John Redwood: Why now that we have left the EU are we still yoked to Maastrict austerity?

26 Apr

Sir John Redwood is MP for Wokingham, and is a former Secretary of State for Wales.

The UK economy is currently being run on the Maastricht rules as if we had not left the EU. The Office for Budget Responsibility made clear in its March report that whilst it awaits the Government’s conclusions on a new fiscal framework, the economy will be guided by the two familiar requirements that we get the running deficit down below three per cent of GDP, and that state debt as a percentage of GDP is declining all the time it is above the 60 per cent level.

It is clear that the whole five year budget in question is dominated by the perceived need to get state debt falling as a percentage of the economy by the end of the forecast period. This has led to a range of measures to increase the tax take, with a large increase in the Corporation Tax rate, and a big increase in the numbers of people paying higher rate income tax through freezing allowances.

My critics will argue that because we were outside the Euro we never had to follow the Maastricht rules. The truth is we did. We still do because we have never changed the rules, even though now we are free to do so.

We faithfully reported each year on progress with hitting the debt rules, and made clear that policy was primarily steered by the need to control debt. That was the central driver of George Osborne’s so-called austerity economics. The latest Government figures after Brexit continue to report our progress against these EU rules. This quote from the OBR’s March Report shows nothing has yet changed:

“The Chancellor has not set new fiscal targets in this Budget (despite two of the existing ones expiring this month) and is instead proceeding with the review of the fiscal framework proposed in last year’s Budget. But the absence of formal fiscal targets does not mean that the Chancellor has not been guided by particular metrics when selecting his medium-term Budget policies. The tax rises and spending cuts he has announced are sufficient to eliminate all but a £0.9 billion current budget deficit in 2025-26, while they are just enough to see underlying public sector net debt as a share of GDP fall by a similarly small margin of £0.7 billion in 2024-25 and £4.1 billion in 2025-26.”

I rest my case.

Requiring states to keep their overall state borrowing low makes a lot of sense in a single currency area where different governments have the right to borrow in a common currency. They need to avoid the free rider problem, whereby some states run up excessive debts, taking advantage of a low interest rate facilitated by the prudence of others.

The UK has no such problem. The UK as a single state with its own currency and central bank cannot take advantage of others. It does of course have to decide how much to borrow with affordability in mind. Borrow too much, and the interest bill could become unaffordable. Borrow excessively, and lenders could start demanding penal terms.

This means the best type of control over debt build-up for the UK should be a control over the size and growth of the interest burden. The UK has a tradition of borrowing long, and can do so in current markets. This protects taxpayers against sudden rises in rates, and reduces any strain from refinancing the debt. The Government has used debt interest targets, and should draw up a new realistic one. Given the way debt interest has fallen despite the increase in debt, this should not prove difficult.

The idea that we should carry on controlling the economy by state debt as a percentage of GDP is particularly silly given the great monetary experiment the UK along with the USA, the ECB and the Bank of Japan is carrying out.

The state-owned Central Bank is buying up large quantities of the state debt. Claiming that the gross debt is still a real debt is therefore wrong. The Treasury pays interest on nearly £975 billion of the debt to the Bank which it owns. If I had bought in my own mortgage but still kept paying the interest, I would not regard it as a real debt in the way I did before I bought in the loan, since I would be paying myself. Despite this obvious anomaly, the Budget is constructed on the basis that we need to get gross debt down, not the debt net of that owned by the state itself.

So what should we use as guides for economic policy? To a control on state interest payments to others, we should add a growth target and we should keep the important two per cent inflation target as a restraint on excessive credit and money expansion. The growth target should encompass aims to increase employment and productivity. What we need is to promote a higher wage, higher productivity economy. Our economic targets should reflect those aims.

The current state debt target is acting a constraint on faster growth. Offering tax rises and threats of tax rises for the years ahead damages confidence and deters new job creation and new investment. The UK’s productive capacity has been damaged by years in the single market where we lost out in many areas from steel to consumer electronics and from temperate food production to electricity generation.

We now need a favourable tax regime on self employment, investment, enterprise and individual incomes to promote a substantial increase in our productive capacity. The state debt control implies more of the same old policies which we had to follow in the later single market years which did not do enough to boost high paid jobs through industrial investment and higher productivity.

Richard Holden: This spring’s local elections. For levelling-up to work, we need local councils and leaders who back it.

29 Mar

Richard Holden is MP for North West Durham.

Constituency Office of Richard Holden MP, Medomsley Rd, Consett

The leaflets are landing on doorsteps. The Risograph is working overtime. Walk routes are being updated. First-time council candidates – a heady combination of apprehensive and excited – are getting to know each other on WhatsApp as they make friends with people in other wards. Experienced candidates impart nuggets of wisdom, ‘war stories’ and experience on our zoom calls. Labour’s keyboard warriors fight on , but there is very little sign of life in the party of Jeremy Corbyn and Keir Starmer on the ground.

These elections are taking place in a way that is like nothing I’ve known in two decades of campaigning – after over a year of gruelling Covid-19 restrictions and under the shadow of a virus whose lingering presence, even as Britain’s phenomenal vaccine programme knocks case numbers and deaths down, is still a real concern for many. It’s not been a normal year, and it’s not going to be a normal election.

As a new MP, I can barely remember a time that I wasn’t having to try and help those struggling with Covid-19 or the impact of measures to control it. The long tail of Coronavirus will continue in various guises. Many months of delayed operations and stifled economic growth need to take place. The impact on the education of children will last for years, especially for the poorest, even with the welcome efforts of the Government at top-up tuition. The Government debt taken on to support the people, jobs and businesses through the pandemic will stay for decades.

It is in that context that Rishi Sunak came up with a big offer to business: unprecedented tax relief to try and drive investment and help to deliver knock-on productivity gains. The Treasury and Department of Trade moves to Teesside and the new freeport are massive economic boons, too, for the North East. These moves are not just about the jobs – though that’s the main part. It’s about showing that we both care and want to do something about the problems faced by our new voters in the ‘Blue Wall’.

