UKIP and Grammar Schools

UKIP comes to the issue of grammar schools not from a position of ideology but from a belief in local democracy. In general where a decision can be made at a local level which will not adversely affect citizens living outside its boundaries then it should be. You don’t need uniformity across the land on such issues, which generally speaking are value-judgemental rather than technical. Let there be a multiplicity of choices and the comparison in outcomes will help to inform everyone. Other examples are fox hunting and the slaughter of halal meat. The geographical area will depend on how a community defines itself for the purpose, and can range from national (within the UK) to sub post-code. In addition we should perhaps think of allowing those outside such a boundary to challenge a decision in the courts if they think they themselves would be significantly adversely affected. If such an opt-out system had been in place in the EU then perhaps it might not have got itself into such a mess!

This however does not address the problem of the 11 plus. I myself failed my 11 plus all those years ago, yet went on to gain an honours degree in physics from Edinburgh University and to qualify as a Chartered Accountant with one of the big city firms. I am therefore among the foremost to say that you cannot judge a child’s potential at the age of eleven. Many otherwise bright children are at that age distracted by problems at home or other emotional issues which they then go on to solve or simply grow out of. I was lucky in having an independent school education, so it didn’t matter.

But the system was never designed to be like that. In theory you could move up to grammar school through the 13 plus or at O level or GCSE. The fact that this rarely happened was that the secondary modern schools were rubbish. They were not properly funded, managed or monitored, and made no effort to prepare the children for those exams. It need not be like that.

I propose that where a county or other community chooses a two tier system, then the lower tier schools should be given larger budgets per child. Maybe as much as 10% or even more. It is much more challenging to teach a slower child than a bright one. The latter pretty much teach themselves once you point them in the right direction, whereas less able or distracted children need more discipline in smaller class sizes, more one-to-one support, more pastoral care, different teaching methods and above all teachers with a much greater spread and depth of ability. These things are expensive and must be provided.

Ah, you will say, so where is the money coming from? Here I refer you to my proposal for a National Credit Card which would enable any citizen to access essential services from the private sector on a means-tested basis if they so wish. Using this, I propose charging the parents of grammar school children a proportion, perhaps 50%, of the school’s actual budget for their child. As most such parents are quite well off this will bring in a substantial income whilst not penalising the poorer parents. It will also sharpen up some of our grammar schools which are not perhaps quite as sharp as they should be!

Of course we must also guard against the type of mismanagement that occurred in the past. All state schools must be managed through a national schools agency along the lines set out in my earlier post entitled The Management of our Public Services.

Bright children will by and large end up on their feet one way or another.  The less able children will not. They will end up as ‘NEET’s and a burden to both themselves and to society as a whole. It is worth making the effort to give them the attention they need through schools specially designed for the purpose, and better for them than comprehensives, for all our sakes.

Do I believe in Free Trade?

The almost universally held and unquestioned belief in free trade, that is trade unhindered by either blockade or tariffs, is generally attributed to the classical economist David Ricardo, who included a chapter on Foreign Trade in his famous book The Principles of Political Economy and Taxation published in 1817. The modern mantra holds that free trade drives investment, productivity and economic growth through increased competition from imports.

Allowing for the fact that Ricardo was writing before modern terms such as ‘value added’, ‘productivity’, ‘money supply’ or ‘GDP’ were introduced, he in fact makes no mention of this effect at all! His only mention of productivity comes when he is examining the effect on the economies of two countries engaged in balanced trade when one finds a more efficient method of production. The result is a trade surplus by that country resulting in an increased money supply, which in turn creates inflation, which in turn rebalances the trade by attracting more imports. In his argument the productivity increase is the cause of increased competition, not the result of it. He also notes the benefits of specialisation, where different countries have different natural advantages in the production of certain goods, but makes no suggestion that these advantages are anything other than fixed. That is all.

Ricardo wrote at a time when most money was fixed in the form of precious metals and thus before the advent of floating exchange rates and mega currency capital flows. His arguments preclude the possibility of the sort of structural trade imbalances we see today.

Of course there are numerous papers to be found on the internet and elsewhere arguing that free trade enhances economic growth. Invariably the writer will point to periods of economic growth, such as the post-war decades or the decade following the exit from the ERM, and notes the coincidence with an expansion in free trade. Closer inspection however reveals plenty of alternative possible causes, such as peace, reconstruction, stability and devaluation. So the logic is by no means conclusive.

I am well aware also of the classical arguments around specialisation and economies of scale. However these have now been superseded by globalisation and the advent of off-shoring. Richard Baldwin, author of “The Great Convergence: Information Technology and the New Globalisation”, gives the example of the Canadian company Bombardier that transferred the production of aircraft tails from Quebec to Mexico. He says “The ICT revolution made it feasible for rich-nation firms to leverage their knowledge with low-wage workers abroad. Bombardier can now use its know-how to make aircraft tails with Mexican manufacturing engineers who only get $60 a day instead of Canadian engineers on $35 an hour. The ability of, for example, Canadian firms to take their knowledge elsewhere means that what is good for Bombardier may not be good for Canada.” He could have added that these multinational companies also off-shore their profits, so their host nations no longer even get a share of those profits though tax.

A related perspective comes from Mariana Mazzucato, author of “The Entrepreneurial State”, who gives a detailed account of how almost all the significant technological breakthroughs of the last seventy years, including the internet, Microsoft’s Windows, Apple’s smart-phones and Google’s search algorithm to name but a few, have their genesis in state-funded research. The private sector only became involved when the uncertainties were considerably reduced, and venture capitalists when the product was almost ready to bring to market. They then made billions for themselves from IPO’s and share buy-backs, all off-shored or reduced by favourable capital gains tax regimes negotiated on the bogus claim that they are taking the enormous risks necessary to promote innovation. The result has been that none of those profits were either returned to the state or reinvested in new research.

