Author: johnredwood

The Republicans cleared a big hurdle this week with the Senate voting for a sweeping tax reform with substantial tax cuts for individuals and companies.
It is true the Senate Bill and the House Bill still need to be reconciled, because there are differences between them. There could still be last minute problems which stalled the policy. However, the Senate vote and the House rhetoric implies that they do think they need to pull this off. The Republicans could ill afford a failure on tax reform after their public inability to agree reform of Obamacare. They need something to show for their year’s debates. They are more likely to keep their majority in the mid term elections if they can show solid achievement.

The tax reform is also more likely to win them friends and voter support than the healthcare reform which divided the nation as Obamacare itself did. Whilst it is true some of the polling on the tax cuts themselves is not great, there will be huge support for measures which boost growth and take home pay. Voters often tell pollsters they do not in aggregate want tax cuts,especially if they think the cuts go to companies and people richer than themselves. They also tell politicians in the ballot box that if the politicians vote to put their taxes up or fail to support tax cuts they will vote for someone else instead. People may not welcome large company tax cuts, but they will welcome more investment, more jobs and better pay from companies that retain more of their profits, and they will like the boost to pension funds and other savings vehicles from a stronger corporate sector.

This large tax reform is a game changer. It is a substantial fiscal stimulus to the US economy as conventionally defined, with a costed $1.4 tn of giveaways over ten years. The US may end up collecting more tax than forecast as the rates are cut, as official forecasters often underestimate the dynamic positive effects on turnover and revenue from lower rates. The idea of persuading more companies to repatriate profits and cash to the US with a lower rate could also work, giving US companies much more money at home to invest to grow their US businesses.

There will be beneficial effects for the rest of the world economy as the growth rate of the world’s largest economy accelerates. The rest of the world needs also to understand that with these tax changes the US will get more competitive, and will become a relatively more attractive place for investment.

When the pound was going down we had daily reports of how worrying this was, usually ascribed for no good reason to Brexit.
The pound is now up by 12.5% from its recent low, but there is little comment. It does not normally feature on news broadcasts in the way it did when going down. Is this big move up also because of Brexit? Is it good news?

I have both before and after the vote said that the pound has been volatile against the dollar and the Euro all the time we have been in the EU, and will doubtless still go up and down once we are out of the EU. Its movements are not usually to do with the Brexit.

I look forward to the government pressing ahead with a solution to the issues over the Irish border that preserves an open border on the UK side. The government has set out in papers how this can be done. It would be good if the EU bought into the Uk solution, or provided an acceptable alternative.

Some people who claim there has to be a hard border once we leave the EU need to understand the nature of the current border. Whilst it is true there are no custom dues to levy on products within the EU crossing the border, it is still a currency, VAT, Income and Corporation tax border. It does require processing the right paperwork or electronic information to ensure the correct authorities levy the appropriate VAT, Income Tax, Corporation tax and the rest, and the right exchange rate is applied to transactions.

The Republic of Ireland has a standard rate of VAT of 23% compared to the UK 20%, but also has three lower rates and a zero levy depending on products. The Republic only charges Corporation Tax on trading Income at 12.5% compared to the UK 19%. All of these differences are handled without needing a physical barrier and checks at the border, so it would also be possible to levy customs duties in the same way without a customs post and delay for trucks. Registered importers and exporters can notify electronically and pay electronically. Small trade activities by locals crossing the border regularly could be exempt.

Both sides to the negotiations say they wish to keep the Common Travel area, so there is no need for new border barriers to deal with people. The UK and the Irish authorities already have in place methods for dealing with illegal migrants and criminals seeking entry.

How many more times do we have to go over this well trodden ground? The UK government should just press ahead with its plans for leaving in March 2019

One of the many wrong forecasts by official bodies before the referendum was a likely fall in house prices and in housebuilding after a No vote. Almost a year and half later, house prices are up modestly and housebuilding has expanded by around 15%.

The latest house price survey from Nationwide shows prices up 2.5% over the last year. The rate of price growth rose to 5.6% after the vote in August 2016 and has since calmed down a bit. The movements post the vote are not very different from before the vote. The February 2017 level of 4.5% growth was the same as the growth rate in December 2015, as an example. The recent cooling in house price rises reflects the Bank’s decision to slow credit growth a bit.

In 2016-17 the UK added 217,350 dwellings to the stock, a rise of 15%. Housebuilding numbers are continuing to expand. The biggest source of growth by far is new construction. Conversions from commercial property are also making a growing and useful contribution. The decision to allow conversion of office space to residential with simplified planning has helped. There will also be shops on the edges of retail areas that will be suitable for conversion as the public switches to more on line and main centre shopping. 37,190 new homes have come from change of use over the last year.

