The UK should decline to pay the extra EU tax

The answer is No.

We do not impose extra tax on people for past years after the year is settled.

Nor do we intend to pay them.

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The four freedoms of the EU

 

We are being reminded that members of the EU have to obey the four freedoms, the freedom of movement of capital, people, goods and service provision.

These should come as no surprise to us, as they were in the original Treaty of Rome. They are not some new addition from more recent federalising treaties. These later treaties  have added a common foreign and defence policy, economic and monetary union, common citizenship and criminal justice integration amongst others. These features have been opposed by Conservatives, voting against Nice, Amsterdam and Lisbon. The UK has an opt out from the Euro and is not committed to  the criminal justice and defence unions. The four freedoms were effectively approved by the British people in the referendum of 1975, when people ignored voices like mine pointing out the full implications of these radical changes to our constitution.

The reasons we need another referendum include the fact that many voters today were not old enough to vote or were not born in 1975, and the fact that most senior politicians in 1975 assured UK voters that they were just voting for a trade agreement or common market. They could point to the fact that in those days the UK still had a veto over any new proposal. Things have changed a lot since then. Many voters in 1975 failed to read the Treaty of Rome so they did not understand the free movement provisions. They understand them  now, thanks to events.

One of the reasons it was possible for the Labour government in 1975 and other leaders to say it was no more than a common market was the inability of the European Community then to enforce many of the things that were in the original Rome Treaty. The Treaty dealt with balance of payments imbalances and said “recognising that the removal of existing obstacles calls for concerted action in order to guarantee steady expansion, balanced trade and fair competition”. Instead large trade imbalances persisted and the EEC took no action to help the UK, a large deficit country.

The Treaty said it would reduce “the differences existing between various regions and backwardness of the less favoured regions”. Instead the gap between the successful and richer parts of the EEC  and the rest in many cases  grew bigger.

The Treaty began with the aim of laying “the foundations of an ever closer union among the peoples of Europe”. It said it would abolish “the obstacles to the free movement of persons, services, and capital” and would  eliminate customs duties and quantitative restrictions on the movement of goods.

Today the free movement of people needs limiting. The UK wishes to control its own benefits system.There should be no automatic right for new arrivals to qualify for the range of out of work or in work benefits that UK citizens enjoy. The UK wishes to control its own criminal justice system, and be able to send back to their own countries criminals who have broken our laws. The UK also wishes to limit numbers seeking lower paid work in our country, all the time there are UK citizens without jobs who might be better off from such work.

It is no good the rest of the EU saying these changes cannot be made because of the underlying principle. There are several underlying principles of the modern EU which the UK does not accept, including the all important monetary union. If they wish us to stay in they need to change the arrangements so we can control our own borders.

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The UK needs a wage rise

This is a potentially  popular campaign  which need not be the monopoly of the Unions. The main aim of Conservative policy is to encourage and foster an economic recovery which will raise real wages and living standards for the many. I am all in favour of people getting on in the world, being promoted, getting pay awards for their performance and for the value of the work they bring to the company or institution.  I have no wish to live in a low wage country.

The latest average earnings figures still show average earnings rising a little slower than inflation. This is six years after a major cut in living standards in the Great recession under the last government. However, within that average there are a lot more lower paid jobs which are better than being out of work which drive down the average. There are also  more opportunities for advancement thanks to the general growth in the economy. The best way into a better paid job is to have a less well paid job and work your way up. It is more difficult if you have been out of work for a long time. Being in work gives you better access to training and opportunity. The way to command a higher rate of pay is to bring more skill and value to your employer or customers.

The September ASDA income tracker shows an extra £6 a week average discretionary income compared to a year ago. At least the figures are rising, not falling. Wages in manufacturing and construction are now picking up.

Labour says the answer is a higher Minimum wage. They have promised one around the likely levels to be set by the independent quango that fixes these things. The rising Minimum wage does not flow through pound for pound to the earner, because Minimum wages for most people are topped up by income related benefits. What matters more is the minimum income, which is a combination of minimum wage and income top up from the state. The level of the Minimum wage does not look like much of a differentiator between the three main Westminster parties.

