A sugar tax?

There is a write in campaign at the moment urging MPs to support a sugar tax. Apparently a modest increase in the price of sugary drinks will abolish child obesity. If only things were that easy.

I find the demonization of certain foodstuffs a strange characteristic of modern political debate. Some spend their time denouncing fats. Others now spend their energy condemning sugar. Some dislike carbohydrates, others see the demons in alcoholic drinks. Whichever they attack, the answer is to tax it more. This route has been tried for many years with alcohol, yet there are still too many sad cases of people who become dependent on too many alcoholic drinks. I accept that taxing alcohol is necessary as part of the means to raise money for public services.

To me sugar, fat and carbohydrate all have a role to play in a healthy diet. You need to eat something, otherwise you end up with malnutrition. There is nothing intrinsically evil about the bag of sugar or the tub of fat on the supermarket shelves. A little of it each day is fine. Excess in any foodstuff can cause illness or harm. The balanced diet needs balancing too with the amount of energy you burn, which depends on how active a lifestyle you live and how well your home is heated. As a child I liked sweets, cake, chocolate, fizzy drinks and chips. My parents ensured these were treats, served in appropriate quantities when the occasion warranted and their budget allowed. More dependable foods were the normal servings for mealtime.

The case for taxing fizzy drinks with sugar includes the proposal that fizzy drinks sweetened some other way would be tax free. This invites experimentation with other sweeteners. Who is to say these will all be better or good for us? It still leaves open the point that trying to cut consumption by tax means fewer drinks for low income families but little constraint on high income homes.

I cannot see the merit of a tax on sugar or on drinks containing sugar. There are many ways of getting fat. Some are the person’s metabolism, others are the combination of diet and exercise, which is more complex than a few colas.

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The Autumn Statement in perspective

I was asked to write a response to the Autumn Statement by a leading national newspaper. I dropped everything on Friday morning and wrote the required number of words to their deadline, but they did not publish it, so I am now sharing it with you:

I like a bit of Robin Hood magic. One of the main tasks of modern government is to take from the rich to give to the poor. All the main parties buy into that ever popular idea from the UK’s favourite outlaw.

The Autumn Statement does a lot of it. Many of us had asked for some relief to the planned cuts to tax credits. The Chancellor stopped them. This was made possible because the Office of Budget Responsibility decided there was going to be much more tax revenue coming in. The Chancellor was free to play Father Christmas early this year as a result. We need to ask, how reliable are the forecasts of revenue? Will tax income be a massive £177 billion more in 2019-2 compared to last year? That’s each adult paying on average £3,500 more.

The task of redistribution is made easier if there are enough rich people living in our society, and if they are made to pay more of the taxes we seek to impose. Rich people have more financial options than the rest of us who depend on a UK wage. They can choose where to live, choose whether to work, where and when to invest and how much income and capital gains to take in any given year. Taxing them successfully requires keeping an eye on where else they can go and what else they can do to avoid paying taxes in our country.

The first change I would make to the Autumn Statement proposals is to tax the rich more. To do so we need to look at what is happening to taxes that the rich mainly pay. Capital GainsTax receipts are forecast to fall by 6.5% compared to the March forecast, amidst the bonanza of rising revenues. 28% is a rate too high, so people simply don’t sell their assets sitting on large gains, and legally avoid the tax altogether. 20% would bring in more revenue.

The same is happening to Stamp duty revenues. Now there are very high duties on dearer homes, the forecasts have had to be cut because rich people are simply not prepared to sell and buy a new home at the new rates.

Government has to mainly tax the rich because they have the money. They should not wish to do so as some kind of moral punishment for success. It should do so out of necessity, and in ways which allow them to remain financially successful. We want them to invest here, create jobs here and spend money here.

Before the last election the government set out the need to control public spending in order to get the large amount of borrowing we do each year down to more sensible levels. Every pound we borrow as a nation means future interest charges, and the need to repay at some point in the future. We spend now for our children to pay the bills later. The Chancellor memorably said he needed to fix the roof when the sun is shining.

The sun is visibly out now if we believe these latest forecasts of more growth, more jobs and more tax revenue. The Conservative Manifesto said it would cut real spending by 1% in each of the first two years of a new government. This week the Chancellor decided that was no longer necessary. He has instead proposed a large cash increase in public spending over the lifetime of this Parliament. The total spending in 2019-20 will be £821 billion. That’s £24 billion higher than the March budget forecast, or an increase of 3%. Is it right to spend tax revenue increases we do not yet have?

