the majority community by alienating NI from the UK

“determined that the application of the  Protocol should impact as little as possible on the everyday life of communities in both Ireland and NI”  Instead it has gravely damaged GB/NI trade and the legitimacy of NI government

“NI is part of the customs territory of the UK and will benefit from participation in the UK’s independent trade policy”  This is impeded by EU rules and controls

“the importance of maintaining the integral place of NI in the UK’s internal market”  The position has been badly affected by gross restrictions on GB/NI trade

“shall use best endeavours to facilitate the trade between NI and other parts of the UK” They have done the opposite

This is why the UK government thinks they can exercise rights under Article 16 to redress the damage being done by the current lop sided interpretation and enforcement

 

 

How to proceed

 

Make one last attempt to persuade the EU to adopt mutual enforcement. The UK will control the GB/NI trade, whilst legislating to ensure no GB to NI goods can find their way into the EU if they are not compliant with all EU requirements. The EU/Republic will be responsible for all trade flowing into the Republic and will undertake not to send goods to NI that do not comply with UK rules.

If they do not agree, the UK will go ahead and impose this system. The UK will legislate in Parliament with a money Bill to create a UK based system of regulating and taxing GB/NI trade. The legislation will instruct our courts and Customs and Excise service to obey our rules and controls on this trade, and to make it a criminal offence to send the goods onto the Republic to protect the EU’s single market.

It is wrong that a UK supermarket cannot send a container of varied food products to Belfast with the minimum of fuss as it can to Birmingham. Trusted traders should have no more paperwork for NI than for England or Scotland.

 

 

This is a copy of my article in the House Magazine.

The Treasury employs plenty of intelligent people, but their collective views and decisions are often wrong. None more so than the idea that the UK economy needs  a further tax on jobs just as it is recovering from the pandemic collapse. It will make work less worthwhile and damage businesses struggling to rebuild their cashflows. Leisure, hospitality and travel will  be the  sectors hit worst by the squeeze on take home pay, the very sectors the health  measures hit hardest.

 

The Treasury says they need to impose a tax rise because they need an extra £12bn. They have no idea how much extra revenue they might need, as they have no idea how much revenue the current wide range of relatively high taxes is going to collect. They had to admit their absurdly pessimistic forecast for the budget deficit this year was £50bn overstated by the half year point, mainly because they had grossly underestimated the revenue. In the latest figures they have found another £12.9bn, exactly the sum they said they would need from the tax raise!

 

In my speech on the last Budget  I  drew attention to some of the errors  of the 20-21 forecast and predicted that this year “the deficit will fall very rapidly” as it has. In Finance Bill Committee I stressed how wrong past forecasts had been and how wrong this year’s estimate was likely to be.

 

The Treasury and their Office of Budget responsibility helpers got their budget deficit forecast wrong by £91 bn last year. I can forgive them some of that, as the pandemic year was extraordinary. The policies followed meant a collapse in revenues and a surge in one off spending that was bound to create a big hole in the accounts. Even so I did warn last year that the forecasts were continuing a long tradition of undue pessimism. This year by general agreement was going to be a year of recovery. History tells us our tax revenues are very sensitive to rates of change in growth. Very strong growth such as we experienced was bound to lead to a surge in revenues. Why couldn’t the Treasury see that? Why did they do their best to sandbag recovery by threatening  a whole range of tax rises for next year to dampen confidence and put businesses and companies off spending?

 

The Treasury double up their gloom with their way of presenting the costs of the debt. They want people be terrified of the rising costs of meeting the debt burden. The large increase in debt interest costs they have put in the accounts confuse actual interest payments to bond or debt holders, and the extra cost of eventual capital repayment on the index linked  bonds they have issued. Tucked away in the technical explanation they do confess that the state does not have to find the  cash to service the index linking in the way it has to find the money to pay interest on conventional bonds. What will happen with the indexed debt is when it comes due for repayment it will effectively be rolled over, the government reborrowing the enhanced value . This  is of course only the same debt in real terms as the initial bond issue amount. There is no need to panic about debt interest the government does not have to pay.

 

The government also fails to account sensibly for all the debt the Bank of England owns. They want to alarm us about the interest that the Treasury has to pay on that debt. This is a needless worry as the Treasury pays the interest to the Bank which it owns, so the interest is still to its credit and can be paid back as a dividend to the Treasury.

