Wokingham Times, 6 March

The last few days have seen Parliament preoccupied by events in the Ukraine. Those of us fresh from telling the government to stay out of the Syrian civil war have been urging the government to avoid military commitment close to the Russian border.

Ukraine is a very split and divided country. The EU encouraged rebels to overthrow the elected President from the east of the country, to move policy away from Russian connections to a pro EU direction. When they succeeded their new interim government immediately pushed through legislation to ban Russian as an official language.  The new government in so doing alienated parts of the east, especially the Crimea.  Mr Putin claimed he was invited to protect the Russian majority in the Crimea, and sent in troops to take control without a shot being fired.

As far as the west is concerned the new interim unelected government is legitimate because the elected President fled the country and the elected parliament chose the new government. The west believes Mr Putin has violated Ukrainian sovereignty and should withdraw his troops. To the east, Mr Putin sent in troops at the legal request of the elected President and the local government in Crimea, and stands ready to protect the interests of the Russian majority in Crimea who are but a minority in Ukraine.

There is no way the west can put right the troubles of Ukraine by military intervention. The west has to negotiate with the Ukrainian government, the Crimean government and M r Putin to try to find a peaceful solution to the clash of interests and conflicting legal claims. The US is raising the issue of whether trade and economic sanctions should be used. The EU is correctly reluctant. One of the Ukraine’s biggest problems is a weak economy with too much debt. Russia and the west should seek to collaborate on solving that, rather than trying to wound each other by economic sanctions. If Russia makes further military moves that are illegal then there may need to be retaliation against named individuals in Russia, attacking their freedom to travel and their overseas assets.

Mr Redwood’s contribution to the Finance (No.2) Bill, 8 April

Mr Redwood (Wokingham) (Con): I remind the House that I offer advice for an industrial company and an investment company, although not on these subjects.

I thought that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) started her speech very promisingly. I admire her background, and I can think of a former great Member of Parliament who came from a very similar background and who deduced some very sound principles about how economies and shops work. I thought that the hon. Lady was going to develop in that style. I was delighted when she said that she is now a convert to tax reduction. She said that she and the Labour party now think that taking corporation tax down from 28% to 21% was right. It is wonderful news that we seem to have cross-party accord on the fact that lower tax rates can bring businesses to Britain, keep more profit in Britain and, if we let such policies fructify for long enough, even lead to more revenues and help to promote the economic growth that we all want.

The hon. Lady went even further and thought up another tax reduction that she wants. I am not normally one to let a tax reduction opportunity go by, and she said that a reduction in business rates would be a very good idea. She said that it would be good to find a way to make a further reduction in business rates, because that would be very welcome after years of increases.

I was then disappointed, however, because the hon. Lady said, “Oh, you can’t have too much of a good thing. It might start to work. You’ve got to have a tax rise, as well as a tax reduction.” She did set one part of the business community against another, although she claims that she did not do so. I find that rather curious, because we are meant to be debating the Opposition’s amendment 2, which does not propose a reduction in business rates or an increase in the corporation tax rate, although she says that that is their policy. The amendment allows us to talk about that because it is very wide ranging. We can talk about any kind of tax because it invites us to look at alternatives to corporation tax in ways that she spoke about.

We have a contradiction: the Opposition say that they have a settled policy to put up the corporation tax rate for larger companies and to cut and then freeze business rates. However, we are asked to vote on a much weaker amendment, which just says that the Chancellor of the Exchequer should conduct a review of the impact of cutting the corporation tax rate from 21% to 20%, as well as of other options, presumably including the one that the hon. Lady has already adopted.

I wonder whether Labour Members are in a bit of a muddle. Why do they need a review if they have already made up their minds about its answer, and if they have not made up their minds, why have we been given a clear policy for once, given that they usually use the advantages of being in opposition to be rather shy about coming up with clear policies?

