Author: johnredwood

According to the Labour Manifesto they now buy into a policy they criticised as being a policy of austerity . They seem to wish to cut the deficit from £90 billion to £30 billion by 2019-20. Their tax increases are modest in terms of how much revenue they will raise, even on their own figures. Some of their tax proposals may end up losing the Exchequer revenue if Labour won and implemented them. It must mean they are planning a lot of what they used to call “spending cuts” to achieve their goal.

The single main message of their Manifesto is that the last government was right – the UK government  did need to get the deficit down, and we do need to finish the job of getting it down. Labour leave it to the Greens and the SNP to make the case for bigger spending and more borrowing. Labour give us the headline that they will get rid of the deficit, and suggest the debt will be reducing. If you examine the numbers more carefully you see that in practice they will push up borrowing by considerably more than the Conservative plans, and will not be cutting the stock of debt by 2019-20. They will carry on borrowing to finance investment.  Debt  may be falling as a percentage of GDP, depending on how much growth is left. The detail does not back up the headline.

Some of the high level rhetoric of their Manifesto is often inoffensive or sensible. They want “hard work to be rewarded” – who doesn’t. They want more “high skill high wage jobs” – who doesn’t. They want more new homes. The problem is the policies to bring them about may be counter productive.

They now mention immigration.  They wish to curb EU migrants from getting any benefits for the first two years here, compared to the Conservative four years. They think all public service workers should be able to speak English.

Perhaps the dearest ( and entirely uncosted)pledge in the whole document  is their wish to remove all carbon (dioxide?) from electricity production by 2030 and to set more demanding whole economy targets for carbon. They offer little to England, with no English votes for English issues in the Commons, and no detail on how the finance would be negotiated once Scotland has more of her own tax raising powers.

The Manifesto is full of proposals to intervene and regulate business more. Their proposals on energy are especially complex,  and could be dangerous given the overriding need for more investment in more capacity as soon as possible to keep the lights on.

The election debate has got tangled up in discussion of a few billion extra spending, rather than a sensible analysis of the  £742bn of total spending this year.

Worse still Labour and some in the media seem to think if you wish to propose any additional spending you need to show hypothecated new revenue to pay for the item.  They rarely propose offsetting economies in public spending and never discuss the overall  balance of the budget and the rate of increase in tax revenues. Uk government does not of course work on the basis of hypothecation.  Most revenues are aggregated in the Treasury and used to pay for whatever bill comes up next in the general public spending budget. Thus NI contributions, Road licence fees, Vat, Stamp duty and the rest are just part of the general pot.

Conservatives say they will increase Health spending by £8Billion a year by 2019-20. It will be paid for out of the general rise in tax receipts likely over the next five years and already in the Treasury budget figures from economic gr0wth. The Conservatives point out that health spending is up £7bn in real terms over the last five years, paid for out of rising revenues,so the deficit was still able to fall. Over the next four years the Treasury forecasts an increase of £124 billion a year in tax revenues on present tax rates.

Labour say they will increase health spending by £2.5bn a year paid for out of specific new taxes. In practice anyone running the government will end up spending  more than an extra £2.5bn a year for the NHS.

There are two important  issues  to discuss. How quickly can tax revenues rise? With more growth and lower tax rates there should be faster growth in total tax revenues, which will help. That is why the main deate should be about how to sustain the current good gr0wth rate of the UK economy. Higher taxes as in France will not do that.Labour knew that in office but has forgotten it in opposition. How can total spending be brought under control and how can we secure more value for the large sums now being spent and promised?

Debating the odd  additional billion is debating the rounding errors or ralatively small changes in total public spending. There is too much sound and fury over a few billion of “new” money and far too little debate about how to spend the bulk of the money wisely. I will deal with these issues in future posts.

There are 18 Parliamentary constituencies in Northern Ireland, 40 in Wales and 59 in Scotland. In the last General election the Conservative party won 8 seats in Wales, one in Scotland and none in Northern Ireland. Conservatives won a substantial majority in England, taking 298 of the 533 seats. It was not enough to give an overall majority in the Union Parliament.  Owing to the way our Parliament works, that meant in England Conservatives had to share power with Liberal Democrats to govern English health, English education, English local government and other English matters. Meanwhile these issues in Scotland came under the control of the SNP who won the Scottish Parliamentary election,  in Wales under Labour who won the Assembly election, and in Northern Ireland under the Northern Irish parties.

