Yesterday the Commons was asked to debate the massive Trans European Networks plans. As the super state lumbers on its way, they now set out grand plans to link the cities and states of the new EU empire by rail lines, roads, canals  and broadband networks. They mention subsidiarity in passing, but you can detect the bureaucratic impatience to complete the links and centralise the new Europe. There’s every wish to spend lots more money.

           The Coalition government tabled a suitably sceptical motion. It pledged to negotiate less spending on this area of work than the Commission wanted. There were plenty of Conservative backbenchers there to say or to cheer any idea of the EU spending less and leaving more to individual member state determination. Some also wanted to remind the Commons of just how expensive the surrender of the UK rebate by the last government is proving, and how there has been none of the  promised reform of the CAP in return.

           I used the opportunity to ask the Minister about the status of the UK’s HS2 project. He confirmed what I have been telling many of you. HS2 is a project which the UK can and does decide for itself. It is not mandated by the EU, and is not on the maps as a crucial part of the EU’s European networks. Critics of the scheme should attack it on its domestic merits and defects, not as a further illustration of too much EU power. There does not seem to be any wish by the EU to find EU money raised from member states to help this project.

              There was plenty of other material in the voluminous documents for TENs to display just how much power the EU already has in these areas, and how much it wishes to obtain. The request for a larger budget is one more manifestation of its power grabbing tendencies. You would have thought that after all its homilies to member states to spend less and to rein in budget deficits, it would have applied the message to itself.  It should see that this area of transport infrastructure is best left to the member states, who have to fight through the routes and find  most of the money. You would have thought that at a time of such necessary restraint on public spending throughout  the EU the EU itself would show a bit more restraint.

                   Yesterday’s debate also gave me the opportunity to ask Labour if it still opposed extra money for the IMF, given that it might be used to bail out Euroland countries. The Labour spokesman declined to answer. It feels as if Labour are going off the idea of voting against more money for the IMF. Meanwhile, we all wait to see whether there will be G20 agreement to more money for this institution. The UK government has made two caveats about possibly increasing funding. It has said it does not want IMF money bailing out a currency. It has said the UK should not commit more funds unless China, the US and other non EU G20 members are going to do so as well.

                  I am happy with the rubric that the IMF should not bail out a currency. I think that should mean no bail outs for Euro member countries who do not leave the currency at the time of the bail out. It is difficult to see conventional IMF remedies can work without a devaluation. I am not sure that’s how the government interprets that phrase.

           Yesterday morning a consultation letter turned up, asking for my views on a set of traffic lights.

            I was interested to see it came from an initiative of the Mayor of London to eliminate traffic light sets that are little used or badly sited, to try to help the traffic flow. He wanted to know my view about a set near Westminster.

             I am usually a pedestrian in Westminster. I find walking is the cheapest and best way to get around for most of the journeys I need to do. Given the traffic congestion it is often the quickest for short journeys. As a pedestrian I find there are more crossing points on the roads than I need. I find the all red phases for traffic at some light sets particularly odd, as rarely does a pedestrian need to cross in both directions at the same time. Meanwhile large numbers of buses, cars, lorries and vans are often held up in queues whilst the traffic lights work through their all red phase. I find drivers can get more aggressive in their attitude if they have been held up too often in too much congestion, which is an added hazard for walkers.

           The phasing  out of the bendy bus has been a big advance for us pedestrians. They can be  very dangerous, blocking too much of a road, getting in the way of sight lines to see other traffic. They often wedged themselves across places where you would wish to cross the road.

           The Mayor was first elected with a pledge to ease the flow of traffic, to improve safety, reduce congestion, and reduce needless emissions. He still has a lot to do to progress these aims. Ending all the all red phases on traffic lights would be a welcome start. His current plan to get rid of little used or badly sited lights is a good idea and deserves support.

