Why cut National Insurance again?

I do not recall MPs and constituents calling for a further reduction in National Insurance. Readers of this site will remember  the list of targeted tax cuts I requested, led by IR 35, VAT Threshold, and energy taxes . Others urged Income tax thresholds, Stamp duty and the tourist tax.

I have been willing to back a further NI cut as it is on offer. It does relieve some  pressures on working individuals and families  and provides a modest offset to the Bank of England recession inducing money policy. It does make it worthwhile working which is a good thing.

It does not poll very well and has not led to a big Conservative poll bounce. Many disenchanted Conservative voters are over the age to pay NI but subject to more Income tax if they wander over the tax threshold. There is some bemusement over the longer term aim of abolishing NI, which came out of nowhere. It is clearly not affordable on current policies.

Maybe they mean to abolish just employee NI, leaving in place employer NI which would remain as a tax on jobs. That makes it more affordable. I will look in more detail at the wider impacts  were they in due course to abolish employee (and self employed) NI.

The Bank of England tries to stop growth

The People’s  Bank of China is cutting interest rates and creating  more liquidity in markets to boost growth. They did not buy up bonds  in past years and have low inflation.Growth is around 5%

The Fed, the US Central Bank , is busy selling bonds at a loss but does not send the bill to the Treasury  and taxpayers. Meanwhile the Administration and Congress has boosted the budget deficit by $1 trillion to offset the contractionary effects. Growth hit 5% but is now slowing as the stimulus  fades.

The ECB is not selling bonds at big losses, though it made the same mistake as the Bank of England in printing too much and causing inflation. They do not want to weaken their economies more.

The Bank of Japan is still creating more money and buying more bonds, with low inflation.

Only the Bank of England is continuing to tighten into a downturn with large sales of bonds, sending huge bills for the losses to taxpayers.

Why?

 

WPQ answer – Carbon Dioxide from Government estate

The Department for Environment, Food and Rural Affairs has provided the following answer to your written parliamentary question (15536):

Question:
To ask the Secretary of State for Environment, Food and Rural Affairs, what the carbon dioxide output of the Government estate was in (a) 2019 and (b) 2024. (15536)

Tabled on: 26 February 2024

Answer:
Rebecca Pow:

Since 2011 the Greening Government Commitments (GGCs) have set targets for greening the government estate and reported progress against them.

In financial year 2018-2019 the estate within the scope of the GGCs emitted 1,641,131 tonnes of CO2, 46% less than financial year 2009-2010. Full data is available in the 2018-2019 Greening Government Commitments annual report.

We will continue publishing CO2 emissions data in future GGCs annual reports. Data for financial year 2020-2021 is the latest year for which data is available and can be accessed here.

The answer was submitted on 04 Mar 2024 at 15:14.

My Article in Conservative Home – Ministers have picked the low-hanging fruit on Net Zero, and it will only get harder from here

The green revolution, led by governments and big business and informed by the green movement and decarbonising parties, is encountering consumer and political resistance as soon as it tries to get people to spend more money on replacing their transport or heating.

Voters often object to paying higher prices for fossil fuel-based ways of doing things when they are taxed, or to incurring more fines and penalties for not being green enough.

The Dutch government was thrown out of office for trying to stop farmers farming to cut rural methane and CO2; the French have demonstrated against dearer diesel; half the British refuse to have “free” smart meters.

Meanwhile, the American electorate is taking a shine in the polls to Donald Trump’s belief in having more cheap oil and gas and allowing people to drive their internal-combustion-engine cars, vans and pickups; Joe Biden has intervened to get the price of petrol (gasoline) down, even though dearer gas would push more people to electric.

The sheer magnitude of the task to get to net zero means that, for governments, it will only get tougher from here. They picked the low-hanging fruit first, concentrating on closing coal power stations as they persuaded and regulated the power sector to cut its emissions and ensuring big business takes measures to curb its own appetite for fossil fuels.

Now they have to persuade the consumer voter that it is time they banished the diesel or petrol car and ripped out the gas boiler – and many people will say that whilst they accept the climate change message, but they cannot afford an electric car or a heat pump.

