Amidst all the clamour for the UK to take military action in Iraq again we should pause and ask ourselves whose side are we on? What would we be fighting for? These questions are equally acute if we simply supply arms, logistic support and intelligence to others to do the fighting.

I do not think the UK should back either the Sunnis or the Shia in the underlying Islamic struggle. Nor do I think we should fight to ensure the current borders and patterns of states remains immutable if people who have to live there no longer like the current lines on a map. After all we are just having a democratic vote in part of our country to see if our country still suits all its inhabitants.

Past UK policy has been incoherent, expensive in lives and money, and unhelpful to settling the future of the Middle East. The UK has wanted to keep current Iraq together, but has wanted to help the opposition forces in  neighbouring Syria who wish to dismember the Syrian state. Now the UK is considering sending weapons to the Kurds, whose ultimate aim is an independent Kurdish state. Is that now the UK’s aim? Have we sounded out our Turkish allies in NATO  on this matter? If a Kurdish state is split off, do we need then to support other divisions within former Iraq? How do we avoid a Sunni state in part of the territory?

I hold no brief for the current borders of Syria and Iraq, nor do I  think the UK should participate in a war either to maintain  the current lines or to create new states there. The huge instability, the wide range of factions and armies and the intensification of the civil wars in both countries makes stabilising a new settlement extremely difficult. Sending more weapons in is unlikely to  make it better. Many US weapons sent to the government of Iraq to defend the Iraqi state are  now in the hands of IS who wish to establish a new Caliphate state.

The people who say we should arm the Kurds need to answer some other questions. The Kurdish peshmerga forces have KDP and PUK wings who disagree with one another. Which of these would we favour, or would we arm each equally? What would we do if the Kurdish forces did seek to establish an independent Kurdish state as the reward for fighting the IS forces? How could we support them sufficiently to avoid capture of some of the new weapons by IS forces?

Not so long ago I urged the government with a group of Conservative colleagues not to intervene militarily in Syria. We were successful when Labour eventually joined us in opposition to such intervention. One of my reasons for opposing intervention was I did not see how our support for the opposition forces could  be confined to the so called moderates as the government hoped. It seemed obvious we would also be helping the extremists, as IS was an important part of the opposition to Assad. I have no time for Assad and his brutality  either. The irony of today’s position for the west is opposing IS forces means helping Assad, who is one of the principal forces of resistance to IS.

Labour’s war in Iraq was a bad mistake. Fighting another one would not right the wrongs of that war. There is a continuing lack of clarity over who we support and who we wish to defeat. The West has an unfortunate history of changing sides or revising their view of which is the worst cause we need to oppose. My enemy’s enemy may not be my friend. In the latest case my enemy’s enemy that I was wanting to help last year is now apparently my worst enemy instead. That does not make my old enemy my friend, but if we wish to stop IS Assad may be part of the means to do it. It would also help if our relations with Russia were better, as they too have an interest in stopping IS forces in the Middle East.

 

 

The latest Inflation Report from the Bank is both a mea culpa and a muddle. They admit they got their forecasts wrong for the last year. They thought inflation would stay over 3% but it fell to 1.7%. They thought unemployment would be around 7.6% but it fell to an average of 6.8% and is now at 6.4%. Productivity grew at 0.75% less than their estimate and employment grew much more. They got the level of sterling wrong and the favourable impact of rising sterling on prices. They thought wages would go up by more than they did.

 

We can all make mistakes. Even expensive and well resourced forecasting outfits like the Bank can make errors. It is more worrying, however, if there is something wrong or weak in the underlying approach to the forecasts. I am afraid that is exactly what has been revealed by these errors.

 

At the base of all these mistakes is one simple concept that is difficult to assess and measure. The concept is that of “slack” or unused capacity. In the Bank’s world they can assess and quantify this. If the economy has a high degree of slack then there will be little inflation. If slack has gone then conditions can become inflationary as companies and individuals bid up wages to get people to leave their current job, and as they offer more to get quick delivery of goods and services.

