This one is especially for Charlie:

 

Freeports competition seeks to turn the tide on red tape for industry

The first of the low tax, pro-business enclaves could be up and running this year

ByAlan Tovey,  INDUSTRY EDITOR31 January 2021 • 9:00am

The Chancellor Rishi Sunak visits The Royal Docks in London as he announces a new Freeports strategyCREDIT: HM Treasury

Billed by Chancellor Rishi Sunak as a way of “turbo-charging” post-Brexit Britain and regenerating regions “left behind”, freeports are touted as a means to reinvigorate the economy.

Freeport status offers tax breaks, easier planning consent and lower National Insurance on wages of staff employed in them. They also avoid customs tariffs, meaning goods can be landed there, manufactured to add value, then brought into the UK or exported. Friday is the deadline for bids to be designated a freeport to be submitted to the Treasury, with the Government having made the policy a key part of the “levelling up” agenda.

Sunak describes freeports as having the potential to “create national hubs for trade, innovation and commerce” that he sees as a way to “deliver lasting prosperity”.

About 30 bids are expected, with not only ports, but airports, business parks and regional authorities forming alliances to apply. Applications for the 10, possibly 12, awards will be assessed in March, with decisions in the spring. It’s hoped the first freeports could be operating before 2022. Tees Valley mayor Ben Houchen is one of their most vocal supporters.

In 2019, he submitted a paper to the Government predicting a freeport on the River Tees could create 32,000 jobs and add £2bn to the economy.

“Our bid is already delivering benefits,” he says. “We’ve got a foreign investor who would bring £100m of investment and 1,500 jobs insisting on being written into the terms of our bid, with them going ahead dependent on us getting freeport status.”

Freeports have been tried before in the UK, but were quietly shelved in 2012 when they didn’t deliver the benefits expected. Jackie Doyle-Price, the Conservative chair of the all-party maritime and ports group, believes this time will be different.

“Brexit means we are freed from the constraints of the EU, and we’ve got serious, credible bids with business and the public sector coming together,” she says. “Most of the land being looked at for inclusion around the sites is brownfield, ex-industrial. You can’t build houses on it.”

However, some are not so confident freeports will deliver. One industry insider describes them as “not so radical as you think”, saying many of the incentives can be offered under existing policies. Throwing cash at freeports to lure investors could also trigger a response from the EU, others warn. And they may not attract the kind of innovative jobs and quality businesses the Chancellor is desperate for, says Paul Swinney, research director at the Centre for Cities.

“Freeports attract a certain type of business that’s concerned by cost,” he says. “Manufacturing, certainly, but not ones that generate intellectual property.”

“High-tech, innovative employers don’t always go looking for low-cost locations,” adds Swinney. “They are willing to pay for talent, which often clusters, creating more expensive areas thanks to the higher wages they are willing to pay.”

Freeports are unlikely to be in such areas, he adds, meaning they tend to be most attractive to manufacturers, though their wages tend to be above average. “You can give freeports a glitzy title, but it’s industry they attract. Just look at Nissan; it does its production in low-cost Sunderland, but its design and engineering is around London.”

Freeports will avoid customs tariffs in a bid to make imports and exports smootherCREDIT: Simon Walker/HM Treasury

Indeed, Nissan hopes to benefit from freeports, joining a bid for an area stretching from the Port of Tyne to the carmaker’s Sunderland plant. Getting freeport status may mean components coming into the factory for assembly into cars which are exported is easier.

Although intended to level up, and probably with a focus on the North, as well as at least one each in Scotland, Wales and Northern Ireland, the pandemic means once-thriving areas have been economically devastated.

One source says “it’s a given” Heathrow would win freeport status if it bids, such is the damage to the area around the airport caused by the collapse in air travel.

A 1,600-acre bid for a London freeport backed by the Tilbury and Thames Gateway ports is also highly favoured. Doyle-Price, whose Thurrock constituency neighbours the site, has an interest in the creation of a local freeport. She argues to focus just on the North would be wrong: “Three of the country’s poorest towns are in my area.

“It’s simplistic to look North. There are places of deprivation even next to prosperous areas, and coastal communities particularly hard hit all around the country.”

Meanwhile, Houchen warns freeports “have to deliver”. “There’s no better example of levelling up than freeports,” he says.

“For a government elected by the ‘red wall’, people in those areas will want to see them in place and lifting their regional economies.” 

