The spinners went out yesterday to reassure the markets with two soundbites. The old one was the PM and Chancellor are strongly committed to the Chancellor’s new laxer fiscal rules introduced at the budget. The new one was that the new advisers crowding   into Number 10 mean the PM and the Chancellor are now more united about the budget.

These lines stretched credulity too far. Few could see the establishment of powerful economic advisers  to the PM as anything other than an attempt to get a better set of options and advice than they are getting from the Chancellor who should be the PM’s main economic adviser, backed by Treasury support.  Nor are markets. much impressed that a narrow margin over the fiscal rule maximum borrowing has been swept away by  the loss of the planned welfare and pensioner fuel cuts and by the rise in government borrowing rates.

As Hemingway   remarked, bankruptcy  happens gradually  at first, then suddenly. It can be the same with bond and financial crises. They are not inevitable. The Chancellor could change the mood if she said she was about to announce a package of spending cuts or controls to replace the lost cuts and cover the interest bill. She needs to fight and win a few spending battles which could include reductions in the rate of increase in welfare and deferrals of some net zero expenditures.She should urgently agree no more loss making bond sales by the Bank of England.

Yesterday it was disturbing that rates rose and the pound fell. As UK government bond rates are so much better than other advanced country bonds you  would expect more foreign buying of the bonds and currency if there were no special and specific fears about UK economic policy. The Chancellor should not leave  it to a late autumn budget with no stated date if she wants to get back to affordable debt and to within her fiscal rules.Just parroting that the government is dedicated to its rules is not believed  by markets who increasingly ask how and when will borrowing be controlled? Trying to  do it by tax rises could well make things worse, hitting growth again.

1.   Importing oil and gas to burn increases world CO 2. Importing LNG is particularly stupid, given the amount of fossil fuel consumed to convert the gas to liquid, to keep it cold, to transport it by diesel ship and to convert it back again. The climate zealots are undermining their own purpose.
2. Importing oil and gas means we have to pay high taxes to foreign countries and companies, instead of the UK Treasury collecting large sums from UK production.
3. Importing oil and gas exports the often well paid jobs in the oil and gas industry. We lose the jobs here, they gain the jobs abroad to make up our lost supply.
4. Importing oil and gas makes us more dependent on the goodwill of foreigners. Oil and gas trades are often disrupted by world politics, with blocks to Suez, Panama and other key shipping routes, with diversions of energy under sanctions regimes, and with vulnerability to tariffs.
5. Cancelling our own oil and gas industry writes off all the investment made in the gas network offshore and onshore well before the end of its useful life
6. With our own oil and gas supplies we can keep or expand our petrochemical industry. We are currently seeing its collapse thanks to sky high UK energy prices and need to import feedstock.
7. The oil and gas industry if kept at home stimulates and creates important oil and gas service industries which we lose when we rely on foreign product.
8.  Changing policy would be well received by NATO which is very worried about the security implications of leading NATO members needing to depend on unreliable foreign imports.
9. Seeking a mass transfer from gas heating to electric requires a massive investment in additional power generation and a huge expansion of grid capacity and storage. This is bound to increase costs and prices.
10. Keeping the lights on and everything working on cold windless days and evenings will be much more difficult without gas generators on stand by.

The government claims to be promoting growth yet its actions are all about levelling down. They follow an old socialist agenda of tracking down any and every way the better off half of the country make money, increase incomes, save, invest, own property and buy nice things and set about raising taxes on them all. This is a great way to lower growth, lose talent and create misery.

Its first effect as we saw last autumn with all the speculation about higher taxes is to undermine confidence. People cancel purchases, defer investments, put off transactions.

Then the actual tax rises hit. The big NI rise was a tax on jobs so vacancies plunged and unemployment rose. The family farms and small business taxes led to closures and sales. The gathering attack on wealth drove many rich  people out of the UK, meaning they will no longer pay any tax . Many younger people who want to work hard and get on have left to get a job or set up a business abroad.

