Taxes can do damage

The Japanese economy is back in recession. One of the main reasons is the pattern of consumer spending. Ahead of the sales tax increase people made their purchases. Once the tax rise came in they cut back sharply, leading to a fall in demand and output. It was far less helpful in raising revenue to pay for public services than the increase in VAT introduced in the UK, which did succeed in raising more revenue and did not have the same impact on demand as the Japanese hike.

In the UK it was the rise in higher rate income tax and capital gains tax that led to losses of revenue. The halving of the increase in the higher rate helped bring in more money again. Despite the recovery of property values and the rise in share prices, capital gains tax revenue at the 28%  tax rate is still well down on the levels it reached at the  18% rate  before the crash.

The art of taxing is to find the rates and taxes that maximise revenue to pay for the health and education services and welfare that modern advanced democracies expect, so people can have the services and borrowing can be kept under control. The danger is governments set rates that reduce revenues or do considerable harm to economic activity as in Japan.

The Japanese tax rise initiated by a previous Japanese government has now led to the decision to delay the second planned rise, and to hold a general election for Mr Abe to seek a renewed mandate very early so he can get on with the economic reforms Japan clearly needs. Meanwhile, the price of the higher tax rate is more quantitative easing, as we have seen with the recently announced expansion of the Japanese programme.

Japan is the one of the world’s largest economies, in recession. Euroland, another of  the world giants, is struggling to avoid another recession, generating very little growth. The strategy of bringing deficits down by growth is not working well in Japan or Euroland. The inclination to raise taxes instead has misfired  in  Japan, just as surely as it did in France. Governments need to learn that higher tax rates  may be self defeating. They may lower output and incomes and may even lower revenues.

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What happens if the SNP do well in the May 2015 Election?

Before the referendum I sought an assurance in the Commons from the SNP that they would accept the result of the Referendum either way, and regard the matter as settled. I pointed out that those backing the Union would facilitate Scottish separation if they won by just one vote, so would expect the SNP to accept the Union if the Union won by one vote. I was given the necessary assurance. The talk was of having settled the matter for a generation.

It perhaps should come as no surprise to learn that the SNP did not mean those assurances given prior to the vote. Their recent conference has made it quite clear they regard the last referendum as a stepping stone on the way to another vote where they hope to win. It looks as if their candidates for the May 2015 General Election will be believers in an independent Scotland, as well as presenting themselves as the people best able to maximise the gains for Scotland out of the current round of further devolution negotiations.

Up to this point supporters of the Union could always take comfort from the fact that Scotland has never voted for a majority of independence seeking MPs at Westminster. Scottish voters up to this point have mainly wanted to influence whether Labour or the Conservatives run the Union government. We have never been faced with more than 6 SNP MPs saying they just want to leave the Union and have no interest in how the rest of the UK is governed.

It will all look very different if recent polls stay the same come May. If Scotland were to elect a majority of SNP MPs the rest of the Union cannot ignore that force. If a large group of SNP MPs were part of a Parliament with no majority party then the SNP could be in a position to decide who if anyone did govern,and to demand a constitutional price for their support.

Scotland will only be a settled member of our union again if the SNP decide to change from wanting independence to agreeing to a given amount of devolution and then using its influence to make people happy with that new settlement. Alternatively it will only be a happy member of the union again if Scottish voters reject the SNP for the Westminster Parliament. Voting SNP to maximise leverage over the rest of the UK may seem good tactics to many Scottish voters, but it would mean the referendum had settled little.

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Stumbling growth?

The government has drawn attention to the slowing German economy, recession ridden Italy, and the lack of upwards momentum in the French economy. Japan has also now suffered two more quarters of declines in output and incomes, so is back in recession. None of this helps the UK recovery, as that means bad news from some of our export markets.

I have been asked if the world is about to move back into recession. I think that unlikely. The US economy is still working well, with a large boost to output from shale gas and oil, a boost to industrial output from cheap energy, and leadership in internet and communications technologies. India is improving under the leadership of Mr Modi, and China is still growing quickly by world standards despite all the talk of the end of the Chinese growth miracle, and some slowing of the rate.