There are two important elements to a strategy to give the UK a pay rise that Labour do not mention so much. The first is getting proper  control of our borders, so more of the jobs go to UK citizens, and so there is less downward pressure on wages from many new migrants. The second is government policies which support rising productivity. In the end we can only have higher real wages if we work smarter and better, so that our output is more highly valued. The government’s work on apprenticeships, training and improved educational standards is a vital part of getting the UK a pay rise.

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Spectator Debate Today on Iraq and Syria

The Spectator are hosting a debate today at Church House Conference Centre, Great Smith Street, Westminster at 7 pm.

I shall be speaking for the motion; ‘Iraq and Syria are lost causes, western intervention can’t help’.

More details, including on other speakers, are available on http://events.spectator.co.uk/events/iraq-and-syria-are-lost-causes/

 

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Real public spending increases rapidly, especially on capital investment

Yesterday’s figures for September 2014 and the first half of the 2014-15 fiscal year show spending and borrowing on the rise.

Social security benefits are up by 5.4% on September a year earlier, despite the good progress in getting more people into work. Other current public spending is up by 3.1%. Capital spending is up by 42%. As a result of this substantial increase in nominal and real public spending, total borrowing so far this fiscal year is £58 billion, £5.4 bn more than for the same period last year.

VAT revenues are up by 4%. Capital Gains Tax revenues remain very depressed, owing to the higher rate this government has introduced. It is running at around half the level of the pre crisis peak in the last decade. PAYE income tax revenues are up, but so are tax credit expenditures. Overall tax on income and wealth shows no gr0wth at all. The combination of a good policy of taking people out of Income tax at the lower end, and the self defeating policy of trying to hit people with higher rates at the upper end has meant no rises in receipts.

Taxes on alcohol and tobacco are also failing to produce extra revenues. Petroleum Revenue Tax effectively disappeared in the last quarter. The government raised just £18 m in three months as oil prices fell and North Sea output dropped.  Our EU contributions so far this year total £5.7 billion, and public sector pensions this September at £3.5bn were 28% higher than August or October  last year.

In the remaining months of the year government needs to get a grip on its spending, and revisit its approach to taxing so it gets more by charging rates people will pay.  A  20% Capital Gains tax should bring in more money, for example.

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The NHS is not a great election issue for Labour

 

Labour’s lack of ambition in going for a core vote 35% strategy is matched by the dangers of making the NHS the centrepiece of that approach. So far the more they mention the NHS the more their vote stays in the low 30s.

The first idiocy of it is the General Election in 2015 will not be about the NHS in Scotland or Wales. Health is a devolved issue, so what UK Labour says about the NHS is irrelevant for how the health service is run in Scotland, as Mr Brown’s vow made clear. As Labour needs to win back support from the SNP in Scotland, they need a UK appeal on Union policy to win  in May 2015.

The second danger is that Labour runs the NHS in devolved Wales, so people can compare and contrast the Welsh NHS under Labour with the English NHS under the coalition. The comparison is far from helpful to Labour. In  the border areas Welsh patients come seeking healthcare in English facilities. The financial settlement in Wales from the Assembly has been less helpful than the English settlement from Whitehall. The Welsh NHS has worse problems with the quality of care and waiting times than the English.

The third error is in supposing that most voters will buy the lie that a Conservative government would privatise and damage the NHS. This is the same lie that Labour hurled against Conservatives during the period of their wins from 1979 to 1992. It did not stop Conservatives  winning then. Nor did that government privatise and destroy the  NHS as Labour claimed. The Conservatives just kept putting more money into the NHS, as the Coalition has done. Ironically it was Tony Blair who decided to privatise some treatments, in a bid to speed up patient care and cut waiting lists. All 3 parties have long accepted the use of private sector contractors and suppliers  in the property and hotel sides of the service, and for the purchase of drugs and medical equipment.

It will be interesting to see if Labour continue with this ill judged pathway to the Election. Every time the electorate want to talk about immigration, Labour  does another NHS story. Every time people want to talk about the impact of the EU on our borders or our energy bills or our criminal justice system, Labour says that is just a few Tories or UKIP  banging on about Europe. Labour says and offers nothing on the EU. Everytime people talk about  jobs, taxes and the deficit, Labour just talks about the minimum wage and attacks bankers.

