Category: Economics

A Christmas Parable and Productivity

No this is not an examination of how Santa Claus gets around the whole world in one night. But as my last post before Christmas, let me explain how I have automated the sending of Christmas cards over the last thirty years. I am by nature a lazy person, so handwriting and addressing the family’s Christmas cards was a task I chose to tackle with some automation many years ago. The first step was to put friends, family and business contacts into a contact management software product. This enabled me to reuse the same list every year, maintain it with changes easily, and once per year print self-adhesive mailing labels. More latterly I have used an email delivery service to distribute many of my Xmas “cards” electronically which included short newsletters in some years. Only a few cards now get posted to the favoured few or those not on email, thus saving postage costs.

So productivity before Christmas in terms of use of my time has improved enormously, and I can now send out hundreds of “cards” for less expense than the tens sent previously.

The Government is very concerned about the poor productivity of the economy in the UK. It has not been improving, and hence wages are unlikely to rise. The above parable shows it is necessary to do three key things to improve productivity: 1) Invest in new technology (in the above case, several software products); 2) adopt new ways of doing things (i.e. there needs to be cultural changes) and 3) invest time in learning how to use the new technology (education).

Obviously in business terms, such investment tends not to take place when labour is cheap or free (the equivalent of asking your spouse to hand address the cards). But even then there are still benefits from automation such as reducing postage costs, and reducing the environmentally damaging costs of transporting millions of cards around the country.

There was an interesting letter in the Financial Times recently from Andrew Smithers. He said “In the real world investment decisions are made in the interests of management [not of shareholders as in the classic economic model]. As a result of the change in the way managements are paid (that is the bonus culture) they are encouraged to prefer buy-backs to investment. This is the root cause of poor productivity.”

That is indeed one of the key problems. Typical bonus schemes such as LTIPs pay out based on earnings per share which are enhanced by share buy-backs. Just a few years ago for a company to buy its own shares was illegal. Perhaps we should revert to that situation? Alternatively outlaw such bonus schemes.

Another reason why productivity is not improving is that the incentives for the chief executives of public companies to invest for the long term is minimal. Their length of tenure before they retire or move to another company is so short that they would be mad to take risks in adopting new techniques or changing business processes. Indeed their pay is now so high that they don’t need to stick around for more than a few years before they have made enough money to feel secure in a comfortable retirement.

These are the issues the Government needs to tackle if UK productivity is to improve.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Industrial Strategy – Is It More Than a PR Document?

Yesterday the Government published their “Industrial Strategy” – subtitled “Building a Britain fit for the future”. This is a “White Paper” that lays out how the Government plans to tackle the issues identified in a previous “Green Paper”. Does it have any relevance to investors views of the prospects for UK companies and the economy as a whole? I will try to answer that question later.

It certainly reads positively with glowing comments on the history of innovation in the UK, the great business environment, record levels of employment, vibrant culture, best universities in the world…….I could go on but you can read the whole 255 page document if you want more of the same.

But there are four “grand challenges” it focuses upon as key themes in improving our competitiveness and productivity:

  • Artificial intelligence and big data.
  • Clean growth.
  • The future of mobility.
  • Meeting the needs of an ageing population.

These will be supported by investment via an “Industrial Strategy Challenge Fund” (Government funding but matched by commercial investment), plus increasing R&D tax credits and putting more money into R&D investment. Education in STEM subjects (Science, Technology, Engineering and Mathematics) will be enhanced with the establishment of a technical education system and a National Retraining Scheme. This is surely all sound (speaking as an engineer by education) because it is surely clear that poor productivity in the UK is the result of poor education and skills compounded by cultural biases against technology.

There is a big emphasis on improving productivity in this document which is definitely to be applauded. We cannot grow the economy by simply opening more cafés and gastro pubs.

As regards infrastructure there is money to support 5G and fibre optic networks, and support for electric vehicles. In addition the Government expects self-driving cars to be on our roads by 2021 – that’s only four years away. I am sceptical of what might happen when my top of the range SATNAV (not that inbuilt in the car which is hopeless) managed to get me lost in London only yesterday. As John Thornhill said in an interesting article in the FT today that “technology promises to free us from the human touch that caused millions of deaths [on the roads worldwide], but then quoted one tech executive as saying “the assumption that you can go from 1m road deaths to zero is very naive”.