 

There is no case for a National Insurance hike. People need to keep more of their pay to meet their bills, especially given the tripartisan policy of more import dependence in energy to expose us to ever dearer and scarcer energy from the continent. The Treasury has found far more money down the sofa than they think the NI raise would yield.

 

NATO  wishes to deter Russia from invasion of Ukraine. It also wishes to avoid a major war between NATO and Russia, as President Biden has stated clearly. The response is to tell Russia that there would be a massive retaliation through a new level of tough sanctions damaging Russia’s trade and economy were Russia to break her word and invade.

The West will arm and advise the military in Ukraine to resist any Russian incursion. The USA and UK have visibly sent arms to help Ukraine defend against the mobile armour , rockets and batteries of the Russian forces marshalled near Ukraine’s borders.

The EU has not been present at the main talks and has been strangely silent on this big issue close to its borders. The  German led grouping is very dependent on Russian gas to fuel  its factories and homes as Russia is well aware. Russia, Germany and the EU are locked in debates about the Nord Stream 2 pipeline but they are close partners in gas supply already via Nord Stream 1 and various land pipes.
This compromises their ability to resist Russian aggression. The U.K. needs to understand that gas and energy generally is a crucial part of the power balance in Europe. The U.K. needs to pursue a path of energy independence to keep its strength , just as the USA has done. The USA produces more than enough gas  for her own needs and has a gas price much lower than the European one as a result. Russia  cannot bargain her gas for other advantages with the USA.

UK energy policy seems based on making us more and more import dependent for electricity , gas and coal on Europe. This is a grave weakening of our position which the National security Council  should correct immediately. Becoming import dependent on a Western Europe short of gas and all basic energy , with Germany closing her nuclear power stations and France struggling to keep her old stations in production is a very bad idea.

Policy should be redirected to allow production of more oil, gas and specialist coal in the UK. It is crucial strategically and it is also the greener option than importing the fossil fuel.

 

Please see below my recent article for Conservative Home:

In the early days of this government, I was asked by the Prime Minister how I ran the Policy Unit for Margaret Thatcher. I sent him a presentation on options for establishing a strategic policy vision and direction, and briefly described the way Number 10 worked when I was a young senior adviser there.

I urged him to keep the crucial manifesto headline promises of levelling up, getting Brexit done and not raising the main taxes as central drivers of policy. The overall aim must be the greater prosperity of the many by expanding the economy, making and growing more things at home and showing how Brexit freedoms could lead to more and better paid jobs and more businesses.

These aims could then fuel matters for Prime Ministerial leadership and decision, and delegated matters for the different departments of state. Each Cabinet Minister should be told what is expected of them and how their department fits in with the general strategy. That needs to be agreed on appointment.

Thatcher had a much smaller staff at Downing Street than more recent Prime Ministers. There were three of us, senior civil servants, who talked to her a lot, knew her mind and helped her fashion government speeches, decisions and interventions and chair committees to resolve disagreements. The Principal Private Secretary ran her diary, ensured two way communication with all government departments and Ministers, organised meetings, sent out letters of confirmation and instruction following individual or collective decision and filled her daily boxes with work.

As Head of the Policy Unit, I provided briefs on all the main meetings she attended or initiated, ensuring her views and the strategic vision of priorities and aims could be reflected in what she and the government did. I sent her proposals to start work streams in government to fulfil manifesto and other promises, and to remove or amend departmental proposals that did not fit with the strategy.

I ensured she had bilaterals with leading Cabinet members to avoid misunderstandings and to enable them to voice their worries or request more support when carrying through agreed major policies. The Head of the Press and media department was her voice to the third estate, reflecting her views and answering criticisms as need arose. She had a Political Secretary for Conservative events and party correspondence.

She was pleased with the results of this structure and said she thought it helped her achieve more. For example I helped her drive through the whole wider ownership policy of everyone an owner. The work embraced home purchase, more self employment, personal pension savings, employee share schemes and the privatisation programme.

The Social Security Secretary led a wide welfare review with emphasis on personal pensions and other savings, the Treasury led the share ownership and privatisation policy , the Employment Department worked on qualifications, training and simplifying self employment, and the local government and Environment department pursued the housing initiatives led by Right to buy.

The system worked for a variety of reasons. The most important was we three knew her mind or made sure we found out her view on a topic before telling the rest of Whitehall or the press. They knew when we spoke we spoke for the PM. It was relatively easy for other departments to work out the view in many cases, as there were some clear precepts and priorities that would always influence decisions.