It’s clear that both the First Lord of the Treasury and the Second Lord of the Treasury “get it”. Short term, the plan is about recovery from Covid-19: getting jobs back and the economy moving again – which they’ve also got a plan for with Kickstarter and support for apprenticeships double.

And for the longer term, jobs in the next industrial revolution are coming down the track: batteries for our car industry and wind power for our transport and electricity. This big push to drive private enterprise to invest now is crucial, because we all know that only productivity gains can lead to real wage increases and the much talked about ‘levelling up’.

As we escape the shadow of Covid-19 we can see that much has changed but some things have stubbornly remained. In many parts of the North, moving back to the status quo ante – pronto – seems to be the order of the day from Labour. The debate over the coal mine on the West Coast of Cumbria brought this home in recent weeks.

To give you a bit of necessary background, Cumbria is a joint Labour/Lib Dem administration. Labour lost overall control in 2017 and formed a coalition (despite the Conservatives being by far the largest party). Labour retained control with their three tribes of Corbynites, Brownites and few Blairites, in what is a perpetual internal struggle.

To the mine itself. Robert Jenrick, the Housing, Communities and Local Government Secretary, has taken a lot of heat, but it’s clear that what’s really behind the palaver is vacillation among the Labour/LibDems who are running the council. Cumbria County Council has now put forward the proposal only then to decide to re-consider it no fewer than four times. Jenrick has done everything he can to let the council decide, but in the end its vacillation created a national controversy. A dangerous precedent.

Labour weakness and division doesn’t just stop at doing everything possible not to make a decision on bringing 500 really well-paid jobs in Cumbria. Look across the other side of the country and you see it caught up in another culture war with itself in Leeds.

West Yorkshire wants to rival Greater Manchester as the engine room of the North of England. Leeds is back in the premiership, and everyone’s longing for the old rivalry on the pitch and, more generally, some healthy competition across the Pennines.

But Labour politicians locally can’t even agree on whether to expand Leeds Bradford Airport. The Labour-run Council has, eventually, passed a proposal, but the local Labour MPs (more concerned about their own membership than their voters) have gone against it. Hilary Benn and Alex Sobel, amongst others, literally asked the Secretary of State to call in a decision by the local Labour council.

Scratch the surface anywhere in the North and you’ll find Labour in mini-civil wars everywhere. What does this mean for other big projects? The A1(M) upgrade? New train lines? The A66/68/69/74? Are we going to allow vacuous, vacillating, virtue-signalling Labour Councils to kibosh our levelling-up agenda?

Contrast Labour’s approach to Ben Houchen’s in Teesside or Andy Street’s in the West Midlands; pro-enterprise, and willing to work with the Government. Interestingly, Andy Burnham seemed to be too, during his early days of wanting to get stuff done but his rivalry with Sadiq Khan over who will be the next Labour leader has seen him go from pragmatic local leader to disingenuous leadership contender, in lock step with Starmer’s personal poll rating.

What I’m driving at is that for levelling-up to work, we’re going to need to see local authorities and local authority leaders who want it to work.   The sad truth is that many local Labour councils and local bureaucracies don’t want it: they’re scared of it. In County Durham, it would create further upheaval in the system of sinecures that, sadly, local council positions have been for 102 years. They don’t want to risk ‘levelling up’ – they’re happy with a lazy the politics of grievance. After all, it’s served them well for decades.

Meanwhile, when faced with big political calls, the Prime Minister tends to make the right ones. On running for Mayor. On Brexit. On standing for the Conservative leadership in 2019, doing what many said was impossible, and getting Tory MPs to back him. (I remember this ,because when I joined his campaign you could get six to one on him to make the ballot.) On the general election. On the vaccine.

He’s making a big call on the economy now – the big push to level up. This is his big bet on Britain.  To deliver it though we need strong aligned local leadership. Mid-term elections always hammer the party in power, and we’re coming from the 2017 local election high point and a year of Covid. Getting Conservative 2019 voters to come out again is the challenge on which the ability to deliver the agenda now rests. We’ve fifty days to show them it does.

Sanjoy Sen: The Government and Stellantis. ‘Picking winners’ is rarely a popular concept among Tories but it’s often a reality.

8 Mar

Sanjoy Sen is a chemical engineer in North Sea oil. He contested Alyn & Deeside in the 2019 general election.

The Government has been in “productive” discussions with Vauxhall’s new owner, Stellantis, over the future of the Ellesmere Port Astra plant and its 1,000-strong workforce. 

Three options are on the table: plod on building petrol cars until the 2030 government ban, close the whole place down or re-invent it as a long-term electric vehicle hub. The last one is evidently the most attractive but Stellantis is clear that it comes subject to government support. But are the fate of the factory and the fate of the Vauxhall brand one and the same thing? 

What is Stellantis, anyway? 

Back in 2014, Italian auto-giant Fiat acquired America’s Chrysler. And in 2017, General Motors off-loaded its European division (Vauxhall-Opel) onto France’s PSA Group (Peugeot-Citroen). That whole lot, comprising some 14 mostly over-lapping, loss-making brands, came together as Stellantis in 2021. MBA students will be poring over the internal politics and corporate culture clashes for years to come.  

Worse still, Stellantis is wildly over-represented in Europe but is miles behind in Asia. And its mainstream brands are under pressure from all directions: prestige players (BMW, Mercedes-Benz) are rolling out compact competitors while low-cost manufacturers (Dacia, Skoda) are fast raising their game. Then there are the externalities facing all auto-makers, from anti-car city mayors to debt-laden Generation Z preferring Uber to ownership

Stellantis does have one ace up its sleeve, though. Governments worldwide fret over redundancies, both in terms of the economy and the ballot box fall-out. Little wonder CEO Carlos Tavares can do the rounds drumming up taxpayer support globally. 

Government to the rescue (as usual) 

Brexit critics have been quick to highlight the reassurances offered to Nissan and the support demanded by Stellantis. But state backing is hardly new in the car industry. Germany recently offered up a billion Euros to secure the new Tesla factory over its EU competitors (sorry, partners). France already holds a stake in Stellantis with Italy set to follow suit. Even the Americans aren’t averse to a bail-out, rescuing both Chrysler and GM after they filed for Chapter 11 bankruptcy in 2009. 

