Mr Miliband is right about one thing. Energy bills are too high.

He should know why. It was his Climate Change legislation which underwrote EU energy policies to push the price of energy up in the UK. The EU/UK policies of pricing and taxing carbon dioxide emissions, requiring substantial generation from very expensive renewables, and making it difficult to exploit local carbon based energy resources have helped force up domestic energy costs.

One of the architects of dear energy did not go  to Brighton to recant. He did not apologise for creating dear energy. He did not  say we should make it a priority to have affordable energy to heat our homes, and affordable energy to price industry back into business. He did not hail a shale gas revolution, so we could drive our energy prices well down as the USA is curently doing so successfully. Instead, he decided to blame someone else, and attack the energy companies forced to carry out his policy will.

It is all too easy to whip up popular hostility to large companies who report large profits. It may look inviting to suggest those profits should be given back to the customers, to hide the impact EU government policies are having on  bills. It does, however, reveal a fundamental misunderstanding of the role of profits.

Companies providing large scale facilities for electricity generation or for collecting and distributing gas need to generate profits so they have money to pay for the maintensance, renewal and expansion of their facilities. They also need to have some money to pay interest and dividends on the investment monies others have put into their businesses. Many of the providers of capital are the same people as the customers, placing their pension and insurance savings in to these companies.

Announcing  a long freeze in prices could do considerable damage to supply and future investment. If raw material energy prices rise – the gas/coal/oil needed to drive electrical plant for example – the companies could be badly squeezed and lose large sums, undermining their financial stability. The threat of frozen prices will put off anyone from making a new investment in energy provision in the UK, at a time when we badly need more capacity. The prime duty of government is to set an energy policy which can keep the lights on. The second duty is to help create a competitive market which can turn to the lowest cost solutions to keep energy affordable. Labour’s new policy fails on both these counts.

         It is difficult enough as it is with EU policy controls and Lib Dem renewable enthusiasts in the government. The UK needs to change energy policy by building a new generation of gas power stations, whilst bringing the plentiful gas supplies beneath our feet to the surface.  That may require both a majority Conservative government and a renegotiaiton of our relationship with the EU to bring about. Mr Miliband in office made sure we faced high and rising bills for the future.

I was asked to contribute to the BBC’s website on this topic yesterday. They commissioned me to write this piece with a tight deadline, which I did. They then failed to post it and said they had changed their mind. I will therefore share it with you, and leave you to wonder why the BBC behave like this. They now say they might post it some other day, after I complained.

 

 

The UK is the crossroads of the free world. Bridging the time zones of east and west, London makes the markets and leads many of the debates about how the world should change.

The UK belongs to many clubs and networks. As a member of the Security Council we will  undertake peacekeeping and armed intervention where the world community thinks it is needed. As a leading member of NATO we will be at the side of the US where we are happy with the common cause. Through the Commonwealth we create one the world’s great meeting places for an attractive diversity of countries and cultures, to strengthen the impulse to democracy, free trade and the rule of law.

The UK needs a new relationship with the European Union, as we cannot become part of a united Euroland. As the single currency seeks to create a country to love it, the UK has to reassert its independence. We need a relationship based on freer trade and political co-operation with the European continent, not one based on common government.

The UK is at her best when we take to the five oceans and the adbundant airspace over the globe. We are a nation of free traders, advocates of freedom and democracy, supporters of the oppressed and fighters for justice. We know the world does not owe us a living. We also know how to earn our living by working with the sources of power and wealth as they shift decisively towards the emerging markets. The UK is at its best creative, innovative and energetic. It will need to be all three as the world becomes more competitive in the years ahead.

 

I would add to my word limited comments:

The UK’s stature was enhanced by Parliament’s debate on Syria. Not only did the UK Parliament persuade the Coalition government to favour diplomacy over a  military strike, but our example helped influence the President of the USA to call the Congress for advice. I think many around the world will be glad that instead of a rash limited cruise missile strike against some Syrian targets, the main protagonists are now seeking a diplomatic solution to the problem of Syria’s chemical weapons.  It was a good example of how the “mother of Parliaments” can still show the world the important role of a deliberative assembly in influencing and changing government and speaking for the people.

UKIP have now lost 38% of their elected MEPs since 2009 with the departure of Mr Bloom from their party. This is an unusually high rate of loss. Parties are prone to lose the odd one or two representatives, but the attrition rate is usually in low single figure percentages.

