On Saturday evening I was the guest of Wokingham Choral Society at All Saints Church.
The choir sang unaccompanied with great style and passion. They filled the Church with their voices and did justice to a complex work in a difficult language.
I would like to thank all involved for an excellent evening.
Foreign policy is ultimately about war and peace. Countries which pursue strong foreign policies need armies and navies to defend them. The politicians who decide and pursue the foreign policy need to carry their whole country with them if their policy entails taking up arms. Sending our military personnel into conflict requires the loyalty and consent of the public in a democracy.
That is why I do not want the EU to have a foreign policy. I am pleased to say that Baroness Ashton cannot yet command armies and navies. The EU’s foreign policy only has force behind it if the main military powers in the EU are prepared to commit their forces. The danger in the current situation is that the EU will become more and more assertive in foreign policy until the point is reached where member states will be expected to commit forces to support their policy or correct their mistakes. Who then will want to fight for a cause which unelected officials in Brussels have pursued, loosely organised by member states who may have disagreed about the policy at the time?
Let us take the case of EU policy towards the Ukraine. Many people in the UK and doubtless elsewhere in the EU think the EU overreached itself by supporting the uprising against an unpleasant elected President. The EU pushed for a wide ranging Association Agreement between the Ukraine and the EU in a way which was bound to provoke Russia. The result of the EU’s rash action was entirely predictable. Russia had the force, the EU had none in the area, so the Crimea was taken over easily by Russia. Many people in the Crimea were willing supporters of this move, as they had been alarmed by the pro EU Ukrainian interim government’s stated wish to ban Russian as an official language in the Ukraine, before that idea was withdrawn. The EU now complains about how it was done after the event. Why wasn’t it able to foresee the likely outcome before it blundered in?
Maintaining support for our armed forces and committing them where there is agreement about the national interest in so doing is a crucial role for a democracy. The UK has shown in recent years that where consent breaks down, as it began to with the war in Iraq, our forces are placed in a difficult position and our democracy strains to adjust. How much more difficult if in future our forces could be expected to pick up the pieces from some crass foreign policy error made by the EU when many UK voters disagreed both with the policy and with the body undertaking it.
I do not detect much willingness to fight for the EU amongst most of my electors. Having a Foreign Policy Supremo and an EU foreign policy is many bridges too far for me. I am afraid that the EU will end up drawing its member states into ill thought through conflicts where there is insufficient loyalty and support for the policy.
Some people as they reach retirement come to see their pension savings as a con. At the top end they saved when they were on low incomes, receiving modest tax reliefs, only to find in later years they will have to pay higher tax rates to get their money out. Some very successful people will find they have saved too much and now get caned by the new tax system above the lifetime limit. Some on lower incomes will find their pension savings have not bought them much extra pension. At current annuity rates you need around £20,000 of savings to get an extra £1,000 pension a year. All will find that current low interest rates and past costs of running the pension scheme leave them worse off than they hoped.
I warmly welcome the Chancellor’s proposal to give people more freedom to decide what to do with their pensions savings where they have defined contribution funds. It is far from satisfactory that people are made to buy an annuity when rates are low and returns poor. The state seems to be saying that it regards people’s savings as in some way the state’s money, to be controlled for people.
In recent days numerous regulators and socialists have emerged from the woodwork to tell us what they really think of us. Apparently they do think left to our own devices we will behave irresponsibly, blowing our money on fast cars and cruises, instead of drawing down our pension savings over the years of retirement in an orderly way. Some even say that as we have received tax relief on pension savings the state has every right to decide how we can spend them. They clearly do not understand that the tax relief on pensions is largely a tax deferral, not a tax break.
I make this prediction. There will be very few people if any buying a Lamborghini from their pension pot. Most will have insufficient money, and the overwhelming majority will be far more sensible with their money.
