Tag Archive for: Politics

A stunning diplomatic achievement

The EU and UK agreement could ignite a dramatic economic recovery, as long as we rediscover timeless and useful principles

As somebody who always refused to accept the false “No Deal v 2nd Referendum” narrative which somehow took hold in the last four years, I am personally delighted by the new Trade and Co-Operation Agreement between Britain and the European Union.

It is a stunning diplomatic achievement and of great credit to the negotiators on both sides. This is especially so when you consider their difficult remit, the complexity of the issues and the dispiriting backdrop of the last few years. Boris Johnson and Lord Frost, Britain’s chief negotiator, are right when they say, “it should be a moment for national renewal.”

That said, whether it is or not depends on how things work and evolve in practice – the agreement is governed by some 19 committees – and what we as a country choose to do with our new found, sovereign freedom. I have to confess to being more ambivalent about that point and I am not alone. A recent poll by IPSOS Mori found that only 11% of Brits think the economy will have recovered next year, the lowest of any OECD economy. Thank goodness that we have such a productive and innovative private sector, capable of getting things moving.

In structure, ETCA loosely emulates the Norwegian pillar of the European Economic Agreement: collaborative access to the single market on a zero quota, zero tariff basis as long as we go along, broadly, with the rules, including in relation to the environment, labour relations and state aid. If we don’t and there is a disagreement, there will be an arbitration procedure which may culminate in that area of the agreement being “rebalanced” and tariffs imposed.

The situation is vaguer for financial services. By March 2021, the two sides intend to negotiate a memorandum of understanding for regulatory co-operation in financial services to be accompanied by, “equivalence decisions” with the EU. In the meantime, most City firms have set up branches or subsidiaries in the EU to enable business to flow.

In return for these looser arrangements, including an end to freedom of movement, we have given up certain things. The first is to participate in EU rule-making and the second, the superior protection of the Court of the European Free Trade Association, where judges are nominated exclusively by the EFTA members like Norway and Iceland. The EU-UK tribunal is more ad-hoc, as in a traditional international agreement. The tribunal’s members will be split into three with a third comprising  EU judges or equivalent, some of whom will no doubt be connected to the European Court of Justice; the second third will be from the UK and the final third will be independent.

However, these and other flaws, such as the uncertainty about Gibraltar’s status, are mere details compared to the really big point: we have a comprehensive agreement with the EU which should give us amicable access to each other’s markets and engender a spirit of co-operation and mutuality, while also disembarking us from the runaway train of “ever closer Union” enshrined in the Treaty of Rome. Businesses and individuals are inventive and adaptable. Goodwill, workarounds, technology and good custom and practice should help mitigate or overcome any shortcomings.

The UK Parliament will ratify the deal in the next few days. The EU process will take until mid-February. That might prove to be more difficult as the explicit purpose of the European Parliament is to replace a “Europe of nations” with something new. It is a draft treaty and MEPs and EU member states might demand additional clauses, perhaps in relation to governance, to be re-presented to the British.

Assuming that the ratification process goes according to plan, the resulting certainty over the biggest legal and commercial issue facing the British economy for several decades, should finally enable investors and businesses to put substantial amounts of money to work here. For nearly five years, business investment has been flatlining, even retail investors (many of whom presumably voted for Brexit) have been withdrawing money and investing in global opportunities. The FTSE 100 has been the worst performing global stock index.

The amount of money that may potentially be deployed into the UK is truly gargantuan. According to Bank of America, global fund managers are a record “underweight” of the UK in their portfolios. Vast sums of money have been printed and borrowed by Central Banks and Governments, including by our own. Much of it is sitting in bank accounts, earning pitiful interest or held in cash or near cash of one kind or another by both businesses and households in the UK and elsewhere.

Before we get too carried away, what are the risks to this rosy scenario? Leaving aside the ongoing virus (where we must hope the vaccines work their magic), there are two.