They may discover that seeking to cut yourself off from much of the mainstream conversation by always visiting a hospital or finding some mistake with the English (but not the Welsh) NHS is not a good way to boost your vote. They also need to remember that most adults under  70 years of age are fortunately normally healthy and not therefore personally preoccupied day by day with the NHS. They want to know there is free treatment available should need arise, but no main party in the UK wishes to take away that insurance.

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Mr Barroso tries to defend the indefensible

Mr Barroso says more UK politicians should speak out for UK’s  membership of the EU. They do not, because our current membership undermines  our democracy and damages  our economy. The EU burdens us with heavy costs, a high tax bill and dear energy. It is left to an  EU official  to lecture us on why we should stay in. The more they lecture us, the more UK voters will be suspicious of the EU and the large bills and instructions it imposes on us.

The so called case to stay in is based on three errors. The first is Germany and France would not sell us their goods any more if we left. Germany has of course confirmed they would want continuing access to our markets so we would keep access  to theirs. The second is western Europe would be fighting itself with no EU. It’s not even worth refuting that nonsense.  The third is the UK would have no influence in the world outside the EU, when we would be able to speak for ourselves again in the main world institutions  instead of having to depend on the EU to do it.

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Owen Paterson’s global warming speech

I read Owen’s speech and attended the dinner to discuss how we should carry work forward on new measures to give us cheaper energy in the UK.

He made some important points in his remarks. He did not doubt the science of greenhouse gases, but did ask why climate models have failed to predict recent temperature trends. He did not even propose that governments should ignore the impact of energy production on the environment. Instead he illustrated how EU/UK policy is neither delivering cheap energy nor getting carbon dioxide emissions down in the way the dash for gas in the USA is doing.

I am glad he has now decided to speak out. Some criticise him for not doing so when in government, and for voting for numerous EU measures which this coalition has been required to put through under the current terms of our membership of the EU. I do not share this view. I think we Eurosceptics and climate change sceptics do need representation in the cabinet and have to accept that to stay in a cabinet of a member state of the EU you do have to make compromises whilst arguing against the worse abuses of public policy as you see them.

I know from private conversations with Owen when he was a Minister that it was always difficult for him because he fought battles from within that needed fighting. The story of Owen’s tenure of the Environment office is the story of EU domination of parts of our government and the need for change in that relationship. We cannot now have a European Commissioner who is a long standing public Eurosceptic, and it is difficult to have an Energy or Environment Secretary who disagrees with the fundamentals of EU belief and policy in these important areas. That is why we either need a new relationship or need to leave the EU.

When the history of the EU comes to be written, after it has broken up, I suspect the disastrous energy policy will rank second after the economic and social damage wrought by the ERM/Euro to the jobs and living standards of western Europe. I stressed at the dinner my consistent belief that we need to have a policy based on competition and the drive for cheaper energy. The current policy is stripping much industry out of the EU, as aluminium, steel., ceramics, glass and other heavy energy using industries go elsewhere. It is also a cruel policy for people on low incomes, who have to spend a disproportionate part of their money on keeping warm and fuelling domestic appliances.
When the UK joined the EEC against the wishes of some of us we were told that it was about creating greater prosperity for all. It turns out to be a wealth and income destruction machine for many, especially for  those who have signed up to the Euro, and bad news for the many who now have to face such high energy bills.

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To QE or not to QE? That is the question

 

Readers have asked me to update them on the debates about QE. The UK is not adding to its stock of £375 bn of created money and bond purchase. The US is just about to end its latest programme of money creation. Japan is well advanced with another very large programme and is likely to continue for the foreseeable future, as inflation (ex tax increases) is still low. The Euro area is not undertaking formal QE, but is seeking to increase liquidity by the ECB buying loan packages and bonds from commercial banks.

Before the UK crisis hit in 2007 (Northern Rock) and 2008 (RBS and HBOS) I urged a different policy towards the banks. I wanted the Bank of England to lend as lender of last resort . I urged them to supply more liquidity to a very damaged inter bank market. They chose not to, citing moral hazard. As a result they allowed major banks to collapse. The FSA banking regulator switched from being too lax in its standards of cash and capital to being too tough for the circumstances,  increasing the damage done.  This was a predictable tragedy which this site chronicled at the time and warned against in advance.

