Author: johnredwood

Welcome to the Mod Cons podcast.

In this week’s episode we speak with Sir John Redwood, former minister and Margaret Thatcher adviser.

Jamila talks to Sir John Redwood about Jeremy Corbyn’s new party, his vision for Brexit Britain and why we need to cut tax.

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According to a recent pre budget briefing the government is looking at options to lower energy prices . They have apparently got there from polling showing people are alarmed by rising inflation. Dear energy is squeezing real incomes.

Well done for getting there, though it is surprising it has taken so long and  needed polls. What has been obvious for a long time is the damage Mr Miliband’s supercharged version of net zero  transition is making for uncompetitive industry floundering on very dear energy, carbon taxes and emissions controls. Mr Miliband may be pleased to see the string of closures of refineries, oil and gas production, petro chemical, steel, ceramics and the rest. These are destroying good jobs, undermining national security, paying taxes to foreign countries and making us depend on imports. This  dear energy policy must be changed.

We read they are looking at scrapping VAT on home  energy bills. That would be welcome, if paid  for with one of the cuts in public spending I have often  listed. It is not however tackling the root causes of our dear energy and not providing relief  to factories on the edge of closure.

Locking ourselves into very expensive renewable power by providing a guaranteed price for many years well above competitor country energy prices needs to stop. The costs of having gas fired back up needs to be factored into the sums on renewable energy.

The bidding system for electricity capacity and for electricity take off from current generating plant needs to be based on going for the cheapest.When commissioning capacity the  cost of back up power to meet a contractual commitment with interruptible renewables   needs to be part of the bid.We need an end to emissions trading, carbon  taxes and the forthcoming carbon tariff.

 

I was in London yesterday to go to theLast Night of the Proms. It was a great atmosphere, with people enjoying a good mixture of old and new music, classical and popular. The favourites were the traditional sea songs and the patriotic rendering of  Land of Hope and Glory, Jerusalem and the National Anthem.

It is true we had to make  our way through childish pickets trying to get us to take free EU flags in some colonising move to impose themselves on a very British tradition. It was best to ignore them , though some took their flags to throw away. The songs that were sung needed the Union flag and the flags of the four countries of the Union as backdrops. This was one of those days to just celebrate being British. That was why the show gets such a large international audience. The UK has much to be proud of in its past contribution to the world and in its rich musical and literary culture.

On our way there some people who had been on the lunchtime demonstration from Waterloo to Whitehall wanted to talk to me. One  showed me photos of a large peaceful demonstration enjoying being in Central London and saying it with flags. Will the government listen?

They were saying they are proud of our country and want to be free to display our flag, just like the  promenaders last night. They cannot understand why some local and national officials want to tear down our flags and why they seem ashamed of our country. The country which  gave the world a model of freedom and Parliamentary  government, an economy  which gave the globe the prosperity of the industrial revolution, the culture that gave Shakespeare and the English language to the many should not be run  down by its own progeny.

Those on the demonstration resent the way law abiding UK citizens are treated by our own government. Flying the flag says to them  control  our borders,put  UK people and interests first, respect our traditions. Why does every decent peaceful protest have to face a counter protest? Why does government give priority to foreign law? Why do illegal migrants get better treatment than people born here who are down on their luck?  Why is our money given away to foreign countries and not spent on us at home? Why is it thought  a good idea to close down our oil,gas, petrol  car manufacture, petrochemicals and so much else, only to import these products from abroad.

So listen and watch, government.The flag waving yesterday was from people who love our country and want you, the government, to treasure it too.Our flag  is not the symbol of a narrow political group or party but the symbol of a great nation. Those who disliked the protest or want us to wave other flags should try to join us, not try to divide us.

 

 

A regular complaint here is my views are ignored.

Those who support them write in to tell  me to promote them in other ways, ignoring the fact that I do. I am always ready to reproduce them in the media, or to write an article for another blog or publication, or to talk to decision makers.

Those who disagree write in to tell me I am wrong and ignored. They amuse me as they clearly are not ignoring me and at least think I am worth abusing.