The first is our old friend inflation, dormant since the 1980s. It stands to reason that when large parts of the economy are subject to legal restrictions and are idled, turning on the money geyser will cause a surge in prices. Unless the Government can move fast to get Covid under control, to open up the economy and also to create the appropriate structures for money to be invested by the private sector into new assets and opportunities (such as infrastructure and flotations of companies on the London Stock Exchange) the great flood of money will be wasted in pointless speculation in, say, house prices and consumption.

The consequent inflation could only be arrested by a sudden rise in interest rates, turning the Brexit boom to bust.

The second risk is something more subtle: the need for a process of economic and institutional reform which restores orderly, reasonable law and decision-making and efficiency to the British state. The worry is that, despite all the rhetoric about “global Britain” and trade secretary Liz Truss signing free trade deals at a heroic pace, the Conservative Party has apparently lost the moderate, practical, business-minded, Scottish Enlightenment mindset of Pitt, Peel, Thatcher and Blair and instead embraced a sort of madcap nationalist and socialist thinking, which I (ironically) call “NatSoc economics”.  Let us hope this is temporary.

If our future is really to be found not in the stars, but in ourselves, we must, as a country, start by rediscovering established commercial principles.



Maple syrup: a 10 point guide to Boris Johnson’s Canada-style EU free trade proposal

I popped along yesterday morning to the splendid Painted Hall in Greenwich (above) – itself a painterly encomium to institutional innovation and commerce – to hear the Prime Minister’s bombastic and entertaining enthusiasm for free trade and a Canada-style free trade deal with the EU.

The Cabinet in attendance rose as one to give a stirring standing ovation to their Leader, but the media, not so much. What followed was a load of dreary questions which demonstrated that the press knows almost nothing about the so-called CETA (Comprehensive Economic and Trade Agreement) with the EU. As I expect they are not alone, and also I believe I was the first person to raise the potential of CETA publicly in an article in The Times in 2016, please see my very humble and brief attempt to address this deficit:

1. Purpose

The purpose of CETA is to encourage foreign investment, to remove all tariffs on industrial goods and to progressively liberalise trade in agriculture and services. The agreement summary says: “Overall, the tariffs for 98.6% of all Canadian tariff lines and 98.7% of all EU tariff lines will ultimately be fully eliminated. This will happen at entry for 98.2% of the Canadian tariff lines and for 97.7% of the EU tariff lines. All other products identified for liberalisation will have their tariffs brought to zero within 3, 5 or 7 years.”

2. Financial services

You will hear from some quarters that CETA “doesn’t cover financial services”. This is rubbish. They have a whole section, Chapter 13. This essentially sets up an equivalence and/or mutual recognition regime. It says that “each Party shall permit a crossborder financial service supplier of the other Party, on request or notification to the relevant regulator, where required, to supply a financial service”.

3. Other services

The agreement supports the opening up of services such as maritime, telecoms and postal services, which are subject to a “negative listing process”, ie they have to be actively excluded. Presumably, this means very little change from now.

4. Professional qualifications

The agreement creates a process of mutual recognition for doctors, architects etc. Though I have noticed, for instance a renewed French hostility to British ski-instructors, partly because French ski instructors have a very rigorous qualification programme. One suspects a handful of professions might face a little more discrimination than now.

5. Regulatory co-operation

You will hear from some Brexiteers that “we won’t be rule takers from Brussels”. They are, to a degree, set to be disappointed. The CETA agreement specifically encourages regulatory convergence and compatibility via a Regulatory Co-operation Forum. When the Prime Minister says “no alignment”, what I assume he is talking about is not being automatically forced to adopt EU rules. In reality, most of our rules, especially in goods, will be the same or similar, but we will have more wiggle room than members of the EU. I have to be honest, I myself find this “rule-taking” rhetoric very boring and largely irrelevant.

6. State aid rules and competition policy

State aid is hardly mentioned in the agreement and is effectively covered by the duties of non-discrimination towards investors. Perhaps the Government would have greater freedom to bail out defunct airlines and steelmakers. However, competition policy is covered in Chapter 17. While this is a relatively brief section, the general duties to “recognise undistorted competition” and “to proscribe anti-competitive business conduct”, suggest no meaningful change to legislation in that area.

