Author: johnredwood

I take seriously the need to bring the country back together after the Brexit vote. I have spent much of the last five months seeking to look after the interests of Remain voters.

I took seriously their fears about possible economic damage from the vote. The Remain campaign concentrated on setting out the possible short term and longer term economic damage they saw. I am pleased to report that now almost six months after the decision there is no visible damage to jobs, output, confidence, house prices and earnings. It is true the pound is down a bit more after the vote, though it has rallied strongly against the Euro and the yen over the last month. The biggest part of the substantial devaluation since June 2015 occurred well before June and well before markets thought Leave would win.

I have spent time setting out in articles and interviews why there is no need to experience any short term economic damage. I have discussed with Ministers actions that can help power more growth, more jobs and higher incomes. I have proposed various ways of ensuring we build more homes and create more better paid jobs. I have been pleased that the government has abandoned the severe deficit reduction policies of the previous government, and is using more realistic – even pessimistic – figures for future revenues and borrowings, In the last Parliament the government regularly failed to hit its revenue targets and so had to borrow more than planned.

I am happy to take up any specific worries or issues Remain voters in Wokingham have. My aim is to help the government build new and better trade relationships for the UK with the world as whole. I want to see a UK open to talent, investment and ideas from around the world. I am pleased to report that so far since the vote jobs are up, pay is up, housebuilding has increased, car out has increased, inward investment continues and the markets are higher now than on June 23rd. Now comes the task of negotiating good future friendly arrangements with the rest of the EU. We will continue to trade, have many collaborations, do much with our EU neighbours after we have left. The aim is to be richer and freer. We will also be better Europeans by allowing them to get on and complete their union which most UK voters did not want to join. I was struck in the many debates I did during the referendum by how practically all the Remain spokespeople said they did not wish to join the Euro, or Schengen, or the political union or the common army.

Quite often contributors write in asking why I don’t publish my views more widely, or even suggesting this site is a way of keeping things unpublished! I always explain that this site is designed to publish the views for those interested, including the media. This week has seen me write different articles on the general economic themes from this site for the Guardian, Observer, Independent and Telegraph, so I do use other publications when these are of offer. I am always willing to write a unique and new piece for such papers.

I was also asked to appear on Newsnight on Friday. I had already committed myself to the Wokingham Living Advent event and to hosting the Floods Minister in Wokingham so I had to turn it down as Wokingham comes first.

This week I have written a bit about the severe austerity policies followed in parts of the Eurozone, and pointed out the impact these have had directly and indirectly on UK policy. The results were obviously at their most damaging when we were in the Exchange Rate Mechanism and had to hike interest rates at a time when the economy clearly needed lower rates. Again the Euro crisis added to the dangers of the banking crash in 2008-11.In recent years there has been no comparable EU control mechanism directly acting, but the shadow of Masstricht hangs long and steady over the UK government’s fiscal stance. My critics pretend it is otherwise and say I should not associate the EU with austerity policies.

I would ask them to look in each Red Book the government produces. This document has to be sent to the EU to comply with the requirement as the UK is part of the EU economic semester, and has to file its fiscal plans with the Commission. They in turn analyse and comment on them, recommending remedial action where necessary. We are meant to be bound by their two clear controls. They want us to limit state debt to 60% of GDP, and to keep the budget deficit below 3%.The last 3 governments have been breaking these rules, but have clearly wanted to be able to say to Brussels that we are trying to get the deficits down and in due course the debts. Labour set out a course to bring the deficit down, then the Coalition and the pre Brexit Conservative government made complying with the Maastricht deficit rules and starting to get the debt down as central to its aims.

Each Red book has a table which shows where we are under the Stability and Growth Pact. They have to show the progress or lack of it being made in bringing down state debt to 60% of GDP. They have to show the “Treaty deficit”, the budget deficit under EU definitions. They have to show the cyclically adjusted Treaty deficit, as countries are allowed some leeway in a downturn.

The Treasury do not put these numbers in for show, and do have to report and defend them to Brussels. There can be no doubt that cutting the budget deficit and in due course cutting debt is an EU requirement which successive UK governments have taken seriously. Some clearly want to do this for domestic reasons as well, but it is simply wrong to deny the requirements and pressures that stem from the common EU policy. There is abundant evidence that in the Euro area where the pressures to conform are greater, the austerity policies have done damage to employment and output. I have every reason to associate austerity policies with the EU, as their scheme builds them in to all the deficit countries.