Watch this space. Much of what I am saying about growth, net zero, running public services, management of quangos is apolitical and helpful advice.

I have written, spoken and promoted a number of causes that did succeed. I spent the 1970s and early 1980 s promoting privatisation and private capital investment to promote jobs and growth. I had to write the books about wider ownership, and the failings of nationalised industries. At the time academic opinion and commentators ignored the big damage to jobs, customer service, innovation and investment from heavy reliance on nationalised monopolies.  Labour opposed privatisation strongly. Conservatives were sceptical or cautious. Then Margaret Thatcher invited me to advise her on a large transformational  programme. Tony Blair adopted private capital and choice for some public services and accepted most of the privatisations . Big wins.

In the 1990 s the imperative was to save the pound. The public wisely wanted to  keep it but many in senior official  and political jobs wanted to join the Euro. I resigned from the Cabinet highlighting the dangers of abolishing the pound. John Major and more importantly Tony Blair then offered a referendum realising the focus on the issue showed a bad gap between them and the public. That was crucial in saving the pound. I set out the case in Our Currency, our Country (Penguin) and Just say No. Another big win. If we surrendered the currency we would have surrendered crucial rights and powers of self government.

In the 2010-2015 Parliament I worked with a small but then a growing number of Conservative MPs to get a referendum to leave the EU. People on this site told me I could not do it that way and I should join another party.I explained that we had to firstly persuade the Conservative party to adopt a referendum as policy, then help it get elected. Then we would need to join a cross party Leave campaign. Many writing in thought this all impossible but it happened.

Today we may well be close to the Bank of England changing its policy on making big losses which I pioneered as a vital issue. Those of us putting the case against self harming net zero policies are at last a growing voice getting more attention.

If you want what I am saying then actively promote these views and use the materials I provide. If you disagree then debate with me if  you think  I am wrong. I am happy to  do so on any recognised media and here on this site.

I have had a complaint that I failed to post a couple of contributions from a frequent visitor to the site. I refused to do so as they repeated general and tired  condemnation of past Conservative government in the same way as before. This site debated the  failings of the past government extensively when it was in office. I myself set out proposals on the economy, migration, taxation , relations with the EU and other matters where the government could have done differently. The electorate made clear its view in the election. I do not intend to spend more time and space on historic errors.

There are two people who want to contribute the same thing when ever they write in.  I stopped posting their work.

One wants to go on about alleged undue influence of a couple of billionaires as if they ran world governments and were the sole cause of bad policy. They have never contacted me to complain of the views I hold or to persuade me to change.I have never been at a UK government meeting where they have been present or  mentioned in discussion. Others repeat these claims and are free to do so, subject to libel law. This site concentrates on governments and public institutions which we can influence  and change.

 

One wishes to abuse both Labour and Conservative in inaccurate and unpleasant ways, which will not contribute to the debates and analysis here.

 

I would like the meeting between the Governor and Richard Tice to change things for our country.  They are to meet with the Governor defending his current policy of large losses on the bond portfolio, and Richard Tice suggesting there could be cuts of £35 bn in the annual  costs. There  needs to be compromise, not a stand off. I set out in this brief a way through for both men.

The OBR says the Bank will lose £257 bn from the end of profits in the second half of 2022 to the final disposal from the declining bond  portfolio.All of these losses will be refunded by Treasury payments to the Bank, with taxpayers paying the bill.I have long argued these are excessive, in part avoidable, an invasion of fiscal policy and unacceptable to taxpayers.

These losses are of 3 kinds.

1. Losses on sales of bonds particularly long dated at current depressed prices. These are avoidable.

2. Smaller losses on bonds held to repayment, where the bond was bought at a price higher than redemption value. These are unavoidable.

3 A running loss on holding the bonds, as the Bank says the bonds are financed by commercial bank deposits placed with it. These now attract a higher rate of interest than the interest return on the bonds overall. These losses could be abated.

1.No other Central Bank sells bonds at big losses. The ECB and Fed with similar problems to the Bank of England are running down their bond portfolios as the bonds mature, not by forced sales of  them. Getting into line with the others would save the Bank and UK taxpayers who pay the losses billions in losses in the next few years, as the up front capital losses are much bigger than the annual holding losses.

