Author: johnredwood

Prosperity, not austerity.

That must be our aim.

Prosperity will be easier won once we are out of the European Union.

Restoring the freedoms of a once sovereign people.

That is the overriding task we face.

On June 24 2016 17.4 million voters gave a great mandate to Parliament

To take back control.

During the referendum campaign I was asked one of the questions designed by Remain to damage the cause of freedom.

Would you, the media avidly asked, accept being poorer in order to regain lost freedoms?

I replied that fortune meant there was no so such choice before us.

The very right to govern ourselves that we wished to reclaim

will allow us to follow policies that made us richer, not poorer

As an optimist I anticipate we will do better out than in.

No-one can be sure what loss there might be in store if we remain in the EU

Or how many gains we will seize out of the EU.

What we do know is our fortune will rest more on our own decisions once we are free

So let me begin my account of life after Brexit by explaining how we can be better off.

I appreciate this will be at variance with several modelled forecasts put out by an establishment afraid of freedom and scared of change.

It is an establishment that has a proven track record of error. They told us the ERM would bring us a golden scenario of more growth and low inflation. Instead it brought a deep recession.

They told us if the UK stayed out of the Euro it would be deeply damaging to our business. Instead our business flourished with the pound and the Euro area had several years of crises and low or no growth.

They said the big build up in debts prior to 2007 were fine because banks had found new ways of managing risks. That forecast didn’t work out too well either.

My forecast will be criticised, for it is not backed up with a model nor expressed in precise figures. It does however come from someone who did forecast the ERM crisis, the problems in the Eurozone and the banking crisis.

I must warn that no-one can deliver a precise and accurate 15 year economic forecast. I have no intention of trying to deliver one.

Too many things will change.

I can, however, point to the opportunities and the favourable changes that we can expect in the few years that follow Brexit that will boost whatever our growth rate then is. I do not expect a sudden fall in growth or income thanks to Brexit. The Treasury’s short term forecasts of such an outcome for the year after the vote have already proved wide of the mark.

In future as in the past the main forces shaping our growth rate will be the pace of innovation, the monetary and fiscal policies being pursued, and the state of the world economy.

The most obvious gain that the anti-Brexit forecasters rarely put in to their models is the chance to spend our tax money on our priorities.

The £12bn we send every year to the EU and do not get back is lost money to the UK.

Worse still it is a large drag on our balance of payments every year.

To pay that bill we either have to borrow more money from abroad to pay it

or we have to sell more of our assets to overseas buyers, cutting the investment income we earn on those assets.

Stopping that drag will boost our economy.

Spending the £12bn at home each year will mean more jobs and more items bought from UK suppliers.

That will boost our economy with extra growth of 0.6% of our total income. That’s a one third increase in the current growth rate in the year we start it, with the same extra output in every year that follows

In the referendum campaign I set out a draft budget to illustrate how we might spend the money

I recommend it to the government.

I also recommend that we advise the EU that if they do not offer a wide ranging and sensible free trade agreement anytime soon we should discontinue payments to them on March 30 2019 and start the benefits for us.

There is no need for a Transition or Implementation period if there is no good deal to transit to.

We know we can trade well under WTO rules and with WTO tariffs, as that is what we do today with most countries outside the EU.

Out of the EU we will be free to fix and levy our own taxes.

We were told by past governments that tax was a red line issue

That we would always be able to decide our own taxes

That proved to be untrue

Out of the EU we can take VAT off feminine hygiene products

We can remove VAT from green items ranging from boiler controls to draught excluders.

Promoting fuel efficiency without the drag of extra VAT will help us keep warm and be better off. We could do more to combat fuel poverty by cancelling the VAT on domestic heating.

We can also levy the amount of tax we wish from larger companies.

EU tax judgements on UK corporation tax have made us repay tax we thought had been fairly and legally levied.

Lowering taxes, spending our own money and boosting industries like fishing and agriculture which have been damaged by EU membership should add more than 1% to our output, which is more than belonging the single market has ever done.

One letter leaked to the media distorts what happens daily in Parliament. People write to me pointing out that that Mr Penrose’s letter did not cover all the issues, or left unsaid things they want said.
Rest assured that there are many Eurosceptic MPs regularly making the points many of you want made to their whips, to Ministers, to the PM but these have not been reported. MPs do want a new borders, fishing, farming and other policies as soon as we are out. The arguments put by the handful of Conservative MPs who do favour slowing down or watering down Brexit of course get massive airtime for a variety of reasons but they are far from representative of the backbench party. There are far more than 62 Conservative MPs who agree with the contents of Mr Penrose’s letter.

I am told BBC Parliament will run the lecture again for a wider audience on Saturday at 9pm, as they filmed it on the day.

Over the next few days I will share with you the text of my lecture in Speaker’s House on Tuesday evening. Today I start off by disagreeing with  the assumption that we have been winners from the single market and we will lose from leaving it.