 

So far so good, you might say. There must be some truth in this. There are two obvious problems. The first is it leaves out the issue of money. If the banks create too much money this can drive up wages and prices. If they lend too little and there is too little money around you can have a recession, like the one in 2008 which the Bank did  not forecast before the event.  The second is, how do you measure this slack precisely so you know whether we are in the inflation danger zone or not?

 

This second problem preoccupies current Bank thinking. It lay behind Mr Carney’s opening policy that they would need to look at raising interest rates once unemployment fell below 7%. This was a pessimistic view of the UK economy, where labour shortages would emerge in the fast growing parts, where skills shortages would emerge, and where many long term unemployed would remain out of work. When we rapidly got below 7%, the Bank changed its mind and thought maybe 6.5% unemployment could be the level where they needed to start to worry.

 

Over the last year we saw unemployment fall below 6.5% but still no signs of inflation in average wages, let alone more generally. As a result the Bank has now decided that maybe the UK economy can function in a non inflationary manner with unemployment above 5.5%, not 6.5%. The latest theory of the danger rate seems as little based on evidence as the previous two that have now been rejected.

 

As the Bank explains in its Report, all sorts of things can happen to offset the impact on wages of falling unemployment. More people can arrive from abroad and offer their services, as they have. More people can get out of long term unemployment, partly as a result of recent benefit reforms, and they have. More people who were not working, not on benefit and not even seeking work may change their minds and take a job – and they have. The Bank now accepts these changes disrupt its view that a particular unemployment rate can start to create wage pressures. The Bank should also remember the problem of averages. Average pay may not go up much if there are few pay rises. It may also not go up much if we lose too many people on very high pay, or if we create a lot of lower paid jobs. We have done both, as well as people facing little or no pay rises in various occupations.

 

The whole idea of slack has two parts. The first is labour availability. As the Bank knows, you can have skills shortages that drive up specific wages, and labour shortages in certain places which can drive up local wages without having a general wage inflation. It now has to recognise that the recent remarkable flexibility of the UK workforce means there is more labour around than a single unemployment figure suggests.

 

The second part of their idea is unused capacity in business. This probably has more meaning in the industrial sector, where a factory with machines may well have a rated output above its current production which you can measure. Even this however, is not that precise. Producing more means perhaps ordering more components and raw materials, and taking on more labour or getting agreement to new shifts and overtime. There is a variable response depending on other conditions. Can the suppliers, who may be abroad, respond quickly? Do you have the trained people to supervise the machiness and organise the extra output and orders?

 

It is more difficult assessing the capacity of the dominant service sector. How many more windows can existing window cleaners fit in to their schedule? How many more meals can restaurants serve if more diners turn up? How many more health club places can existing clubs sell before they are full?

Finding a general answer and expressing it as a single figure is not easy.

 

The Bank needs to recognise that its concept of slack has so far let it down badly. It needs both to ask is there a better way of accurately measuring it, and is it a good enough explanation of inflation in the first place? These academic issues matter, as interest rates and our future growth hinge on it. Just asserting we currently have 1% slack left is simply not good enough.

 

 

 

Yesterday’s unemployment figures make good reading.  The  number of people on out of work benefits is down 781,000 since 2010. Youth unemployment is down 177,000 since the General Election. The number of  long term unemployed is down 45,000.

Since May 2010 the UK economy has created  1,800,000 additional jobs. Three quarters of these are full time. The unemployment rate has fallen from 8% to 6.4%, and the workforce has expanded. Some people have decided to rejoin or join the workforce who did not have jobs before but were not claiming unemployment benefits. Migrants have arrived and also found jobs. I seem to remember Labour predicting Coalition policies would lose us a net one  million jobs. They will need to revise their forecast and their economic strategy based on it.

