Sunday, May 22, 2016
We hate EU red tape - but others are tied up more than we are, and there'll be no bonfire of it
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

A few weeks ago I came across a woman who told me that she was voting to leave the European Union because it had stopped her buying traditional light bulbs. She was, pun intended, incandescent.

I suggested that this was not a very sensible basis on which to base a decision but she was having none of it. The EU had gone too far. I tell the story because it illustrates a wider theme, the perception that Brussels is foisting things on us that, were we to leave, we would no longer have to do; that it is strangling us in its unnecessary red tape.

In the case of incandescent light bulbs, the position is clear and entirely the opposite of that perception. Hilary Benn, environment secretary in the Labour government, announced in 2007 an agreement with retailers to phase out the sale of incandescent light bulbs by 2011. Britain, he said, was “leading the way”.

His initiative came two years before an EU agreement to phase out the bulbs. In this, as in many things, the EU was going with the flow. Most countries have plans in place to phase out old-fashioned energy-inefficient bulbs. In Britain, I should say, nearly a decade after Benn led the way in banning them you can still buy them if you know where to go.

It would be unfair to blame my light bulb lady. For years, blaming Brussels for most things has been the default position of a significant proportion of the media and, it should be said, quite a lot of politicians. The EU provides good cover.

Nor will this stop. The Arthur Daleys abound in the referendum debate. I heard one the other day giving a ludicrous figure for the cost of EU regulation, repeat the now discredited £350m a week figure we “send” to Brussels and claim most businesses in Britain favour Brexit. They don’t. Every credible business survey, covering firms from the large to the very small, show a net position in favour of staying in the EU, apparently in spite of all that red tape.

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Sunday, May 15, 2016
Amid all the referendum excitement, the long wait for a rate hike goes on
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Thursday’s Bank of England inflation report press conference was, by my calculation, the 29th since interest rates last changed. I may have missed one or two but sat though most.

If you think that’s a burden, think of the members of the monetary policy committee (MPC) itself. The latest “no change” verdict from their May monthly meeting was the 86th in a row. The personnel have changed along the way, and MPC members would not doubt say there was nothing they would rather have been doing. But no wonder, perhaps, the Bank is reducing the number of MPC meetings from 12 to eight a year.

There was a time when the Bank was expected to be the first of the big central banks to hike rates. Then, when it became clear that America’s Federal Reserve would be the first-mover, which it was last December, that the MPC would follow soon after. Now, it is fair to say that there is more speculation about a cut than a rise.

Part of that, of course, arises from the part of the Bank’s inflation report that Mark Carney, its governor, described as “the elephant in the room”. Its view that a decision to leave would have “material economic effects”, including weaker growth, higher inflation and rise in unemployment, was explicit.

Sterling would fall, “perhaps sharply”, and: “Aggregate demand would also likely fall, relative to our forecast, in the face of tighter financial conditions, lower asset prices, and greater uncertainty about the UK’s trading relationships. Households could defer consumption, and firms could delay investment. Global financial conditions could also tighten, generating potential negative spillovers to foreign activity that, in turn, could dampen demand for UK exports.”

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Sunday, May 08, 2016
Housing: a simple story of supply and demand
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Let me take a break from the heat of the Breferendum debate this week and enter the calmer but only slightly less contentious waters of the housing market. Another set of elections have passed, amid ambitious promises to sort out the problems of housing. I think I can guarantee that when these elections are next held in a few years’ time those problems will still not have been sorted out.

Britain’s housing problem is easily described. There is plenty of housing demand but not enough supply. And, while it has been possible to comfort ourselves in recent years with the fact that supply, while inadequate, was moving in the right direction, it now appears that it no longer the case.

In such a situation there is only one outcome, prices will rise and housing will become more unaffordable. It is not unaffordable to the vast majority of existing home owners, most of have substantial equity in their properties and continue to benefit from very low mortgage rates. If housing was unaffordable to the majority, prices would fall.