I also opposed the pumping of large sums of taxpayers money into commercial banks to provide new capital. I recommended controlled administration once they had helped bring the banks down. The shareholders and bondholders rather than taxpayers should have taken the hit. The authorities should have lent money to the parts of the commercial banks they needed to support and preserve whilst they found their own new arrangements for owners and capital. This approach has now been adopted for future crises through the so called living wills, a type of controlled administration.  I wanted to see radical changes to the numbers of banks and the shape and performance of the banking industry by a market led reorganisation and recapitalisation of the commercial banks that were in trouble.

If this had all be done in a timely way the Bank of England would have financed the system by shorter term loans for a period and we would have seen a competitive sensible banking  industry emerge much more rapidly. We would not have needed QE.

QE was required because the Bank did not keep the banking markets liquid and because the badly damaged commercial banks in the system meant they could no longer finance a normal level of economic activity and modest growth. QE did provide some relief to a very troubled market by releasing cash into the hands of people and institutions who previously owned government bonds. This money then found its way into the commercial banking system and averted an even larger decline in the money supply with worse recessionary consequences. Much of this injection in the US, Japan and in the UK did not prove inflationary for the simple reason the commercial banks needed the extra deposits and additional cash and did not lend this money on or gear it, which would have proved inflationary. The only caveat to that comment is in the UK QE may have been a reason sterling devalued, which did give a one off boost to inflation. In Japan a large devaluation of the yen did not have similar consequences as it is an economy less dependent on imports.

I see no need for either the USA or the UK to undertake any further QE. Both have reasonable recoveries. Even with the poor performance of the Eurozone and slower worldwide growth, most forecasters think the UK and US will continue to grow at a  reasonable pace this year and next. Japan needs to fix its commercial banks more successfully. Its massive QE programmes achieve very little by way of extra output or inflation.  I will study the Eurozone in more detail in a later post.

QE has adverse side effects. It damages the returns to savers and grossly distorts the price of financial assets.

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Mr Obama struggles to find a Middle East policy which can work

This week one of my Parliamentary colleagues in a private meeting (not the NTB lunch!) summarised the problems with Mr Obama’s coalition in such scathing terms that quite a few MPs present just laughed in nervous agreement and changed the topic with the Minister present. Many of the MPs who would normally agree with the USA and be willing supporters have grave doubts about the current war.

The first concern many have is where are the boots on the ground to win this war in a timely way? Are the armies of Iraq and the Kurds able to defeat ISIS with just some air support by the west?  How long will it take the west to train and arm the Iraqi forces to ensure victory? What guarantee is there that  rearming the Iraq forces will not lead to more loss of good US equipment to the forces of ISIL?

The second concern is what is the future for the Kurds. If their army is successful in the north will it then hand over to the Iraqi forces, go home, and accept Iraqi rule? How hard will the Kurds push their claim for an independent state?

The third is the role of Turkey. Turkey should be one of the USA’s prime allies in the region, as a member of NATO with substantial ground forces, planes  and airbases. Turkey’s recent  intervention has been against the Kurdistan Workers party. Turkey remains very nervous about helping the Kurds, and ambiguous about the whole coalition strategy.

The fourth is how do you define the ISIL enemy? It may be clear in the areas ISIL has seized in Iraq, though even here identifying and killing or capturing every ISIL soldier is an extremely complex and difficult task as they are embedded in the local community and have taken over many flats and homes. In Syria it is even more complex, with the need to distinguish ISIL fighters  against Assad from so called moderate opposition fighters against Assad. The coalition is not seeking to defeat a field army in uniform willing to come out and fight conventional battles which the west could win.

The fifth is where will the political leadership come from in Iraq to unite the country, offering fair and peaceful government to Sunni, Shia and Kurd that each community accepts? How do more deaths and more destruction of property assist the task of reuniting the country? What does victory look like, and when does politics take over again from war? In Syria where is the political leader or coalition of parties that can take over power and unite that country behind peaceful democratic government?

The sixth is how do you prevent any military success against ISIL merely displacing the centre of their activities? What relationship does ISIL have with some of the armed bands that now roam in Libya? Where else could ISIL forces go for cover and assistance?

The seventh is to learn the lessons from western intervention in Libya. The democratic government there is now cowering in Tobruk, unable to venture into much of the rest of the country and unable to enter the capital city. Successful  military intervention by the west got rid of the dictator, but local politicians were unable to establish their authority and construct a government that works. Do we now know how to get a better outcome in Iraq and Syria?

 

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  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
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