Month: May 2010

I have often argued we need to tax the rich more – ever popular with Lib Dems and Labour. The way to do it is to lower the rates.

The Adam Smith Institute has just sent out the figures for the impact on capital gains tax collection from raising and lowering rates in the USA since the 1950s. Whenever the rate has been cut revenue has risen – often in the first year and normally in the second. In 1981 the US collected $28.5 billion with a tax rate of 24%. In 1982 they raised $26.95 billion with a lower 20% rate, only to see receipts soar to $37.85 bn the next year and as high as $97.33 billion in 1986.

In 1987 they raised the rate to 28%. Revenue plunged to $59.83 billion. They raised it again to 33%. Revenue briefly rose to $66.23 billion in 1988 then plunged again to $57.3billion, lower than when the rate was 28% and well below the levels when they had a 20% rate.

In 2002 they raised $55 billion with a 20% rate. In 2004 this soared to $78 billion by lowering the rate to 15%. In 2006 they were bringing in $110 billion at the 15% rate.

The Uk experience is similar. Lower rates increase the yield. Austria, Switzerland, Belgium and Luxembourg have a zero rate. The USA has a 15% rate and Japan a 10% rate. If the UK hikes its rate too much it will end up with less revenue, and make itself needlessly uncompetitive in a world where capital and talent is footloose.

Today we will learn the full list of reducitons in spending to take this year’s total down by £6 billion. This is a most welcome development, because for the first time the UK government will be acknowledging the problem of the collosal deficit needs tackling immediately. For the first time in years a government will announce a whole package of reductions, trying to change the trend.

The government and most of the commentators also know that £6 billion is nothing like enough to deal with the problem. It is an early downpayment, a signal of intent, the aperitif before the main meal.

We are told that the Business Department will have to find a substantial proportion of the total. That is a good idea. The business lobbies have rightly demanded cuts in spending for some time. Sensible businesses want low taxes and internationally sensible levels of regulation. They do not need government grants and government guidance.

The Business Department has one of the smaller budgets – around £22.5 billion this year including capital spending. There are two elements of this spending that should be singled out for substantial reductions.

The first is the payment of grants to businesses. When I was a DTI Minister, always sceptical of the wisdom of paying grants to companies, I was pleased to find many letters coming in from companies in competition with grant recipients complaining that their competitor was getting special treatment. The complaints were particuarly vociferous about EU grants to European competitors.

The second is the quango empire centred around the RDAs. Central and local government has substantial involvement in business through planning, transport and a wide range of regulation. We do not need another layer of administration and intervention through these unelected bodies. What needs doing can best be done by Whitehall or Town Hall, at no extra cost.

The government should also pursue the waste of public money at the EU level, where we need a budget sharply lower than last year’s , not higher.

In opposition Mr cable proposed the abolition of the whole Business Department – before it was also responsible for Higher Education. That should make it possible for him to find billions rather than hundreds of millions of cuts from his departmental inheritance. These are the easy cuts, so let’s make them large enough to have some impact.

It will be later this year that the government goes on to tackle the huge benefits budget, the one where we need to make big inroads by getting people into work.

Dear Mr Clegg,

Congratulations on your appointment as Deputy Prime Minister. I was pleased to read a copy of your first speech in that role, where you set out an excellent agenda for strengthening our civil liberties and repealing measures taken by the last government.

You have invited contributions of items to include in your Great Repeal Bill. As one who argued strongly over the last decade that we needed substantial repeals, to reverse the flow of law and regulation that is damaging both our liberties and our prosperity, I welcome this. I have pleasure in submitting a few examples of items that should be included in the first Bill. Many of these are taken from “Freeing Britain to compete”, the study of Economic Policy I wrote in the last Parliament. It is available as the last listed download on www.johnredwood.com on the right hand side of the site. Some are taken from suggestions contributed to www.johnredwood.com in my latest consultation.