Over the last year employment is up by a  massive 820,000. The majority of these jobs have gone to people already settled here, though migration from the rest of the EU remains substantial at 187,000.

The general economic policy has helped create an economy with an impressive capacity to generate more employment opportunities. The welfare reforms are helping get many more people back into work, including people who have been out of work for a long time. That is to be welcomed.

Labour and the critics were left pointing out that pay growth at 0.6% (excluding bonuses) is still low, and lower than price inflation at 1.7%. We would all like to see higher pay for those working hard in lower paid jobs who have not had recent pay rises. As the recovery continues more should be able to experience higher pay, from rising productivity, and greater success for their companies. We need to remember that the 0.6% is an average. If the economy generates more lower paid jobs that will bring the average down. If the decline of North Sea output and the exporting of top end financial jobs continues, that removes some very highly paid people which also lowers the average.

Overall the jobs news  is good news. People moving from benefits to work will be better off. When more jobs are created more people have the chance to work the longer hours they want or to gain promotion to a better paid job. Growth in the economy creates more opportunity which in turn allows more families to earn a better standard of living. The best news is there are now 400,000 fewer workless families than at the time of the last election.

 

The Conservative Manifesto in 2010 said ” Labour have refused to address the so-called West Lothian Question: the unfair situation of Scottish MPs voting on matters which are devolved.  A Conservative government will introduce new rules so that legislation referring specifically to England, or to England and Wales, cannot be enacted without the consent of MPs representing constituencies of those countries.”

So was born a form of devolution to England in the manifesto of a major party. It was interesting last night stating the case for England. I was asked to appear before the speech  on Scottish and N0rthern Irish BBC programmes,  but not on any English programme! The BBC just does not do England. As a result I declined their invitations. They would not see the irony. They think dev0lution is an issue just for the parts of the UK they do recognise as countries or nations, and does not apply to the biggest nation of the Union. When they asked me to do a UK  national interview the interviewer called it the Scottish Parliament issue when first greeting me!

The injustice for England has been apparent in the treatment of English students over tuition fees at Scottish universities. That is as nothing compared to the sense of unfairness if tax raising powers are devolved to Scotland after the vote yet Scottish MPs at Westminster can help impose those taxes on England that they cannot impose on Scotland.

The old cry was no taxation without representation. That was a fine cry for liberty and accountable government. The English Parliament grew on the back of enforcing just such accountability on the Crown. We lost the American colonies by violating our own beliefs on just this issue. The new cry will be no representation without taxation. People will not see the justice of Scottish MPs voting tax burdens on the English  that their fellow countrymen and women may not have to bear.

 

 

 

My call for English MPs deciding the matters for England that are devolved to Scotland  has been criticised by the SNP. I have no “resentment” over the Scottish Parliament getting more powers. I just want an answer to the problem of England at the same time.  Their response  is most surprising, as they have stated in the Commons

 

“In the SNP  we have a self denying ordnance of not taking part on English and non Scottish issues. …we believe England is as good as France and Germany and can run itself amply….”

Nor am I proposing tonight second class MPs from Scotland. Labour’s lop sided devolution has created two different types of Westminster MP – those that can talk and vote on all the main issues affecting their constituents and those  in Scotland who cannot because many matters are discussed and decided elsewhere. It was that which changed the nature of a Scottish MP’s job, not my proposals tonight. Under my scheme all Westminster  MPs will be equal on all union matters, wherever they come from in the UK.

 

In the two years to March 2014 HS2 Ltd has spent  £384,000,000 of grant aid from taxpayers. What is remarkable is that after such a high spend the balance sheet of the company doing all that spending shows zero net assets. The best part of £400 million has gone and the company has  nothing to show for it of more permanent value that gives us some net assets on its balance sheet.

Some will leap to its defence and say that is conservative accounting for you. In practice surely it has some intellectual property and goodwill? Others will say of course the costs of planning and designing such a big scheme are a large up front cost which you just have to work through.

