Any Questions?

I will be on the panel of BBC Radio 4’s Any Questions this evening at 8pm. It will be repeated just after the 1pm news tomorrow lunch time, for anyone interested.

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Inequality

All the main parties believe in equality of opportunity. There are various policies pursued to try to give people from disadvantaged backgrounds a decent chance in life. There is no disagreement about the aim.
All the main parties also agree that the tax and benefit system should narrow inequalities of outturn. All believe in taxing the rich more, and giving more benefits to the worse off. The political argument again is not about aim, but about the means and extent of the transfers.
The left like to portray the UK as a uniquely unequal society. The traditional method of measuring it, the Gini coefficient, shows the UK within the typical European range for inequality. We are more equal than Italy, Spain or Greece, but less equal than the Scandinavian countries. Our rating is almost the same as Switzerland’s, the richest European country.
If a country is too unequal or becomes more unequal because the poor are getting poorer, then it has a serious social issue which it needs to address. In the decade up to the financial crash under Labour there was a serious problem, with the lowest 10% of incomes not joining in the general advance in living standards enjoyed by all other income groups. If a country becomes less equal because it attracts some very rich people at the top, that is less of a worry. Compare the following two models:

In Group A the 9 people with an average income of £25,000 and an income range of £10,000 to £50,000 are joined by a tenth person with an income of £1 million. Income inequality has risen from a multiple of 5 to a multiple of 100, a huge rise in inequality. Average incomes have also increased, and no-one is worse off.Indeed, the nine can look forward to increasing their incomes by offering goods and services to the rich new comer.

In group B with 9 people on an average income of £25,000 with a range of £10,000 to £50,000, the poorest member of the group experiences an income fall to £8000. Income inequality goes up from 5 times to over 6 times. This does matter because the poorest has just got poorer. Average incomes fall.

Tackling inequality should be mainly about trying to get more people into jobs and once in a job into better paid jobs. The position in 2012-13 in the UK was far from satisfactory for the bottom tenth of income earners. This bottom decile earned on average just £3875 a year in income, and received £5868 in benefits to top up. This group of course included many people unable to work or unable to find a job, or on a pension. The importance of welfare reform is to get more into jobs, and I trust then to be more generous to those who are unable to work. All should participate in the general advance of real wages in the country through the tax and benefit system. Many more people are now in jobs, and wages are now moving up a bit. As the economy grows and as productivity rises, so real wages can improve more, and there will be more opportunities for people to move into better paid jobs. Both right and left should be able to agree on this.

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Inflation at 1% – what does that do to the “cost of living crisis”

When Labour launched their cost of living campaign fuel and energy prices were higher than today. A price freeze on energy was one of their main demands. They also wanted to see an end to prices rising faster than wages, something which happened on a grand scale in their last two years in office.

This week’s figures show inflation down to 1% and likely to fall further. Private sector pay has been going up by 2%. Fuel prices are down by 5.9% so far, with clear signs that the lower oil price will now lead to lower prices at the pumps for petrol and diesel. Retail sales were up 6.4% in volume terms in November for the last year, an impressive rate of growth.

The employment figures were also good. Unemployment is now down by 552,000 since May 2010. The economy has created 1.75m new jobs over that time period. Labour predicted rising unemployment and widespread job losses, something they had created in 2007-9.

Of course what we need are yet more jobs to cut unemployment further. We need more better paid jobs, for people to gain promotion and have a sense of progression in their work lives. We need many more months of pay outstripping prices. It is however welcome news that the UK has a relatively high rate of growth, that this is creating many more employment opportunities, and that the real value of average pay is on the rise.

Just as Labour’s forecast of another recession was wide of the mark, just as their forecasts of rising unemployment were wrong, it looks as if their cost of living crisis to be remedied by an energy price freeze is also being overtaken by the real world. It is much better that oil, gas and motor fuel are falling in price so consumers have more money left over for other items.

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Four types of MP

Labour first refused to come to any talks about tackling the problem of England. Then they refused to put their solution into the government White Paper. When it came to Scottish devolution they both attended the all party talks and contributed to the White Paper. Clearly Labour doesn’t like England.