What we are seeing now is not so much the creation of new wealth but a massive transfer of existing wealth to third world countries as a result of globalisation and unbalanced free trade. Of course it is wonderful that we can now anticipate the ending of global food poverty by 2030, but let us not kid ourselves that most of this is not at the expense of the first-world working classes. The “I’m all right, Jack” Remainian middle-class establishment has of course protected itself with a widening pay gap, leaving the burden to be carried just by the lower income groups, and they are now fed up with both the burden and the injustice of it.

Now it is not my purpose to offer conclusive evidence or the results of research but, like the established view, rely on logic and what stands to reason. The disadvantage is that logic alone does not give any measure of the factors examined. For example, it would be logical to suppose that the law of diminishing returns applies to the competitive benefits of each 1% marginal increase in imports. With UK imports running at close on 35% of GDP it would be reasonable to assume that any competitive effect comes from the established 35% rather than from any marginal increase. It might also be reasonable to conclude that the effects of specialisation are also much diminished anyway given that most countries are now industrialising and that even England can produce wine! Any given new free trade agreement is likely to have only a one-off step benefit rather than provide the ongoing growth such as we get from innovation.

So my purpose rather is to examine whether such benefits are greater or less than the damage caused by structural trade deficits, and consequently our policy towards the use of import tariffs. This issue is of critical importance at present for three reasons:

(1)  it affects our approach to negotiating our disengagement from the EU, and

(2)  it affects how we tackle the outstanding imbalances which still threaten world economic and banking stability.

(3)  it highlights the damage that free-trade fanaticism can cause.

Brexit has given us the benefit of a 10% devaluation, which should go some way toward reducing our record trade deficit, now in excess of 5% of GDP. But devaluation will almost certainly not do the whole job. The danger is that Mrs. May’s government will not now impose the maximum trade tariffs on the EU’s exports to us. We will still have to pay around 4.3% on average in tariffs on our exports to them, which we can easily afford following the devaluation, so a balanced position maintaining the status quo demands we should charge the same to them. Failure to do so will not only worsen our deficit, it will also throw away some £25bn of potential import tariff revenues; money we desperately need to plug our fiscal deficit.

Even suppose some free trade deal were to be agreed with the EU prior to the completion of the Article 50 transition period, and even suppose this were balanced in each sides’ interests, the result would be higher imports and exports but no reduction in the deficit and the loss of the tariff revenues. Indeed the deficit would increase in proportion. As we start with a deficit, any FTA will only make it worse – the very opposite of what we want. And of course in the short term any increase in imports destroys jobs just as rapidly as exports create them, so we would have thrown away the import tariff revenues for nothing.

The only way we could get any advantage out of an agreement with the EU would be if it were unbalanced in our favour. That’s most unlikely to happen, particularly in view of the EU’s desire to maintain free movement of peoples. In other words they want to skew it in their favour! Forget it, we will be better off without- the WTO option is the best option. And of course there is no prospect of any sort of new Napoleonic blockade. That would be illegal under WTO rules. All we are talking about here is tariffs. Interesting how the Remain camp use the term ‘access’ to the single market to imply a blockade! Much the same applies to the term ‘free movement of people’. The vast majority will be able to come and go with just a visa, probably obtainable online! The problem only arises if they overstay that visa, and with online identification of over-stayers that should be manageable too. The important line must be drawn at citizenship and permanent leave to remain.

At present the rest of the world pays these tariffs to Brussels, but after Brexit the danger is they would receive the benefit of a reduction in tariffs they pay with no counterbalancing advantage to the UK. That would be a disaster. If we charge the same tariffs and then simply divert them from Brussels to London the rest of the world will not notice any difference and we will gain the revenues. There is no sign that Mrs. May’s government understands this.

But this debate must considered in the light of the importance of eliminating our trade deficit; something we have given almost no priority to in the past. Lord King (previously Mervyn King, Governor of the Bank of England from 2003 to 2013) has just published a fascinating and very readable book entitled “The End of Alchemy, in which he not only proposes a new approach to bank regulation but also traces the cause of both the banking crisis and our deterioration standards of living back to the massive global trade imbalances that developed after the fall of the Berlin Wall. He makes it very clear that we must take trade deficits far more seriously than we have done in the past. Here is an extract:

“Since the early 1990’s, long-term interest rates have fallen sharply, and this has had enormous implications for all our economies. Countries such as the United States, United Kingdom and some others in Europe were faced with what were in effect structural trade deficits. Those deficits – an excess of imports over exports – amounted to a continuing drag on demand. So in order to ensure that total demand – domestic demand minus the trade deficit – matched the capacity of their economies to produce, central banks in the deficit countries cut their official interest rates in order to boost domestic demand. That created an imbalance within those countries with spending too high relative to current and prospective incomes. In countries with trade surpluses such as China and Germany, spending was too low relative to likely future incomes [so they did the same – Ed.]. And the imbalance between countries – large trade surpluses and deficits – continued.

All this reinforced the determination of central banks to maintain extraordinarily low interest rates. Monetary stimulus via low interest rates works largely by giving incentives to bring forward spending from the future to the present. But this is a short-term effect. After a time tomorrow becomes today. Then we have to repeat the exercise and bring forward spending from the new tomorrow to the new today. As time passes we will be digging larger and larger holes in future demand. The result is a self-reinforcing path of weak growth in the economy. What started as an intentional savings glut has become a major disequilibrium in the world economy. This creates an enormous challenge for monetary policy. Central banks are, in effect, like cyclists pedalling up an ever steeper hill. They have to inject more and more monetary stimulus in order to maintain the same rate of growth of aggregate spending.