But the problem of unaffordability impacts particularly on new entrants, the first-time buyers faced with a dauntingly large first step to get on the housing ladder. Hence the renewed interest in the leg-up role of the Bank of Mum and Dad, which according to Legal & General is part-funding at least a quarter of mortgages this year. And hence the return of the 100% mortgage from Barclays, an idea which had apparently perished in the ashes of the banking crisis, though this one comes with more strings attached (in the form of parental support) than was the case then.

Let me start with housing supply. One of the best indicators of supply is provided by NHBC, the old National House Building Council. It provides building guarantees, and all but a fraction of new homes being built are registered with it.

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Sunday, May 01, 2016
There's no magic money tree if we leave the EU
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

There are two things that even the most casual observer of the EU referendum debate will have heard. One is that we “send” £350m a week to Europe. The other is, in a pattern familiar in politics, those who favour Brexit have come up with various ways in which this money could be better spent, the latest being to settle the junior doctors’ dispute.

If there is one thing I can impress on you as we approach our date with destiny on June 23, it is to expunge that £350m figure from your mind, because it is wrong. That is not an easy thing to do because it is so often said. But ignore any politician who says we send £350m a week to the EU. Tear up any leaflet that makes that claim.

A second thing I would urge is to reject what I would call the crude accountancy approach to Britain’s contribution to the EU budget, or others might term a reductio ad absurdum about this debate. In other words, the effect on Britain’s public finances, or for that matter the balance of payments, will be dwarfed by the wider effects of a decision to leave the EU. The analogy is not perfect, but it is a bit like deciding whether or not to buy a prestigious car on the basis of the cost of replacing the wiper blades. There is a lot more to it than that.

Let me start with the contribution itself. The odd thing about the £350m figure is that it is widely used by many Brexit campaigners who profess admiration for Margaret Thatcher, while conveniently ignoring the EU rebate she successfully negotiated at Fontainebleu in 1984 and which for three decades has reduced Britain’s budget contribution before anything is “sent” to Brussels.

The rebate has outlasted her, and it will outlast the current generation of politicians should Britain remain in the EU. The rebate was worth £4.4bn a year in 2014, the latest full year for which data is available, and averaged of £3.5bn over the period 2010-14. It is deducted from the £17.4bn annual gross contribution over that period.

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Sunday, April 24, 2016
In or out of the EU, we need a euro with stronger foundations
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

There are now just two months to go (two months!) to the referendum and as promised another instalment in my series on the economic issues. So this week, the euro. Do the single currency’s flaws mean we would be better off leaving the EU?

A few days ago the Treasury produced a comprehensive and rather impressive 200-page assessment of the impact of EU membership and the alternatives, taking the economic debate to a new level. I suspect most of its critics either have not read it or did not understand it. This week the Paris-based Organisation for Economic Co-operation and Development (OECD) will be the latest heavy-hitter to warn of the consequences of Brexit.

Even the most sophisticated economic modelling cannot, however, either product or sufficiently allow for disaster and crisis, as we saw in 2008. What if the subsequent near break-up of the euro was just one of a series of damaging convulsions that will be the norm for the eurozone in coming decades?

The euro and I go back a long way. Two decades ago, with my former colleague Andrew Grice, we had the world exclusive on the single currency’s name. Like all great stories, it did not make it onto the front page.

In 1999, my book Will Europe Work? was published, which concluded that the euro, as it had been set up, could not. The euro lacked the conditions of a so-called optimal currency area and would struggle. When it was published I encountered a small army of enthusiasts for early UK membership of the euro. They included Adair Turner, now Lord Turner, when he was director-general of the CBI. He has since admitted that he was wrong to advocate membership. Most of the others have airbrushed it from their memories.

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Saturday, April 16, 2016
Let's hope it's just fear of Brexit hitting growth
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

The sun has been shining, the birds singing and the days getting longer. But if the economy has a spring in its step it is keeping it well hidden. That squelch you hear underfoot is a soft patch.

The National Institute of Economic and Social Research, which uses official data and other information to calculate gross domestic product a monthly basis, reckons growth slowed to just 0.3% in the first quarter, half its rate in the final three months of last year, and its slowest since late 2012.