There are only 18 million battery-electric cars in the world out of a total of 1500 million vehicles. It tends to be the rich who buy the battery cars, as they can afford the up-market Tesla or the more expensive electric versions of other well-known brands.

Putting in a heat pump is especially costly. In an older house a lot of work has to be undertaken first to insulate to much higher standards, before the disruptive work to install the heat pump system.

Some governments are offering high subsidies to people to get over these cost problems. The Chinese have the biggest numbers of electric cars thanks to early large subsidies and considerable pressure against buying new fossil-fuel vehicles. Norway for many years offered electric cars free of 20 per cent VAT and free of road taxes which gave them a boost there.

Yet such subsidy schemes can still leave many people unwilling as they worry about range, battery life, repair costs and ability to recharge on long journeys.

Heat pumps require even higher capital subsidies. Even so, many are reluctant. They fear big bills when they need to use plenty of electricity to keep the home warm, given the much higher prices of electricity than gas. They are concerned that on really cold days the home would not be sufficiently warm, as there would be less heat to pump successfully to its destination in the home.

There are issues with how green these preferred products are. If a person plugs in a car to recharge when there is too little wind or solar energy, a gas- or coal-fired power station has to supply the juice. That does not make the electric car green.

Such is also the case with a heat pump: on very cold still days, a lot of fossil fuel will be burned at power stations to keep the grid going.

Making the new electric car and heat pump generates a lot of carbon dioxide itself, and scrapping the old petrol car and gas boiler uses energy. The world only starts to win from your switch after many miles have been driven or many hours have passed with the heating, (assuming they are running on renewable power).

There are always problems with top-down revolutions. Governments may back the wrong technology: some of the smart meters given out free to users in the UK do not work properly and have to be replaced. It may run out of money and have to cut or end the subsidies designed to sustain the green changes; democratic governments may lose too many votes if it becomes clearer some of these changes mean paying more for such essentials as energy, transport, and heating.

Enthusiastic Greens portray a world full of wind farms where electricity is cheaper, powering homes, cars and industry. They claim energy is only dear today because oil and gas has gone up.

The truth is that today’s green electricity has needed much subsidy, paid for by taxpayers, to get it introduced. Whilst the average cost of wind power has now fallen a long way from the original peaks, it still needs substantial back up power to be available from fossil fuel generators for the low-wind days, the cost of which must be added to the overall cost of wind energy.

If we are to transfer much home heating and car transport from fossil fuel to electricity, there needs to be a massive expansion of generating capacity, and of grid and cable capacity to get the power to every home.

All this requires huge outlays to put in the generators and cables, to span the pylons across the fields and place the wires on the seabed to get to offshore wind. We need better answers to how much this will cost and who will pay.

In the meantime, it is very important we keep enough generating capacity available to meet our needs on days of no wind and little sun. The other day 26 per cent of our demand was met through imported energy even though demand was quite low – and the continent, grappling with its own problems from shortages and transition, will not always have the power to supply us.

WPQ answer – Public sector productivity

Treasury has provided the following answer to your written parliamentary question (15530):

Question:
To ask the Chancellor of the Exchequer, what estimate he has made of trends in public sector productivity since 2019. (15530)

Tabled on: 26 February 2024

Answer:
Laura Trott:

ONS publish annual National Statistics on public service productivity up to 2020. The next annual statistic for 2021 will be published on 26 March. ONS also publish estimates of public service productivity which currently include annual estimates for 2021 and 2022 and quarterly estimates up to 2023 Q3. These are official statistics in development.

The answer was submitted on 04 Mar 2024 at 12:37.

WPQ answer- public sector productivity

Treasury has provided the following answer to your written parliamentary question (15529):

Question:
To ask the Chancellor of the Exchequer, what steps he is taking to increase public sector productivity. (15529)

Tabled on: 26 February 2024

Answer:
Laura Trott:

The government has a relentless focus on getting the most out of every pound spent by boosting public sector productivity and by focusing spending on the government’s priorities.

In June, the Chancellor announced the Public Sector Productivity Programme as a means of assessing how productivity can be improved and to ensure the long-term sustainability of our public services.