The UK, of course, has plenty of experience here. Successive governments backed everything from DeLorean to British Leyland before finally losing patience. Even Margaret Thatcher, not a noted market interventionist, incentivised Nissan to come to Sunderland, resulting in a huge success.  

Tavares describes the UK decision to bring forward the petrol car sale ban to 2030 as “brutal”. In reality, the shift to hybrids and “pure electric” is inevitable – but Stellantis brands have been slower to transition than their rivals. “Picking winners” is rarely a popular concept among Conservatives but it’s often a reality. Kwasi Kwarteng needs to be confident that the Stellantis electric plan for Ellesmere Port looks long-term credible before committing taxpayer money. 

What might become of the Vauxhall brand?  

While the future of the factory might be secured, the Vauxhall brand itself could be a different story. In these Thunbergian times, car manufacturers are frantically ditching a century of petrol-based brand awareness and creating all-new, futuristic identities.

The Stellantis portfolio needs urgent pruning with even Chrysler under threat. Although its market share has long been slipping, a ruthless axing of the Vauxhall name wouldn’t be go down well in the UK. But a well-planned transition into a modern electric identity isn’t just achievable – it’s downright essential for success.  

A decade ago, former owner GM had high hopes for their Volt hybrid; a typical suburbanite could re-charge on their driveway, enjoy an all-electric commute and forget any range anxiety thanks to the back-up petrol engine.

Instead, it became a textbook example of marketing failure. Badged as a dowdy Chevrolet, it proved too radical (and expensive) for traditional buyers – yet too old-fashioned (and conformist) for super-trendy early adapters. The Volt came over here as the Vauxhall Ampera and suffered a similar fate despite being crowned 2012 European Car of the Year. Forgive the pun but they just didn’t plug it properly. Sorry. 

Adam Afriyie: Self-interest will drive up EV use and drive down pollution if charge points are available

18 Feb

Adam Afriyie is the MP for Windsor.

Elephants in the room have been spotted. Too few charging points and inadequate energy networks will crush any hopes of zero emissions by 2050 or wholly fossil-free vehicle sales by 2030. To keep our hopes alive action will be needed from both government and the private sector, as identified in excellent papers from Policy Exchange and Bright Blue.

With a viable route out of the pandemic in the form of vaccines and our EU relationship now settled, it is time to look to the future.

The Prime Minister is rightly looking at policies that will shape our country in the years and decades to come.

The green agenda

While some people sometimes bristle at the phrase “green agenda”, few would bemoan the aim of reducing travel costs, boosting energy efficiency, and placing the UK at the forefront of emerging high-tech industries which are kinder to the environment. I suspect that most of us are also comfortable with the concept that the polluter should pay.

From the raft of green priorities, it is zero-carbon transport that has captured my attention. We have already passed a tipping point. Not only have electric vehicles (EVs) come of age, they have become cheaper to run than traditional petrol and diesel vehicles.

Gone are the days of stressing over charging points. EVs have evolved from a slightly quirky city run-around to a smooth and dependable workhorse that is quietly displacing polluting vehicles.

The Government is right to continue encouraging their uptake when seeking to reduce emissions. Transport is one of the few sectors where emissions have actually risen since the 1990s due to increasing car ownership. EVs not only cut carbon emissions, they also reduce the emission of other harmful gases which are, literally, clogging our minds and choking people to death. Our towns and cities will be healthier places and our NHS will save billions on treating respiratory-related illness. If we can see an end to petrol and diesel car sales by 2030, then all the better.

The rollout of EVs is a highly conservative endeavour. Dictating that people must drive EVs today would be foolish and dangerous authoritarian madness. But it is a deeply Conservative approach to incentivise their uptake and to let people know that they can choose to save themselves a small fortune on fuel, fuel duties, emission fees, congestion charges, vehicle tax and gaining purchase subsidies in the short term. It is also rather virtuous to say that you are covering the cost of your own pollution!

Fragmented Infrastructure

Yet despite the benefits of EVs there is more to do on the infrastructure front.

Chief among them are doubts surrounding the reach, reliability and security of the charging network. Having used an electric vehicle for some time, I understand first-hand the practical infrastructure issues EV drivers are facing and the urgent need for government action to give charging confidence to the millions of drivers who will be switching to an EV.

While many people can charge at home with a three-pin plug or home charger, many more cannot. So we will need an extensive network of public and shared charging points for those who live in flats or cannot safely run a cable to their home overnight.

Charging points are best in convenient locations which are close to people’s homes, commercial areas and workplaces. Ideally, we would see a charging point available beside every on-street parking space and at every bay in a car park. It is a big ask. Yet to this end the Government must insist that local authorities give a clear roadmap to when, where and how charging infrastructure will be installed. Indeed we must install charge points five times faster than today and avoid charging black-spots particularly in rural areas.

The current rollout is fragmented at best. It is being managed by over 300 local authorities across the country using different operators, different standards, different security levels and a disparate divergent range of charging ports. Consumers are understandably bemused, uninspired, and lacking confidence.

The Government can also focus on supply-side measures, such as boosting our domestic production capabilities. An excellent example of this is the new £2.6 billion car battery factory, dubbed the “giggaplant” in Northumberland.

We could also look to expand the support made available to consumers when installing charging infrastructure in their homes and change the regulations so that all new homes must have a charging point.

The National Grid

Today, about one per cent of vehicles are electric. It will be a big ask to see that rise to 100 per cent within 10 years, but it is achievable if we act on infrastructure today.

This means preparing our energy network for the increased demands of millions of electric vehicles on the roads. Hundreds of thousands of charge points and thousands of petrol stations and public spaces must be serviced by both the national grid and transmission network. What works for 200,000 electric cars will not work for 20 million.

The national grid clearly has work to do as a vital aspect of our national infrastructure. Overall capacity and transmission networks must be able to meet demand but there is an even more critical aspect to consider. Our electricity supply must be protected from external threats, such as cybercriminals and hostile governments. We simply cannot be in a position where millions of Britons wake up unable to charge their cars and travel to work because the EV charging network has been hacked overnight.