The previous high for new homes came in 2007-8 just before the crash, when the UK produced 223,530. There was then a 44% fall in numbers as a result of the banking slump.

Meanwhile main commercial property companies still report good tenant demand. British Land is the latest company to report sales of properties at 13% above their valuations, showing that valuers continue to be unduly cautious about values.

I attended the Urgent Question on the Brexit discussions yesterday.

The government made clear that they still believe No deal is better than a bad deal. They confirmed to me that they are continuing to plan for a No Deal exit. They need to do this as No Deal is still a possible outcome. They also need to do so as the government will have no capacity to resist a bad deal at the last minute if we are not ready to leave without an Agreement.

The government believes they can secure a good deal. This would embrace a full free trade agreement and various other features of a comprehensive economic partnership. It is important it leaves the UK free to negotiate our own trade deals with the rest of the world, settle our own borders, make our own laws and no longer be under the ECJ. The government states they have not offered any specific sums of money, but have indicated areas where they will consider making ex gratia payments in return for a good deal.

Some contributors to this website want me to write all the time about Brexit and respond daily to the false rumours, stories and comments that abound in this area. I have no intention of doing so. Any likely Agreement is probably a year away. It will only be possible to decide whether the Deal is better than No Deal when we know what it is. The discussions will get very repetitious, and my attitude will not change daily as the news flows. In the meantime I do have other constituency interests to pursue. I will continue to engage on the many matters that do not relate to Brexit that affect the lives of my constituents.

No Deal ticks four of the five boxes of what we want from Brexit. It gives us control of our borders, our laws and our money. It means no special divorce bill. It means we are free to negotiate our own trade agreements around the world. It does not deliver us a free trade agreement with the EU, though later after we have left the EU might want one after all. Any Agreement needs to improve on this to be worthwhile.

The ambition of improving people’s living standards is shared across the UK political spectrum. Our debates are not about what we are trying to achieve. All sensible people want their neighbours, friends and relatives to do well, to find worthwhile jobs, and to earn a decent living. The arguments are in practice all about how we achieve that, though some seek to misrepresent the views of others by implying some do not want people to succeed.

The good news is it is not a zero sum game. Someone doing well should not make it more difficult for someone else. As more people set up businesses they create more jobs. As more large companies sell more product and pay higher bonuses, so there is more money to spend on other things, in turn creating more employment.

Nor is the world of school and university a zero sum game. We have expanded educational opportunity substantially, by effectively raising the school leaving age and increasing the number of university places on offer. There is no ceiling on how well any individual can do, no firm limit on how many good degrees are awarded.

Today we read that some places appear better than others at assisting and mentoring people from low income backgrounds so they can succeed in education and go on to well paid jobs. We need to study what has worked best and what has not worked so well, and spread best practice from place to place. Schools need to be properly funded and good teachers valued and supported. It is also a task for the wider community and for the families concerned. Individuals are motivated and assisted by different things. It may only take one comment or expression of support to make the difference for a young person, but as we can never be sure what that is so those in the local community need to try what they can to show more people that there is opportunity for all and effort can be rewarded.

The news that two major pharmaceutical companies are to commit £1bn to investment in research in the UK is further proof that the UK is a good centre for knowledge based businesses. Investors can recruit a well educated workforce and can establish a good business presence in the UK.

The UK also now has the opportunity to set up its own Medicine Agency as we leave the EU. Given the high regard for UK science this could be well received by the world community, and could attract other countries to want to use its facilities and adopt its standards.

The government yesterday set out its vision to assist in the growth of knowledge and technology based activities in the UK. The pursuit of excellence in education and training does involve government spending, standard setting and encouragement. Continuing to attract investors also requires more work on improving road and rail links to ensure sufficient transport capacity, high speed broadband, and other utility provision.

The Industrial Strategy document contains proposals for people, ideas, infrastructure, places and the business environment. It rightly states that ensuring a competitive market is the best to promote growth and innovation. There is some additional cash for transport links between cities, more investment for Broadband, additional money for an Industrial Strategy Challenge Fund and for a general Investment Fund.

The government has expressed an especial interest in Artificial intelligence, clean energy, mobility including self drive vehicles and the issues from more elderly people in the population. It will be interesting to see what they come up with and how this will complement what the market is doing already. The government’s best course would be to apply the digital technologies more consistently and positively to the public sector which it runs. Given the emphasis on raising productivity, it would be a good place to start.