Author: johnredwood

Yesterday’s unemployment figures from Euroland made more depressing reading. 19.24 million people are out of work in the Euro area. The unemployment rate of 12.1% is much higher than the US at 7% and the UK at 7.4%. Non EU countries in Europe have lower rates, with Norway at 3.3% and Iceland post crisis at 5.4%.

Within the zone Greek unemployment at 27.4% and Spanish at 21.7% are particularly bad. Germany remains competitive both within the zone and outside and has much lower unemployment. The totals are up 452,000 on a year earlier, and up a little on the previous month.

Worse still is the position of young people under the age of 25. 3.57 million are out of work in the Euro area. The rate of young person unemployment is a shocking 57.4% in Spain, 54.8% in Greece, 41.6% in Italy and 36.5% in Portugal. Even in France one in four young people are out of work.

Unemployment in the rest of the EU is lower than in the Eurozone, which suggests that some of the high level of unemployment is down to the features of the Euro. Unemployment is however, quite high throughout the EU on average indicating that all is not well with the policies pursued by the region. High regulatory costs and dear energy are two of the features that limit economic progress.

The odd thing is the apparent acquiescence of so many voters so far in this dreadful situation, and the complacency of the European establishment faced with this tragedy. It is extraordinary that over half of all young people under the age of 25 can be out of work in some countries, yet no major action is triggered likely to make a bid dent in the totals of the young unemployed.

The European countries that have stayed outside the Euro, and the USA that also experienced a banking crisis, have used monetary and exchange rate policy to get more people back to work and to stimulate more activity. The Euro was saved from break up by the European Central Bank’s decision to lend large sums to the troubled Euro banking system, and more recently has been helped a little by ultra low interest rates. The endless delays in coming to a judgement about who will pay the bills and who will back the overstretched sovereign and banking borrowers is delaying a vigrous recovery, and is ensuring more young people remain out of work for longer.

The Uk used to enjoy plenty of wage inflation. It was called the “British disease” and went with too many strikes, frequent devaluations to keep us in  world markets, permanent decline of large nationalised industries like steel, coal and railways, and  large accompanying job losses in those state leviathans. The cash pay rises were soon eroded by price rises.

After the Thatcher Union reforms and the privatisation of much of the old nationalised industry estate the extremes of wage inflation and the accompanying poor performance were eliminated. The UK entered a “NICE” period, when  cash wages rose modestly, productivity improved and former nationalised sectors like telecommunications and energy grew with more jobs being created. Real wages rose each year.

The Great Recession of 2008 changed all that. The UK lost 7 % of ts output in a year. A new era was ushered in with low cash increases in wages, and falling real wages. This was bad for the last two years under Labour and has continued at a lesser pace under the Coalition. Productivity has been weak.

Some commentators have called this the productivity puzzle. I have never thought it much of a puzzle. Part of the reason for the decline was the big losss of output, which makes companies less efficient. Many companies do not cut their workforce in line with the loss of output. Part has been the decline of North Sea oil output, a very high value added sector. Part has been the loss of high end profitable activities from the City as people have diverted high earning areas of their banks and businesses to lower tax jurisdictions in Asia, Switzerland and the low tax islands of the world in response to 50% Income Tax and 28% CGT rates.

There is one additional issue I have not so far raised, which I would like to ask about today. That is the decision of the past government to invite in up to  5 million new people to the UK over  little more than a decade. The UK has a workforce of around 30 million, so the increase in the potential workforce from large scale immigration must have had some impact on the UK labour market. More than 2m jobs have been taken by people born overseas.

Business likes the ability to recruit people from around the world, and likes a plentiful supply of good value labour. Employees of UK companies already settled here need income levels that sustain a reasonable lifestyle in one of the dearer locations in the world.

The issue is one of balance. Allow too little migration, and business might find it difficult to set up or continue here without access to the affordable skills they need. Let in too many new people, and you must depress wages and make it more difficult for unemployed people legally settled here to find a job. Part of the issue of wages is tied up in the potential supply of labour. Over the last decade the UK has had an unprecedented expansion of its labour supply, which is part of  the background to stagnant wages.

