Time to end the war on banks?

The UK and Germany both have large economies with certain strong sectors. Germany flourishes with a strong car industry. The UK flourishes with a strong financial sector.

There the similarities end. Germany does everything possible to back and support its car industry. The UK has spent the last seven years exposing the faults and defects of its banks, and hurled many accusations against them.

I fully understand the unpopularity of banks, and have no time for malpractice or bonuses paid to senior executives who have actually made losses for the shareholders. I opposed the bank bail out purchases of shares by the Labour government. If offences have been committed then the perpetrators should be dealt with by the law.

I do think now the hostility to banks has gone too far. There are many decent, hard working people working for banks. Our banks are involved in and facilitate practically every transaction that keeps our economy going. We need successful commercial banks to lend sensible amounts of money to individuals and companies to fuel our recovery. We need a strong globally competitive banking industry based in London to sustain our balance of payments and tax revenues, which have in the past depended on the financial sector for a large contribution.

It is currently fashionable to attack the top end business of banks because they supply expensive services to rich individuals and companies. In this they are in exactly the same place as the German car industry, which specialises in making expensive cars for the rich and for companies. The German government does not go on a moral crusade telling their high end car producers they should make fewer dear vehicles for people who already own cars and who by definition do not”need” the latest high priced product. The German government does not even take very strong action to cut the average CO2 emissions of the vehicles made by the German industry, although it is signed up to global warming worries.

The German car industry should affront all Greens and people with left wing ideas. It consumes large amounts of natural resource, uses big quantities of energy in making the product, and sells machines which are relatively fuel intensive in use. Some people dare to own several cars, though they can only use one at a time. The government subsidises energy for industrial use in Germany, conscious that EU energy policies are damaging to industry without subsidy. The German administration seems to take the sensible view that what is good for the car industry is good for Germany. Selling more cars to the rich creates more jobs for German workers.

The UK recovery has been impeded in past years by the regulatory demands that the banks should hold much more cash and capital. As someone who said the banks should hold more capital and cash prior to the crash, I see the wisdom of demanding good standards to ensure liquidity and solvency. I think the regulators have now done enough, and should allow more lending by banks. There are many good projects and investments that could benefit from more long term loans. The regulators should ask themselves how much more is it wise to take from the banks in fines and compensation demands for past mistakes? If they fine too much the banks will be able to lend less and will be looking for additional ways to put up fees and prices. When the government comes to tax banks it also needs to ask how much more can it afford to take out?

We read that HSBC is considering leaving London to establish its headquarters in Hong Kong. There are a variety of reasons given. If none of the reasons are tackled they might go.There is the bank levy which is charged on non UK activities as well as on UK ones.There are the higher capital demands from the EU and the Bank of England limiting the ability to lend and to earn a good return, when the bank is a strong one with plenty of capital already. There is the move to segregate regular banking from investment banking. There is the EU control on bonus payments. Taken together these are leading some to argue that HSBC should take its headquarters away from London and from the EU. I think it is time to reconsider, and to create a climate where large and successful banks are willing to base themselves here. If we lose too many of our major financial companies, we will lose tax revenue, sales revenue for exported services and spending power in our economy as well paid executives go elsewhere.

Mr Redwood’s speech on the EU Referendum Bill, 9 June 2015

John Redwood (Wokingham) (Con): This referendum gives the British people the great opportunity to restore their precious but damaged democracy. For all too long, the British people have had to watch as successive Parliaments have given away their birthright by transferring important powers to the European Union. Big decisions have been taken away from the sovereignty of the British people and given to the bureaucracy of the European Union.

I believe in the sovereignty of the British people and I would like to help them restore it. Before we joined the European Economic Community, the sovereignty of the British people was clear and it worked well. The British people could elect a Parliament. The Parliament was sovereign until it had to face re-election. That meant that the Parliament was responsive to the British people between elections because those elected recognised that if they did not please, did not serve well—if the chosen Government did not govern wisely—they would be thrown out by the British people at the end of the five years. So the sovereignty of the British people required a sovereign Parliament that they could dismiss and they could influence, and much of the architecture of this building and the political architecture of our country was based on maximising the access to MPs and maximising the influence of MPs over the wider Government.