Before the crisis, many thought that the Great Stability could continue indefinitely and failed to understand that it could not.  Their credulity was understandable. After all, GDP as a whole was evolving on a steady path, with growth around historical average rates, and low and stable inflation. But the imbalance in the pattern of spending and saving was far from sustainable, and was leading to the build-up of large stocks of debts. Bad investments were made, encouraged by low real interest rates. The crisis revealed that much of that misplaced investment – residential housing in the United States, Ireland and Spain; commercial property in Britain- was unprofitable, producing losses for borrowers and lenders alike. The impact of the crisis was to make debtors and creditors – households, companies and governments – uncomfortably aware that their previous spending paths had been based on unrealistic assessments of future long-term incomes. So they reduced spending. And central banks then had to cut interest rates yet again to bring more spending forward from the future to the present, and to create more money by purchasing large quantities of assets from the private sector – the practice known as unconventional monetary policy or quantitative easing (QE). There is in fact nothing unconventional about such a practice – so-called QE was long regarded as a standard tool of monetary policy – but the scale on which it has been implemented is unprecedented. Even so, it has become more and more difficult to persuade households and businesses to bring forward once again from an even bleaker future.  After a point, monetary policy confronts diminishing returns. We have reached that point.”

In other words the imbalances have not gone away. He could have added that we will see a massive increase in unemployment if we cannot eliminate the trade deficit, and that Brexit provides the only opportunity to do so. Indeed we are not just talking about trade imbalances but also about fiscal deficits and unrepayable national debts, as well as the low interest rate, low growth scenario itself. An increase in interest rates would encourage savings which would flow into investments and new technology, thereby increasing productivity and economic growth, but this won’t happen until the imbalances are eradicated. It’s not that the new technology is not there; just that it is not being used. In addition there are also severe imbalances in some particular markets within the UK, such as housing, steel and executive salaries, which also pose a threat to future growth and stability.

After reading such an interesting account of the problems we face, including Lord King’s ideas on the future of bank regulation – an approach he calls the “Pawnbroker for All Seasons”, being a continuous replacement for the crisis-driven “Lender of Last Resort” policy first described by Walter Bagehot – I have to say I came down with a bump during his last chapter, entitled “The Audacity of Pessimism”. It is here he gives his prescription for dealing with these outstanding economic challenges. He has three recommendations, and I add my comments against each one as follows:-

(1) To enhance productivity in all ways possible. Comment: All in favour of course, but surely all countries around the world will be doing exactly the same thing, so the chances of the UK or other deficit countries stealing a permanent structural march on all the others seem most unlikely to me.

(2) To extend free trade wherever possible, including TTIP. Comment: See above – surely a series of balanced trade deals will leave the opening imbalances unchanged or even magnified. This after all is why the Doha round collapsed.

(3) Return to freely floating exchange rates. Comment: I assume he is referring to an end to the eurozone here. And the best of luck with that one M’Lud! Can’t see it happening myself, and anyway it is not within our gift, though I appreciate he is stressing the need for action at international level to avoid what he calls the prisoner’s dilemma.


So what is my prescription then? I offer the following ten recommendations, many of which the UK can pursue unilaterally:-

(1) To set up a UK Sovereign Wealth Fund while interest rates are still on the floor to hedge our national debt, future unfunded pension liabilities and urgent infrastructure improvements. Regular readers will know I have recommended this idea on numerous occasions, for example under my post on Pensions, but the particular relevance here is that

(a) The investment of a large part of this fund overseas will make the pound more competitive,

(b) The building up of the fund will increase the national savings rate, and hence investment and economic growth,

(c) The knowledge that the debt is ultimately covered means we can take a much more flexible and cyclical approach to the fiscal deficit today, concentrating on recovery now and leaving austerity until the recovery has accelerated too far.

(2) To take advantage of Brexit to set up maximum import tariffs for the UK to minimise our own trade deficit thereby enabling us the start raising interest rates and economic growth, and to help finance our fiscal deficit (again, see above).

(3) To pursue internationally a global import tariff regime designed to counter global trade imbalances (see my earlier post on Greece, the Eurozone and World Trade). The maximum tariff rates would be set for each country by the WTO in relation both to the size of their trade deficits and to the size of any defaulted sovereign foreign currency debt (see next). Also encourage a global corporation tax regime whereby tax is levied on global profits apportioned to national/global turnover. Only the profits would be reallocated centrally, leaving each country to apply it’s own rate of tax. Start in the UK anyway!

(4) To allow internationally insolvent countries to carry forward their defaulted debt on an interest-free basis. To haircut capital balances on the other hand would surely lead to contagion across the whole banking system.  Such debts would have priory for repayment if and when the country returned to trade surplus.

(5) Rigorously control our borders so that businesses can no longer take the easy way out by importing cheap staff instead of training up our school leavers or investing in new technology. It will also end wage compression which was such a significant factor in the vote to leave the EU. Our objective must be balanced migration and well as balanced trade. Both are only available through Brexit. Richard Baldwin (see above) opines that controlling our borders will not stop firms from off-shoring, and that is probably true. But unless we do so we cannot stimulate demand and reduce unemployment through traditional Keynesian fiscal and monetary policies, as instead they will only suck in more immigrants. This is indeed is very apparent from current statistics; the indigenous unemployed are not benefiting. Keynes tells us that a balanced economy will create exactly the right number of jobs to meet the requirements of new entrants to the labour market. The fact that we are apparently now dependent on immigration is simply a reflection of these imbalances, including skills and regional imbalances, and over-stimulation of the economy as a result of political pressures.