This year the result of the last budget is likely to mean lower OBR forecasts requiring more spending cuts or tax rises to hit deficit targets. The government seems focused on tax rises, so we will go round the  same vicious circle. First comes less confidence on tax rise stories, then the further damage from the actual tax increases.

Levelling down cuts jobs, tax revenue, confidence and growth. It increases public spending as more need benefits and are out of work.

This is what Chat GPT thinks I said – it is right

Critique of QE and QT: Excessive Risk, Taxpayer Exposure

• Redwood has consistently warned that the Bank of England’s quantitative easing (QE) programme—particularly during and after the pandemic—has saddled taxpayers with massive potential losses. He cited costs already incurred, like the £24 billion by April 2023, and projected total liabilities of up to £100 billion or more if losses continue Institute of Economic AffairsYorkshire Times.
• He argues that the Bank, rather than selling bonds at a loss (quantitative tightening or QT), should hold them to maturity to avoid realizing those losses. He looks to the European Central Bank, which has adopted that strategy, as a model worth emulating Parallel ParliamentInstitute of Economic AffairsTelegraph.

2. Institutional Independence—or Lack Thereof

• Despite popular narratives, Redwood emphasises that the Bank of England was not fully independent in setting QE policies. He notes the Treasury’s role in underwriting QE bond purchases, including agreements indemnifying losses, thereby exposing public finances to risk Facts4EUParallel Parliament.
• He stresses that major QE decisions were jointly made with the Treasury and advocated greater accountability and transparency in such operations Facts4EUParallel Parliament.

3. Forecasting Failures and Inflation Criticism

• Redwood criticises the Bank’s forecasting models, asserting that they failed to predict the surge in inflation even before the Ukraine crisis. He points to the UK’s double‑digit inflation as evidence of central bank misjudgment Institute of Economic AffairsPortfolio Adviser.
• He contrasts this with countries like Japan, Switzerland, and China, where inflation remained low despite similar global pressures—largely, he argues, because those countries avoided large-scale QE Institute of Economic AffairsGB News.

4. Monetary Governance and Reform

• Redwood has called for the Bank to revise its forecasting models, placing greater emphasis on money and credit growth. He also advocates for a diversity of economic viewpoints among senior staff and MPC members Institute of Economic Affairs.
• He proposes that the pay of senior staff and MPC members should be tied to performance—specifically, their accuracy in forecasting and ability to control inflation within public finance constraints Institute of Economic Affairs.

5. Broader Constitutional and Growth Context

• Redwood urges that the Bank not be allowed to impede fiscal policy or divert vital resources—via large losses—to the detriment of public services and growth initiatives TelegraphGB News.
• He frames monetary policy missteps as hindering national growth, advocating instead for a “budget for growth” that addresses capacity gaps in energy, infrastructure, and production Facts4EUParallel Parliament.

Key Quotes from Sir John Redwood

• On losses and bond holdings:
  “The Bank of England should cease selling bonds and allow maturities to gradually reduce the balance sheet.” Institute of Economic Affairs
• On institutional risk and governance:
  “It is simply wrong to say the Bank followed an independent money policy after 2009… the Treasury/Bank agreed policy added £895 bn of assets… and set taxpayers up for possible large losses.” Facts4EU
• On forecasting failure and inflation:
  The Bank “kept interest rates too high for too long… driving up mortgage rates, and undertaking quantitative tightening (QT) – selling the bonds purchased during QE.” Portfolio AdviserInstitute of Economic Affairs
• On reform and accountability:
  He calls for “link[ing] Bank of England senior staff and Monetary Policy Committee members’ pay to their ability to forecast and control inflation.” Institute of Economic Affairs

In summary:

Sir John Redwood has been a vocal critic of the Bank of England’s post-2008 monetary policy, particularly QE and QT. He believes that excessive bond purchases—with guaranteed indemnity by the Treasury—have exposed taxpayers to undue risk. He criticizes the Bank’s forecasting failures and urges a revised governance structure: better forecasting models, more accountability, and closer alignment with growth-oriented fiscal policy.