There is also a commitment to “transform construction techniques” where old fashioned methods of house building, which are hopelessly labour intensive, remain in use. In another sector they will improve teaching of computer science and invest £20m in a new “Institute of Coding”, presumably to teach computer programming. I have to advise them as a former programmer that coding is an inefficient way of developing applications and teaching folks how to do it rather than implement systems in other ways is a retrograde step. This is surely a case of the Government fighting the new economic wars with old tactics.

Likewise a commitment to invest in AI, when it’s been around for many years but has yet to revolutionise the world, could be seen as unreal when it is unclear how that will have a big impact. AI is a myriad of technologies that might have impacts in many cumulative minor ways, but it’s the detail that matters.

In many ways this document is big on vision, but short on specifics (other than the few things I have mentioned above). It will take consistent follow through to make a concrete success of these policies – not something our existing political system is best designed to achieve.

So my conclusion is that it is a valiant attempt to guide the UK economy in the right future direction. Whether it will have a major impact or success remains to be seen. It may have little impact on the decisions by UK companies, who are always wary of Government hand-outs or policy changes.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Budget Feedback, the Patient Capital Review and Productivity

My last post was on the Chancellors Budget which was written quickly but seems to have covered most of the important points. Perhaps one significant item missed was the additional liability of foreign investors for capital gains tax on property sales, although institutional investors may be exempt. This might have some impact but as the details are not yet clear, it remains to be seen what.

Otherwise the media feedback on the budget was generally positive although there was a big emphasis on the poor economic forecast for growth that the Chancellor announced. The OBR has substantially reduced growth forecasts which is one reason why debt will not be falling as quickly as previously indicated and future tax revenues will likewise be lower. Part of the problem is a failure to improve productivity. This also means that average wages in real terms may not grow as expected.

Why did I not comment on this? Because firstly economic forecasts (the OBR or anyone else’s) are notoriously unreliable, and secondly it makes little difference to most UK investors. It might suggest it would be wiser to invest more in overseas companies than UK ones, but in reality many UK companies have major revenues and profits from abroad. In any case, a lot of investors have already hedged their portfolios against the possible damage of a “hard Brexit” by adjusting their portfolios somewhat.

My experience is that investing based on country economic forecasts is very questionable. Good companies do well irrespective of the state of the general economy.

Patient Capital Review

On Budget day the Government (HM Treasury) also published their consultation response to the “Patient Capital Review” – or “Financing Growth in Innovative Firms” as it is officially called. You can find it on the internet. This review was aimed to review incentives to invest in early stage companies with a view to promoting more investment in such companies as part of the attempt to improve productivity in the UK economy. It potentially had significant impacts for investors – for example on the EIS and VCT tax reliefs. What follows is an attempt to bring out the key points:

The review considered not just the tax incentives, and whether they were effective, but whether more direct investment (supported directly or indirectly by the Government) should be undertaken. They got more than 200 written responses to the original consultation on this subject (see mine here: http://www.roliscon.com/Roliscon-Response-to-Financing-Growth-in-Innovative-Firms.pdf ), plus some on-line responses and they also used a panel of industry experts.

Although they have not published all the responses or broken them down in detail, one gets the impression that most respondents considered that the VCT/EIS regime was generally effective in stimulating investment in early stage companies and that there were few abuses. But the Treasury had expressed concern about some of the investments made in EIS/VCT companies which were often focussed more on “asset preservation” than in funding new growing businesses. So the rules are being tightened in that regard – see below.

A personal note: having invested in two EIS schemes that promoted country pubs the asset preservation capability might have made for a good sales pitch by the promoters but they subsequently turned out to be very poor investments even after the generous EIS tax reliefs. One is being wound up with the assets being sold for much less than purchased while the other one only made any money after it turned into a bailiff business subsequent to a shareholder revolt. The Government’s policy of ensuring a focus on “riskier” investments might actually be good for the investors as well as the economy! It will avoid inexperienced investors getting sucked into dubious investments by sharp promoters who can make even lemons sound attractive because of the generous tax reliefs.

