After correctly taking her time and postponing triggering Article 50 until the government's negotiating position is settled (still expected in early 2017 despite pressures from some to wait until September after French and German elections), PM May is beginning to make some decisions and decide what form Brexit will likely take.
Mrs May has correctly ruled out another general election. She could have capitalised on her party's huge poll lead over a warring and inward looking Labour party. But people have had enough of elections and it would only add to uncertainty in the unlikely event of a Labour election. But above all there is no rationale or precedent for a new leader to go to the country. We elect a party to government in this country not a PM. Similarly, a full vote on Brexit for parliament has been ruled out quite correctly as the people have already spoken, although it will be given "a say" on the process. Furthermore, a second referendum has also been ruled out, since if the terms of exit were defeated, this at best would increase the uncertainty, but most likely leave the country in limbo.
And above all, Mrs May has made clear that the government would pursue some form of hard Brexit. And that there would be no attempts to "stay in the EU by the backdoor". A hard Brexit will be much easier to negotiate from both a political and probably a technical perspective too. As the people voted for major control of borders and to take back their sovereignty, retaining membership of the single market will very likely be a non-starter. Thus the so-called Norway option is ruled out (although there may be a role in the interim period for this option).
Furthermore, it will be a bespoke one says Mrs May. So talk of an "off the shelf" option like the Swiss or Canada one has been rejected. Even so one might expect that the deal pursued would be close to a Canada plus deal. Under this option we would secure a free trade agreement with the EU in whatever sectors are covered by the agreement. Ideally this would cover services as well as manufacturing and agriculture. The key issue here however, is that the EU may not be willing to extend any agreement to services and above all financial services (despite the obvious benefit for consumers throughout the EU) given the UK has a large surplus and comparative advantage with the EU, so it would harm EU producers.
If the EU refused to extend to services, there is still plenty to be optimistic about in that we can revert to trading with the EU according to World Trade Organisation rules. Though we would be subject to the EU''s Common External Tariff (and to non-tariff barriers), we would cut out all the uncertainty of negotiations with the EU as well as maintain full control of borders and maintain sovereignty as promised to the electorate. But from an economic perspective we would be in a position to negotiate free trade deals with countries throughout the world much more quickly. For example, the infamous Transatlantic Trade and Investment Partnership (TTIP) free trade deal between US and EU is very unlikely to be concluded successfully ( which I hope to explain why in a future blog). The UK is much better placed to succeed in talks with the US and more speedily, contrary to the intervention of President Obama in the run up to the referendum. We could also negotiate trade deals with other countries, most notably Australia, NZ, Canada and Singapore with their shared values, but also other bigger countries like China and India again more easily.
Under hard Brexit we would be free to boost the supply side of the economy further, by lowering taxes, and reducing EU related regulations - boosting product and labour market flexibility. Our international competitiveness and growth prospects would be raised. In recent days the EU has shown it's interventionist, collectivist, centralising, protectionist and high tax tendencies through its failure of the TTIP and it's war on tax competition and Ireland. The UK is right to go it alone, particularly as it also plans to deepen European integration at the expense of non-euro zone countries. But the UK must also make sure that UK growth benefits everyone. This means getting rid of tax loopholes, perhaps as a complete overhaul and simplification of the tax system, clamping down on certain corporate behaviour, but also social justice.
Saturday, 3 September 2016
Friday, 19 August 2016
What type of Brexit will we get?
In my last blog, I discussed the daunting administrative and political challenges in exiting an organisation we have been a member for 43 years and of negotiating a new relationship with the EU and the rest of the world. When to trigger Article 50 will be a critical issue given the political timetable of elections in Germany and France, of European Parliamentary elections and finally UK elections in May 2020. This is particularly so when Article 50 gives us just two years from when it is triggered which is not a lot of time when you are dealing with 27 countries and given how long it takes to negotiate trade deals. Thus one likely option is an interim deal before a final agreement.
One of the principal options the UK could go down is the so-called Norway option. This involves membership of the European Economic Area (EEA). This gives full access to the single market but we would not need to participate in a number of EU policies including agricultural, fisheries, security, foreign, and justice. We could also negotiate trade deals with non-EU countries. However, I think this is exceedingly unlikely to be the favoured route. It would require free movement of labour which is clearly unacceptable to the majority of the population who voted to leave. Furthermore, it would also require us to be subject to EU regulations. Given the importance of sovereignty to much of the population and the Tory right, again this would be a red line that could not be negotiated on. Furthermore, the City has also said it does not like the idea of financial regulation being imposed over which it has no influence over. Finally, we would still have to make contributions to the EU budget, which could even exceed what we pay now, without any rebate being on offer.