The programme has focused on embracing the opportunities presented by Artificial Intelligence, reducing the amount of time our key frontline workers spend on administrative tasks and strengthening preventive action to reduce demand on public services.

The answer was submitted on 04 Mar 2024 at 12:50.

WPQ answer – Ministerial involvement

Treasury has provided the following answer to your written parliamentary question (15535):

Question:
To ask the Chancellor of the Exchequer, what ministerial involvement there is in (a) setting budgets, (b) preparing annual reports and (c) approving annual reports for arms length public bodies. (15535)

Tabled on: 26 February 2024

Answer:
Laura Trott: How budgets are set and the process for preparing and approving annual reports for arm’s length bodies (ALBs) are dependent on their classification status and their source of income.

Further information on the reporting requirements for ALBs can be found here: https://assets.publishing.service.gov.uk/media/657b04390467eb001355f84d/MASTER_FINAL_DRAFT_2024-25_FReM___1_.pdf Further information on the accounting process for each type of ALB can be found here: https://assets.publishing.service.gov.uk/media/5a74d700e5274a59fa715592/Classification-of-Public_Bodies-Guidance-for-Departments.pdf

The answer was submitted on 04 Mar 2024 at 15:39.

The OBR and the budget

As readers of this website could see, I took many ideas to the government in the run up to the budget. Accepting the government was staying with the OBR controls in place and prepared  to  cut taxes if they could  keep borrowings down, I set about showing them how there was more headroom within those constraints to cut taxes. In particular I identified three large areas of spending in their accounts that could be reduced. They were the missing productivity of the public services, the large losses on the Bank of England bonds, and the high costs of bringing in low paid migrants whilst supporting many already in the UK to be without jobs instead of helping some of them to take the jobs available..

The government liked the idea of tackling the lost productivity. It now seems from  the budget figures that they also accepted my general delineation of the problem. I had drawn from ONS figures a lost 7.5% 2020-2023. The government now says there is a lost 6% to today. I estimated this as around £30 bn, in annual cash cost a low end figure from my calculations based on the published public spending figures. The Chancellor said tackling a 5% fall in productivity as he wishes to do would gain him  £20bn. This was surprisingly right in line with my £30bn for 7.5%. I am pleased he is seeking to unlock £20bn of the losses and this contributed to the so called headroom to allow some tax reductions.

In contrast my public comments on the Bank of England bond losses, £34 bn to date this year, did not result in any action to rein them in. I recommended that the portion of the losses that result from selling bonds at depressed prices on the market should be ended, as there is no need to sell these bonds. The ECB that made the same mistake as the Bank of England in buying too many bonds at very high prices and sparking an inflation is not foolish enough to now sell them at lower prices for a loss. They can be held to maturity when they repay with a lower level of loss. I assume the Chancellor did not do this obvious thing based on a misunderstanding over Bank of England independence. The Bank is independent to set the base rate that controls other short dated interest rates. The bond portfolio required government sign off and guarantee and was always a joint policy. The  Bank says it acts as agent of the government for the bonds.

The government was well apprised of the need to do more to help people out of long term unem0ployment into work, and developing good programmes to assist people in need of extra help to do so. I urged them to speed them up. They also came round to the idea of cutting back sharply on legal migration. I await official figures to show just how expensive to taxpayers it is to invite in low wage employees who usually need subsidised housing NHS care, school places if they have children and a full range of free public services. Invite in one such migrant and the facilities can be found. Invite in 1 million and you need to build several new cities for them. I continue to follow up to see what progress the government is making with cutting the numbers and relieving the pressures on homes and services. I have in the past set out my own rough estimate, based on the old EU one of 250,000 euros for set up capital costs and early years for one migrant.

My Speech on the Spring Budget

John Redwood (Wok, Con):

 

I am pleased that the Chancellor started by reminding the nation that, under Conservative leadership, Governments since 2010 have presided over the creation of 800 new jobs every day, every week, every month and every year, and have halved unemployment. The scourge of worklessness, which was inherited, has been banished. We now have the less worrying problem that we cannot get enough people to fill all the jobs, rather than the other way around of not having enough jobs for the people.

