English tax rates for English voters?

There have been varying interpretations of what the Smith Report says on fixing Income Tax for Scotland and for the rest of the UK.

Labour and the Lib Dems quote the part which says “Income Tax will remain a shared tax and both the UK and Scottish Parliaments will share control of Income Tax. MPs representing constituencies across the whole of the UK will continue to decide the UK’s budget, including Income Tax”.

They wish this to mean that Scottish SMPs in Edinburgh can decide Scotland’s Income Tax rates and thresholds with no advice or votes from the rest of the UK, whilst Scottish MPs can come to Westminster to vote on the tax rates and thresholds for the rest of us.

However, Smith goes on to say “Within this framework the Scottish Parliament will have the power to set the rates of Income Tax and the thresholds at which these will be paid for the non savings and non dividend income of Scottish taxpayers. As part of this there will be restrictions on the thresholds and rates the Scottish Parliament can set. All other aspects of Income tax will remain reserved to the UK Parliament.”

Conservatives take this to mean that English votes for English issues would obviously apply to Income tax rates and thresholds, as these are no longer a UK reserved matter under the Smith settlement.

The decision to let Scotland settle her own Income tax rates and thresholds intensifies the pressure and the need for English votes for English issues, including these crucial tax powers. Some Labour MPs in private see the justice of England’s cause. Smith does not rule out justice for England, which must be getting much closer as we contemplate these large powers going to Scotland.

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Why should Scottish MPs come to Westminster to impose a higher rate of Income Tax on England than the Scottish Parliament places on Scotland?

The announcement by the Smith Commission that Scotland should in future decide her own Income Tax is an important moment in the evolution of the United Kingdom.

The new West Lothian or Wokingham question must be who imposes Income tax on the English?

Instead of the Scottish referendum settling our united country for another generation, the generous offer of the Conservatives and Lib Dems of full Income tax powers, and the offer of substantial Income Tax powers by Labour means we are moving to new kind of looser federation. Time will tell whether this latest settlement is then stable as some of us hope, or whether it will embolden Scottish voters to ask for more once this round of devolution has been digested.

What should be clear to all politicians is the grant of these major powers to Scotland will require the grant of powers to England too. (I  leave out Wales and Northern Ireland for simplicity, but the same principles should apply to them. Devolved issues to them will be settled in their parts of the UK. Anything not devolved to them will still be settled by the Union Parliament with all MPs voting on it who do not come from a part of the country where that matter is devolved. Some votes will be English, some will be English,Welsh and Irish, and some will be UK wide)

The new West Lothian or Wokingham question is simple. “Why should Scottish MPs come to Westminster to impose a higher rate of Income Tax on England than the Scottish Parliament is imposing on Scotland?”

You cannot answer this question by fobbing off England with limited devolution to some English cities or regions. England (maybe with Wales and Northern Ireland) will want a single Income Tax rate which we need to settle for ourselves.  That requires English votes for English issues in the Westminster Parliament as the first step on the road to justice for England within a new looser federation.

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Cheaper energy

 

I have often spoken up for cheaper energy. It is time to do so again, as businesses tell me that the UK – and the rest of the EU – is  no longer competitive on energy prices. Much energy intensive business is at risk as the EU gas and electricity prices for industry are more than twice the level of US ones. Assembly manufacture is also damaged by high energy prices, as energy can be  a more expensive cost than labour in a modern automated factory.

So what are the barriers to cheaper energy in the UK? We are after all an island of coal and gas surrounded by a sea of oil, coal and gas. In the past we have relied heavily on our coal. More recently we were self sufficient in oil. Today we need to do more to produce and use the abundant oil , gas and coal reserves we have, using new technologies to lessen the environmental impact of extraction. Conservatives in the government are seeking to speed up gas extraction, and Ineos has  now announced a major investment programme to help.

We also face the problems of high cost wind energy on our grid. Huge investment in recent years has been committed to try to meet the EU requirement to a high renewable component to our power. The choice of wind power is both high cost and unreliable, as winds do not always blow. As a result our margin of spare electricity capacity has come down and we could be stretched in future winters if cold weather coincides with no wind. It is a pity the renewable investment was not made in hydro or tidal as that would have been more reliable.