Can the Tories re-boot the UK economy?

 Scrapping the stamp duty cut would be a signal that the Conservatives are now a social democratic party

ALLISTER HEATH13 January 2021 • 9:30pm

What will the Tories stand for after Covid? Will they relearn to love lowish taxes and freeish markets? Or will the virus turn them into European-style social democrats, supporters of every public spending and social engineering scheme going? Will a year of wartime economics browbeat them into acquiescing to permanently higher taxes, or will they have the courage to return to their core principles to reboot the country after the worst pandemic since the Spanish flu of 1918-19?

With excess deaths at horrifying levels, and mortality surging when adjusted for age, the only immediate priority must be the race to vaccinate. If anything, the Government should be throwing even more money at the problem: officialdom’s apparent lack of urgency has been disgraceful.

Boris Johnson and Rishi Sunak were right to temporarily jettison macroeconomic orthodoxies last year. Emergencies require the suspension of ordinary rules: for now, the size of the budget deficit remains irrelevant. Yet at some point, hopefully sooner rather than later, we will have vaccinated enough older and vulnerable people, the Government will reopen our society, and it will become time to start talking about fiscal discipline again.

What then? Will the Tories, scenting a window of opportunity, jack up taxes on property, capital, petrol, inheritance and just about everything else, as some influential voices have repeatedly threatened? Down that road would lie madness and oblivion: every Tory once knew that high-tax economies grow more slowly than lower tax ones, and most still realise how stupid it would be to hammer the private sector as it exits the worst depression in centuries.

We will get the first inkling of the Government’s post-Covid ideological direction at Sunak’s Budget on March 3. It will, in the main, be a non-event: with the schools still shut and the economy trashed, propped up by furlough and massive subsidies, the Treasury rightly acknowledges that this won’t be the time for fiscal consolidation or long-term thinking. It will keep the spending taps wide open.

Yet there will be one ominous and bizarre exception: the temporary cut to stamp duty is set not to be extended. Yes, you read that right: while every one of the myriad Covid spending schemes – from furlough to subsidies for all of the industries crippled by lockdown – will remain, the one consumer tax cut introduced during this crisis will be reversed, even though it worked and repealing it would cause chaos.

It is apparently fine for the deficit to be bolstered by higher spending, but unacceptable for it to be increased by a tax cut. Is that really what passes for Tory thinking on the economy these days? If so, it would be time to panic; so let’s assume, instead, that this is simply a case of Treasury officials having been allowed to run riot, pasty tax-style, making use of the fog of war to pursue their longstanding obsession to tax property ever more heavily.

I hope that the Chancellor will step in, for the looming battle over stamp duty is a microcosm of the wider battle for a new Tory philosophy post-Covid. We need an economic policy reset: we will not pay for our way in the world simply by moving civil servants to the North, spending more on grands projets and banning carbon-emitting industries. Every low-growth country has already tried that: if high taxes, high-speed trains, fake decentralisation and urban metros were the answer, France would be the most successful economy in the world.

The Government can only succeed if it dramatically re-energises the private sector. We need (non-Covid) spending restraint, deregulation, planning reform, far more encouragement to entrepreneurship, an extension and radicalisation of the free ports idea and, yes, judicious tax cuts designed to spur growth, investment, mobility, risk-taking, work and business creation.

The Government has said that the larger Covid national debt won’t derail its manifesto commitments to spend more on infrastructure; in the same way, the virus’s fiscal legacy cannot become an excuse for massive tax hikes or a reason to prevent pro-growth tax cuts and a proper supply-side agenda. If that means a higher budget deficit for a period, so be it.

Stamp duty itself is one of the most destructive and irrational taxes in Britain. For decades, it was levied at trivially low levels, until Gordon Brown and then George Osborne weaponised it. It is one reason why the property market is so illiquid, why people move so much less than they did in the Eighties and a major psychological barrier to downsizing. Stamp duty’s burden is split between sellers, who suffer from a fall in the value of their home, and buyers, who cannot borrow to pay for the tax and are therefore forced to delay purchases for years. It symbolises a political system rigged against those who aspire to own their own home. Axing or cutting this ridiculous tax wouldn’t by itself cure the housing crisis, but it would begin to ameliorate it.