I am pleased that the Chancellor reminded the House that, in growth, we have outperformed all the major European nations, although I am sure he would agree with me that that is a feeble target to set ourselves; we are now free to do so much better. The question we need to ask is: why has the United States of America outperformed Europe so comprehensively for so long, and what can we learn?

The first thing we can learn from the United States is a better system of economic policy guidance and control. The requirements on the Federal Reserve Board, the US central bank, are a balanced mandate: not just 2% inflation, which is a necessary target that we share, but the promotion of growth and of growth in employment, so the board understands the trade-offs and can adjust policy accordingly. As our way of steering the economy, I would love us to get rid of fanciful, made-up figures by the OBR for five years’ time, which are always wrong, and to have two main aims: that 2% inflation target binding not merely on the Bank but on the whole Government, because Government have a big impact on prices and wages; and a 2% growth rate target, or a considerably higher growth rate than European countries have been achieving in the past decade. That is achievable if we take the right actions.

To do that, we need the Bank of England to work in sympathy with the Government’s policy. I remind the House that there is a dual mandate on the bond portfolio, the so-called APF or asset purchase facility. The Bank of England, having bought far too many bonds at ridiculously high prices on very low yields and run a very loose policy that gave us inflation, has now lurched too far the other way and is running too tight a policy, selling far too many bonds at much lower prices—prices it deliberately lowered in the market—and saddling us with losses. The Budget documents confirm that the accumulated losses paid so far, which taxpayers and the Treasury have to pay, amount to £49 billion since the thing flipped over in 2022. The last figure I saw was £34 billion, year to date—unaffordable and unnecessary, quite the wrong policy, meaning that we have less growth and a far bigger bill.

I am glad that the Government have decided to major on productivity in general, and in particular on public sector productivity. Some months ago, I stumbled across a well-concealed Office for National Statistics figure saying that in the three years since covid, we had lost 7.5% productivity in our public services. I did a quick back-of-the-envelope calculation, and that is roughly ÂŁ30 billion, which means that it costs ÂŁ30 billion more today to produce the same level and range of public service as it did before covid, as well as the many tens of billions more on top of that we had to pay because of all the inflation. It was a ÂŁ30 billion hit.

The Government now more or less agree. The Chancellor has costed the loss in his figures at 6% rather than 7.5%, but he has said that he wants to eliminate a 5% productivity shortfall out of the 6%, and he costs that at ÂŁ20 billion, which is exactly the same as my ÂŁ30 billion for 7.5%. That is felicitous indeed. The issue is, how will they go about doing that?

I hear that the scheme for the NHS is elaborate expenditure on wide-ranging centralised computerisation—good luck with that—but I would not rely on that alone for my productivity package for the public services. We do not actually need new investment to get ourselves back to the productivity level we were at in 2019. We do not need to use all today’s wonderful artificial intelligence; we just need to use what we already had, which we had in 2019. It is about management, personnel and giving the personnel the right tasks. We have seen a huge increase in managerial and administrative positions, but far from managing things better, they are being managed less well.

We had a shocking case in the press recently, where an awful lot of managers were presiding over a prison that had gone wrong. They were not able to do the more important day-by-day things that were needed in order to resolve the problem. If we look at the huge expansion in the civil service and other public administration during the covid period, we will see a big increase not only in numbers, but in those who have been promoted up the grades for whatever reason. We need enough people for someone to supervise, however, and we do not need all supervisors, because they are often too posh to do the work. We need to manage things better, and that is the productivity challenge before us.

I also urge the Government to abolish UK Government Investments. It is a very expensive body that has a completely dreadful track record. It presided over the Post Office and did nothing to deal with the sub-postmasters; it presided over ÂŁ1.4 billion-worth of accumulated losses, bankrupting the corporation; and it presides over Network Rail, and the whole rail industry, Network rail and High Speed 2 are absorbing ÂŁ33 billion of public money this year. I do not think we are getting value for money for that.

My time is up. I urge the Government to redouble efforts on productivity, to understand that it is mainly about whom we hire and what we ask them to do, and to get rid of UKGI, and I ask Ministers to take responsibility for the dreadfully badly performing nationalised industries.