   Yesterday’s speech by the Chancellor rightly identified the need for more spending reductions compared to current plans, to eliminate the structural deficit during the next Parliament, following some reductions in this Parliament.

    The prelude to the speech was the Prime Minister’s statement that the triple lock will continue for another five years if a Conservative government is elected in 2015. This provides for an uprating of the State pension by prices rises  or wage rises  or 2.5%, whichever is the higher. As a result Ministers were naturally asked if the Pensioner benefits like free tv licences and heating allowances were also safe, and effectively confirmed they would stay.

     This leaves the Treasury with its aim of getting more of the reductions from welfare benefits having to do so by tackling non pensioner benefits. The Chancellor points out that the  big savings on pensions come from raising the retirement age, which needs to be done as people live longer.

            So today I want to ask for your opinions on what more could and should be done to curb the ever rising welfare bill? It has been going up by more than wages this Parliament, despite the fall in unemployment, as a result of upratings that have exceeded wage growth by a considerable margin, and by the continuing eligibility of a large number of people for various kinds of benefits.

           There are two big issues to consider. The first is eligibility. I would still like to see a longer time period that a new migrant has to complete before qualifying for UK benefits. I think more of the benefits should be contributory, where people have to demonstrate they have a contribution record to UK NI for a sufficient period, or have been in full time education in the UK as British citizens in the past to cover individuals who have been unable to get a job or who are incapacitated and unable to work.

           The government can also consider what range of benefits should be available to young people. At what age or point in their lives should young people qualify for state  financial and housing assistance to have a home of their own?

            The second issue is the rate of increase in benefits in payment. This government has upgraded benefits by inflation at a time when real wages were falling. Was this the correct approach?  Should benefits in future continue to  be protected against inflation?  I am not myself in favour of cutting the real value of benefits, but should there be any upper ceiling? Is a £26,000 cap fair, or is that too high?

          The BBC has been full of stories that last year was the hottest on record in Australia. That must have been a bit of climate breaking through. It has not been so full of the figures for England in 2013, which show we had a very cold spring, and an overall temperature performance down on previous years. That must have been a bit too much weather.

            The latest development of climate change theory appeared on the Today programme, with a scientist telling us there is a 20 year lag between generating more greenhouse gases and the frequency of extreme weather events. Apparently the latest storms are partly the result of greenhouse gases emitted in the 1990s, though the scientist agreed there have always been “extreme events” or bad weather. His concern is that extra past greenhouse gas means in 20 years time more frequent storms. He did not forecast future temperatures.

          Nor have we heard much about the continuing struggles of the scientists and journalists on the MV Akademik Schokalskiy, transferred to  a Chinese ice breaker. It has just been mid summer in the Antarctic. The party apparently  expected to find evidence of retreating sea ice as global warming takes hold of a once inhospitable and icy cold south. Instead they ran into record levels of ice, and the ice packed hard around their ship and then around the ice  breaker. It sounds as if the midsummer Antarctic is having a bad dose of weather as well.

           More interesting is the news that the EU is turning  against the green policies that are meant to provide the antidote to too much global warming. We read of a Competition investigation into German windpower, examining it to see if the subsidies are excessive and if  the exemptions for German industry unacceptable. This follows hard on the heels of the announced investigation into the proposed contract to buy forward electricity from a  new nuclear plant planned for the UK. Does this mean the EU itself is now no longer so concerned about greenhouse gases?

               The EU looks as if it is getting itself into the position where it places member states in an impossible situation. They are not allowed to continue with much coal or oil based generation of power under one set of rules, but are then challenged for seeking subsidised energy from dearer renewable sources in an effort to comply with environmental legislation. The UK too is going to have to look at the high subsidy levels paid for renewables.