When I asked the Prime Minister yesterday about the need for us to pursue more plentiful supplies of cheaper energy to relieve the pressure on our industry, he confirmed that the government is keen to get on with finding and extracting the shale gas that is thought to lie under the surface in several parts of the UK.

He also expressed the view that monetary experiments in the UK and US had helped fuel the recoveries, and that the European Central Bank needed to do more to help Euroland. Without new policy initiatives in the Euro area, and without further stimulus in Japan the world economy will slow a bit, but will still be growing.

It seems likely that Japan will cancel or delay the proposed additional tax rise, and is now embarking on additional monetary stimulus. Mr Abe is determined to see growth return as soon as possible.

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Can I have two national identities?

Scottish nationalists argue that they and many of their fellow Scots are primarily Scottish. They see this as an exclusive identity, precluding them from happily also being British or UK citizens. Unionists in Scotland claim they are content to be Scottish and British. They wish to enjoy both identities, accepting the sovereignty of the Westminster UK Parliament with proportionate local decision making in Scotland.

Some Scottish nationalists define their Scottish nationalism in a positive and future looking way, anticipating a better tomorrow if Scotland could be more independent. Others define their nationalism in a more negative mood, rejecting the influence of England on their politics and often attacking angrily the more conservative or free enterprise politics of the south of the UK.

Until recently many people in England have thought little about our English identity. The move for more devolution to Scotland started to change that. The Scottish referendum has given it another push. Today a large majority of English voters want English votes for English laws, and some wish to go further to a separate English Parliament.

More English people today contact me to complain that the financial settlement is not fair. They want the UK national broadcaster, the BBC, to have a BBC England to promote England and our causes as BBC Scotland promotes Scottish interests. They want the suppressed identity of England to emerge more fully.

Most English people still think of themselves as British and English. The English part of our identity is becoming more important, the more the Labour and Lib Dem parties seek to deny it and the more the BBC seeks to airbrush it from our debate by trying to create artificial English regions which few want and love.

This week I will renew my demands for English votes for English issues at Westminster. Mr Clegg has still not bothered to write to me in reply to my letter, showing just how little concern he has for England and fairness.

If we have another Parliament where the majority government of the union is not the same as the majority of MPs elected for English constituencies, there will have to be new arrangements. The English will not accept Scotland deciding her own Income Tax rate in Edinburgh, but also Scottish MPs at Westminster helping the English minority there to enforce an Income tax rate on England which the majority do not accept.

Do you feel you have two national identities? Is being British or English (or Scottish or Welsh or Northern Irish) more important?

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The politics of identity

When I first entered UK politics we discussed mainstream subjects like living standards, taxes, the level of public spending, the balance of payments, criminal justice, planning and transport. We thought little about identity. We had inherited a United Kingdom which was self governing, proud of its history, and on the side of freedom and democracy.

We English did not usually distinguish between our Englishness and our Britishness. We thought of the Union flag as our flag and the national anthem as our anthem, even when we were supporting English rather than Union teams. The Irish debates about Home Rule and separation of the Republic were too distant
to be even memories for most.

Welsh and Scottish nationalism attracted little support, and debates about them were largely confined to Wales and Scotland. Too few MPs were elected for these nationalist parties to make it much of a UK debate. In the 1970s Labour in a state of panic, with more representation in Scotland and Wales, embarked on its first devolution proposals to “head off” incipient nationalism. They failed to secure the requisite majority in either country for devolved assemblies, against a voter backdrop of limited interest. They had misread the “threat” and the politics.

The long period of Conservative government from 1979 to 1997 saw modest progress by nationalist parties, but still it was a minority issue which did not engage Westminster very much and England not at all. It was Labour’s arrival in power in 1997, determined to drive devolution through which transformed the level of interest in the politics of identity in the UK and led to the current strength of the SNP.

Labour’s enthusiasm for a devolved Scottish Parliament and Welsh Assembly contained base motives. Some of them wanted these bodies so they could always govern a wide range of issues in these parts of the UK, even when the Conservatives had won a majority in the country as a whole. Labour just assumed they would always have a majority in these regional Parliaments. Instead, the SNP used the platform and the opportunity of the Scottish Parliament to grow in support. Eventually the impossible happened and Labour lost control to the SNP of its creature Parliament.