Mr Mark Hendrick (Preston) (Lab/Co-op): Does the right hon. Gentleman accept that in what is now the European Union, it is quite usual for member states to pool sovereignty? Like the democratic process that he talks about, Members of the European Parliament are democratically accountable to their electors and can make decisions on behalf of their constituents in exactly the same way.

Mr Redwood: States cannot pool sovereignty. They are either sovereign or they have given their power away. The British people do not think the European Parliament exercises control or power over the Brussels machine in the way that this Parliament at its best exercises power over the British government machine. That can be seen from the way that the British electors do not turn out on anything like the same scale in a European election, because they do not believe in that Parliament and they understand that that Parliament has very limited influence over the unelected bureaucratic government in Brussels.

Now that we are in the EEC and it has evolved into the European Union, the fundamental condition that one Parliament cannot bind its successors has been removed. That has completely undermined one of the basic pillars of our democracy. We had the rule that any new Parliament can amend or repeal any law of a previous Parliament. It can reverse or change any decision relating to the future about the expenditure of moneys or the development of policy. The British people now do not have that full sovereignty. If they elect a new Parliament, the new Parliament discovers, as this one is doing, that there are a large number of areas where we cannot change things to reflect the will of the British people because it would be illegal under European law to do so. We find that, because so many vetoes have been removed, we can no longer prevent things happening from the European government that we do not want. Worse still, because there is a whole body of agreed European law and treaty that we inherit as a new Parliament and a new Government, there are very large areas where we cannot fulfil the will of the British people and we therefore cannot please them.

Fortunately, Britain still has a fairly powerful Parliament because we stayed out of the euro. Those countries that went into the euro are discovering that they now have puppet Parliaments. We see the terrible tragedy in Greece, where the Greek people have understandably said that they want a complete change of economic policy. They want to get away from unemployment and recession and austerity from the European Union and have a pro-growth policy at home, and they are told that they cannot do that because it is against European rules.

Mike Gapes (Ilford South) (Lab): Did the right hon. Gentleman support Margaret Thatcher when she signed up to the Single European Act?

Mr Redwood: No, of course I did not, and I gave her very strong advice not to sign up to the Single European Act. She often took my advice. It was a great pity that she did not take my advice on that occasion, because I fear I was also right on that one. She was a very great lady who did hugely important things for this country—not least getting a lot of our money back, which Labour foolishly gave away, meaning that we are much worse off than we need be—but she was not always right. I think that on that occasion she thought it was going to help a market, whereas the truth, of course, is that we do not need European bureaucracy and a lot of laws to have a market; we just need buyers and sellers and one simple rule, which is that, if something is of merchandisable quality in Britain, it should be of merchandisable quality in Germany and France as well. We had that in the Cassis de Dijon judgment and we did not really need all the extra laws that were being imposed on us.

As we can no longer change things, the British people are going to get very frustrated. We saw their frustrations in the last election. Looking at constituencies that elected Conservative MPs and MPs of other parties, it was very clear to me that there was a strong majority feeling that this Parliament should be able to decide who comes to our country and who is given admission, and that this Parliament should decide how generous we should be on welfare benefits and to whom we should pay them. We might disagree among ourselves about how many people we invite in, how much money we give them and when we first pay them—that is a healthy part of our democratic debate—but the position we find ourselves in today is that we cannot decide those things, because the powers to control our borders and to settle our welfare system have gone to the bureaucracy and courts of Brussels and the continent. They are no longer present in the United Kingdom.

Whenever we have these debates, they often come down to a simple issue of trade. I would like to reassure anyone watching or listening to this debate that our trade is not at risk, whether we stay in or leave. There is no need to accept my word for that—I am sure that many people will not—but they may accept the word of the German Finance Minister, who has very clearly stated that he would like Britain to stay in, but that if we leave, of course Germany would want to trade with us on the same terms as she currently does. And why is that? it is because Germany sells us twice as much as we sell her.