7. Lots and lots and lots of Committees

The agreement is governed by a Joint Committee, co-chaired by the Minister for Trade and the EU’s trade commissioner. They have the power to interpret the agreement and also to create new rules and processes. In turn, the Joint Committee appoints numerous other committees covering everything from financial services to copyright protection, which in turn make the rules and processes within the agreement.

8. Tribunals

If there is a disagreement, including one brought by a private sector entity, there are tribunals to settle the dispute. The Investor State Dispute Settlement (ISDS) tribunal is made up of five judges from each side and five from third party countries, who convene in specialist committees. Their job is to protect investor interests and this has proved highly controversial in left-wing circles. It is the reason that the implementation of CETA got held up and it is a continued source of grievance mentioned by French ­Gilets Jaunes protestors and NGOs.

Other tribunals may also be set up by the Joint Committee.

If the passage of CETA is anything to go by, expect there to be a row about the tribunals, including from the EU-side.

9. Ratification/agreement

The CETA agreement affects both nation state and European Union issues. It is consequently what is known as a “mixed agreement”, meaning it has to be ratified by both the EU itself and the 26 nation state members. There is provision for it to be implemented provisionally, but one risk is a small nation, such as the Republic of Ireland, blocking things up.

Another point to have in mind is that the CETA agreement is 1600 pages long and took six years to agree. In theory, the parties need do no more than find and replace the word “Canada” with the words “United Kingdom”. But I bet they don’t.

10. No Deal

What happens if no text has been agreed by December 31st? Will Britain tumble into an Australian-style relationship with the EU? Personally, I doubt it. Both sides have already committed to heads of terms via the Political Declaration. Every time No Deal comes up, both sides back down. Far more likely is a series of sector-based deals, with roll-overs for areas which are still to be agreed. In the meantime, there will be much posturing and tub-thumping from both sides.


In the end, trade and commerce are private sector phenomena, arising from fundamental human concepts such as consumer demand, mutual interest and comparative advantage. The role of Governments and regulators is to create the framework to enable this to happen and to enforce standards. But in the modern era, governed as it is by the General Agreement on Tariff and Trade, even if states cannot reach full agreement it will not mean everything grinds to a halt. Firms and individuals will adapt.

There are thousands of small, detailed items to be sorted in our future relationship with the EU. But it will prove to be a dynamic process and unless something specifically affects your industry, then the best advice may be to ignore most of the negativity in the media and elsewhere and to get on with the business of a flourishing life.




Time for a National Government? Lessons from 1931

It is an interesting question as to whether the formation of a National Government would help solve the current Brexit impasse. It has certainly worked in the past.

In 1931 a National Government was formed to get us out of the Depression and overall it did a pretty good job. Britain recovered faster than any other major economy, helped by coming off the Gold Standard, restructuring War Loan, tax cuts and embarking on a housebuilding boom.

When the crisis began that year there was a minority Labour Government, the pound was under pressure and the Cabinet was divided. An Austrian bank called Credit Anstalt had gone bust and contagion had spread to London’s financial markets. The budget deficit was spiralling out of control due to faltering tax revenues and the cost of rising unemployment benefits.

During the summer, the Prime Minister Ramsay MacDonald was trying to get agreement among his Labour colleagues to cut government expenditure and raise taxes. Balancing the budget was a prerequisite to the approval of an emergency loan being arranged by JP Morgan in New York. The Conservative and Liberal parties refused to countenance the £100m in tax rises which the Cabinet agreed to and instead demanded further economies.

Throughout August the political arguments raged and there was an impasse. The critical intervention finally came from King George V, one of the most underrated monarchs in our history. The best narrative of events is in Kenneth Rose’s excellent biography of the King.

On Saturday August 22nd, having only just arrived in Balmoral, the King turned straight round to see MacDonald at Buckingham Palace the following morning.