The company itself helpfully explains that it cannot credit its balance sheet with any  assets as “the cost of an item of property, plant and equipment shall be recognised as an asset  if, and only if it is probable that future economic benefits associated with the item will fl0w to the entity”. Exactly. That is not yet clear.  In addition, most of the money has gone on wages and salaries, not on physical assets. All land and building  purchases ahead of works are in addition to these figures  and are made by the government, not HS2 Ltd.

Those of us who are critical of the business case for this railway are nonetheless entitled to ask where has all the money gone? What have we got for the £384 million so far? How much will it cost before any construction work commences and we start to see track and signals? The company already has 395 staff (whole time equivalents) and has already spent £35,000 on the pay off of a former staff member along with a £48,000 contractual payment, outside the normal Treasury scheme for such things.

I look forward to better cost control in future, as the Chairman promises.

 

 

It’s tough being the world’s superpower. If they intervene militarily in a country like Iraq they are condemned by  many for seeking  to impose their will on others, and making the position worse. If they try to stay out of a country like Syria – or Iraq the next time around – they are criticised for not intervening, not acting to protect the weak and advance liberal democratic values.

This week the “we should do something ” brigade have been out and about at their shrillest in the UK press. The latest argument as to why the UK as well as the US should now intervene militarily in Iraq is that we “messed it up” by a previous military campaign, and therefore “owe it” to Iraq and the rest of the world to have another go to try and put it right. This surely is the triumph of hope over experience if ever there was.

It is easy for armchair “Generals” and journalist warriors to wish others to do their fighting for them as they contemplate which of the pleasures of the English summer they will enjoy next. Instead they should be asking some tough questions on western strategy at the same time as reporting properly and objectively on the myriad factions, groups, armies and voices fighting over the futures of Syria, Iraq, the Kurd lands, Palestine and Israel.

The first question to ask is why did past western military interventions in Iraq, Libya and Afghanistan fail to establish peace loving liberal democracies as hoped and as advertised by the more optimistic? What have we learned from those past interventions? Have we gained a little humility in understanding that successful flourishing democracies usually emerge from within, not from without. They normally take several generations where the majority wishes to learn, teach and improve their democratic impulses.

The second is to ask what can western military force achieve if used? If western force is now to be limited to bombing from planes or drones, who do we want to kill and what installations do we wish to destroy? If the aim is to kill certain groups of people whom we regard as evil, how can we be sure we will kill enough of them to win? What if western death raining down from the skies acts as a recruiting sergeant for more rebel troops and martyrs?  How can we be sure we will only kill the evil ones, and not end up killing all too many people who are not the main  trouble makers? Can we be sure that if we succeed in killing enough of the evil ones, the rest of the faction riven and split communities can rally round, fill the power vacuum in the areas we are bombing, and create stable government there?  Other evil men can take advantage of allied bombing, as well as the forces of good.

What do we wish to destroy? Destroying civilian buildings because they may be occupied by evil forces or used as weapons stores damages the local economy more, creates more displaced people and more resentments, and puts off the day when more people living there can see a better peaceful future with economic progress. The only purely ” good”  target is military equipment of the evil ones out in the open and away from civilian populations. All other targets are hedged with hazard and political risks.

The USA this time round says it is bombing to halt the advance of IS forces, on the grounds that they have evil intent towards people of other religions. They do so with the permission of the Iraq government. At the same time the USA recognises that the current Iraq government is not uniting its country. The USA we hear wants political change in Iraq. I wish the US well in trying to halt possible genocide. That is a noble aim, but one which may prove difficult to achieve from the skies above.

For our country, I am glad the UK is committed to giving humanitarian aid on a larger scale. We need to help seek a diplomatic solution. The attempted break up of Syria and Iraq is a violent political process, but it is ultimately a set of political problems. No single group seems to have the military power to win, establish a new civilian government and gain the respect of the diverse peoples of these countries. Too many people living in the region think violence is the answer to their troubles. Organised western violence on any realistic scale is unlikely to be able to impose a settlement of these underlying disputes. Nor will it help convert people from believing in violence to believing in the arts of  peace.