Once you have a nationalist party within a Union which can command a majority in its part of the wider Union, politics has to change. The parties of the Union cannot retreat to the comfort of their majority at Union level and pretend that the nationalist majority does not exist. I will be returning to this set of issues in future posts, to develop what might happen next.

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Sir John Major bangs on about Europe

It is good news that Sir John Major now recognises the need to change our immigration policy and for the UK to gain control over who we invite in to our country. When he rightly negotiated our opt out from the main point of the Maastricht Treaty, the Euro, he was also insistent that the UK kept control of its own borders. It is a pity Labour did not follow his wise course on these matters.

It is a sign of how seriously he takes it that he should make this the main topic of one of his rare interventions in UK public debate. He used to believe that we should not bang on about Europe. Instead today he acknowledges the central place migration and the EU has come to take in our national conversation.

The problem for those who wish us to stay in the EU is it is not just a question of migration and borders. Our current membership of the EU is incompatible with self government and full Parliamentary democracy, as so many decisions are made for us by the Brussels government. That is why the Conservative party opposed the Nice, Amsterdam and Lisbon Treaties on principle and voted against all three.

Our current membership is damaging to our living standards, with the high fuel bills, the weak Eurozone economy and the downward pressure on wages. Our current membership is very bad for business. The EU’s energy policy is leading to the loss of plants in major heavy energy using industries, the fishing policy has led to the run down of our fishing ports, the tax and regulatory attack on financial services is beginning to push business outside the EU.

So our current EU membership does not just pose a problem over the pace of migration. It is bad for business, bad for living standards and bad for democracy. All these things need to be debated and addressed in a new relationship with the rest of the EU.

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Oppositions are meant to oppose

People have written in asking for my thoughts on the events of Monday in the Commons.

I have long made clear on this site, in the Commons, in public and in private that I had urged them to opt out and supported the opt out of all the criminal justice measures undertaken by the current government, and did not wish them to opt back in to any measure. I argued this on the simple ground of Parliamentary sovereignty.

I also made clear that I share the government’s wish to be able to bring unpleasant criminals to court if they leave the UK for a refuge elsewhere. I asked the Home Secretary to make arrangements for extradition from the rest of the EU as we do for the rest of the world, by an Extradition Treaty. This to me is preferable to placing our criminal jurisdiction under the ECJ and Brussels, and can be effective, as it is for non EU cases today.

On Monday we once again saw how Parliament cannot work well if the Opposition refuses to oppose. Labour told us endlessly that they fully supported opting back in to all the measures the government had identified, and they fully supported the regulations to bring UK law into line with this sacrifice of powers. They had no single criticism of any of it to make, no wish to see any change of words, no doubt about any of the powers being transferred. Indeed, they have been egging the government on to do so.

As a result it was always going to be the case that this opt in was carried by a very large majority of votes, as the Lib Dems were even more enthusiastic about opts in and would have liked more. The debate and vote was therefore going to lack edge, as the result was never in doubt.

The government took a legalistic approach to the debate by just tabling the regulations needed to complete the transfer of powers. Those of us who wanted a more fundamental debate on the principle of opt in and on the Arrest Warrant which does not need a new UK regulation to be effective were told that we could and should debate these matters at the same time as the regulations before the House. The government pointed out it was offering an all day debate until 10pm instead of just the usual 90 minutes for a regulation.

It stated unequivocally that if it lost the vote on the regulations it would regard that as meaning the Commons did not want the opt ins or Warrant either. The Speaker confirmed that the motion was only about the regulations, but said he would allow people to debate the opt ins and EAW more generally as that was the government’s wish.

Labour then decided to override the longer debate on the opt ins and regulations by moving a procedural motion which meant whichever way we voted on it debate would cease forthwith – at 8pm – losing us the last two hours, and taking up time to debate procedure that we could otherwise have used to discuss the major issues before us.

The Opposition thought it could do harm to the government by playing games with procedure. All it achieved by this was to deny those of us who wanted to make a fundamental case against the opt ins and the Warrant several hours of time to do so. Labour hastened the passage of measures they wanted all along by their clumsy intervention.