           Meanwhile, the Leader of Westminster Council has resigned, following the huge row over the Council’s plans to remove more parking places and to charge for parking at evenings andweek-ends where it is currently free. These plans have been widely condemned by many in business trying to serve the public and by many people who want to enjoy the facilities of central London and are helped by free parking.

          If the Mayor of London and and the new Leader of Westminster Council can show us how to make it easier for motorists to drive in and park we will all benefit from the improvements. It does not help having so much traffic endlessly circulating trying to find a parking place, or trying to find affordable parking.  City centres including  London need all the help they can get to prosper. Taxing people for daring to come in is not a good model.

          The message then  needs to spread to other shopping and business centres. Clobbering the motorist is not the same as helping the pedestrian. Quite often they are one and the same person in different phases of their journey.

           I have been interested that some of you are keen defenders of  nationalised roads, supplied free at the point of use, but at huge cost if you add up all the motoring  charges and taxes we do pay nonetheless. Road supply is used as one of the main reasons for VED and petrol tax, yet they collect far more in taxes than they spend on the roads.

           To me, our road system has all the characteristics of badly run nationalised industry monopolies.  They are dear to the taxpayers that pay for them. They supply too little roadspace, artificially rationing it. They tell us it is our fault for wanting to travel too much, or wanting to travel in the wrong way  so that their roads are regularly congested. They delight in making using the roadspace more difficult, with endless state interventions with the carriageways, signs, controls, rules and regulations. They take special pleasure in working out new complex rules, then fining anyone who has not grasped them or failed to see the changes in time. It is common for the public sector  to say there is no point in adding capacity because people will want to fill it up. I am glad they do not make the same argument about health service capacity.

             The problem with nationalised monopoly roads is summed up for me in the case of the Hammersmith flyover. This crucial piece of infrastructure was built in 1961, fifty years ago.  It took 90,000 vehicles a day. It is the main route into London for those coming from the M4, A4, M3, A 316 and other western routes via the North and South Circulars. It is the main way out to all those primary roads, and to one of the world’s largest airports, Heathrow. That makes it the prime gateway to London and the UK for many visitors to our country, as well as crucial to the busienss and economic life of the nation.

             On December 23rd it was announced that it was closed for an unspecified length of time, as its owners had not kept up with maintenance and had not realised the poor condition it has got into thanks to salt water erosion of the main tensioning cables for the  construction. This is despite many a night when the flyover has been closed for maintenance.  This prime route remained completely closed until 13 January, a period of three weeks, covering the period of the Christmas and New Year holidays, the main sales in West End shops  and the Central London celebrations. It has now been opened for light traffic, one lane only in each direction, and is still the cause of  traffic jams in west London. We are told this may last for four months.

            Does anyone think for one moment a private owner of such a crucial asset would want it to be shut completely for 3 weeks,and mainly shut for another four months? Wouldn’t a private owner, under sensible  Health and Safefty regulatory pressures, have checked out the tensioning cables and taken earlier action? Wouldn’t they explore propping the bridge with suitably placed supports from beneath if it had got into such a state, whilst they repaired it? If it had been a private franchise holder that had behaved in this way, wouldn’t the government be jumping up and down, demanding compensation, threatening cancellaiton of the  franchise, and demanding a full investigation into poor management?  Wouldn’t they expect a better answer than five months heavily disrupted?

               The flyover story is just one of the biggest and most visible examples of how public sector management can  think it is just fine to inconvenience thousands of people every day because they could not maintain and control their own asset sufficiently well. The flyover is free at the point of use, but many cannot now use it. Meanwhile we taxpayers will doubtless have a huge bill for late remediation work.

                 How well does your local Highways monopoly perform? Is safe and smooth movement of traffic its main aim? Is congestion busting its daily concern?

             I am all in favour of a new royal yacht. I am not in favour of any public money going into its construction.

             The public mood is ambiguous about this project. Some who usually oppose austerity rush to condemn what they see as frivolous spending like this. Some neo Keynsians see it as another make work project, assuming it would be built in a British yard. Some see it with Mr Gove as a way to celebrate monarchy and the Jubilee. Some dislike it because they dislike the institution of monarchy or the UK state.