          Energy is fast becoming the big issue which will cause electors to query their EU government, as well as condemning the actions of energy companies. The last Labour government welcomed the EU policies and put us under them. The Coalition has carried on with the EU requirements.

               Surely the message of the bad gales of the last few days is that we need to adapt  more, so that more homes and businesses are protected from tidal surges and from the bursting of  river banks.  Whatever the cause, all agree we have just had some bad weather and may well have more bad weather in the future. Where too many homes have been built on floodplain we need better drainage. Where the coast is subject to sea attack we need better defences. Where rivers can struggle from too much water we need better management  of where the excess water is run off or parked, away from homes and businesses.

            In UK politics you get used to being interviewed most of the time from the left. Those of us who believe that free enterprise can offer us more jobs, prosperity, choice, the chance of financial security through savings and pensions, are constantly made to answer questions about why we do not support higher taxes, higher public spending and more regulation of the private sector. The questions are often dressed up as wanting us to take more from the rich, but in practice the schemes require taking more from the prudent and those in the middle of the income bands as well as those at the top. They can also cumulatively act to limit entrepreneurship and divert jobs abroad.  There is an undercurrent in some  public debate that if you do not support a bigger role for the state, whatever the current size of the state might be, you are not a caring or understanding person.

             In practice most of us on the Conservative side of the argument want to live in a society where there is decent state provision for those who are unable to work to support themselves, or who are going through a bad patch in their lives and need help. The issue between the Conservatives and the two main left of centre parties is not over whether to have a welfare state or a health service free at the point of use. It is over the extent, the best way of getting value for the money spent,  the eligibility, and the best way to help more people to support themselves.

            On this site one of the refreshing things is that much of the criticism of me comes from the other side of the argument.  It is refreshing if it is fairly put and not labouring points that have already been answered long since. So today let me explore what limits I think the UK wants and expects to be placed  on a free enterprise society. I do so as an MP who has a duty to represent all my constituents and to understand where a large majority  wish to see  limits imposed on markets and freedom.

            The first constraint on free enterprise and freedom which we all agree is the rule of law. I think all accept that individuals and businesses have to work within a framework of law, that condemns theft, violence, fraud and other malpractice.  You cannot have a flourishing free society paradoxically without a system of criminal law,  and without enforcement and punishment for the minority who want to undermine a free society  by misbehaviour.

           The second demand on free enterprise is to pay some tax to provide for common services which individuals and companies would not supply for themselves – like police and defence – and to pay for welfare for those in need. I accept the UK choice and tradition that health care is supplied free at the point of use and have always spoken and voted for it. I want the country to be generous to the disabled and those in real need.

              The third constraint on free enterprise which some criticise me for supporting is to have border controls to limit the numbers entitled to come and live and work here. My main reason for this view is the existence of a decent welfare and benefits system. If we have an open door policy towards countries that have much lower incomes than the UK average we run the risk of imposing too much strain on our public finances and welfare system.  In a welfare state with reasonable benefit levels it is also important  to maximise the number of locally created  jobs that go to established residents here, to keep the welfare bills under control. In summary, I do not think you can run an open borders free labour market with the rest of the world if you wish to run a welfare and income top  up policy that is generous by world standards at the same time.

             A difficult fourth constraint is the range of measures government does need to take to prevent private interests  doing damage to the wider public interest. Like my socialist critics I of course recognise that some businesses can profit at the expense of their neighbourhood or customers. Much of the potential damage can be taken care of by a strong competition policy, giving customers more choice to avoid companies that behave badly. But it may  also require planning, environmental, health and safety and other  legislation as well to tell business what is expected and to offer some sense of security to the public.

            Again the debate here between Conservatives and socialists is not an all or nothing debate. It is a debate over how many bad things do need specific regulation or law, and whether individual regulations are effective. It is often a debate over both the total volume of these instructions, and the way some regulation can achieve the opposite of what was intended. More box ticking and form filling does not prevent financial crashes, as Labour found out to our cost.