Let me question the thoughtless assumption of some who think this should be an argument about trade and not about these wider truths

Let me challenge their view that our membership of the single market and customs union has boosted our economy

They wish us all to discuss in worried tones what we might lose from leaving

If you look out the economic growth figures for the UK you will discover that the UK economy grew faster from 1945 to 1972 when we joined the EEC than in the long years since we joined

You will discover that the growth rate did not accelerate again in 1992 when the EU claimed it had completed its single market

The immediate sequel to joining the EEC and to completing the single market was the UK plunged into recession on both occasions

In 1974 it was the oil and banking crisis that affected much of the west. Not the EEC’s fault, but the EEC offered us no respite from it.

In 1993 it was a recession created by European policy

Our period shadowing the DM and then as a member of the Exchange Rate Mechanism gave us a nasty boom and bust

Our early experience of the completed single market was a 5% loss of national output and income.

We were told then that creating currency stability was a crucial part of a single market.

The only problem was the policy to achieve it did the opposite.

The EU itself has sought to study the impact of the single market

They concluded that the UK got the least benefit of all the states out of the process

They said we experienced a single gain of just 1% over the whole time we have been in the single market.

It is difficult to find even as much as that that in the figures.

Instead the UK’s entry into the EEC’s so called common market of the 1970s speeded painful losses of industrial business in the UK

The lop sided freeing of trade, removing barriers where France and Germany were strong but not doing the same where we were strong

hastened large closures and output losses in steel, cars and other basic industry.

In 1972 the UK made 1.92 million cars. Ten years later in the EEC that had fallen to a low of just 888,000.

We lost Austin and Morris, Wolseley and Riley, Vanden Plas and Hillman, Sunbeam and Triumph, Jensen and Rover

It is true there were home made problems with the way the industry was managed, but no-one can say we got a boost from EEC membership.

In 1972 the UK steel industry had 323,000 employees and the UK was the world’s fifth largest producer

Today we have 35,000 and are in twenty first place

The large coal industry that produced 147 m tonnes in 1970 has seen all the deep mines closed

with just a small residual of surface mining left

The German steel and coal industries flourished and the German car industry exported large volumes to the UK replacing our output

EU regulations have played a part in the demise of parts of our energy industries

EU energy policy is turning the UK into a net importer despite being a country rich with energy resources

In chemicals and textiles too the UK lost out to continental competition

Under Labour and Conservative governments there was a remorseless decline of important parts of our industry throughout the period of our membership.

It is difficult to see why people think there will be any additional a loss of output when we leave the single market when there was no gain from joining it

The argument seems to be based on the dubious idea that our exports to the continent will suffer because we will find the EU impedes our access to their market

This assumption too needs examination

Given the way the rest of the EU exports to us much more than we export to them imposing barriers could be a more costly choice for them

I assume the UK will retaliate should the rest of the EU impose tariff and non tariff barriers, and would match any such restrictions

Tariffs will be strictly limited under WTO rules which bind both us and the EU

We should not exaggerate the impact moving to World Trade terms would have.

Many countries have increased their exports to the EU at a faster rate from outside the customs union than we have from inside

Non tariff barriers too have to conform with the Facilitation of Trade Agreement which the WTO brought into effect last year.

It is just  possible the rest of the EU will want to punish us and punish themselves more by imposing what barriers they can

The UK economy would have several ways of adjusting

It could import cheaper goods from the rest of the world, removing tariffs on imports in return for free trade agreements with other countries

The UK could reimburse consumers and companies that had to pay the additional tariff by giving them offsetting tax cuts out of the substantial tariff revenue the UK state would collect

The UK Treasury would collect about £16bn in tariff revenue on EU exports to us, giving plenty of scope to compensate. Meanwhile the rest of the EU would collect just £6bn on our exports to them. All of that money of course would go to the EU, not to member states governments.

UK business could divert some production from export to the EU to the domestic market

Our farms could greatly expand production behind the substantial tariff wall that is allowed under WTO rules for food

so that we all enjoy more home produced food as we used before entry into the EEC.

The one non farm tariff that does cause some to worry is the 10% tariff on cars

Here you would expect the combined impact of the stronger Euro and a 10% tariff to cause more UK car buyers to switch to domestic suppliers

Helping offset any impact on export volumes to the continent.

The UK does run too high a balance of payments deficit.

It has been persistent for many years of our membership of the EU

It is heavily influenced both by the substantial budget contributions we have to make

and by the large deficit in goods we run with the EU

On exit we will be able to cut the deficit by no longer making payments

We will be able to rebuild our agricultural industry

I see a letter written by John Penrose to the PM about Brexit and supported by others has been leaked to the press. I am asked why I do not comment on it.

The letter was intended to be private, and is a small part of the many daily dealings MPs have with Ministers. I do not myself report private conversations or private letters sent to Ministers, and certainly not those written by others. I set out here my views clearly, which will be reflected in what I say and write to Ministers and what I support that others propose. I  put here details of meetings or letters I have initiated  where appropriate.

I find it worrying that some advocates of the UK staying in the EU claim that we need the EU to stop a future European war. This I think is a most unfair aspersion to cast on our continental allies, that somehow they would be launching aggressive military actions against each other or against us if there was no EU.

