Author: johnredwood

There has been some very odd coverage of yesterday’s events in the Commons. Mr Raab’s amendment was decided by a free vote on the Coalition side, and a whipped vote to oppose it by Labour.  Those of us who voted for Mr Raab’s amendment were not therefore “rebels” as described in parts of the press. Conservative  Coalition Ministers abstained, presumably because there was no agreement between the two parties in the Coalition.

Labour opposed it on the grounds that it would be illegal. They were joined by Liberal Democrat MPs.  Mr Raab, a lawyer, had a different view and argued that it would not be illegal under the European Human Rights Convention. Had it been passed – and had it also passed the Lords – it might have been tested in court. Who can be sure what the outcome would have been? The UK government is 0ften these days tested in European courts for decisions they have taken.

Many MPs voting for the amendment, which would have made it easier to deport serious criminals from the UK, felt that anyway Parliament ought to have the power to be able  to change the law in these important matters, and that this needed to be re-established by Statute law.

Public sector net debt when Labour came to power in 1997 was running at 40.5% of our total national income. In the early days of Labour, following Conservative spending plans, they took it down to 30.4% by 2001-2. They used to say wisely that they wanted to spend more of the tax revenue on services for people and less on debt interest. Thereafter, they greatly increased spending, and later acquired holdings in large banks. By the time they left office, in 2009-10, national debt had reached 151.7% of our national income.

At the end of last year this figure had fallen to 134.5% of GDP. Reductions in other public sector liabilities, primarily those held by the banks in public ownership, and the increase in nominal GDP, more than offset the impact of increased borrowing by the central government. Sale of the banks will make a further large difference when that is accomplished. The four years 2010-2013 have seen the public sector banking liabilities cut by £78bn.

These figures do not include the value of future pension liabilities under the state pension scheme, though the government has published separate numbers for this for those interested. Nor are these larger numbers, provided by this government, in common use despite many people requesting more accurate overall statements of government indebtedness. Most commentators and politicians still concentrate on the narrower definition of public sector debt which excludes the banks and trading businesses in the public sector. Here in 2005 net debt was just £475bn- – on both definitions as the state owned no banks. By 2010 the narrower definiton of debt had reached £984bn, hitting £1254 bn by the end of 2013. This is 75.7% of GDP, compared to the 30.4% in 2001-2.

Some contributors to this site persist in saying the total level of debt does not matter. I disagree. If the state owes £1250bn and has to refinance this, being unable to repay it, it is vulnerable to rising interest rates. If over the next decade the average cost of state borrowing rose by just 2%, that means an extra £25bn of public spending every year on interest charges. That will require either £25bn of spending cuts or £25bn of extra tax revenue. That is why controlling the debt and deficit matters. Getting rid of more of the banking risk is an important part of this process. Even the UK state is stretched by the size of RBS, and the potential it still has to lose money. The sooner that risk is reduced and removed from the national balance sheet, the better.

Today the Chief Secretary to the Treasury has explained how Labour’s proposed rules for the next Parliament should they be in government would allow them to borrow substantially more than the Coalition proposals over the next Parliament. Labour contests the £166bn figure of extra borrowing  which assumes they use all their available flexibility to 2021, , but has not come up with a revised figure of their own. So far interviewers have not pinned down how much extra they would be likely to borrow for capital projects.

(The figures come from December 2013 Statistical Bulletin Public Sector Finances ONS)

The Governor of the Bank of England’s speech yesterday was well researched and well phrased. He leaves the issue of Scotland’s future to the Scottish people. He accepts that were Scotland to vote for Out of the UK, the question of the currency would be a major issue for the political negotiation that would follow between the two governments.

His research reveals, however, that an independent Scotland would have a much larger banking sector relative to the size of the economy than the Uk currently enjoys. This opens the question of could Scotland have afforded to stand behind HBOS and RBS in the way the UK did, during the crisis? Any agreement on a common currency would need to make it clear that Scotland would have to stand behind Scotland’s banks. But would that work? What would happen if Scotland was unable to stand behind them? Would Scotland agree that a common currency must mean common banking supervision? How would the rest of the UK be sure we would not be expected to mount an expensive rescue? How could Scotland be sure the full currency union and the Bank of England always stood behind her banks?

He also points out that if Scotland keeps all the oil the Scottish economy is materially different from the rest of the UK. Scotland’s output per head and tax revenue would be very affected by the oil price, and by the likely secular decline in the Scottish oil province, which is now well past its peak output. The more diverse two countries in a union are, the more the pain of adjustment without the mechanism of the exchange rate to take some of the strain.