1. Repeal Working Time Regulations – people should be free to work overtime if they wish. This single item was the biggest extra burden on business in the last 13 years.
2. Repeal Data Protection Act. Keep a requirement on data haolders to look after data, and keep a citizen’s right to their data and its fair handling, but eliminate the quango and licensing regime.
3. Money laundering regulations. Make them less costly and ineffective. Requiring people to supply a passport and utility bill does not stop money laundering but does create a lot of extra cost in the system.
4. Abolish compulsory Home Information Packs – as planned by the Coalition government
5. Mortgage regulation – remove the last government’s detailed mortgage regulation which clearly failed, and strengthen cash and capital regulation of banks and other mortgage providers to avoid future crashes.
6. Remove Gaming licenses for charities
7. Abolish Mandatory horse passports
8. Remove recent over the top regulation of herbal medicines
9.Opt out of Food Supplements Directive
10.Restore statutory dismissal procedures to pre 2000 position
11.Restore social chapter opt out and define UK rules in these araes
12. Repeal compulsory metrication
13. Combine disclosure to the Inland Revenue and Companies House for smaller companies – one form fits all
14 Repeal IR 35
15 Abolish Best Value regime for local government
16 Abolish Comprehensive Performance Assessment regime for Councils
17 Abolish Regional Housing Boards and regional targets
18 Abolish Regional Development Agencies
19 Repeal Legislative and Regulatory reform Act
20 Amend Waste Incineration Regulations 2002 to allow more recycling
21 Amend Health and safety regime to make it more proportionate and effective
22 Repeal Digital Economy Act 2010 cl 11-18
23 Repeal Investigatory powers Act 2000 – too intrusive
24 Repeal Charities Act 2006 – too bureaucratic
25 Repeal Labour’s Terrorism Acts and replace with simpler system which damages the civil liberties of the innocent majority less.
26 Cut the use of surveillance cameras and design safer and less congested roads and junctions instead.
27 Repeal the SI requiring 11 million people to have CRB checks before helping children.

These measures would not only restore civil liberties and free more companies to create extra jobs and compete more successfully, but they would also cut public spending on regional and regulatory overhead. More of the detail explanation is available in “Freeing Britian to compete”, pp 53-65 and pp 153-189.

The most popular repeal from contributors to my website would be to repeal the section in the Health Act that bans smoking in all public places, to allow smoking again in specified rooms and areas

Yours sincerely

John Redwood

It was good to see in today’s Teleraph Mr Cameron say he did not like the 50p tax rate, and say the Treasury will now look at its impact on revenue. Income tax was boosted heavily at the end of the last financial year as companies and individuals made prompt payments of pay and bonuses to be taxed at the 40% rate. The Treasury needs a model which captures the incentive and disincentive effects of different rates.

A few of you have made enquiries concerning the future of this august body. I have not been making public statements about it, as it is an internal party matter. I prefer to use my media appearances to talk about things that matter to many people, and have a direct impact on the daily lives of my constituents. Politicians talking about their own internal arrangements is not very exciting. Given some of the strange briefing from both sides in recent days, let me seek to clarify a few of the issues. I have no wish to give media interviews on any of this.

Throughout the Opposition years front bench Conservative MPs were allowed to come to the 1922 weekly general meetings, held when Parliament is in session. None joined the Executive of the Committee, which has seperate meetings. Traditionally in government Ministers only come by invitation, when we wish them to explain their policies or answer our queries or hear our disagreements. We have now decided that all Ministers should be free to come to any regular general meeting of the 1922 they wish. As far as I am concerned they are most welcome, and we may be able to hammer things out with them in private before opinions become too entrenched or misunderstandings too widespread.

There is then the question of the Executive of the 1922 Committee, which has always been backbench elected members only and meets in confidence weekly when Parliament is in session. It is my understanding of the new system that there will still be a weekly private meeting of the 1922 backbench Executive. I doubt whether Ministers are now eligibile to stand for the 1922 Executive, but I think it extremely unlikely any Minister would seek to do so. They would understand that the Executive has to be backbenchers only, and see they would be unlikely to be elected if they were allowed to stand and decided to stand. The Executive will continue to raise issues with the Prime Minister and other senior Ministers that are of concern to backbenchers, and continue to handle issues arising on behalf of backbench Conservative MPs generally in the conduct of their duties.

I welcome Liam Fox’s statement today that the new government is actively looking at ways to accelerate the departure of our troops from Afghanistan. He is right to say “No” to any new mission in a new province there for them, and right to concentrate on faster withdrawal. We have lost too many young lives and spent too much treasure already in Labour’s Middle Eastern wars. We need an early exit with dignity.

Mr Cameron should of course be charming, polite and friendly to the German Leader. He should feel no need to seek favour or to apologise for the UK’s healthy Euroscepticism. He should speak truth to power. He should say that our scepticism about joining the Euro has made the problem of the Euro much less, and our scepticism about so much detailed European government regulating EU economies offers a way through to greater prosperity and freedom for the European peoples.