(6) Set up a portfolio of Local Community Banks across the UK, either in the ownership of the Bank of England or allow independently, along the lines of the “Bank of Dave” in Bolton and those in Germany, to engage purely in taking in local medium to long-term deposits and lending to local businesses. It seems to me such banks could easily meet Lord King’s “Pawnbroker for All Seasons” test whereby effective liquid assets must always exceed effective liquid liabilities, and the effect, particularly in areas of higher unemployment, would help to reduce the regional disparities which were also a significant factor in the vote the leave the EU.

(7) Complete welfare reform along the lines set out in my earlier post here in order really to make work pay. The previous government introduced all sorts of sticks but no carrots. We need both, including a big increase in the UC earnings disregards in place of the duplicate tax credits system. Also introduce a separate self-assessed benefit for the self-employed which would only be continued on receipt of a monthly return of hours worked and income. Over-claims would attract a high rate of interest. This will give us a better indication of underemployment in this growing sector of the labour market and therefore a better indication of where we are in the economic cycle.

(8) Quarantine those UK markets which are themselves in disequilibrium, ie

(a) The housing market. Introduce macro prudential measures to limit the availability of mortgage finance so as to hold house prices level, or even slightly declining, post-code by post-code across the country. As well as creating stability this would

(i)   provide an additional string to the bow of regional policy,

(ii)  remove the expectation of property gains whereby the rich get richer by doing nothing,

(iii) reduce the danger of repossessions,

(iv) encourage property developers to build on and sell their land banks.

(b) The steel industry. Set tariff levels so that imports are no greater than the excess of domestic demand over 90% of domestic supply. Promote competition within the UK steel industry but limit profits with a cap, and restrict pay increases to those necessary to prevent a rise in staff turnover rates.

(c) Executive and professional employee pay. Introduce Cheapest Competent Candidate procedures, starting with the public sector and then by inclusion into company law. Also consider the introduction of Supervisory Boards for all public companies, comprising perhaps the six largest shareholders, three executives and the chairman, to ensure a shareholder veto over this and other strategic decisions. See this earlier post.

(9) Regional policy. Introduce a second personal allowance into the income tax system so that those living in areas of higher unemployment pay less tax on any given income that those living in areas of low unemployment. Adjust as you go along to achieve an even and stable level of percentage employment across the country. See this earlier post.

(10) Introduce a National Credit Card so that all citizens can choose between the public and private sectors for their ‘public’ services, both effectively free at the point of delivery, but with the latter on a means test applied after the event via the tax system. This can be introduced gradually by varying the means test gradient as supply rises to meet demand in the private sector, and will consequently both reduce the burden on the taxpayer and improve the efficiency and quality of the services provided in both sectors though competition. Working capital at 5% can be provided by the Sovereign Wealth Fund. See this earlier post.

In many respects a successful hard Brexit is very like victory at El Alamein, of which Churchill famously said “This is not the end of the war. It is not even the beginning of the end. But it may just be the end of the beginning”. Brexit merely provides the opportunity to avoid Armageddon. There will follow several years of hard graft before we can secure balanced trade and migration, during which we shall have to hold back on growth to prevent inflation. Let us never forget that the establishment almost entirely backed Halifax for Prime Minister in 1940. The Remainians won’t go quietly, but we shall fight them at the polls, we shall fight them in the press and in the media. We shall never give up!

The economic consequences of immigration.

Do we really want to carry on like this?

Chart image

This graph shows how the average real standard of living in the UK has changed over the last 25 years (GDP ÷ population and inflation). The figures are discounted by 0.5%pa for average technological productivity growth. You can see a peak in 2004, which was when the immigration floodgates opened. Many people argue that immigration is good for our economy, but that just doesn’t show up in the figures. Judge by results. Of course the banking crisis in 2008 made the fall greater, but that has now largely washed through, and anyway the index is down to below 100 by 2008.  Yet we are still 22.5% worse off than in 2004 (excluding productivity growth).

The index is set at 100 for 1991. If I had included 1990 the starting point would have been higher than 2004! The benefits of the 1992 ERM exit devaluation do show up quite clearly though.

There are clearly four principle factors involved here: productivity, immigration, the trade deficit with the EU (which exports jobs) and the banking crisis. I have tried to isolate the effect of immigration and the EU trade deficit by removing productivity by the admittedly rather crude expedient of assuming a constant rate of 0.5% per annum. It would in fact have been likely to have been higher before 2004 when investment was buoyant, and lower thereafter. I have not however so far found a way of removing the effect of the banking crisis, so the graph still shows the two effects combined. I shall have a look at levels of perhaps consumer borrowing as an indicator of the latter and edit this post shortly accordingly.

Economic Consequesnces of Brexit

Herewith another letter to the editor of the Sunday Telegraph. He didn’t print the last one, so lets hope for better luck with this one!

Dear Sir,

Stephen Crabb’s piece last week in which he predicted economic Armageddon if we left the EU is typical of the genre. He uncritically and selectively quotes reports by alleged experts without reproducing or testing any underlying arguments. There is no such thing as an infallible expert, and these people may well be more interested in covering their backsides than in pursuing the truth.

One thing that is near certain is that we will gain a devaluation on Brexit, just like the exit from the ERM in 1992. That delivered about 10% additional competitiveness and laid the foundations for twelve years of strong economic growth, culminating in our economy becoming the fourth largest in the world. You also reported last week that we have already gained 4% since the referendum announcement, and that the CBI is reporting an upturn in exports (although how that squares with the government’s latest report that unemployment is rising I will leave to your readers’ imagination; a useful opportunity to correct the figures?).

A 10% or more gain on devaluation is greater than on average any amount of tariffs the EU could throw at us. In other words we cannot lose, which means we do not need any new deal with the EU and that therefore the EU cannot prevent us from controlling our borders. The only uncertainty lies between gaining a little and gaining a lot.