The Prime Minister tried to resign, but the King talked him out of it at two meetings on the Sunday. The second one took place after the King had a private dinner with Edward Peacock, a director of the Bank of England and partner in Baring’s Bank, who helped manage the King’s affairs. Left-wingers claimed that Peacock was at the centre of a “bankers’ ramp” and had a role in advising the King what to do. He had been summoned at short notice, but he himself said that all they talked about at dinner was the recent fluctuation in wheat and barley prices.

The King told MacDonald he was the only one who could lead the country at that time and he believed he could depend on Conservative and Liberal support. The King then summoned all three parties to a meeting at Buckingham Palace the following day. The Conservatives were led by Stanley Baldwin and the Liberals represented by Sir Herbert Samuel, as their leader Lloyd George was convalescing from an operation.

The King told MacDonald that it was “out of the question” he should resign and told the three men to go into a room, to come to an agreement and they were not to emerge until they had drafted a communiqué which would restore confidence at home and abroad. This took about an hour and the three agreed to form a National Government under MacDonald. This was not a formal coalition, but a “co-operation of individuals” to tackle the economic emergency.

Lord Wigram, the King’s private secretary, noted in his diary:

“His Majesty congratulated them on the solution of this difficult problem, and pointed out that while France and the other countries existed for weeks without a Government, in this country our constitution is so generous that leaders of Parties, after fighting one another for months in the House of Commons, were ready to meet together under the roof of the Sovereign and sink their own differences for a common good…”

Amen to that.

The Labour party subsequently split, but the National Government won a landslide victory in an autumn election demanded by the Conservatives. Churchill transformed it into a “Grand Coalition” in 1940 and it remained in office, broadly successfully, until 1944.

Would such an approach work now? It is hard to see either the Queen intervening or the current party leaders taking a similar approach. But anecdotally, the public appetite for “banging MPs heads together so they sort things out” is very high and they are not immune to this sentiment. It is also noteworthy that first steps in cross party co-operation, both by backbenchers and in formal talks between Theresa May and Jeremy Corbyn, have already been taken. Let’s see what happens in coming weeks.

A New Centre Party, local elections and markets

The local elections on May 3rd may prove to be unusually exciting, both from a political and market perspective.

Jeremy Corbyn launched Labour’s campaign today and made clear his ambition is to seize flagship Conservative boroughs in London, including Kensington & Chelsea, Westminster, Wandsworth and Barnett.

I highlighted this risk in a piece for the CapX website in early January. On the face of it, Labour are well placed effectively to gain total dominance of London following the party’s dramatic performance in the capital city in last year’s General Election. Labour already holds 20 of London’s 32 boroughs, compared to the Conservatives’ eight.

In Battersea, where I live, we got a taster last summer when the amiable Conservative MP Jane Ellison was ousted by a Corbynite firebrand called Marsha De Cordova.

There are a host of reasons for the Labour London surge: stamp duty, Brexit, people tiring of austerity, housing, Grenfell and Theresa May’s comments about the “citizens of nowhere” who live in the metropolis. We can now add to this the surge in knife crime, which despite London Mayor Sadiq Khan’s inadequacies, is being pinned on the Conservatives due to police cuts and Theresa May’s opposition to stop and search by the police.

Only around 35% of the electorate typically manages to summon the enthusiasm to vote in local elections, but there are reasons to think this time could be more interesting.

Investor sentiment and a New Centre Party

Political risk is currently a major influence on investor decisions. Just look at South Africa, where the removal of Jacob Zuma as President in February has since contributed to a five per cent rally in the rand.

The latest survey by Bank of America Merrill Lynch of global fund managers found that a record net 42% were underweight UK equities, mainly because of the related political risks of Brexit and Mr Corbyn’s socialist policies.

Whatever the outcome in May, the local elections bring forward the possibility of a Labour split and the creation of a so-called New Centre Party. Such a split, dividing the left and centre-left vote, would theoretically make a pure Corbyn Government much less likely and, ergo, potentially lead to a rally in the pound and UK equities.