Modern Germany is a country transformed, compared to the Germany of Hitler. Since the defeat Germany has followed the democratic path, upholding civil liberties and the rule of law, and turning against racism and genocide. The western allies worked with the West German state to rebuild it after the huge damage done by the war, and welcomed Germany back into the family of western nations. Most commentary has concentrated on blaming the Nazis for the horrors of the holocaust and the general brutality of the Hitler regime.

All that has been helpful in ensuring a peaceful history in western Europe  after the end of the 2 nd World War, something a more penal peace did not achieve after the 1st World War. The fact that all the main western countries became democracies was crucial to a prolonged peace, as was the presence of US forces as guarantors  of the security of western Europe. There is now a strong habit of co-operation between France and Germany which removed the relationship that caused most tension and war in the past.  It is important to remember, however, that whilst many Germans may not have known of the full horrors of the genocide, all Germans did know that their government was unleashing violent forces against all the neighbouring nations of Europe with a view to conquest and occupation, and knew that the regime was removing Jews from their homes. The absence of any effective or wide ranging opposition to Hitler, and his strong showing in a couple of elections before he closed down the Parliament and governed as an autocrat, is part of the record.  So is the coercion used by the Hitler government to suppress criticism from those who were affronted by what happened. This makes the change to German attitudes even more welcome and important since 1945.

I found when I was Single Market Minister making frequent trips to the continent to negotiate ever more laws with fellow member states of the EU that some of my fellow Ministers from smaller countries on the continent had a difficult relationship with Germany. I was content to have a professional and friendly approach to the German delegation, and sometimes found the UK was in agreement with them. Quite often other countries would approach me and ask me to oppose the German position as it did not suit them. I told them to oppose it themselves, but they would say they did not feel able to do so. They saw that the UK was willing to make a case it believed in, whichever country of countries agreed or disagreed. We were not afraid to oppose the consensus, or to oppose the Franco-German common position which usually had been agreed before the rest of us met, and was frequently expected to go through by the Commission and some of the other parties. When France and Germany disagreed there was more scope for change and productive exchanges.

The issue of Germany’s leadership of the EU has become a much more central one since the unification of East and West Germany made Germany comfortably the largest and richest economy on the continent. The completion of the Euro has made Germany’s role even larger and more contentious with other Euro members. Some think Germany should share more of her surplus with the poorer countries. Some think Germany should relax the austerity policies that have characterised the Euro since its  birth. The UK has been more observer than participant in this debate as a  non Euro member. One of the main reasons I think the UK leaving the EU will be helpful to them as well as to us is it removes the different UK perspective from the Euro issues which matter greatly to the zone. All the time the Eurozone shares a budget with the rest of the EU, and faces a UK wanting a smaller EU budget, it distorts the debate about how big a budget and how many transfers a successful single currency needs. Germany may lose an ally for smaller EU  budgets, but it is Germany who has to answer the fundamental question how much money do you need to transfer round a currency zone so that it can work fairly and well.

The government has announced a review of student funding and University fees. They have decided to do this because they are concerned that Universities do not provide competitive and varied course fees to reflect the different costs of provision and the different economic values to the student of differing degrees. They are also concerned about the scale of student debt and the rate of interest charged on it. This was an important talking point in the General Election when some in Labour seemed to say they would cancel all existing student debt, only for Mr Corbyn after the election to make clear this was not an affordable promise.

The government will have to remember that Universities are independent institutions with a substantial revenue from overseas students. It is not surprising that individual Universities have been reluctant to vary their pricing, for fear of being labelled a second or third rate institution if they decided on a price cutting strategy. It is also perhaps understandable that they have decided to price the same for each subject, meaning that high cost subjects like chemistry are cross subsidised by lower cost subjects that do not need expensive laboratories and supplies. Harmony between staff of different faculties and convenience of administration point to common pricing. There has also been a reluctance to vary prices related to demand and market value, though a law qualification or a finance qualification from a top university probably bestows more economic value on the holder than some other courses from less well regarded institutions.The government may well encounter resistance to the idea of segregated pricing, and may not wish to take pro competition action against the universities.

The present loan system allows for the possibility that some degrees do not enable the student to enter relatively high earning jobs, by allowing write off of student debt if the person stays in low paid employment. It also has the weakness that a high flier who can attract a well paid job may decide to leave the country and walk away from the debt. The high rate of interest acts as a kind of graduate tax on all those who do settle into employment above the income threshold.

There are three main ways that the system could be altered. The government could put more money in to subsidise expensive and worthwhile courses, or to subsidise good UK students. The Universities could be made to compete, with requirements for differential pricing based on costs, supply and demand. The government could continue with a loan based scheme with reform of the interest rate and tweaks to the requirements to repay and to the enforcement of repayment by those who are successful. The scheme can be made to be more like a graduate tax.

I am not myself recommending any reform. I will be interested in your thoughts. The loan scheme which Conservatives originally opposed, fearing it would lead to fewer people attending university and fewer people from poorer backgrounds thinking they could go, has had neither of those consequences. For that and other reasons the Conservative party altered its stance and came to accept and extend the loan scheme Labour introduced. I do favour more increases in scholarship funds so good students can be grant financed. Many universities now are raising these access funds from ex alumni and other wellwishers.