In my recent post on UKIP I pointed out that 4 of the 13 MEPs elected in 2009 for UKIP had left the party. That should now read 5, as today Mr Bloom has left to become an independent MEP.

I would welcome explanations from UKIP supporters who are always so keen to highlight the problems in other parties. It will naturally lead people to ask who and what they are voting for if their choice of party cannot even be sustained for a single Parliament by such a large proportion of the  representatives.

 

I would also welcome information on what the UKIP MEPs have achieved for us.

 

(Those departing were Bloom, Campbell Bannerman, Sinclaire, Andreasen and Nattrass. 2 have joined the Conservatives, and one is an independent)

The German election was a big win for the Euro and the EU. The anti Euro party did not quite manage the 5% needed to gain seats in the Parliament, whilst all the other elected parties are strongly in favour of the Euro and EU integration. Mrs Merkel heralded her victory as  a victory for European integration. German PR, much praised by some on this site, ensured the near 10% who voted FDP and AFD went unrepresented by their parties  in Parliament.

Whilst Mrs Merkel is enjoying the plaudits for boosting her party’s vote and getting close to winning an outright majority, it is necessary to grasp that the election has not made governing either Germany or the Euro any easier, and in some ways has added to Mrs Merkel’s difficulties. The main vote change was a big shift of votes from the more free market more Euro cautious FDP to Mrs Merkel’s party. Her coalition partner lost all their seats and has been all but destroyed for the time being as a political force. This follows on the crushing defeat of her main opponents, the SDP, in 2009  after they had joined her in coalition in 2005.

There are two consequences from these changes. The first is that Mrs Merkel’s policies, dragged in the direction of less spending, more free markets by the FDP are  no longer  under  that pressure. The second is the SDP – and the Greens-  will be understandably worried about any offer to join Mrs Merkel in coalition, as it does not look like a good idea for them. The Leader of the SDP made a very vocal rejection of the idea that he personally would serve in a Merkel government both before and immediately after the election.

 

There are four  possible outcomes. The first is a coalition with the SDP.  They will demand a Minimum Wage and other social legislation. They are unlikely to be much more well disposed to bailing out the Greeks than Mrs Merkel, as they will be fresh from  an election where the German people made clear their hostility to paying the bills for the south of the currency zone.  As the SDP leader has ruled out himself serving in a Merkel led government, it would require another senior SDP figure to volunteer, and may lead to a change of leader of the SDP.

The second is a coalition with  the Greens, who might in the end find the lure of office too great and help her out. They will make more demands on renewables and other energy issues, and may also pursue the left of centre employment agenda as well. Mrs Merkel’s past U turn on nuclear makes this option easier.

 

The third is Mrs Merkel cannot agree a coalition with either the Greens or the SDP. There is no tradition of minority government in  Germany, and it may mean an early new election, after a period of government doing nothing to provoke the Parliament.

 

The fourth is the SDP and Greens get over their aversion to the rest of the left in the Parliament and form a grand socialist coalition, something they have always declined to do. German commentary appears to find this very unlikely. Such a red-red-green coalition would want to pursue a social agenda on labour law and minimum wage, higher spending and deficits, stricter controls on markets and finance, and maybe  disarmament/neutrality policies.

Some UK commentators say that an SDP or Green – Merkel coalition will be keener to subsidise the south and west of the Euro zone and accept debt write offs. I am not so sure. Each German party will have heard from the doorsteps how unpopular using German tax money to bail out other countries still remains. The SDP and Greens want to spend more subsidising and investing in Germany, not in Greece or Cyprus. They will be very conscious of how dangerous it is in coalition with Mrs Merkel and will not want the blame for unpopular Euro bail out policies to be landed on them.

Mrs Merkel did a good job keeping the Euro crisis off the agenda in the run up to her election. Now she does have to tackle the banking crisis and proto union, and the issues over financing the governments and balance of payments deficits of the weaker countries.

Ironically her famous grand victory was not grand enough to give her a majority. In a way it has left her more exposed than when she had the FDP as her coalition partners. If she has enough of the conservative in her, allying with either the Greens or the SDP is going to be a trial. Let’s hope her effusive united Europe rhetoric strengthens sinews in the UK for more independence.

 

              Mrs Merkel has increased her vote and  remains Chancellor. Her coalition will be different. If she has to do a deal with the SPD she will be under some pressure to be more generous towards the southern Euro states, and to be less accommodating of the UK’s wish for less EU.