           The old Britannia was largely a working vessel. Used properly, a royal yacht is a great aid to extending the UK’s influence, winning friends, gaining contracts and promoting the UK’s aims and values.  The rich, powerful and famous of the world are regularly wined and dined in five star hotels, and Michelin starred restaurants to seek their cooperation for the nation. Dining on the Britannia was a more memorable experience that mere money could not buy.

             Were a new royal yacht to be paid for by voluntary gift and subscription there would need to be a clear and strong trust document establishing who could use the vessel and why. The way it was used and presented would need controlling to avoid damage to the royal associations. The UK government in one form or another would be a major buyer of its services, and would presumably pay for operational use as part of the diplomatic , ceremonial and promotional budget. Leading users are likely to include UK Trade and Investment organisations, the Foreign Office, and the royal family as part of State visits. Leading charities and great UK institutions also might wish to use  her when docked in a suitable adjacent UK harbour.  The vessel would be more for entertaining than cruising.

           I would be pleased to hear your thoughts.

              The ECB’s decision to lend very large sums of money to banks has for the time being quietened the Italian and Spanish bond markets, despite S and P downgrading various sovereign bonds. Meanwhile, trouble is blowing up again in Greece.

           Before Christmas one of the Euro crisis summits decided that Greece could negotiate a voluntary “haircut” with private sector Greek bondholders. The deal was advertised  that those companies and individuals that had lent Greece Euros would get back one half of what they had lent.  The aim was to get a voluntary agreement to this deal. That way the public sector owners, like the ECB, could be let off their share of the losses, and the banks and others that had insured this debt against default would be spared having to pay out, as it would not count as a formal default.

           Recently negotiations to agree the detail and tie in all the private sector holders of Greek debt have got into difficulties. Apparently when the full terms of the proposal were set out, the “haircut” turned out to be rather more than 50%. For every 100 Euros lent to Greece a private lender would get back just 15 Euros in cash when the debt fell due. Another 50 Euros would be cancelled. The remaining 35 Euros would be “repaid” in the form of a 30 year bond or promisory note. They are arguing over the interest rate on such a note. If you took the market rate you would be talking 30%. Some thought they would be offered 5%, but others think Greece can only afford 2-3%. No wonder the private sector creditors are none too happy. This is not so much a haircut, more a scalping.

          None of this is helpful to the stability of the Euro zone. I guess I am one of the few still shocked by the idea that a rich advanced western country can think it fine to refuse to repay its debts in full and on time.  It does not make it any easier for that country to return to the markets to borrow money in the normal way at realistic rates of interest any time soon. Looking at the market ratings, and the views of the Ratings Agencies, there are now doubts spreading about Portugal’s ability to repay all her debts on time and in full. Portugal needs to convincingly quell these market fears if she is to return to normal borrowing and get out of special measures and subsidised loans.

             The injection of large quantities of liquidity into the banking marketplace by the ECB can provide some temporary respite in some cases. It does not deal with the two underlying harsh realities. Many countries within the Eurozone are spending and borrowing too much, so they cannot borrow in normal markets at affordable rates. Many Euro countries are not competitive with Germany, or many other parts of the world, at their current level of costs and current rate of the Euro. There is no easy mechanism within the zone to route the German surpluses into the deficit countries to pay the bills.

               Until these two structural problems are solved, the application of liquidity can delay the crisis but not prevent it. Indeed, it just makes the debts and deficits larger when finally they do get out of control.  The policy prescriptions of higher taxes and lower spending do not help the economies recover. The  public sector retrenchment is not linked to policies to promote private sector growth. Instead the increasing tax burden and the growing regulatory burden makes it more and more difficult for the private sector to respond positively. When you add in damaged banks, it remains a toxic mix.