During the election I spoke out for prosperity, not austerity. I wrote that I did not expect the government to make any overall cut in public spending this Parliament. They had, after all, not made any overall cut in public spending in the previous Parliament, despite all the press and opposition talk of cuts. So I am not surprised .

This means running a bit more risk. There is always the danger that the revenue forecasts will prove to be too optimistic. Taxes are very sensitive to employment levels and consumer confidence. These can be hit by external forces with weak world trade, a Chinese slowdown and a latin American recession already with us.

I would be happier if the government did take something off total public spending as they promised to do in the election. This would leave a bit more margin for error. My preference would be to remove the EU contribution we make each year. This has been going up all too quickly. £11 billion of what we send them is spent on rich EU countries on the continent. This seems to me to be far too high a price to pay for membership of this difficult club. If we vote to leave the will be an immediate boost of £11 billion to our finances each year.

The government is rightly looking at ways it can use the overseas aid money more productively and help keep total public spending down. The BBC Overseas service should properly be a cost to the overseas aid budget. So should the full cost of activities undertaken by our military to help in failed states or to intervene with public health and other humanitarian crises.

This should be the year of thorough reform of parts of the public sector that cost us a lot and deliver too little. For years Housing Associations have been getting large capital grants on top of making big profits out of the rents they charge which are largely financed from Housing benefit. It is time to ask them to do more or to pay them less. They are asset rich and cash rich. If they wish to be independent charities then we should leave well alone. If they want to continue with more public support they need to accept some government imposed financial discipline and help meet government targets.

The same is true of Network Rail. That badly run unaccountable body has been eating up the public cash in recent years. Network Rail has large amounts of land with development potential close to the centres of towns and cities. They could help modernise our towns and free some cash by developing more of it. They could raise their efficiency considerably by hitting the standards of the better continental railways. They need to discipline their financial management of their huge investment programme, where all too many projects overrun in cost or are allowed big upward changes to budgets. Maybe the best answer for them will be to re unite track and trains, introducing private capital with railway companies organised around particular routes and parts of the country.

This is the year to take action to control costs and to build in some leeway in case the tax surge does not materialise in the way the OBR now suggest. It is great news that there are so many more people in work, and great news that real wages are now rising.A lower tax UK will be a richer and more productive one. The right lower tax rates will bring in more revenue. Better revenue forecasts should not exempt inefficient parts of the public sector from reform.

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Who is rich? The distorting problems caused by very high London home prices.

Many readers will know that I wanted quicker fixes of the main banks balance sheets and capacity to lend, rather than Quantitative easing. I wanted the illiquid or damaged banks to have to sell off assets and raise additional capital so they were stronger sooner. The advocates of QE are now able to claim that there has been no great general inflation so far as a result of their money printing, because credit was badly damaged by the crash and remained very tight owing to the tough regulation of the banks thereafter. At the same time as the crash there has a general glut of food and commodity supply worldwide and highly competitive prices for many manufactured goods. There has been, however, a major inflation in the prices of assets, led by bonds but including London home prices. This brings with it social and financial consequences.
House and flat prices are now so high in central London that no normal person on a good UK salary can afford to buy one without other capital. Let us compare two different people, and ask if either or both of them can be said to be rich.
The first is a retired woman living on her own in a one bedroom flat in central London. She owns her flat outright, and it is now worth £1.5 million. She was on average London wages for her working life, has no employer pension, and lives on the State retirement pension and top up benefits and pensioner concessions. She always spent her modest income in full and has no savings. She and her husband bought the flat years ago in an unfashionable district at that time, and paid off the mortgage before his death. She finds it extremely difficult to pay the service charge on her flat which has gone up a lot, and to pay all her daily bills. She wishes to carry on living in her flat close to all her friends and the activities she does to keep herself interested.
The state treats her as poor. The income and financial assets tests show she has very little to live on and she does need help with her Council tax and daily living costs. She has no money left over for treats or travel.
Some would say she is very rich. Having £1.5m in assets puts her well into the top bracket of the wealthy in capital terms. In one sense she is rich. If she chose to sell her flat, she could buy a good detached home in most parts of the UK, and would have £1 million left over in her bank. She could draw down say £50,000 tax free for more than 20 years as the money stayed on deposit and on that could live well. The state says it has no wish to make her move, so she is poor. She can scarcely afford to live where she lives even with state help. I am not myself saying I think she should be made to move, as that is certainly not my view.
In contrast is the successful young man working near her flat in the centre of London. At the age of 29 he is already on an income of £70,000 a year plus an employer pension contribution, putting him well into the higher tax paying category. He has saved £150,000 so far in a pension plan for his eventual retirement, and has £45,000 accumulated in ISA savings. He rents a very small flat for £20,000 a year. After tax and rent he can still afford a reasonable lifestyle. He would like to buy a one bedroom flat near his work. The cheapest acceptable one for him is over £1 million. With only £45,000 available as deposit he does not even have the minimum deposit needed. His income of £70,000 gets him nowhere near a large enough mortgage to buy the one bedroom flat near his place of work.
Some would say he is well off. They would point out he could afford to buy a perfectly nice property 30 miles out of London and commute in as many do. He does have financial assets of £200,000 already, though he is years off getting access to most of them. Others would say he is part of suffering Generation Rent, consigned to small and expensive accommodation all the time he wants to be in London. At 29 he is still a long way off owning a flat in the area he wants to live in.
So I ask two questions for you today, recognising that many of you will want to answer some other! The first is are either or both of these people rich? The second is what if anything could and should be done about the impact of high London home prices on people’s lifestyles, income and wealth?
For those who like even more difficult moral and political teasers, what would the answer be if the young man was the woman’s nephew and due to inherit her flat? Would that change your mind as to his riches if a) his aunt died suddenly and prematurely and he found the ones to pay the IHT and moved into her flat and b) if she lived for another 30 years so her flat made no different during most of his working life?