More appetising would be some sort of Swiss-style deal. Switzerland has access to the single market without some of the burdens of membership. Even so it has involved some contributions to the EU budget and some acceptance of regulations. But the main downside has been acceptance of free movement of labour. In February 2014 Switzerland voted narrowly for quotas on EU immigration. This has put existing bilateral deals under threat. Yet there is talk of introducing an"emergency brake" procedure to halt immigration if the country becomes overwhelmed. Similarly there is now talk of an emergency brake lasting up to 7 years for the UK. This option is possible for the UK and given its greater leverage than Switzerland they would hope to negotiate a more favourable package although it could work against us. This is now seen as the favoured option for the City, an industry critical for the wealth of this country and potentially badly impacted from lack of access to the single market. It hopes to negotiate trade deals in individual sectors and secure asort of Swiss plus deal. While a number of EU leaders have expressed a willingness to secure a special deal, success will not be easy given not only the complexities but also that many EU players want to penalise the UK.
The final option I wish to mention is the World Trade Organisation (WTO) option. This is much favoured by the Brexiteers as it would not only enable us to "get back" our national sovereignty including control of borders and regulation but also have the freedom to agree trade deals with third countries and avoid contributions to the EU budget. Here the UK would rely on WTO rules for access to European markets but would be subject to the EU's external tariffs as well as non-tariff barriers. But this will not be easy either and take a number of years to achieve.
Given that the UK and EU's likely negotiating positions will start very far apart, this is perhaps still the most likely option. However I personally feel that the Swiss plus option will in the end be the path that we will go down and achieve, albeit over many years of painful negotiations.
One of the principal options the UK could go down is the so-called Norway option. This involves membership of the European Economic Area (EEA). This gives full access to the single market but we would not need to participate in a number of EU policies including agricultural, fisheries, security, foreign, and justice. We could also negotiate trade deals with non-EU countries. However, I think this is exceedingly unlikely to be the favoured route. It would require free movement of labour which is clearly unacceptable to the majority of the population who voted to leave. Furthermore, it would also require us to be subject to EU regulations. Given the importance of sovereignty to much of the population and the Tory right, again this would be a red line that could not be negotiated on. Furthermore, the City has also said it does not like the idea of financial regulation being imposed over which it has no influence over. Finally, we would still have to make contributions to the EU budget, which could even exceed what we pay now, without any rebate being on offer.
More appetising would be some sort of Swiss-style deal. Switzerland has access to the single market without some of the burdens of membership. Even so it has involved some contributions to the EU budget and some acceptance of regulations. But the main downside has been acceptance of free movement of labour. In February 2014 Switzerland voted narrowly for quotas on EU immigration. This has put existing bilateral deals under threat. Yet there is talk of introducing an"emergency brake" procedure to halt immigration if the country becomes overwhelmed. Similarly there is now talk of an emergency brake lasting up to 7 years for the UK. This option is possible for the UK and given its greater leverage than Switzerland they would hope to negotiate a more favourable package although it could work against us. This is now seen as the favoured option for the City, an industry critical for the wealth of this country and potentially badly impacted from lack of access to the single market. It hopes to negotiate trade deals in individual sectors and secure asort of Swiss plus deal. While a number of EU leaders have expressed a willingness to secure a special deal, success will not be easy given not only the complexities but also that many EU players want to penalise the UK.
The final option I wish to mention is the World Trade Organisation (WTO) option. This is much favoured by the Brexiteers as it would not only enable us to "get back" our national sovereignty including control of borders and regulation but also have the freedom to agree trade deals with third countries and avoid contributions to the EU budget. Here the UK would rely on WTO rules for access to European markets but would be subject to the EU's external tariffs as well as non-tariff barriers. But this will not be easy either and take a number of years to achieve.
Given that the UK and EU's likely negotiating positions will start very far apart, this is perhaps still the most likely option. However I personally feel that the Swiss plus option will in the end be the path that we will go down and achieve, albeit over many years of painful negotiations.
What type of Brexit will we get?
