Author: johnredwood

I will be giving a talk at the IEA to develop some of the themes of my latest book “We don’t believe you” and to put the analysis into a topical context.

The event will be at 6.15pm on June 11th at the IEA, by ticket through them here: https://iea.org.uk/events/in-conversation-with-sir-john-redwood/. They are at 2 Lord North Street SW1.

The government should announce a boost to the UK economy in the event of us leaving the EU soon without signing the Withdrawal Agreement. The public wants some sensible optimism about our economic prospects based on the opportunities Brexit presents. The aim of policy should be to ensure a growth rate a little higher in our first year as an independent country than the present estimated growth rate assuming we stay under EU rules and making EU payments for another year. The present government has been persistently gloomy about Brexit for no good reason, and got all its post Brexit vote forecasts wrong by being too downbeat. There are already deals on customs co-operation, transport and government procurement available for an early exit.

A number of leadership candidates have been kind enough to ask for my thoughts on the economic impact of Brexit and the current state of the UK economy. In the interests of fairness I thought it best to set them out on this public forum for those who are in practice interested.

The policy of a combined fiscal and monetary squeeze which the authorities have followed since the spring of 2017 has had the predictable effect of slowing the UK more than is desirable. Two interest rate rises, the ending of Quantitative Easing, the withdrawal of special facilities to encourage bank lending, advice against car loans and top end mortgages, the overshoot in deficit reduction last year through much higher tax revenues, the continued impact of the last Chancellor’s decision to slash buy to let investment through tax changes and increased Stamp Duty, and the decision to cut new car sales by a large hike in Vehicle Excise Duty have had a marked effect on the housing and car markets and more generally on demand and output.

The Treasury seem to think leaving soon would be an adverse shock to the UK economy. I think this is wrong. The Treasury has a habit of wildly inaccurate forecasts over the EU. They got the impact of the Exchange Rate Mechanism hopelessly wrong by failing to see the recession it would cause, and got the likely impact of voting to leave in the first place wrong by forecasting a recession with big job losses which did not happen. However, given that is the Treasury view, it means there is an even better case for taking some reflationary action in an exit budget. You should spend £20bn extra in 2019-20 on a mixture of higher public spending to improve public services, and tax cuts to promote business investment and growth. This would use up the £12bn saved on no more net contributions to the EU and offset some £8bn of unplanned additional fiscal tightening from increased tax revenues. The aim is not to borrow more but to reduce borrowing further as economic growth picks up and as tax revenues expand in response to lower tax rates which maximise revenue.

This would produce a 1% gain to UK output and incomes, all things being equal. It would offset any reduction in exports from moving to tariffs on product sold to the EU, which on a net basis should be considerably less than 1% of GDP. Any loss of exports to the EU from tariffs and other frictions would be also partially set off by the likelihood of substituting more home production, by cheaper imports from non EU replacing some of the large import bill we experience from the EU and by additional exports to non EU. If we assume we cut our external tariff to the rest of the world in ways which encourage more trade and reciprocation as we sign new trade deals the outcome will be better. A fiscal boost now of 1% of GDP should mean after all positive and negative effects of leaving our GDP will perform better in 2019-20 than if we stayed in. There would be a clear favourable confidence effect once we were out, with businesses able to make decisions knowing exactly what our trading and other arrangements are. We may well be able to agree trade talks with the EU to start on exit, which would allow them and us to avoid new tariffs and trade barriers under Article 24 of the GATT.

The government should reverse the damaging increases in vehicle Excise Duty and create a more favourable tax regime especially for clean and low emission vehicles. It should remove all VAT from green products to encourage everything from better heating controls to insulation. It should remove VAT from domestic heating fuel to tackle fuel poverty and cut inflation further. The UK has not been able to do this as members of the EU. It should take the rate of Stamp Duty down to the levels that applied prior to the 2016 budget, as the government has experienced disappointing receipts from the higher rates. They have hit turnover and therefore tax revenues by being too high. The government should review buy to let investment taxes to allow more investment in the sector. It should make a further reduction to business rates especially for shops given the problems on the High Street.