Now they tell us that if we go ahead with English votes for English issues there will be two classes of MP. It was their devolution mess at the end of the last century which created four classes of MPs. Scottish Westminster MPs can do least for their constituents, as they received the greatest devolution. Welsh and Northern Irish MPs can do more than Scots, but they too have variable items devolved to Assemblies so they cannot carry out those tasks for their constituents. Only English MPs have the full range of powers with no English devolution.

The injustice came by allowing Scottish MPs to vote on English health, English education and English local government when they cannot influence or vote on Scottish health or education or local government. Labour need to explain why they ever thought that made sense.

Now Labour want to pretend that allowing England some of the devolved power Scotland enjoys will mean they could not govern the country as a whole!. It means nothing of the sort. Just as a Conservative UK majority government could not now govern Scottish health or schools or local government, so a future Labour majority government without a majority of seats in England could not govern English health or education or local government without the consent of English MPs. What’s unfair about that?

Labour needs to learn that the union matters it left to Westminster for all the country are the economy, defence, foreign affairs and most of welfare. Why on earth they campaign about health for the General Election in Scotland and Wales I have no idea, as of course next May does not settle anything about Welsh or Scottish health anymore. Once Income Tax is a devolved matter for Scotland England will expect to settle our rate without the help of Scottish MPs.

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English votes does not fuel the SNP

Mr Darling was wrong to say asking for English votes for English issues fuels the SNP. The SNP is the one Scottish party that sees the logic and justice of English votes for English issues. What fuels the SNP is understanding that every time they push hard for more devolution they are given it. The SNP will always want Home Rule as they call it. Justice for England will not alter that.

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The collapse of the oil price

This year most forecasters assumed oil would stay around $110 a barrel. They correctly saw that US output would rise, but so would demand. Those who pondered more deeply reckoned Saudi would cut her production a little to offset any surplus that emerged. I did not myself expect to see a major price collapse, against the background of raging civil and religious wars close to major oilfields in the Middle East.

Instead oil fell to $95 a barrel, the level market professionals thought would be the Saudi target support price. Instead the OPEC meeting announced no production cutbacks, and the price collapsed to around $60.

For oil consumers it is great news. It means lower inflation and higher real incomes. We all have money to spend on something else that would have been used to fill the car tank and warm our homes. The UK is now a net importer of oil again, so it will make a modest improvement to our balance of payments.

The SNP have been very quiet about the impact it will have on the Scottish economy and revenues. It will show more neutral Scots the value of belonging to the UK. As the oil revenues decline rapidly, so Scotland can still draw on the other tax revenues of the whole UK to make up the shortfall. An independent Scotland would by now be looking at what taxes to raise and what expenditures to cut to offset the fall in oil revenues.

It will worry Labour, as it is a major blow to their “cost of living crisis”. With pay now advancing in real terms for all those in work for longer than a year, this fall in petrol, diesel and other energy costs will give a further boost to the value of take home pay. Generally it will transfer income and spending power to the oil consuming countries, away from the Middle Eastern oil producers, and at the expense of countries like Russia, Nigeria and Venezuela who remain very dependent on oil revenues. Overall it is a boost to consumption and output in the world economy.

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Speaking for England – Labour and Lib Dems add insult to injury for England.

This week we expect the government’s White Paper on justice for England.
Labour declined to attend the talks and failed to file a contribution stating its approach for the White Paper. It reminds us just how much Labour scorns England, and how Labour will fight to stop England having her own voice and her own votes. Now we hear they are cobbling together a pathetic offer of English only MPs doing the hard work of the committee stage of English Bills, only to see their work overturned by the whole House on Report. That adds insult to injury.
The Lib Dems have come up with some convoluted approach which seeks proportional representation on some English committee of the House of Commons They are clearly thinking of their vote share at the last election, rather than their likely lower one at the next. They seem to have put their own party interest well ahead of England’s interests. They will not vote for simple justice for England, English votes on English issues. Like Labour they do not want to keep England whole, and want to find a way of seeing off the movement for English votes.
The Conservatives assure me they will propose English votes for English issues. May they keep it simple and comprehensive. We do not want English votes limited to just some issues or some parts of the legislative process. An English Grand Committee, or English votes just at committee stages of bills is not the answer. We want England (and/or England, Wales and Northern Ireland) to be in charge of all relevant issues, from new laws to matters like Income Tax rates and tuition fees.

