Recently  I met the senior management of Thames Water.

          They told me of the costs and delays they are experiencing in preparing all the necessary documentation for their new London sewer tunnel. They argue that this large  civil engineering project is essential if we are to handle the volumes of dirty water London now produces, without having to put dirty water into the river when there is rainfall swelling the drains with surface water. The volume of paperwork and the detail of the presentations is such that millions have to be spent on the application, and much time is absorbed in the authorities coming to a decision. This is for a project which will be underground.

         Of course every major project should be properly considered, with objectors having their chance to say “No”.  Of course a large company wishing to put in such a facility needs to offer guarantees and assurance about how it will handle site works during construction, and how it will protect the interests of property owners affected by its project. All this need not take as long and be as complicated as it now is.

          I pushed along with other MPs present for an early decision on extra reservoir capacity in the South East. It seems quite obvious that in dry summers (we might have one again sometime, with all the global warming we are promised)  we are already short of water. As the population grows and people want to use more water we will need bigger supplies. Adding emergency water desalination plants is not as good a solution as simply collecting more of the rainwater in our rivers at times of flood and plenty. We have had more than enough water in our rivers this winter to fill many times the reservoir capacity we currently enjoy.

                 The company seems interested in the idea of a new reservoir at Abingdon and has looked at  plans. Whitehall watchers   think a project like this would take ten years to get through planning. It is high time we did better than this. The moderately few people who would be advsersely affected should be generously compensated at an early stage. Surely it is better to pay out at a premium to affected property owners, instead of spending a fortune on fighting them through various rounds of a planning battle only one side can win.  If someone wanted to put a reservoir over my home I would object long and hard. If they offered to buy me out at a decent premium so I could afford a better house I would take the money. I hasten to add no-one does want to build a reservoir near me, so I do not write this out of the hope of personal gain.

It was a sensible gesture of the Today programme to offer the Good Friday “Thought for the day” to the Head of England’s established Church, despite him saying he never listened to the programme himself. You would have thought that on this of all days, the Archbishop would wish to use all his time to explain the importance and significance of the Crucifixion to Christians.
Instead he spent the first part of his allotted time describing the Cyprus Euro problems. He wrongly stated the bail out was Euro 10 billion, leaving out of account the far more contentious Euro 5.8 billion part of the package that had to be raised from the deposit holders and bond owners of the banks there, the very centre of the storm. Perhaps he thinks only taxpayers’ money provided by governments counts. Nor did he mention the negotiation to roll over and extend the Russian loan.
He spoke much more convincingly when he came on to the history and significance of Good Friday. There is a lot to be said for people on the religious slot sticking to religion, especially if they do not seem to know the numbers and issues involved in more modern secular crises.

I see The Financial Policy Committee has decided that the main UK banks need a bit more capital before they are as safe as the new authorities wish. Predictably, RBS seems to be the one in need of most new capital, and that is the one large bank that is still not making a profit. With a main shareholder, the UK government, rightly unwilling to subscribe more money, and no retained profits to fatten the assets on the balance sheet, RBS remains the most difficult of the banks to reform.

The Regulators and the shareholders of RBS need to look for other solutions. The government is right not to put more capital into RBS. It should not have put so much in as new equity at the beginning. What it needs to do now is what it should have done in 2008 when the crisis first erupted – sell off assets and slim the bank down by disposals. RBS was never a natural integrated successful group. It should sell its American bank, Citizens, sell the parts of its Investment Bank that are profitable and free standing, and create new clearing banks in the UK market out of the assortment of branches, assets and liabilities it currently enjoys. The taxpayer deserves to get some money back from the disposals of the good bits. Taxpayers in the UK also need more competitive properly financed banks on the High Street.

Taxpayers may have to remain as the owners of a bad bank that could remain once the rest is sold on. As we already own a large majority share of the bad bits of the RBS Group, that is no new hazard. The prize would be the creation of more competition in UK domestic banking, and a resolution of the problem that banking in the UK still is not backed by enough capital to allow sensible expansion of overall loan books. The UK recovery has been held back by the inability of the UK clearing banks as a whole to expand their loans to new people wanting to buy homes, set up businesses or expand decent small and medium sized enterprises. The Bank’s monetary experimentation has not had enough impact on the real economy owing to the Regulator’s insistence on more cash and capital to be held in the banking system, and owing to the weakness of some of the banks in the system.

Sorting out RBS would be the single most important contribution the UK government could now make to overall economic recovery. The fact the RBS remains the worst placed of all the UK banks on capital, more than four years after the crash, argues for new measures to tackle the problem of too little capital and too little competition in UK High Street banking.

