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

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Shortages

The world trading system is not functioning as well as it used to. What began as a result of shut downs of factories and shops from anti covid policies pursued in many countries has morphed into a more complex set of problems getting in the way of smooth continuous supply.

There are too many container ships sitting off California. China from time to time shuts down significant capacity at one or more of its major container ports to tackle another covid outbreak. There is a shortage of empty containers returning to the big exporting countries like China and Germany in time to be filled promptly with new orders.

There is a surprising shortage of people willing to take jobs in many places, despite the shock to employment brought on by covid lockdowns. We have discussed recently the shortage of truck drivers in many countries, where pay and conditions of employment have not proved attractive enough to recruit a new generation of enough people to do the job.

Individual materials and components have been forced into shortages by large expansions of demand. Microprocessors are the most obvious.The  surge in demand for all things digital combined with the wish of the motor industry to turn a car into a kind of smartphone on wheels to induce a big shortage of chips . Timber was suddenly very scarce as housebuilding took off in several places. Oil went dearer as OPEC restrained the supply whilst demand picked up.

Central Banks assure us this will all be temporary and inflation will soon subside. The danger is if Banks keep on printing too many yen dollars and euros they will keep price pressures on. There is also some signs that lockdowns have lost us some capacity amongst the self employed and small businesses that serve us so well. Governments need to be more attentive to the ease of setting up or re opening small businesses so we tackle  more of the shortages.

Should travel by electric cars be taxed?

Let me begin by stating clearly I am not advocating any new taxes and certainly not lobbying for any. There are, however, many worried that if electric cars take off and significant  numbers of petrol and diesel cars are pensioned off there will be a collapse in fuel duty and Vehicle Excise Duty revenues that will need replacing. They think it is a good idea to ask how this hole in public revenues might be filled. Before buying an electric car some people want to know what the future tax regime might be for them.

Some think the electric car user should have to pay a tax just as the diesel and petrol car owners do today to keep the revenues up. Electricity for charging car batteries could be taxed at a higher rate than domestic electricity, with the charger point incorporating suitable smart meter identification of use. After all electric cars use the roads as much as the ICE cars they replace, will add to the wear and tear and will need road maintenance and improvement programmes.

It is true that the tax raised on the  motorist greatly exceeds the costs of providing and servicing the roads. There has been cross party agreement to a permanent transfer of income from car users to public services and benefit programmes. There is no reason some argue why this choice should change, or why electric vehicles should be exempt if that transfer remains multi party government policy.

Others think the advent of more electric vehicles should be used for a more comprehensive change in travel and vehicle taxation. Why not , they say, introduce road pricing? The state could sweep away fuel duty and VED and replace it by a comprehensive system of charging cars who use  roads. Some would want to charge electric vehicles less per mile than petrol or diesel as a further incentive to adoption. Some want to just charge for congested roads, flexing the charge by time and traffic conditions. Some think just charge for the trunk roads and motorways which account for so much of the miles travelled and which tend to  be more used by business and people on better incomes. That way people using cars to get children to school or themselves to nearby work would not be taxed.

Road pricing has been looked at before and so far always rejected. Many motorists/taxpayers fear it would become an extra tax. They fear the government would extort too much out of their monopoly control of the roads. Many MPs think of it as a poll tax on wheels and would not wish to support it. So I ask you all in a genuine spirit of enquiry how should the government handle revenue loss from electric cars? I do not have a good answer to offer as someone who has not been telling everyone to get an electric vehicle.