A conservative approach

Protecting the environment need not cost you more than destroying it. It is right that, for now, the Government helps with the upfront costs and nudges people in the right direction with a range of incentives. The good news is that as the production of EVs is rising, the costs are falling. It is already cheaper to drive an electric vehicle than a fossil fuel vehicle, particularly if you have a home-charger, and the differential continues to grow.

Whatever the merits, the Government has set a hard deadline of 2030 for the sale of new petrol and diesel to cease. Instead of forcing people into electric vehicles, it is best if we continue to persuade them with incentives and inspire the confidence. Switching to an EV isn’t just good for the planet it is also good for your wallet.

Ted Christie-Miller: Everything must change if Britain is to hit its Net Zero target. How are we going to manage it?

5 Jan

Ted Christie-Miller is a Senior Researcher at Onward and is leading the Getting to zero research programme.

The existential necessity of reducing our carbon emissions, and the level of cross-party consensus in Westminster, can sometimes obscure how hard it is going to be to get there. This is a policy that will require drastic changes to human behaviour, industrial processes and the homes we live in. We need a more grown up conversation about getting to zero.

Politicians, understandably, tend to emphasise the opportunities. The Prime Minister’s Ten Point Plan and last month’s Energy White Paper painted an exciting vision of a jobs-rich, cutting-edge future that could benefit Britain’s lagging regions. Voters largely agree: YouGov recently found that a majority of all age groups, regions, genders, party voters and both sides of the Brexit vote want to see Britain leading the world on climate action. Environmentalism is no longer woke metropolitanism but good politics. On the campaign trail last year in Workington, I witnessed a hustings dominated by small nuclear reactors and offshore wind.

But despite the consensus on climate, the sheer scale of the challenge is underappreciated. Over the next 30 years everything needs to change: the food we eat, the cars we drive and the way we heat our homes. As Onward uncovered last year, we need to treble the number of plumbers just to have the capacity to change out old boilers and quintuple the rate of energy efficiency improvements to insulate our housing stock. We also need to build more than 500 electric vehicle charging points a day, according to the Society of Motor Manufacturers and Traders.

As with all industrial transformations, the costs will not be evenly spread across the country. As new Onward research out today finds, the regions which have lagged most in recent decades stand to be hardest hit: 42 per cent of jobs in the East Midlands are in high emitting industries, 41 per cent in the West Midlands, and 38 per cent in Yorkshire and the Humber and the North West – compared to just 23 per cent in London and 34 per cent in the South East. In total, more than half (52 per cent) of high emitting jobs are located in the North, Midlands and Scotland. The risks of this turning into another North-South divide are acute.

Despite this, much of the existing spending on net zero programmes is going to more prosperous regions. New analysis from Zap Map shows that London and the South East received 45 per cent of new charger capacity in the past year. There are 63 public chargers per 100,000 people in the capital, more than double the average of the rest of the UK. Given the reliance on cars outside of London, and the high levels of public transport investment in the capital, this feels back to front. The Department for Transport itself estimates that people are 27 per cent more likely to have a car if they live in the West Midlands or the North West than in London.

The new BritishVolt gigafactory in Blyth announced last month demonstrates the potential for net zero to be a net positive. Whether it’s offshore wind in the North Sea, carbon capture clusters in the Humber or electric vehicle manufacturing in the North East, there are a sea of economic opportunities to come over the next three decades. But we cannot kid ourselves that this will be a seamless transition, and for many workers the journey from a carbon emitting job to green industry will be tough. If politicians are going to take voters with them, we need to be honest about the trade offs and develop policies to help those who stand to lose out.

This is why the Government’s combined agendas of net zero and levelling up are so crucial. If the synergies of the two missions can be found and the policy is creative, thoughtful and practical, the Government does not have to choose between the two. Net zero can and must be the key to unlock regional growth in the UK and a prosperous future for all of us.

The Deal in Detail 4) The environment and energy

31 Dec

Benedict McAleenan is a Senior Adviser to Policy Exchange’s Energy & Environment Unit. Ed Birkett is a Senior Research Fellow at Policy Exchange.

If you listen to much of the anti-Brexit rhetoric, you’d think that the EU was the sole driver of environmental progress in the UK and its only protector. Given half a chance, the UK would apparently repeal every environmental and climate change policy it could find. Given the UK’s cross-party support for environmental protection and for Net Zero, this risk was always theoretical.

The deal includes substantial provisions on the environment and on climate change as part of the ‘Level Playing Field’ and associated ‘non-regression’ clauses, which will require both the UK and the EU to uphold existing protections.

On energy, the deal introduces new mechanisms for the UK and the EU to cooperate on nuclear power, natural gas and electricity. The deal also looks forward to future cooperation on cross-border energy projects in the North Sea, which, as we’ve previously written, holds the key to a Net Zero economy. It also suggests an intention to cooperate on carbon pricing and hints at a linked Emissions Trading System. On both energy and the environment, this deal is a sensible starting point for longer-term cooperation.

Protecting the environment

On fishing, the big negotiation points were about the business of fishing fleets, not sustainability. So once the fisheries transition period ends the UK will be responsible for managing the sustainability of its own resources. Now that we understand how fisheries will operate with regard to our European neighbours, the UK Government should recommit to its sustainability pledges. This should include the sustainability of ‘shared stocks’, i.e. fish that swim across borders, so we’ll need to collaborate closely with the EU on marine standards.

The level playing field rules allow both sides to diverge on environmental standards. Throughout the Brexit debate, the EU has often been painted as a gold standard while the UK has been presented as quite the opposite. That isn’t accurate: The UK exceeds the EU on a number of protections, from climate policy to animal welfare. Diverging from the EU’s farm policies, for example, will be a major boon for the UK’s environmental wellbeing.

However, membership of the EU provided important environmental oversight. This has helped to address the tragedy of the commons which can arise from more local political trade-offs. The Environment Act aims to fill this void with an Office for Environmental Protection (OEP), which will replace EU institutions in scrutinising environmental protections.

