John Redwood's Diary
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Nationalisation and the 1970 s did not work

October 4, 2026 40 Comments
My IEA article
Mr Burnham is so wrong about deindustrialisation. He and I share the same anger at its pace and extent, but a different view of how and why it is still happening. He claims that it was mainly in  the Thatcher period, when the historical figures tell a very different story. He thinks it was because policy was too free enterprise, when much of the damage to UK industry was done by large nationalised businesses that became infamous for the numbers they sacked and the huge losses they heaped on the taxpayers.
In 1947 when it was nationalised the coal mining industry employed more than 700,000 miners. All the  jobs were destroyed by the time the last mine closed in 2015. The losses were spread over all the post war governments, with a particularly large number of pits closing in the 1960 s under Labour.
In 1947 when the railways were nationalised they employed 650,000 people. By the time of privatisation in 1997 that had collapsed to 150,000, a fall of more than three quarters.  The rail industry had lost huge market share and failed to spend its large capital budgets on moving with the times. It had no rail link to Heathrow, one of the world’s busiest airports and had watched as industry moved to new estates by motorways in despair because rail did not want their waggon load traffic.
Shipbuilding employed 220,000 in 1950. Today  that is down to 24,000. It shed labour under nationalisation as well as in the private sector. It went from building a peak of 1.3 m GRT in 1950 to building very little by 1990, with a modest revival through  naval orders since. Its period of nationalisation did not stop the losses.
The steel industry still had 323,000 employees in 1971. By the time of its privatisation after Labour’s 1970s nationalisation it was down to just 52,000 and is still in decline. Now renationalised as British Steel it is likely to see the end of all blast furnace steel and more job losses under its new owner.
The Labour government of the 1970s presided over a sharp decline in industrial employment as did the Blair/Brown governments 1997-2010. In 1997 Mr Blair inherited 4.379 million jobs from the Conservatives. By 2010 when Mr Brown lost office that had slumped to 2.87 m, a fall of a third. It is true there was also a substantial  fall under early Thatcher, continuing the rail, coal and steel trends of the previous Labour government.
As the 1980s advanced the Thatcher government helped rebuild the car industry whose output had halved under Labour in the 1970s, doubling it. Privatisation of telecoms led to a large surge in telecoms private sector investment, innovation and choice, which in turn boosted the City which needed better communications and lines capable of taking data.
If you take the ONS index of manufacturing output capturing all production industries the picture looks a bit better. The Index stood at just 40 in 1948 and progressed to a peak of 104.7 in 2007 before the great recession hit. It was still at 101.3 on the eve of covid in 2019. Under Margaret Thatcher manufacturing output did increase by 9.1% overall. If however you look at manufacturing’s share of GDP that has been in continuous decline for many years. As as in other advanced countries,services have been outperforming industry. Under Labour 1997-2010 manufacturing as a share of the UK economy halved from 20% to just 10%.
So why have traditional industries like coal, steel, shipbuilding and rail, done so badly and destroyed so many jobs? Part of it is their time as nationalised industries. The 1974-9 nationalising government got impatient and had to publish a White Paper exposing the losses, the low returns, the failure to spend the large capital investment programmes wisely by the nationalised businesses.  In  part it was the failure of the state monopolies to move with the times and see how consumer preferences and technology were changing the business landscape. In part it was bad management and difficult Unions conspiring to keep productivity down and costs high. Our shipbuilding disappeared to Korea and Japan because they were so much more efficient. Our coal industry lost out to gas and oil which were better in so many ways. Our rail industry missed out on where the business opportunities were whikst delays and cancellations undermined service quality. Privatisation brought more and better services and gave it a big early boost in passenger numbers to temporarily give hope of a better future. Gradual tightening of central controls and nationalisation of Railtrack  put a stop to that progress.
If we compare overall growth in the 1970s and 1980s Mr Burnham will be surprised to see that 1979-89 the UK economy grew by 29%, whereas for the five years 1974-9 under Labour they managed just 9.5%. It is true that the disastrous European Exchange Rate mechanism gave us a nasty adverse hit in the early 1990s under John Major, but this was a policy Labour and Lib Dems were very keen on. Current Labour never criticise Mr Major’s disaster with that bad EU policy. We few who opposed it were told we were wrong as we watched the predictable damage unfold.  Over 1 million industrial jobs were lost in the 1970s, another 1 million in the 1980s, and more than that under the 1997-2010 government.
The UK industrial sector in  more recent times has been throttled by dear energy under a policy supported by all the main parties in Parliament. Deindustrialisation accelerated under the current Labour government as they doubled down on carbon taxes, dear electricity and a passionate reliance on imported energy at the expense of our own oil, gas and petrochemical production.
I think it wrong that we have set ourselves against home production of energy and energy intensive products. Importing  them is worse for CO2 production , bad for the balance of payments, bad for jobs, and  loses us the tax revenue.
If Mr. Burnham is serious about wanting to halt the rapid decline of industry in the last two years he needs to change his mind on its causes. It is dear energy, the jobs tax, the tax atttacks on business and the net zero bans that are accelerating industrial collapse. Nationalised  British Steel still plans to shut down the remaining blast  furnaces for net zero reasons, with likely karge job losses. Nationalised Great British Rail will plough on with the ruinously  expensive and much delayed HS 2 project mis allocating money on  a huge scale to perpetuate  losses and extend unsatisfactory services on the rest of the network.
For industry to flourish we need lower energy costs and lower taxes, with plenty of competition. More nationalisation will replay the 1970 s when large  nationalised losses led to too much public borrowing, sky high interest rates and the  infamous trip to borrow from the IMF.

