John Redwood's Diary
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The PM’s challenges My IEA piece this week

The PM is right to say people want him to tackle the problem of living standards. The cost of living has risen too far too fast, with the Starmer government presiding over another lurch upwards in inflation from the 2% they inherited. Energy costs are too high thanks to the UK policy of ultra dear energy with very high carbon and energy taxes. Rents and mortgages are too dear for many, thanks to a shortage of supply of homes and very high levels of migration in recent years creating so much more demand. Mortgages were driven up by rate rises needed to curb the covid and war  generated excess inflation, and then by a Labour government adding to UK public spending and borrowing.
The government’s cost of borrowing has been well above the one day worst Liz Truss spike in rates for the last year and a half. That is the cost of Labour overspending. The interest rate bill is now a major government headache, being far too high and rising too much with new borrowings and higher rates of interest.  If Mr Burnham just wants to add more to the debt he will burden taxpayers with ever large interest rate bills which have to take priority over the public services we need when it comes to allocating the money.
Mr Burnham has three theories of how to tackle the cost of living crisis. The first is to continue the policy of sell out to the EU in the mistaken belief this will generate more growth. The second is to create more regional Mayors and give them all more powers to promote growth and prosperity. The third is to continue the high spend policies of more benefit payments for more people, and more subsidies and cheap or free services for those on lower incomes. These three will fail to deliver more and better paid jobs which have to be the key to greater prosperity for the many.
Sell out in Europe will mean  larger financial payments by hard pressed UK taxpayers to the EU. In  return we will get a worse and much dearer student support scheme, we will have to accept a wide range of EU laws that will often impede our companies, and we will sign up to yet dearer energy by joining their emissions trading and carbon tax scheme. To round off the damage we have given away £6bn of our fish over 12 years short changing  our own fishing industry. We  will have to impose tariffs on imports from non EU sources through the carbon border tax they want to set. Their legal impositions may well interfere with our innovative food, agriculture and digital industries. Since Brexit these industries have been freer to innovate and to grow with new ideas.
The belief in the power of Mayors is at loggerheads with the PM’s wish to ensure prosperity spreads to every postcode. Trusting local government means local and regional differentiation. Some may succeed, some will surely fail. If you believe in devolution you accept the right of Wales to lag England as it has thanks to poorer policy choices and higher taxes. The PM will have to deal with the feeling in local government that those places with City region Mayors are going to get a better deal than all the rest, and with the obvious differences there will be in the  national treatment of Manchester compared to Essex.
Mr Burnham has never explained how City region Mayors can promote much faster growth as they do not determine interest rates, nor the main taxes and money and credit policies. These decisions  have such a dominant effect on whether private sector companies can expand or not. He seems to think all growth comes from higher public spending and borrowing, and sees the Mayors as agents of change by putting in new facilities themselves or grant aiding those who do. This ignores all those crucial goods and services from fuel to heating and from clothes to the family car that are supplied by the private sector who have to pay the taxes to support the Mayors. A few cheaper bus fares from more subsidy is not going to crack the cost of living crisis.
I am all in favour of generous benefit payments to those who through sickness or old age cannot afford the things they need for a decent life. I am not in favour of the current benefits system which puts far too many people of working age onto benefits with no requirement for them to look for work in a new culture of sicknotes for life. Now am I in favour of more and more concessions and free passes to people on benefits for nice to have  spending items to make it even more difficult for them to be better off in work.  The essence of a good benefits and tax  system is it looks after those who cannot fend for themselves but leaves  good incentives to everyone else to get a job.
The new PM says he wants to make savings on the benefits  bill by getting more people into work. Good idea but not a new one. That will require him to review how to make it more worthwhile to go to work and to review the conditions you need to meet to be on benefits. There are no short cuts or easy options to getting the benefits bill under control. Does he have the wish to understand the detail and the political toughness to push through what needs to be done to bring some reality to the out of control benefits bill?
His choice of ending rough sleeping as his first distinctive national policy shows the contradictions of his thinking. Finding accommodation for people and helping people to a better life than being on the streets are the responsibilities of local government. So is the PM going to take powers away from localities to roll out a national rough sleepers policy? Or is he going to find money for new specific grants for local government to do this better, and hope they will take up the money with the conditions? It is not clear how this will work. Meanwhile critics point out that after some welcome  initial success in Manchester as a Mayor with a rough sleeper policy, in recent years the problem has again got worse.
Warm words of hope and  communicating a sense that he does want people to be better off is fine. That will only work if these words  are true. That will require an altogether  more professional and thought through set of policies, backed up by proper control of borrowing and lower levels of taxation. So far there is no sign of either. We have government by PM soundbite and wish list. These now will collide with reality.