The Deal’s ‘rebalancing’ mechanism (part of its level playing field provisions) will provide some checks on top of the OEP, but these will be limited. By allowing both sides the chance to impose tariffs (among other things) if the other loosens environmental checks, it may help to prevent backsliding. However, the provisions only relate to how the changes affect trade and investments. That is, if a loosening of regulations can’t be explicitly shown to impact trade, then they won’t come under the remit of the Deal. So, the onus is back on British politicians, the OEP, civil society and voters to ensure the environment is protected. That’s perfectly reasonable within the terms of a trade deal between sovereign nations.

Of course, the UK and the EU have different legal philosophies that govern the evolution of law and regulation. The EU’s French-style precautionary approach jars with the British ‘common law’ tradition. How they will manage divergence is still to be seen.

There’s also a question over devolved administrations. Environmental protections are mostly devolved to the Scottish, Welsh and Northern Irish administrations, so the UK government can’t easily prevent the Welsh, for example, from relaxing environmental rules and potentially affecting trade.

Cooperation on energy and climate

When it comes to energy, the UK and the EU have a lot to gain from cooperation, so it’s not surprising that the deal includes substantial provisions in these areas. The benefits of close cooperation will continue to grow. One area where the Deal is ambitious is cooperation on renewable energy projects, particularly in the North Sea. There’s massive potential for low-carbon energy projects in the North Sea, including offshore wind and offshore electricity grids.

By 2050, offshore wind capacity in the UK’s part of the North Sea is likely to increase tenfold. Both sides have recognised that, to make the most of the North Sea, they need to work together on offshore wind projects and offshore electricity grids.

When it’s windy in the UK, we can export our excess electricity to Norway, Denmark, the Netherlands, Belgium and France. Whereas on cold, still days, we will increasingly import electricity from the continent. This mutual cooperation directly reduces electricity bills by making the most of cheap renewable energy when it’s available.

From January 2021, Great Britain will no longer have access to the automated ‘market coupling’ system that improves the efficiency of trading electricity. However, the deal aims to develop a new system for trading electricity by 2022. In the meantime, electricity bills are likely to rise in both the UK and the EU. Any cost rises will be manageable, but the biggest effect could be felt by customers in Ireland and Northern Ireland, because the Single Electricity Market (which covers ROI and NI) is small and only interconnected to Great Britain.

The Deal also leaves open the possibility of cooperation on carbon pricing. For now, the UK is setting up its own Emission Trading Scheme (ETS) to replace the EU ETS. Longer-term, the UK and the EU could link these Emissions Trading Schemes, as Switzerland has done with the EU. As we’ve previously written, the UK and the EU should also explore cooperation on carbon border pricing, which is critical to decarbonising heavy industry without offshoring manufacturing jobs to countries with higher carbon emissions.

On electric vehicles, the UK and the EU have agreed transitional arrangements that will make it easier for EVs manufactured in the UK to qualify for tariff-free exports to the EU. This is a sensible step that will give UK car manufacturers more time to build up their supply chains for EVs, including battery “gigafactories”.

Under this deal, the UK Government regains control over regulation of emissions from vehicles. This will give the Government more freedom to go further and faster on the rollout of Electric Vehicles, including the ability to legislate to ban the sale of new petrol and diesel cars by 2030, which was announced as part of the Prime Minister’s ten-point plan for a Green Industrial Revolution. We have previously written about how a California-style Zero-Emission Vehicle Mandate (‘ZEV Mandate’) can reduce the cost of the transition to zero-emission vehicles powered by electricity or hydrogen. Under a ZEV Mandate, manufacturers would be required to sell an increasing proportion of electric and hydrogen vehicles each year. Next year’s Green Paper on the petrol and diesel phase-out is the perfect opportunity for the Government to introduce a ZEV mandate and show how we can use new-found regulatory freedom to boost both the environment and industry.

In summary, it’s a good deal, but there’s still work to be done to develop collaborative partnerships on energy systems and environmental protection. From liberal energy markets to legislating on net zero, both parties have been close for decades. The key now is to implement these provisions as smoothly as possible so that we can continue to trade with increasingly sustainable industries on both sides.

This is the fourth in a series of pieces from Policy Exchange looking at specific issues that arise from the Brexit trade deal.

John Redwood: Why we would be better off with No Deal

14 Dec

Sir John Redwood is MP for Wokingham, and is a former Secretary of State for Wales.

No Deal would be a good outcome for the UK. It would mean that we take back control of our borders, our money, our laws and our fish, as promised by the Leave campaign. The deals on offer from the EU fall well short of improving on No Deal.

It wants to continue overfishing our seas with its huge industrial trawlers. It wants to control our law making in all areas related in any way to business and trade. It wants its court to adjudicate disputes between us – in a clear violation of usual international practice, in which an impartial arbitrator is used, or the two sides need to argue matters through to agreement. Its every word and action signals that it does not wish to accept the fact that we have voted to be an independent country, and intend to be one.

When Theresa May with senior civil servants foolishly sought to recreate many of the features of our EU membership under the cover of a so-called comprehensive partnership, the EU made it impossible for her. If we just wanted a free trade agreement like Canada or Japan, that seemed to be on offer.

Once a new UK government offered to do just, that the EU decided to impede and prevent it, and to pretend the UK still really wanted special access to the Single Market which in turn required subservience to its laws.

There was little good faith in trying to implement the Political Agreement by the EU, given that it said that a free trade agreement would lie at the heart of a new relationship between the EU and the UK. The EU has always behaved with discipline and severity in its negotiating stance, assuming that it can have its cake and eat it. It has repeated its mantra that you cannot have access to the Single Market without accepting many limitations on your freedoms.

This of course is simply not true for the rest of the world, which trades with the EU without having to obey its laws. In every other case, the EU accepts mutual respect for World Trade Organisation rules. The EU as a member of the WTO accepts its disputes resolution. The EU has a history of some violations of WTO rules with penalties – as with subsidies to Airbus.

I was asked to give many speeches during the EU referendum campaign to business audiences. I always said No Deal was the only outcome we could guarantee. It was an outcome which would give a good answer for the UK, achieving all our aims to be independent. On the past economic evidence, I expected a No Deal Brexit to offer us a small boost to GDP if we used the new freedoms well.

