John Redwood's Diary
Incisive and topical campaigns and commentary on today's issues and tomorrow's problems

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Memo to an incoming Prime Minister Defending our country from harm is the first duty of government

The Russian invasion of Ukraine has alerted us to the need for stronger defences. The Ukrainian army has shown us how quickly they get through munitions and smart weapons in a real conflict, and have needed substantial parts of our stocks as we and other allies have supplied them. We will need to replace those as quickly as possible and increase our own stocks should another need arise.

The problems of getting things out of Ukraine by sea given the mines and other threats to shipping in the Black Sea should also remind us as an island nation that we need to have sufficient home capacity to produce weaponry at home should war create dangerous conditions for shipping in imports. Twice in the last century Germany sought to starve and blockade us out of supplies of many kinds by a submarine and aerial campaign against supply shipping. In the more recent NATO era we have come to a mutual dependence with allies in Europe and the USA which might be a vulnerability should war break out. The UK needs to secure the intellectual property to the weapons and munitions we use, and ensure we have some capacity in the UK to make and assemble. We need to be ready to scale up these activities in the event of serious war.

It is not good that the MOD is still considering reducing our troop numbers by more when we have additional NATO commitments to fulfil in Eastern Europe in this atmosphere of more tension with Russia. We need to get better at procurement. Too many programmes overrun in time and budget and produce too few weapons, ships or vehicles at too great a cost. We need to see the best can  be the enemy of the good, and frequent changes of design and capability after the contract has been entered are costly and breed delays.

Defence is a prime area for spending money better. Instead of debating what percentage of our GDP we should spend we need to ask what force capability we need and then go about finding the most efficient and effective way of supplying it.

Memo to an incoming Prime Minister Global Britain and free trade

Brexit has restored our position on important world bodies like the World Trade Organisation, giving us our voice back in helping guide global policies where a world answer is needed. In world trade we need to work with the WTO to promote freer trade with fewer subsidies, barriers and bans. The UK has been able to negotiate roll over trade agreements with the places the EU had agreements, despite Remain protestations to the contrary. We have also been able to go on and sign deals with Australia and New Zealand and are well placed to enter a major agreement with the Trans Pacific Partnership grouping, which would be a major free trade extension.

The UK has developed closer links with the 5 Eyes security and intelligence group, and has entered a special defence relationship with export contracts with Australia and the USA. We should take our free trade  links with Australia, New Zealand, Canada and other Commonwealth countries further, pursuing mutual recognition of qualifications in English speaking like minded countries. We have a lot to offer and to gain from closer links in the English speaking world, and in the Commonwealth as a whole.

In what will be the Pacific century the UK has to look across the oceans as well as across the Channel. The EU trade deal is being distorted by the disgraceful mis interpretation of the NI Protocol by the EU and by their heavy handed and asymmetric enforcement on some Channel crossings.

Memo to an incoming Prime Minister Levelling up can bring together faster growth with protecting our environment

Levelling up is about the people already settled here, and about the villages,  towns and cities that have fallen behind in providing good jobs and sustaining decent incomes. Levelling up Conservative style is about helping people on their personal journeys, so it is possible for more people from modest backgrounds to set up their own business, get a well paid job, succeed in education and training,  buy  a good home and save for their old age.

It is also about place. Too much of our new housing is built in communities that already have plenty of good modern housing and have attracted people with above average qualifications on above average pay. Planning law should be changed to allow communities to decide how much additional housing they can accept, with a  view to less of this colossal investment going to already better off places and more to the places that need more money to circulate. If more executive homes are built in poorer communities they will attract more people with cash to spend and skills to share, people who can set up businesses or provide more better paid jobs.

Continuing educational reform is crucial to success. People who can read and write to good standards have much more chance of preparing themselves for better paid employment and more chance of gaining worthwhile qualifications. Getting housing right is also crucial to people’s journeys. Owning your own home gives you what is usually an appreciating asset, a pool of capital to fall back on, a financial stake in the community.

Grown ups in office

I read the spin that Rishi Sunak is a grown up. The Establishment use that phrase to write off anyone they disagree with as not part of their grown up club. Their idea of a grown up is one who just does and says what they want them to.

So it was Grown ups who pushed the U.K. into the Exchange Rate mechanism . Those of us who warned it would lead to a boom/bust were told we were not grown ups. We were, however, right.

It was more Grown ups who told us between 2005 and 2007 that the huge multiples of debt and derivatives produced by the global banking system were fine as they had found  new ways of managing risk. The many of us who warned it would be inflationary were dismissed.

Once the grown ups accepted they had triggered a debt laden inflation they switched to blaming the banks, draining markets of cash and forcing some banks into bankruptcy. Again we few who said make the adjustment slower and manageable were dismissed.

In recent years the grown ups told us money did not matter. They said they could create billions of it and keep interest rates at zero with no inflation. Anyone who said the opposite was dismissed.