I am not myself a Scottish nationalist, but if I were I would want my country to have its own currency. You cannot be independent, with your own economic and tax policy, if you belong to a currency union. Members of the Eurozone are discovering this as the Euro crisis rolls on. Belonging to a currency union, you are forced into internal devaluation – cuts in wages – if you cease to be competitive at the common exchange rate. Greece and Spain could warn Scotland about that. You are forced into increasing tax and benefit transfers around the union. The Rest of the Uk and Scotland would need clear and fair rules about the extent of these transfers and the limits on mutual financial assistance.

Today the sterling currency union works because there are very large transfers of money from the richer to the poorer parts of the union. The labour market works fairly well, with common levels of benefit payments and pay top ups from the state, and similar wage levels. A so called independent Scotland would need to mirror much of the rest of the UK’s approach to benefits, wages and fiscal policy for the continuing currency union to succeed.

From the point of view of the rest of the UK it would be easier if Scotland did decide to quit the UK if she left the currency union at the same time. Political union and currency union are two sides of the same coin. Take one away, and the other collapses or buckles under the new strains.

In a way I was one of the first modernisers. In 1995 I told the Conservative party it was a case of “No change, no chance”. I had in mind especially a change of policy and approach.

So when people tell me the Conservative party has to change or modernise, I do not automatically disagree. It is one of the ironies of conservatism, that a doctrine that wishes to preserve the best and keep some of the continuity of our lives, has always had to embrace change. Indeed, some of the most successful Conservative governments have been some of the most radical. Maybe we are at our best when we are boldest.

Conservative radicalism is based around delivering to the many the advantages of the few. Just as enterprise capitalism retains support and gains friends by ensuring that the luxuries of the rich in one generation become the commonplace of the many in the next, so Conservatism at its best brings the rights and duties of the privileged few of a previous generation into the lives of the many. Conservatives have in the past campaigned to abolish slavery, to  extend the franchise to all,  to encourage the many to own their own home, and to seek an ownership revolution. It has supported more generous welfare and health provision for the many paid for out of taxation.  We want higher living standards and more civil liberties and see no contradiction between the two.

I was surprised in the early opposition years after 1997 to read that Conservatives were split between mods and rockers, between libertarians and authoritarians. It seemed like an artificial conflict, as most Conservatives seek a balance between liberty and the rule of law. I was also surprised to see some advocate a modernising agenda which meant moving closer to Labour’s positions just in time for the implosion of Labour’s model of more European integration, more migration, more public spending and debt, and the eventual inevitable financial crisis.

There is nothing wrong with the underlying principles of Conservatism – belief in the individual, the family, the small platoons, the independent charities and companies, the wish to spread ownership and property, to defend the individual’s liberty against the overmighty power of the state, the wish to conserve the best of our institutions and countryside, the wish to see the inherited tradition improved and developed by the present, and the wish for the state to help those who cannot help themselves. Of course these need updating, with policies based on the modern context, on a regular basis. The ideals and values do not need overturning. Most Conservatives do not lack compassion, charity, decency or belief in  liberty. We just do not believe these things can simply be bought by the government spending more of other people’s money. There needs to be money and oxygen left for the many to provide for themselves, to work for family and the common good, to profit the nation as they profit themselves.

At the end of the last century I wrote a book predicting that Labour’s constitutional revolution would be very destructive of the UK. At the time Labour derided my language, claiming it was excessive to argue that their modest constitutional changes were revolutionary and would lead to the destruction of the UK as we knew it, and to overturning its way of government.  I think it is time to look again at the forecasts and to ask what has happened?

I wrote then

“The UK is in the grip of a constitutional revolution. The cumulative effects of the (EU) treaties are made more radical by the quickening pace of European integration on the continent….The ECJ is making more and more advances…The Court now overturns Acts of Parliament…. The Labour government has adopted much of the European agenda as its own…Labour willingly advance the cause of more European government…the Social Chapter…the European Charter of Human Rights…limiting our legislature in criminal and judicial matters.  Labour’s plans to split the kingdom into regions are often urged to ensure that we have regional governments that can act as supplicants for European funding… Even their plans for proportional representation are part of a scheme to bring us into line with the continent. ..The British government has decided to introduce these (PR) for elections to regional Parliaments and the European Parliament. Undoubtedly the government’s devolution plans will create more tension and conflict, not less. It is helping to fuel nationalist movements in Scotland and Wales…

“Third Way politics is allied to a hatred of Parliament, which remained stubbornly confrontational and argumentative. …Ensuring Parliament met as infrequently as possible, arranging set piece meetings on subjects like Northern Ireland more likely to produce cross party agreement, and scaling back Prime Ministerial appearances…were all part of the plan to try to prevent parliamentary argument disrupting third way consensus.  A Parliament elected by a different means that did not produce a majority government would be the ultimate conclusion of this course of action.