Now that more devolution has been promised to Scotland, Wales and Northern Ireland, there has to be a settlement for England.  The polls do not point to a substantial  breakthrough for the Conservatives outside England, so the Conservative party will depend heavily on England for a majority in the Union Parliament. It would be quite unacceptable for Conservatives to win again in England, but for there to be no devolved power to English MPs to deal with the matters for England that are devolved to Scotland.  This will be especially true over taxation. Once Scotland has the power to fix her own Income tax, Wales has the power to fix business rates, and Northern Ireland the power to fix Corporation tax, England will expect powers to fix her own taxes too.

I look forward to the publication of the Conservative Manifesto setting out a policy to offer some justice to England. I also fear that the Labour and Lib Dem manifestoes will be silent on this weighty matter, hoping that it will go away. It will not go away. The SNP will make sure of that. As the SNP send new MPs to Westminster, they will do so backed by Scottish voters to improve  Scotland’s deal within the Union, and to demand more devolved powers. As they do so England will find her voice and expect some fairer treatment. Just as Labour took Scottish voters too much for granted in recent years when the SNP was upping its game, so today Labour and Lib Dems ignore England and refuse to listen to the reasonable demands of the English for English votes for English needs, let alone to the voices of those who want a separate English Parliament.

Labour’s slogan that they will not allow tax cuts for millionaires is a slippery one. A millionaire used to be someone who owned £1 million of assets. These days a lot of people are millionaires, because they live in a  one bed flat which they own in central London, or because they own an executive home in a good location in many parts of the UK, along with some pension savings for their retirement. They may not have a large income. Some millionaires are standard rate taxpayers only. I want tax cuts for all, and have no problem with someone with a pleasant house and  pension savings  qualifying for a tax cut.

What Labour now sometimes means by a millionaire is one of the very few people in the UK who earns £1 million in a single  year. There are a few footballers, singers, financial executives and entrepreneurs in this tiny privileged group that bare the brunt of Labour’s ire about excessive rewards. Conservatives, I can assure the Shadow Chancellor, are not pondering schemes to award this small group special  tax cuts, but nor do we think that if we increased the tax rates on this group it would solve the nation’s financial problems. There are not enough of them and not all of them would stay and pay.

It is a great pity that the UK debate is mesmerised by the word millionaire, and that it is used in such different ways so that it muddles the conversation. It is also a pity that jealousy drives much of the debate on taxation. Of course someone on a mega income should pay a lot of tax on it. We also need to bear in mind that an individual may only be able to enjoy mega earnings for a brief part of his or her life, so allowing them to save some money for the future also makes sense. We  need to remember that if we try to tax too much the earnings can often be shifted elsewhere, so  the UK ends up with no tax from that person.

Sensible taxation is based on balance and judgement, not on jealousy and revenge. I want to see tax cuts for standard rate payers, and a higher 40% threshold for starters.

Greece decided to repay her debt owed to the IMF, after press speculation that she might not. Greece did not apparently ask Mr Putin for money. Mr Putin for his part is reported as offering to buy privatised assets in Greece, a far from helpful comment to a government elected to stop privatisation. Greece has also managed to borrow another Euro 1.14 billion this week by selling 6 month Treasury Bills. So far, so orthodox.

It is true the Euro area had to grant permission for the Treasury Bill sales. It is also true the European Central Bank keeps lending to the commercial banks if they lose deposits. So far, so orthodox by them as well. Both parties are currently behaving as if they have a normal relationship. The Euro area hopes to wake up one morning soon and find a proper Greek programme to cut the budget and live according to the loan agreements. Greece hopes to wake up one day to a Eurozone which agrees austerity has to end and money has to be given to Greece to allow some growth and some relief from past debts.

The Euro area does not want to force Greece out of the Euro, but does the bare minimum to allow the Greek state to continue to function. Allowing more 6 month Treasury Bills delays the problem until the refinancing, or until next month when Greece will need more cash to carry on. The Euro area is playing it fairly tough, but is acting as the ultimate banker of the Greek state in its current strait jacket.

We normally read that the Greek government has no wish to leave the Euro, as the Greek electors claim to still support Greek membership despite the resulting policies which they hate. More recently there have been some comments to the effect that Greece might like time out from the Euro, to cut her exchange rate and write off some debts, before asking for readmission on better terms with less debt. This may just be others flying kites. However, it is still difficult to see how Greece and the Euro area can come to a long term financing agreement which suits both sides. The fact that so far there has been no sign of a decent draft agreement tells us just how far apart the two sides remain.

The Euro area does want privatisation sale proceeds, a lower spending budget and labour market reforms. Syriza is relaxed about promising higher taxes and less tax avoidance and evasion, but reluctant to do much on spending, asset sales or economic reforms. Debt relief by offering lower interest rates, cancelled or postponed interest charges, and delayed repayments now will have to hit the other member states of the Euro area and the IMF, as the private creditors took their losses last time round. It all makes it much more difficult to agree.