I say to my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), who would not take an intervention, that there is no way that Germany would want to pay a 10% tariff on exporting Mercedes and BMWs to the United Kingdom; and, because Germany will not want to pay a 10% tariff, nor will our motor manufacturers have to pay a 10% tariff. So worry not: our jobs and our trade are in no way at risk.

We should remember that Britain has faster growing trade with the rest of the world, where we do not belong to a special club, than it does with the rest of Europe, where we do belong to a trade club. There are many such trade clubs around the world, but very few of them are evolving in the European way of imposing more and more government and bureaucracy on their companies and traders, because they believe in prosperity and more free trade. We do not belong to any of those clubs, but we trade extremely successfully with the countries that are in them. If someone is in a club that genuinely promotes trade, they are happy to trade with people from outside that club as well, because they obviously need to be able to trade with the whole of the rest of the world.

Many of us feel that the EU as currently constituted is thoroughly undemocratic. It stifles and prevents the will of a once sovereign people from being properly expressed. It means that a Government cannot be elected on a prospectus that they can implement in all respects, because the European Union will not let them do so. Above all, the European Union represents the past: it is holding us back. It is something from the last century.

It is a complete myth that the European Union is a body that keeps the peace. The peace is being kept by NATO and by the fact that our partners—France, Germany, Italy and Spain—are all peace-loving democracies. I am amazed that pro-Europeans have such a negative view of our partner democracies in Europe that they think that, without a European bureaucracy, they would all be at war with each other. Of course, they would not, both because they now believe in peace themselves and because NATO and mighty America, as she has done since 1945, are guaranteeing the peace.

Let us get rid of these myths. Our economy is not at risk, and being out of the EU or in a better and new relationship with the EU is the future: it means we can be more prosperous, have more freedom and, above all, restore the sovereignty of the British people. We can restore our parliamentary democracy.

Those who want to stay in the EU should impose a tax to pay for it

Many people who want us to stay in the EU also like higher levels of public spending and more government. That is why they support EU membership, as it brings both in a package UK voters cannot influence much and cannot control or veto. The large gross and net contribution to the EU budget is one of the reasons this country continues to live beyond its means and runs a large deficit.

It is one of the many cruel ironies of the EU that it takes too much of our money and spends it, whilst lecturing us and other EU states to cut our domestic budgets to keep our deficit down. In recent years the UK has simply ignored the requirement to have a deficit below 3% of GDP, but all the time we remain in the EU there is the possibility that the EU will take tougher measures to try to enforce its strict budget rules. Doubtless those who like the current EU agree with their approach to budget discipline.

The honest way to tackle this for those who do want to stay in on current terms would be to impose a tax to pay for our European contributions. The public would then see how much the EU costs each taxpayer and the deficit would get closer to the EU ceiling. As recent judgements on VAT, welfare and borders remind us, the EU regularly taunts the UK by its decisions. I therefore propose calling this new tax JEST – Joint European Solidarity Tax.

I know many pro EU people are good sports who sometimes pride themselves on having a better sense of humour than mine, so they will enjoy selling a good Jest to the British people to pay for the EU and to live by its fiscal rules. So bring on the Jesters. Tell us why we should pay this tax. You don’t have to pay a tax in order to be a customer of the rest of the world, so why do you do so with the EU? Why does the rest of the world trade with the EU without paying EU contributions?

Selling bank shares

The government has announced it is going to sell more Lloyds Bank shares, and start selling RBS shares. That is a good idea. The Labour government was wrong to buy the shares in the first place, as we discussed at the time. They should have found other cheaper ways of supporting what had to be supported in the banking sector, by loans against security with controlled administration for banks that could not meet their obligations. The state should not be an owner of banks, as it has to be their regulator and financier of last resort.

I see in recent press coverage the issue of the Bank levy is being discussed. One of the factors the government should take into account when setting the levy is the impact it has on the value of the taxpayer shareholdings in banks. If you tax yourself too much, you lose out on the capital value of what you own when you come to sell.