Today the imperative must be to find and use more gas, and to provide more back up power stations.

 

 

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Owen Paterson’s speech

 

Owen Paterson made an interesting speech yesterday. He was right to say the UK has no wish to pursue the political union being created on the continent, and right to say our future must lie outside the federalising treaties, as  many of us have been arguing for years.

His best section drew attention to the way there are now important global or international standard making boards and councils which the UK used to be part of, where now we are represented by the EU. As he says, these bodies often influence and decide the direction of legislation and regulation for whole industries and areas of life. It would be better if the UK outside the current EU could regain direct influence by having seats at the tables of these bodies.

Given the influence of these international bodies over the EU, let alone over individual member states, he is right to say the UK needs to change the bodies it sits on to have stronger influence. Which leads one to ask about the single market. As many of its standards are derived from global bodies above it, surely it is more important for the UK to sit directly on the superior global bodies?

The detail of how Mr Paterson wants to get to the UK being in the single market but out of the political project is less important than this central perception. I would add that we want free trade and sensible trading arrangements, but it is better to help shape the forces which shape the single market by being on the global boards that control business and industry through their moves to global standards and regulations. Mr Paterson cannot, of course help get us to this outcome until we have a majority UK government that wants to renegotiate and offer a referendum.

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Is the free movement of people an inviolable principle of the EU?

 

We await Mr Cameron’s big speech on immigration, which was delayed until after Rochester. It is time to ask what could be achieved within the EU, or do we have to leave to get control of our borders back as some propose?

There is no inviolable principle which always takes precedence over a political deal in the EU. The famous  four freedoms have still not resulted in free trade in services, where various member states still can and do impose barriers against service providers from outside their own country. The belief in keeping every country’s budget deficit down to a maximum of 3% has been more breached than observed in recent years. The original idea of keeping each country’s balance of payments in reasonable balance has been ignored throughout the EEC and EU’s life, with Germany allowed to build huge annual surpluses despite the impact this has on other countries. The free movement of capital was suspended when it suited them to do so for  Cyprus, and Greece was allowed to go bust as a country when it could no longer meet the various budgetary and economic requirements. So we know that the EU does amend or suspend so called fundamental principles when politics requires it.

Successive UK governments always made clear we did not want to be part of a common  borders system. We opted out of Schengen arrangements, and were told  by the last Labour government that keeping control of our own borders was a red line which had been defended. Instead they signed up to a system which did take many of our powers of self government in this area away, without asking the permission of voters. That is why so  many voters are unhappy today.

It seems likely that the UK can negotiate a better deal on benefit payments. Maybe the UK could within current rules switch to a UK system where people had to pay in – or  be brought up and attend schools here – before being able to claim benefits. I have proposed such a means of tackling the immediate problem before.  Maybe with German help the UK can get the EU to allow tougher rules preventing people coming here to seek work from qualifying at the same time for unemployment benefit or top up in work benefits. After all, the original idea was the free movement of workers,  not the free movement of benefit seekers.

It is also the case that when the Eastern European countries joined the EU the EU itself proposed a longish transitional period during which citizens of those countries did not have free movement rights into the richer countries unless those countries accepted them. Only the UK under Labour declined to take advantage of the transitional block on migration from these countries.

If it was possible to suspend or deny free movement rights when the  new countries joined, by definition the EU could suspend or modify free movement rights for other reasons. If, for example, the imbalance  in wages and job opportunities is too great then there could be disproportionately large movements of people from the poorer or higher unemp0loyment areas to the more successful areas. This causes strains in both the country losing the people and the country gaining the people. The country losing may lose some of its brightest, best educated and energetic workers that they need to build their economy.The receiving economy may have to build too many new homes and public service facilities, putting too much strain on public service and infrastructure. It could be in everyone’s interest to have a system to limit or brake the numbers moving.