Those of us who opposed the formation of the Euro pointed out that if they rushed too many European countries into it before their currencies had stabilised and their economies converged, there would be trouble. We said that if they allowed some countries to borrow too much at the common interest rate it would create strains. We said that if a country like Germany worked hard and was very competitive, the other countries would have to cut their wages to stay in. Prior to the establishment of the Euro Germany was more competitive, and regularly revalued its currency against many of the weaker performers. This was the easy way of cutting living standards in Italy or Spain, and reducing their imports, and cutting back on Germany’s exports. Today, within the Euro, the adjustment has to be made by cutting wages in the importing countries, a more painful process as we are discovering.

By keeping the UK out of the Euro we made a huge contribution to its possible success. If the Uk had been in the Euro over the last year it would probably have broken it. The Uk is too different, and the level of UK state borrowing so huge. The UK had a large devaluation over the last two years to cut its living standards – the outgoing government which engineered that would not have engineered a similar pay cut if we had been in the Euro. Mr Cameron should say that the UK wishes the Euro well, and will help with advice and political support for measures to assist it, but cannot offer a pound of UK money given the state of the Uk finances.

He should then say that he is very worried about how the EU generally is becoming an area of slow growth or no growth. The EU has inflexibile product markets, owing to far too much EU regulation. It has inflexible labour markets, owing to labour regulations, social security systems and the wide range of languages spoken. If the EU wants to help the prosperity of its citizens it needs to cut out much of the damaging or needless government its visits upon us and our businesses. Decent welfare standards and different langauges are a given, so the adjustment needs to be made by less European government intervention.

He goes to see her just after she has personally triggered a major fall in world markets by her decision to impose a German ban on short selling government bonds and bank shares. She used inflammatory language to tell us all the Euro is at risk, and then introduced a panic measure which will ensure more financial business is transacted outside Germany. She did not even bother to consult her EU partners.

I am sure Mr Cameron will be too polite to rub salt into the wound of her clumsy interventions, but he should refer to how apparently popular regulations can make economies worse. We hear from Euroenthusiasts that now is the time for the UK to have influence. Those of us who are sceptical about EU policies and their impact on living standards will judge this claim by how far the Uk can now get in persuasing the EU that it is part of the problem.

We need a less expensive and less regulating EU to get Europe back on the road to prosperity. The Euro, the EU’s finest achievement to date according to its supporters, is visibly damaging growth and income levels. The EU which demands spending cuts of its member states should lead the way by cutting its own spending. I am not expecting it to see the problems it creates, as its answer to everything is more European government.

This morning a pro EU person was allowed uninterrupted airtime on the Today programme to tell us France and Germany have fallen out so now is a great moment for the UK to have influence. He went on to dismiss the positions of the smaller member states and the olive belt countries as so many pro EU people do.

He may be right. The question is, what if anything does the UK wish to influence? There are two things that could help us and the EU and would make a difference.

The first is to preach a simple doctrine, that at a time when member states are having to make large cuts in their own spending, they should expect the EU to make larger percentage cuts in its budget, as EU spending is less important than core national spending.

The second is to explain that the European econmomies are performing badly. We need more private sector led growth to tackle the deficits and create greater prosperity. The EU should make its contribution by cutting the regulatory costs it imposes with a substantial dose of deregulation.

Arguing such a case would make the British government a good European in a way which most sensible UK Eurosceptics could welcome.

Yesterday Mr Clegg made a speech saying the Coalition government will ensure “the state has far less control over you, and you have far more control over the state”.

That’s good news. The back-up detail, coming from both the Conservartive and the Lib Dem Manifesto, makes good reading. They will abolish the ID card scheme, scrap the ID Register, reduce holdings of email and internet records, restrict CCTV, cancel the ContactPoint Childrens database and restrict storing DNA records.

We are all invited to write in to add to the list of repeals, and we are promised fewer criminal offences. I invite contributions here, as I wish to see a big Repeal Bill.

As forecast here, UK inflation is high, rising and persistent, owing to the weakness of sterling. What will the Monetary Policy Committee tell us now? Why isn’t inflation subsiding already as they promised? Why is it so far over target? Was printing £200 billion extra cash to help the last government such a good idea?

We now learn officials were against some of the ways the last government decided to spend and spend in their last months. Money was only easy for them, thanks to QE. We need an explanation from the Bank of why they so readily assisted, and details of the heroic officials who tried to resist the spend and borrow plans of the dying days of the last administration.

We are learning the full price of all this as the weeks go by. Inflation is now 5.3% as measured by the RPI, at a time when wages are barely increasing. The squeeze is getting worse.