On Friday night Therese Coffey, the Parliamentary Undersecretary of State at the Environment Department responsible for flood protection, was the guest at the Wokingham annual Conservative dinner. Whilst it was mainly an enjoyable occasion, I was able to remind her that there is outstanding business for the Environment Agency to help improve Wokingham’s flood resilience. She agreed to a meeting to follow up, and also heard from local Councillors of how they see the problem.

European Union membership has done considerable damage to the UK economy and to the reputations of the many economists who have slavishly recommended its economic ways. It has directly caused a major recession in the early 1990s in the UK, thanks to its European Exchange Rate Mechanism scheme. It aided and abetted the banking crash and Great Recession of the last decade by adding the imperfections of the Euro to the poor banking regulation which the ECB shared in common with the US and UK authorities. Many economists have gone on taking a rosy view of the Exchange Rate Mechanism, the Euro, Euro banking regulation and the single market without asking why so many people are unemployed and the growth rate of the Euro area is so low?

For my entire adult life I have found myself in disagreement with much of the UK establishment and the economics profession about three great issues – the Exchange Rate Mechanism, the Euro and banking regulation. In the 1980s as Chairman of a large quoted industrial company I was so worried about what the ERM would do to our employees and customers that I took the company out of membership of the CBI in protest at their support for this job destroying proposal when they were urging it on government. Later as a government Minister I fought a lonely battle with the brave Nicholas Ridley to try to prevent the then government plunging us into the high inflation and recession the ERM was likely to bring about. The economics profession kept their forecasts rosy and claimed that the ERM would curb prices and lead to better growth! Predictable disaster followed.

Then came the long battle to keep the pound. I was more successful with this, with more good allies who agreed that UK membership of the Euro would be bad news for our economy and might even destroy the whole Euro scheme, given the size of our banking sector and economy relative to the rest. I used to argue that the Euro was an ERM that it would be difficult to get out of. Why would we want to inflict on ourselves the austerity of the Euro scheme when we had suffered so much before we escaped from its progenitor, the ERM? How could we avoid the likely boom bust cycle that an inflexible exchange rate would generate?

The Euro proved to be just as bad for many of its member economies as I feared. Vast swathes of the Euro area’s economy are laid waste by the austerity policies, and by the lack of proper mechanisms to transfer large sums of money from the surplus countries led by Germany to the deficit countries of the south and west. There has been a long running rolling crisis for the Euro area’s banks and for financing the deficit countries. None of this has been good for the reputation of the any economists who told us what good news the single currency would be, and how it would transform the subject economies in a favourable way. They did not predict 25% unemployment with 50% youth unemployment in several countries when they set it up, and now seem surprisingly relaxed about those results.

Now we have to debate much of this all over again as we leave the EU. Some say the single market is a precious gem, essential to our prosperity as a nation. They have not studied the evidence. The UK’s growth rate was slower from 1972 when we joined the EEC up to 1992 when the single market was “completed” than it had been in the post war decades before. The growth rate slowed again after 1992 when the EU claimed it had completed its single market. Of course the advent of the full single market in goods came at the same time as the full impact of the ERM recession was felt. The UK has run an almost continuous large deficit on trade in goods with the rest of the EU both before the completion of the single market and afterwards. One of the costs of joining the EEC was the competitive shock administered to UK manufacturing which lost us factories and jobs in the 1970s.

What is so odd is how many so called experts just assert that the single market must be good without examining the data or asking some basic questions. Logic suggests that having common standards and specifications helps manufacturers by allowing them longer production runs and permitting more standardisation of product. However, this is a benefit of the EU single market that all exporting countries to it benefit from, whether they are in the single market or non members. Evidence also shows that the single market in energy, for example, is damaging to European competitiveness because it gives us much higher energy prices than our US and other competitors.

In the referendum the establishment was most upset that Mr Gove and Vote Leave questioned the accuracy of many economic forecasts by the great and good. Today those errant forecasters have another set of questions to answer. Why did they think the UK would experience a drastic slowdown or recession this winter? Why did they revise all their 2016 forecasts down so much? Why are they now having to raise their 2016 forecasts to pre vote levels or higher? Why did they suspend all the usual considerations from looking at money and credit growth, consumer expenditure, retail sales and new homes demand? No wonder so many members of the public now distrust the official forecasts. They have made three catastrophic errors in the ERM ,the Euro and the banking crash. They have now just reminded us how wrong they can be by their silly 2016 forecasts for the UK after the vote.