When I visited Scotland earlier this week I was interested to see RBS can still afford a lot of advertising at Edinburgh airport. The advert I most enjoyed was the one on a walkway which announced “In 2011 RBS delivered Moneysense to 67,000 young people in Scottish schools.” I do hope it was a case of do as I say, not as I do. We would not want young people brought up to believe you go out and borrow and spend on a massive scale, then ask the taxpayers to stand behind the bills whilst you carry on losing money.

 

               In February European car sales fell by another 10%. They fell last year as well.

                Prior to the Euro crisis Germany did well out of the Euro and the EU. Germany worked hard to produce good products and to keep her own costs under control so her products were competitive. She was then able to sell her cars and other items throughout the Eurozone, earning a large surplus for Germany.

               Germany was not expected to  pay much extra in tax to send grants and loans to the rest of the zone. The theory was each member state in the Euro had to take responsibility for financing its own government, and balancing its own external payments. The system differed from a single country single currency area, where much higher levels of grants and internal transfers are made to let the system work without an exchange rate to correct the imbalances.

             Now the deal is a much worse one for Germany. She is having to look outside Europe for markets for her products, as the demand in the weaker Euro states has been in freefall. They cannot afford nearly so many luxury cars as before. Meanwhile Germany is being expected to put up much more money to help finance the overborrowed states and to pay for the balance of payments imbalances and to recapitalise the weak banks.

           Frau Merkel is no longer an automatic ally of Mr Hollande. Germany backed the UK’s calls for cuts to the EU budget recently. There are signs that Frau Merkel has to tell her voters she will not use too much German money to prop up the Euro. The more the EU market declines as a source of German prosperity, the more likely it is German voters will oppose putting more money in to keep the whole system going.

           The best hope we have all the time we do not have a Eurosceptic majority in the UK Parliament is the growth of Euroscepticism in Germany. It appears that Mrs Merkel now has to accept that German voters are turning against Germany paying ever larger bills for her partners. That mood forced Mrs Merkel into a tougher approach towards Cyprus than she adopted to Greece. The Euro cannot survive for many more years without Germany and the other rich states agreeing to put much more of their taxpayers’ money into the common cause. The UK is more likely now to get German support for less Europe.

         Meanwhile, some Germans are beginning to worry about stealth ways of Germany paying for all the losses and economic disaster elsewhere in the zone. Too much monetary experimentation could give Germany inflation, eroding the value of her savings. Tougher approaches to broken banks could lead to German losses on desposits around the currency area. German money has been committed via the European Central Bank to keep the weak banks elsewhere in funds.

         The truth is, all the time Germany remains in the Euro, they will have to find ways to make the German public pay. If they will not vote for higher taxes to send the rest of the zone grants, the officials and politicians will find back doors ways of taking German wealth to do the job.  The Euro comes with a high price for the prudent and successful caught up in it.

I am sending the following letter to the Energy Minister. It reinforces the points I made to him in the recent Commons Committee (available on the site under Debates on renewables)

Mr John Hayes MP
Minister of State, Department of
Energy and Climate Change
3 Whitehall Place
London SW1A 2HH

26 March 2013

Dear John

I am worried about the future reliability and costs of our electrical power system. In recent years there has been a preoccupation under EU policy with introducing high cost renewables, primarily wind farms. These require back up from conventional power plants for periods when the wind does not blow. Now under another EU Directive there are plans for the accelerated closure of our coal fired and some oil fired stations which have generated an important part of our power in recent years. This week saw the announced closure of 2000MW at Didcot at the end of the month, and 1000MW at Fawley. There are also plans to convert Drax to burn processed timber, a dearer fuel than coal.

The UK has a growing population. The government is pursuing an industrial strategy designed to increase the volume of energy using manufacturing based in the UK. Both these require more power to be available. We need cheaper power as part of the package to encourage more industrial investment here. It is taking time to grant the permits and find the right incentives to get new combined cycle gas and nuclear power stations built. In the meantime we need to worry just how the lights will stay on post the closures.

I urge you to go the EU And say the UK needs a longer transitional period for phasing out the coal power stations. We need to have in place not only all the extra renewable capacity, but also the standby back up capacity that windpower requires. We need to have the additional capacity that a rising population and more industry needs. The aim should be to negotiate a longer phase out period to get us over a period of vulnerability in our power supply.