Why the EU ReSet will be a very bad deal

October 3, 2026 58 Comments

The outlines of Re Set are clear. It is all give and no take for the UK. The EU sets unrealistic red lines and the UK cones round to capitulating.

1. Joining  Erasmus will cost £800 ma year for a worse student scheme than our own all UK  based Turing fund. UK taxpayers will be paying a majority of their money to EU students

2. UK Universities will probably lose big sums by having to cut  their fees to EU students down to the much lower UK student level.

3. We surrender £6 bn of fish which we should be fishing for ourselves and processing in the UK.

4. We will have to increase our carbon taxes and emissions costs by aligning with the dearer EU scheme.

5.We will have to accept a Mobility scheme for under 30 s, increasing pressure on homes and jobs for young people in the UK. There will be far more EU people coming to the UK than British people going to the EU.

6. We will impose carbon based tariffs or taxes on non EU imports, making UK business less competitive and squeezing UK consumers

7. We will burden every business in the UK with more EU rules  and costs needlessly. The minority that export to the EU already comply for their exports, just as any exporter has to meet foreign requirements in markets they sell to.

8.The EU will send us a big bill for administration and for a “ solidarity” payment. How much will the new EU tax be to pay  for it?

9. The UK may have to water down  its higher animal welfare standards to comply with EU farm trade rules

10. More taxes, more laws, more tariffs on non  EU means less growth, not more. Why make us poorer by hitching us to a slow growth region whose own Draghi Report says is failing to compete with the US and China?

Government incompetence

October 2, 2026 62 Comments
The government would be laughable for its incompetence if it were not so serious.
Rachel Reeves put up National Insurance not knowing that most of the money is paid into the National Insurance Fund. The Fund was solvent so did not need higher contributions. The contributions lost us jobs and damaged business. The Treasury cannot draw down on the £100 bn surplus now accumulated in the Fund without changing the law which they show no signs of wanting to do. So how did that help?
The government loves saying Truss crashed the economy by putting up bond rates. The one day spike in rates under Truss led to a reversal of Bank policy and the fall back in bond yields, so no money was borrowed at those higher rates. This government has instead by spending and borrowing too much driven them well above the one day worst Truss level  and kept them there for 21 months. They have borrowed  huge sums at those higher rates. Who crashed the economy?
Mr Burnham said he wanted to devolve powers to Mayors. His first policy pledge was to end rough sleeping. To do this he will launch a national policy to override Mayors and Councils who have the powers and duties to tackle homelessness but have in many cases failed to use them!
Mr Burnham took his support for devolution to Scotland. Their elected government said they wanted independence or more devolved powers. He said he would fight them to keep the Union. They  would not be able to use  devolved powers to have what they wanted!
The government has just signed off a major change in  Bank of England bond management and monetary policy. The Chancellor signed a letter which both said the Bank is independent, and gave them the authority to make major changes to bond management and to its balance sheet, He clearly did not ask why he was signing a contradiction. Did he know what he was guaranteeing at what price to taxpayers?How has the Bank losing us £288 bn 2022-2036 according to OBR helped our economy and public sector budget?