            The AFD attracted some support which tries to create  the opposite pressure, but failed to win a single seat. This was a bad result. After all, all the other parties in the German election are pro the Euro and pro more EU integration, so AFD had a clear run at  Euroscepticism and was working in a PR system. Merkel’s current coalition partners the FDP struggled and lost all their seats. 

          Some of the UK establishment think Mrs Merkel will make some concessions to the UK’s wish to return powers to the member states from the EU. After all, Germany sells so many goods to the UK she needs to be friendly to such a big market. She also values the UK’s support on trying to limit EU spending and our offer of  some moral and political support for cutting deficits by spending control.  She is a natural consensus seeker. If the UK – with the Netherlands and a few others – argues strongly for powers back, by definition the mid point or consensus will have shifted and Mrs Merkel will wish to reflect that.

          However, we are talking about two different negotiations here. The UK can hold a negotiation with the re-elected Mrs Merkel under the coalition. This will be with the approval of the Lib Dems, will be an agreed government policy, and will be seeking some powers back for all member states by consensus. I wish it well, and it may get something back we want.

             It is not, however, the negotiation the Conservatives will pledge in the next manifesto  to negotiate a new relationship for the UK with the rest of the EU. That will be a negotiation just by  us to create a new relationship. It is not something the Lib Dems or Labour  support. This is necessitated by the move of most of the rest of the EU to unity under the Euro, with the non Euro members largely agreeing to follow suit. The UK’s refusal to join the Euro, now common policy of Conservatives and Labour, puts us in need of a new and looser relationship with the emerging political union on the continent. A few agreed powers back is not the answer to this problem.

             That is why the referendum promise (and attempt to legislate for it) is so important. The voters then have a guarantee that if the government is unable to negotiate a new sensible relationship with the emerging wider Euro union, they can vote us out of the EU altogether. It will give Mr Cameron leverage when negotiating with the rest of the EU, and it will ensure he cannot come back and recommend a deal which fails to tackle the underlying main issues. He will not want to return with a package which will be defeated. If he cannot get a sensible deal then he will have to recommend refusal. He naturally remains optimistic he can get a deal which makes sense for the UK. Any negotiator is often wise to remain upbeat about the chances of success.  Mrs Merkel will be important in just that matter.

 

           Tony Blair did a deal with the better off to win and stay in power. He agreed to keep Conservative rates of Income and capital taxation. In return more  rich people came here, stayed here,  set up businesses here and paid much more tax here. He was able to win enough votes to form a government three times, and to expand public spending substantially before the excess and the crash.

           In opposition it is tempting for Labour to say they will spend more of our money by taxing the rich more. They need to remember that the best way to get more money out of the rich for public services is to keep the rates down, not to frighten off the mobile rich by putting them up.

            Politicians generally have adopted an anti rich stance, appealing to jealousy and hoping that offers a way to easy spending money for the state. Before embarking on a condemn the rich attack, it would be wise to ask who are the rich? Are they universally bad?

               The Lib Dems laughingly said someone is rich if they earn more than £50,000 a year. That makes the Headteacher and some Deputy Heads rich. It makes many senior local government officers rich. It means all GPs, judges and senior quango executives are rich. It means many middle and all senior managers in business are rich. Even Labour think that is a strange definition of rich. In my constituency a £50,000 combined income in a household is common and necessary to pay the costs of  much of the  housing.

              Adjectives applied to the rich are often unkind. Popular amongst them are “idle” and “filthy”. So who are the true rich?

              Someone worth £1m is automatically thought  rich by some. If it is a pensioner living in a one bedroom flat worth £1 million  in central London living on a modest pension  they do not   have a rich lifestyle. To release their riches they would need to sell up and go and live in a much cheaper part of the country, when they would have some capital to live off as well as the pensions. Maybe we should  regard someone as rich if they had £1million of savings as well as a home of their own.

                    For a good definition of rich is someone who of working age does not have to work because they have enough income and capital to live without needing a salary. If you have sensible requirements for your lifestyle you could be rich in this sense with say £1.5m of capital –  a £500,000 house outside London and a savings income based on your £1m of savings that could pay the bills.  Then this person could indeed be the “idle rich”. In  practice most of  the people I have met who have substantial capital are far from idle, and are often entrepreneurial, seeking to create new businesses with the money they have made. Others would say that to qualify as rich you would need a much higher income than these capital figures imply.

                  The “filthy” rich is an unpleasant jibe. It is clearly not strictly accurate, as the rich have plenty of money and time for baths, showers, and perfumes. It presumably means they came by their money in questionable ways. Many high earners in the financial services have been mauled by politicians collectively  with the implication that what they do is not needed and their fees and charges are too high. Some are hauled over the regulatory coals for bad practice.