The last time some of the armchair Generals urged UK intervention was over Syria. Then they wanted amongst other things to arm the Syrian rebels. Many  of the weapons of those rebels we are told  have now been captured for use by IS forces. Today we are being asked to arm the Kurds. Do we now support an independent Kurdish state?

 

On Tuesday I am giving the McWhirter Memorial lecture at 7.30pm on HMS President, moored on the Victoria Embankment in London.

I will use the opportunity to make the case for England. If we assume Scotland votes to stay in the Union, the three main Westminster parties have promised more powers including powers over parts of taxation will be passed to the Scottish Parliament.  This will be the time to recognise that England too wants and deserves devolved government, enjoying the same powers of self determination of laws, spending and taxes as our Scottish neighbours and friends.

I will ask Who currently speaks for England? Why do the EU and many senior politicians in the UK want to break England up into regions that we do not seek or recognise? Why can’t English MPs at Westminster make the decisions for England, and speak for England, in the way the Scottish Parliament in Edinburgh does for Scotland?

If we are revisiting Scotland’s settlement, we need to consider England’s at the same time. Many English people will not accept Scottish members of the Westminster Parliament voting through taxes on England that they do not have the power to impose on Scotland.

Should against all the odds Scotland vote for independence then the rest of the UK will need a new constitutional settlement, which will emerge from the negotiations over separation. It would also accelerate the need for the renegotiation of our EU relationship. One of the reasons why many English people are Eurosceptic, is they have the feeling the EU wants to remove their country from the map of Europe through strokes of the legislative pen and through administrative decisions which ignore, counter order  or bypass or country.

 

The reason Alex Salmond cannot answer the currency question is he does not truly want Scotland to be independent. He wants devo max. An independent Scotland would mint its own coins and create its own currency. Putting the symbols of the nation on the banknotes is one of the ultimate acts of sovereignty.

Alex Salmond wants a dependent Scotland, dependent on the Bank of England for its money and interest rates, and dependent on the EU for much of its legislation and government. The problem with this model is the rest of the UK and the rest of the EU will have views on what kind of a deal he could do, were Scotland to vote for his new kind of dependence. It could be a worse deal all round than Scotland currently enjoys within the UK and under the umbrella of the UK’s selective and idiosyncratic membership of the EU. Scotland could not expect opt outs from the Euro, Schengen and full tax contributions to the EU in the way the UK has negotiated.

Putting the symbols of your country on the banknotes is more than a nice to have, more than mere  display. It means that the currency is supported by the taxable capacity of the country which issues it. It means that country, with all its wealth, tax revenue and legal powers stands behind the currency.

In 2008-9 the UK state and the pound sterling  stood behind the two large Scottish banks that were in  financial trouble, RBS and HBOS.  RBS was almost too large for the UK state to stand behind. Losing just 1% of its assets meant losing £22 billion. It is difficult to see how the Scottish state, with just 8% of the UK’s tax revenue, could have stood behind such a massive bank in a credible way.

Currency matters. The rest of the UK is right to signal we could not live with a so called independent Scotland staying in the pound. Surely there has been enough misery on the continent, as countries have struggled within the Euro zone because they do not share a tax, spending and transfers policy. If you share a currency with the neighbours you do need central control of tax, benefits, transfers and much else to make it work.

If Mr Salmond is as keen on membership of the EU as he usually claims, he should also be honest about the logic of the Euro. Were Scotland to join the EU on its own, why would it get a sweetheart deal to stay out of the most important federal policy of them all, the common currency?

The true  answer to Mr Salmond’s question is just this. His kind of independent Scotland would need a transition period with the groat, its own currency, followed by full membership of the Euro. To join  the Euro Scotland would be required to cut its debt and deficit to qualify.