I also say this. By what right does someone rule out any way that a person might end up spending the money they have saved? If someone was told that they had only a few months to live, and they had saved substantial sums over their lives, who would begrudge them buying the car of their dreams or the holiday of their lifetime before death? People are usually better judges of how to spend their money than is the state.
The ending of the compulsory annuity purchase was one of the best things in a budget for many years. I will be pleased to vote for it, and to defend it. Those who think the state should control our savings belong to that school of thought which thinks that we are all on pocket money from the government. What a ghastly world to live in if we got to that position. Why then would people try harder or work longer hours, if the government decides what you earn and how you spend it? The old communist jibe was “the government pretends to pay us, and we pretend to work”. That’s what kept them in poverty for so long.
Yesterday I debate the motion
“Excessive and unnecessary environmental legislation and regulation is seriously damaging the UK’s economic gr0wth”
before an audience of environmental lawyers and others at Simmons and Simmons. I will put up a video of the exchanges when it arrives with me.
Conscious of the need to mend our roads I have ben lobbying the Transport department for more money to help us carry out repairs after a bad winter. I have raised it with the Secretary of State in private and in the House.
Today I received a letter from the Transport Secretary telling me that West Berkshire will receive an additional £1,489,480 for road repairs this year, and Wokingham will receive an additional £395,353. Reading will get £151,947 and Bracknell £162,840.
There will also be a new fund of £168 m for next year where both West Berks and Wokingham can bid for additional funds. I recommend both Councils do so.
Crimea is now part of Russia. The EU and the USA should understand this simple fact. Russia has acted illegally and in ways which offend the West, but Mr Putin now has the Crimea under his control.
Imposing some sanctions retrospectively in a fit of pique makes the West look weak and is a kind of self harm. It looks like someone trying to play cricket in a glasshouse. The sanctions are not going to get Crimea back in the fold of the Ukraine.
The West should believe in democracy. That means we should have worked with the Ukraine for a new election to find a President of the Ukraine who could speak for all and hold it together. That means we should have helped the Ukraine organise a legal referendum on the future of the Crimea so they can settle their own future. Instead the West allowed or encouraged the overthrow of an elected President without an early election to replace him, and condemned the referendum in the Crimea as illegal without having a positive way of letting the Crimea have its say.
In the UK defenders of the Union in the Union Parliament have given Scotland the right to a voice on their future, showing the EU how these things should be handled. Identity and loyalty are important emotions in politics. Unfortunately elsewhere in the EU there is a determined attempt to stifle popular opinion and distort or change loyalties. The EU and the Spanish state are against Catalonia having a vote on its future. The EU and the Italian state are against Venice and the Veneto having a vote on its future, though an unofficial one is currently underway. The EU and the Ukraine have been against the Crimea having a vote on its future, and partly as a result they have lost the Crimea thanks to Russian actions which the West condemns but cannot stop.
If the West thinks Mr Putin might be emboldened to do the same again elsewhere, then the West needs to make clear in advance their disapproval and take the diplomatic and defence actions necessary so next time they have some control over events. The rest is just huffing and puffing. The best defence against the splitting of nations is good democratic government in each state that can command the loyalty and agreement of its peoples. Seeking to suppress or deny the existence of demands for self government cannot be the right way ahead.
Mr John Redwood (Wokingham) (Con): I would like to remind the House of my declaration of interests: I provide some advice on global economies and investments to an industrial company and an investment company.
I greatly welcome this Budget, because I think it is right that we need to do more to help the promotion of exports, industrial investment, the rebalancing of our economy and continuing the long process of getting the deficit under control. In our exchanges already I have highlighted the fact that debt interest will be higher than the education programme next year, despite the Government’s best endeavours, and that unless we carry on to make good and rapid progress to get the deficit down and eliminate it, that debt burden will build up and future Governments, whoever they may be, will find they are spending more and more money on debt interest and have less and less for the public services that our electorates expect us to provide.