Mrs Merkel’s party turn their fire on the European Central Bank

There is no such thing as an independent Central Bank, owned as they are by governments on behalf of states or the EU. It is possible for Central Banks to call the shots on interest rates, credit,  banking and money supply for periods without government interference, but in the end these are all issues that may come to matter to politicians and  the public. When they do governments replace Governors, change the remits, change the legislation or the rules which control them. Under Mr Brown as Chancellor then PM the Bank of England accepted a change of  inflation target, and during the banking crash was effectively rightly overridden by the government to cut interest rates at the height of the troubles. Substantial changes were made after the 2008 banking crash by the incoming Coalition government . Even during periods of apparent independence there is usually behind the scenes agreement.  Chancellor Mr Osborne in  the UK chose a new Governor of the Bank of England who shared many of his views. The Bank obligingly saw independently the Remain campaign in the EU referendum that followed as the right answer and produced inaccurate pessimistic forecasts of what would happen if Leave won. The current Fed Chairman is at one with Treasury Secretary Yellen over running the US economy hot. The Fed has a dual mandate on employment as well as inflation and is always expected to work with the Administration of the day.

The doctrine of independence is most advanced in the case of the European Central Bank. It should be much easier there, as no single state or national government can bend it to its will or appoint a new Governor. In practice the ECB works closely with the EU Commission and is understandably an advocate and enforcer of more EU integration. They came to see they needed to take extraordinary action that German opinion would not like to head off Euro crises and allow the continued financing of the deficit countries.

Nonetheless most establishment figures and mainstream political parties claim Central Banks are independent. This means the politicians in office or seeking government positions  have to refuse to comment on a wide range of economic instruments from interest rates through cash and liquidity levels to credit policies and bank regulations, leaving these to a so called independent Bank. It is a shock to the system if a senior government figure does venture any public criticism of a Central Bank. Their efforts at behind the scenes influence have to be  done invisibly.

That is what makes the decision of Germany’s CDU party, the party of Mrs Merkel that claims to welcome EU integration, all the more remarkable. Mr Merz, runner up candidate to lead the CDU and the new Leader’s chosen expert on economic matters has been critical of ECB policy. He thinks the ECB is allowing too much inflation. He shares the Bundesbank Chairman’s fears that German inflation is heading for 5%, an unacceptably high figure to them. He thinks the ECB should stop buying so many bonds, facilitating yet more borrowing¬† by the deficit states of the Union at low rates of interest. Like it or not ECB policy has become an important tension in the German election.

Burning crops – where should ethanol come from?

The government is keen to introduce plant based material into petrol for our vans and cars. They see this as a green option, and claim that moving to a ten per cent content in petrol is the equivalent of taking 300,000 cars off the road.

Given their strong wish to limit the number of cars this is another good argument to limit the number of additional people we invite into our country each year to live here, as many of them will naturally want a car.

I have other important  questions for the government about its belief in the power of ethanol. Which crops does it recommend for the production of this material?  Is the aim to grow more corn or wheat, or to take it from willow and other trees, or some other plants? Is the intention to grow our needs in the UK or does the government wish to add to our import bill? If the aim is to grow more at home, what crops will it displace or can it be an extension to the useful growing areas?

I would want the government to facilitate home production of the ethanol feedstock and the home processing of the crops. I would wish to see these fuel crops as an addition to what we are already growing for food. My concern rests with the current policy from the agriculture section of the  Environment Department, which seems keener on wilding, taking land out of useful production.

We cannot afford to simply add ethanol to a long list of things we import, transferring the jobs and incomes out of the UK and reducing the taxable capacity of our economy as a result. We do  not want another Drax on our hands, where we import timber across the Atlantic to burn in the power station, with considerable environmental costs for long distance transport, and a net loss to the UK economy of the work and incomes timber growing and logging  produces.

Housing

It has become a popular question to ask those who recommend welcoming more migrants to the UK for whatever good reason if they will open up one of their spare rooms at home to provide accommodation. I guess it can make good tv to see the responder hunt for some plausible reason why they themselves would not take such action.