I suspect we can attract support for modifications to the EU rules, as other countries find themselves in similar difficulties. Germany is especially hard pressed given her decision not to use nuclear. If , however, the EU refuses to co-operate we might need to keep the stations open anyway and pass a suitable short UK law saying we are modifying the EU requirements owing to an overriding national interest.

Yours ever

The Rt Hon John Redwood MP
Member of Parliament for Wokingham

CC: The Rt Hon George Osborne MP, Chancellor of the Exchequer

PS Now John Hayes has been moved to the Cabinet Office and Michael Fallon takes over at Energy, this letter will fall to be answered by him automatically. I will also highlight it to him by sending him another copy in his own name.

 

            After five days it was a draw. The last England versus New Zealand test produced no winner. The series produced no winner. Yet the action of the last day was fantastic. Both sides and their fans can bask in acts of glory and heroism, resulting in an honourable draw under the rules.

          In the spirit of cricket the New Zealand team website salutes the amazing innings of  Matt Prior, 110 not out  from batting 269 minutes. His innings, along with Bell’s brilliant 352 minutes of resistance, and Stuart  Broad taking 137 minutes to score very few, allowed England to save the match. Meanwhile a part time bowler Williamson  took two wickets in the same over to give New Zealand a chance of victory and ended with astonishing figures of 4-44. Their seamers strode in energetically and purposefully for the whole day, always leaving their fans with the belief that they were going to win. When Boult had the ball in his hand England hearts wobbled.

             It was great box office. It broke all the rules of other games – it took too long, it had no result, one of the teams simply had to spend time and absorb pressure. It made brilliant drama. The fact that both teams can praise the other after such a forceful encounter  is the true spirit of cricket.

 

 

 However you look at the UK state’s finances, any  rational person has to conclude the Uk state is spending too much. Labour and Conservative governments have in the past found that 38% of National Income is about the  maximum level you can impose in  taxes. Try to get it higher and rich people leave the country to avoid Income Tax, people stop selling assets at profits to avoid CGT, they drive less to avoid fuel duty, they spend less because their incomes are squeezed leading to less VAT and the rest.

This means that the long term rate of spending has to be lower than today’s. Even allowing for the current state of the cycle, it would be unwise to continue spending at current levels on a sustained basis. Of course the best way to get to these lower levels is through growth, avoiding painful cuts in spending. However, growth is elusive, and some action does need to be taken on the spending side.

There are four main ways of cutting current spending. The first is to idenify things we are spending on that we do not need, we do not like, or can be put off for a bit. In this category I would choose  cuts to Overseas Aid for the time being until we have recovered the fiscal position. I would   withdraw our troops  from Afghanistan and Germany  with no new foreign military adventure for bit. I would cut the large subsidies being paid for green energy, as we need to get energy costs down . We should slim down the programme of industrial and business subsidies and the costs of the Business Department, as Dr Cable proposed in opposition when he suggested scrapping it. We should negotiate a new relationship with the EU as we cannot afford our current membership.

The second is to manage necessary programmes more effectively. Welfare is a case in point. I do not want to take money away from the disabled. I do want to change future eligibility for benefits. We should say to new arrivals in our country that they have no entitlement to benefits for a period of years, until they have built up some contribution record under National Insurance. We should invoice health tourists seeking treatment for non urgent conditions on the NHS. I am pleased to report the government is going to limit  entitlement to subsidised housing, to make sure it goes to deserving people who have been here on a waiting list. Mr Cameron announced some welcome moves in this direction yeasterday, but may need to go further.

The third is to have a drive for greater public sector efficiency and higher quality at lower cost, something that industry does every year. I have highlighted here before the excess equipment bought and not returned to the NHS. The stock levels in many public sector organisations are very high. A period of destocking would cut inventory costs, reduce wastage and write off by encouraging earlier use of stocks, and reduce storage and warehousing costs. The digital revolution should be more strictly applied to clerical tasks in the public sector. Capital spending should mainly  be allowed only where it makes a recognisable contribution to lower cost and higher quality service. The gross inefficiencies of the nationalised rail network need to be tackled more radically, to cut the subsidy.

 

The fourth is to find assets and activities which can be transferred to the private sector, releasing money to the state. I would start by breaking up RBS and selling the pieces to the private sector.

 

 When I replied to Caroline Lucas in the Commons during the Budget debate, I wanted to highlight the genuine hardship and economic harm that her party’s policies are inflicting on the UK.

      The Green party has been the most successful of all the single issue parties that have grown up. In  other countries the Green party has made it into Coalition governments, and in the UK they have been in coalition administrations in local councils. They have an MP in the Commons, uniquely amongst such parties, which gives them more of a voice though only one vote on national matters.