This was trailed in the Observer at the weekend with a peculiar story claiming that a former Labour donor had pledged £50m to create such an entity. You need to understand how politicians think. Political parties don’t split during elections – it is far too complicated – but they can do so afterwards as the success and blame is shared around.

Markets rally in two out of three scenarios

There are three scenarios we can imagine.

First, if Corbyn does well and achieves his objectives of seizing flagship Tory London boroughs, it will arguably enhance his control over the Labour party and further weaken Mrs May. In which case, one can see investors turning even more negative on the UK.

Second, Corbyn does well, but this actually puts the fear into Blairite Labour MPs who these days largely represent provincial seats in the Midlands and the North, like Yvette Cooper (Normanton Pontefract and Castleford) or Dan Jarvis (Barnsley).

They see Corbynism as a London phenomenon and feel so politically tortured by his leadership that a triumph by him in London could finally alienate them. It is hard to estimate how much they loathe Mr Corbyn and all his policies and people. Some of them could finally go their own way.

Third, Corbyn does worse than expected. Given the elevated expectations, this is now a possibility. There is a hint of hubris to Labour’s approach to London and the row about anti-semitism in the party could well act as a deterrent to many of the small ‘l’ liberal voters the party attracted at the general election. To this misstep we must now add his apparent willingness to indulge not only President Putin of Russia but President Assad of Syria.

In recent weeks, according to YouGov, Mr Corbyn’s personal approval rating has plunged to a net minus 25% from plus 8% in December.

Corbyn hubris and Barnett

Of the roughly 270,000 Jewish people who live in the UK, about 160,000 live in London. According to the Board of Deputies, about one in five, or 54,000, live in Barnett alone. It would be a very peculiar thing if Barnett voted for a Labour council as Mr Corbyn seems to hope. Speaking for myself, I will vote for an open and tolerant society every time and so, I trust, will my neighbours.

In this scenario, where Corbyn surprisingly blows it in London, Blairites could feel emboldened to split. Again, UK assets could rally on the basis that the threat of a Corbyn government is receding.

Finally, we should not assume that Theresa May’s position is secure. Her Majority in Parliament is waifer thin. This explains the Government’s tortoise like approach to everything except managing Brexit. We cannot forecast, we can only debate surprises.

We need more than Caractacus Potts

We cannot take the suspense. Philip Hammond labours like Caractacus Potts in the Treasury shed. Creak, bang, curse, he tinkers away into the night, preparing to unveil his latest Budget contraption on November 23rd.
There is a sense of foreboding too. Will it fly beautifully, like Chitty, Chitty Bang? Or send him careering dangerously around Westminster, like the malfunctioning rocket pack?

Judging by the speculation in the press, it would be well to stand clear. First, (hammering noise) an income tax cut for young people was mooted and then dropped. Now it is being suggested that a temporary cut in stamp duty for first time buyers is a possibility.

I am no fan of stamp duty – the worst tax on the statute book, amidst stiff competition – but we should be suspicious of such a fiscal Toot Sweet. Prices for first time buyers would simply rise to take account of the cut. They have already been artificially lifted by the subsidised loans in the Help to Buy scheme.

The benefits would similarly accrue to the vendors, largely housebuilders, whose profit margins, share prices and executive remuneration are already at record levels. A recent study by Morgan Stanley found that Help to Buy had contributed to a 15% premium in new house prices, matching almost pound for pound the cheap 20% equity loan provided by the government. (Wait till the initial 5-year period runs out and the interest rate goes through the roof, but that is another story).

As the stamp cut would be temporary, it would be unlikely to stimulate investment in further construction of new homes.

The losers would be existing homeowners hoping to move house, perhaps to start a family, as they would be outbid on properties by first time buyers.