In my last blog, I discussed the daunting administrative and political challenges in exiting an organisation we have been a member for 43 years and of negotiating a new relationship with the EU and the rest of the world. When to trigger Article 50 will be a critical issue given the political timetable of elections in Germany and France, of European Parliamentary elections and finally UK elections in May 2020. This is particularly so when Article 50 gives us just two years from when it is triggered which is not a lot of time when you are dealing with 27 countries and given how long it takes to negotiate trade deals. Thus one likely option is an interim deal before a final agreement.
One of the principal options the UK could go down is the so-called Norway option. This involves membership of the European Economic Area (EEA). This gives full access to the single market but we do not need to participate in a number of EU policies including agricultural, fisheries, security, foreign, and justice. We can also negotiate trade deals with non-EU countries. However, I think this is exceedingly unlikely to be our favoured route. It would require free movement of labour which is clearly unacceptable to the majority of the population who voted to leave. Furthermore, it would also require us to be subject to EU regulations. Given the importance of sovereignty to much of the population and the Tory right, again this would be red line that could not be negotiated on. Furthermore, the City has also said it does not like the idea of financial regulation being imposed over which it has no influence over. Finally, we would still have to make contributions to the EU budget, which could even exceed what we pay now, without any rebate being on offer.
More appetising would be some sort of Swiss-style deal. Switzerland has access to the single market without some of the burdens of membership. Even so it has involved some contributions to the EU budget and some acceptance of regulations. But the main downside has been acceptance of free movement of labour. In February 2014 Switzerland voted narrowly for quotas on EU immigration. This has put existing bilateral deals under threat. Yet there is talk of introducing an"emergency brake" procedure to halt immigration if the country becomes overwhelmed. Similarly there is now talk of an emergency brake lasting up to 7 years for the UK. This option is possible for the UK and given its greater leverage than Switzerland they would hope to negotiate a more favourable package although this would not necessarily be so. This is now seen as the favoured option for the City, an industry critical for the wealth of this country and potentially badly impacted from lack of access to the single market. It hopes to negotiate trade deals in individual sectors and secure a sort of Swiss plus deal. While a number of EU leaders have expressed a willingness to secure a special deal, success will not be easy given not only the complexities but also that many EU players want to penalise the UK.
The final option I wish to mention is the World Trade Organisation (WTO) option. This is much favoured by the Brexiteers as it would not only enable us to "get back" our national sovereignty including control of borders and regulation but also have the freedom to agree trade deals with third countries and avoid contributions to the EU budget. Here the UK would rely on WTO rules for access to European markets but would be subject to the EU's external tariffs as well as non-tariff barriers. But this will not be easy either and take a number of years to achieve.
Given that the UK and EU's likely negotiating positions will start very far apart, this is perhaps still the most likely option. However I personally feel that the Swiss plus option will in the end be the path that we will go down and achieve albeit over many years of painful negotiations.
One of the principal options the UK could go down is the so-called Norway option. This involves membership of the European Economic Area (EEA). This gives full access to the single market but we do not need to participate in a number of EU policies including agricultural, fisheries, security, foreign, and justice. We can also negotiate trade deals with non-EU countries. However, I think this is exceedingly unlikely to be our favoured route. It would require free movement of labour which is clearly unacceptable to the majority of the population who voted to leave. Furthermore, it would also require us to be subject to EU regulations. Given the importance of sovereignty to much of the population and the Tory right, again this would be red line that could not be negotiated on. Furthermore, the City has also said it does not like the idea of financial regulation being imposed over which it has no influence over. Finally, we would still have to make contributions to the EU budget, which could even exceed what we pay now, without any rebate being on offer.
More appetising would be some sort of Swiss-style deal. Switzerland has access to the single market without some of the burdens of membership. Even so it has involved some contributions to the EU budget and some acceptance of regulations. But the main downside has been acceptance of free movement of labour. In February 2014 Switzerland voted narrowly for quotas on EU immigration. This has put existing bilateral deals under threat. Yet there is talk of introducing an"emergency brake" procedure to halt immigration if the country becomes overwhelmed. Similarly there is now talk of an emergency brake lasting up to 7 years for the UK. This option is possible for the UK and given its greater leverage than Switzerland they would hope to negotiate a more favourable package although this would not necessarily be so. This is now seen as the favoured option for the City, an industry critical for the wealth of this country and potentially badly impacted from lack of access to the single market. It hopes to negotiate trade deals in individual sectors and secure a sort of Swiss plus deal. While a number of EU leaders have expressed a willingness to secure a special deal, success will not be easy given not only the complexities but also that many EU players want to penalise the UK.