.

 

 

Only socialists in the UK could think our national flags are embarrassing symbols we should not fly in public. I am heartened to see the cross of St George appearing much more often. To me it is a symbol of England that resonates with our virtues. Slow to anger, firm in the defence of freedom, generous to those in adversity, critical of the pompous and damning of the stupidity of some officialdom. The English lion lies down in a friendly way. It takes much to arouse but can be fierce if our values of tolerance,freedom and fair play  are abused excessively.

Patriotism is at its best a benign virtue. We can be proud of our own country without running down others. We can enjoy our culture and viewpoint without  being hostile to  different foreign ways. We can fly our flags  proudly as a statement that we want to live here, we value our past and our traditions, and we wish to draw on the best of our inheritance, landscape and  institutions.

As a generous country we will help those in need and at risk. That does not extend to those who break the law or who abuse our hospitality. As a law abiding country we want to trust the authorities, but we expect them to keep us safe and look after our interests first.

I get a lift when I see our flags fly high. Anyone in public authority who is ashamed, angry or wants to take them down misjudges why people put them up. Why cannot they see what we see in the history, achievements and way of life of the English? Why do they think so many people want to come here? Many are fed up with local and national government doing us down and sending us the bill.

 

Many commentators are predicting one, based on rises to  25 year highs in longer term government borrowing rates. When these rates rose in 2022 Rachel Reeves called this “ crashing the economy”. All this year the rates have been higher than the one day spiked peak in 2022.

A better question to ask is how can we avoid a crash? There are 4 things the Chancellor should  do urgently.

1. As the Bank’s bond portfolio is under dual control, requiring government consent and underwritten by government against loss, the Chancellor should instruct the Bank to stop selling bonds in the market. This would reduce selling pressures which are driving up rates.

2. She should identify spending that can be reduced, deferred or cancelled and announce it to Parliament to replace the lost savings from welfare and pensioner fuel cuts, and add a bit more. Deferring some  Net zero expenditures, putting in  new criteria for new welfare cases which reduce those getting UC with no need to seek work, ending the battery car subsidies, discontinuing plans to give money to Mauritius, imposing a recruitment freeze on administrative positions in public service, and cutting Bank of England losses could be in the package

3 Rule out any tax rises in budget, learning from the adverse  impact the tax rises in the last budget had on confidence and growth.

4 Promote growth by lifting the bans on new oil and gas production and on diesel and petrol car production from 2030. Raise likely tax revenues by removing the farm and small business tax.

It is true that the Bank of England, the Fed and the ECB have the independent power to set the base rate or short term interest rate. I do not deny that or even propose taking it away. That is not the same  as these central banks being independent of the state and government policy.

The Central Banks have Governors chosen and appointed by governments and Parliaments. The Governors have to report to elected assemblies and answer questions and criticisms. They rely on state taxes  should they not have enough revenue to pay their costs. They have to work with government or accept government policy on important matters like the issue of government debt, the management of their bond portfolios, and their attitudes towards the actions of commercial banks.

The governments/Parliaments can change the rules, alter the aims, change the budgets and personnel of these Central Banks any time they like. In the UK there have been major changes. Gordon Brown who gave the Bank the power to set base rates at the same time took away their powers to issue government debt and to regulate commercial banks, making the changes a net reduction in their independent actions. The successor Coalition government changed the framework again with major changes to commercial  bank regulation. President Biden on taking office appointed several new Board members at the Fed including  the two powerful Vice Chairs  to change their policies as he was entitled to do, with two leaving the Fed ahead of their retirement date.