The Governor may argue that over the long haul the losses will be similar. This is only true if the base rate stays up at current levels or goes higher. Assuming the Bank now gets inflation down to 2% base rates should go considerably lower, greatly reducing future running losses on bonds.

The Governor may argue as the UK has on average longer dated bonds it will take longer to end the portfolio by waiting for repayment. Having more longer dated debt is good news as much of it was taken out at lower interest rates and it reduces the refinancing burden on markets, There is no need to panic  out of long debt now it has halved or fallen more in value. Just stop the sales.

3. The ECB has moved to reduce its running losses on bonds by offering a lower deposit rate than its base rate. Markets accepted this normal banking practice. The Bank of England lends and borrows at the same rate in most cases, preventing it covering its costs on these activities. Why not introduce a spread between borrowing and  lending?

It is also possible to say commercial banks need to keep a minimum reserve with the Central Bank for credit and money policy purposes. This could be at zero interest.Indeed, prior to 2006 the Bank demanded special deposits to regulate commercial bank lending and offered no interest on them.

However, it could be a step too far to abolish all deposit interest on the current high level of bank reserves placed at the Bank of England. That would greatly impair bank income and cashflow, leading to less credit to finance growth. Switching all commercial deposits to zero interest would amount to imposing a major bank tax. Markets might worry that such a shock could hit  an already weak economy badly.

Does all this undermine Bank independence?

The Bank and even the Treasury may say this undermines the independence of the Bank. If so they misunderstand current Bank powers and status. The Bank has an independent duty to hit the 2% inflation target and maintain the solvency and stability of the financial system. It has the independent power to forecast inflation and fix  the Base rate. Nothing in these proposals affects that.

When the Bank under Darling as Chancellor first started creating money and buying bonds they sought permission to do so from the Chancellor, and did so for all subsequent  tranches of bond buying. More importantly each time they sought and obtained a government indemnity to pay  all losses whilst agreeing to pay  the government any profits. They clearly act as agents of the Treasury when it comes to the bond portfolio. The government has every right to influence the way their portfolio is managed by the Bank.

So the Governor needs to compromise on bond sales and rates of interest on commercial bank deposits, and Richard Tice needs to compromise on how much money he can take off the banks given their role in financing growth.

 

Summary of proposals

Stop all sales on bonds held by the Bank with more than 3 years to maturity

Introduce a deposit rate a little below base rate and a lending rate a little above to give the Bank of England a spread or margin in dealings with banks

Make a monetary and economic judgement of whether to introduce minimum reserves to be deposited in the Bank by commercial banks at zero interest and  if so how much is feasible, given current modest levels  of money and credit growth.

 

The first is well known to readers here. Cut  the bond losses. More about that tomorrow.That will help get the longer term interest rate down. Government debt interest has soared to over £100 bn a year, making it a major burden on the budget and taxpayers. The current government is borrowing all of the money needed to pay  the interest on past debts.

The debt interest will reduce if the government and Bank get inflation back down. The UK has issued too  much index linked debt, which led to large extra costs in recent years with high inflation.It will help if the government and Bank get longer term rates down. At the moment every pound of debt that needs refinancing when the old debt is repaid means paying a much higher rate of interest on it.

The surge in benefit payments under this government needs tackling. Welfare is the second big task.  Unemployment has gone up, and many more grants of benefits for long term sickness have been made. Where this is to young people or people with milder mental health issues, the government needs to help these people into work.

It will require more incentives through lower taxes to boost jobs and investment. It requires the end of the bans on oil, gas and petrol cars and rebuilding UK manufacturing. It also needs welfare reform as set out by the Centre for Social justice. Iain Duncan Smith  ‘s Universal Credit introduction greatly  boosted employment and cut welfare bills the right way . CSJ has set out how get more into work, particularly young  people. Work is a good therapy for people, suffering from mild depression and similar mental health conditions.