Let me address the policy that Labour recommends the House to adopt, rather than the one that it might put to the electors—that we need a review to be carried out in the six months after the passage of the Bill. In other words, the review of the tax reduction would be conducted before we knew the results of the tax reduction. That is curious: if we were going to conduct a review into the consequences of an action, we might have thought that we would want to see the action first, but no, Labour thinks that we can conduct a thought experiment on the action. I am not against thought experiments; an awful lot of policy has to be based on them or on history.

There is a contradiction in that the review would have to be done in advance of the action, while there is also the contradiction that Labour has apparently settled its policy without needing a review. I therefore wonder whether the review is just a waste of time and a bit of a waste of money; whether it is some kind of smokescreen or whether there is some muddle between Front Benchers about whether or not they have a settled policy. Having started by feeling very warm and sympathetic towards the hon. Lady, I am now reluctant to vote for the amendment. I am not sure that it is a very serious proposal, because it seems already to have been prejudged by what Labour is offering in this debate.

In thinking about other options, as amendment 2 invites us to do, we should bear it in mind that if we are clever with our taxation policies, we can actually cut a rate and increase the revenue. That is the kind of tax cut that I like at the moment, because I want to get the deficit down. It makes intelligent sense not to pursue a policy of jealousy, but to decide how we can get money out of rich companies or individuals who have money—one obvious point about taxation is that we have to tax people who have money; we cannot tax those who have not got any—by setting rates that they are prepared to pay, that they are prepared to stay and pay or that they are prepared to come here to pay because the rates are more attractive than those elsewhere.

There is already some evidence for such a review in that the Government have now got round to cutting the top rate of income tax from 50% to 45%, and the latest revenue figures for the nearly completed financial year show that there has been an extraordinary surge of £9 billion of extra revenue this year compared with the previous year from payers of the top rate of income tax. That is an astonishing achievement.

Mr Andrew Love (Edmonton) (Lab/Co-op): Does the right hon. Gentleman accept that the primary cause of that increase in revenue is income shifting from one year to the next? Many individuals held back income in the year when the rate was 50%, and brought it forward when the rate was reduced to 45%.

Mr Redwood: I do not accept that at all, because the revenue in the previous year was very similar to the figure for the year before that, which was before people knew that there might be a cut in the tax rate. I suspect that next year will also see good levels of revenue. I do not expect a sudden reduction of £9 billion in revenue in the financial year we are just starting. As always, the hon. Gentleman is peddling misery for no good reason. Labour Members should rejoice and accept the fact that if we cut a rate, we sometimes get more money. They always want to spend other people’s money, so surely they should listen to how we can maximise the amount we get out of people.

Sheila Gilmore (Edinburgh East) (Lab): Will the right hon. Gentleman explain where, following the rate change, this money has suddenly come from if it is not re-phased income? Is he suggesting that people have somehow avoided tax or that people have suddenly come into this country to pay it? He must have some reason for the increase, if he does not accept the one given by my hon. Friend the Member for Edmonton (Mr Love).

Mr Redwood: We are talking about people who are a serious amount richer than any of us on MPs’ salaries, and if the hon. Lady meets such people occasionally she will discover that they have many more freedoms than other people on when and where they earn income, what they invest in and where they organise their affairs. Some of them were not in this country before and came here when the rate was lowered. Some have some money in one country and some in another, and they can quite legally shift their money around and decide where they are going to earn more income. That is what companies do, as she has discovered and sometimes complained about. Rich people have a lot of flexibility, which means that a country that sets sensible tax rates attracts and keeps more of them and gets them to do more things.

There is also a disincentive effect, because someone who is legally here and keeps all their money here might not do extra work—why should they, when they are going to be taxed at too high a rate? Or they might not take an extra risk with their investments—why should they? If it works they will get taxed, and if it does not work they will take 100% of the loss. We can therefore change the climate by setting a competitive rate to encourage more confidence and action.

Mr Love rose—

Mr Redwood: I will give way again, if the hon. Gentleman wants another go.

Mr Love: I do, because I want to explore the Arthur Laffer effect. The right hon. Gentleman seems to be saying that if we reduce income tax, we increase the amount of money we take. How far would he take that? Would he make income tax 40p in the pound, or 35p? Would he abolish income tax entirely and raise even more money?