Property is already taxed more heavily in the UK than in any other OECD country, with stamp duty, council tax, business rates and the rest yielding twice the average at 4.1 per cent of GDP. But part of the reason for the reluctance to axe stamp duty is that it is seen by some in government as largely a London problem, and the capital has now shifted to the Left to such a degree that it is almost a Labour rotten borough. I have come across Tory MPs and advisers who ask, shamefully, why they should bother using up political capital to help young Lefties in Islington or Putney.

Yet the difficulty of buying their own home is one reason why so many younger professionals have embraced socialism, and this applies equally to Tory Southern England. During the general election, focus groups revealed that 30 and 40-something female voters in particular were being driven into Jeremy Corbyn’s hands by this problem. There is also a moral case for home ownership as the foundation of a conservative society.

It would be a political and economic calamity for the Conservatives to give up on free market economics after Covid, as Rishi Sunak understands full well. He should make his stamp duty holiday permanent, and in doing so remind his Tory colleagues that, pandemics notwithstanding, they are either the low-tax party or they are nothing.

Bank of England independence and credibility

 

Covid is a clear and present danger to the Bank of England’s independence

Philip Aldrick

Saturday January 09 2021, 12.01am, The Times

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Just over three years ago, the Bank of England celebrated two decades of independence. There was much to toast and luminaries who attended the event at London’s Fishmongers’ Hall made sure to raise a flute or two. Independence had consigned rampant inflation to history. Since Labour had given the Bank control over interest rates, inflation had averaged 2 per cent — bang on target. In the preceding two decades, it had been 6 per cent.

So successful had the Bank been that it may be managing itself out of a job, Andy Haldane, its chief economist, had suggested in a recent speech. Because the young had no reference point for high inflation, there could be “a less strong constituency for independence”.

Yet for all the reasons to celebrate, there was anguish at the conference, not back-slapping bonhomie. At the end of 2017, the Bank’s independence was under threat like never before. Several politicians were calling for the head of Mark Carney, the governor, claiming that he had abused the Bank’s code of impartiality by warning of a Brexit recession. Quantitative easing was being blamed for widening wealth inequalities because the money printed had been used to buy financial assets, sending those prices soaring. At Fishmongers’ Hall, a number of speakers argued bleakly that “peak” independence had been reached.

Over the following 12 months, the warnings subsided as the Bank raised rates twice to 0.75 per cent. But last year’s actions brought the issue of independence back into glaring focus. For many, the Bank crossed the Rubicon during the pandemic. Almost every penny of debt issued by the government to cover the cost of lockdown was matched by a penny of QE. If it looks like Zimbabwe-style monetary financing and smells like monetary financing, perhaps the central bank is financing the government’s deficit, they said.

Technically, the Bank is prohibited from buying government bonds directly from the state, but those private sector investors who buy the bonds are quite free to sell similarly dated ones to the Bank outside of the fortnight for which restrictions are in place. Sir Paul Tucker, a former deputy governor at the Bank, certainly is suspicious. He wrote last month: “It has been difficult to tell whether the Bank has reverted to being the Treasury’s operational arm.” For the 18 biggest investors in the market, it is not even a debate. The majority made clear in a Financial Times survey that the Bank was deliberately matching QE to government issuance to absorb the debt and keep the Treasury’s borrowing costs low.

Should markets conclude that the Bank is monetary financing, it would be a far worse threat to independence than angry Brexiteer MPs. Investors collectively would be saying that they no longer believed that the Bank was acting independently to keep inflation in check and would demand higher rates for their money.

To reclaim its independence, the Bank would have to raise rates to prove that it was fighting inflation. Policymakers effectively would be trapped. Either way, the real economy — and the government — would feel the harsh winds of higher borrowing costs. And politicians, who ply what Sir Paul calls “an opportunistic trade”, no doubt would attack the Bank for failing the country in its hour of need.

Quantitative easing risks opening the Bank to claims it is an arm of the Treasury

JASON ALDEN/BLOOMBERG/GETTY IMAGES

This year will be a serious test for the Bank. Every way you look, its options are narrowing. Economists reckon that the third lockdown will add another £30 billion to government borrowing on top of the £394 billion in the year to March and £160 billion in 2021-22. The Bank has committed a total of £450 billion of QE since the pandemic, £150 billion of which is for 2021, more than doubling its portfolio despite the concerns about inequality. In February, it is likely to accelerate the rate of purchases, buying more gilts every month to keep borrowing costs low in the latest round of the crisis.