Lloyds and RBS each pay around £250 million a year in bank levy, a total of £500 million. Barclays shares currently sell at 14 times adjusted net profits or earnings. Lloyds and RBS are still recovering their earnings, so their multiple of past profits is far higher. If we take say 12 times profits as an approximation of what the market would pay for additional profits of a bank, allowing a discount for the two banks with large government share overhangs, gives us a capital cost of £6 billion in the total value of the two banks from continuing with the Bank levy. The actual loss will be smaller, as the government does not own 100% of either bank,though it still owns most of RBS. That of course is a one off loss, whilst the levy is annual. The bank levy is also paid by banks where the government does not have a shareholding.

Nonetheless, it does pose a question for the government. If you were thinking of reducing the bank levy for other reasons anyway, there would be some compensation in a higher receipt for bank shares being sold.

(PS I do not have any financial interests in banks and last worked for a merchant bank 26 years ago)

Burghfield British Legion lunch

I was a guest at the Burghfield British Legion Queen’s birthday lunch today. It was good to have an opportunity to meet members and to thanks them all for their work for this important charity. Burghfield does a wonderful job on Remembrance Sunday each year, with a good service and well attended parade.

IMF – the Irresponsible Money Fund

Before the Euro crisis the IMF was the model of financial rectitude. It lent sensible sums of money to distressed countries, imposing strict requirements for change on them to ensure it would be repaid and to help the country back onto the path of solvency and growth. It usually combined a fiscal squeeze, recommending lower deficits and lower public spending, with a monetary expansion, allowing the private sector to grow. Devaluing the currency was usually part of the remedy, to divert more work into exports and to cut the volume of imports.

That IMF had its critics. Some thought the medicine too acerbic. Some wanted the IMF to lend more on more generous terms. The IMF mainly lent to poorer countries, and was often part of a pressure by the world community to encourage healthy financial discipline by the borrowers.

All this has been stood on its head. The IMF now seems to be primarily a prop for the Euro and for the wider EU area of influence. It is amazing that three quarters of all the IMF’s current lending is to just four European countries. Three are Euro members, Portugal, Greece and Ireland. The fourth is war torn Ukraine. These countries remain amongst the world’s richer countries despite the damage the Euro and in the case of the Ukraine civil war has inflicted.

What is worse few think Greece can repay all its debts, including the IMF loans. There are question marks over how the Ukraine is going to manage, all the time civil war destroys economic activity, kills people and reduces productive assets to rubble.

The new IMF has allowed itself to be used as a prop and source of finance for the ailing Euro project and for the unsuccessful foreign policy of the EU. The IMF has swung from arguably being too tough on poor countries in need of help, to being too lenient on richer countries locked into a foolish monetary union which is damaging their output and jobs. How can the IMF defend its actions over Greece, as the extra loans have become part of the problem. Some in the Greek government do not even recognise the legality of many of Greece’s borrowings, let alone the wisdom of making the advances and the feasibility of repaying them.

I raised at the time of their first loans to Euro countries the question how could a traditional IMF programme work for a Euro member, when they could not demand looser money within a particular Euro state, and they could not encourage a devaluation of that state’s currency against the German currency because they shared the same money. Perhaps with the encouragement of the IMF the whole Euro zone is now following a looser money policy and devaluing its currency, but the great imbalances between the richer and poorer countries within the zone remains as they cannot sort that out by currency adjustments.

The IMF has become the Irresponsible Money Fund. It needs to be aware that many in the developing world will think this deliberate skew of IMF funds to the richer advanced countries is unjustified. Many IMF shareholder states will be even angrier if it turns out that some of the excessive sums advanced will never be paid back. The IMF owes us an explanation of how Ukraine will be stabilised and turned into a fast growing productive economy again. Above all we need to hear from the IMF how they think Greece can repay all her debts and enjoy proper economic growth, to try at least to recapture the 25% of output and incomes they have lost so far since 2007.