Mr Redwood: The hon. Gentleman is now being completely stupid, is he not? There are two rates of tax that will raise no money—0% and 100%—and there is a curve between the two, which, as he rightly said, was first drawn by Mr Laffer, I believe on a napkin. Most people, including the Treasury, accept that there is a Laffer curve, and that it is a question of judgment where the rate is that maximises revenue. It is quite clear from the evidence in this year’s Revenue and Customs figures that 50% was too high a rate to maximise revenue, and that 45% gets us more revenue than 50%. I believe that 40% would get us more revenue than 45%. I am pleased to hear today that a Liberal Democrat, of all people, is writing a book on the subject. I welcome that and look forward to more progress in coalition talks about the maximising rate of income tax. If it were taken down to 20%, we would clearly lose a lot of money, so somewhere between there and where we are now is the maximising rate, and getting it right is partly science and partly trial and error. We can be sure that we are now moving in the right direction, having gone in the wrong one previously.

It is interesting that the previous Prime Minister, during all his time as Chancellor of the Exchequer, never took the top rate above 40%. I do not think that was because he liked rich people or wanted to be unkind to the left wing of the Labour party. I believe it was his judgment that anything over 40% would have cost him revenue. As a modest man, I therefore accept that there was something about which he was absolutely right—he was correct in not raising the top rate of tax above 40%.

Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab): The right hon. Gentleman has made a case about corporation tax and about the top rate of income tax being reduced from 50p to 45p. Would he apply the same logic of Laffer to indirect taxation? It would be interesting to hear his comments about the raising of VAT to 20%.

Mr Redwood: It is clear from the figures that the raising of the rate to 20% increased revenue. Yes, there is a Laffer effect in VAT, and 20% is clearly below the optimising point if our only interest is in increasing revenue. Going from 17.5% to 20% has not got us to the point where it costs us revenue. If it had, I would have been the first to tell Ministers that it was a ridiculous idea. I understand their need for more revenue, because they inherited such a huge deficit.

Tom Blenkinsop: Of course, companies often pay VAT before they even make a profit.

Mr Redwood: Indeed, there are timing issues with VAT, as the hon. Gentleman says, but I do not really see how that affects the argument about whether putting the rate up brings in more money. That is in the figures.

I fear that we are drifting a bit far even from the wide subject of the amendment, but I suppose the alternative options to help business could include cutting VAT. However, it is clear that if we cut the rate of VAT again, there would be a substantial loss of revenue, whereas we have just cut the income tax rate and there has been a colossal revenue gain. We should learn from those points.

I think the shadow Minister suggested that there would be no loss of revenue to local government from cutting and then freezing business rates. I do not know whether she wants to intervene, but that was my understanding of what she said. I think the Labour party has been converted to the Laffer effect. It now asserts—I do not know on what evidence—that if we cut and then froze business rates, we would collect the same amount of revenue. I would need persuading about that, because I am not sure that business rates are at that point yet, but if they were, it would be a sensible proposal for the coalition Government to take up. It would make it an even bigger pity that Labour has not bothered to table a proposal along those lines for us to vote on today, which might even have drawn me into the Lobby against my own party’s Front Benchers if the case had been well made and I felt that the Laffer effect of lower business rates was well established. I have profoundly shocked my Front-Bench colleagues now, having earned myself a brownie point through my earlier remarks. As they are well aware, they are quite safe, because there is no proposal on the amendment paper to cut business rates. [Interruption.] The Whip has just found that out—she needs to do a little more homework before coming to these debates. [Interruption.] Now she is complaining that she did not say that. As she will be in the record as having said nothing, who am I to disagree?

Before I get into any more trouble, I will conclude my remarks by saying that I will not support the amendment. I do not believe that a review would help, and I do not understand how it would be judged. Nor does it seem that it would have any impact on Labour policy. I am perplexed by the fact that when Labour has a clear policy for once, it has not tabled a proposal so that we can debate it fully and vote on it. I strongly support lower corporation tax rates, which will be very helpful.