Now they recognise they do have an inflationary problem in the U.K. the so called grown ups want to create a needless recession to tackle the inflation. They do not see the big monetary tightening belatedly undertaken will bring inflation down next  year.

How much more damage do these grown ups want to do? Why are they addicted to boom/ bust policies. Why are they so bad at reading the cycle?

Memo to an incoming Prime Minister Take control of our borders

One of the defining characteristics of an independent country is it has its own policy on who can come and live and work in its territory. Offering citizenship is a privilege. Agreeing to someone coming here to live is a big commitment by the state, as every legal migrant becomes eligible for benefits, full free NHS care, help with housing and  much else. Some estimates suggest around £250,000 of capital stock is needed to support each new arrival when you take into account housing and public service provision needed.

When we were in the EU we were linked closely to the continent by a policy of freedom of movement. In other words our own borders were not under our control, as anyone admitted to any country in the EU gained an entitlement to come to the UK as a result. It encouraged a policy for some businesses of recruiting larger workforces on lower pay by bringing many lower paid people into the UK to carry out the jobs. More of us wanted the companies to aim for higher productivity allowing higher wages by putting more into automation and into training so each staff member added more value and had better machine and computer  support.

Today we have introduced a policy of allocating permits to come to live and work here based on skill levels and pay levels in areas of scarcity. These may need tweaking to get the full effects from encouraging more local employees with higher productivity and pay levels. There remains important outstanding  business. There are too many people traffickers plying an evil trade in small boats across the Channel to bring in illegal migrants which needs stemming. There are too many difficulties in removing foreign criminals who have come here . The new Prime  Minister needs to give full support to the Home Secretary to legislate and administer a solution to these obvious areas of weakness.

Memo to an incoming PM – Growth is what we need

The kind of growth we need is growth in output per head, not more output because we have invited in many more people for lower paid jobs. This will come from improving the atmosphere for people setting up and expanding businesses, and companies making investments into the UK.  It means sweeping aside the large hike in Corporation Tax planned for next year. We need a low headline rate by world standards to attract footloose investment and to leave more money for reinvestment for successful companies. The Republic of Ireland gets a bigger contribution to its total revenues by having a lower rate than us and attracting proportionately more investment.

We need a package of measures to help small business and the self employed. We need to end the IR35 pressures against more self employment whilst taking action against six figured salaried people who use a service company to disguise working wholly or mainly for a single employer. We will need more flexible local capacity in many areas which requires a more supportive approach for those  venturing on their own.

The UK needs to rebuild its national resilience in a wide range of areas. It is good that it is building on its recent success with vaccine development to encourage a larger pharmaceutical cluster of research and production. We need to exploit more of our own substantial energy reserves at a time of western shortages, and to develop gas as a crucial transition fuel and feedstock.  We need  more home grown food and more home produced goods.

Controlling inflation requires a better money policy than last year’s, and investment in more capacity to ease supply shortages and cut import dependence.

Memo to an incoming PM – it’s the economy stupid

The main advantage we must bring out of the leadership change is a change of economic policy. The outgoing Chancellor’s policy was to correct the inflation monetary policy has brought on by a treble squeeze. He wishes to add tax rises to the current monetary squeeze to the cost of living squeeze. It is time to drop the tax squeeze. This is not something the USA and the Euro area are doing even though they too dropped the ball on money growth and triggered rapid inflations. Japan and China have inflation at 2.5% despite high energy prices, showing monetary policy matters.

The incoming PM will be told by Treasury officials that there is no money to afford tax cuts. They will argue tax rises are needed to bring the deficit down more quickly. They are wrong on both counts. On their own arithmetic there is scope in their figures for budgets to cut taxes, as the faster growth of the economy than they forecast last year delivered a deficit £100 bn lower than forecast. Nor will tax rises necessarily bring down the deficit more or at all. If the tax rises are too steep so they plunge us into recession, spending goes up and tax revenue down leading to a bigger deficit.

The new government should choose tax rates that maximise revenues, which in some cases means lower rates where tax is avoidable. It should act to offset the slowdown in the economy being brought on by the double squeeze, as only with growth will current public spending levels be affordable. Given the silly figures the Treasury uses for debt interest there is on their forecasts a  big fall in those over the next two years which gives more room for tax cuts.

The Treasury should also be reminded state borrowing if properly funded is not inflationary.The  state either takes money from the private sector as tax to lay its bills or as a long term loan. Either way the private sector has less money to spend and the state more. Printing money as Mr Sunak and the Bank did is usually inflationary. Only when there is huge shock as with first lockdown May it be necessary and not inflationary. A central bank allowing commercial banks to advance too much credit can be inflationary. Central Banks need to set interest rates and required capital rations to avoid this.

Memo to an incoming PM Help Cabinet government work better

One of the most important things a PM does is choose people for senior Cabinet roles. These choices are best based on talent, energy and understanding of the jobs concerned. Whilst of course the overall balance of the Cabinet has to take into account wings of the party, geographical spread and loyalties these should be secondary issues to the more normal matters in selection that are related to  being able to doing the job well. Cabinet members do not get a phase in or training period when they first join. They are expected from Day1 to be able to make decisions, defend their department and show knowledge of their topics regardless of their background and experience.