We desperately need such an economic boost. It will not come from anywhere else. The export and import-substitution led recovery will increase demand, which will stimulate investment, which will introduce new technology, which will improve productivity, which will create economic growth, which will increase living standards. As in the 1990s it is a domino growth effect in which the first tile is now Brexit.

The truth is we cannot afford not to leave the European Union. He who dares wins.

Yours faithfully.

PS. Although the editor has again failed to publish this letter, Charles Moore, a Telegraph columnist, makes the interesting point that the US has never had a free trade agreement with either the UK or the EU. Doesn’t seem to have held them back! So I repeat, we do not need any new agreement with the EU.

PPS. I also like the cartoon from London University which I have shared on my facebook page showing a minister of George III telling the Americans they will BE STRONGER IN THE EMPIRE!  Obama’s visit, clearly scripted by Downing Street (note use of the word ‘queue’), has not gone down well.


There is no EU Status Quo

Roger Helmer MEP


The Editorial in the Daily Telegraph April 7th concludes “The Remain Camp is relying not only on the fear of the unknown but also the comfort of the Status Quo”.  But we cannot repeat too often: in the EU, there is no Status Quo.  The EU is not a destination but a process.  To those who think of the EU as a comfortable safe haven, let’s ask some questions.

How many more Port Talbots?  Just yesterday I heard EU Commission Vice-President Sefcovic proudly promising “a tsunami of new legislation” aimed to reduce emissions by increasing the cost of CO2 emissions, and therefore the cost of energy.  The EU’s green policies have already caused plant closures across the EU in steel, aluminium, chemicals, fertilisers, petroleum refining, glass and ceramics, and other energy-intensive industries.  Jobs lost.  Investment moved overseas.  Perhaps it will be your job and your…

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Reply to Sir John Major in the Sunday Telgraph of 20th March 2016

Dear Sir,

It is Sir John Major who is suffering from fantasies over the EU, and I can see why. He wants to blank out that it was our exit from the ERM in 1992 that set up twelve years of strong economic growth; not EU membership as he claims. In fact since 2004 our living standards have fallen and never recovered.

Does he think we have any hope of resolving the housing crisis unless we can control our borders by leaving the EU? Does he imagine it will be possible to maintain a cohesive society by ending wage compression and reducing the pay gap without doing so? How are our SMEs going to provide the jobs we need without removing the tourniquet that EU regulations impose upon them? And how does he think we are going to protect ourselves once the EU has absorbed GCHQ, MI5 and MI6 into some new central incompetence? Indeed Brexit may well set up a new devaluation with all the consequent benefits we enjoyed after the exit from the ERM.

Sir John is disingenuous in comparing 45% of our exports that go to the EU with 7% of theirs coming here; apples and pears. It is irrelevant how much they export to the rest of the world; we are looking at the bilateral position here. And that shows a goods deficit of £89 bn last year; over 5% of GDP just with the EU alone! They are bleeding us dry; a veritable haemorrhage of jobs. Even in the worst, worst case scenario where they raise the maximum WTO tariffs against us and we do not retaliate, the percentage barriers are small compared to the likely benefit of devaluation. Britain will still be attractive to inwards investment, and the small increase in import prices is a small investment to make for the subsequent growth. Food prices in fact are likely to fall as we come out of the CAP and CFP. If we do raise import tariffs in retaliation they will provide much-needed additional fiscal revenues as well as promote import substitution.

There is no leap into the dark here. We know exactly what life will be like after we leave. On Brexit all our trading arrangements, security deals and laws will remain unaltered by default. They won’t change unless somebody changes them, and the EU cannot risk the consequences of trying. The only change is that we will save a net £12 bn or so from our membership fees, and that is after replacing all of the payments that Scotland and others receive. The point is that we do not need any new deal with the EU. We will not be dependent on the EU in any way. We can simply walk away if we do not like anything Brussels may propose.

Sir John is however right on one point; that we have a choice between Great Britain and Little Britain. He has just got it the wrong way round!

Yours faithfully,


And here’s a further reflection which I did not include in the letter. The devaluation from the ERM exit in 1992 was worth about 8 or 9%. As I write we already have a 4% devaluation consequent on the announcement of the referendum, so we should certainly get 8% or so after it, and if the maximum tariffs the EU can apply on average are 5%, we are bound to gain either way, even with a 10% maximum for motor vehicles and agricultural produce. But we could go further. Suppose we raised 10% tariffs against against motor vehicles ourselves. We may have to apply those globally, but we import very few vehicle from outside the EU. Most Japanese cars are made here anyway, so it would probably only affect the Koreans. Suppose we then said to both the Koreans and the continental manufacturers that we will not raise any tariffs on spare parts and components worth less than 10% of the value of the whole. They would then have a strong incentive to set up final assembly plants here, creating lots of new jobs in the UK as well as enabling them to continue tariff-free trade to us!

As for the rest we could be very selective (not forgetting steel, of course). We produce lots of good cheese in this country so that would be a good target, but not much wine which would not.

As regards steel, this is clearly a special case as a result of Chinese dumping. The global steel market will not ‘get back to normal’ until there have been significant reductions in capacity. Most commentators agree that a global economic recovery will not be sufficient. But whose capacity should be up for the chop? Why should it be ours? Even the Chinese themselves are now restricting imports, along with the Americans and many others, but we are not allowed to do so by EU rules.