This stamp duty idea exemplifies a paucity of economic thinking by the current Government. If you are interested in the reform of property taxation, far better to remove the distorting effects of stamp duty altogether by cutting it to a flat 1% for both buyers and sellers. Any loss in revenue would be offset by rising revenues from new construction, VAT and higher volumes in the housing market (which remain below pre-crisis levels). A reforming chancellor might also examine the council tax bands, to ensure that those in large expensive houses pay their fair share.

Property taxation is a classic example of how, somewhere along the way, the Conservative party has lost both its market nous and its understanding of economics. The consequence is that the Government has no economic strategy to speak of and short term fix has been piled upon political gimmick.

Let us start with market nous. Unnoticed in Westminster, economic growth is accelerating. Yes, you read that right. The National Institute of Economic and Social Research – which has as good a track record as any – has said growth recovered to 0.5% in the three months to October. However, in all likelihood, inflation will remain a problem due to the rapid rise in the oil price to around $65 a barrel.

What this means is the tax revenue forecasts are probably too pessimistic and the chancellor does not immediately have to worry too much about the deficit. The deficit would be even less of a problem if the chancellor took a more long-term approach to taxation, and set taxes at levels which maximised incentives, economic growth, productivity and revenue.

If that is the good news, there is plenty of bad news. A combination of the change in the political context, exemplified by the rise of Jeremy Corbyn, the exhaustion of austerity as a political narrative, and decades of underinvestment mean that the demand for increased public spending is fierce. According to IMF data, gross fixed capital formation in the UK, at 17.2% of GDP has been substantially below the G7 average of 20.2% for 25 years.

This is mostly due to cuts in public investment, which at 2% of GDP remains below the level before the financial crisis. Indeed, one of the big contributors to deficit reduction under the Conservatives has been large cuts in capital expenditure by the Government, as opposed to cuts in current spending. Evidence of this is everywhere: traffic jams, full commuter trains, insufficient A&E facilities, a shortage of social housing, etc.

The anchor of economic policy is the so-called fiscal rule, that the Government should reduce its cyclically adjusted net borrowing to 2% of GDP. As Ed Balls explained when he was shadow chancellor, that fails to distinguish between current spending and capital investment. Controlling current spending on day-to-day items is sensible. But if the Government borrowed for capital investment, on which it made a return, who cares if it adds to the deficit at a time when its cost of borrowing is the lowest since the Victorian era?

A better option than simply raising public investment would be to revive public/private partnerships in a new form to invest in infrastructure. These could borrow via a new, properly regulated, project bond market, partly underwritten by the Government. Not only would these be kept off the public balance sheet, they would have an independent life of their own and so not be micro-managed by Whitehall. Victorians built railways, canals, hospitals and the like by tapping their own deep and liquid capital markets, and we should do the same.

Another idea which ought to be given serious consideration is using the State’s remaining stake in RBS and other assets to seed a sovereign wealth fund, which could co-invest alongside the private sector in infrastructure and innovation.
This is the sort of strategic thinking which one hopes for in the Budget and indeed from the Conservative party more widely, but with a few honourable exceptions, there is little sign of it. If we are to make a success of Brexit, we are going to need more than tinkering in the Treasury shed.

Philp Hammond needs to show some Peelite radicalism

Those who are accustomed to seeing Britain as an essentially market-based society, home to the City of London and a redoubtable property-owning middle class, need to think again. The Labour Party just held its annual conference and, incredibly, it is winning the economic argument.

On everything from housing, to tax increases, to student loans, to redrafting PFI contracts, to nationalising utilities, it is Labour’s socialist vision which is chiming with the electorate, as evidenced by an alarming report on the anti-capitalist state of British public opinion by the think tank Legatum published this weekend [29th September LINK ]. For instance, some 76% support renationalising the railways and 83% renationalising water companies.

Next week, it is the Conservative conference and while the media is focusing on what the Prime Minister Theresa May might say, actually it is the chancellor Philip Hammond who has the bigger task. Only he can address the economic concerns exposed by Jeremy Corbyn’s rise. What is more, if we are going to make a success of Brexit, what we do ourselves to enhance productivity, spread prosperity and attract investment is going to be just as important as the details of any exit deal.