On the support for new investment front, the Government is taking these steps:

  • Establishing a new £2.5 billion Investment Fund incubated in the British Business Bank with the intention to float or sell once it has established a sufficient track record. By co-investing with the private sector, a total of £7.5 billion of investment will be supported.
  • Significantly expanding the support that innovative knowledge-intensive companies can receive through the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) while introducing a test to reduce the scope for and redirect low-risk investment, together unlocking over £7 billion of new investment in high-growth firms through EIS and VCTs.
  • Investing in a series of private sector fund of funds of scale. The British Business Bank will seed the first wave of investment with up to £500m, unlocking double its investment in private capital. Up to three waves will be launched, attracting a total of up to a total of £4 billion of investment.
  • Backing first-time and emerging fund managers through the British Business Bank’s established Enterprise Capital Fund programme, supporting at least £1.5 billion of new investment.
  • Backing overseas investment in UK venture capital through the Department for International Trade, expected to drive £1 billion of investment.
  • Launching a National Security Strategic Investment Fund of up to £85m to invest in advanced technologies that contribute to our national security mission.

In addition the Pensions Regulator will clarify guidance on inclusion of venture capital, infrastructure and other illiquid assets in portfolios and HM Treasury will encourage defined contribution pension savers to invest in such assets.

Entrepreneur’s Relief rules will be changed to reduce the disincentive to accept more outside investment, and the Government will also look at a guarantee programme modelled on the US “Small Business Investment Company”.

They will also work with the Intellectual Property Office on overcoming the barriers to high growth in the creative and digital sector. What this implies is not clear. Does that mean they are suggesting introducing software patents perhaps?

Several gaps in the investment market for early stage or follow-on funding were identified but one telling comment from the expert panel was this: “…the UK venture capital market has historically delivered poor returns; this results in less capital being attracted to the asset class, which in turn results in less talent being attracted to the patient capital sector; this then depresses returns, completing the circle”. But they did suggest this could be fixed.

There apparently were many comments on the importance of the EIS/SEIS schemes for funding innovative businesses – for example: “EIS and SEIS incentives have been particularly effective at stimulating investment and are extremely valuable to bioscience investors”. But I suspect that has been of more benefit to companies raising capital than it has been in terms of achieving long-term positive returns for investors. It is a pity not more evidence was provided on that.

The Treasury response is to double the annual investment limit to £2 million for EIS investors, so long as any amount over £1 million is invested in knowledge-intensive companies. Also the annual investment limit for knowledge-intensive firms will be doubled from £5 million to £10 million for EIS and VCT companies, and a new fund structure for such firms will be consulted upon. There will also be more flexibility on how the “age limit” is applied for companies applying. Question: what is a knowledge-intensive company? The answer is not given in the Treasury’s response.

A “principles-based” test will be introduced for all tax-advantaged venture capital schemes. This will ensure that the schemes are focussed “towards investment in companies seeking investment for long-term growth and development”. Tax motivated investments where the tax relief provides most of the returns to investors will be ruled out in future. There must be “a risk to capital” for firms to qualify. Detailed guidance will be published on this and there are some examples given in the response document, although it is far from clear from those what the rules might be. Comment: as this is going to be “principle-based” rather than based on specific rules it looks like a case of the Treasury saying “we can’t say what is objectionable now but we will know when we see it”. This might create a lot of uncertainty among VCT and EIS fund managers and company advisors.

The rules for VCT investments will also be tightened up with the following changes:

  • from 6 April 2018 certain historic rules that provide more favourable conditions for some VCTs (“grandfathered” provisions) will be removed
  • from 6 April 2018, VCTs will be required to invest at least 30% of funds raised in qualifying holdings within 12 months after the end of the accounting period
  • from Royal Assent of the Finance Bill, a new-anti abuse rule will be introduced to prevent loans being used to preserve and return equity capital to investors. Loans will be have to be unsecured and will be assessed on a principled basis. Safe harbour rules will provide certainty to VCTs using debt investments that return no more than 10% on average over a five year period
  • with effect on or after 6 April 2019 the percentage of funds VCTs must hold in qualifying holdings will increase to 80% from 70%
  • with effect on or after 6 April 2019 the period VCTs have to reinvest gains will be doubled from 6 months to 12 months

Comment: these changes would not seem to cause great difficulties for VCT managers and should not affect the returns to investors. Some of the changes might be helpful. The feedback from VCT managers is awaited.