I used to go on to say it would be very easy – if there was political will – to add a free trade agreement on top of No deal, which would be beneficial to both sides. In most free trade deals, there are delays and problems with each side wishing to defend a tariff here and a non-tariff barrier there.

In the case of the UK and EU, we start from a position where there are no tariffs and no untowards barriers to goods trade, so it would just be a question of rolling over what we have.  I also sometimes added that some thought the EU would not behave well or want to do that.

In that event, surely it shows how right we are to leave if our EU neighbours, friends and allies behave in such a silly way towards us, to the point of hurting their own access to our own lucrative market. To the EU, the UK has indeed been Treasure Island. It has taken large payments from us in the form of our net contributions to the EU, and has ru a huge surplus on goods and food trade through tariff-free entry.

The Prime Minister has been clear and right in saying we will leave the Single Market and Customs Union. We want our own international trade policy, and will be a more powerful and consistent voice for freer trade than the EU. To do this, we need to have full control of all matters relating to trade and business.

The Single Market has been damaging to the UK overall. In our first decade in the Common Market, as it was then erroneously called, we lost half our motor manufacturing capacity as tariffs were removed. Over the years, we have seen the loss of most of our steel industry and aluminium output, serial damage to textile and ceramic manufacture, the mass closure of foundries and the break up and contraction of our chemical industry.  Our market share in temperate food production has fallen sharply, and we have gone from being a net exporter of fish to a shrunken industry, with consumers reliant on imports for much of our demand.

EU grants and subsidies have bid some business investment away from the UK. EU rules have often been based around the needs and methods of large-scale continental producers at the expense of our firms. The EU has failed to negotiate trade deals at all with two of our largest trading partners, the USA and China, and has not bothered about proper service sector access in other deals, despite the UK’s strong position in many service areas.

Our average growth rate was faster before entry into the Common Market post-war than during the years of Common market membership, which in turn was faster than our average growth rate in the years which followed 1992 and the so-called completion of the Single Market.

The UK establishment has never been willing to analyse the data and understand what was truly happening. It visited upon us the disaster of the Exchange Rate Mechanism, whose predictable impact caused a major recession at the very point there was meant to be a boost from completing the Single Market.

So how can now use our freedoms as we leave with No Deal, assuming there is no last-minute wish to be sensible by the EU and agree a free trade deal?   We should be up and running with tax cuts – at last, we can take VAT off all those green products from insulation to boiler controls the EU insists on.

We can lift tariffs from South African oranges and other tropical fruit and food that we cannot grow for ourselves. We should pursue our offer to the USA of removing EU retaliatory tariffs on its goods if it will drop their tariff on Scotch whisky, which was an unwelcome hit from an EU trade spat.

We should set up freeports and enterprise zones to marshal new investment and make more in the UK. We should reorient farm subsidies to slash the food miles, and grow more of our own salads, fruits,and vegetables. We should land more of our fish at home, and add fish processing to create meals and products that we want to eat or which we can export.

We should put in more electricity capacity, and end our growing dependence on imported EU power. As the Government encourages the planting of many more trees, we should ensure more sustainable forestry to cut the massive timber imports.

These are all good economic reasons to press for the No Deal Brexit. The best reason of all is to be free, living in an independent country. I want to help pass on a country that is self-governing – a beacon for democracy.  Brexit means taking back control of our laws, our borders and our money. That way we will be better governed. If any given government lets us down we can sack it, and get the answer we want from another. That is something we can never do as members of the  EU. They give us the laws and we do not control the government.

Neil O’Brien: The plans we must make now to ensure that our ship doesn’t hit the rocks

16 Nov

Neil O’Brien is MP for Harborough.

I’ve been thinking about endurance. HMS Endurance specifically. It was a little ship the Royal Navy used to send down to the South Atlantic.

A friend used to serve on it, and I’m haunted by his description of life out on a tiny ship in some of the world’s roughest seas: the vast winds that endlessly circle Antarctica, with no land anywhere to slow them; the huge waves down in Drake Passage, with the green water coming over the bow and even hitting the bridge; and of wondering whether the ship would be broken by the sheer power of the ocean.

A bit after he was on it, the ship nearly sank following an accident. It filled up with freezing water, and with all power lost, amid a gathering storm, it started drifting towards the rocks. The crew spent 24 hours fighting for their lives: bailing out the ship by hand, and eventually escaped from a gathering hurricane in the nick of time. While the story of how they survived is an inspiring one – the account of the mistakes that were made that led to the accident in the first place is an informative one.

As so often with disasters, the warnings were all there: the wrong sort of ship; no proper maintenance; too many key staff absent; major problems with the culture…

As with so many disasters, in retrospect the warning signs were all there.

One of the great arts in politics is to see the problems and the big choices coming, so that you can solve them before the ship starts sinking. 2021 is shaping up to be a year where we make some very big choices that will define the coming years.

And I what I really want is readers’ views on what the big choices are. But let me start with my own mental list for later next year.

Let’s assume for a moment that we have come out of the other side of Coronavirus and Brexit. It’s 2021, the vaccine is rolling out, the virus is dying out, the economy is recovering. Still a long way to go, I know. But what will happen then? I think there are four really big choices:

First, the big fiscal choice. At present the focus is rightly on helping support the economy until we get into sustained recovery. But it seems likely there will be some kind of structural deficit afterwards, because the economy will be behind where we hoped it would be. We won’t know how big or small the deficit will be for quite a while. It may be small enough that we can take some time. Or so big that we can’t. So we may face some big choices on (a) how fast to try to close any gap, and (b) what mix of tax and spending decisions to use to fix it.

The second choice is our plan for growth. Western countries have had a rough decade, and some economists worry about “secular stagnation”. How do we get the economy moving faster? How can the tax system better support investment and innovation? How can we change the composition of government spending on research to better support business growth? How attract more inward investment in higher skill, higher tech, higher wage industries?