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Meeting with Jeremy Hunt, Secretary of State for Health

Last night Jeremy Hunt was the principal guest at the Wokingham Conservative Association annual dinner.

Mr Hunt explained what he is trying to do with NHS England. Backed by substantial extra money, he is seeking to raise the quality of work, reduce waiting times and move the NHS onto a 7 day a week service pattern.

The NHS of course has always had to work Saturdays and Sundays. Babies are born at the week-end, people have accidents at the week-end, serious illnesses can flare up at the week-end, so there has always been cover. We are all grateful to many dedicated health professionals who have worked long hours and been prepared to work at week-ends to provide care and cover.

It is also the unfortunate case that there is less cover and professional expertise available at week-ends. Results of medical and surgical interventions are often worse at week-ends. It is this issue which Mr Hunt is seeking to tackle by agreement with the professions. He is offering shorter hours for many doctors in return for more of those hours being at a week-end. He is offering pay rises for most from his new proposed contracts.

Mr Hunt regularly says that the airline industry got better at curbing and preventing accidents when it adopted the procedure of complete transparency, reporting anything that had gone wrong even where no damage was done and disaster was averted. The industry then analyses every incident to see how it can design out any future threat of a repeat which might occur with worse consequences happening. The NHS is adopting such an approach under Mr Hunt’s leadership. Every time a procedure goes wrong, the wrong procedure is applied or the results are poorer than expected the NHS needs to investigate and learn from the experience. The aim is not to have witch hunt against the nurses and doctors concerned, but to learn collectively from the incident.

I wish Mr Hunt every success in pioneering much stronger quality based reporting and analysis in our NHS.I hope the doctors will now talk through their disagreements with management over the new contract, understanding that it is not some crude attempt to cut costs or insist on work patterns that are unacceptable to talented professionals. In turn professionals do have to recognise that with the privilege of higher pay and status in our community comes the obligation to pursue quality at all times, and to be available through a system of proper cover when need arises.

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Sorting out the balance of payments

The UK has been running a substantial deficit on its balance of payments with overseas countries for some time. The Office of Budget Responsibility has good news for us on this deficit. It forecasts that it will fall from over 5% of our National Income in 2014, to around 4% this year, 3% next year and then to around 2.5% thereafter. It points out the deterioration up to 2014 was caused by a weaker income balance, and suggests that going forward returns on UK investment abroad will pick up again.

If the deficit falls as estimated, then the UK will need to sell fewer assets overseas and raise fewer borrowings, which would be good news.