But the income and capital gains tax reliefs for investors are basically unchanged, as is Business Property Relief on “unlisted” companies such as AIM stocks which were both mooted as being under consideration. As I wrote in my previous blog post on the budget, at least the Chancellor and the Treasury seem to have minimised the changes which is always helpful for investors. Being unable to plan many years ahead because of taxation rules and levels continually changing has been a major problem for investors. So on that score alone, the budget is to be welcomed.

As regards Entrepreneurs’ Relief, the government is concerned that the qualifying rules of Entrepreneurs’ Relief should encourage long-term business growth. The rules will therefore be changed to ensure that entrepreneurs are not discouraged from seeking external investment through the dilution of their shareholding. This will take the form of allowing individuals to elect to be treated as disposing of and reacquiring their shares at the then market-value. The government will consult on the technical detail. Comment: this seems to be yet another complication to taxation rules which is unfortunate.

Productivity

These changes to the tax incentivised schemes, and the Government investment in funds, may assist to improve the productivity of the UK population by focussing on high growth technology businesses. One cannot improve productivity by employing more coffee bar baristas, and such jobs are always likely to remain low paid. The budget change to increase the National Living Wage (the Minimum Wage) from next April will also promote improvement in productivity as it will make employers consider investment in automation rather than simply employing more staff.

There is also investment in infrastructure committed to in the budget, which might assist. Is it not the case that productivity is reduced because of the distances and time wasted in commuting in the South-East of England? The transport network (road or rail) is truly abysmal in the UK and has been getting worse. This means that folks are tired before they even get into work. The encouragement of commuting by cycle also surely results in tired and unproductive staff. It might be fashionable, and good for their health in the long term, but is it good for the economy? Unfortunately the housing market has been made more inflexible in recent years in some respects so people cannot move nearer to their workplace. Stamp duty increases have deterred moving to reduce travel costs, and higher house prices in some areas have not helped. For example, this writer recently met someone who lives in Southampton when his employer was based in Oxford – he could not afford to move. The reduction in stamp duty for first-time buyers in the Budget is not going to make a big difference to these problems.

So overall the Budget changes are more “nudges” in the right direction to improve the economy, while not being revolutionary. The Government’s tax base is not undermined and investors tax planning not significantly affected, so Philip Hammond may find he is in the job longer than expected after all.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Brexit, and the Finances of the Young

The national media continue to try to turn news into controversy. Their words are often incendiary and designed to provoke debate and therefore attention – as a means no doubt of promoting their publications. So their headlines become “verbal click-bait”.

As most people now read news on the internet, the publishers could be considered as acting as “trolls”. Here is the definition in Wikipedia of an internet troll: “In Internet slang, a troll is a person who sows discord on the Internet by starting quarrels or upsetting people, by posting inflammatory, extraneous, or off-topic messages in an online community with the intent of provoking readers into an emotional response or of otherwise disrupting normal, on-topic discussion…….”

Written words are not the only example. Laura Kuenssberg of the BBC has adopted a similar verbal approach in her reporting. It’s not just Labour party members who should be complaining about her hysterical style.

There were a couple of news items this week that caught my attention in this area. There were several comments on the report issued by the FCA on family finances. The report indicated that half of UK adults were “financially vulnerable” and that those in their 20s and 30s were reliant on borrowing (personal loans and credit card debt). It reported that one fifth of 25-34 year olds have no savings at all with many struggling to pay bills. But this was interpreted by some of the media as the new “generational divide”.

But was it not always so? I certainly don’t recall having much in the way of savings at the age of 30 and lived from month to month, sometimes using credit card debt. In other words, I doubt that the situation has been changing over time; although the elderly have become better off lately due to rising state pensions I am not convinced the young have been getting poorer. But the media like to put a “spin” on any news item to grab attention.

As the report shows, the elderly do have more savings as one might expect but they are not evenly distributed. One amusing statement in the report is “A high proportion of retirees do not know how much savings they have”.