Sadly, nothing in what Mr Hammond has said so far suggests he has any appetite for the radicalism necessary to respond to the Corbyn challenge. We must hope that this is a cunning ruse and he has in fact spent the last few months preparing a secret plan. What we want to hear from him is a robust, optimistic defence of an enterprise, market economy, accompanied by an honest programme to “the correction of proved abuses and the redress of real grievances” as the great Victorian Conservative reformer Sir Robert Peel promised in his Tamworth Manifesto.

What explains Corbyn’s rise is not simply the Zeitgiest , or social media, or an inevitable swing of the political pendulum, but the fact he is actually addressing real experienced consumer grievances like, for instance, rents rising faster than wages or rubbish and expensive trains.

The broad economic consensus around what one might describe as Osborne-ism – reduce the deficit, cut corporation taxes, and rely on monetary activism to stimulate growth – has completely collapsed. This is because its time has passed. It got us out of the financial crisis, but only at the cost of creating too many losers, especially among the young.

However, young people are in employment, so their sense of animus is derived not from lack of a job, but other insecurities, notably shrinking disposable incomes (compulsory pension contributions following student loan repayments as the latest deduction), and a lack of capital and adequate housing. It is also my firm impression that there is a sense that some companies, like airlines, train companies and BigTech get away with murder because the Government is too complacent to stand up to them.

When set alongside the high rates of income tax, the ongoing corporation tax cuts are looking like a bung to large and unscrupulous companies. Ultra-low interest rates and quantitative easing have deepened company pension deficits (which have to be filled by young workers) and pushed up asset prices, thereby creating a chasm of generational unfairness. Mark Carney, the Governor of the Bank of England, is Jeremy Corbyn’s unwitting recruiting sergeant.

The Bank is at last indicating that it may raise interest rates, perhaps as soon as November. This potentially dangerous inflection point gives Mr Hammond the perfect excuse to revisit Government policies and to work with the Bank to wean us gently off the drug of cheap money. What we need is some fiscal and monetary methadone, so we do not lurch from dependency to a crash in a few short months.

The place to start is with housing. Sajid Javid has made some progress in the Housing White Paper to address the planning system, but with the Treasury encouraging a boom in over-priced flats with both its tiered stamp duty rates of up to 12% and the stoking of a corporate buy-to-let boom, fiscal policy has piled more distortions on top the distortions of monetary policy. Mr Hammond should cut stamp duty to a flat 1% for both buyers and sellers on all properties and then flatten the forest of property-related VAT rates to a level 20%.

A reform of property taxation to a more rational system would make the market work more efficiently and stimulate housebuilding, including the construction of proper family houses. It should be accompanied by regulatory measures, such as restoring the minimum size rules for flats and introducing compulsory licences for landlords in return for their tax breaks (both Labour policies opposed, incredibly, by the Conservative party). Help to Buy, Starter Homes and all the other foolish interventions which have pushed up prices and enriched the big housebuilders should also be scrapped immediately.

Mr Hammond must next address the running sore of the student loan system. Incidentally, we could ask Steve Lamey, the chief executive of the Student Loan Company, for his advice, but he has strangely disappeared. As he was a previously highly regarded person from HMRC, we must be suspicious of his continued suspension by the Company due to a mysterious investigation. If somebody could please find him and find out what has happened, they would do the nation a service.

Given the gravity of the situation with the student loan system (which is effectively bust), Mr Hammond should announce an urgent review, so we can get to the bottom of what has gone wrong. Such a review would examine raising or staging the repayment threshold, putting the system on a proper legal footing and bring it under the aegis of the Financial Services Authority (it is currently unregulated). In the meantime, he should immediately cut the interest to the pre-2012 rate of 1.5%. 

The next leg of economic reform should be to encourage investment, especially in infrastructure. I have numerous friends who commute via road or train and all of them have horror stories about overcrowding, delays and high prices. This has been caused by population and economic growth not being matched by investment since the financial crisis. This, in turn, has held back productivity growth.