Third, we face big choices about the future of the UK. The Scottish Parliament elections on 6 May may herald a dramatic new phase in the debate. The bookies (though they’ve been wrong before) give the SNP a 95 per cent chance of being the largest party and a 66 per cent chance of an outright majority, either of which they would use to rev up their demands for another referendum. The breakup of Britain would lead to a decade or more of catastrophic paralysis. Years of arguments over currencies, pensions, debts, mortgages and state assets. Officials working to unpick hundreds of years worth of stitching. All parts of the UK would suffer economically, and it would make the Brexit rows of 2016-2019 look like a walk in the park. Yet even with the virus raging, the SNP are preparing to go into overdrive to force a second referendum. An equally strong campaign will be needed to fight back. How do we fight it?

The fourth big choice is about the levelling up agenda: and how far and how fast we can go. The lead times on getting things done can be daunting. For example: in 2014/15 we decided to phase out rubbish “pacer” trains in the north. But last won’t leave service in the north until next month. We need policies which will genuinely help poorer places catch up, but also need to show significant progress by 2024.

Then there’s all the other things.

Decisions to take about the future of devolution and local government in England, with a White Paper out in the spring.

There’s a second year of tough decisions to take on school exams. The Welsh government has already cancelled next year’s exams. Assuming we can still hold them in England, there are unavoidable choices on how to mark them. Given the disruption to schooling, mock results will likely be worse, but not evenly so across different types of schools – for example, the crisis has affected state and private schools very differently. So how do universities assess potential? And should we measure pupils against each other with the same distribution of grades as earlier years? Or maintain comparison with previous years, which would likely see grades drop across the board?

There’s a long-expected decision to take on universities. Do we keep the current system? Or build up technical education, and try to reduce the number of students on low value university courses which lead to low earnings while consuming lots of taxpayer subsidy?

At the start of November next year, the UK will host the UN Climate Change Conference in Glasgow. There are big choices to make about how and how fast to pursue decarbonisation at home, and lots of questions about what the UK should be pushing for at the conference.

MPs voted for net zero, but massive questions about how to do it remain open. Are we aiming for heat for people’s homes to come from electricity in future, or by pumping hydrogen through the current gas grid? If more and more vehicles will be electric, what mix of (and how much) electricity production are we aiming for?

Then there’s big questions in foreign and security policy. The Integrated Review is due out, which (sensibly) combines the questions of our future defence and security spending with questions of economic security – given a world where we face ruthless technology competition, not least from China.

But there are other big security questions: France is suffering a wave of brutal Islamist terror attacks – is there more we need to do to pre-empt such atrocities here? The Prime Minister and President-Elect Joe Biden have both floated new ways to get the world’s democracies working together, including those like India and Japan that are outside NATO. Can something new be brought together?

These are just my starters for ten – so readers, it’s over to you. What are the biggest choices? What are the problems that we have to get ahead of to keep this ship afloat?

Robert Sutton: Conservatives have abandoned free market principles in the quest for environmentalism

27 Oct

Rob Sutton is an incoming junior doctor in Wales and a former Parliamentary staffer. He is a recent graduate of the University of Oxford Medical School.

A trend over the last decade in British politics has been a convergence of the major political parties towards near-consensus on environmental issues. Their thesis is that our current economic system will lead us towards environmental catastrophe; that the only way to avoid such catastrophe is radical innovation of that economic system; and that it must be the Government which leads this radical innovation.

Despite the impression given by media coverage and the doomsayers of the Twittersphere, these clauses are neither internally undisputed nor natural consequences of each other. Global warming is a generally accepted phenomenon, with a strong empirical basis in historic climate data and a convincing theoretical basis in our understanding of the physical chemistry of the atmosphere.

What is much less well understood is the future trajectory, the range of possible outcomes, and what policy positions might be inferred from those uncertain outcomes (for those unclear about the distinction between scientific models and reality, the current pandemic has given us some important lessons.)

That has not halted the political convergence on the necessity for urgent action. But for the Conservatives, the adoption of the rhetoric of climate catastrophism and the unquestioning call for an eco-friendly planned economy puts us in an internal ideological conflict with one of our most valued principles: that no central economic control can outperform the efficiency of the free market in exchanging resources, maximising returns on labour and assigning value to products and services. Government interventions invariably introduce inefficiencies. The best way to encourage innovation is for governments to cut regulations and generally stay out of the way.

Yet this principle seems to have taken a back seat as the proclamations of the most pessimistic of environmental oracles dominates the policy conversation. The proposals suggested in the 2019 Conservative manifesto pointed towards an economic intervention of a scale not attempted by any government since the Second World War. There is an assumption that the principle of the free market is flexible if the goal of the economic intervention is sufficiently noble.

One red flag was the apparent interchangeability of the major parties in their pledges for the 2019 general election. The Conservatives stood for “reaching Net Zero by 2050 with investment in clean energy solutions and green infrastructure to reduce carbon emissions and pollution” and “investing in R&D; decarbonisation schemes; new flood defences…; electric vehicle infrastructure…; and clean energy.” These enormous government spending plans were proposed despite the simultaneous claim that “we believe that free markets, innovation and prosperity can protect the planet.”

Labour had similar prescriptions: “More rewarding, well-paid jobs, lower energy bills and whole new industries to revive parts of our country,” while scalding Conservatives for “leav[ing] the fate of whole industries and communities at the mercy of market forces.” The Liberal Democrats predictably followed suit, but with the added promises to plant over 100 trees per minute for the foreseeable future and an entirely unenforceable “legally binding target” on emissions for future parliaments to promptly ignore.

None of these proposals recognises the true economic or human impact of such an artificial remodelling of our entire society. Nor have they provided concrete plans for how these radical transitions might be carried out (with job losses being strategically ignored.) And those new jobs which are flaunted are unlikely to be efficient or self-sustaining. Once government support is pulled, they have a habit of promptly drying up as the reality of weak demand sets in.

The Government has a moral obligation to take sensible steps to build a regulatory environment which supports the protection of our natural one. But there is no amount of cutting red tape which will make buying a Tesla instantly affordable to the masses or will allow electric vehicle charging points to pop up on every street corner overnight. The mass repurposing of territory for solar, wind and hydroelectric requires that land be taken from someone and kept for the foreseeable future.