Mr Redwood’s intervention during the Debate on the Justice and Home Affairs Opt-out, 7 April

Mr John Redwood (Wokingham) (Con): Does the right hon. Lady not understand that if we opt back in to many of the big and serious measures we are discussing, a future Home Secretary in this House would be impotent in large areas of criminal justice?

Yvette Cooper (Normanton, Pontefract and Castleford) (Lab): I must say that I am baffled how the right hon. Gentleman could consider a bit of guidance on this and a bit of a directory on that to be a huge, powerful thing in relation to criminal justice—[Interruption.] Oh, he is talking about the European arrest warrant. On that point, I think that he and I simply disagree. He would like us not to be able swiftly to deport foreign suspects to their home country to stand charge. He would like us not to be able swiftly to bring back to this country those who are suspected of serious crimes and need to face justice. Before we had the European arrest warrant, we waited years to get back the people we needed to have charged with serious crimes.

Mr Redwood: Of course I do not want to deny us that right, but I want us to have that right in a way that is accountable to this Parliament and in ways that we can amend.

Yvette Cooper: Unfortunately, the right hon. Gentleman wants us to sign huge numbers of different extradition treaties when the extradition treaties and arrangements we had before the European arrest warrant took years. I do not think that that is fair on the victims of crime who want to see justice done.

Local views on the resignation of Mrs Miller

 

Several constituents wrote to me saying that Mrs Miller should resign from the Cabinet. Other soundings I took showed this was a common view. I made sure the leadership of the Conservative party were informed of the strong feelings, as did many other MPs from their constituencies.

Mrs Miller has now resigned. She did so before the meeting of the 1922 (Conservative backbench) Committee where further representations to the Prime Minister were likely on the mood in country about this matter.  The Prime Minister will now attend the meeting this afternoon with this issue resolved. It is time to concentrate on explaining and reinforcing the good economic recovery now underway, and seeing through improvements and reforms to our public services and welfare systems.

The Death of Britain?

 

In 1999 I wrote a book asking this question. I hear that people are reading it again. I stand  by my conclusions then, now tested by 15 years passing.  When I wrote the summary I said

“Can the UK survive devolution, European integration, reform of the Lords, slimming of the monarchy, proportional representation?

Will Scotland  now seek to shatter the Union by demanding full independence? Will the new House of Lords be anything more than a rubber stamp full of the friends of the PM? Would the abolition of the pound mean common taxation and political union with France and Germany?

….Viewing the Blairite revolution as the agency for wider changes  coming from the agenda of France. Germany and the European Commission, I  ask the questions: are these changes inevitable, are they desirable, and what will they mean for us here in Britain? In the name of the people, the people’s right to a voice and justice is being damaged. More and more decisions are being made behind closed doors, in quangos and in Brussels. ”

I enjoined people to fight the battle to save the pound, the one part of the scheme we could prevent because we were offered a referendum. The last decade and a half was not in vain, because we won the battle of the currency. If we had lost that Britain would have been well and truly dead and buried.

Commenting on devolution I said ” The end result will be a more divided, more factious, more overgoverned, more overregulated UK…It will not reconnect the people with the politicians. It will confirm the public in their view that politicians by and large do not solve problems, do cost too much and are good at misleading the public in their own interests”

I concluded the book by saying  ” Labour’s constitutional blueprint is nothing more than a plan for the destruction of UK democracy. It threatens splits within the kingdom. It threatens transferring far too much out of democratic control. It gives far too much ground to the federal plan on the continent. It dares to do all these things in the name of democracy, when the result will be less.”

Today we are facing the consequences of those bad decisions. We are trying to resolve the question of Scottish independence, because devolution did unsettle not solve the problem. We have to tackle the problem of excessive powers passing to Brussels. We are living with the consequences of quangos like the Environment Agency controlling large parts of our lives. We need a new settlement, which gives people back their power to sack accountable MPs and so change the government. In turn MPs need to take responsibility back for governing the country so they can serve the country well. .