Of course many of you will say a simple exit from the EU is the quickest fix. That could be true if that is what the UK voters vote for. However, it will take both a Conservative government and a vote in the following referendum to get us out. Other potential governments of the UK would   not dream of heading for the exit,  nor will they give us a referendum. All political parties need to consider what they can negotiate inside the EU, and those contemplating out need to think about the reciprocal arrangements we will need outside the EU given the position of UK citizens in other EU countries. UKIP got into quite a muddle over this recently.

 

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No party wants to privatise the NHS,but the NHS has always used a lot of private sector work

 

One of the most ill informed debates which Labour regularly makes us have is the debate about “privatising the NHS”. Labour, Conservative, Lib Dem and UKIP all say they will not privatise the NHS.  I think what they all mean by this is we are all fully signed up to the proposition that health care should be available  free at the point of need for UK citizens who want it from the NHS, a very popular principle.

In practice the private sector plays a large role in the NHS, and has done so since its foundation. It would be a good idea if we began the debate with a proper explanation of the current structure of the NHS. Labour, Conservative and coalition governments with the Lib Dems have all preserved the extensive use of the private sector inherited from the original NHS scheme, and have extended the role of the private sector in certain ways.

From the beginning it was decided to depend entirely on the private sector for the supply of drugs and other medical supplies. A very profitable competitive industry has grown on the back of NHS contracts and their equivalent elsewhere in the world. We still depend on large pharmaceutical and medical supplies companies for everything from pills to scanners, from bandages to beds.

From the beginning it was determined that most GPs would be private sector businesses, earning much of their living from NHS contract payments. So it has remained, with a majority of GPs today being private sector contractors working under the NHS banner. On average 95% of their income comes in NHS contract payments and 5% from private sector fees and charges. The typical  GP partnership receives gross payments based on the size and composition of their list of patients registered, and based on particular services they provide which qualify for additional remuneration. Out of the gross payments they pay their practice costs and then receive the rest as personal remuneration. According to NHS England  in 2011-12 the average GMP received £178,200 gross , which gave take home pay before  personal tax of £106,100. I think it right that we seek to reward  people with medical qualifications at good levels for their expertise and professional study.

In hospitals many years ago under the Conservatives  it was decided in some cases to introduce private sector contractors to do the cleaning, to provide the meals and some of the other hotel services. Labour continued with this approach. Labour  also added some limited use of private sector medical services, bought in to relieve shortages of capacity in particular specialities or to improve the patient outturns and reduce the waiting lists. In office Labour argued that the essence of the NHS was to offer good quality care free at the point of use. Sometimes, they said, this could be done more quickly and more cheaply and better by buying in service from the private sector and paying for it with NHS  funds for patients.

It is therefore curious that today Labour wish to maker a political issue out of the “threat” of privatisation. As far as I can see there is absolutely no threat from any political party to the idea that the NHS should be free at the point of need to those who want it. Nor do I see any likelihood that Labour, who used the private sector extensively in power to help deliver NHS services, would want to nationalise doctors and drug companies were it to get back  back into office.

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Why does Labour despise or marginalise England? The curious case of 3 English flags.

 

The reason Emily Thornberry’s picture and tweet was so damaging was it revealed Labour’s scorn for England. I can think of no other country in the world where democratic politicians in a major party would regard their country’s flag as a hostile sign, an unbecoming adornment of a voter’s house. Clearly Ms Thornberry does not warm to our flag even though she is an English MP which I guess is why she apologised for sending out pictures of it.

When I come to a house with an English flag I am pleased. It provides a talking point. Is it there to support an English team? Or is it there as a general statement that people now want our country to be recognised and taken into account?   Perhaps it is both. Labour is going to have to get used to many more English flags in the years ahead. Our football, rugby and cricket teams still attract a great following, especially when they are doing well. Now our country too is gaining traction with voters who have seen and heard the Scottish referendum debate and want England to have a new deal as a result.