At some point, the Bank will have to step back, either by reducing the purchase rate or because the £150 billion is spent. If private investors cannot soak up the debt issuance alone, then government borrowing costs, on which real economy rates move, will rise and the Bank may feel obliged to intervene with more QE. There are also calls for the Bank to use QE in the recovery so that the government can afford to ramp up infrastructure spending. Either would leave it open to accusations of monetary financing, with those associated risks.

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Another option to help to spur the recovery being investigated by the Bank is cutting rates from the present 0.1 per cent into negative territory, or giving banks subsidised funding so that they can reduce their lending rates, as the European Central Bank has done. But the Bank has less flexibility than the ECB.

With about £5 billion of capital and nearly £1 trillion of assets, it is one of the most leveraged institutions in the world. Central banks make money in a number of ways: through “seigniorage”, the return from selling banknotes at face value to cash operators; interest paid on the gilts held through QE; and the “cash deposit ratio”, a requirement that commercial lenders place non-interest bearing deposits at the central bank, which it can then invest in bonds.

Unlike the ECB, the Bank sweeps all the seigniorage and QE receipts back to the Treasury, leaving it with only limited cash deposit income. Were it to start subsidising commercial bank funding, it would quickly burn through its capital. At that point, the Bank would have to go cap-in-hand to the Treasury for a top-up from the taxpayer. Doing so would turn its actions from monetary into fiscal policy, only without electoral accountability.

What this all means is that the Bank’s balance sheet is another source of risk to its independence. Blurring monetary and fiscal policy would raise questions about its status and would give politicians who want to rein in its power a chance to rewrite the rulebook.

Assuming that the vaccine programme works, there should be a sharp economic rebound this year and, with it, the threat of higher inflation. Jettisoning the implication of monetary financing and reasserting its independence to prevent a loss of confidence in inflation targeting will be the Bank’s biggest task this year. If that means doing nothing while teeing up rate rises for the end of the year or 2022, so be it.

Philip Aldrick is Economics Editor of The Times

Nollidj....

 

Britain’s slump isn’t all it appears

Ed Conway
The Times

The UK suffered the biggest slump in 2020, according to the OECD club of nations, with GDP falling at an annual rate of 9.7%, worse even than Spain (8.7%), says Ed Conway. But while the report seems to confirm the idea that the UK has suffered a “uniquely dismal fate in the face of the virus”, there is a more likely explanation: that the figure reflects the way we calculate GDP. Back in 1997, when Gordon Brown started “pumping money into public services”, the more he spent the more GDP rose “because public-sector economic output simply equalled what we paid for it”. It made “no allowance for quality”. To reflect productivity better, the Office for National Statistics therefore began to base public-sector output on a basket of measures including elective operations and teaching hours. International bodies urged other OECD nations to do likewise, but it seems that few bothered. We don’t know for sure, but what we do know is that there is “no comprehensive benchmark” for the way GDP is calculated, and since government activity accounts for about one in every five pounds of Britain’s GDP, this matters. Viewed in this light, we can upgrade our slump to just “one of the worst”: hardly good news, but “one has to take what one can”

Green energy revolution?

 Some very interesting points in here for you guys; as some will know, Dominic Lawson isn’t a believer in the significance of climate change, so this must be interpreted through that:

The energy answer is not blowin’ in the wind

The rush to ‘net zero’ will most harm those No 10 pledged to prioritise

Dominic Lawson

Sunday January 10 2021, 12.01am, The Sunday Times

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You think the government’s policies over Covid-19 have been confused and contradictory? Compared with those it is pursuing in the field of energy and industry, they have been a model of good sense and intellectual rigour. But while shortcomings in the former are revealed within weeks, in mortality figures, flaws in energy policy take years to emerge — by which time the politicians responsible have comfortably retired from the scene.

But there are already straws in the wind. So to speak. Last week — as is not unusual in a British January — temperatures dropped below freezing, while wind speeds also dwindled. Result? To quote Tuesday’s edition of The Guardian: “Electricity market prices have surged tenfold in a day to reach a record high of £1,000 per megawatt hour ... wind turbines come to a virtual standstill only weeks after setting a new generation record.” According to one trader quoted in the article, the UK “is at much greater risk of blackouts this winter than the National Grid has forecast”.