City Region Mayors will create division and fail to extend prosperity to every postcode.

It is best if a PM does not lie, does not set out unachievable aims and targets, and thinks through policies to ensure effectiveness and compatibility with what government is already doing. Yesterday’s Council in the North to get City region Mayors to jump start growth  is set to  fail.

Much of the country does not have City Mayors. There are none in the south outside London. How do these unrepresented areas compete? Why were they not invited to the Council in the North?

The City Mayors we do have already bid for funds and have more freedom over how to spend public money. There is no evidence this has speeded their  growth. We are told this will be different. Mayors will say what they need and national government will respond instead of national government offering cash and policy ideas for them to take up.  I doubt there will be much difference in practice.

We are told there will be a revolution in how much power is devolved. I bet there  will be no such thing. Today in the crucial area of planning and local plans central government rides roughshod over them when it wishes. There is no likelihood of Burnham allowing Mayors or Councils to set their  own housing targets or to determine if they  house illegal migrants .These are  crucial decisions where local people want change and influence over the  outcomes.

 

As they rummage  around  for a new tax to indulge Mayoral spending habits they settle on a tourist tax . So Mayors will tax your holiday and try to put you off a break or staycation in their places. Another upwards twist to the cost of living. Killjoy policies.

 

 

What will be the new PM’s foreign policy?

So far we have heard the new PM wants policy to be less pro Israel. He had a successful first conversation with President Trump, but many potential tensions remain in the US/UK relationship from the second half of the Starmer period. The President will expect the UK to deliver on higher defence spending so the UK can make a bigger contribution to policing sea lanes and protecting Western interests than the pathetic response to the Gulf war and the threats to Cyprus and our installations in the Gulf. He has strongly recommended getting more of our own oil and gas out, which would be in  the UK’s national interest and would strengthen western energy security a bit. I doubt Mr Burnham will have the will and the skill to achieve much in shifting policy away from the self harming accelerated close down policy of Mr Miliband.

He also has the problem that Mr Miliband at the Foreign Office will be encouraging more international agreements and better policing of our current obligations under the UN climate change mantra. The President will want a more  positive response to his war with Iran which would be difficult for any UK PM. The UK wants the war over but does not want to contribute to it militarily and did not propose it in the first place. The best that can be done is to develop our maritime role to help clear mines to restore more shipping routes.We do of course need to allow the US to use its bases, otherwise they could pull out of supporting our defences. That comes with its own risks.

Policy towards the EU will continue to be craven surrender. The new PM is  as desperate to have a deal and a big publicity driven summit as his predecessor. There will be a big price to be paid for warmer words from the EU. Their plan is clear. They want the UK to assume more and more of the laws, taxes and responsibilities of their single market, which has  always been a whole government scheme, not a free market. The EU will charge us for “more access” to the single market where we already have a tariff free trade agreement, which will in  practice mean rules that are more likely to favour their companies than ours. The UK negotiators always forget we are mainly the customer  of the single market, not the supplier, as our imports of goods so greatly exceed our exports. I have set out before what a dreadful deal Erasmus is for our students and taxpayers, and I strongly oppose the sell out of our fishing industry yet again.

The immediate challenge should be to get rid of the latest Trump tariffs. With Ed Miliband as Foreign Secretary this is more difficult, given his anti Trump views and his policy of importing so many cheap solar panels from China. When will Ed Miliband talk about labour practices in China’s solar panel supply?

Some friendly advice to Mr Burnham. Recall the Commons

There are three good reasons why government should first present new spending plans, new taxes and new laws to the Commons.

The first is the discipline of preparing a policy and thinking through how it will work makes for better and longer lasting proposals. Ministers need to draft a statement which answers the How, the Why, the How much and how it fits in with existing government actions. Policy on the hoof to please  crowds and respond to opinion polls can easily fall apart, leading  government to U turns and ridicule.

The second is the announcement to Parliament and the public conversation Parliament supplies serves to inform the public. It gives the government a platform to explain it to the public and to make its case of why it is a good idea and how it will affect people.A casual reply to an interview or a planted story  does not have the same credibility or force . Limiting  which media outlet gets the news item on a favouritism basis limits coverage elsewhere or encourages the rest of the media to be critical. Announcements to Parliament  can be covered by all media.