The final option I wish to mention is the World Trade Organisation (WTO) option. This is much favoured by the Brexiteers as it would not only enable us to "get back" our national sovereignty including control of borders and regulation but also have the freedom to agree trade deals with third countries and avoid contributions to the EU budget. Here the UK would rely on WTO rules for access to European markets but would be subject to the EU's external tariffs as well as non-tariff barriers. But this will not be easy either and take a number of years to achieve.
Given that the UK and EU's likely negotiating positions will start very far apart, this is perhaps still the most likely option. However I personally feel that the Swiss plus option will in the end be the path that we will go down and achieve albeit over many years of painful negotiations.
What type of Brexit will we get?
In my last blog, I discussed the daunting administrative and political challenges in exiting an organisation we have been a member for 43 years and of negotiating a new relationship with the EU and the rest of the world. When to trigger Article 50 will be a critical issue given the political timetable of elections in Germany and France, of European Parliamentary elections and finally UK elections in May 2020. This is particularly so when Article 50 gives us just two years from when it is triggered which is not a lot of time when you are dealing with 27 countries and given how long it takes to negotiate trade deals. Thus one likely option is an interim deal before a final agreement.
One of the principal options the UK could go down is the so-called Norway option. This involves membership of the European Economic Area (EEA). This gives full access to the single market but we do not need to participate in a number of EU policies including agricultural, fisheries, security, foreign, and justice. We can also negotiate trade deals with non-EU countries. However, I think this is exceedingly unlikely to be our favoured route. It would require free movement of labour which is clearly unacceptable to the majority of the population who voted to leave. Furthermore, it would also require us to be subject to EU regulations. Given the importance of sovereignty to much of the population and the Tory right, again this would be red line that could not be negotiated on. Furthermore, the City has also said it does not like the idea of financial regulation being imposed which it has no influence over. Finally, we would still have to make contributions to the EU budget, which could even exceed what we pay now, without any rebate being on offer.
More appetising would be some sort of Swiss-style deal. Switzerland has access to the single market without some of the burdens of membership. Even so it has involved some contributions to the EU budget and some acceptance of regulations. But the main downside has been acceptance of free movement of labour. In February 2014 Switzerland voted narrowly for quotas on EU immigration. This has put existing bilateral deals under threat. Yet there is talk of introducing an"emergency brake" procedure to halt immigration if the country becomes overwhelmed. Similarly there is now talk of an emergency brake lasting up to 7 years for the UK. This option is possible for the UK and given its greater leverage than Switzerland they would hope to negotiate a more favourable package, although this is hardly guaranteed. This is now seen as the favoured option for the City, an industry critical for the wealth of this country and potentially badly impacted from lack of access to the single market. It hopes to negotiate trade deals in individual sectors and secure a sort of Swiss plus deal. While a number of EU leaders have expressed a willingness to secure a special deal, success will not be easy given not only the complexities but also that many EU players want to penalise the UK.
The final option I wish to mention is the World Trade Organisation (WTO) option. This is much favoured by the Brexiteers as it would not only enable us to "get back" our national sovereignty including control of borders and regulation but also have the freedom to agree trade deals with third countries and no contributions to the EU budget. Here the UK would rely on WTO rules for access to European markets but would be subject to the EU's external tariffs as well as non-tariff barriers. But this will not be easy either and take a number of years to achieve.
Given that the UK and EU's likely negotiating positions will start very far apart, this is perhaps still the most likely option. However I personally feel that the Swiss plus option will in the end be the path that we will go down and achieve albeit over many years of painful negotiations.
One of the principal options the UK could go down is the so-called Norway option. This involves membership of the European Economic Area (EEA). This gives full access to the single market but we do not need to participate in a number of EU policies including agricultural, fisheries, security, foreign, and justice. We can also negotiate trade deals with non-EU countries. However, I think this is exceedingly unlikely to be our favoured route. It would require free movement of labour which is clearly unacceptable to the majority of the population who voted to leave. Furthermore, it would also require us to be subject to EU regulations. Given the importance of sovereignty to much of the population and the Tory right, again this would be red line that could not be negotiated on. Furthermore, the City has also said it does not like the idea of financial regulation being imposed which it has no influence over. Finally, we would still have to make contributions to the EU budget, which could even exceed what we pay now, without any rebate being on offer.