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Torture is wrong

The US contortions over how they treated suspects and prisoners post 9/11 are unfortunate for the leader of the western world. Republicans see the report into the CIA as partisan, partial and unhelpful. They both argue that the practices the US adopted were not torture, and that they needed to be tough to find out what might happen next to keep the US people safe from further attack. Many Democrats think the report is fine, and reveals a wrong culture at the CIA authorised by a previous administration.

Democrats have to remember that they did not make large objections at the time, and remind themselves that there was considerable continuity of policy on transition to President Obama. We were promised the closure of Guantanamo Bay, with all to face a fair trial or discharge. That did not happen. The Anglo Saxon system and values of habeas corpus, a suspect knowing the charges, and having the right to his days in court to defend himself did not materialise for some detainees.

Of course the west has to be firm in defence of freedom, and cannot be starry eyed or too idealistic in a far from perfect world. Nor, however, should the west descend to the standards of those who pose the greatest threat to our freedom and way of life. Our ancestors banned slavery, banned torture, demanded fair trial and evidence to prove guilt before punishment for good reasons. If the USA departed from these values she has to apologise and promise not to repeat the mistakes in the future.

It is true there are many evil governments and some brutal regimes around the world, and some very unpleasant political movements who resort to force to get their way. Sometimes we have no choice but to confront them. Sometimes we can confront them successfully to improve things for others. As we do so, we need to demonstrate the superiority of our belief in respecting individual’s freedoms and establishing guilt before appropriate punishment.

We also need to know what part the UK played in this worrying story. Our senior officers, armed service personnel generally and representatives need clear instructions about our belief in following the rule of law and sticking to appropriate rules of engagement and rules governing prisoner treatment.

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Postings to this site

I am being asked again why certain contributions have been deleted. I have explained before the posting policy.
I delete references to external sites which I have not read or do not know, or delete the whole post if it depends on them.
I delete posts which make unpleasant or inaccurate generalisations about named groups of people, and or references to individuals or named institutions which might be libellous or hurtful to those people.
Long posts are likely to be delayed as I am very busy and need to find additional time to read and moderate them.
I offer similar protection to all political parties and political leaders, and allow more latitude in criticising all of them including the Conservatives than in the case of other people and institutions.

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Lower interest charges help the government accounts

The biggest change to the government’s financial position announced in the Autumn Statement was the good news that the OBR now expects much lower debt interest payments in the years ahead.
They lowered their forecast of likely debt interest from £52.1bn this year to just £35.9bn, a reduction of £16.2bn. Next year falls from £59.1bn to £40.4bn. By 2018-19 the decline is from £75.2bn to £57.5bn, a fall of £17.7bn. These falls occur despite including the debt interest on the borrowings of Network Rail into the official government figures for the first time, which increases interest payments by £2.2bn in 2018-19.
So how have these reductions come about? The forecast interest the government will have to pay has been reduced as government bond yields have stayed lower for longer enabling the government to borrow more cheaply. Inflation has fallen further and faster, cutting the cost of the indexed gilts which the government has to service. The government has also recognised that it is paying some of the interest to itself through the bonds owned through the Asset Purchase Programme. It now assumes it will continue to own those bonds and receive the interest on them. The new idea is that the APF bonds will only start to run off through redemptions once interest rates start to rise.
This amounts to good news for taxpayers, as the costs of borrowing too much in the past have just got a lot cheaper. However, taxpayers need to remember that what goes down can also go up again. Now the state has so much borrowing, rising interest rates and rising inflation rates could prove very expensive. Labour’s idea that it need not balance the budget anytime soon but could carry on borrowing more to finance its capital spending carries a substantial risk. If they won the election and embarked on spending more than the current plans, markets might make them pay more for their debts. With the present huge levels of borrowing that could prove to be very expensive.
Government and forecasters come to accept very low interest rates and expect them to remain low. They will only do so if the government is prudent with its future spending and borrowing, and if inflation stays low. I understand savers want higher rates, but they want higher real rates. Higher interest rates because inflation has taken off might help no-one and would leave a future government in great financial difficulties. At current levels of debt interest rates at pre crisis levels would mean many cuts in other programmes to try to keep the deficit under control. Labour’s spending plans do not recognise the reality of a highly indebted country.

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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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