The third is that in a democracy we welcome the ability of MPs to be critical of government to spur them on to perform better or to explain themselves better. People who disagree with government’s aims or general strategy deserve a voice to put forward an alternative for debate. More importantly for government MPs of all parties may make a constructively critical contribution leading to improvement and amendment of the government’s initial version whilst keeping the aim.

So please Mr Burnham do yourself a favour by recalling  the Commons and making proper announcements, thought through that add up. Doing it with a crowd pleaser a day and a U turn on the morrow is sloppy. It damages confidence in government and in the markets. U turns before  you have landed a single proposal will drain your authority.

 

Do not borrow so much

One of the worst features of the government situation is the colossal and  fast growing debt interest costs. Now over £100 bn a year, this is hard earned taxpayer money that buys us nothing we want. It has leapt up both because this government has continued the bad ways of the covid period and borrowed so much more money, and because the UK now has to pay a higher interest rates than most advanced countries because it is not controlling its public finances properly. As Mr Burnham took over the cost of the UK state  borrowing for ten years went over 5%, compared to the one day only spiked rate of 4.s8% under Liz Truss which Labour so roundly condemned. The Truss government never borrowed at anything like that rate. This government is regularly borrowing at rates around 5%. This too is a growing burden, as the low interest rate debts of the 2010-23 period come up for renewal that then means a big increase in the debt interest.

So what does the government have to do? It has to cut spending and borrowing this year and next. It has to do so in a credible way. That gives triple relief. It means less new debt. It means a lower interest rate for the new borrowings. It means a lower rollover rate for the old borrowings that need replacing. It is quite easy to find spending to cut. They could start with carbon capture and storage and the excessive net zero subsidies. They have announced some cut back in the digital ID work, though One Government ID continues. The Opposition has set out a substantial programme of benefit cuts and has offered support in the Commons to get it through. They could open up oil and gas development, bringing substantial new tax revenues to the UK instead of exporting the tax to the overseas supplying countries.

Chaotic reshuffle makes things worse

Keeping senior Ministers waiting for hours before the PM tells then what job they will have wastes their time and alienates  them.

Asking them to perform near impossible tasks sets them up to fail. How can the new Chancellor find all the money he needs to keep his own promises on defence spending?How can Angela Rayner get anywhere near hitting the target to build 1.5 m homes in five years when the first two have gone so badly? How will continuing the sell out to the EU achieve anything other than more costs and less benefit to the UK? How will keeping our own oil and gas in the ground undiscovered and paying high taxes to foreign governments to import oil and gas instead help us or save the planet? How will letting many more people get a sicknote for life on benefits help them or the economy?  When will they have a plan to stop the huge losses and grants  at nationalised Steel and the Post Office? How will they pay for more nationalisation?

The lack of a statement to the Commons and the refusal to let  MPs cross examine the PM is a  disgrace. The outgoing PM told us how well he did, so why did Labour MPs dump him? If they all think his economic policy worked the country is in for a bad time. If they now back yet more Reeves style tax rises and wasteful spending things will get worse.

We cannot afford more nationalisation

Nationalising water polls well. That just tells us the public is fed up with sewage discharges into our rivers, rationing when we want to water our gardens, and the recent large rises in our bills. I am as critical as any of the poor performance of some companies, the failure to spend enough on new and bigger pipes, more treatment works and more reservoirs.

I part company from the public mood over  the proposed solution. I remember the nationalised water industry before 1989. It gave us the name “ the dirty man of Europe” as EU rules and monitoring revealed just how much sewage discharged to rivers and to our beaches. The industry was regularly blocked from putting in new capacity and new reservoirs as every pound they spent counted as public spending which a hard pressed Treasury and over taxed voters could not afford. In the heat of 1976 some parts of the country had their mains water turned off because of a shortage, People had to queue in the street to fill a bucket from a standpipe.

Three things went wrong with privatisation. The government refused to allow competition on the specious argument that it is a natural monopoly as you only have one pipe into the home. We only have one gas pipe and one telecoms cable into the house, but  that did not stop competition. Without competition the industry has lacked innovation and more pressure to keep down prices.

The Regulator decided to stop companies spending more on expanding  capacity and replacing pipes in order to keep prices down. This in turn prevented good companies cleaning up their game and gave bad companies an excuse not to bother.