I would like to clear up a common misunderstanding about how that is being done that I think has occurred because of the use of jargon and economists’ language in describing the process. The reduction in the deficit has been described as 80% by spending cuts and 20% by tax rises. That is true if the programme is successfully completed by 2018 and if we measure it as a percentage of GDP at that point, but that is not how most people think about how an excessive deficit is curbed. If we have a large deficit in our own accounts, we have either to find a way of earning more money or to make immediate cuts in the amount of cash that we spend. I think a lot of people outside the House think that, because we inherited a deficit of £160 billion, 80% by spending cuts meant £132 billion-worth of cash cuts in public spending. Of course it does not, and I am very glad that it does not, because that would have done huge damage to important public services.
What the Government have decided to do is limit the rate of increase in public spending and promote a more active economy so that tax revenues eventually catch up, and we are in that long process. The first three years of this Government saw very little growth in the economy, which delayed the reduction in the deficit because we did not get the surge in tax revenues we were hoping for. Now it looks as if there is better news, with faster growth coming through, and so the process can be completed, assuming the economy still recovers.
I had thought we might cut public spending in real terms in the first two or three years, but it appears from the latest figures that there was a small real increase in public spending. In the first three years, current public spending went up by more than inflation, and if we look at the impact on the economy as a whole, it gives the lie to all those who suggest too much was cut too soon, and that that reduced output and was the cause of the delay in growth. If we look at the attribution of growth and decline in activity and incomes, we see that the public sector made a small positive contribution to the economy in every one of the first three years of the coalition Government. I hope that reassures some of those on the Opposition Benches who felt too much was being cut and damage was being done. The good news is that it was not. There will have to be some reductions in some programmes in the years ahead in order to hit the targets, however, because although public spending will continue to rise in cash terms, there will need to be a little bit of a real reduction in the next Parliament; and because some of the programmes need to go up quite a lot—debt interest will go up quite a bit anyway—we will have to make reductions in other programmes, whoever is in office.
Mr Brooks Newmark (Braintree) (Con): My right hon. Friend is making an excellent point. Does he agree that, notwithstanding the austerity he is talking about and the fact that more than 500,000 jobs were lost in the public sector, what is particularly remarkable about these tough times was that 1.7 million jobs were created in the private sector?
Mr Redwood: Yes, that was magnificent news and it shows that the private sector is remarkably resilient despite all that has been thrown at it. That is why we can now look forward to both better living standards and a better public sector: we need all those people to be in work and paying more tax in order to pay for those public services that are much-wanted by our constituents.
I would also like to deal with the argument from the Opposition, which I thought was put in a very exaggerated form by the Labour leader in his response to the Budget, in what was a rather partisan appearance which was out of sympathy with his new style at Prime Minister’s questions. I am not one to condemn partisan debate, as I think sometimes it livens the place up, but it was a very partisan speech by the Leader of the Opposition.
Charlie Elphicke (Dover) (Con): It was a rant.
Mr Redwood: The Leader of the Opposition’s rant, as my hon. Friend says, had just one basic message: the wrong belief that the Conservatives want tax cuts for the rich and misery for everybody else. What we want is tax cuts for everyone, and what this and the previous Budget offer is tax cuts for everyone.
Let me explain how we have different types of tax cut for people at different levels of income. We take those on the lowest incomes out of tax altogether, so they get a genuine tax cut: they go from paying something to paying no income tax at all. The House is, I think, united on the wisdom of that. At the top end, we cut the rate, and what happens is that the rich and successful people actually pay more tax, not less. That seems to me to be magic, because then everybody is happy—or they should be. Only the very jealous should be miserable, because what we then have is the rich staying here, investing here, creating jobs here, creating more money here and paying more tax because the rate is lower. What is not to like about that proposition?