More appetising would be some sort of Swiss-style deal. Switzerland has access to the single market without some of the burdens of membership. Even so it has involved some contributions to the EU budget and some acceptance of regulations. But the main downside has been acceptance of free movement of labour. In February 2014 Switzerland voted narrowly for quotas on EU immigration. This has put existing bilateral deals under threat. Yet there is talk of introducing an"emergency brake" procedure to halt immigration if the country becomes overwhelmed. Similarly there is now talk of an emergency brake lasting up to 7 years for the UK. This option is possible for the UK and given its greater leverage than Switzerland they would hope to negotiate a more favourable package, although this is hardly guaranteed. This is now seen as the favoured option for the City, an industry critical for the wealth of this country and potentially badly impacted from lack of access to the single market. It hopes to negotiate trade deals in individual sectors and secure a sort of Swiss plus deal. While a number of EU leaders have expressed a willingness to secure a special deal, success will not be easy given not only the complexities but also that many EU players want to penalise the UK.
The final option I wish to mention is the World Trade Organisation (WTO) option. This is much favoured by the Brexiteers as it would not only enable us to "get back" our national sovereignty including control of borders and regulation but also have the freedom to agree trade deals with third countries and no contributions to the EU budget. Here the UK would rely on WTO rules for access to European markets but would be subject to the EU's external tariffs as well as non-tariff barriers. But this will not be easy either and take a number of years to achieve.
Given that the UK and EU's likely negotiating positions will start very far apart, this is perhaps still the most likely option. However I personally feel that the Swiss plus option will in the end be the path that we will go down and achieve albeit over many years of painful negotiations.
Thursday, 18 August 2016
The complexity of implementing Brexit
One of the main themes of my blogs will be Brexit. I have largely avoided focusing on this so far. We all know in the words of PM May that "Brexit means Brexit" is her government's slogan. Yet in reality we dot not know what Brexit will be. There are so many options to consider with the trade-off between access to the single market and the control of the borders at the root of most of them. Certainly a key decision for the government will be to set out its strategy including its red lines. I shall return to these options in future blogs.
What is becoming clearer is the complexity of these negotiations. Not only will there need to be talks covering the UK's divorce from the EU, but there will have to be talks on securing a free-trade agreement with the EU, one likely for interim measures, another with the World Trade Organisation to regain full membership, some on securing free trade deals with non-EU countries and even more talks with the EU on foreign and defence policy etc.
None of these talks will be easy, yet the civil service and the three key departments of the Foreign Office, Brexit and international trade are ill-prepared. There is now talk that article 50 of the Lisbon Treaty, which gives us just 2 years to sort everything out before leaving the EU, may not be triggered until late 2017, with additional problems of the French elections next May and German elections next September to be considered. Yet this would push back Brexit to late 2019 dangerously close to our own general elections in May 2020. Furthermore, such a long period of uncertainty will be damaging economically.
Thus it is imperative the new government not only makes clear it's negotiating situation, but unifies it's own party and the nation as a whole - neither of which will be easy. It must emphasise business as usual, reassuring different sectors of the economy such as farmers and science that they will not lose out, and that EU nationals can still work here. The country should take maximum advantage of a more competitive currency and loosen fiscal policy to boost aggregate demand in these uncertain times.
What is becoming clearer is the complexity of these negotiations. Not only will there need to be talks covering the UK's divorce from the EU, but there will have to be talks on securing a free-trade agreement with the EU, one likely for interim measures, another with the World Trade Organisation to regain full membership, some on securing free trade deals with non-EU countries and even more talks with the EU on foreign and defence policy etc.
None of these talks will be easy, yet the civil service and the three key departments of the Foreign Office, Brexit and international trade are ill-prepared. There is now talk that article 50 of the Lisbon Treaty, which gives us just 2 years to sort everything out before leaving the EU, may not be triggered until late 2017, with additional problems of the French elections next May and German elections next September to be considered. Yet this would push back Brexit to late 2019 dangerously close to our own general elections in May 2020. Furthermore, such a long period of uncertainty will be damaging economically.