It’s a report well worth reading although rather long at almost 200 pages. Here is one useful titbit of information from it: “Around one in five (22%) 45‑54 year olds hold a stocks and shares ISA and the same proportion hold shares or equities directly”. It would have been good to obtain more detail information on that but it just shows there are a lot of shareholders out there.

Another example of media hysteria is the reporting on the Brexit negotiations. Will it be a hard or soft Brexit? Will the bill be £20 billion or £100 billion? Are Tories threatening to quit if there is any compromise, or revolt against the rule of Theresa May? Will Jeremy Corbyn scupper the whole affair by underming the Bill going through Parliament to support it? Who really knows, but it all makes for good headlines.

The Financial Times has become one of the leaders in scare mongering over Brexit with regular articles of a polemic nature by Martin Wolf and Simon Kuper on the topic. The latest example was by Martin Wolf in yesterdays FT. Now I have never thought much of Mr Wolf’s opinions on financial matters since he supported the nationalisation of Northern Rock, but his latest article (headlined “Zombie ideas about Brexit that refuse to die”) is pure hysteria. I don’t mind the occasional editorial opinion piece on Brexit, or some reporting on the potential technical difficulties if not slanted, but this piece was just propoganda in essence. It pointed out all the difficulties associated with a “hard” Brexit where no trade deal is agreed beforehand, but that is well known and most folks do not think that is likely. It certainly did not give a balanced view of the arguments for or against Brexit and what our negotiating stance should be. In reality there is likely to be a compromise of some kind – that is what politics usually ends up being about – compromise after compromise. Indeed it is one of the frustratations of anyone in the political world that achieving revolutions, rather than compromise, is not just difficult but exceedingly time consuming.

It is certainly regrettable that the Financial Times, since its takeover by Nikkei in 2015 has become much more politicised, and there is less factual reporting and more opinion. Perhaps it is just pandering to the views of most of its readers (the London-centric financial players and international businessmen) but if they expect to influence politicians or the wider community they will be disappointed.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Back to the Jeremy Corbyn Future

With the latest revelations from the Labour Party conference, we now know what their policies are likely to be if elected. These include

  • Nationalisation of the railways and utilities (including National Grid).
  • Scrapping all Private Finance Initiative (PFI) deals by buying out the owners with Government debt.
  • Rent controls in the private housing sector.
  • Reform of leaseholds.
  • Workers in the gig economy will get full employment rights.
  • The NHS will get more money.
  • Student loan debts will be written off (at least it’s an “ambition”).

Now some of these policies are not totally daft (the last four for example), even if the cost is probably unaffordable at tens of billions of pounds. But for those of my readers who do not remember the times when we had rent controls, and nationalised industries back in the 1960s and 70s, let me remind you.

Rent controls meant that rents stayed low, but private rented housing pretty well disappeared as a result over the years from 1950 to 1960. Nobody would invest in rented housing when they could get better returns on other investments. Or it promoted the spread of Rachmanism where landlords would allow properties to run down and then use aggressive tactics to remove sitting tenants. In other words, a great example of the usual “unintended consequences” of economically illiterate policies.

The control of industries by politicians and civil servants created hopelessly inefficient industries like the nationalised railways, the car industry and the coal industry which should have been shrunk in size well before Mrs Thatcher took steps to do so.

There would of course be an enormous flight of capital from the UK if these policies were implemented, and it seems the shadow chancellor is already anticipating a run on the pound. What he could do about it other than get the IMF to bail us out is not clear. To remind my younger readers, this is exactly what happened back in 1976 under Prime Minister James Callaghan when the IMF enforced massive cuts in the UK’s budget deficit as a condition of a large loan (the UK had been living beyond its means for some years, and building up large debts, very much like recent years under another socialist government who invented PFI deals to enable them to borrow money without putting it on the Government balance sheet – but the interest payable has now caught up with us). Would a new socialist Government simply default on the contracts or borrow even more money to get out of the PFI deals? Either way it looks a grim financial future for UK Plc.

The last Labour Government made a big mistake when they nationalised a small UK bank called Northern Rock – we just passed the year anniversary of that event. That proved disastrous when other banks such as Bradford & Bingley, RBS, HBOS, et al, who were dependent on short term money market lending needed liquidity. Nobody was keen to lend to UK institutions so British banks and the UK economy were some of the hardest hit worldwide by the events of 2008/9.