Successive governments then invited in very large numbers of new residents with proper though of how to provide all the extra pipes, treatment works and reservoirs they would need to have a good water service.

Nationalising will not solve any of these three problems. To solve the dirty and scarce water problems the government needs 1 to stop large net migration. 2. To introduce competition into water services 3. To instruct the Regulator to allow a major further uplift in investment programmes to speed up ending sewage discharge and water shortages .

Nationalising would require a large outlay of money on buying up the companies or on compensation for compulsory purchase. If the government confiscated the assets there would costly lawsuits and many investors would be put of off risking their money in the UK.

 

Social care, the real issues

An elderly person living at home on their own may need help with difficult tasks, with heavy lifting, maintenance of the property, filling in impossible government on line forms and the other hazards of the modern world.They need to pay  for all the food, housing costs and support out of their pension and benefits. Social care has to assess what additional support they might qualify for to assist their continuing to live in their own home.

 

An elderly person accepted for a state financed care home gets free board and lodging and plenty of staff back up for daily tasks. It is true their state pension is reduced to reflect all the freebies they get as a care home resident. Nonetheless it is a big financial commitment by the state.

So the big issue for social policy for the elderly is when and how does an elderly person qualify for full free board and lodging in a care home? This depends on the answer to the other crucial question, what free back up and support is permissible to stay living at home?

Councils vary in the range and costs of support to the elderly and in the judgements they make about when to take full responsibility for someone’s daily living.

Some people argue the care home for someone with no savings or home to sell should provide a more basic service than the more luxurious private sector homes charging high fees for good personal care and fine dining. Others think it right that the state often buys into good private sector care homes at a discount so the full price self funder lives alongside the discounted state funded resident.

What should we expect for a care home service for people with no private means? Should the state buy places at private  homes or run its own? What should the trigger be for an elderly person  to be accepted for a free care home place?

Social care all over again

There are two big issues over social care.  Politicians talk about a lot about the first , make promises to change  and then fail. That is the issue of the elderly  using the savings and money from the sale of their home to pay for themslves when they need to go into a care home. The one they ignore is the quality and costs of the public sector provision of health care to most elderly people and care homes for those without savings. Today I will tackle the first of these issues.

My parents from modest beginnings managed to buy  their own home and paid off the mortgage by the time they retired. They had some savings. I never thought I had a right to that money. When it became clear both needed to move into a care home I helped them choose a good quality one. It offered  communal facilities with decent restaurant/dining room meals and a hotel style lounge, daily activities, trips and entertainments if they wanted any. It  also gave them their own flat with a sitting room and a bedroom when they wished to be on their own. I helped them sell their home to assist in covering the substantial bills decent care and facilities generated. The money did last out  for the period of their time in the care home.

Many argue I should have had the right to inherit the money they spent on their care in old age. That would only be possible if the state took on responsibility for paying the care home fees of the elderly that do still own their own homes or have savings. That would be a colossal bill for taxpayers and would be unfair between those elderly going into a care home and those still living in their own homes and having to pay their own living costs and accommodation levies. The elderly person going into a care home is not normally going  to return to self sufficient living, so if their home is left empty surely it needs to be sold? Homes are best used, and deteriorate if left empty for long periods.

The argument runs that it is not fair if someone who has saved and bought a home has to pay for their care home stay, but someone who has not saved and always rented gets a free care home place. Yet that is our system also for working age. We who work hard and pay tax accept we need to pay so those who are unable to work get their home and living costs paid by the state. Those who own their own home do not get money for that, but if people rent they get the rent paid by the state when in need. Why should it be any different in old age?  There are of course big debates today about how many really do need to be state dependent, and how many should be looking for work, which Mr Burnham says he wishes to tackle. The issue with benefits and with access to free care homes is one of access terms and entitlement. It would be far too costly to offer free care homes and free living costs for all.

