Author: johnredwood

Much of the world is in recession fighting mode. They need to be so, because the advent of the corona virus and the severe responses to it by governments makes recession more likely without action.

The virus has hit international travel and tourism hard, has disrupted Chinese output, slashed the demand for oil and other raw materials, brought freight rates well down and is now disrupting supply chains around the world. It has damaged confidence, and led to investments and orders being put off. Japan had a sharp fall in GDP last quarter thanks to a tax rise, whilst Germany is struggling to grow at all thanks to the anti car policies being followed.

This week the Stock markets of the world have suddenly woken up to the threat that comes from these events. For the first month of serious virus news gold, oil and bonds signalled trouble ahead, and share markets decided it would be short lived and they could look through it. Now they are not so sure.

What can governments and Central Banks do? They can take offsetting action to promote more economic activity, and provide more money to offset cash shortfalls by businesses hit by interruptions to their production and sales.

Taiwan has announced a stimulatory package. China has produced some tax cuts and bank lending at low rates. The Fed, the Peoples Bank of China, the ECB and the Bank of Japan have all put money into markets in various ways to increase liquidity and available funds. China has started to cut interest rates. So far the UK has taken no action to help.

These moves will ease some of the worst features of a slowdown brought on by the virus, but do not deal with the root cause. The best way out is to turn the tide in the battle against the virus by a combination of treatments, vaccinations which are being speeded in research and reducing the spread. That is not easy and we all wish them well in doing so.

As China is discovering, if you go in for lock down and isolation of whole cities after cases have been found you do not stop the spread as some people will already have carried it out of the area, but you do considerable damage to output and activity. It is being debated how feasible and effective lock down is in limiting spread.

In the 1980s and 1990s Ministers and officials in the Home Office administered a relatively successful Immigration Policy. It typically ran at 50,000 net migrants joining the UK population each year. It was never above 100,000, and was at 48,000 in 1997 when the Conservatives were replaced by Labour in government. This level enabled us to be generous over refugees, and to meet the business requirements for special skills or seasonal workers.

The new Labour government wanted policy change to boost numbers. The civil service and the EU were very helpful. It soon rose substantially. Between 2004 and 2007 it ran above 250,000 in each of the four years, some five times higher than the previous government’s preferred level.

The newly elected Coalition government in 2010 appointed a Conservative Home Secretary who made clear her wish to bring numbers down from over 250,000 to below 100,000. Home Office officials were asked to work on various ways to help achieve this. After an early fall to 176,000 in 2012 it accelerated away again to well over 250,000 in each of the years 2015 to 2017.

In the 2017 election the former Home Secretary had her chance to review this policy and targets as Prime Minister. She reconfirmed them, stating in  the Manifesto that “our objective  (is) to reduce immigration to sustainable levels, by which we mean annual net migration in the tens of thousands rather than the hundreds of thousands we have seen over the last two decades”. She also made clear she wished to control EU as well as non EU migration, thus ending freedom  of movement.

We need to ask why was it that the Home Office did not implement policies that met these Manifesto pledges? They had shown how it was possible to run such a policy in the 1980s and 1990s. They could have been in no doubt about the wishes of their Home Secretary, nor of the new Prime Minister in 2017. This failure raises interesting questions about the relative responsibilities of senior officials and elected politicians. Whilst I of course defend the constitutional principle that the Home Secretary has to take the public blame for failing to implement her own policy, we do also need to ask about the wider departmental failure.

Today we read of problems for the current Home Secretary to  get her policies implemented in a timely and helpful way. I would urge officials in the Home Office to see that they had had years to get ready to cut migrant numbers, and soon will have full powers over EU migrants as well as from the rest of the world. Surely they can draw on their experiences in recent years, and on the new powers they can create, to succeed this time round? If not the Prime Minister would be right to allow new senior officials who can.