Logic would suggest that the least efficient plants should go first. But that does not take account of ongoing investment and technological change. So I am bound to conclude that the ideal solution for the UK is to create a temporary closed market in steel – neither imports nor exports being allowed until the global market stabilises and UK capacity being set to supply UK demand. Whether the existing capacity is nationalised or nationally recapitalised, like the banks, it should be allowed to set prices within the market to enable it to be profitable overall. That market would of course have to be regulated, and the best basis for that would be a cap-and-collar profit regulation regime combined with quality inspections. By that I mean setting a range for profitability, perhaps 5% =/- 2.5%, so that if average profits went outside that range national prices would have to be adjusted according, other factors being equal. Such a regime would have to be applied on an industry wide basis of course so that new entrants with more efficient processes could still have an incentive to replace older suppliers who could not keep up.


Rupa Huq and the Ealing Gazette

Early in February the Ealing Gazette carried an article by Rupa Huq, MP for Ealing Central and Acton, supporting Britain’s continued membership of the European Union. My colleague and our GLA candidate, Alex Nieora, responded with a letter, which was edited down, and I with a fuller article, for which, predictably, space could not be found. So here is the full story, starting with Rupa Huq’s original article. I reproduce them without comment as each speaks for itself.

Rupa Huq’s Article.

“The word ‘crisis’ tends to be much over used in politics. Every year we have an NHS winter crisis and I have even raised the spectre of a curry crisis in the House of Commons before Christmas last year to George Osborne. But on the fate of our European membership it is no exaggeration to say that it would be nothing short of a crisis if we were to exit. To leave behind our biggest trading partner would put jobs and growth at serious risk.

Europe has also been a source of social reforming legislation, like maternity and paternity leave for new parents. EU competition agreements have brought down airline ticket prices. It is by working together with our European partners that we can catch criminals who do not operate within national borders through mechanisms such as the European arrest warrant. Our island is much stronger with the combined might of 28 nation states rather than the fanciful idea that we could ever go it alone.

Implications are wide-ranging – the universities’ science research budget that is working on cures to fatal diseases only functions due to European funding. David Cameron does not really want to leave but he is managed to have his tail wagged by a dangerous minority of extremists and Euro obsessives in the Conservative party. He is now boxed into a corner with his renegotiations, which are only being conducted to appease the Eurosceptic headbanger wing of his party – a rash promise made when he saw support ebbing away to UKIP. It is a sad day when government policy appears to be written by Nigel Farage.

In an age of globalisation we are part of numerous international alliances – NATO and the UN are others. It has been claimed that our historical ties to the Commonwealth act as an impediment to our playing a full part the EU. This is far from the case – it is not a mutually exclusive relationship. We can have the best of all worlds by participating in both Commonwealth on the one hand, with the Queen as figurehead and countries that once formed the empire, and on the other the European Union, which has so crucially kept the peace post World War Two in a continent previously ravaged by two world wars in a short space of time”

Alex then responded as follows:

“I write in response to Rupa Huq MP’s opinion piece in the Ealing Gazette last week. Contrary to what Dr. Huq’s asserts most of UK trade is not concluded with the EU. UK businesses now trade more with the rest of the world than with the EU, although the EU prevents the UK from signing trade agreements with other countries. This means that exports to the UK from developing world nations such as, for example, the Congo are forced to pay tariffs as they cross the EU Common Customs Border putting Congolese exporters at a competitive disadvantage. Moreover EU regulations act as a hindrance to the 80% of UK small and medium sized businesses that do not trade with the EU, while protecting corporate interests.

Dr. Huq mentions ‘European funding’ for science research without realising perhaps that the UK now pays the EU a staggering £12 billion more per year than the paltry 49p in the £ which it gets back from the EU. There is no ‘EU funding’ Dr. Huq – it is British taxpayers’ money.

Dr. Huq talks about EU ‘’competition agreements’’ but overlooks the impact that the 30,000 strong permanent corporate lobby in Brussels has on legislation that imposes restrictions and obstacles for would be competitors and smaller businesses. I doubt she has heard of gallium arsenide. It’s a compound semi-conductor used in microelectronics to make smart phones, integrated circuits, solar panels etc. Great you would think. Well French corporate interests have succeeded in getting the EU to ban gallium arsenide across the EU commencing from this year because it is a threat to their silicon based manufacturing interests. And the worst part is the UK’s MEPs who make up barely 8% of the European Parliament are powerless to do anything about this, or indeed anything else.

Perhaps Dr. Huq has heard of TTIP, the Transatlantic Trade and Investment Partnership deal between the EU and the US which threatens the NHS, by opening up public services to competition from the private sector and allowing corporates to sue governments who enact policies that negatively impact their profits. Both UKIP, Labour and other MEPs voted against these terms in the European Parliament but were outvoted no thanks to the small and ever decreasing British influence in the EU. While in the EU the UK can do absolutely nothing to prevent the implementation of TTIP, or indeed to renationalise the railways if it so wanted (due to the First Railways Directive) or a whole raft of other policy areas.

Dr. Huq disingenuously says the word ‘crisis’ is overused before writing ‘every year we have an NHS winter crisis’. Perhaps I might remind her that the NHS is indeed in crisis, and the last Labour government is largely to blame. The NHS is riddled with extortionate debt from decades of misguided PFI contacts. The NHS owes £80bn in PFI loan unitary charges. Next year alone trusts will make some £2bn in repayments. While PFI contracts were started by the Conservative government under John Major under the Labour government between 1997 and 2008 90% of all hospital construction funding was under PFI agreements.

Perhaps she is further aware but conveniently overlooks that each week politicians send £350 million to the EU net – that’s enough to build a new hospital every week. Dr. Huq mentions social reform legislation from the EU but omits to mention that most social reform and welfare state legislation was introduced by the UK Parliament a long time before the UK joined the EEC as it then was. As Tony Benn would have been the first to tell her the British government can just as easily pass social reform legislation as the EU but at a far less national debt accumulating cost.