The occasional much-debated big speech charted the future in important areas and led to work across relevant departments to see it through to implementation. The speech was always thoroughly prepared and shared in draft with those Ministers likely to be affected. We tried to ensure there was always consistency, clear direction and language that made it relevant to people’s lives. I tried to keep our work strategic, as the PM should not try to do the jobs of Whitehall departments for them. Number 10 is a leader and change maker, not a means of implementing policy.

The work of the PM and Ministers was not done once the policy was announced. Indeed that to me was the formal commencement of the actions, not the end result after a sometimes long and argumentative process to arrive at an answer.

It was important to supervise implementation and check that all was working as intended. It would be no good for the PM to set out what she wanted, for there to be no follow up work to make sure it happened. This might well be the job of named Ministers, but for the big items there also needed to be reports back to the centre. The twice weekly briefing sessions for PM Questions ensured departments had to keep the PM up to date with topical or fast changing items.

The task of writing the big speeches gave me plenty of time with the PM on a regular basis for what was in effect a series of long seminars and reviews of government policy and actions. We checked the speech drafts for accuracy and for relevance to the state of play the government needed to manage or alter.

Policy Unit members had access to the PM on their specialist topics as well as through me. They did not have any licence to instruct Ministers elsewhere in government, and were urged to be careful if Ministers asked for a steer. There was no Policy Unit view for outside consumption, only the Prime Minister’s view. The Policy Unit view was worked through and argued out in private and put to the PM who could run with it if she wished.

We adjusted the view in the light of her responses. I met the Special Advisers in other departments from time to time but did not regard it as any part of my job to guide or employ them. Our relations with Whitehall usually took place via a formal Private Secretary letter from Downing Street reflecting the PM’s view or informal guidance and arguments in official meetings preparatory to briefing Ministers or in our case the PM. I ensured the Policy Unit was at all times a working part of the civil service with career civil servants as well as directly recruited experts.

There is a modern relevance to all this. A Prime Minister needs a few advisers that he trusts who have sufficient delegated authority to get things done across Whitehall. It needs to be done in a constitutional way, respecting the fact that Cabinet members should be the main source of advice and information on their remits.

Where a senior adviser thinks a department and its Cabinet member are taking a wrong direction which can damage the overall government strategy and outturn that has to be put privately to the PM and the two of them have then to agree how change will be achieved with minimum damage and preferably with no press knowledge. There can only be one government policy at any time, so where there is disagreement advisers need to help the senior politicians arrive at a suitable collective decision.

This should not always be a compromise as sometimes one course is right and the other full of danger, so a clear choice needs to be made. Any good Cabinet Committee required careful preparation to ensure Cabinet members could freely express reservations amid criticisms whilst keeping the integrity and coherence of the overall aims and vision. Where the dispute was the usual Treasury versus spending department one the PM was usually the decisive voice. Number 10 needed a strong negative capability to stop needless change or complexity, as well as a strong positive view of what government could and should do to improve the lives of the nation.

 

Inflation usually kills magic money trees. Responsible advanced countries normally tell us there is no magic money tree, knowing as they do that their growth is soon killed off by inflation.

 

The magic money tree has been renamed Modern Monetary Theory. The idea is the Central Bank creates money in its accounts as only it can do, and buys up government debt with the money. The government can then issue more debt as there is a willing buyer at a low rate of interest. The government can afford more debt because the rate is so low, and because it owns the Central Bank who buys up lots of their debts anyway.  The state ends up owing lots of money to itself.

Using the Central Bank and government debt is just a complex way of disguising it. They could as well simply instruct the Central Bank to print  the extra  money and give it to them to pay the government bills. Indeed both the Fed and the Bank of England had powers to do this during the pandemic.

If you carry on doing this when the economy is near full capacity it is very inflationary. Government gives itself money to buy goods that others are trying to buy and to hire Labour working for others. Only by bidding up prices and wages does the state grab these  resources . Others who still want them either go without or bid higher again. An inflationary spiral sets in.

Now the U.K. economy is back to pre pandemic levels with low unemployment there is no scope for magic money trees and considerable inflation risk. Inflation is too much money chasing too few goods. Government has to incentivise more production to help bring the price rises down. It needs to change its pro imports policies for energy, high energy using industrial products and food.