What we need to remember is the big role in all this of the rest of the EU. The net contribution we pay into the EU and do not get back in any form is over £10 billion a year. That is all a loss on our balance of payments account. If we vote to come out there will immediately be a £10 billion plus improvement in our balance of payments as a result. That is almost one fifth of next year’s forecast balance of payments deficit. The balance of trade is an account split into two parts, EU and non EU. The EU part remains in persistent heavy deficit, whilst we have a surplus with the rest of the world. EU trade has always been arranged in ways which favour Germany and some other continental countries and do not favour the UK. The UK accepted early and substantial liberalisation of trade in manufactured goods where Germany was strong, but has struggled to get a freer market in defence, business and financial services where the UK is stronger.

The UK has also chosen to be generous with its overseas aid. This too is a substantial and growing item entailing the movement of cash abroad, weakening the UK balance of payments. Germany with her huge surplus on her balance of payments does not make such a large contribution to other countries as the UK. The OBR has lowered its 2012 forecast for exports by 23%, reflecting slower world growth especially in the Eurozone and consequent slower trade growth.

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Spending £4 trillion

Listening to some people about the Autumn Statement, it appears you don’t get much for £4 trillion these days. That’s the amount the government plans to spend in the five years of this current Parliament. They aim to increase total spending by 8.7%, comparing 2019-20 with 2015-16. That’s why we hear endless arguments about cuts and the drive to a smaller state! We heard all the same arguments  between 2010 and 2015. At the end of the last Parliament public spending was higher in cash terms and in real terms than in 2010.


We need to remember that the government’s strategy has always been to sustain public spending, and to get the deficit down with a huge increase in tax revenue. The aim this Parliament is to get the tax revenue increase from growth in the economy. This will also have the effect of lowering state spending as a total of the economy as a whole, and leads to all those siren cries that this means the state sector is being cut, when instead it is just growing more slowly than the rest. there were also tax rises, with a new tax on buying Buy to let homes and the apprenticeship levy on business.

The Chancellor was right to abate the severity of his proposed cuts to tax credits. I agree with the strategy of boosting pay through working smarter and paying more for more output. I agree with the policy of cutting income tax on working earnings. As real incomes rise so it is possible to withdraw benefit  support to incomes. It makes little sense to tax people on modest incomes, only to recycle the money to them through a tax credit. The Chancellor was right to remove his severe cuts to tax credits before people have the benefit of the wage rise and the tax cut.

The boost to home ownership for sale is just what the economy needs. We are short of homes, and especially short of affordable homes for sale. This policy should help boost housebuilding and construction materials output. Brick kilns are coming out of mothballs, and new ones are being put in. There will be investment opportunities for  a wide range of building related manufactured items.


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Big surge in tax revenue forecast – £105.2 billion this Parliament

The Autumn Statement forecasts higher tax revenues in every year of this Parliament compared with the March 2015 budget. In total the new estimates show us paying an extra £105 billion in tax over the five years, with increases of 4% in tax revenue compared to March forecast in both 2017-18 and 2018-19, with smaller increases in the other years.

The forecasts also show an increase in other receipts, mainly the gross operating surplus on public sector trading, which more than offsets the increase in the UK’s own resources contribution to the EU which rises by 29% for the five years compared to the March figure.

Capital Gains tax receipts are now forecast to be 6.4% lower over the five years than the March forecast, reflecting the Treasury’s inability to model the impact of higher rates on revenue. They have had to progressively lower these forecasts in the light of experience and have done so again.

There are strong gains in VAT, in National Insurance  and in Income Tax, though self assessment income tax is now forecast to bring in less this year than the March estimate.

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Big increase in spending – £155 bn more this Parliament than March 2015 budget

The big surprise in the Statement is a large further increase in spending on top of the substantial increases announced in the June budget.

In June the Chancellor raised the total spending planned for this Parliament  by £70 billion. In this Autumn Statement he has raised it by another £86 billion.

Current year spending goes up by £13  billion or 1.8% compared to the March and  June forecasts.

2016-17 spending goes up by £33 billion compared to March, or 4.4%.

2017-18 spending goes up by £43.6 billion compared to March, or 5.9%.

2018-19 spending goes up by £42 billion, or 5.5%.

2019-20 spending rises by £23.7bn or 3%.

Borrowing stays lower owing to the assumption that low interest rates will stay with us for longer, saving money on the national debt, and on the assumption that tax revenue will improve more than expected before.

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Who are the West’s enemies in the Middle East?

