Cheer up, Eurosceptics

For years some Eurosceptics have written to me and others complaining that there is no referendum on staying in the EU. They argued that the Conservatives could not win a General election, and argued that if they did they would rat on the promise. Well, they were wrong on both counts.

Now they are writing to say Mr Cameron cannot negotiate a decent new relationship, or allege he is not trying to. I do not accept these criticisms either, but were they true surely that just makes it a whole lot easier to win the referendum to come out of the EU.

What Eurosceptics need to do is to cheer up. Tomorrow can be better than today. Life outside the current treaties can be a whole lot better than within them. Restoring the sovereignty of the UK voters, and returning powers to Parliament to exercise on their behalf, is a democratic process that people of all parties and of none can buy into.

If we paid less into the EU we could spend more on the things we prefer, and cut our borrowings. If we were free to make our own trade agreements with the faster growing parts of the world we could expand our exports more rapidly. If we did not have to impose all the rules and costs on our trade with the rest of the world and here at home, we could be better off. If we were back in charge of our affairs we could decide how many migrants to welcome, and who should receive benefits.

Causes are advanced and votes won by being optimistic, positive, and by reaching out to people who disagree with you. Fighting old battles over ideological purity do not advance the general cause of a more prosperous, more democratic UK.

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Queen’s Speech – powers for Scotland and England

Her Majesty will announce the extra powers for Scotland which Labour and Conservatives offered prior to the referendum. As we have discussed recently, this will need to include a new financial settlement when Parliament comes to debate and approve the detail. She should also announce early progress on English votes for English needs (EVEN) , which I expect to be undertaken by an amendment to Standing Orders of the Commons in the first instance.

The bigger question behind this work is can the Union now be stabilised? Is there some degree of devolution which will satisfy the majority of Scots, even if it leaves their SNP MPs disappointed? Is there some complementary level of devolution to England which can make England think we now have a fairer settlement? How do we avoid devolution being a process rather than a settlement? Might it prove to be like peeling an onion, where there is always another layer to remove, as the SNP hope?

I wrote “The death of Britain?” at the end of the last century, arguing that lop sided evolution at home, and the transfer of substantial powers abroad in the EU could prove to be forces which threatened the union of the UK. So it has proved. A new constitutional settlement needs the repatriation of power from Brussels, and a fair devolution of power to all four parts of the Union. This in turn requires a sense that the money is shared fairly.

Our union is above all a currency, benefits and tax union. We pool all the revenues, share all the expenses, and follow one overall budget, money and interest rate policy. If Scotland seeks to unpick too much of the spending and borrowing part of this it can undermine the rest, and can lead to a sense of greater unfairness in other parts of the Union. You only need to calculate precisely who puts in what and who takes out what if you no longer wish to pool everything.

The SNP will be a vocal part of the opposition. They will mainly be arguing about money. They think the UK should borrow and spend more, especially in Scotland. They do not see the irony that they also think the UK should stay in the EU come what may. If we obeyed the rules of the EU properly we would immediately cut public spending and put up taxes to get down to the 3% maximum permitted deficit. So why don’t the SNP rail against EU budget rules in the way they do against “tory spending plans”?

I think the most powerful intervention the parties of the Union made in the referendum campaign to sway more Scots to vote for in was when all 3 main union parties said they would not let an independent Scotland remain in the sterling system. I think this had far more impact that offers of yet more devolution. Union parties should learn from that experience.

Yes, I see the parallel with the EU. If the EU says to us there is no chance of change, then let us leave. Our commitment to the EU is far less deep and well based than Scotland’s reliance on the pound. Were I a Scottish nationalist I would want my own Scottish currency to become fully independent. I found it odd they could not say this. I guess it was because most Scots do want to stay with the pound.

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The EU and the Queen’s Speech

I welcome the Referendum Bill proposed in the Queen’s Speech and welcome Labour’s conversion to it. It is better to go forward with the support of parties that attracted 81% of the vote between them for what is a crucial decision and vote of the UK electorate. We knew already that the referendum idea was far more popular than the Conservative party in the General Election, and some people voted Conservative primarily to get that referendum.

The dinner last night between the President of the Commission and the Prime Minister was also an important stepping stone on the way to the vote. I think it is a good idea that the PM gives trying to negotiate the best deal for the UK his best shot. I urge people from all sides of the debate to support him in doing so. If as UKIP argue there is no willingness to negotiate from the other side, then it makes winning a vote for Out that much easier as undecided voters will be swayed by the unhelpfulness and unreasonableness of the rest of the EU.

If, on the other hand, the rest of the EU sees that the UK has no wish to be drawn into the emerging political union, and wants a trade and business based relationship where we can co-operate and do things together that suit both sides, then that may be the easiest way of achieving the new relationship.