My IEA article on the bond losses

October 1, 2026 34 Comments
According to the OBR the Bank of England will lose us £288bn from autumn 2022 to the end of their bond portfolio in 2036. The Chancellor has recently approved some wide ranging changes to the way the Bank handles the bonds to try to limit the damage and delay some of these losses. The latest policy set out in the Chancellor’s letter of 17 th September 2026 reminds us that contrary to the general belief that the Bank is independent and decides these matters,the Treasury still has most of the power.
Gordon Brown in 1997-8 made radical changes to the Bank. People remember these for his spin that he was making the Bank “independent” when most of what he did stripped the Bank of crucial powers to control money, markets and banks. The power to issue new government debt in the market was given to a new body, the DMO, in the  Treasury. The power to regulate the commercial banks and other financial markets was given to the Financial Services Authority. He removed the powers of oversight of money and bullion markets. He removed the executive power of the Court of the Bank, making it a non executive supervisory body.
In return he gave the Bank the sole power to fix the base rate and to provide independent forecasts of inflation and the economy. Even these powers had an override allowing a Chancellor to intervene in the public interest if necessary. Alastair Darling with other Finance Ministers had to do this to prevent  extreme Bank of England tightening bringing down even more banks. The government sets the target the Bank has to hit and can change that,as Gordon Brown himself did when he switched from RPI to CPI, a softer target.
His system unwound with the banking crash, when the regulatory partitions he created impeded prevention and treatment. The Bank and FSA blamed each other  for the big failings to regulate  the banks.  The Coalition government gave the Bank of England some return powers over banking and financial market regulation to correct the Brown mistakes.
The crash itself led the Treasury and Bank to start Quantitative Easing to create looser  and cheaper money and credit. The Bank bought up government debt at  rising prices to get longer term interest charges down. This allowed the government to borrow more at affordable rates to pump prime the economy. Shadow Chancellor George Osborne argued against, claiming this was money printing which was bound to be inflationary. When he took over as Chancellor he changed his view and himself embarked on more Quantitative Easing. He inherited £200 bn from Chancellor Darling and added a further £175 bn in three tranches. Philip Hammond did one tranche of £70bn. At the time of the covid lockdowns Rishi Sunak approved two tranches for £300bn and added a third tranche of £150 bn when recovery was well underway.
Each time more QE was proposed the Bank needed the Chancellor to sign a letter granting consent, and to sign an agreement that the Treasury(taxpayers) would pay for any losses caused by owning these bonds. Towards the end of 2022 a nasty inflation was embedding. The Bank and Treasury without conceding QE had been inflationary reversed the policy. The Bank started selling the bonds back to the private sector, often at big losses. The Treasury who had pocketed the profits on the way up started paying out larger sums to reimburse the Bank.
Last week the Treasury and Bank at last realised that the scale of the losses under the bond sales scheme was unacceptable. The Chancellor has now authorised the Bank to hold the £120 bn of longer dated bonds with the largest losses at current prices until they eventually mature, avoiding taking big losses on sale. He has also said in principle the Treasury will start buying the bonds the Bank wants to sell rather than pushing them out to private buyers in the market which might disturb prices more. This will however mean the government having to borrow more itself to pay for the bonds it is taking from the Bank, so there will still be negative market pressures from government actions.
I have long argued against the damaging actions of these programmes. Whilst I supported the first two tranches of covid QE when the government locked down most  of the economy, as we needed a strong offset, I thought the third tranche was too much and likely to prove inflationary. I tried to get the government to borrow more of the money it needed during the QE phase for longer time periods, as the cheap debt available was clearly an artificial bargain. They insisted on continuing to borrow a lot for shorter dates. We lost the opportunity to have cheap debt for longer.
I have argued against the bond sales in the markets under QT. I urged them to do what the Fed and European Central Bank are doing, winding down their bond portfolios as the bonds reach repayment but not before. Instead the UK has sold large quantities at large losses which the taxpayer has to pay. Private investors have benefitted twice from the programme. They sold out to the Bank  at very high prices and can now buy back at much cheaper prices. The Bank has invaded fiscal policy as it demands the money for its losses.
This is a sorry tale. We await the recalculation to see how much of the planned £288 bn big loss they can avoid by the latest policy. The  Chancellor’s letter makes clear this is not the sole preserve of an independent Bank but a joint policy that has gone wrong where the Treasury and taxpayers pick up the bill and are ultimately responsible. When I tried to get previous Chancellors to stop the sales and curb the losses I was told the Bank is independent. Yet it was their signatures on the letters that underpin the whole policy and mean they had every right to intervene, as the latest Chancellor has now on a Bank rethink agreed to do. He needs to do more to curb more of the losses that are still being needlessly incurred.
 Pity the poor taxpayer. Gordon Brown is the main cause of this by badly changing the regulatory system to allow the big boom and banking bust. This led directly to Darling’s Treasury inventing QE and setting up the taxpayer for losses. The covid episode compounded the problem based on more wrong thinking by the Bank and Treasury. Since 2022 there has been needless harm visited on taxpayers by taking big losses on selling bonds bought at silly prices during peak QE. Other Central Banks avoided extreme losses because they had no Treasury guarantee to fall back on. It is worrying that so many Chancellors signed this all off without asking how much taxpayers might lose.