The third is to boost public sector productivity. We pay £40 bn more than in 2019 to deliver the same services, before adding in the extra costs of inflation. Government does know how to run these services better, as it did so six years ago.I am setting out a tool kit for Ministers and senior officials to manage for higher quality and productivity. It includes a public sector external recruitment freeze ( exempting teachers, medics and uniformed personnel), quality management systems, use of pay and bonuses to reward productivity success, and removing needless and wasteful functions.

 

 

Officials will be welcoming to the new Minister. They will show him or her into a large office, introducing the private office  team that will look after them. They will then supply a large number of briefings, ask him or her to approve some difficult issues and present them  with the diary of Ministerial commitments.

How the Minister responds will determine how well he or she does. A Minister’s most precious possession is  time. It soon gets taken up and it is easy to waste it. So take control of the diary.

It’s a good idea to put all key dates for your family and private life in. Where these will clash with Cabinet or crucial Ministerial dates you should not avoid, explain early to the family and book out an alternative time as close as possible to the original for the family events.If it cant be the date or time they want make it a better occasion at a  different time.

Get the office to put in the essential and unavoidable. Departmental Questions once a month in Parliament, Cabinet and Cabinet Committees and big events in your subject area that Ministers always attend. Any statements or announcements you want to make come with some flex for you to influence the timing. Urgent Questions and Opposition debates are not in your  control and you just need to adjust when they happen. If it is really difficult a Ministerial colleague may substitute.

Then express your priorities and decline the meetings  and visits the officials propose that do not work with your priorities and needs. You do need to keep in touch with the interests and sectors you regulate and promote but have plenty of choice over how to do that and who to recognise with Ministerial contact.

You will probably get too many things to decide at the beginning. Request only the urgent ones and be sceptical about them. As you read and play yourself in you can respond to others or will see they are not necessary or desirable. Officials often serve up things to a new Minister a previous Minister rightly turned down.

Don’t assume all the advice is good. Government makes plenty of mistakes and is wallowing in poor productivity. You will be blamed if you accept bad advice. Expose yourself to as much external opinion as possible , without sharing secrets outside government. People who will be affected by your actions will take trouble to brief you well on their concerns, and they may be right.

Start from Day 1 to set out your agenda to the officials, especially if the PM has stressed a particular task or aim when he appointed you. Tell your officials the priority comes from No 10 where it does as that should sharpen their interest.

If you are a junior Minister request an early long conversation with the Secretary of State to find  out what delegated power you have and how you fit into the departmental aims.

Tell your officials how you wish to work. You do not have to accept their method. They are there to serve you. Ask for briefings and information where you lack basic knowledge. Ask what officials think your powers and responsibilities are. Tell them how you wish to handle errors and problems made by the department.Read the key Statutes that govern your powers.

Be courteous with officials and help them do their jobs by being clear and sensible with your requests. Do not accept sloppy work or bad advice by showing them what you want and by setting high standards for yourself.

You are there to make a difference. Always require focus on how your department serves the public. Be like a mystery shopper or consumer critic, as  the department should treat people well. Be a big voice for quality and efficiency, two sides of a common coin.

 

Yesterday  in France the Prime Minister lost  an important vote and had  to resign. It will be another blow to the idea that the French deficit can be reined in by a mixture of spending cuts and tax rises, with Parliament attacking the government from both right and left. The President drifts above the government with the right to stay in office but not in power until 2027.  The French split constitution has given the elected President a Parliament where he lacks a majority and where right and left both think they can get what they want by holding out against compromise.

Today in the UK a Prime Minister with a large majority acts as if he too cannot command the Parliament. Two bungled attempts at modest but obviously unpopular  public spending reductions were thrown out by his own party despite the apparent huge majority. Since then the PM and Chancellor have failed to come back with more sensible spending reductions, though there are many obvious ones they could select. We have free spending Ministers and runaway commitments like that to illegal migrants and to unemployed who say mental illness prevents them seeking work. So the deficit soars and there are no government answers on how to cut it.

Clearly the French problems should be much worse than the UK ones. In the UK there is a government that can govern, and it should be relatively easy for it to find the cuts needed and get them through. It is bizarre they find it so difficult. They are not even willing to require the Bank of England to stop losing tens of billions of pounds each year on needless bond sales. Judging by the markets, they currently see the problems in the UK as worse than the problems in  Paris, as the UK is having to pay more to borrow than France. Both countries are facing much higher rates than Germany or the other leading  advanced countries with better spending control.