What is odd is that the Labour party in office, until the last couple of days, knew that and kept the top rate of tax below the level that we inherited and below the level we have now fixed. It is a bit rich that Labour is now complaining that we are light on the rich, given that our tax rates are collecting a lot more tax from the rich and are higher than the rates that Labour imposed. Indeed, we could collect even more tax from the rich if we brought the rates down a bit more, which I hope, come a Conservative Government, we might be able to do. Surely what we want is to maximise the revenue from such people, not to make a political point and drive them abroad, so that we have a society with less money, fewer jobs and less creativity.
I am pleased that the Chancellor made some moves on energy. We need a much bigger and stronger industrial recovery than we have generated so far. The first thing we need to do to have such a recovery is to ignore the advice of the Green MP, and to go for cheap energy. America is going for cheap energy, and it is re-industrialising very quickly. America is now super-competitive against companies in the European Union. A leading chemical major in Germany has recently said that it will put more of its investment abroad, outside the EU altogether, because, in the light of the energy crisis, the gas feed stock is uncompetitive. We need to find that gas and to get it out as quickly as possible. We need to match the United States’ shale revolution if we wish to save our high-energy-using industries and to re-industrialise and give some hope to the northern cities in particular, with their long tradition of industrial activity, because they need much cheaper energy.
We need to do more for savers, and I am delighted by an elaborate and interesting set of measures from the Chancellor on saving. Savers have had a miserable time after the collapse. Rightly, successive Governments and Governors of the Bank of England have kept interest rates on the floor, as they had to do, to try to stimulate activity and to prevent a worse collapse than we experienced in 2008, at the height of the crisis. That has been very bad news for savers. The tax changes will help savers, and the pensioner bond offer, if the rates are around the level we are now looking at, makes sense and would be a bit more attractive and something for pensioner savers to look forward to. I also welcome more flexibility for pensioners generally. Annuities are not good news at the moment, and if people can put that off or have a better choice, that may well be an excellent answer.
This Budget needs to be good for savers, for industry and for exports, and we are going in the right direction. It will help to promote a bit more growth, and only if we get a lot of growth will we get out of this debt bind.
Mr Redwood (Wokingham) (Con): Is there not also a very cruel dilemma in public policy, in that savers want a better rate of interest but we need low interest rates to promote economic growth and to service the Government debt? There is a trade-off, and that is why tax breaks are particularly welcome at a time of low interest rates.
Mr Mark Hoban (Fareham) (Con): Absolutely. My right hon. Friend provides me with the opportunity to praise the Chancellor for introducing the pensioner bond. Those higher rates of interest will provide not only an attractive way of enabling people to save, but some support to the Treasury.
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Mr Redwood: I would just like to correct the record. The forecast is for only a 4.7% increase in exports next year and an 8% increase in investment, which I think is achievable.
Sammy Wilson (East Antrim) (DUP): The percentage growth in exports was 0.8% last year, and in the next year it is forecast to be 2.6%. By any calculation, that is more than a three times increase in the rate of growth. The Government have talked about the reduction in the cost of finance for exporters, but measures that were introduced in previous years did not have the intended effect. Of course, that is against the background of a strengthening pound, so there will be a difficulty there. On what is the Government’s optimism based? If it is on export and investment-led growth, past patterns do not show that happening.
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Mr Redwood: Has my right hon. Friend noticed that despite all the efforts to control the debt, which we need to do, debt interest will still be £60 billion next year, which is more than the education budget?
Mr Andrew Mitchell (Sutton Coldfield) (Con): My right hon. Friend is absolutely right, but can he imagine what it would be like today if the Opposition’s policies were being pursued?
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Mr Redwood: Has the hon. Gentleman noticed the forecasted very sharp fall-off in petroleum revenue tax, and is that reflected in SNP plans?
Stewart Hosie (Dundee East) (SNP): It is extremely convenient that, once again, we have a “North sea oil price crash” story on Budget day, some six months before the referendum. If the right hon. Gentleman keeps saying it, I am sure someone somewhere will finally believe him. I am not dreadfully convinced.