More attacks on state pension

September 30, 2026 62 Comments
Conservative and Labour both pledged to keep the triple lock this Parliament, seeing that as crucial to the pensioner vote. Both will keep their promise.
Abolishing the triple lock does not produce any large early cuts in public spending. If undertaken now the Government Actuary puts it at £2bn by 2030-31.
Abolishing the triple lock in the next Parliament would not yield anything like enough savings to pay for a National Care Service free to users.
Questions those wanting to end the triple lock need to answer
Background.
           The state pensions is the only major “benefit” still based on  the Contributory principle. Pensioners  therefore see it as an entitlement. Critics complain that it is not backed by an endowment fund like private sector pension schemes. They  often ignore the fact  that the pensions are paid for out of the National Insurance Fund which is an independent government  entity with an annual Actuarial review and certificate of solvency. It is as Pay as you Go scheme with working people paying National Insurance Contributions and pensioners drawing out pensions based on their past contributions. It was set up like this to avoid the first generation having to pay twice, paying  for their parents already retired and paying  to create an endowment for themselves.
           The current legal rules require 24% of National Insurance Contributions to be sent to the NHS, and 76% to be paid into the NI  Fund. Every year it is decided if the Fund is in surplus or deficit. If deficit the Treasury has to pay a top up grant. This has not been necessary for the last ten years.  If surplus the surplus is held in the Fund and cannot be used for other public spending. The Government Actuary this year forecast a growing surplus for the next five years, to take it above £160 bn. The Fund has to keep a working balance surplus to meet payments with a minimum of 16.7% of annual spend.  The Actuary confirmed his 2026 forecasts included allowing for triple lock increases in pensions.
        This legal structure could of course be changed. Removing the Contributory principle would not be welcomed by many

John Healey ducks the questions

September 29, 2026 47 Comments

The Chancellor was probably told not to give anything away about the budget. His task was to keep repeating the tired mantra  that he will stick by the Reeves fiscal rules. These are said to be tight. Instead Reeves relaxed the rules she inherited.

As the rules relate to a forecast of the finances in three years they have little real bite. The control year never comes, as the targets are rolled forward a year every year. The Chancellor can pretend decisions for Year 3 offering tighter spending which will not happen. For 16 years we have had variants of these “ tough” fiscal rules. Our state debt has climbed to new and worrying heights.

It is also nonsense to say the Chancellor must not pre empt  the budget.The Chancellor and PM can and do make financial commitments in the run up. Mr Burnham spends his time announcing new spending proposals. The government ruled out any increases in the three main taxes in its election Manifesto. This Chancellor should have  ruled out more  taxes on business for this budget. Instead like Reeves before he has opted for endless hints of tax rises to come. That is a great way to defer and cancel investments, put off job hiring , driving people out of the country as tax exiles. This is not the way to speed growth and get people back into work.