The main monetary policy these three Central Banks followed up to 2022 was money printing or Quantitative easing. In the UK every pound of that had to be approved by the government, who underwrote the Bank against any losses. In the last three years all 3 Banks have been pursuing Quantitative tightening. The UK government has been paying huge bills to the Bank to cover their large losses on bonds they have been selling. The ECB has not been selling bonds, presumably because their owners will not pay the losses. The Fed which like the other two overdid the QT had to pump large sums into the markets to prevent a collapse of regional banks. No government can afford to ignore Central Bank actions which help create a fast inflation by creating too much money, or create a recession by tightening too much.

The wrong belief that these Banks are “independent” other than over the base rate means much media and commentary refuses to ask why these 3 allowed or created a large inflation. It means they escape proper scrutiny of what they did wrong and how in the future they could use their power to set the base rate to promote faster growth and lower inflation. They all have to work with their governments.

Some in the Trade Unions are alarmed by the spate  of closures and job losses we are experiencing. 90% of farms have delayed or cancelled investment. 8 pubs a week are closing. 2 refineries are shutting down. 2 olefins petro chem plants are at risk. Half our steel industry only avoids closure with taxpayers paying the bills to keep it alive. 2 ceramics factories have shut this year.

The car industry is at a record low of output and under government orders  to close all factories making diesel and petrol cars by 2030. Government plans  to close  all our oil and gas production are proceeding well with a  ban on most new investment. We are importing more and more of our electricity as government fails to expand the grid and renewables  fast enough to replace closing fossil fuel plants. All but one of our existing nuclear power stations will close by 2030.

Government should listen to the wise Trade Union  voices arguing against this rapid de industrialisation and idiotic reliance on imports. They should also listen to the farmers and the hospitality industry who are suffering badly from the last budget.

There are many good reasons to discontinue current UK net zero policies. I have concentrate on the following for some years now:

1They are de industrialising the UK, losing us jobs, investment and prosperity

2 They are undermining tax revenues we need, sending the  tax payments abroad to the suppliers of the energy and goods. Banning UK oil and gas loses us billions in tax which we pay instead to Qatar and the US

3 They are undermining national security, making us import dependent for energy, steel, petrochemicals and other essentials.

4.They are contradictory in their own terms. Importing more boosts world CO 2.

5. Battery cars and heat pumps  running on gas fired electricity from the grid does not cut CO 2. It cuts living standards burdening households with big bills to acquire and run these items.

Some of you wish to argue that net zero is a scam, human  CO 2 does not warm the planet, or UK CO 2 is too small to make much difference, or human CO 2 is only one influence on climate which might be offset by others including water vapour and natural CO 2.  I have given space to these opinions but still think the easiest way to stop the bad policies is to advance views 1-5 which climate activists find difficult to answer.

I wrote an article for the Telegraph showing how the government target to decarbonise our electricity system by 2030 was looking more and more unlikely. I pointed out that on their own numbers the government needs £44 bn a year for six years of investment in renewables and extra grid. Over the last year a number of leading  green energy shares have been poor performers. Hornsea  4 a 3.2 GW wind farm planned  for off the Yorkshire coast has been put off. Most of the investment needed has to come from the private sector given the state of the public finances.

Most of the readers comments were very critical of net zero policy and saw the  dangers and implausibility. One complained I had only just worked this out! Strange when I was  against the 2009 Climate Change Act and refused to vote for it, and went on to write various articles and short books in recent years explaining why consumers will not buy into heat pumps and battery cars on the scale envisaged.

Most interesting in the current government plan is how little extra  electricity they propose for 2030. If their other plans for a large expansion of heat pumps and battery cars took off as they wish they would need a very large increase in power output.  In this respect their plans  seem more realistic .

The pace of deindustrialisation is the main way they are getting UK CO 2 down, relying on imports which boost world CO 2 whilst reducing ours. Inviting in large numbers of extra people is incompatible with faster reduction of UK CO 2 but that does not seem to bother them.