 

 

Taking the speed out of High Speed II

 

           The Commons Environmental Audit Committee is not reknown for its sense of humour. So when they said in their recent Report into HS2 that they would like “the government” to “examine the scope for requiring a reduced maximum speed for the trains until electricity generation has been sufficiently decarbonised” they were definitely not joking.

           A High Speed train that goes slow? Now there’s a novel idea. The government, after all, could say it has recently switched its case for HS2 away from speed towards “capacity”, so agreeing to put some speed limits on the new trains would not upset that aim too much.  So why has the Committee reached this conclusion?

                We are told that trains travelling at 225 mph use three times as much energy as a train travelling at 125 mph. We know from using our cars on motorways that cruising at 70 mph  uses more fuel than cruising at 50mph, but we of course are stopped from doing anything like  current train speeds. That’s partly a safety judgement, and partly an environmental one.

           It’s no good saying these are electric trains, so that makes them just fine for environmentalists worried about CO2. A lot of our electricity is still generated from fossil fuels that emit substantial CO2. The more fast trains we run, the more CO2 we will let out into the atmosphere. The Committee also worried about the impact of the new train route on ancient woodland, but did not press on the question of the environmental impact of this railway on urban areas, especially in London. That too could be quite considerable.

            People who had not thought through their CO2 accounting rashly assumed trains would be better than cars and planes from the environmental point of view. They had also failed to consider carefully the impact of a new line and the carbon cost of the construction.  The CO2 output of the finished railway  all depends on how many passengers use the trains, how much energy people use up getting to and from stations, how heavy the trains are and how fast they go. Trains like cars and planes require energy to drive them, and much energy to build them. CO2 accounting is not a simple case of trains good everything else bad.

           Nor is the safety case as overwhelming as some believe. Trains travelling at very high speeds are dangerous. As a result the lines have to be completely isolated from any external intervention by people, plants  or animals, to avoid items on the line and to avoid any clash with pedestrians, cycles, children playing and anyone else who would be at risk. Motorway carriageways  too are segregated from cycles, children playing,and  traffic coming in the oppposite direction so they like railway lines are a lot safer than general roads. The speed limit placed on cars at 70mph, allied to rubber tyres with grip and steering systems to avoid collisions means cars have a better chance of keeping safe if a motorway is disrupted somehow. Trains are more likely to plough to disaster at high speed if a train track gets disrupted, as can happen at level crossings or through unplanned access to the tracks by others. Speed limits help reduce accidents on roads, we are told. The same must be true for trains.

 

 

The UK’s financial services are mainly regulated by the EU

 

In recent years there has been an avalanche of new regulations from the EU governing banking, financial services and insurance. I attended a seminar last week to catch up with the latest developments. It was a long meeting.

We are witnessing the early developments of regulation from the main European Supervisory Agencies (ESAs).

UCITs V has been developed to regulate investment funds. CRD IV is to regulate bank capital. The EU is working on a Bank Resolution and Recovery Directive, and on proposals for bank structural reform. The banking ESA is undertaking stress tests on banks and is seeking extra powers including binding arbitrations.

The Single Resolution Mechanism (SRM) will propose  a resolution mechanism to be approved by the Commission, to be triggered by the ECB. The Resolution fund will be paid for by all the Euro member states, but will be 60% mutualised within two years of its establishment.

The EU is working on changes or improvements to its anti money laundering legislation, on payments, benchmarks, and KIDIP consumer protection. It is backing the Asset Quality Review (AQR), and will allign EU leverage ratios for banks with Basel III international agreement.  The SSM, the new banking supervisor in the ECB, plans 1000 staff to supervise the main EU banks.  There will be a single rule book for banks across the single market, not just the Euro area. The system of living wills for  banks will be incorporated into the new system.

The aim will be a comprehensive system of consumer and professional market regulation in all financial areas. Every area will need to conform to the general rules against financial crime and money laundering. There will then be differing individual requirements sector by sector depending on the type of business and the nature of the customers.

Increasingly the UK regulators will be enforcing EU requirements. I mention this in a neutral spirit, but if we wish to have a well informed debate about the relative powers of the Uk and EU governments it is always now wise first to ask what are their respective powers and responsibilities. In the area of financial regulation the EU is clearly now in charge.