“devolution Labour style will devolve more power not to people but to politicians and administrators. Far from cementing the UK, it will pull it part as advocates of a Europe of the regions intend. ….the relentless drive to a European state continues. It is time to ask the question, will this government break the UK apart? How far do they wish to go in transferring government from London to Brussels and regional centres?”

Much of what I feared came true. Over the following decade Labour signed the Nice, Amsterdam and Lisbon Treaties, transferring 168 major areas of policy from UK control to majority voting in the EU. That included control over our borders and immigration policy, energy and some criminal justice amongst many.

Their devolution policy, far from settling the kingdom, gave a huge boost to Scottish nationalism and has led directly to a vote on whether Scotland wants to stay in the Union at all.

The Human Rights policy has led to senior Judges now pointing out that Parliament has lost its sovereignty in crucial areas of law, and to many domestic complaints about actions and judgements that the UK can no longer decide or control.

Parliament has been damaged by moving to shorter hours and fewer days in session, by a single PM Questions each week, and above all by now facing many areas where Parliament cannot change the law even if it wishes to, owing to EU law.

Labour changed the UK and its constitution radically. We no longer have a constitution based on a powerful  Parliament subject to  the sovereignty of the people, expressed at election time in the ballot box and the rest of the time as public opinion. We are now a member state under European control in many fields, and a divided nation arguing about whether to stay together or not. I rest my case.

The change of direction that was partially flagged this week by the EU’s review of its energy policy from 2020 to 2030 has all the hallmarks of ineffective political compromise and none of the qualities of good leadership for Europe’s troubled industries. The underlying truth is that EU energy policy today is the same as last week, and going in the wrong direction.

Recognising the danger of more factories closing and more businesses setting up in cheaper energy parts of the world, the EU now talks of the need for competitiveness to be part of the consideration when making future energy policy. Still keen on being the greenest part of the world, the EU has also decided on setting EU level targets to increase the amount of renewable energy from 20% to 27% over the next decade, and to continue the drive to cut the output of carbon dioxide gas. This time they want to cut it by 40% on 1990 levels by 2030. How does this square with wanting energy priced more like that in the USA so we can compete?

We need to ask how this will happen, what consequences it will have, and  how the EU plans to enforce the policy.

The big change is to shift from individual member state targets for CO2 reduction and renewable power to EU wide ones. The member state targets could be enforced by EU court action and fines. I guess the fact that Germany is unable to curb her CO2 output at the moment is making the EU nervous about enforcement action anyway. Once they shift to an EU target there does not appear to be any way they could prosecute an individual member state for failing to increase its renewables or for increasing its carbon dioxide output. Which countries will want to carry on with these initiatives to try and hit the EU targets?

The quest for more renewable power is also being questioned  by another branch of the EU authorities, the competition authorities. The attack upon subsidies for solar and wind power could make it difficult or impossible to increase these forms at the rate needed to hit the EU target, given the importance of subsidy to current rates of investment in these expensive forms of electricity generation.

The EU is not changing the member state targets for the period up to 2020, so in theory all stays the same with the EU enjoying another six years of the pursuit of dear energy  before changing course somewhat in 2o20. The member states remain under pressure to increase solar and wind output, and to carry on getting rid of older fossil fuel electricity plant even though it produces much cheaper power.

The ailing energy policy of the EU will become one of the major disasters of this superstate experiment, alongside the Exchange Rate Mechanism and Euro which has cursed so many countries with high unemployment. Industry is today highly automated. It needs cheap energy. Europe’s competitors abroad have not embarked on anything like the EU’s dear energy strategy, so they have a large advantage. The latest EU moves recognise the problem, but do nothing this decade to correct the error, and leave us uncertain about how  it might start to be improved after 2020. Try harder EU.

The 50p tax rate is popular according to the polls. Most people like the idea as they think it means the rich few will pay more so they will pay less. Unfortunately, the opposite is the truth. A 50p tax rate will raise less revenue from the rich, so those on lower incomes  will have to pay more.

The evidence from the period of 50p tax rates in the UK is quite clear. Self assessment Income Tax fell from £21.7bn in 2009-10 (after the crisis)  to £20.6bn last year. It is forecast to surge to £27.4bn in 2014-15 with the lower 45p rate. The Treasury figure of £100m extra revenue is not confirmed in anyway by the pattern of past tax collection. Numerous high earners left the country to avoid the 50p tax rate when it came in, meaning lower income taxpayers have to pay more.

The Sunday Times provides other figures which show a surge in tax revenue at the lower 45% rate, from £41 bn under the 50p rate to £49bn now. There has also been a sharp increase in the  number of people earning more than £1m now in the UK, from 13,000 at 50p to 18,000 at 45p. That’s a large increase in tax revenue from the rich.