My bottom line is the UK needs to restore her democracy, so where the UK voters and Parliament wish to make a change or to decide a matter we can do so without interference or override from the EU. Today electors have signalled very clearly they want the UK to settle its own migration and benefits policy. So be it. Tomorrow it might be our energy policy or our criminal justice policy. If you want a democracy then Parliament has to be able to respond to the public mood, and needs the powers to take action to do so.

Many of us are fed up with being told that we cannot change things for the better or as the public wants because we have some old treaty commitment or legal requirement from Brussels. By the back door a long forgotten Parliament binds its successors, by adopting an EU policy which we cannot change.

The EU’s latest crisis is not just the pressure in the UK for a new deal, but also the opposition of the Greek people and government to Euro austerity, the coming opposition in Spain on a similar basis, and the rise of the National front in France demanding more power for French government. UK Conservatives have no love of these disparate forces on the continent, but at the highest level they do spring from a common problem, the lack of democratic accountability of the EU to national electorates, and the unpopularity of various EU policies. This year’s elections so far in Greece and the UK have posed differing challenges to the EU establishment. Spain has just done so in local elections and may do so in national elections later this year.

The EU would be wise to debate a solution with Mr Cameron, as some of the others may have more extreme demands.

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Jealousy and aspiration

This week is Queen’s Speech week. Parliament is formally opened on Wednesday. I will produce some pieces this week on the themes of the speech and my advice for the next year’s government programme.

One of the big arguments of the election was about aspiration. Labour concentrated on expressing their hatred of the rich, hoping that jealousy would be the winning emotion. After the results were known they have agreed they overdid the taxes on the better off, and failed to speak to people who want to better themselves. The Conservative message of tax cuts for the many was more popular. Labour has now decided to drop its proposal of a Mansion tax.
Their criticisms of Non Doms were more popular, but always lacked detail over who would lose the status, and how they proposed to tax income and assets owned by people abroad if the people were not full time residents and citizens of the UK. It seemed unlikely they would make everyone who comes to the UK for a given period to invest, spend and employ people pay tax on all their worldwide income and assets that they hold elsewhere. If they did it would dry up a lot of inward investment.

One of the interesting things about democratic politics is that jealousy often does lose elections rather than win them. Labour’s wish to abolish grammar schools was to proceed by asking all the parents to vote in an area, with a large majority of parents of pupils who did not get places at the grammar school. In the first referendum they fought, they lost. Many parents thought it was fine for the winners of the grammar competition to receive the grammar education. They gave up the idea of these votes.

The reasons jealousy often does not work are varied. Some just see it as an unpleasant emotion. Some aspire to the higher levels of income and wealth that left wing parties condemn and wish to tax. Many people who are on lower incomes and have no immediate prospect of being on a higher income may have people in their family or amongst their friends who are better off and they wish them no harm. Some think it reasonable that if someone is a great footballer or singer that they keep a reasonable proportion of the money they earn.

Conservatives too have to grasp that whilst most of us want the rich to pay more, and to pay an appropriate higher proportion of our total taxes, if you overdo the rates or the rules you can end up with less revenue. The message of the election is also that many people do not think the rich should be taxed out of the country or into indolence.

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The run up to the budget

It will soon be time for me to put in my suggestions for the July 8th budget. I would therefore welcome your comments on what you would like to see.

So far I have said I want to see progress on raising the threshold for Income Tax and raising the threshold for the 40% rate of tax, as promised in the Conservative Manifesto.

I also want to see the rich contribute more. To bring this about I suggest bringing Gordon Brown’s rate of CGT and top rate of Income tax back in, as I think he had got it right in working out optimum rates for maximising tax from the rich. At 18% he collected much more CGT than we are currently doing at 28%. Many rich people now simply defer taking taxable profits or find offsetting losses to take with the rate at 28%. The rate of 45% on income is bringing in substantially more tax revenue than 50% did, and I would expect 40% to bring in more.

Mr Osborne also needs to explain his timetable and approach to Inheritance Tax. The detail on the extra tax free amount promised against a family home will require careful drafting and thought.

As all political parties now understand they need to speak up for strivers and hard workers as well as for the dispossessed and down, they need to grasp that means not just those on modest incomes but also those higher up the income scale. There is less jealousy around than political commentators imagine. Every higher earner has parents or children, brothers and sisters, friends and other relatives who earn less but who not resent their success. Someone may be earning £30,000 a year today, but still think it right to raise the 40% threshold to £50,000, as they hope to be earning that in the future or thin k someone they know or are related to might.

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The negotiation begins

Mr Cameron has reaffirmed his promise to get migration down to tens of thousands, from the net figure of more than 300,000 currently. It is a popular pledge, but it does mean he needs to get control over our borders and welfare system from the EU. I look forward to seeing more of the detail of what he wants for the UK.