Spending priorities should include more money for schools, the police and social care. As I know from my experiences in the Wokingham and West Berkshire Council areas, the lowest financed parts of the country like ours are struggling with low budgets for these crucial services. We also need an accelerated programme of transport investment. The government has recently announced substantial extra sums for the NHS which is welcome but now needs careful direction to ensure the money is spent on the service improvements and the extra medical staff we need.

Many Leave voters see Brexit as a great opportunity. With the right budget the UK economy could perform better. Now is the time to stop the monetary and fiscal squeeze, to back private sector growth with the right tax cuts, and to back public sector service improvements and investment growth where it is needed. The sooner we have a stimulus budget based on the Brexit bonus the better. World economies are slowing. Now is a good time to give things a boost.

Michael Gove is an intelligent man who has always had an impact on any department he has been given as a Minister. Some rate his reforms of education highly, tackling the educational “blob”. Others think he fell out with the teaching profession in a damaging way which did not help motivate them to reform exams and raise standards. He was not given time to see through his prison reform programme which looked interesting. At Environment he has become an energetic green,keen to tax and regulate to achieve green aims. His wish to curb plastic waste is generally popular.

He played an important role in the last leadership election by changing his mind on the suitability of his preferred candidate, Boris Johnson, on the eve of nominations. His decision to withdraw support from Boris Johnson whilst acting as his Campaign Manager led to Boris Johnson’s withdrawal from the race and to the election of Mrs May. At the time Mr Gove told us he was not capable of being leader, followed by comments that he had changed his mind about his suitability.

Mr Gove previously joined the Vote Leave campaign and made some important media contributions to its success. When he rejoined the government he became a very strong proponent of Mrs May’s Withdrawal Treaty, brushing aside criticisms that it is not Brexit, that it would delay our exit and undermine our negotiating position to eventually get out. Now that Mrs May’s Agreement has gone down to a spectacular defeat, attracting just 9.1% support in a UK wide election, he needs to tell us why he thought it such a good idea and why we should still be considering it as part of the answer to our Brexit needs. It is difficult to believe even Mr Gove could sell it to the public, even if he is capable of the unlikely skill of selling it to a shocked Labour party and driving it through the Commons against the wishes of Eurosceptic Conservative MPs.

I would be interested to hear the case for Mr Gove from those who do want him to be Prime Minister.

I have not yet decided who to back in the leadership election. I want to see who does put in Nomnation papers, and want to hear their answers to two simple questions. I would also like to hear from Conservative members in Wokingham which two candidates they would most like to see on the final ballot paper at the end of the MP phase of the race.

The questions to candidates are

1. How will you get us out of the EU by or before October 31?
2. How will you develop a programe to expand our economy, raise living standards, raise our reputation in the world and restore our self confidence as a nation, using all the new freedoms we will have once out of the EU?

I will also write a few blogs on progress in the race. Today I will assess Rory Stewart’s offer.

Mr Stewart has provided the most persistent advocacy of the May deal which has just gone down to the most crushing defeat in the history of the party. The only Conservative plank for the Euro election was that Withdrawal Agreement and it was opposed by more than 90% of the voters.

Mr Stewart thinks 17.4 million people were wrong to vote to just leave. He spent time in recent weeks telling me I was wrong not to understand the brilliance of the Withdrawal Agreement. He being a very intelligent man and an important part of the establishment exudes confidence in the Remain view and seems to think those of us who disagree lack understanding. He has an old fashioned last century view of UK politics, defining pro EU Libdem voters as centrists Conservative need to attract, whilst ignoring the 17.4 m Leave voters. He says he wants to unite the Conservative party yet he also says he could not serve in a Boris Johnson led government.

If The Lib Dems had won most seats in the Euro election would the BBC have spent the evening saying how well the Brexit party had done by coming second?

I congratulate the Brexit party on their win. I of course agreed with their central proposition that we should leave now without signing the Withdrawal Treaty.

The derisory vote of under 10% for the Conservatives is a fitting epitaph for the Withdrawal Agreement. Only the Conservatives offered the Withdrawal Agreement. Anyone who wanted it would have voted Conservative. Some who didnt want it voted Conservative out of loyalty or for other ressons.

Whenever I have said in media interviews that the public have rejected the Agreement by a large majority this has been queried. This election provides more proof of the obvious. Mrs May united the country against the draft Treaty she wrongly proposed.

