Author: johnredwood

The Transport Secretary went to Calais this week and nailed the Project Fear lie that Calais would mount an economic blockade or go slow on UK traded goods if we just leave on 29 March next year. The Mayor of Calais made clear they value the UK business, and will ensure the port runs smoothly after Brexit.They realise the Dutch and Belgian ports would love to lift the trade off them. It was good to see a Minister rebutting a Project Fear nonsense.

The UK economy grew well until the spring of 2017. Policy was then changed to slow the economy by a combined fiscal and monetary squeeze. In the year that followed money growth halved. The combined effects of the 2016 property tax rises and the 2017 car tax rises damaged activity levels in the two largest purchases people make, homes and cars. The tax effects were reinforced by the reduction of credit availability. Money growth slowed thanks to higher interest rates, the removal of special Bank of England facilities to the commercial banks, and the Bank guidance to lend less on car loans , mortgages and consumer credit.

It is time to lift the squeeze. There is no great inflationary danger lurking in the UK economy. There is only a modest increase in wages. The world background is not inflationary, with some monetary tightening in the USA and the Euro area. This budget should not strive to get the UK deficit down further, and should seek to repair the damage done to individual sectors by past tax rises. The forecasts should be more realistic, after a run of forecasts which exaggerated the deficit.

The Prime Minister has said she will end austerity. This then is the budget to do so. Austerity is not just something in the public sector. It was what Labour delivered with the falls in output, jobs and real incomes at the end of the last decade. It has dragged on for some thanks to the slow recovery and the poor growth rates in earnings since the banking crash. To lift austerity we need to spend a bit more on some public services, and take less tax off people in work so they have more of their own money to spend. The good news is we can afford to do both. The Treasury regularly under estimates incoming revenue, and ends up cutting the deficit more than planned.

The UK has a modest state deficit these days, but a rather bigger balance of payments  deficit. I have been more worried about the balance of payments  deficit than the state deficit for some time. That deficit needs financing by either selling assets to foreigners, or borrowing from overseas. It has resulted from the very large trade deficit we run with the EU, dominated by large imports of food and cars and by the huge payments we make in  EU contributions and Overseas aid. We could grow more of our own food and buy more of our own cars. This will depend in part on what tariffs we put in place for next March – or for any later exit date from the EU.

Ending the EU contributions will make an important contribution to cutting the balance of payments deficit. Today we have to sell a lot of assets to meet those contributions, as it is all money we need to send across the exchanges into Euros. Spending more of the overseas aid on the set up costs of the asylum seekers and economic migrants at home would also be a helpful option. Ending EU contributions also frees up that part of the budget for domestic spending or tax cut priorities.

The main thing I want from the Budget is no more damage to the UK economy from new and higher taxes. I see trailed a series of proposals on how to tax us more. There is no need for any such proposals. The government will have reluctantly to publish new forecasts showing, as predicted here, that their last forecasts were too pessimistic and they have raised more tax revenue than they expected. There is no excuse to put taxes up.

Indeed, as often argued here, if they cut some tax rates they would probably collect more revenue from the increase in activity the tax cut generated. In several areas they have imposed rates that are very damaging to output and transactions. As an act of policy they decided on tax hikes  to cut Buy to let investing, and to cut diesel car sales sharply. They were successful in both cases. It doesn’t mean it was a good idea.

When Mr Osborne proposed extra tax on hot take away food he had to back down in the face of opposition to the pasty tax. His caravan tax was not much more popular either, resulting in an amended scheme. He got away with his big hike in Stamp duties, but we live today with the damage it has done to the housing market. It has put off many people from switching to more suitable accommodation, and has made it more difficult for buyers in the dearer areas to afford a new home. His Buy to let tax has pushed out the smaller investors, favouring companies, but leaving a much reduced demand to buy and provide private rented properties.

This could be the budget when the George Osborne damage is reversed. Let’s go back to pre 2016 rates of Stamp Duty where today’s rates are higher, to allow more people to afford a home, and to allow the market for homes to clear better. Why do we want to prevent people trading down to a smaller property, or moving to a place closer to their work?  Why did Mr Osborne want to reduce work for estate agents, conveyancers, removal firms, renovators and furnishing businesses, as these all benefit from more transactions? If you tax dearer homes too much you can damage or stop chains of purchases and sales that may be necessary for people buying cheaper homes.