         The government needs to lift the squeeze on the private sector partly by revising its tax strategy. It should introduce a 20% Capital Gains Tax rate instead of the 28% of the 2010 budget. This is likely to yield more revenue than the current  higher rate.Treasury figures show CGT revenue falling in 2012-13 by £500 million when we have the first full year impact  of the higher rate.

         It should cut the Corporation Tax rate to 20%, to take the UK lower than most of the the western rival locations for inward investment. There will be some revenue loss for a the first two or three years, but thereafter there should be compensation from the additional jobs and profits located here to tax.

          It should return Income Tax to the top rate of 40% imposed  by the last Labour government for most of its term. This like the CGT change should increase revenues.

             The government needs to tell the Revenue and Customs to stop hounding small and medium sized firms and entrepreneurs. There has been a big increase in reported fishing expeditions or enquiries into anyone who earns above average and has some business interests. Very often the enquiries are worrying and time consuming for the taxpayer, only to result in agreement that everything has been properly declared and accounted for.

             To have a strong private sector led recovery the government has to impose fair taxes fairly. It needs to set competitive tax rates, at least vis a vis the higher tax advanced countries. That way the UK can keep more business here, and attract more business here. That way as well we can get some of the many serial entrepreneurs who are on strike back into creating businesses and jobs. There is a lot of successful entrepreneurial talent in this country sitting idle with cash to invest.  They need positive signals that they are wanted and they will be allowed to keep a decent proportion of anything they make.

              More people should be taken out of Income Tax altogether, to cut the tax and benefit merry go round on lower incomes. It is cheaper to let people keep more of what they earn, than to take it off them in tax and then give some of it back in credits and benefits. These tax changes taken together should mean the rich pay more the poor pay less.

             I am glad Mr Clegg likes the John Lewis model of employee ownership and participation. It would be good if the government revisited policies, to promote everyone an owner. That will require more and better tax breaks for equity participation in the business you work for.

          To get the economy kick started and to make faster inroads into the growing public debts, the government needs a big idea.  It needs to get some cash in, instead of constantly spending way beyond the cash generated.  How about this one?

            The government cancels Vehicle Excise Duty, saving motorists £5.8 billion a year. Insurance companies are required to issue insurance discs for display on a vehicle windscreen, and provide a back up computer record of all insured vehicles on their list which the police and other authorities can use if necessary. New vehicles are issued index numbers as at present, but these are recorded on the insurance systems.

           The government offers leases on the main motorways of the country to private operators. The motorways should be placed in packages for investors, preventing any one investor owning adjacent or competing motorways. The M1 would be under different management to the M5. The M3 , M4 and M40 would all be under diffferent management.

            Leaseholders would be able to levy tolls on users. In the first year the aim would be to keep the total toll revenue to around the £5.8 billion of cancelled VED. The government would impose maximum toll charges for any given motorway. Franchise holders would be free to offer discounts, off peak rates and any other lower charge they wished at any time of day or night. Toll revenues would rise in total as use rose. Private operators would be free to improve their motorways and expand their capacity, subject to planning, in any way they wished.

              The government would sell the motorways for £145 billion. This money would repay debt, saving the taxpayer around the £5.8 billion of revenue forgone in saved interest charges on public debt.

              The leases would be sold by open competition. The competition could be for the length of the franchise the operator would need , given the maximum toll and the required price of the lease. Alternatively the lease length can be specified and the competition is for the amount of money the lease is worth.

                  At the end of the franchise period the management reverts to the state, or the state can sell a new lease. The freehold of the road system remains in  government hands.

              The scheme has many advantages. It is good for owners of cars who only need them for short journeys on local roads, and the occasional longer journey which they carry out at off peak times. They will pay little or no toll charge and save all their VED.  It is good for those who want to limit car use, or think motorists should pay for what they use, as it means if you want to drive more on motorways you have to pay more. It will make heavy motorway users think carefully about their journeys.