As for renationalising the railways, they may get more subsidies from the Government now than they did when they were last nationalised, but ridership has increased, new tracks are being laid, and services improved. The problem was surely the nature of the privatisation and the fact that all railways are horribly inefficient and an inflexible means of moving goods and people around. Old technology, beloved by users who do not have to face up to paying the real cost of the service.

So the policies of Mr Corbyn and his colleagues may be exhilarating for LabourParty supporters, but no I don’t want to go back to a future set in the 1960s. Been there, done that, and no thanks.

But if the Conservatives wish to win the next election, they certainly need to look at tackling employment law to bring it up to date for the gig economy, to tackle the problem of funding education and relieve students of the enormous debts they are now incurring, to deal with the problem of insufficient housing in the South-East (and associated over-population which is the cause) which is leading to demands for rent controls, and tackle the thorny question of funding the NHS. Yes we need some new ideas, not old policies recycled Mr Corbyn.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Interest Rates and the Gig Economy

You probably don’t need to be told that interest rates are at their lowest for several centuries, if not in recorded history. The fact that the Bank of England is making noises about possibly raising base rate could just be a way to try and rein back inflation (a higher base rate, or prospect of it, causes the pound to rise and that makes imports cheaper – and import costs have been one of the factors in inflation rising). But unemployment is also at its lowest level for 40 years which usually indicates a booming economy and the prospect of higher inflation to come.

Inflation is now at 2.9% measured by the C.P.I., or 3.9% based on R.P.I. which a lot of us like to use instead. Now to me the really astonishing item of news last week was that the large City of London Investment Trust managed to borrow £50 million at a fixed rate of 2.94% for 32 years (I do hold some of their shares). That’s must be one of the best deals ever surely, and shows how investment trusts have the advantage of being able to gear up by borrowing money – and why not when interest rates are so low?

In reality, the lender is not even getting a real positive rate of interest at current inflation rates, and is also betting that it won’t get any worse for the next 32 years. Astonishing, and just shows how the world economy is awash with cash.

Another couple of interesting items of news last week were that Deliveroo lost £129 million in 2016 according to accounts filed at Companies House, on revenue of £129 million. In other words, for every pound paid by customers, they lost a pound. It’s raised $472 million from investors to achieve this wonderful business model (source: FT).

Deliveroo use “self-employed” bike couriers to deliver restaurant meals. Another exponent of this “gig-economy” model is Uber who received the bad news last week that Transport for London were terminating their license to operate in London. More information on that in this blog post I wrote for the ABD: https://abdlondon.wordpress.com/2017/09/23/uber-kicked-out-of-london/ . In there I praised the merits of the service and suggested people sign the petition against it (which is rapidly heading for a million signatures).

But one reason that it is so low cost is because like Deliveroo, Uber loses money in a big way at present. To quote from one report on its financials, “Uber is cheap because the company is heavily subsidising each trip” where it was suggested that Uber’s losses as a percentage of revenue were 129% in the last quarter of 2016. Like Deliveroo, revenue is rising rapidly though.

Do we mind if these companies lose money hand over fist? If they are fool enough to do so in the race to dominate a new market why not let them. But the long term viability of both when there are obviously lots of competitors providing similar services does raise doubts about these businesses, even if London Mayor Sadiq Khan relents over Uber’s license.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Brexit, and Ryanair

The media continue to try and blow up stories out of all proportion. Lately it has been on the likely terms of a Brexit deal with the EU, and Boris Johnson’s claims about the £350 million per week paid to the EU at present.

The reality on the latter is that the Daily Telegraph article by Boris claimed we would “regain control” over £350 million paid to the EU (which was based on a Treasury paper on the full EU membership fee (£19.5 billion per annum, which I think everyone will agree is a lot of money). However, that’s not the net cost to the UK because we get a rebate on membership as negotiated by Mrs Thatcher which reduces it to £14.6 billion, plus we get a lot back in the form of subsidies and grants – for example from the Common Agricultural Policy (CAP). A rough estimate is that we get back between £5 and £6 billion from those. So the net figure is more like £9 billion per annum, but that’s still a lot of money. For example, the NHS budget for this year is £124 billion, so you can see the impact that an extra £9 billion might have.