Some say the tweet was so damaging because it was snobbish. That might be true, though nothing she said or wrote confirms that. Some say she was looking down on white van man. Again there is no proof. The photo itself is all we have to go on, and the most dominant feature of the photo, and the thing that distinguished that house from other houses with white vans, was the three English flags.

Mr Miliband decided to sack her, rather than argue that she meant it nicely and was thrilled to see three English flags. So that tells us a lot about Mr Miliband’s view of the situation. Before anyone could concoct a half decent explanation she had been made to apologise and spokesmen were wheeled out to distance the hapless leader from the unfortunate interpretation of the photo.

All this seeks to imply that Mr Miliband has at last grasped the importance of England in the hearts of voters and in the present political debate. Unfortunately there is no confirmation of this. There is no movement from Mr Miliband to give us English votes for English issues in Parliament. He has no matching list of powers to devolve to England as he seeks with the other parties to devolve powers to Scotland. He may now wish to show respect to voters with English flags on their homes or in their vans, but he does not intend to make any change to Labour’s resolutely anti English policies.

I think the Thornberry tweet is far less important than Mr Miliband’s dogged refusal to recognise England in any way in what he proposes for the UK. The best he can do is to mouth failed platitudes  about devolution to some English cities, when the issue now is the central one of England herself. If Mr Miliband you now wish to respect our flag and the voters who take pride in it, you need to change your policy on devolution.

 

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The Eurosceptic split

Some will welcome the by election result this morning. I cannot, because it just reminds us how split the Eurosceptic movement is. UKIP want to deny that many Conservatives are good Eurosceptics, to diminish the Eurosceptic army. Their tests of purity make it impossible for them to unite the movement and gain a majority.Indeed, some UKIP supporters now are so exclusive that anyone who fails to join their party by definition cannot be a Eurosceptic. Some Conservatives get  cross with UKIP for splitting the movement, and a few well known Conservatives condemn some Eurosceptic policies, making it more difficult for committed  UKIP voters to trust Conservatives. They do not speak for the party, but that gets ignored.

The end result of the battle of Conservative against UKIP is little has changed for Rochester or in the Commons. UKIP merely sought to relabel a Conservative MP, who was already speaking and voting in a very Eurosceptic manner as a Conservative. There are no more Eurosceptic voices and votes in the  Commons today than yesterday That is why I can neither rejoice nor welcome what has happened.

UKIP will argue that something has changed for the General Election. They will hope their good vote here will lead to better votes in May 2015. The polls suggest that if the UKIP vote stays in the range 10-20% nationwide  there will be no breakthrough in seats, but the UKIP effect is to help Labour. I remind people of this not because I wish to use it as an argument, nor because I am pleased it is true. Far from it. I raise it because it just shows how difficult it is to do the right thing for Euroscepticism given the competition for votes.

What do I mean by Euroscepticism? I mean that majority view in the UK which thinks our current relationship with the EU is not working. The majority think we are paying too much and getting too little back. They think there are too many rules and the UK has to impose and enforce them too strongly. They think the UK should be able to control its own borders and settle its own welfare policies without accepting EU directions to open the borders and pay the same to anyone who comes.

This is not yet the same as a reliable majority wanting simply to leave the EU as  UKIP suggest. The public understand that the UK does have to have a trading and working relationship with the continent, and think it probably best to try to sort this out first. If we were able to hold an In/Out referendum now without any negotiation first there is no guarantee the Outs would win. If we can have a negotiation and then a referendum the majority will be able to come to sensible view in the light of what has or has not been achieved by negotiation. If  UKIP are right in thinking nothing worthwhile  will be offered the UK then winning for Out will be much easier.

That is why I would like Eurosceptics to unite to fight for that negotiation and referendum which we Eurosceptic Conservatives have persuaded our leader to offer. Revolutions end in tears when the radicals fall out over how far and quickly to go in their agreed direction instead of concentrating on maximising support for reform. The issue is not my or your purity of intent in our Euroscepticism. The issue is not what divides us. The issue is how can we harness a majority movement which gets us out from Brussels control in the way the majority want and need.

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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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  • 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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