Thus it is imperative the new government not only makes clear it's negotiating situation, but unifies it's own party and the nation as a whole - neither of which will be easy. It must emphasise business as usual, reassuring different sectors of the economy such as farmers and science that they will not lose out, and that EU nationals can still work here. The country should take maximum advantage of a more competitive currency and loosen fiscal policy to boost aggregate demand in these uncertain times.
Tuesday, 16 August 2016
First hard data for UK economy post-Brexit
This week is being seen as an important week by many in the markets for evidence of the impact of the Brexit vote on the UK economy. We have the first hard data for July for inflation, for unemployment, for retail sales and for the public finances.
Sterling has fallen further against a background of a package of monetary policy easing measures and the disappointment of the latest gilt auction, reinforcing the prospect of further monetary policy easing, with Base rates likely to be reduced to 0.1% from their present 0.25% in the coming months, and raising the likelihood of fiscal policy measures in the forthcoming Autumn Statement. Certainly prospects are that sterling will remain weak against this background and little expectation of clarity regarding the UK's Brexit negotiating position.
But I don't believe in reality that there will be much light shed on the initial impact of the Brexit vote on the UK economy this week. The plunge in the pound is unlikely to have fed through in July's CPI numbers much, with base effects and a sharp rise in petrol prices predominating. The excellent UK economists at Oxford Economics expect the inflation rate to remain at 0.5% y/y. I personally believe the impact further out will be more modest than consensus. Unemployment is a lagging indicator so expect the rate to remain at its near 11 year low of 4.9% or even fall back slightly. Perhaps the most eagerly expected release will be retail sales, given the importance of consumer spending for driving UK growth. Key survey data has given us conflicting stories. The official data has been especially volatile of late and I would anticipate we will not be able to conclude anything much because of the noise.
The plunge in sterling should be very positive for the UK economy as we aim to boost exports particularly in light of poor current account data. Anecdotal data shows a very strong upturn in tourism from foreigners taking advantage of a cheap pound and increased staycation.
The feelgood factor from our sporting successes continues too. The UK amazingly lies second in the Olympic medals table equal to the combined total of Germany and France, and ahead of China. It could even be more successful than in London 2012! The success of the National Lottery, introduced by the Major government, has contributed most of the £350m into UK sport for the Olympics and Paralympics. Money is focused on those sports where we are successful. But the fact is that the number of sports we are successful in is increasing. We have also done well in swimming, diving and gymnastics this time as well as in rowing, sailing, cycling and equestrian where we lead the world. The National Lottery may be a regressive tax in effect but this is not a reason to abolish it.
Sterling has fallen further against a background of a package of monetary policy easing measures and the disappointment of the latest gilt auction, reinforcing the prospect of further monetary policy easing, with Base rates likely to be reduced to 0.1% from their present 0.25% in the coming months, and raising the likelihood of fiscal policy measures in the forthcoming Autumn Statement. Certainly prospects are that sterling will remain weak against this background and little expectation of clarity regarding the UK's Brexit negotiating position.
But I don't believe in reality that there will be much light shed on the initial impact of the Brexit vote on the UK economy this week. The plunge in the pound is unlikely to have fed through in July's CPI numbers much, with base effects and a sharp rise in petrol prices predominating. The excellent UK economists at Oxford Economics expect the inflation rate to remain at 0.5% y/y. I personally believe the impact further out will be more modest than consensus. Unemployment is a lagging indicator so expect the rate to remain at its near 11 year low of 4.9% or even fall back slightly. Perhaps the most eagerly expected release will be retail sales, given the importance of consumer spending for driving UK growth. Key survey data has given us conflicting stories. The official data has been especially volatile of late and I would anticipate we will not be able to conclude anything much because of the noise.
The plunge in sterling should be very positive for the UK economy as we aim to boost exports particularly in light of poor current account data. Anecdotal data shows a very strong upturn in tourism from foreigners taking advantage of a cheap pound and increased staycation.
The feelgood factor from our sporting successes continues too. The UK amazingly lies second in the Olympic medals table equal to the combined total of Germany and France, and ahead of China. It could even be more successful than in London 2012! The success of the National Lottery, introduced by the Major government, has contributed most of the £350m into UK sport for the Olympics and Paralympics. Money is focused on those sports where we are successful. But the fact is that the number of sports we are successful in is increasing. We have also done well in swimming, diving and gymnastics this time as well as in rowing, sailing, cycling and equestrian where we lead the world. The National Lottery may be a regressive tax in effect but this is not a reason to abolish it.