It is however a diversion from the big issues that underlie the problem. It is¬† no¬† solution to a refugee family to find cramped accommodation in someone else’s home. It is¬† not even a good long term answer for a single economic migrant, as they too need some independence and opportunity to cease to be single if they wish. The British dream is to own your own home with your own front door and with reasonable freedom over how you organise it and what you do in it. The British reality for most¬† with no capital and lower incomes is to rent a property which also affords the independence of your own front door, independent kitchen and bathroom facilities and sufficient sleeping accommodation.

We are  not looking to downgrade expectations, or to seek to place more families  in permanent accommodation where they need to share kitchens and bathrooms or lack the space they need to sleep and live in their homes.

Given this we need also to accept there are limits to how much accommodation we can provide and therefore to how many migrants it is possible to accept in any given year. Whilst housing is the main constraint, we also need to think about the provision of other public services. There are limits in the shorter term to how many school places are available, how much NHS capacity there is, how much roadspace and how much water and electricity can be delivered from the existing wires and pipes. When Wokingham was experiencing really fast growth some years ago there were problems getting the water and power system to catch up with rocketing demand. It was one of the arguments I was able to use to move us down then  from a fast growth area.

In order to get housing  supply and demand into better balance we do need to consider the pace of increases in demand as well as supply. Government tends to look at net migration figures, but in any individual place it may be the gross figure that matters, as people leaving the country do not necessarily free up both the number and location of properties needed for the new people arriving.

What for NATO and the West now?

The weakness  President Biden demonstrated in the Middle East over Afghanistan was unfortunate. It should not be repeated elsewhere.  The President wanted to be closer to allies  but has instead upset them by his unilateral and unwise decision. That is all the more reason for him now to draw closer in other places where alliances are important.

In Korea the USA still maintains a substantial military presence to support the South Korean forces. North Korea with its erratic autocrat in charge needs to know that the USA continues with her long term commitment to support the South. So  does China need to understand that trying to control her wayward neighbouring state.

President Biden has in the past made clear he will support Taiwan. He will need to do so again, and be ready to respond to any further tests of resolve from Chinese naval vessels and planes coming close to the island. NATO as a whole is engaged, with naval vessels from other NATO countries assisting the USA in keeping open international waters in the South China Sea.

In eastern Europe NATO has forces in the Baltic Republics as a reminder to Russia that they have chosen to be allies of the West. US rapid reaction forces are an important part of the NATO support.

The world has just got even more dangerous with the collapse of the Afghan government and the release of prisoners from Afghan jails. Counter terrorism is a daily task for many years, not something democratic countries can get bored with or pretend the need  has gone away. There are regular challenges to western defences by conventional weapons and  by many cyber probes and assaults. Some come from rogue states or from terrorist groups. Some are tolerated if not directed  by large states that the West has to do business with. This requires clear leadership, defining lines of conduct and imposing sanctions or responding as needed where lines are crossed. After Afghanistan President Biden will have to be tougher and clearer to avoid more disasters elsewhere. UK diplomacy could help rebuild trust between the USA and the allies, assuming President Biden recognises the need to reassert US leadership against violent and unacceptable conduct.

Carry on trucking

I have written a piece requested by  Conservative Home which they published  today on the shortage of truck drivers.

 

www.conservativehome.com

The collapse of the two main parties in EU countries

The UK has kept something  close to a two party system in General elections. Labour and Conservative have alternated in power based on their ability or lack of it to improve living  standards and preside over a successful economy. Labour’s bankrupting  of the UK and trip to the IMF to borrow in the mid 1978s led to them being out of office for 18 years. The Conservatives adoption of the European Exchange Rate Mechanism and the predictable inflation and recession that caused led to Conservatives being out of office for 13 years. Labour’s boom and bust and banking crash of 2008  has so far led to them being out of office for 11 years.