 

My IEA article on why nationalised rail will not work well

Ministers are telling us their nationalisation of rail will produce much better services and fares. Great British Rail we are told will have a single controlling mind that will get decisions right and provide much better answers. Ministers freely admit that their railway to date is poor on punctuality, low on passenger satisfaction and dreadful at value for money. They are right about that.
They also need to point out that the railway they took over was almost fully nationalised. Labour nationalised Network Rail, taking control of all the track, signals, powerlines and structures in 2002. A lot of the delays and cancellations on the current railway are down to Network Rail failures. The last government had started the nationalisation of the rest, bringing into public control train operating companies as and when franchises ran out or were surrendered for lack of profit. This government is continuing the same policy.
Privatisation in its early years worked well on the railways. When John Prescott  took over as Transport Secretary he had to admit that there had been good growth in passenger numbers and better investment in new trains in a virtuous circle. Privatisation freed the railways from the need to compete with more nurses, doctors, police and teachers in the public spending rounds. New companies brought in new services, better timetables, modern trains. Large new capital investments were made by Train companies and leasing companies. The industry moved into profit as journeys took off and more fares were paid.
After the nationalisation of Network Rail governments also took more and more control of fares and timetables. It became more difficult for train companies to provide better services, and they were restricted by the slots they could  get from Network Rail. The Fat Controller had arrived in Whitehall, and Ministers accepted they were to be pilloried for every train cancelation and bad timetable so government might  as well direct and restrict companies. .
Last year less than 85% of trains arrived within three minutes of timetable, and more than 4% were cancelled altogether. Customer satisfaction was low, concerned over a lack of reliability and high standard fares . The industry needed £21.6 bn of government money and raised just £11.5bn in fares. If you had a birds eye view of the routes into our leading towns and cities at peak times on a working week day you would see horribly congested roads and largely empty train lines. The lack of up to date digital signalling and of in cab views of the line mean large gaps are enforced between trains, limiting train slots and pathways at busy times. These failings are largely down to long nationalised Network Rail that has not put in the new signalling and satellite based control systems and takes a risk averse approach to train spacing. They are of course right to want to take all actions to avoid collisions. They need to be backed up by drivers who do not pass signals at danger and better visibility of the positions of every train.
The railway gets money out of all proportion to the use it offers the public and business. Rail freight is down 28% in the last decade, with the railway wanting trainload business and being bad at single waggon marshalling and smaller load handling. Passenger numbers have not recovered from the covid hit, with working from home now undermining the 5 day a week commuter business where the railway overcharged for season ticket travellers who had to deal with the monopoly. Rail accounts for just 2% of trips undertaken, compared to cars at 59%. Even on miles travelled we travel seven times a far by car as by train.
Rail gets its £21bn of support whilst motor vehicles face a barrage of charges and taxes, contributing far more to the Exchequer than the cost of the nationalised roads. Vehicle traffic is starved of new highway despite the success of that way of travel, and faces increasing restrictions on the roads we do have as Councils remove lanes, narrow lanes, put in more lights and speed controls and close some roads altogether. Drivers pay VAT and car tax on the purchase of a vehicle, fuel duty and VAT on petrol , and VED to licence  a car for road use.
The railways have a deal to die for on tax. There is no VAT on rail fares at all, though much travel is leisure and pleasure travel where VAT is charged on everything else.  The diesel trains on the network can use red diesel, where instead of paying 52.95 p a litre of fuel duty they pay just 6.3p. The electric trains do  not have to pay the climate change levy, though for much of the time they are running on electrical power generated by burning gas or wood in power stations.
So what is needed to right the three evils Ministers want to tackle? They will certainly require large sums of new capital. Network Rail needs to get on with comprehensive digital signalling and modern information systems for drivers and network controllers to avoid collisions and increase throughput. Train companies need new rolling stock and more trains to provide the additional services. Within the framework of a nationalised railway it will need franchise and contract opportunities for the private sector to run new services and supply new facilities, with a proper risk transfer to the private company. They can then raise the money needed.
It is going to require innovation and new services. That requires open access. Those  who think up new ways of generating fare and related revenue from a  better passenger offer should get access rights to the track and stations so they can run their service. With more capacity available as digital comes in so more entrepreneurs will be able to provide the better and different   services and train routes people want.
It also requires a new management approach by the nationalised industry. Ministers say they want to be taken out of the loop on issues of fares, timetables and details of investment plans. That is a good idea but in practice as Ministers own it they will be expected to explain the failures. The management they appoint to run the nationalised part needs to work out how to raise the productivity and service quality of the nationalised system, and needs to create relations with the Unions that allow that to be implemented. This will not be easy.
The task will be easier if new services are admitted to the network by an independent regulator on fair access terms. These may well pioneer better standards for employees. They can pioneer  new ways of remuneration that link higher pay to better success in running to time and providing services people are willing  to pay for. That can only happen if Network Rail gets on with allowing much greater use  of our often empty railway  lines.