The only crisis will happen if British voters listen – to use your own terms, Dr. Huq – to ‘dangerous extremist’ pro EU politicians”

And my contribution was

“Rupa Huq’s article last week claiming that Britain would be stronger in Europe is profoundly mistaken on so many fronts. Her case is purely negative and concentrates on what she perceives to be the risks of leaving, not mentioning a single one of the many far greater risks of staying in.

She starts by claiming that it is necessary for Britain to stay in the Single Market. Others have similarly accused UKIP for failing to give a clear picture of what it would be like outside. WRONG on both counts! We have always said that we would take up again our vacant seat at the World Trade Organisation (WTO) and trade with the EU on exactly the same basis that the US, China, Japan and many others do so successfully at present. That automatically would be the situation immediately after Brexit.

Quite separately there is the proposition that we could negotiate a new treaty with the EU effectively giving us zero-tariff access to the Single Market as at present. That of course remains to be seen, but don’t forget we trade at a huge deficit with the EU. So the betting is not only on the EU being the more desperate to continue with the current arrangements, but also that without a deal a bit of old-fashioned protectionism would in fact be to our advantage. Yes, trade volumes in both directions would be lower, but so would the trade deficit. And trade deficits export jobs. Any loss of jobs from a reduction in exports would be more than offset by job creation from import substitution. The import tariffs would help fund our public services and reduce our fiscal deficit, and the reduction in international trade volumes would save energy. Further the SM is highly unstable, like removing the bulkheads from an ocean-going oil tanker, thereby undermining economic growth. Thus four strong positive reasons for not re-joining the Single Market. Whilst we would not be the first to raise tariffs, we would of course respond in equal measure if tariffs were raised against us. So please, do not lose any sleep over this issue. We can handle it either way.

Dr. Huq then claims we would lose all the beneficial employment and other legislation we have derived from the EU. WRONG again! The day after Brexit the statute book would remain exactly the same as now. We can then decide for ourselves whether we keep those laws, change them or ditch them.

Next she claims our security would be at risk without solidarity within the EU. Still WRONG! There will be nothing to prevent us from co-operating fully with Europol or any other institution on the continent where we have a mutual interest in so doing. She claims that peace in Europe since WW2 has been kept by the EU, whereas most commentators attribute this success to NATO. Even today the EU has no significant military capability, though of course Brussels is itching to spend yet more money on what inevitably will be a fractious and ineffective force.

Then she claims we are safer with mechanisms like the European Arrest Warrant. This is a bit like saying we would be safer under a dictatorship. What about human rights? In this country a person is innocent until proven guilty. Not so on the continent where, under the Napoleonic Code, it is the other way around. She talks of the ‘combined might’ of the 28 states. Excuse me? What combined might? Not been very apparent during the refugee crisis, has it? And of course our influence as one of 28 countries is next to nothing, as David Cameron is currently demonstrating.

Next comes the assertion that our universities and other current recipients of EU funding would lose that funding. Also WRONG! Because we pay into the EU more than we get out we shall save not only the net deficit on funding, now some £12 billion a year, but also the value of all the funds we currently receive. We can, if we wish, guarantee that all current EU payments into the UK will continue £ for £ from those savings instead.

At least Dr. Huq has not repeated the hoary old canard that Britain would lose jobs if we left the EU. I assume simple logic has now informed her that once we control our borders, only possible outside the EU, the labour market will tighten because of the fall in the supply of workers. Leaving the EU will be good for both jobs and wages – an end to wage compression and a start to reducing the income spread and all the adverse effects of overcrowding such as the housing crisis.

Dr. Huq’s letter is full of emotive words such as ‘fanciful’, ‘headbanger’, ‘extremist’ and ‘obsessive’. She even claims that ‘it is a sad day when government policy appears to be written by Nigel Farage’! This is sure sign of a politician on the back foot. Let’s have fewer personal insults and more well-researched argument. I see UKIP as a libertarian centrist party committed to getting Britain out of the European Union. We always have been. We believe strongly in fairness and human rights as well as creating a freer society for those who want to be creative and enterprising. We call time on Labour’s deceitful propaganda.”

Reflections on Question Time, 17th December 2015

Now that the debate over leaving the European Union is well under way it is becoming more interesting to respond to the arguments being put forward by the Stay-In Brigade rather than go over yet again the well-worn reasons for leaving.

Last Thursday’s episode of Question Time gave a perfect opportunity to do this. It came from Slough and the panel comprised Piers Morgan, Hannah Bardell from the SNP, Jacob Rees-Mogg (Con), Emily Thornberry (Lab), and Mark Reckless. It was also encouraging to see how sympathetic the QT audience now are to the Leave point of view, and even David Dimbleby showed a much more open-minded position than perhaps has always been the case in the past.

The first point that arose was from Hannah Bardell who claimed that Brexit would mean that Scotland would lose all the funding she currently receives from the EU. This of course is complete rubbish as Westminster would be in a position to replace that funding £ for £, if not better, due to the saving of £11 billion or so that Brexit would generate. I have heard the same argument from a number of institutions, including Universities who ought to know better. To emphasis the point the Leave/UKIP campaign should perhaps guarantee that for the first two years after Brexit all funding currently received by UK institutions from the EU will be replaced £ for £. After that ongoing review could alter matters in either direction.

The next point came from Emily Thornberry who picked up on Sir John Major’s recent comments about Britain opting for ‘splendid isolation’ in international affairs which he thought would leave us powerless to promote or protect our essential interests. But have they not noticed how powerless we already are? What could be more debilitating than belonging to an organisation, the EU, that insists on sole representation of our interests internationally but then pays absolutely no attention to our point of view? The fact is we are already in splendid isolation, and Brexit will re-establish our ability to reach out and engage in the world around us. We will be able to do so through all sorts of alternative relationships as and when the need arises. Britain is one of the most talented nations on earth and will thrive once let free.