It is wind power on which the government has staked this country’s energy future. Boris Johnson boasted absurdly that we would become the “Saudi Arabia of wind”, seemingly oblivious to the fact that the Saudis were enriched because they were able to export their oil globally and at vast proft margins. The effect of increasing our dependency on indigenous wind will only add to the likelihood of the sort of market panic we witnessed last week — and of blackouts.

This was set out with painful clarity by the late government chief scientific adviser Professor David McKay in 2016, 11 days before his death: “Because time is getting thinner and thinner I should call a spade a spade ... There is this appalling delusion people have that we can take this thing [renewables] and we can just scale it up and if there is a slight issue of it not adding up, we can just do energy efficiency. Humanity really does need to pay attention to arithmetic and the laws of physics.”

There are also the laws of economics. When launching his 10-point plan for a “green industrial revolution” (there are always 10, because prime ministers think they are Moses) Johnson promised a “green recovery — with high-skilled, high paid jobs”, and even gave precise numbers: 60,000 new jobs in offshore wind, for example. As the Financial Times’s Jonathan Ford observed: “According to the ... National Grid, the total cost ... of getting to net-zero is of the order of a thumping £160bn a year over the next three decades. It is hard to imagine that this wouldn’t create some jobs along the way ... But where are all these workers to come from? Most likely by diverting people from other, possibly more economically valuable pursuits.” Such as ones not subsidised by the taxpayer, or by energy users in the form of much higher bills — which is a form of impoverishment, not enrichment.

The people who will suffer most from the government’s equivalent of the USSR’s five-year plans (which had about as much economic sense) are precisely those on whom it relied for its election victory in 2019 — and whose fortunes it has pledged to restore. Last week the think tank Onward, in a report signed off by two former ministers, one Labour and one Conservative, pointed out that of the “10 million jobs” threatened by the government’s commitment to excise UK CO₂emissions by 2050, far and away the greatest concentration were in the former red wall constituencies that had put their faith in Johnson.

The report supported the net-zero plan wholeheartedly. It simply observed the result would be that “the industrial and manufacturing heartlands in the Midlands and the North are far more likely to experience economic disruption during the net-zero transition than the southeast and London ... That many of these places were worst hit from the deindustrialisation of the 1980s and 1990s reinforces this problem.” I’ll say. Not so much “levelling up” but pushing back down and then stamping on its neck.

British governments’ actions to date in adding more expensive non-fossil-fuel-based energy to the bills of industrial users have not only continued our deindustrialisation but have actually caused global emissions to increase, not decrease: the manufacturing has been outsourced, above all, to China, whose use of coal is more intensive than that of any European country. As Dieter Helm, the professor of energy policy at Oxford, puts it: “The story for the past 20 years is that in Europe we have been de-industrialising, and we’ve been swapping home production for imports, so even though it looks to the contrary, [our policies] have been increasing global warming.” Marvellous. Carry on, chaps. Just remember to turn the lights out as you leave. Assuming you could still afford to have them on in the first place.

All this, to reduce the likely global temperature average by an almost immeasurably small amount — given that the UK’s emissions are only about 1% of the planet’s total, a proportion that in any case is falling as China’s and India’s grow unchecked.

And will British governments remain Greta Thunberg-compliant when the voters realise what the policies mean to them personally? The fact that, ever since the fuel-price protests of 2000, no British chancellor has dared to reimpose the fuel price escalator tells us something about what happens when ideology encounters public resistance in a democracy.

It might also explain another thing that happened (very quietly) last week. The government decided to permit development of the country’s first new deep coal mine for 30 years. The pit will be in the Cumbrian constituency of Copeland, one of those former Labour strongholds that switched from red to blue. Its MP, Trudy Harrison, is the PM’s parliamentary aide. The pit will create about 500 local jobs and provide the coking coal indispensable for the blast furnaces of what remains of the country’s steel industry in Scunthorpe and Port Talbot.

Since the alternative would be to import the coal from, probably, Russia, or Australia, this is highly rational as well as politically expedient. The nearest Liberal Democrat MP, Tim Farron, complained: “It is disappointing yet unsurprising to see the Conservatives putting winning votes in marginal seats ahead of tackling the urgent and burning need to tackle the climate emergency.” Because, of course, the Liberal Democrats have always been known for their principled refusal to exploit local issues to retain parliamentary seats.

Anyway, the government does seem committed to spending well over a trillion pounds to make the country less productive and therefore poorer, to no perceptible benefit in terms of the future global climate. Apart from that, it all seems very sensible.