Thursday, 11 August 2016
Hinkley. Should we say no?
Last year, the Conservatve government under PM Cameron and Chancellor Osborne, announced a series of economic initiatives with China which was said to have started a "golden era" between the two countries. But new PM May's government, surprised everyone recently when they put on hold final approval for a new nuclear power station at Hinkley Point, in South-West England, so they could review it. The new French-built power station, was set to receive some US8bn in Chinese investment for the project.
It has been said that PM May is reviewing it principally because of security concerns with China's role in the project. That this is the reason, is based on a blog post from her chief of staff and comments from former government (but Liberal-Democrat) Vince Cable. In any case such fears are probably overblown given that security checks are rigorous, that China's role is purely on the money side and that any attempt of China to compromise our national security would damage China's reputation and ability to work on infrastructure investments in the West again.
In any case, there are far more important reasons to cancel this project. John Maynard Keynes, the greatest economist of the 20th century, is purported to have said, "that when the facts change, I change my mind. What do you do sir?" Well the facts have changed since the original decision to back the project was made in 2010. As the Economist magazine reported on August 6th the project now looks "extraordinarily bad value for money". The UK has promised to pay some £92.50 per megawatt hour for Hinkley's output compared with wholesale prices of some £40 today, and perhaps lower in 2025 when it due to open. Furthermore we have promised to pay this for 35 years! Yet the government has reduced the forecast cost of producing electricity from various renewables in 2025 by a third for onshore wind and by nearly two-thirds for solar power - both well below the £92. They will only come down further after 2025. Renewables are the future, and big new nuclear power stations like Hinkley (which would fulfil some 7% of our needs) have no real future and certainly with such price guarantees. In the short-run we will need more electricity, but these should be from gas-powered plants, that can be built quickly, run cheaply and turned on and off quickly to offset fluctuations in renewable supply.
What of the relationship with China? Well the Chinese are clearly not happy. And it is not great timing, when we have a Brexit to implement, when we are emphasising trade deals and being open to the rest of the world and when our economic relationship was already lagging Germany and France's relationship with the Middle Kingdom. However, it should be made clear that the decision to not go ahead with Hinkley is purely a financial one. There may be a short-term impact on the relationship but I am confident it can flourish. There is a lot more than nuclear power out there. However, there is a final point. At this time of a possible economic downturn and virtually 0% gilt yields, there is no reason why the UK cannot fund far more infrastructural projects itself!
It has been said that PM May is reviewing it principally because of security concerns with China's role in the project. That this is the reason, is based on a blog post from her chief of staff and comments from former government (but Liberal-Democrat) Vince Cable. In any case such fears are probably overblown given that security checks are rigorous, that China's role is purely on the money side and that any attempt of China to compromise our national security would damage China's reputation and ability to work on infrastructure investments in the West again.
In any case, there are far more important reasons to cancel this project. John Maynard Keynes, the greatest economist of the 20th century, is purported to have said, "that when the facts change, I change my mind. What do you do sir?" Well the facts have changed since the original decision to back the project was made in 2010. As the Economist magazine reported on August 6th the project now looks "extraordinarily bad value for money". The UK has promised to pay some £92.50 per megawatt hour for Hinkley's output compared with wholesale prices of some £40 today, and perhaps lower in 2025 when it due to open. Furthermore we have promised to pay this for 35 years! Yet the government has reduced the forecast cost of producing electricity from various renewables in 2025 by a third for onshore wind and by nearly two-thirds for solar power - both well below the £92. They will only come down further after 2025. Renewables are the future, and big new nuclear power stations like Hinkley (which would fulfil some 7% of our needs) have no real future and certainly with such price guarantees. In the short-run we will need more electricity, but these should be from gas-powered plants, that can be built quickly, run cheaply and turned on and off quickly to offset fluctuations in renewable supply.
What of the relationship with China? Well the Chinese are clearly not happy. And it is not great timing, when we have a Brexit to implement, when we are emphasising trade deals and being open to the rest of the world and when our economic relationship was already lagging Germany and France's relationship with the Middle Kingdom. However, it should be made clear that the decision to not go ahead with Hinkley is purely a financial one. There may be a short-term impact on the relationship but I am confident it can flourish. There is a lot more than nuclear power out there. However, there is a final point. At this time of a possible economic downturn and virtually 0% gilt yields, there is no reason why the UK cannot fund far more infrastructural projects itself!
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