Another point that Labour and LibDem politicians often raise, though not on this occasion, is a fear than they may lose employment protection and other laws which have originated from the EU and are now on our statute book. Again this is scaremongering, because the day after Brexit those laws will still be there. By regaining our sovereignty we can chose, one by one, whether we wish to keep them or ditch them. It’s a red herring.

And then came the whole issue of trade. I have argued elsewhere why I think the Single Market is destabilising and counter-productive, and how leaving the EU without a new trade treaty could be just what the doctor ordered. The question came in the light of recent research by Lord Rose, who we are told is leading the Stay campaign, that Brexit would cost around £11bn in increased trade tariffs raised by the EU on our exports to them if we had to revert to trading under WTO rules.

Now I have no argument with that figure, as I have not been able to check it, so let’s accept it for the purpose of the argument. The point he has completely overlooked is that the same will apply to their exports to us. And because we import far more from the continent than we export to it, the result would be a net benefit! I accept that both imports and exports would be lower, and that there would be a period of adjustment during the transition as companies orientated towards exports would struggle and those aimed at the domestic market would expand, but it is ultimately the balance between them that matters.

I do normally advocate free trade, but such a position does assume we pursue policies which keep our trade in balance. We have not done that, and have ended up now with a deficit in excess of £5bn. A trade deficit exports jobs and undermines employment, so anything that reduces a trade deficit is a good thing, even if that means lower volumes. Employment within the UK can then be adjusted by stimulating or moderating consumer demand through fiscal and monetary policies, and of course the ability to control our borders will mean the focus transfers to a shortage of labour rather than remaining on a shortage of jobs.

This means that if the EU were to throw a tantrum after Brexit, always possible, and refuse to negotiate a new trade deal, despite that being in their own best interests, we can always just walk away at no loss to the UK. Whichever way it goes, we can handle it. So please, do not lose any sleep over trade.

Finally, and this is another point that did not in fact arise on this occasion, there is the whole question of why big business and leading UK institutions such as our universities are so uniformly in favour of staying in. The answer is that they can afford to spend a lot of time and money lobbying politicians both in Brussels and at Westminster. This gives them an advantage over smaller businesses that cannot afford to do this. So the question is, does the nation as a whole benefit from it? Almost certainly not, as most of our employment creation and economic growth comes from all of those small and medium-sized businesses put together. Restricting access to politicians would reduce corruption and create a more level playing field to the benefit of the nation as a whole. So let’s take the EU out of the equation once and for all.

Unaffordable Housing

Continuing my new series taking issue with Sunday Telegraph columnists, this week it is the turn of Jeremy Warner, who yesterday wrote some very strange things under the heading ‘Unaffordable housing’.

Now to be fair his diagnosis was spot on. He reported that average real house prices in London have soared by almost 40% since the beginning of 2013, and concluded that the three primary causes of this are under-supply, intense overseas buying and virtually unbridled immigration. So far so good.

It is with his prescription that he goes belly up, writing “I’m all in favour of free movement of labour, and on high levels of inward investment, but if you are to have these things it is incumbent on the Government to ensure adequate supply and the infrastructure to service it.”

Let’s take these factors in order. Since 2004, when the immigration floodgates opened, our average real standard of living has fallen by over 20% (see ONS statistics). Indeed if you factor out an annual one percent for productivity growth, that is a fall of over 30%. Of course some of this is due to the banking crisis, but on another page Liam Halligan helpfully tells us that “our economy endured a 7.2% peak-to-trough drop after the banking crisis”. He doesn’t tell us where he got this figure from, and I suspect it is a tad understated, but let us accept it for the time being. That means that a fall of over 20% was due entirely to immigration (unless you can think of any other possible factor commencing in 2004?).

Now at first sight this conclusion might seem counter-intuitive. After all most immigrants do work hard and pay their taxes, and we are constantly being told that the NHS would collapse without them. But you know you can argue the whys and wherefores until the cows come home. I was always taught to judge by results. And those results, particularly in the week following the Paris atrocities, are unequivocal. Immigration is hugely damaging to our standard of living as well as to our security, our environment, our infrastructure and our housing provision. At these levels it also results in cultural swamping. I have no difficulty with cultural diversity, nor with our historic commitment to taking in refugees from persecution, but when the numbers and population density reach these levels we are in a completely different ball game.

Then there is the question of inward investment. For decades successive governments have preached the benefits of inward investment and have done all they can to encourage it. But again I say judge by results. Where are all these benefits? I don’t see any. What I do see is a record balance of payments deficit in excess of 5% GDP, which of course exports jobs and undermines employment. Inward investment has the effect of pushing up our exchange rate and making our currency uncompetitive.
We should stop encouraging it forthwith.
I have no difficulty with foreign ownership as all who invest here must obey our laws, but there is plenty of money sloshing around the money markets, especially post QE, and corporate savings are at high levels. Domestically sourced investment will naturally follow an increase in consumer demand.

Finally there is Jeremy’s frustration at our planning laws. Jeremy, those planning laws are there for a reason. They are there to protect our heritage, our habitat and our environment. Once these things are destroyed they cannot be recovered. I do accept that there may be insufficient brown field sites to provide the housing necessary to make good the current shortfall, particularly if mixed development is provided as of course it should be. I would also favour the creation of a new planning category for what I would call, for want of a better name, scrub land, ie undeveloped land of no particular alternative merit. I would certainly favour a big increase in stamp duty for foreign buyers of UK domestic property.

But even if we do all these things we have no chance of keeping up with ‘virtually unbridled immigration’. Balanced migration has to be the starting point, and of course that can only be achieved by leaving the EU.