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Access to benefits

The government has reminded me of action taken so far to limit access to benefits by recent EU arrivals in the UK.I thought many of you might like to see it, as this is a matter you often write about:

“• New EU migrants who arrive in the UK as jobseekers will only be able to claim benefits for 3 months.
• This halves the amount of time EU jobseekers are able to claim benefits, from 6 to 3 months.
• After 3 months, any EU migrant claiming Jobseeker’s Allowance will have a ‘genuine prospect of work’ test. If they don’t have an imminent job offer, they could lose their benefits and right to reside in the UK as a jobseeker.

These reforms are based on a simple principle. That EU migrants should come to the UK to work and contribute, not to claim benefits.

The reforms tighten up access to our welfare system for EU citizens and help ensure that EU migrants are not in the UK to take advantage of our benefits system.

These new measures are the latest in a series of Government reforms in the last 12 months to ensure the UK benefits system is increasingly focussed on EU migrants coming to the UK to work and contribute.

The following measures are already in place.

• From 1 January 2014, all EEA jobseekers have had to wait for 3 months before they can claim income-based JSA.
• After 3 months, jobseekers have to take a stronger, more robust Habitual Residence Test if they want to claim income-based JSA.
• Since April 2014, new migrant jobseekers from the EEA are no longer able to claim Housing Benefit (HB).
• Migrants from the EEA who claim to have been in work or self-employed in order to gain access to a wider range of benefits now face a new robust test to decide whether they should be considered a worker/ex-worker with a minimum earnings threshold.
• As of 1 July 2014, jobseekers arriving in the UK need to live in the country for three months in order to claim Child Benefit and Child Tax Credit for their families too.”

More needs to be done. We await the Prime Minister’s speech on migration later this year, which he has said will be central to his renegotiation with the EU. Your thoughts on what the PM should demand for continued membership of the EU, or what you would rather see for an independent UK on migration would be useful and topical.

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The CBI and a referendum on the EU

We read from the CBI conference that a few large companies and the CBI leadership are against an EU referendum. They think it could create uncertainties and make life more difficult for big business.
The opposite is the truth.

It would be interesting to know if these large companies who express this view have polled their UK shareholders, UK employees and UK customers. If they did they would very likely find that a majority of them want a referendum just like the majority of the public at large. A large majority of smaller and medium sized businesses want a renegotiation and a referendum on the results, as other business organisations have pointed out.

The CBI needs to be asked why it thinks our current membership of the EU is helpful or important to business. It is after all our EU membership that lies behind the very dear energy imposed on European business. It is the Euro many of these businesses recommended which has helped create poor demand and mass unemployment on the continent. It is some of the excessive EU regulation which prices European business out of work, making it less competitive worldwide.

Many countries in the world trade and succeed economically without belonging to the EU. The UK would do better without the high budget contributions, the dear energy and some of the regulations that the EU imposes. The rest of us can see that. Just as some big businesses changed their view on the Exchange Rate Mechanism and the Euro which they got spectacularly wrong in the past, so they will have to change their view on our current EU membership as they start to see the true burdens it imposes. They should not seek to undermine the UK negotiating position. If we do not succeed in negotiating a good deal then the people will vote for Out.

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Falling petrol and diesel prices

 

The sharp fall in the oil price in recent weeks is as welcome as a tax cut. We see the results at the petrol pumps, with petrol and diesel for our cars, vans and lorries down in price.

Politicians have made clear they want to see further falls. They may have their way. It always takes a bit of time for the fall in the oil price to feed through to a fall in the retail price of oil based products. There can be a good reason – the oil companies have to work through their stocks of oil bought at dearer prices before they get the benefits of cheaper oil which they buy now. The price of petrol of course never falls at anything like the percentage of underlying oil, because so much of the price at the pumps is government imposed duty. Total tax is almost two thirds of the price we pay.

A fall of 10-12 p a litre is still good news. It’s  a gain of more than £100 a  year for someone travelling for 8000-10000 miles year in a typical vehicle with reasonable fuel economy. That’s £100 available to spend on something else, which can help provide a further economic boost. It’s also part of the process of getting people used to much lower inflation than the UK has experienced for many years. Surveys show people still expect inflation to be above the Bank’s 2% target and are suspicious of claims it is lower. At the moment it is visibly lower, with food price competition also helping the family budget.

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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.
    Published and promoted by Thomas Puddy for John Redwood, both of 30 Rose Street Wokingham RG40 1XU
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