Mr Hammond did  damage to the  manufacture and sale of new diesel cars in the UK. This was an odd policy, given the government’s alleged concerns  about car manufacturing over Brexit matters. The imposition of very high Vehicle Excise  Duty rates on new diesels provides an incentive to people to keep old diesels for longer, and has hit  hard the UK manufacturers who have invested a lot in new cleaner diesel technology and who used to sell a lot of sophisticated diesel cars. The 25% fall in diesel car sales shows just how powerful the tax attack was. In this budget he should go back to 2016 levels of VED to help the UK industry, and to speed the change from dirtier old diesels to cleaner new diesels. The government says it is worried about levels of CO2 output. Diesels remain the better bet than petrol on this measure.

Cutting CGT would raise more money, as would cutting the 45% top rate of Income Tax. We need Income tax cuts for all, which I will discuss in a future piece.

The IQR poll for Global Britain asked people for their preferences on leaving the EU. 43% want to leave with no deal, or leave to trade on WTO terms, 31% would like  a Canada plus trade deal, 11% want to stay in the EEA, 10% want a second referendum and just 4% support the Chequers proposals.   It just goes to show the people remain more sensible than many of the MPs. It has usually been the case in the UK that only  a small proportion  of the public are keen supporters of the complete EU project, and this is borne out by these figures. The 10% for a second referendum is similar to the Lib Dem vote in the last General Election when they were the only UK wide  party offering this choice.

The only poll that matters remains the referendum, when the public were invited to make the decision knowing that leaving the EU meant leaving the single market and customs union.

Western policy towards China in recent years has been to welcome her economic progress, to assist her with technology and markets for exports, and to include her more in world bodies and world discussions. China was admitted to the World Trade Organisation on favourable terms as a developing country. She has a  seat on the Security Council of the UN as a major power.

More recently President Trump has asked questions about China’s approach to trade, investment and technology. He has argued that China has taken advantage of western good will and friendship to cheat on the acquisition of intellectual property. He objects to the asymmetric tariff regime China has been allowed, and has felt their currency has been too cheap to assist their exports. He has become increasingly suspicious of the Made in China 2025 policy which seeks to maximise self sufficiency and to gain access to more crucial technology. He is concerned about China’s Belt and Road initiative, designed to increase Chinese political influence across Asia, Africa and the Middle East through strategic investments and partnerships.

China has mainly used calm and reassuring words to avoid these disputes becoming too heated. China has positioned herself as an upholder of world institutions and world rules, confirming that she is happy with the current trade deal she enjoys from the WTO. At the same time China has become much more aggressive throughout the South China Sea area. She has created artificial islands, extended islands and rocks, built runways for military aircraft on them and installed missile facilities. The USA and her allies are seeking to keep open the international shipping lanes whilst being challenged every time they seek to traverse the seas well off China’s coast.

The UK is supporting her US ally in seeking open navigation of the South China Sea beyond Chinese mainland coastal territorial waters and shares some of the US concerns. The UK is also keen to develop its trading and wider economic relationship with China. China respects UK services and seeks know how and investment from the UK in those areas, whilst enjoying good access to our goods market. The issue is how  should the UK proceed from here?

Is Mr Trump right to confront China over trade matters? What is the solution to the verbal battle of the South China Seas, as US and allied naval vessels are challenged every time they seek to travel in what we regard as international waters?

John Redwood (Wokingham) (Con): Will the Government make a statement on the additional costs of staying in the EU customs union after 2020 and provide an updated estimate of the total costs of the current draft of the withdrawal agreement?

The Economic Secretary to the Treasury (John Glen): Every arm of Government is working at pace to firm up and put in place all necessary arrangements to ensure that we are ready to leave and chart our own course as global Britain. The Government will continue to update Parliament on the progress of the negotiations, and the Prime Minister will update the House shortly in this regard in a post-Council statement.

In respect of the customs union, common rules will remain in place throughout the implementation period to give businesses and citizens critical certainty. This will mean that businesses can trade on the same terms as now until the end of 2020. As the Prime Minister has said, a further idea has emerged—and it is an idea at this stage—to create an option to extend the implementation period for a matter of months, and it would only be a matter of months. But as the Prime Minister has made clear, this is not expected to be used, because we are working to ensure that we have a future relationship in place by the end of December 2020.

As the House will appreciate, the length and cost of any extension to the implementation period are subject to negotiations. Throughout the implementation period, we will continue to build our new relationship, one which will see the UK leave the single market and the customs union to forge our own path and pursue an independent trade policy while protecting jobs and supporting growth.

During the progression of our exit negotiations, we reached a financial settlement with the EU that did two things—honoured our commitments made during our membership and ensured the fairest possible deal for UK taxpayers. In December, we estimated the size of the settlement to be between £35 billion to £39 billion, using reasonable assumptions and publicly available data. In April, the National Audit Office confirmed that this was reasonable.