 

 

It is a strange coincidence that at the very time when the western powers remember and reconsider a war 100 years ago, the Middle East is testing the borders and consequences of the 1919 peace. Both Syria and  Iraq, creatures of the war to throw off Turkish imperial rule, are being sorely tested in brutal civil and religious wars a century later.

On May 16 1916 France and the UK signed the secret Asia Minor Agreement – or Sykes-Picot deal. They had the private consent of Russia as well, though the Bolsheviks took a different view when they overthrew the Czar. The infamous Sykes-Picot line gave to the UK influence over Jordan, South Iraq, Haifa and Acre, and to France North Iraq, Syria and the Lebanon. It became a matter of deep controversy when it was made public later. This agreement jostled with the wish of the UK to offer Palestine as a homeland for a  small neutral Jewish state, and with the pledges of Lawrence of Arabia and others to the Arabs that the Arab nation would also have a free and independent Arab state.

The results of these varied wishes can be seen today. The Arabs did get free territory and states of their own, but not all of the land and cities that they wanted. Lawrence saw Damascus as a capital for the Arab state, but France did not share this view when it took possession in 1920. The borders of Syria and Iraq did not reflect the patterns of tribal and religious allegiance, posing problems for their rulers to find ways to keep the different groups together in harmony. Israel became the Jewish homeland, attracting many settlers. It caused tensions with  the Palestinian Arabs which the allied powers had not thought through well.

On 29th June Abu Bakr al Baghdadi declared the Caliphate and announced his intention to overthrow Sykes-Picot. I did not write about it at the time, as I had no idea how serious it might become. Today reports from the region tell us that the new state has taken territory from both Syria  and Iraq, has defeated regular armies, captured oil fields and Mosul and claims to control an area from Aleppo to Diyala. Some say it now has a population of 6 million in an area larger in  size than  the UK.

Official sources from Shia governments say that the Caliphate hard liners have attracted Sunni support, but this will melt away once, for example,  Iraq deals better with the Sunni minority. One side  wants the world to think that the Islamic state is a temporary rebellion which will be defeated by splits in its own ranks and by a stronger military response is due course from Iraq and Syria. The other side says that the IS is gathering strength all the time. As it gets more revenue from oil and other assets, so it can arm itself better. As it expands its territory it attracts those who dislike  Shia government, and can control those who have to live under its jurisdiction. It can , they say, change the map of the Middle East fundamentally.

What is true is the brutal civil war of Syria continues, with the main opponents of Assad turning out to be IS, the militant advocates of the new Caliphate. The democratic and more moderate opposition that the west wanted to back and believe in  is being squeezed between the forces of Assad and the forces of the Caliphate. Iraq remains in deep trouble, with Kurds, Sunnis and Shias battling against each other. The state now faces a serious challenge from the IS.

It is difficult to see how the west can make things better. As I have written before, we should be neither pro Sunni nor pro Shia. Being against Assad, an unpleasant dictator, could help IS, which is not a great place to be either. The UK should concentrate on energy self sufficiency in these uncertain times. It should keep our military out of the Middle East as  our troops cannot easily intervene to help force a better outcome.

The USA has the force which could stop IS. President Obama has been wrestling with the military, political and moral issues over intervention yet again in this area. His current announcement that he might both bomb IS forces to prevent more Christian/Kurdish places being taken and drop humanitarian relief supplies to those already displaced shows the difficulty of his and the west’s position.

Intruding a western army into Iraq or Syria would not be a good idea. Eventual victory would make the west an occupying power, left with the formidable problem of how you then mend the local politics so they can become self governing again. Eventual withdrawal or defeat would cause more death and misery for no good purpose.

Bombing runs the risk of killing those you do not wish to kill, and also fails to tackle the explosive politics and religious conflicts on the ground.