The mood has changed in the rest of the EU. Now they know there will be a referendum in the UK on EU membership, many are desperate to keep us in. They want us to carry on sending them a large financial contribution every year. They want to carry on exporting large quantities to us, which I can assure them is not in doubt even if we do leave. They say they value the UK’s general political contribution to the EU’s presence in the world, though they do not seem to want to implement anything like the UK’s vision of what the EU should do, and how much less it should boss us around.

The good news is the bulk of the EU is in the Euro and needs to make more progress to its political union which we cannot possibly join. This means we need to define a new relationship, where they are governed more from Brussels and we are governed less. We also need to call a halt to the black propaganda of some, saying that a Brexit would be a disaster for us and a catastrophe for them. Brexit should mean a freer more prosperous UK, and also mean the rest of the EU can make more rapid progress to the transfer union, common taxation, common budgets and the rest that they need to make a success of their currency. It means the UK could negotiate its own trade treaties with the faster growing parts of the world, decide who to let in to our country, have cheaper energy, and regulate in ways that help people and business.

Mr Cameron has said he wants more control for our national Parliament, has said borders and welfare should be under out control and has reaffirmed his migration target which requires that. Let’s see what he now proposes in more detail to implement a vision of national Parliaments as the main decision takers, as set out in the Bloomberg speech.

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The Chancellor has said he wishes to improve productivity as part of his drive for more jobs and higher living standards. He wants to exploit shale gas, improve the road and rail networks, relax planning restrictions to allow more building and investment, cut the costs of doing business by reducing regulation, improve education and training, and boost childcare.

The aim is a good one. Rising living standards require more people to be in work, more people to improve their qualifications and skills to command higher wages, more people working for themselves then going on to grow a small business with employees, and more efficient high quality public service to back all this up.

I want him to work with the Transport Secretary to improve the road networks. There is too much congestion, often resulting from poor junction design and from bottlenecks. Limited spending on allowing Councils to widen approaches to junctions to allow lane segregation of turning traffic from other traffic, more roundabouts in place of traffic lights, better phasing of traffic lights with traffic sensors and more main road priority,more bridges over railway lines and rivers would all help ease traffic jams and cut delays and costs for business and individuals. The government has embarked on raising motorway capacity by using hard shoulders as additional lanes, which is the quickest and cheapest fix to get more capacity. It now needs to address lack of capacity on the principal supporting A roads.

The government has an ambitious programme to increase the number of apprenticeships, and to raise the numbers of people gaining good quality vocational qualifications. The continuation of school reform is an important part of this process, ensuring that more pupils have sufficient skill at maths and English to be able to do the more advanced vocational courses.

The UK wishes to remain as a first world country with high living standards for all. Most people accept that it should always be worthwhile to work, and that those who work hardest and smartest should be better rewarded for their trouble. It is government’s task to enable many more to do well at school, to gain qualifications that give them access to better paid jobs, or to encourage them to work for themselves and set up businesses.

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Barnett cannot be the whole answer for Scotland’s money

I have sought before to explain how the Barnett formula works. It is the way of determining increases in Scotland’s bloc grant money each year, based on the increases in England for similar programmes. Those who think the debate is simply whether you are pro or anti Barnett are misjudging the issue.

The bigger issue is what is the base grant? Someone has to decide which items of spending are devolved to Scotland that need bloc grant. They now also will need to decide what reduction you make to the bloc grant to allow for Scotland directly setting her own tax rates and collecting her own revenues for some taxes. Is the own tax simply going to be a general deduction from bloc grant expenditure? Are some items of spending going to be taken from the bloc grant and allocated to own taxation? Those methods produce different answers.

Presumably a fair settlement for the Union as a whole has to allow Scotland to spend extra if she raises extra from setting higher or lower tax rates that raise more revenue.If this does not happen what is the point of more fiscal independence. I have no problem with Scotland wishing to raise more tax to spend more. It will be an interesting experiment. Conversely Scotland will have to accept that if she chooses to raise or lower rates in ways which cut the revenue, that should mean Scotland spends less. England will not accept an asymmetric system, where England pays what Scotland does not raise.

The disadvantage of hypothecating particular spending to Scottish tax is they will then lose their right to more money from England to support those services, which they enjoy at the moment. The advantage is the other services will be fully underwritten by the rest of the UK. There is a justice in some part of the Scottish budget giving Scotland full control over both the spend and the amount of tax they collect to pay for that part.

The other route is to deduct the present amount of tax revenue raised in Scotland from the taxes that are being devolved, and to increase that amount annually by the amount those tax revenues go up in the rest of the UK – a new Barnet formula for revenue.This works fine unless and until the rest of the UK changes the rates or does something structural to the tax, when the grant deduction would need to be recalculated somehow. There might be other indices which could be used to approximate the tax revenue assumed in the calculation – e.g. some factor of GDP growth which was based on the past buoyancy of that tax.