The Brexit party on the majority of results so far announced as I expected won more seats than the three Remain parties, the Lb Dems, Greens and Change UK combined. These new MEPs need to come to Westminster to tell MPs there how to be popular, by just getting us out of the EU with no lock back in Treaty.

The BBC seemed to think the main news of the night was the Lib Dems coming second! Once again they missed the obvious and made little of the winning view.

I am expecting a surge of support for the Brexit party in the results of the Euro elections. Now the polls have closed sfter 10 pm our time all across the EU we can look forward to some results.

I expect the Brexit vote and the residual UKIP vote both in favour of a so called No deal exit to be ahead of the combined Lib Dem, Green and Change UK Remain vote, parties disliking Brexit and pledged to try to reverse it in a second referendum. I expect the Conservative and Labour votes to be greatly squeezed. Whilst both these parties said they wanted to honour the referendum result Labour was still flirting with Remain, saying it backed both sides, whilst Mrs May dominated the underwhelming and brief Conservative campaign with her Withdrawal Agreement.

Assuming this is what happens we can conclude

1 The UK meant its decision in the referendum and wants us to leave. We need to do so by October 31 at the latest.It would be good if a new PM agreed an earlier departure with the EU.
2. Mrs Mays Withdrawal Agreement has tiny support and needs to be binned immediately. The fact that she made the WA central to her leaflet and speech put off millions of former Conservative voters. It lets us say the Conservative vote in this election is the limit of support for the Withdrawal Treaty. Anyone who wanted a negotiated way to a so called comprehensive partnership with the EU on these terms would have voted Conservative.
3 Both main parties have a big task to get back into favour with a majority of the voters. Only a clean and early Brexit will buy them that right.
4. The current Westminster Parliament by delaying and seeking to dilute or reverse Brexit has gravely misjudged the public mood. It can only start to redeem itself by getting on with the earliest possible WTO Brexit. The UK should offer free trade talks and no new tariffs and barriers which the EU might well want, but we should just leave anyway. There are already important agreements reached to ease our early departure without signing the draft Treaty.

One of the advantages of Mrs May’s resignation is it will allow a rethink over the government’s economic and enterprise policies.

Mr Hammond has continued to tighten the fiscal and monetary stance , squeezing and slowing the economy. He has continued with Mr Osborne’s tax attacks on particular sectors and groups of people, damaging the housing and car markets in particular. Some of the tax hikes as with Stamp Duty and vehicle Excise Duty have done such damage to transactions and output that it has hit overall revenue adversely.

The world economy is slowing. The Fed overdid the tightening late last year, shocking the markets. That in turn is forcing a rethink at the Fed, who are spending the summer on a kind of study leave to think through a new approach to monetary targeting and interest rate selection. The Chinese authorities also erred on the side of toughness, slowing their economy. Mr Trump’s trade war has added to the gloom. World governments generally have hit out at the production of diesel and even petrol cars, taking actions which have created a car industry recession. As the UK economy has a large overseas trade sector, where the majority of our trade is with non EU , we need to be sensitive to changes of mood and growth rates worldwide. The UK needs to offset some of the gloom and slowdown elsewhere.

Instead we have seen a Treasury very hostile to Brexit spread gloom and negative stories whilst running a policy designed to slow things down anyway. The new government needs to take a sensibly positive view of our prospects on exit. We can afford a stimulus now to our economy, with more spending on priorities like social care and schools, and lower taxes, especially where the current rates collect less revenue. France has just had some tax cuts. France and Italy are trying to woo rich people away from London to their jurisdiction to invest and spend with them instead by offering a better tax deal. The USA has enjoyed a major tax cutting programme which has boosted that economy to be the fastest growing advanced economy in the world. China has offered some tax cuts to boost consumption. The Italian government is trying to expand its budget to help reduce unemployment. Only the UK seems wedded to the Maastricht EU rules to get the stock of government debt down as percentage of GDP to the 60% level.

It was symptomatic that Mrs May in her exit speech claimed reducing the debt was a great success of her Administration, when she should have said reducing debt as a percentage of GDP. If you are going to claim something like that as a success, then do show you understand the numbers. Success to the rest of us is higher living standards, more growth in real incomes, with low inflation.