             Generally, they have succeeded in persuading many people that

1.  There is global warming,

2 It is caused  by too much human generated CO2,

3. That global warming is far worse than global cooling,

4. That we need to stop the extra CO2 so we can stop the warming

5. That stopping the CO2 has mainly to be done by imposing very high tariffs and charges on people to cut the use of energy by all but the rich

           All of these propositions are challenged, but the general establishment view is that the “science is settled”. It is my view that the policy is far from settled. Dear energy is one of the most unpopular policies being followed today, and needs to be radically changed.

          As I look out of my windows at a deep snowfall in  late March, and wonder just how big the gas bill is going to be to keep the homes warm at a time of unseasonal coldness, my main concern is  not whether this is climate or weather. It certainly makes it much harder to sell to people the idea that they need to make a further financial sacrifice in the name of fighting global warming when it so unseasonally cold.

           That’s why I speak out against fuel policies which force many to turn down the heating at a time of cold weather, oppose policies which make it  expensive for people to drive to work or visit friends, and oppose policies which end up with industry choosing to go abroad to burn fuel  where it is cheaper, costing us jobs.

          How can any of this make sense for a small country like the UK, having to compete to earn its living? I am pursuing my questions over how we could keep the coal power stations going for longer whilst we build some better new capacity, and how we can have cheaper energy so we keep more industry here instead of allowing it to go and burn carbon overseas. We need more conventional power stations, an end to the EU’s closure programme whilst we sort ourselves out, more exploration and development of oil and gas ,and more gas storage. I am raising these issues with Ministers.

 

 

       Many people in the UK are alarmed at the rate of increase in state debt. We are worried because we fear that we will be responsible for paying the interest and repaying the capital one day. We do not want the state to 0verextend us, at the very time when the private sector has learned an expensive lesson and is reining back on its debts.

        We see amongst our European neighbours how a state can overextend its own credit with bad results. The people of Greece have elected successive governments that spent and borrowed too much and followed the wrong economic policies. They reached the point where they told the custodians of the state that they did not feel inclined to pay the bills for past debts. As a result to Greek state reneged on a big portion of its debts.

         We now see a similar battle in Cyprus, with the voters telling their representatives there are limits to how much they can put in to pay for past excesses. Elsewhere states renege on their debts in more gentle or devious ways. They cut the value of their currency, reducing the amount of money foreign lenders get back. They inflate their price level, cutting the real value of the money domestic lenders to the state get back. They raise taxes, taking more money off the people who have been lending to the state.

           The message from Greece and Cyprus is a harrowing and sobering one. The truth is that the debts incurred by the state are debts that we all collectively owe. If you stay in the country you pay. When it becomes clear a state has borrowed too much and will find it difficult to borrow more, the political choices all become unpleasant. They revolve around one simple issue – how do you share out the pain of paying. In Cyprus savers with deposits have seen the state simply help itself to some of their savings. In Greece the state has helped itself to an ever bigger proprotion of taxpayers’ incomes. In the UK the state is taxing more and more activities in a bid to stave off a worse financial positon born of the level of spending.

 

 

          When Louis XIV magisterially claimed that he was the state, he was pointing out a truth that as a highly powerful King in a centralised autocracy he decided what the state did. To him, and to the many who had to obey him, he and the state were the same thing. Subject peoples in France had to work round his dictats and live with this identity.

        In a democracy some think we are all the state, we should all be able to feel and say that the state is us collectively. To try to get voters to  buy in to this common feeling, many politicians and political parties work at trying to show the state is there for us in need. They seek to involve the state in many facets of our lives. They seek to bribe us with our money, taking money off us in taxes, only to give some of  it back in ways of their choosing.

           This model works for some of the people all of the time, and for many of the people for some of the time. It is a more stable and freer system than socialist tyrannies or military dictatorships. It does leave significant numbers feeling the state is their enemy, taking too much from their efforts, and doing the wrong things to them. In a democracy we are at least allowed to express our anger at what the state does, to press for it to reform its ways, and to change the people who direct it from time to time. That is certainly better than having to put up with a Sun King until he dies.

          The big problem with western democracy is the tendency for politicians driving the state to spend and tax too much, damaging the freedom and independence of the people who have to support the state. I wish over the next few days to explore this paradox of freedom. Many people contributing to this blog will say “L’etat ce n’est pas moi”. They do not want the state to spend so much of their money, and disagree with many of its decisions. As we will see, they will however end up paying the bills if they stay in the country.