The polls say Mr Renzi, the Italian Prime Minister, will lose his referendum. He has been seeking a way to ensure that his party, whose Democrat party  polled just 25% of the vote in the last election, can form a majority government in  the Chamber of Deputies and not have to worry about the other parties or the Senate, which will be turned into an unelected chamber with little power.

The reason Italian politics is so unstable is the country is very split between a wide range of parties. Proportional representation increases the pressures to form more parties and run more extreme or pure policies through them. In 2013 the Grillo 5 Star party got the largest share of the vote by a very narrow margin over Renzi’s party, but the Democrats managed to form a centre left coalition. Frustrated by the compromises and limitations coalition imposes on trying to reform and govern, Mr Renzi has come up with a wide ranging  plan to change the way future elections are judged.

The biggest underlying cause of discontent with all the parties is probably the poor state of the Italian economy, with slow growth and mass unemployment,which has hit  the young especially hard. Italy’s state debts are far too high for EU rules, and Italy has to curb her deficit to show some willing under the Euro scheme. Italy has some weak banks struggling to handle bad loans and in need of additional capital.

Some argue that if Mr Renzi does lose over the week-end the way is open for Mr Grillo to take over at a subsequent election, which has to be held before May 2018 and may be earlier. Whilst Mr Grillo is critical of the austerity driven Euro policies, he and his supporters are not the same kind of Eurosceptic force as we see in the AFD in Germany or the NF in France. Whether the answer to the referendum is Yes or No, Italian politics is likely to remain volatile with no clear winner. The public will continue to protest against the consequences of Euro membership but that may not make them ready to want to leave it, as we saw with the people of Greece.

I think Mr Davis was carefully trying to avoid ruling anything in or out in his answer, in accordance with stated government policy of not revealing the negotiating position until the talks begin.

I see no need to offer any continuing contributions to the EU. Isn’t it odd the way some in the media has leapt onto a non statement and drawn the wrong conclusions?  The one that took the biscuit was the idea that the pound rose against the Euro on this “good news”. It was neither good nor news. The pound has been rising against the Euro for several days. The FTSE fell today, so why didn’t they say “The FTSE fell on fears that the UK would still have to contribute to the EU after exit”, if they were determined to use this wrong story?

Yesterday I published proposals for a new UK economic policy through Politeia. I set out why I think Brexit is a great opportunity to promote more UK growth. The freedoms we gain will enable the UK government to follow policies friendlier to jobs and domestic output.

One of the big themes I suggest is to correct the worst of the balance of payments deficit. 25% of the deficit in 2015 came from UK government payments abroad in the form of net contributions to the EU and overseas aid. The sooner we are out of the EU the sooner we will benefit from that saving on the external accounts. The government should make sure more of the money spent on overseas aid is spent on buying goods and services from UK producers, where the money cannot be spent directly in the country we are seeking to help. \That will boost UK business and cut the strain on the balance of payments.

36% of the 2015 deficit came from the excess of interest and dividends we pay away to foreign lenders and owners of UK assets over the money we receive from our investments and loans abroad. There is no quick fix to this, as the longer we remain in deficit, the more the claims of foreigners on UK assets will build up. However, the government could work to ensure that in future when adding to our power stations and other privately financed infrastructure the investment is offered on decent terms to UK savers and institutions rather than to foreign interests. The Chinese financing of Hinckley will b e a long term drain on our balance of payments.

The remaining 38% of the deficit comes from the deficit on trading in goods with the rest of the EU. The UK is in surplus with the rest of the world on trade account, and in surplus on services with the rest of the EU, but has a huge deficit in goods. Some of this will reduce as a result of the devaluation of the pound. People will look  to buy domestic substitutes or cheaper goods from non EU destinations. Some will reduce as a result of new UK policies. Why need we continue with a deficit on fish, once we take back control of our own fishing grounds? Won’t a UK farming policy be more helpful to UK flower and vegetable growers? Won’t more market gardens flourish?