As to re industrialisation he is not even taking the necessary steps to arrest the collapse of much manufacturing. The bans on oil,gas and petrol car manufacture are doing huge damage. Sky high energy prices made higher by sky high energy taxes are closing down so much high energy using industry.  Announcing a few more defence contracts does not save our chemical, engineering and manufacturing factories from being destroyed by dear energy and high taxes.

Electricity prices

September 27, 2026 63 Comments

The BBC and other traditional media outlets keep  repeating the line  that our  electricity prices are high but they will fall if we add yet more renewables into our system.  Is this sloppy research or net zero propaganda?

BBC  Radio 4 did have a promising interview on 24 September on PM when the Head of Great British Energy was asked two difficult questions. Why is UK electricity so dear? How can you expect people to switch from gas heating and petrol cars to electricity when electricity is so. much dearer?

The truth is obvious to many consumers. We are not going to buy heat  pumps  and battery cars all the time electrical power is four times the cost of fossil fuel energy, and all the time the pumps and cars are so dear. Nor will we believe electricity is going to get cheaper the more renewables there are, as we have been told this for years  and the opposite has happened. We have so much more renewable now than 10 years ago, and power prices are so much higher.

Unfortunately after setting out good questions the BBC did not follow up with a critique of the wrong answers. We were told that the surge in gas prices in 2022 and then again in 2026 pushed up the cost of gas generated electricity and this  was why electricity is so much dearer.

No mention of the big forces behind ten years of dear electricity. There are now carbon and windfall taxes on gas to make fossil fuel power dearer. The renewable capacity was only installed by offering big subsidies and a system of guaranteed high prices for the power. The system needs to pay a lot to renewable producers to switch off  when they generate more than the grid can take. They have to make large payments to gas generators  to stay idle but to be available for when the wind and sun switch off.

We end up paying for two lots of capital intensive systems to provide power.An intermittent one given priority when it does work. A fossil fuel one made dearer by infrequency and by very high special taxes.

It is a deeply damaging system hitting consumers and closing our industries down. Why can’t  the BBC explain this or at least persist  with some of the right questions?

The public sector productivity decline is costing us £ 50 bn

September 26, 2026 33 Comments

The ONS has been busy changing its productivity figures. It thinks maybe it has been getting them wrong. It has come up with a bit faster growth rate in productivity 2009-19 looking at output per hour worked. The figures are still poor compared to the US which has outgrown the UK and the EU massively this century.

What is not changing is the picture of collapse in public sector productivity that occurred over covid. Where the private sector got back up to 2019 levels and pressed on after covid recovery, the public sector has still not got back to where it was seven years ago. Health and social services sits well  down on 2019 whilst accounting for 8% of UK activity. Defence and public administration with 5% of UK activity, and Education at 6% of output are also down on their 2019 levels.

This means that one fifth of our economy in  the hands of the public sector to supply goods and services has subtracted from productivity over a seven year period. This has been a time of big increases in public sector budgets with the public sector taking a rising share of activity. The public sector should be benefitting from the large spending on computer systems, as many of its activities are clerical and can be automated, or are services with substantial back offices. It has awarded itself pay rises well ahead of the private sector, enabling it to recruit and retain good people. Public sector pay in the most recent figures was up by 6.3% compared to just 2.9% for private sector pay.

I am all for people being better paid, but recognise to do so they need to work smarter and deliver more. Modern technology can allow this with suitable support and back up. The shame is large pay awards were made without any productivity deals. The scandal of the railways was the big award to well paid train drivers without agreeing a solution to manning in an age of more automated trains.

Paying people more without improving efficiency and quality of work, and tipping ever more cash into services that do not raise their productivity overburdens us with public spending. It creates a need  to raise taxes to pay the bills. This government has created a doom loop. A badly run public sector makes too many cash demands. The resulting higher taxes drive talent and money out of the country and burden remaining businesses so they employ fewer and invest less. Public sector productivity should be at least 10% higher today than it is, still allowing for slow growth in it compared to the  private  sector. That would save us at least £50 bn a year to help control runaway  borrowing or buy us £50 bn more services.