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The Permanent Secretary  in a department is the most senior civil servant. He or she is responsible for supervising, promoting and disciplining the civil servants and for ensuring  timely advice to the Secretary of State. He or she  is the Accounting Officer responsible for controlling agreed  budgets, for spending regularity, legal conformity  and financial reporting of the department’s affairs.

The Secretary of State is the Head of the Department as policy maker, chief spokesman,  and decision taker. Ideally the Secretary of State after discussion with officials sets out the policy, agrees a budget with Cabinet and Treasury and expects the civil servants in his or her department to get on with implementing any changes and administering the wider corpus of departmental actions and policies.

The Permanent Secretary has no independent voice other than when reporting to the Public Accounts Committee as Accounting Officer or to a Select Committee when it is making an Enquiry into matters of implementation rather than government policy. In return for having no direct voice the Permanent Secretary  expects the Secretary of State to defend the department and the actions of officials when reporting to Parliament or appearing on the media.

There are occasions when relations are strained because officials have made substantial mistakes which the Secretary of State warned them against or knew nothing about. It is  best in such a situation for the politician and the senior officials to agree the  way for the matter to be reported to Parliament. The Minister has to take the main hit, but it may also be agreed that there needs to be  disciplinary action with an honest account made of where the mistakes or wrongdoing occurred and by whom.

It is much more difficult if relations are strained because senior officials do not like the policy being followed. This should not in theory happen. Assuming the policy decided by the Minister is not illegal or dangerous officials should accept and implement with good grace, especially if it was part of the governing party’s Manifesto or it was the result of a referendum. The price of anonymity and protection from too much public scrutiny is to accept properly made Ministerial decisions and implement them in the best way even if you have reservations about them.

If a Minister disagrees strongly with an important government policy they usually have to resign. It is difficult to see why it should be different for a senior civil servant who feels so strongly that a government policy is wrong yet he or she is called upon to implement it. When I was the Prime Minister’s chief Policy Adviser I had to judge on the few big issues where she and I disagreed when she had finally decided and was not going to change, and end my attempts to change her mind. Once she was committed in public to a course of action I would never do or say anything negative about the policy I was worried about. I disagreed with the Community Charge or Poll Tax and with the decision to sacrifice the veto in various single market areas.

I will be looking at issues around the performance of Permanent Secretaries in crucial departments  in  future posts.

People’s lives are changing a lot. Some of us welcome change when it is for the better, as much of it is. There is plenty of change which is driven by us as consumers. We willingly buy the product or service when it is better than the old or when it allows us to enjoy new experiences.

It is consumers who choose to watch downloaded films rather than BBC programmes, or who use a mobile phone to shop or pay a bill. It is people who choose to spend more of their lives on line and to learn and be informed from the web.

There is another kind of change which is more contentious. That is top down change driven by governments. Governments sometimes presume to know better than we do. They seek to stop us buying some goods and service with higher taxes, regulations or outright bans. They want us to buy or use other goods and services so they subsidise them ,give us tax breaks or supply them free at the point of use.

Some people think this is becoming excessive. They see too many attacks on their traditional way of life or their pleasures. The fire in the grate is to be changed. The roast beef meal may have too large a carbon footprint. The tried and tested diesel car is evil. Offering cash for a transaction is old fashioned. Their electricity meter has to be ripped out and replaced by a meter too smart for users to understand what it is really up to.

The quest to change public services does not always lead to improvements in them. The GP no longer does home visits. A telephone or on line surgery booking service does not always allow a same day appointment.Many public libraries are only open when working people are at work in the week and not open on Sundays. Governments want people to leave the car at home so they  make it more and more difficult to use it, whilst many people regard it as the only way to get to work and to get the children to school.

Government needs reforming to get closer to how people lead their lives, and be more understanding of people’s aspirations.

Car sales in China fell 92% in the latest figures reflecting the closures and stay at home advice in that epidemic torn country. Meanwhile EU plans to accelerate the shift to electric cars is hitting diesel and petrol sales in Europe.