The PM should have regular review meetings with the senior Cabinet members one to one. These meetings should be to give guidance to a Cabinet member over PM preferences and how the departmental policy and priorities can fit into the general strategy. They are also occasions when the Cabinet member can ask for support and assistance, and the PM can show understanding of a colleague’s plight and mentor where necessary. As there are too many Cabinet positions to report one to one to the PM senior Cabinet members should perform the role for more junior Cabinet members. The Chancellor should guide the Chief Secretary, the Foreign Secretary the Overseas Aid and Trade Ministers etc.

Cross departmental strategies like levelling up or greening government should come to Cabinet for determination. Conflicts between departments over issues should come to cabinet or committee for resolution. A Cabinet member should be held responsible for a policy entirely or mainly within their own department. So the Chancellor should be responsible for tax strategy and the Home Secretary responsible for migration policy. Given the importance of these to government as a whole the PM should keep them under review in the one to ones and they should report to Cabinet regularly as well.

 

My intervention in the Northern Ireland Protocol Committee (Day 3) debate

Rt Hon Sir John Redwood MP (Wokingham) (Con): Has the hon. Gentleman or his party ever once lobbied the EU in public or in private to shift its position to accommodate the very reasonable grievances and to deal with its illegalities under the protocol?

Stephen Doughty, Shadow Minister, Foreign and Commonwealth and International Development: I do not agree with the last part of what the right hon. Gentleman said, but actually I sat around the table with EU ambassadors and, indeed, the EU ambassador to the UK to discuss these very issues just weeks ago, so I have sat down in private, and we have said so publicly on a number of occasions. The right hon. Gentleman should be reassured on that point.

My interventions in the North Ireland Protocol Committee (Day 2) debate

Rt Hon Sir John Redwood MP (Wokingham) (Con): Will the Financial Secretary confirm that the Treasury will never use the argument that we must not press ahead with the very necessary VAT cut on energy in the cost of living crisis because we cannot apply it in Northern Ireland? It could damage GB as well as NI if that argument were used. Will she promise that the Government will energetically pursue complete sovereignty over VAT?

Lucy Frazer, Financial Secretary to the Treasury: After this legislation has passed, we will be able to introduce VAT legislation across the UK in the interests of both GB and Northern Ireland. I can assure my right hon. Friend that the Treasury consistently looks at tax policies, including VAT, and the benefits and disbenefits of bringing in changes.

I turn now to amendments 37 and 41 in the name of¬†Mr Lammy. I should note that this issue was addressed in a previous debate, so, in the interests of time, I shall aim to be brief. The amendments would restrict the use of the Bill‚Äôs powers to only make provision that is ‚Äúnecessary‚ÄĚ rather than to make provision that the¬†Minister¬†considers is ‚Äúappropriate‚ÄĚ.

As my right hon. and learned Friend the Minister for the¬†Cabinet¬†Office and I have said previously, ‚Äúnecessary‚ÄĚ is a very strict legal test. The amendments would therefore remove the policy discretion for the exercise of these powers, potentially limiting Ministers‚Äô choice of the right solutions to the problems caused by the protocol. Changing the test to an objective one will provide additional uncertainty to businesses and consumers and it would severely limit the ability to facilitate consistent VAT, excise and other relevant tax policies between Northern Ireland and¬†Great Britain, as well as a domestic subsidy control regime that applies to the whole of the UK.

I want to comment on how that was expressed by the hon. Member for Hove, who suggested that Ministers could make changes on a whim. That is simply not the case and is a misrepresentation of the position that is clearly set out in the legislation. Clause 12(3) clearly states:

‚ÄúA Minister of the Crown may, by regulations, make any provision which the Minister considers appropriate in connection with any provision‚ÄĚ.

Therefore, he or she would need to consider those matters very carefully, as Ministers from across the House would do. The amendments might also prohibit the Government from responding in a flexible way to issues facing Northern Ireland. That, in turn, will have a negative impact on Northern Irish businesses and individuals, so I ask the hon. Gentleman to withdraw his amendment.

Many hon. Members discussed the negotiations, and I hope that I have answered those points in my response to the intervention from Stephen Farry, The hon. Member for Hove talked about the single electricity market. The right thing to do is not to impact the single electricity market. As the Foreign Secretary has said, we want to cement the provisions in the protocol that are working, including the single electricity market. That is why this Bill does not seek to exclude article 9 or annex 4, which maintain the single electricity market. The Government are committed to preserving it and the benefits that it provides to UK citizens in Northern Ireland.

For those reasons, taken together, these clauses will ensure that the Government can set UK-wide policies on subsidy control and VAT, ensuring that those in Northern Ireland can benefit from the same level of support as those in the rest of the United Kingdom.