                 Not all very highly rewarded people are attacked in this way. Most seem relaxed about footballers being paid very large sums if they are good. People tend to like entrepreneurs like Mr Branson, accepting he  deserves rewards for his work and risk taking.

                 Labour would be wise not to bash the rich. Mr Blair was wrong about many policy matters, especially wars, but he was right about this. Labour has to get on with the rich to govern. Conservatives have to  look after the poor and should want to do so  to govern. That’s the deal.

               There is one thing worse than having lots of rich in London. That would be not having them. They pay lots of tax and help swell demand.  There is nothing wrong with aspiration. Aspiration becomes less of an incentive if anyone succeeding is regarded as unpleasantly rich, an object of criticism and for higher taxation.

 

            As I assumed, UKIP have said they are going to fight all the seats at the General Election. That means there is no deal to be done between the Conservatives and UKIP. They have no MPs to help us in the current Commons, and they want all Conservative MPs  thrown out of Parliament. That includes those  who have sustained the battle against federal Treaties, in favour of a referendum and in favour of EU exit.

           What is more surprising is Mr Farage, generally thought to be their best candidate, still will not confirm he is fighting the next General Election himself, and will not tell us where he would want to be a candidate if he does. The three main parties with MPs in the Commons all think that you need to choose candidates early to have the best chance of success, particularly if you are the challenger starting well behind in the polls.

            I myself was selected with two years to run to the next General Election. Those two years were invaluable to be able to get know the constituency, its people and problems, to move in and become part of the community. As a candidate you have no late nights at Westminster to worry about and more free time to get out and about. Where Conservative or Labour have won marginals, it normally follows a long period of hard work in the constituency by the candidate.

                 With UKIP on 10% in the polls the question of electing MPs is academic. If the vote remains that low and is widely spread there will be no UKIP MPs in 2015, any more than there were in 2010. The UKIP strategy is to hope that the European election acts as a springboard for them. These are not my predictions, but come from the UKIP website itself. They host a long article on the polling – though they say beneath it is not endorsed by UKIP! Nonetheless the article is clearly written by a UKIP supporter and given pride of place on the official website of the party.

          The article says that at 16% of the vote – the highwater mark of polls before the recent decline in support – UKIP does most damage to the Conservatives. From 16-25% UKIP damages Labour more.  The site says “UKIP only wins 2 seats at 25% of the vote”, the level it has reached in a recent  by election. The site goes on to say “Is it too outlandish to think that UKIP could hold the balance of power? Probably….” So UKIP themselves do not think they can win very much, or indeed anything at all at Westminster.

          Certainly last time they polled much better in the European elections, and did secure 13 MEPs, coming second to the Conservatives with 16.5% of the vote.  However, their vote subsided by 2010 in the General Election to 3%. The present scarce polls on the European elections show again that they may poll better in those than their general poll rating, which stays well below the level to win a seat. So for the strategy of take off to work, there needs to be some new factor in 2014-15  that did not apply in 2009-10.

           Maybe that explains why the Leader will not commit himself to a Westminster seat. Maybe he  does not think he can find one where he can win. Meanwhile, of the 13 MEPs who were elected for UKIP in 2009, only 9 are still UKIP MEPs. Four have left to join other parties or have left for other reasons. It’s a high attrition rate, implying problems within the high command. It would be interesting to hear from UKIP supporters why their MEPs have found it so difficult to stick with them, and what they think of UKIP’s polling analysis. What also do they think of the “We demand a referendum party”, with support from former UKIP people? What did they think of yesterday’s conference, condemned by Mr Farage as a failure?

 

 Listening to the Scottish debate this week, one year before they finally have their referendum on whether to leave the UK, you do have to ask if Mr Salmond is serious about wanting an independent country.

        He first of all seems keen to stick with the pound. That means a newly independent Scotland would rely on the Bank of England to decide its interest rates and amount of money in circulation. Scotland would have no say over  that foreign central Bank.

      Then he wants to stick with the Queen. So newly independent Scotland would still share a Head of State with the rest of the UK. Presumably the Queen’s head would still be on Scottish postage stamps, just as it would remain on the banknotes.

       He wants Scotland to remain in or to join the EU. Scotland as a new country would have to join on terms likely to ensure Scotland’s full compliance with all the laws and rules currently negotiated.  Scotland might even have to join the Euro, as she would not necessarily inherit Mr Major’s opt out for the UK.  Much of the government of Scotland would then fall under EU rules and laws, where a small country like Scotland would have even less say than the UK manages at present, which is all too little.