The British Chambers of Commerce, in its latest quarterly survey a few days ago, reported that growth had softened in the first quarter, “with most key survey indicators either static or decreasing”.

A similar message has been emerging from the monthly purchasing managers’ surveys compiled by Markit, the information services provider. As Chris Williamson, its chief economist, put it: “Survey data indicate a slowing in UK economic growth in the first quarter, with the suggestion that the pace is more likely to ease further rather than recover in coming months as business confidence remains unsettled by worries at home and abroad.”

In fact, though these things can change, it has been hard to find very much of cheer in the recent numbers. Even consumers appear to have been letting the side down. The British Retail Consortium reported that the value of retail sales in March was flat compared with a year earlier, with so-called like-for-like sales down by 0.7%. It ascribed this “relatively disappointing” picture to the timing of Easter, though in the past Easter has often provided a spending boost.

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Sunday, April 03, 2016
Britain would struggle to maintain inward investor appeal after Brexit
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

The referendum on Britain’s membership of the EU is still more than two months away, though the campaign seems to have been going on forever. Given that most election campaigns do not get properly in their stride until the final weeks, I cannot offer any early relief.

Instead, as promised, I will continue my series on the economic aspects of Leave and Remain. Shortly before the referendum, all these will be pulled together in a single piece and a verdict.

So far I have done five pieces. I began last November with trade, pointing out if you leave the EU then, unless you replicate the conditions of membership (including free movement of people and a budget contribution) you lose the single market. There is a lot of misunderstanding about that, mainly because many do not appreciate the difference between a trade agreement and the single market.

At the start of the year I warned, even when talk was of global risks to the recovery, that the referendum represented the biggest threat to Britain, a theme that has since been widely taken up. In February I looked at migration, under the heading economically beneficial, politically toxic.

I also examined in February at how Britain’s relative economic performance had improved since we joined the European Economic Community (EEC), the EU’s forerunner, in 1973. Mark Carney, the Bank of England governor, got into trouble with some Tory MPs for making a similar point. Finally, ahead of the budget, I wrote about how the chancellor would be seeking to emphasise the economic dangers of Brexit, while presenting a safety-first budget to minimise referendum risks. Whether or not he succeeded with the first, he failed with the second.

Today, let me examine another aspect of the economic debate, inward investment into Britain. The starting point, overwhelmingly supported by the evidence, is that EU membership has been good for inward investment, particularly foreign direct investment (FDI), for entirely logical reasons. The question is whether Britain’s attractions for inward investors could be maintained outside the EU.

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Sunday, March 27, 2016
A big rise for the low paid - will it cost jobs?
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

On Friday this week, the biggest government intervention in wage-setting since the introduction by the Blair government of the minimum wage in 1999 will occur.

The national living wage of £7.20 an hour for the over-25s will come into force. It is, curiously, exactly double the original minimum wage of £3.60 an hour of April 1999. More importantly, it is 50p an hour, or 7.5%, above the existing minimum wage of £6.70 an hour.

It seems a long time since George Osborne announced his version of the living wage in his post-election budget last July. Iain Duncan Smith, who had apparently not been told in advance, celebrated with some energetic fist-pumping on the floor of the House of Commons. It was probably the moment of maximum togetherness between the chancellor and the former work and pensions secretary.

Incidentally, there has been far too much excitement about the supposed “black hole” in the public finances following the abandonment of the disability cuts that supposedly provoked Duncan Smith’s departure. £4.4bn between now and the end of the parliament and £1.3bn in 2019-20 does not constitute even a pale grey hole. There are many much larger challenges on the chancellor’s rocky road to a budget surplus, not least the questions of whether he will ever raise fuel duty and the cost of further raising the personal tax allowance and higher rate threshold.

But back to the living wage. It was, in many ways, a curious policy announcement from a Tory chancellor. At the time I noted that had the election turned out differently, and the living wage had come from Ed Balls in an Ed Miliband government, the response might have been quite different. Many in business, and many commentators, would I suspect have said that it was an intervention that showed how little Labour understood how the economy really worked.

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