I know some contributors here want a new or third party to emerge. The Social Democrats tried that in the 1980s and failed after a few by election successes. The Lib Dems are always positioning  themselves as a potential new force but have never made it to first or second place in a General election and cannot truthfully claim to be new. The Referendum party, UKIP and the Brexit party  tried it mainly around an important single issue but only ever won one seat in a General election between them. As I always advised here, if you wanted a referendum and then wanted Brexit done they had to be achieved with Conservative MP votes in the Commons.  In Scotland the SNP has demonstrated that in the first past the post Westminster elections they have been able to break through into first place, displacing Labour, because they have made their  constitutional issue more salient than economic management for the UK as whole.

On the continent there was the same alternation between Social Democrats and Christian Democrats in office in the last century. This century in all the main EU countries the big two have lost support with new populist parties emerging. It is true they have different voting systems which can assist splintering of the  vote, but they had these same systems in the last century when Christian Democrats and Social Democrats were each  likely to get around 40 % of the vote and to dominate coalitions with smaller parties formed by the winner.

This seems to have occurred because electors realise that unlike in  the UK the once dominant  parties can no longer guarantee or mess up the economy  in the same way because they do not have the powers. EU control of interest rates, money and credit, state borrowing and some taxes changes things a lot. Elections are fought on other matters more.

The decline of the Christian Democrats has been speeded by EU policies. The lower tax greater freedom part of the conservative  vote has been alienated  by the compromises needed to accept a large and growing EU budget, independent collective EU borrowing, huge transfers at zero interest from surplus to deficit countries through the European Central  Bank, and a regulatory colossus laying down detailed controls over many aspects of life. The conservative impulse has as a  result been driven into newer parties of a more Eurosceptic tone. They are normally defeated  by a coming together of all the other parties that are broadly pro EU to prevent any Eurosceptic movement gaining power again, as Syriza briefly did in Greece before its leaders gave in. In some cases as in France this has occurred in the second round of an election. In other cases as in current Italy it comes by excluding the Eurosceptic party from any post election coalition.

Let’s end the secrecy about the German election

The BBC and Channel 4 always go to town over any US Presidential election, and  provide comment about US Congressional  mid terms. Any error or politically incorrect comment by a Republican is played up, and suitable  bon mots by Democrats are reported. There is even sometimes commentary designed to produce a little balance.

When it comes to a pivotal and important European General election there is usually a deafening silence. In a month’s time Germany goes to the polls to choose a replacement Chancellor for Mrs Merkel. Voters will also be invited to pass judgement on how green electors want policy to be, how much more power the EU should enjoy, and how prudent the budget of the EU’s largest economy should be. Given the media’s enthusiasm for all things EU the lack of interest in all this is noteworthy.

Many¬† people in the UK have not even¬† heard the names of the 3 main challengers to take over as Chancellor. Armin Laschet is the new leader of Merkel’s CDU party (sort of Conservative). Annalena Baerbock is the chosen Chancellor candidate for the Greens. Olaf Scholz is the leader of the SDP (Labour like).

The election has been through three  phases so far. It began with a surge for the Greens when they announced their fresh new candidate for Chancellor who briefly went into first place in the polls. It swung back to the CDU . In the last few days the lagging SPD has had a strong run and pulled level with the CDU in joint first.

The Greens have fallen back into third thanks to claims that Ms Baerbock’s CV had elements of fiction in it and that her book had borrowed material from elsewhere without credits. More importantly Green¬† policies of raising fuel taxes and subsidising cycling are going down badly. The CDU has lost traction partly thanks to Mr Laschet’s unfortunate joke cracking as a backdrop to the German President speaking about the deaths of people in the recent floods. Mr Scholz has picked up support by avoiding such disasters.

There have been some continuities in the polls. The polls have always said the 3 main parties remain very unpopular, struggling to get much above 20% each. The polls have always said the 3 Chancellor candidates are unpopular, with more than half the voters often preferring none of the top 3. They have also said that the most talked about possible coalitions, CDU/Green/Free Democrats  (Jamaica) and SDP/Free Democrats/Green (Traffic light) are more unpopular than any of the top three parties! The polls regularly give the Eurosceptic AFD 9-11% so they will definitely have no role to play in a future German government as none of the pro EU parties want them in a coalition.