Countries are falling over each other to cut demand for petrol and diesel vehicles with steep car purchase taxes geared to output of CO2. French sales fell sharply in January by 13% on the back of new higher taxes. UK diesel car sales are well down over the last year thanks to higher VED and threats of more taxes and regulations to come. Germany is imposing bans on older diesels from entering various cities. The new EU Commission intends to make a frontal assault on CO2 the centrepiece of its economic and industrial strategy.

Even in the USA where the government does not share EU fervour against CO2 car sales fell last year. The industry is wrestling with the shift to electric, the more draconian environmental regulations, higher taxes and a strike by many buyers not persuaded by the new ideas.

On top of this a new generation of urban dwellers doubts they need to own a car, whilst some look forward to a future when many more will hire a car when they need it, slashing the number of cars required to sit in the garage or in on street parking for most of their lives.

It is unusual for governments to set out to damage a big industry like this in quite such a concerted way. It is even more unusual for the industry to accept it and to collaborate as freely with the demise of its existing products and method of working. I find it odd the industry in the UK lobbied so hard against Brexit which was not designed to damage it, yet does not lobby against the many EU policies determined to close all factories making diesel and petrol cars as quickly as possible. It means writing off huge amounts of sunk capital and firing many workers. It is also possible the winners in the electric car wars will be new companies.

The small spike upwards in inflation last month is likely to be temporary. Inflation remains below the 2% target. The recent 20% fall in the oil price, and the fall in a range of other raw materials is likely to push the CPI figure back down again.

In the Euro area and in Japan the authorities are desperate to get inflation up a bit. The general disinflationary and deflationary forces worldwide remain a worry. The virus has struck China and made a temporary hole in her output. It has also hit international travel and tourism. Japan reported a fall in GDP in the last quarter of 2019 owing to her tax rise and is still weak owing to the effects of the epidemic. The car industry everywhere is reeling from the tax and regulatory attacks on diesel and petrol vehicles. US GDP is losing important output from Boeing with the current cessation of manufacture of what was the firm’s best selling plane, the 737 Max.

Meanwhile the media that spent three years boring us rigid with silly false scare stories about supply chains after Brexit say very little about the genuine threat to our supply chains from the big decrease in Chinese production this month. We are currently living on product made before the Chinese New Year, as it takes a month for product to reach us by ship. What happens next month?

The Bank of England will doubtless use the uptick in inflation and the stirrings in the housing market as an excuse to do nothing. The rest of the world is busy fighting the downturn with monetary as well as fiscal action. The Bank should join in. The government may face pessimistic OBR forecasts of the kind they specialise in. To the extent that they are sensible, based on the big world slowdown, the problems in  the car industry and the effects of the virus, they need to be offset by positive action.

One of the follies of the UK system is it is usually pro cyclical. When a downturn or slowdown hits, forecasts show revenues falling and spending rising, so the demand goes up for  spending cuts and tax rises. Instead policy needs to seek to offset any slide to low growth or no growth.

Yesterday the government released more details of the new Immigration system it plans to come into effect on 1 January 2021 when we are finally out of the EU Implementation period.

The aim is to reduce numbers coming to the UK by preventing people coming to the UK to look for a low paid job, or coming to the UK to take up a pre arranged UK job at a low salary. This should make quite a difference to numbers which in turn will take some of the pressure off social housing and public service provision.

The points system will require an individual to have 70 points. 50 points are awarded for someone who can speak English, has a job offer and some skills. The additional 20 points come from appraisal of skills, qualifications, salaries and professional training. Speaking English will be a requirement for all to meet.

There will be clear routes for new NHS staff to be recruited and granted an NHS Visa, for students to come to Universities on a Student Visa and for top talent in science and maths to get easy access.

Anyone under the general scheme must have a job paying more than £25,600 a year unless they have a job offer in a field identified as a shortage area where special temporary factors may apply.

This looks like a good improvement on open borders under the EU scheme. Employers will have to pay a bit more to attract local talent. They need to spend more on raising productivity to justify better pay. This can be done through better training and or through investment in computer and machine power to raise output per employee.