IMF Lending June 2015 in SDRs

Portugal 17.8bn
Greece 16.8bn
Ukraine 7.0bn
Ireland 3.8bn

Total 45.4bn
World total 60.8bn

The UK’s quota or IMF share is 4.51%. The UK’s share in the ECB where the losses on Greece could be much larger than the IMF ones is only 0.7% as we are not a Euro member. The main losses will fall to Germany, France and Italy, the largest members and shareholders in the ECB.

The Mortimer Village Plan

Mortimer is the first place in West Berkshire to prepare a Neighbourhood Development Plan. This morning I was briefed on where they have reached in making proposals and consulting the village. The two main issues being tackled are where new house building should take place, and how St John’s C of E primary school should be modernised and expanded.

Those interested can see the plan in the Parish office or on the website.(www.mortimer-ndp.org.uk). The survey has indicted that a majority favour a single location for new housing south of St John’s School.

Lets have an EU exit tax cut.

If the British people vote to come out of the EU our budget deficit is immediately cut by more than £12 billion a year from that day onwards. There will be no more net contributions to the Union. We also gain the right to decide how to spend the money we pay over and above the net contribution which is sent back to us as EU payments.

Today I invite you to talk about what we should do with all that money if we do decide to leave. Should we be prudent, and simply borrow less, using the end of our contribution to speed getting rid of the deficit? Should we speed up the tax cuts, giving every family an EU exit bonus of around £660 a year? Or should we mix increased public spending and tax cuts, spending say an extra £350 per household on health and education whilst having a £330 tax cut?
Those favouring more spending should remember we will have the chance to spend more on the things that matter to us as we gain control over the EU spending amounts as we repatriate that UK tax revenue as well.

It will be a nice problem to have. I favour the tax cuts myself, as I think the current plans to get the deficit down are sufficient. The boost to incomes, jobs and activity from accelerated tax cuts would show this is indeed the prosperity policy I want. It would also make such a good contrast with the European austerity policies of Greece, Spain, Italy and Portugal, where governments are indeed following genuinely austere policies at the behest of the EU.

Mortimer village plan

Tomorrow I will be in Mortimer to discuss the local village plan. I would welcome any comments from residents as background to my meeting with those guiding the parish work on this important document.

House prices and new homes

Yes, you are right. Controlling the numbers of people coming to the UK to live and work is an important part of restoring balance to our housing market. The Prime Minister has promised to do that.

Now I have got that out of the way, I want to talk about the supply of homes, and effective demand from people already legally settled here. The most recent house price figures show prices going up by 4.6% a year, down from the 11.8% annual rate recorded last June. They show people having much more difficulty in raising a mortgage than prior to the crash, thanks mainly to much tougher regulation today over eligibility and suitability for a loan. The most recent figures show mortgage approvals up by 10% (April compared to March) but still running at little more than half the levels reached just prior to the crash of 2007-8.

The government’s Stamp duty reforms have smoothed the market by removing the unhelpful steps in duty at the points on the scale where higher rates kicked in. The missing areas in the price ranges can now reappear without the slab tax. Homes under £925,000 now attract a bit less Stamp duty than before. Stamp Duty remains, however, a substantial cost which does add to the difficulty of buying your first home, and can deter people from moving to a better home. At present duty rates the buyer of the £250,000 property pays £2,500 in tax, of the £500,000 property £15,000 in tax, and the £750,000 one incurs a £27,500 charge. Lower and smoother Stamp duty is a modest assistance to home buyers.

More new homes are being built than during the crash. The construction of private sector new homes is now 75% above the low point reached in the third quarter of 2009, though still below past peak levels.It is likely the build rate will rise from here, with more land now available for construction and a reasonably healthy housebuilding industry enjoying the profits of recent growth. There are still substantial imbalances between different parts of the country. Success with the Northern Powerhouse could help reduce some of the pressures on London and the South east, and release more money for improvement and extension of the substantial Northern residential estate, just as the London stock has undergone transformation in recent years.