The green arguments are especially important. Mr Laschet as current head of the government of Rhineland has to defend the decision to allow the loss of six more settlements and a major expansion of the strip mine for lignite at Garzweiler. The CDU/SPD coalition federal government led by Merkel has just agreed that Germany will continue to mine coal and burn it for electricity until 2038. This means Germany will not make much of a contribution to COP26 and the climate change pledges, refusing to match the UK by ending electricity from coal early. German electors seem worried by the lignite expansion but not enough to make the SPD less popular. They seem even more worried by the Greens wish to use taxes and subsidies to change things faster. There are also important differences over taxes, spending levels, borrowing and the size of the EU budget. I will keep you posted.

The pace of migration

When income per head is $63,543 in the USA, around $40,000 in the richer European countries  and under $6,000 a head in poorer countries it is no wonder that many people want to  be economic migrants. The USA is the most popular destination for migrants, followed by Germany, Saudi Arabia and the UK.  Millions of Indians, Mexicans, Syrians, Bangladeshis and others have made the often arduous journeys to new lands in search of a better life.

These strong patterns of economic migration have been reinforced by waves of migration as people flee authoritarian regimes, civil wars and individual threats to their lives. The West struggles to distinguish between economic migrants and refugees fleeing genuine threats of persecution and violence.  The difference is fundamental to policy, as the need of the refugee is greater than that of the economic migrant, and the numbers should be much smaller and more manageable .

There are three broad views over how we should react and respond to these impulses. One group including Labour and the Lib Dems thinks the west should  be even more welcoming of any kind of migrant. It is to them our duty to be generous and kind. One group thinks it best to concentrate our policy efforts on aid and trade to try to create better circumstances in the poorer countries so people there can seize more opportunities and enjoy some hope of a better future. Our generosity should  be limited to defined groups and individuals who face persecution, with the west sharing the responsibility by taking manageable  numbers of people from crisis areas. Some targeted economic migration should be allowed where we need the people and skills concerned.  A third group thinks we take too many migrants with stresses on our housing and public service provision and wishes to see numbers reduced in the best way possible.

The UK debate has not been helped by poor and misleading official statistics. The argument was intensified by the arrival of a large number of people under EU freedom of movement rules. The official figures told us EU migration was lower than non EU migration, and the Blair government gave a very low figure for eastern European migration which was soon proved to be massively wrong. More recently the ONS has apologised for the large errors and produced new figures showing EU  migration did run consistently at higher levels than  non EU migration over the last decade, that EU migration was under recorded  and non EU migration was overstated. The revised figures are still problematic as they do not include children and have to be adjusted for students that do not also get some part time work. The dodgy numbers have led opponents of the current pace of migration to think this was  more than an embarrassing error.

Many countries in Europe, the Middle East and the Americas have put up border walls and fences to try to stem the flows of economic migrants. Some counties like Turkey and Pakistan shelter large number of  migrants from broken states near their borders. International aid is often directed to camps established near to a country people have left in the hope that some order can be restored and they can in due course make their way back to their homeland.

The UK according to the latest revised figures was welcoming at least 300,000 additional people every year up to 2018. In 2015 and 2016 EU net migration hit 282,000 a year with another around 100,000 from non EU. These numbers of non EU  migrants are  a small proportion of those who would like to come, but they are large numbers when it comes to finding new homes, school places, doctors surgeries and transport capacity so they can enjoy a decent lifestyle. Given the magnitude of the problem and the persistence of low incomes in too many populous countries in the world, more of the answer must lie with helping those countries to succeed rather than with helping drain them of talent by fostering more migration.

The UK now has more control over how many people to welcome. With a new borders Bill going through the Commons the government should be able to be more precise over how many each year it wishes to help and accommodate. What would you like to see them do? I think the totals of economic migrants in recent years have been too high.