In both countries democracy is on trial. I am an enthusiast for democracy. Technocracy is arrogant and often wrong. Dictatorship is often violent and repressive. The best thing about democracy is we the people can get rid of bad governments in elections, and  can influence between elections as they usually want to stay elected.  Democracies also require the political parties that lead them to be good judges of the public mood. It is best if they listen to us about the problems , lead with the solutions  and deliver.

The current UK government has let people down over tax, growth and migration. The current French government has failed to persuade the left and the right to compromise in the national interest. Both the French and UK governments are wallowing at very low levels in the opinion polls. Where  in France the government also lacks the Parliamentary votes to change course and win back support it is  doomed. In the UK with the votes the government should be able to pull through, but seems paralysed by rebel backbenchers from doing anything on tax, spend and migration that might make it more popular. The likelihood of a major disagreement over who to have as a Deputy Leader of Labour creates more opportunity for public exposure of the big rifts over policy and philosophy between the government wrestling with excessive debt and the left who want more taxes and borrowing which would damage growth and endanger the finances further.

There have been so many stories in the press that two Home Office Ministers as well as the Home Secretary had to be moved out of the department because they had failed that I assume this is coming from sources close to the PM.  We are told they had not implemented  one of the most popular and memorable promises of the Labour Manifesto, to smash the gangs, and had not made rapid progress with the rape gangs either. We also learn that the Environment Secretary  had not done a good job on farming, as we can all see, so he had to be moved. The Farming Minister under him was sacked.

I can understand the decision to sack the Farming Minister as the government has angered the farmers so much that many farms are closing and there are regular protests. However, the Farming Minister was mainly so unpopular thanks to the tax policy of the PM and Chancellor, which remains unaltered. It is difficult to see what the Environment Secretary has to offer in his new role as he  clearly lost any battle over farms policy and taxes in Cabinet. He now has  to try to rescue the government’s housebuilding target at his new Housing and Local Government post. The government fell way behind the target of 300,000 new homes a year in their first year under Angela Rayner, and it looks as if they will get nowhere near the target in their second year either.  What does the new Secretary of State have to offer to change that? He will need better relations with the Chancellor than he seemed to have at Environment/Agriculture.

The changes at the Home Office are even odder. The three senior Ministers who failed there to smash the gangs or handle crime and rape gang issues well have all been moved to new important posts. The Home Secretary has moved to Foreign Secretary. She had spent seven years as Shadow Home Secretary, chaired Parliament’s Home Affairs Committee and had Cabinet level experience in the previous Labour government. So how come a clever well educated woman with so much Home Office experience was unable to smash the gangs? How come the Prime Minister was unable to help and mentor her in a role she knew so  well? Why should she be better at Foreign secretary where her experience is much more limited? The Foreign Secretary needs to work closely with the PM, especially this one who gives so much time to foreign affairs.  Clearly some distrust has built up in the relationship with the PM as she failed to deliver on key Manifesto and government targets. That will not help as the new Foreign Secretary seeks to build up a contacts book with the US and our other leading allies.

Angela Eagle, fresh from failing to sort out immigration with the Home Secretary, is made Farming Minister. This is bizarre. Surely agriculture deep in protest deserves someone the PM supports and rates, and someone who knows how to right the wrongs this government has visited on farmers. I doubt Angela Eagle will even try to get changes to IHT and business taxes. Diana Johnson, also removed from the Home Office gets a key job promoting growth and jobs in  the new enhanced DWP and skills or Growth department. That’s a big change from trying to police the UK and its borders. What does she know and what can she contribute to that? Is she damaged by the sense of failure hanging over her Home Office service?

None of this is good personnel management. Government is bad at talent mapping, bad at selecting the right Ministers, then bad at backing and mentoring them as they take up their roles. Some of these Ministerial changes look set up to fail. I will write more about Ministers jobs and how good ones can get changes through Whitehall in later pieces.