The Government are committed to upholding our parliamentary democracy through honouring the result of the referendum and remaining fully transparent with Parliament on the deal that is reached, in advance of the meaningful vote.

John Redwood: The Treasury should do some calculations, because it would be an act of great rashness to agree to extend our period when we would be in another seven-year financial period for the EU, with all the consequences that might bring. It could cost £15 billion or more for a year and we would probably have to accept liabilities that might extend for the whole seven-year financing period. Why wouldn’t the EU front-load its expenses when we were still in the thing, and why wouldn’t it expect us to meet the forward commitments, as it says it wants us to do as and when we leave under the existing seven-year period?
We are desperately in need of more money for our schools, our hospitals, universal credit and for our defence—[Interruption.] We desperately need money so that we can honour our tax-cutting pledges which we all made in our 2017 manifesto—[Interruption.]

Mr Speaker: Order. I apologise for interrupting the right hon. Gentleman, whose flow is difficult to stop—and I would not want it to be stopped.

The right hon. Gentleman must be heard. Mr Matheson, you are normally a most cerebral individual. Take a tablet.

John Redwood: Our economy is being deliberately slowed by a fiscal and monetary squeeze that we need to lift. We need tax cuts to raise people’s take-home pay so that they have more spending power. All this is possible if we do not give £39 billion to the EU, and all this will be even more possible if we do not pledge another £15 billion or £20 billion for some time never, if we are now going to give in yet again.

When will the Government stand up to the EU, when will the Government say that they want a free trade agreement and they do not see the need to pay for it, and when will the Government rule out signing a withdrawal agreement that is a surrender document that we cannot afford?

John Glen: I am grateful to my right hon. Friend for a number of Budget representations on that point. What I can confirm is that, when the sum of £35 billion to £39 billion was agreed, it was agreed on three principles: the UK would not make its payments sooner than it would otherwise have done; it would be based on the actual rather than the forecast; and it would mean that we would include all benefits as a member state. I recognise the wide range of concerns in the House, including those raised by my right hon. Friend, but we are at a delicate stage of the negotiations and the Prime Minister will be speaking to the House shortly.

Yesterday Mrs May received plenty of friendly Conservative advice to be firmer in her negotiations with the EU. Conservative leaders who love the EU more than their party have in the past lost their jobs. John Major, David Cameron and to some extent Edward Heath all lost their jobs by being too enthusiastic about the EEC/EU. The overwhelming majority of Conservative members today expect their Leader to stand up to the EU and to get on with leaving the EU as we have agreed to do. Mrs May seems to understand where her party is and acknowledges that we want to take back control of our money, our borders and our laws. She has made a clear red line over a border in the Irish Sea, but needs to dig in behind other red lines as well. She is in danger of being dragged into potential concessions that compromise such a result.

John Major is the best example of a leader whose complete tenure of office as PM was dominated by a bad policy decision which came from the EU. The UK’s membership of the European Exchange Rate Mechanism which he had championed with his friends at the CBI did substantial economic damage. It first led to an inflationary credit expansion, then led to a sharp monetary contraction, a big fall in the pound and penal rates of interest which brought on a predictable and damaging recession. It did not just cost John Major his job, but meant the Conservative party was out of office for 13 years and failed to win a majority in the Commons for 18 years. The CBI leadership sought to ignore the damage their recommended policy did to many businesses.

David Cameron too lost his job directly be being too pro EU. He failed to negotiate firmly with them. He then wrongly decided to recommend a so called deal which amounted to very little, only to discover the UK voters wanted to take a much firmer line with an EU that had treated him badly. He rightly saw that his position was untenable when he lost a referendum on the issue of continued membership on his renegotiated terms, having been fully behind staying in. He too trusted the CBI advice, and saw similar advice coupled to wildly inaccurate short term forecasts from the Bank and Treasury look absurd in the year after the vote.

Edward Heath took the Conservatives down to defeat in a General Election mainly owing to the economic problems of the time, part national and part more global. The fact that the UK had just joined the EEC was however a contributory factor to his demise. There was no improvement in output, incomes and living standards when we joined in the way Mr Heath had promised, and many UK manufacturing businesses were hit badly by the tariff free competition EEC membership unleashed in steel, cars, ships and others. Mr Heath had also upset a significant minority in his party, lost friends over the EEC, and diverted enormous amounts of government time and attention to putting us under EEC rules and taxes to try to conform. He did not see the economic disaster coming and when it hit he had few political friends left.