Your thoughts would be appreciated.

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England, Scotland and sharing the money

The one thing which worked in the referendum campaign to persuade more Scots to vote for the union was the united refusal of the main parties to allow Scotland to stay in the sterling currency union if she wanted to be independent. It was a defining moment which meant I thought the union was safe. I saw no need to go on and make a better offer on devolved powers, but others thought otherwise.

I regularly pointed out the contradiction of a party claiming to want to create an independent country, at the same time saying they needed to share a currency with its much larger neighbour, a neighbour it otherwise wished to leave. The fact that the SNP could not bring themselves to say they would have their own currency or join the Euro showed that they judged Scots voters wish to remain part of the transfer and mutual insurance system that is the UK state and sterling union. Their cry was make me independent, but also still dependent if need arises.

Party leaders have now latched on to the argument that a single country with a single currency is a transfer union, switching money from rich parts to poorer parts, and insuring parts of the country against economic adversity. If Scotland’s oil industry is riding high and generating a lot of taxable income, the rest of the UK should share that. If Scotland’s oil industry is in sharp decline, abetted by a collapse of oil prices, then Scotland should expect the rest of the UK to cushion the blow. Scotland has the same benefit rates and entitlements as the rest of the Union, whether oil tax is high or low, so they are underwritten by general UK tax revenues.

Into this largely happy transfer and currency union the SNP have injected the idea of fiscal independence. They want to decide how much income tax to raise, how to tax property transactions, how to tax air travel and much else. The logic of this move is to arrive at a place where Scotland spends what Scotland raises from her own economy.

You can do this in a currency union, though the Union Parliament would still need to control Scottish total borrowing as that will be a claim on the currency zone as a whole. It could become difficult if the Scots chose to set tax rates that either made Scotland very attractive for jobs and business, or were very hostile to jobs and business, as that would distort the labour market where there is free movement of labour. It would have implications for any common welfare system still in place.

Opinion amongst politicians and the public is divided over whether fiscal independence within a currency union is a good thing. As a result we are moving to a compromise system, where the Scots will enjoy some rights to raise their own taxes, but will still also draw on general UK tax revenue to pay some of their bills. Reaching a political compromise on this at a high level of generality was relatively easy. Making it work in practice is more difficult. The first requirement will be to draw up a new grant regime to pay for the items that are not paid for directly out of Scottish taxation. I will consider some of the complexities in a subsequent post.

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The referendum

In the run up to the General Election Conservatives and UKIP candidates and supporters were fighting each other for the seats available in Parliament. That process required both sides to stress their differences as part of the cut and thrust of democratic debate. That’s democracy.  

However, in the months ahead we need to prepare for an even more important vote, the vote of the UK people on whether to stay in the EU or not. To win that vote for Out if that becomes necessary  will require all Eurosceptics, of whatever party and of greater or lesser conviction, to unite. Subject to what the Prime Minister manages to agree with other EU members, many Conservatives and many UKIP supporters may well find themselves on the same side of the referendum argument.  If Mr Cameron cannot persuade the other members of the EU that the UK needs a new relationship with the Euro area which restores our domestic democratic control over the things that matter, including welfare and borders, then we need to  urge the public to vote to leave the present treaties. A vote to leave would  trigger a negotiation of a trade based relationship which the rest of the EU will of course wish  to have, given how much they export to us.

In order to win the referendum for Out, if it comes to that, it will be essential that all those who think the EU has too much power and who think the present relationship unsatisfactory to unite around the strong proposition that we  leave. UKIP will need to help Conservatives persuade those who feel much less strongly about the matter than UKIP itself, which will require the right tone of voice, a positive message about how life can better outside the EU, and a willingness to compromise with those who are not strong believers in Out.It will also be easier to persuade those with less sure convictions on this topic than UKIP members if the Prime Minister is seen to have tried to get a decent deal for the UK, only to be rebuffed by other EU states.

It is not for me or others outside UKIP to say who should lead you or how you should be led. That is a matter for you and your party. It is for me, someone who has campaigned long and hard for the restoration of democracy in the UK by  getting back control over important decisions from the EU, to urge you all to have the new task of the referendum in mind when you make your decisions.

Mr Carswell left the Conservative party for UKIP to make a point. I did not agree with him then, as I hoped the Conservative party was close to winning a majority in the Commons so we could vote through a referendum which  we all  want. I felt Mr Carswell’s decision made that more difficult. Fortunately Conservatives in Parliament can  now offer that vote. Mr Carswell urges his new party to work tirelessly for the referendum in 2016/17, and points out it will require  a positive, optimistic friendly tone of voice to carry the day. We will need to show how the UK can be more democratic, more vibrant and more successful outside the Treaties. It is important to recognise we need a new relationship based on trade, friendship and political co-ooperation.

Yours sincerely

John Redwood

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  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. 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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