I have read enough to know how little I understand about the complex theological and political struggles within Islam, and about the large number of differing terrorist groups operating in the wider Middle East. I do not speak or read Arabic and have not read enough  of the literature or history of these  very different countries. I have read enough to be suspicious of simple solutions seeking to elevate just one group into a position of being the only or main problem. I wish in this blog to pose some questions to those who do know more, and to those who seek to frame our strategy towards the region.

Time was when the enemy of the West was the Taliban. Today they have been brought into Afghan society and  form part of the democratic dialogue. Then the enemy was Al Qaeda. They have not gone away and still exercise considerable influence in a range of countries. Now the evil one is ISIS.

Recently news came that 7 people were brutally beheaded in Afghanistan by Uzbek fighters. Al Qaeda in the Arabian Peninsula has taken territory in Yemen and has a presence in Aden. Do these  present a threat to us? What should be our response?

Meanwhile Jabhat al Nusra seek to extend their influence  in Syria and Al Qaeda in the Islamic Maghreb increase their activities and smuggling profits in Libya. Does this concern us, or do we wish to co-operate with them because they are against ISIS?

Are we on the side of the Sunni or the Shia factions fighting the Syrian civil war? Or do we believe it is possible to form a Syrian democracy that can hold the peace between these two and offer decent civil rights to all?

The UK government accepts that it will need a political strategy for Syria to run alongside any bombing attacks. It seems to be seeking a new government of the whole of Syria, based on the military elimination of ISIS and the voluntary surrender of power by Assad. Does it wish to help a coalition remove Assad after the removal of ISIS? Does it believe Assad will go voluntarily? Who are the moderates and where are their forces who will fight for a vision of a united Syria under democratic rule? Who in Syria has the belief in toleration towards Christians, Sunnis and Shias and has the force to establish such a society? Will the West end up accepting the Russian view that Assad is the least bad option in an all too violent society?

By encouraging the Kurds to take action in the north of Syria we are encouraging them to gain and hold territory that they think should be part of a Kurdish state. What do we say and do if they want to extend that into Turkey against our wishes and against our Turkish ally in NATO? Who could establish a government for all of Syria who would have the Kurds confidence and persuade them to give up territorial gains they have made?

Is the West clear that it can help establish a united Syria at peace, or does the West think now there has to be partition between a Kurdish Syria, and a Sunni and a Shia one? Or does the West now accept that the days have gone when great Western powers could draw lines on a map of the Middle East to conjure states out of the rival tribes and the desert?

Either way, knowing who  our enemies are is crucial, and knowing who we might inadvertently help if we intervene on one side or another is important.


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Defending the UK

The Defence Review answers some of the criticisms  bloggers on this site have made in recent years. The order for new fast stealth fighter jets has been increased, meaning the new aircraft carriers will have planes to fly from them. The maritime reconnaissance role will be served by  new planes, after a gap in UK capability. 8 new frigates will be ordered. The new carriers are well advanced in build. When they come into operation they will have frigate, destroyer and submarine protection.

The army will receive more new armoured vehicles, with a larger mobile force available to intervene, or support allies. Up to 10,000 troops will also be trained and available to reinforce the police at home should there be dangerous terrorist attacks requiring a forceful response.

I raised with the Prime Minister the issue of control of our borders. I welcome the  additional cash and personnel to strengthen our intelligence gathering. We can only keep safe if the authorities stay ahead of the threats to our way of life, and use the intelligence they have gained to good effect. I suggested that our borders be strengthened with specific links from the Intelligence services to the  border management, so that if for example terrorists are displaced from the Middle East by military action there they cannot gain entry to the UK, whatever their legal status, if their aim is harm or they are trained in terrorist ways. He accepted that more should be done to tighten border controls.

I also raised with Defence Ministers after the statement the need to continue to press for better value for money within the defence budget. In particular more can be done to release MOD land in places where it has substantial development value, and to provide new and better facilities elsewhere for our service personnel. I also relaunched my proposal for better assistance to service personnel in buying their own home. Everyone in the military should have a home base. They should be helped to buy a home of their own near the base in the normal way. Alternatively if they are using married quarters or other  service housing on a base they should be able to buy an interest in  it from the MOD for the duration of their time in the services, only to sell it back at a profit based on an agreed index of comparable freehold property prices when leaving the service. They would then have a deposit for a home of their own.





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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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