                It’s a funny kind of independence when you find so much is controlled from abroad. Maybe Mr Salmond has only ever really wanted devo max. Maybe he is grasping that so far a majority of Scots do not wish to be truly independent.

               There are three letters that probably have influenced a lot of Scots to want to keep the union with the rest of the UK – RBS. Just imagine the cost to each Scottish taxpayer if RBS had fallen to be rescued financially by the Scottish state rather than by the whole UK. And imagine what Scotland’s revenues will look like in a few years time when North Oil has run down further.

 

Mr Clegg’s “appeal” is based on the pursuit of power for its own sake. He tells us he can form a coalition after 2015 with either Mr Cameron or Mr Miliband.  That shows how elastic his principles have become.Indeed, he argues that any coalition with Lib dems would be better than any other possible government.

It means, for example,  that he could either support a government renegotiating our relationship with the EU and then undertaking a crucial referendum on that topic, or a government which thinks the current big range of powers held by the EU is just fine, with no need for a referendum.

It means he could either support a government which intends to complete the job of removing the budget deficit by squeezing the growth rate in public spending, or support a government which thinks the UK should spend and borrow more.

It means he could either support a government which thinks current rates of tax on the so called rich are high enough, or join one which wishes to raise wealth taxes, impose a Mansion Tax and raid pension funds further.

It means his party can either support a party which wants cheaper energy and wishes to back shale gas exploitation, or supports a party which signed up to the entire EU dearer energy agenda and wanted to increase fuel duties considerably more than this government has allowed.

It was useful to find out this week  that the Lib Dems think anyone earning more than £50,000 a year is well off and should pay more tax. Surely income levels need to be related to the cost of living and the cost of housing in different areas.

I trust the Conservative Manifesto will not only wish to go further in easing the tax burden on all on lower incomes as part of the continuing reforms to make work pay, but will also wish to ease the tax squeeze on the middle. The 40% tax rate starts at too low an income so  the threshold  needs to be amended.

 

Yesterday I heard the story of the Monetary Policy Committee at a meeting where we were told we should not quote the source. I am pleased to say it was just the same as the story you can read on their website or hear in the public media. I will draw on the public materials.

Thinking again about  it all, I was struck forcefully   by the question what is the point of it? What can the MPC do that the Chancellor and Governor cannot do, as they used to without an MPC?  Interest rates have stayed at 0.5% for more than 5 years. Quantitative easing is now in the past, and anyway needs Chancellor’s  approval. The Committee has leant over backwards to say they are most unlikely to raise interest rates for the next two years. Nine people solemnly read and think a lot, discuss at some length, and conclude each month to keep rates on hold.

Inflation has averaged around 3.5% compared to the 2% target. The MPC tells us inflation was higher because the devaluation of sterling had a big impact on import costs, because oil and energy prices rose, and because  commodity prices generally did go up a lot in the period, though have since come down. The MPC would only be concerned about higher inflation if it came from “domestic pressures” like wages, where increases  have stayed low.

The MPC recognsies predicting international commodity and oil prices is very difficult. They just use market futures prices, which of course shift around a lot. They have produced a series of forecasts of the UK economic future over the years of their existence that have not excelled compared to the forecasts of many private sector commentators. They duplicate the work of the Office of Budget Responsibility, who also use public money to produce forecasts, often similar to the Bank’s.

During the crisis the old MPC did badly. It kept rates too low for too long to help the boom. It then kept them too high for too long to ensure the bust, as I complained at the time. Now it has created a lot of new money to make up for the weak banks it helped weaken. It has not hit its inflation target for a long time.

I wish today’s MPC well. It seems more balanced than the MPC that cheered the boom on, or the MPC which gloomily assisted in the crash. Maybe we want it to do nothing elegantly for a bit. These are early days for the recovery. Monetary activism in the form of printing  more money could trigger more inflation which we don’t want. A rush to push up interest rates could throttle the recovery.

The markets have their own way of doing these things. They are putting up market interest rates anyay. The MPC does not seem to have a plan to make the markets do what the MPC wants.

So do we need both Bank and OBR economic forecasts?   How much more value does an MPC of nine expensive people provide rather than one of say 5? As most agree we need the good bits of the public sector to do more with less, and other bits of the public sector to do less with less, could we find a few savings here as MPC members reach the end of their terms?