The bottom line is that—just like the right hon. Gentleman’s intervention—the Chancellor’s speech was hugely political. He did not tell us about recovery; he did not tell us that he is trying to lift the burden from hard-working families; he did not apologise for trying to rebalance the economy on the backs of the poor. This Budget speech was a political platform for the next election, and if it was supposed to be a vindication of his policies, then it failed, because the policies have failed.
There is a big gap between what the experts say and what is going on. The experts say we are cutting the deficit primarily by cutting public spending. When people hear that 80% of the task of deficit reduction comes from spending cuts, they think that means public spending is actually declining in cash terms.
Starting with an inherited deficit of £160bn people would think that meant cutting £128bn off public spending to remove the deficit, with the remaining £32 bn coming from tax rises. Of course nothing like that is happening, as all elected politicians agreee you cannot cut that sort of money out of the budgets given the importance of many public services.
Instead public spending will go up every year in cash terms during the period of deficit reduction. They used to say that it would be cut in real terms, though the figures for the first three years of the programme of deficit reduction show there has in practice been small real increases in current spending each year. Far from causing low growth or no growth as the opponents of austerity have argued, public spending has made a positive impact to total output and incomes since 2010. Within the spending totals welfare, debt interest, overseas aid and health take a rising proportion, so some other programmes are experiencing cash cuts.
So how is the deficit being brought down? It is coming down for one simple reason – tax revenues are rising. The idea of the gradual programme is to make the task easier, by allowing more tax revenue to arise naturally through the growth of the economy. Where the government has tried higher tax rates on income and capital gains it has actually damaged the revenues, not increased them. If any government tried to reduce the deficit quickly through a series of tax rate rises, considerable damage would be done to the economy and tax revenues might fall.
Growth has always been the main requirement to help correct the large imbalances in the economy without pushing it into a deep recession. Growth results from change to the economy, with more successful and more helpful activities increasing. We need more exports, more homes, more domestically produced goods to replace imports. The budget seeks to help bring that about.
There is some good news in the budget. The increase in the ISA allowance for savers to £15,000 and the ending of the disticntion between cash Isas and the rest is a welcome simplification with more generous tax relief. The forthcoming Pensioner bonds from National Savings may well offer a reasonable and secure income. The offer of much greater flexibility of what to do with your pension saving is also welcome, though the details still need to be worked out in some cases.
Total public spending at 42.5% of our national output next year is still too high a proportion of the total economy, but is down from the excessive 47.5% of 2009-10. The aim is to get it down to 38% by 2018-19. Total spending rose this year in real terms. As expected, the Tax threshold was raised to £10,500 for next year. There was also a small increase in the 40% tax threshold.
The Chancellor recognised the need to do something to cut energy prices. He himself highlighted the dangers of UK energy prices twice the US level, and has extended and improved a scheme to subsidise high energy using industries for their energy costs. The better answer must be to find and produce much larger quantities of cheap gas for ourselves. The Chancellor is offering tax assistance to North Sea oil and gas developments, and states that he supports shale gas extraction. The Uk still remains way behind the US in finding and using this new hydrocarbon source.
The Red Book warns that “Energy intensive Industries pay almost 50% more for their electricity than they do in France, and the cost to business of policies to deliver low carbon energy infrastructure is set to increase by about 300% by 2020.” This is a massive threat ahead, and should persuade the government to demand changes to EU energy policies so that the UK can opt for cheaper energy which could help power an industrial revival. The goverbnment is offering £500 m in subsidies a year to energy intensive industries from 2015-16 to compensate them for dear green energy, subject to EU approval.
The long term reforms to achieve a low rate of Corporation Tax now give the UK a competitive advantage with a 21% tax rate. The Chancellor added to that a £500,000 investment tax allowance for business.
The main figures in the Budget are little changed from the December Statement. Growth is forecast to be a little higher, unused capacity a bit lower. The Budget concentrates on trying to assist industry to invest, savers to save, and individuals to enjoy some real growth in income.