The EU is also  keen to increase its involvement in taxation. The UK has declined to join the scheme to introduce a Financial Transaction Tax, but other countries will go ahead without us. The EU is also planning to require more exchange of information over savings taxes, extanding the range of current proposals, as they wish to move closer to common savings taxation.

The UK says that as it is not in the Euro area it can still have its own distinctive system. Yet developments show that in so many ways membership of the EU as a non Euro member still sucks us into the general movement towards EU control.

One law for everyone

 

Some of the comments coming in about the behaviour  of the European  governing class remind me of King Lear’s discovery:

“Even a dog’s obeyed  in office…

Plate sin with gold,

And the strong lance of justice hurtles breaks;

Arm it in rags, a pigmy’s straw doth pierce it…”

I think things have improved a bit since Lear’s day, but at least it shows it is not a new problem.

18,965,000 people know the Euro is not working

 

Imagine the howls of protest from the left if a pro free enterprise group had taken over the government of the EU and were presiding over mass unemployment on the current scale. Yet today, with the big government brigade in charge of the EU, it is apparently acceptable that 18,965,000 people of working age are unemployed in the Euro zone.

No-one in the EU government seems to get cross about it. They do not seem to do any of the obvious things you would do if you wanted to bring unemployment down. Instead of making it easier for business to generate jobs they think up new ways to  tax and regulate. Instead of mending the banks and easing money policy they prolong the agony brought about by broken banks and demand they lend less. Instead of creating an energy market with prices that match our leading world competitors, they happily pile on more and more cost and tax to energy to make us as uncompetitive as possible.

The prospects have been even worse for the young. Almost one quarter of people under the age of 25 are out of work in the Euro area. In places like Spain and Greece half the young generation are workless. Still no-one seems to wake up in the EU government and ask why, let alone propose doing something that might make a difference to this lamentable state of affairs.

The EU goes about its business of feather bedding the governing class and leaving the many to fend for themselves in  a malfunctioning economy and currency union that sensible people warned them could not work. When we hear from this elite that letting people vote and have their say, as in Switzerland on migration, is dangerous, it is no wonder so many people in the UK have had enough of their arrogance and incompetence.

This year’s unsurprising shortfall in Capital Gains tax revenue (-23%)

 

The Treasury have been too optimistic about how much extra revenue they will get from a big hike in the rate of Capital Gains Tax. Indeed, it is coming in this year £1.2bn down on last year’s forecast, or a whopping 23% shortfall.  Just as they underestimate the extra revenue you get in from Income Tax rate cuts, so they exaggerate the extra revenue you get from tax rises.

In 2011-12 Capital Gains Tax brought in £4.3bn. This fell to £3.9bn in 2012-13 with   the continuing  higher rate, as I predicted but as many sought to deny. That was  a fall  of 10% in revenue. Not to be downhearted, the Treasury decided this was a one off event. They forecast a healthy rise in CGT this year to £5.1bn in the 2013 budget. A year later, in Budget 2014, the forecast for the year just about to end slumped from £5.1bn back to the previous year’s £3.9bn, still 10% lower than 2011-12.

The Treasury do not seem to understand CGT. People with assets have considerable scope to delay or cancel sales if the prospective  tax bill is too high. Sometimes they can find offsetting losses to take if they do wish to sell something sitting on a profit. People with flats in London they do not use very much any more decide to keep hold of them as they do not want to pay all the CGT. People with shares sitting on good gains delay sales, and phase them when they have offsetting losses and allowances to cushion the tax bill. Assets which could be better used by others are not sold on.

The rate at which you would maximise CGT revenue is likely to be a low rate because it so easy for people with assets to avoid this tax quite legally. It is not tax avoidance to sit on an asset you no longer need because it stands on a big gain. Gordon Brown seemed to understand this, and took CGT down to 18% which may well be near the optimum rate to maximise the revenue. People wanting the public sector to spend more should worry that CGT is too high to maximise revenue at the moment. The Treasury needs to improve its model to forecast this tax more accurately.