But Boris was accurate in the sense that we have little control over the £5 to £6 billion of grants and subsidies. The UK has long wanted to reform the CAP which is more designed to subsidise inefficient continental European farmers than keep food prices low in the UK. Subsidies of some kinds to some farmers might continue in the UK post Brexit, but in a different form and possibly lower. But only with Brexit will the UK regain control so we can manage these matters more rationally. What most “remainers” seem to ignore is that a lot of the Brexit voters voted to leave because of wanting to get out of the undemocratic EU where UK voters had no significant influence, we were a small fish in a big pond, and likely to be outvoted on any major issues. Mr Juncker’s recent speech made it clear that the EU was headed for a closer political and economic union which many UK voters have found abhorrent. Historically most UK voters supported joining the “common market”, but they never wanted to join a “United States of Europe” with EU laws and bureaucrats dominant and were misled by UK politicians who did. That certainly applied to the existing EU structure and calls for democratic reform have gone nowhere.

There was a very good article in the FT yesterday by former Chancellor Nigel Lawson (no relation) on Brexit where he points out that the Office of Budget Responsibility forecasts the cost of EU membership to fall from £12.6 billion in 2018/19 to zero in 2019/20. Nigel also said “Those who say that a good trade deal is in the best interests of the EU and the UK alike fail to understand what the EU is about. It is not about economics at all. It is a political enterprise, dedicated to the achievement of full political union”. He discounts the problem of “no trade deal” based on the ability to trade under WTO terms. James Dyson recently indicated he saw little problem with that also.

Should we pay to access the Common Market, in a “transition” phase or permanently? It obviously depends on what deal is put on the table, but the attitude of the EU Commission so far suggests it won’t be a good one. In my view the UK can prosper without close involvement with the EU and without paying anything other than contractually committed minimums as part of the exit process. The UK can prosper based on its own resources and the trade with other international partners than the EU, so if they don’t want tariff free access to the UK, then we can give up tariff free access to theirs. It might just stimulate UK manufacturing so we don’t have to rely on buying German cars, washing machines, refrigerators, et al.

Ryanair

One of the folks complaining about the possible impact of Brexit is Michael O’Leary, CEO of Ryanair. He suggests flights from the UK to Europe may be halted unless a deal is done to cover flight access.

But Ryanair has been hit lately by problems with crew scheduling that have resulted in cancellation of many flights. The service to the affected passengers has also generated numerous complaints. It just looks like an operational cock-up, compounded by abysmal management responses thereafter to mollify customers.

Now I have a motto of never flying Ryanair after an event over 15 years ago. I was booked to fly on Ryanair out of Stansted but a hijacked plane was diverted to land there. The radio news said the airport was closed so I diverted to another airline via City airport to get to Dublin on time for a business meeting. Ryanair claimed Stansted was never closed (not true I believe) and refused to pay compensation.

Anyone who follows the news will know of repeated complaints from passengers about the behaviour of Ryanair. Being low cost surely does not justify the low quality of service. It’s the kind of company I would not just avoid flying with, but also investing in.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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First blog post

This blog is written by Roger W. Lawson and covers topical news and comment on investment (particularly stocks and shares), on corporate governance, on company management, on economics, on transport, on art, on events in London and on local and national politics. It will also cover anything else that I feel may be of general interest to my readers or where I have a burning desire to discuss a topic.

As some readers may know, I have been writing articles and blog posts on stock market investment for many years, more recently mainly for ShareSoc – an organisation for private investors. I will continue to do so as I support the objects of ShareSoc, therefore you may find similar blog posts on their web site as appear here.

This blog may cover a wider remit though in that I won’t shy away from controversial issues as much as a “responsible” national organisation has to do. In this case you are simply getting my personal opinions, but I will of course always try to get the facts straight to support any stance. If that offends some people then so be it. One cannot produce interesting and lively articles while pandering to the sensitivities of everyone in this world.

It will also cover some other areas of interest to me than stock market investment.

I hope you find it a good read.  Review what it says in the “About” section for more background information.

Roger Lawson