                     It cuts the public debt. It is not ” selling off the family silver”, as the freehold still belongs to the state. The only losers are those  who use motorways a lot at peak times. They tend to be business users and richer individuals. Everyone has an option not to pay the tolls, as they can use slower main roads instead. Motorway users will benefit from more intelligent motorway management, where the way to maximise revenues will be to charge flexibly to move load from peak times to out of peak times, securing a smoother and better use of the motorway throughout the day and night.

           I am going to write a few posts over the next week  about the Budget, as  I compile my budget submission to the Treasury.

            The government’s stated policy is to eliminate the government’s structural deficit, mainly by cutting public spending. It intends to promote a strong private sector led recovery, to create more jobs, cutting the welfare bills and employing labour shed from the public sector.

             I entitrely agree with the stated policy. It think it would work well. As readers of this site will know, the problem is not the strategy, but the fact that the government is not following it.

             Instead of the stated policy, the first two years have seen a tough squeeze on the private sector, and continued expansion of public spending. Annual current public spending is now £52 billion a year more than in the last Labour year, an increase of 8.7% in cash terms.(Red Book 2011 p 93, Autumn Statement 2011 p 77)  When I first pointed this out the government and media response was that there would be real overall cuts despite the large cash increases. Now the latest government  figures confirm my view, that the first two years (2010 and 2011)have seen a real increase in overall current spending. (Autumn Statement 2011 p 17 Table 1.1). Individual departments have been cut, but others have grown.

            The private sector has been squeezed partly by policy and partly by inflation. Large increases in tax rates on incomes and capital gains have hit the people most likely to set up and invest in new businesses and create jobs. Increases in VAT along with big rises in enegry prices and other basics have cut living standards and reduced disposable incomes.

               My pre budget posts will explore what can be done to lift the squeeze on the private sector, to get control of public spending, and to get back onto the planned policy track set out  at the beginning. If you want a private sector led recovery you need to have bank facilities, tax rates and cost levels that facilitate faster growth. You need optimisim and confidence. Lifting the squeeze on the private sector is necessary to bring that stronger recovery about.

               Now is the time to take action to do this. Inflation is at last coming down. Energy prices have started to fall. Food retailing is going to become ever more price competitive. The government needs to reinforce these favourable trends by a number of policy actions. I will be looking at the tax action, the bank action and the regulatory action the government could take to assist.

          The downgrade of Euroland bonds has been like the green bottles song. Now there is just Germany with a stable AAA rating from S and P. The Netherlands, Finland and  Luxembourg are on AAA with negative watch. (apologies for leaving out the two small ones earlier, based on a radio report which I have now properly checked out)  I pointed out a long time ago on this site that the famous big bazooka EFSF, the fund they said would rescue Euro countries in trouble, always rested on their ability to borrow on the strength of their collective credit rating. So far they have borrowed very little for this fund. That has just got more difficult, as the EFSF’s own credit rating must be weakened by the downgrades of Euro country bonds.

          As S and P say,  they do not just have a problem of spending and borrowing too much. They also have a problem of earning and growing too little. They need to tackle both those problems . The Euro makes solving the second one far more difficult.

          Outside the Euro in Europe Switzerland, Norway, Sweden and the UK are on a stable AAA rating. The Agency has taken into account the problems of governance and the inflexibility of the single currency in  its latest downgrades.

          I was glad to hear leading members of the government say today they plan to think again about how they will implement their policy of cutting Child Benefit for the better off.

          In the original proposal there were two big problems that gave rise to a sense of injustice. The first was the differing treatment of the one earner and two earner couple. A single earner couple on £45,000 a year loses all child assistance, whilst a two earner couple on £80,000 still receives it. That needs changing.

           The second was the fact that as soon as your pay goes over the 40% Tax threshold you lose all child benefits. This could be a perverse incentive to avoid promotion or extra pay. That too needs examining.

             The Chancellor could still make his savings, whilst working out a fairer and gradual withdrawal system that tackles both these problems.  I have discussed these matters in the past with colleagues, and never thought they would implement the original proposal as reported.