These barriers cannot be lowered quickly through deregulation alone. There are considerable economic, technological and logistical problems. However much some argue for state intervention on an unprecedented scale to rebuild our economy as an eco-friendly arcadia, there is no way this can be done on a short time-scale without great pain and waste. The bloat of a government attempting to rebuild our entire economic machine in an idealist vision would be horrifying to anyone calling themselves a fiscal conservative.

Green conservatism’s flaws are tied to the ideological fragility of one-nationism. In trying to be all things to all people, we have sacrificed free market economics at the altar of environmental catastrophism. We have abandoned a basic principle of our ideology for a policy position which has yet to be clearly articulated. To embrace the radical goals of the environmental lobby would require imposing further market distortions at a time when the economy is already haemorrhaging from the self-inflicted wounds of the Government’s severe and unremitting Coronavirus response.

The current government has struggled to articulate a positive vision for environmental policy. As such, we are forced to act as a brake on the radical proposals of left-wing organisations who have the media and public rapt, slowing the movement but inevitably drawn in their direction.

Conservatism is about more than tempering the madness of the left. We need an honest and consistent position on this most pressing of policy issues. Facing up to the absurdity of our current inter-party arms race to see who can come up with the boldest pledge to save the planet would be a good place to start. Net zero by 2050 sounds nice but is conveniently beyond reproach or scrutiny for at least the next six parliamentary terms.

A transition to a low-carbon economy will happen at some point. The limit to the reserves of fossil fuels necessitates this. But it must happen organically. Using state aid to drive the transition is incompatible with innovation. The British automotive industry of the 1970s was an example of the stagnation which occurs when a government permits market distortions in order to achieve political means: the workers, consumers and companies each suffer.

Some would argue that the dichotomy between environmentally-motivated economic intervention and free markets is a false one and that we can, in some unspecified way, have our cake and eat it too. This implies a flexible understanding of at least one of these principles. Conservatives should advocate for a realistic and distinct stance on environmentalism, and one which does not require the sacrifice of our key principles.

Robert Halfon: We should be pro-private enterprise, anti-mega corporates. How have we allowed these to plunder the taxpayer again and again?

21 Oct

Robert Halfon is MP for Harlow, a former Conservative Party Deputy Chairman, Chair of the Education Select Committee and President of Conservative Workers and Trade Unionists.

Lessons from New Zealand

The re-election of Jacinda Ardern, winning an overall majority and so overcoming New Zealand’s complex proportional representation system, shows that, even in the age of centre-right populism, there is a route back for social democracy.

It could be that alongside her emotional intelligence, which she displays in abundance, in this new Covid era, what voters yearn for is competence and security. A feeling of safety first.  With both her handling of the terrorist atrocity in 2019, and her extraordinary success in dealing with the virus, is it any surprise that voters have given this remarkable politician the thumbs up?

No doubt our own Labour Party will be trying to pull off the same trick here, as will many other centre-left parties around the world. Conservatives should be doing everything possible to learn from her victory and thus forestalling the same thing happening over here.

If Joe Biden wins the US Election in two weeks time, it could just signal that the pendulum is swinging leftwards once more. If Trump gets an unexpected victory, then perhaps Ardern’s result will be seen as a swim against the tide.

The Corporatist State

I am as pro-genuine private enterprise as most Conservatives. But I don’t understand why our governments never get to grips with the mega-corporatist state.

How it is that we have allowed, time and time again, big corporations to plunder the taxpayer – whether it be through failed procurements, or permitting ginormous consultancies to charge £7,000 a day for their services in terms of track and trace.

Why is it that a noble £85 million laptop computer procurement programme for disadvantaged pupils, announced by the Department for Education in the height of lockdown, took months to deliver – by the time many children were already back to school? A school in my Harlow constituency told me they had only received the laptops recently, whilst others had arrived without the relevant logins et al. Would a better option not be to just give schools vouchers, after negotiating a good deal with Currys and Asda etc, and allow the teachers to purchase the computers themselves?

Of course, I appreciate this is a national emergency, which perhaps makes these vast sums going to consultancies more understandable. But, somehow, it seems pretty grim that the businesses profiting most from Covid-19 are these mega-corps consultancies.

Moreover, it is not as if these issues started in the pandemic.  It has gone on for some time, and books have been written about the monies these consultants make and the failed procurement schemes that lay in their wake,

The left, naturally, describe all this as ‘vulture capitalism’ – but this is as far removed from genuine capitalism as it is possible to be. Capitalism is about the free exchange of goods and services and fair competition.  The corporatist state is neither. Some of these companies are so big and intertwined with government departments that they become indistinguishable from the government departments themselves.

In the reform of Whitehall that Number 10 is currently planning, perhaps the wisest maxim might be “small is beautiful”.

Taking back control of VAT

Whether we leave with or without a deal by the end of the year, one of the key arguments for Brexit was that we took back control over our taxes.

Indeed in May 2016, during the EU Referendum campaign, both Boris Johnson and Michael Gove said that energy bills would be lower because EU rules meant that Britain could not take VAT off those bills. In The Sun, they wrote:

“The least wealthy are hit particularly hard. The poorest households spend three times more of their income on household energy bills than the richest households spend. As long as we are in the EU, we are not allowed to cut this tax.”

Both were absolutely right. Now we need to live up to that pledge by reducing the five per cent VAT rate for energy bills, and cutting the cost of living for millions. The Brexit dividend must mean cuts to the cost of living.

In a question to the Prime Minister in the House of Commons on this last October, I asked:

“In Harlow, we have already seen the NHS Brexit dividend, with a brand new hospital. The people of Harlow will feel that those who vote against this excellent deal really just want to stop Brexit completely. Will my right hon. Friend confirm that, once we do the deal and leave the EU, we will gain control of our tax rates and be able to reduce VAT and energy bills for our hard-working constituents?”

The Prime Minister replied:

“Yes. Not only will we be able to reduce VAT in the UK, but we will be able to do it in Northern Ireland as well.”