According to the Office of Road and Rail, public investment in rail was £4.8bn in 2015-16, substantially down from its peak of £7bn in 2005-6. Of this, nearly £1.3bn was gobbled up by HS2 and CrossRail. (1) Indeed, the House of Lords Economic Affairs Committee has said that on a per mile basis HS2 costs nine times as much as the TGV, the French equivalent (2).

The causes of lack of investment in transport would require an essay in their own right. They include Treasury cuts, poor productivity at Network Rail (a nationalised company, take note); faulty franchise contracts for train operators (eg Southern Rail). The syphoning off of money to pay for HS2 can only make things worse and the failure to introduce sufficient private investment via, for instance joint ventures.

Again, only a forensic review will get to the bottom of this, but in the meantime Mr Hammond can announce the creation of a project bond market to allow semi-autonomous public/private partnerships in rail, roads and housing to borrow cheaply, financed by tolls, fees and rents, but with a partial guarantee from the Treasury or local authorities. 

The sense that something has gone badly wrong with the money and that Britain is being exploited by unscrupulous international investors also needs addressing. It is a little known fact that the big City institutions, like our pension funds, have spent the last decade dumping UK shares in favour of gilts, with the consequence that, according to the Office for National Statistics, they only own a combined 10.1% of the FTSE 100. In 1998, our pension funds owned 21.7% of UK equities, that has been reduced to a paltry 3%. The sold another £6bn in the second quarter of this year. Foreign investors now own more than half of the index. No wonder our tech companies are all being sold on the cheap (3) (4).

I fear that properly addressing this complex long term issue will require another review (sorry about that), but the creation of an independent Sovereign Wealth Fund to act as a long term investor in British companies and infrastructure would be a start. It could be gifted government assets, such as the shares in RBS, to get it going.

These ideas are necessarily brief and they not exhaustive. I have not touched, for instance, on enhancing consumer protection legislation for the digital age; or the need to ensure BigTech companies are properly regulated and taxed as French President Emmanuel Macron has, perhaps overzealously, suggested (5); or binding votes on executive pay; or cutting daft taxes like air passenger duty on domestic flights and small business rates.

But the main thing to get across is that Jeremy Corbyn is winning. He is growing stronger and getting closer to Downing Street every day. Labour is ahead in the polls, by 43% to 39% according to YouGov (6) and has fire in its belly. The great institutional pillars underpinning our market system – the Treasury, the Bank of England, the City and indeed all of us who work in that system – must wake up. It is time for a well-aimed Tory kick in the backside. If it is not administered quickly by Mr Hammond and his Conservative colleagues, then the Labour lynch mob will apply more painful and destructive measures of their own. That would not only be counterproductive, but be infinitely more horrible too.


  1. Office of Road and Rail, Finance, Annual Statistical Release 2015-16 http://orr.gov.uk/__data/assets/pdf_file/0005/22982/rail-finance-statistical-release-2015-16.pdf
  2. House of Lords Economic Affairs Committee, the Economic Case for HS2 https://www.parliament.uk/business/committees/committees-a-z/lords-select/economic-affairs-committee/news/eac-hs2-press-release/
  3. Office for National Statistics, Ownership of UK Quoted Shares 2014 https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/ownershipofukquotedshares/2015-09-02#main-points
  4. Office for National Statistics, Investment by Insurance Companies Pension Funds and Trusts April to June 2017 https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/mq5investmentbyinsurancecompaniespensionfundsandtrusts/apriltojune2017#main-points
  5. Financial Times, 29th September 2017, Macron Slams Anglo-Saxon Tech Giants https://www.ft.com/content/efe954f4-a53a-11e7-9e4f-7f5e6a7c98a2
  6. YouGov Westminster Voting intention (24th-26th September 2017) https://yougov.co.uk/news/2017/09/27/voting-intention-conservatives-39-labour-43-22-24-/
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