Author: johnredwood

 

           Tony Blair did a deal with the better off to win and stay in power. He agreed to keep Conservative rates of Income and capital taxation. In return more  rich people came here, stayed here,  set up businesses here and paid much more tax here. He was able to win enough votes to form a government three times, and to expand public spending substantially before the excess and the crash.

           In opposition it is tempting for Labour to say they will spend more of our money by taxing the rich more. They need to remember that the best way to get more money out of the rich for public services is to keep the rates down, not to frighten off the mobile rich by putting them up.

            Politicians generally have adopted an anti rich stance, appealing to jealousy and hoping that offers a way to easy spending money for the state. Before embarking on a condemn the rich attack, it would be wise to ask who are the rich? Are they universally bad?

               The Lib Dems laughingly said someone is rich if they earn more than £50,000 a year. That makes the Headteacher and some Deputy Heads rich. It makes many senior local government officers rich. It means all GPs, judges and senior quango executives are rich. It means many middle and all senior managers in business are rich. Even Labour think that is a strange definition of rich. In my constituency a £50,000 combined income in a household is common and necessary to pay the costs of  much of the  housing.

              Adjectives applied to the rich are often unkind. Popular amongst them are “idle” and “filthy”. So who are the true rich?

              Someone worth £1m is automatically thought  rich by some. If it is a pensioner living in a one bedroom flat worth £1 million  in central London living on a modest pension  they do not   have a rich lifestyle. To release their riches they would need to sell up and go and live in a much cheaper part of the country, when they would have some capital to live off as well as the pensions. Maybe we should  regard someone as rich if they had £1million of savings as well as a home of their own.

                    For a good definition of rich is someone who of working age does not have to work because they have enough income and capital to live without needing a salary. If you have sensible requirements for your lifestyle you could be rich in this sense with say £1.5m of capital –  a £500,000 house outside London and a savings income based on your £1m of savings that could pay the bills.  Then this person could indeed be the “idle rich”. In  practice most of  the people I have met who have substantial capital are far from idle, and are often entrepreneurial, seeking to create new businesses with the money they have made. Others would say that to qualify as rich you would need a much higher income than these capital figures imply.

                  The “filthy” rich is an unpleasant jibe. It is clearly not strictly accurate, as the rich have plenty of money and time for baths, showers, and perfumes. It presumably means they came by their money in questionable ways. Many high earners in the financial services have been mauled by politicians collectively  with the implication that what they do is not needed and their fees and charges are too high. Some are hauled over the regulatory coals for bad practice.

                 Not all very highly rewarded people are attacked in this way. Most seem relaxed about footballers being paid very large sums if they are good. People tend to like entrepreneurs like Mr Branson, accepting he  deserves rewards for his work and risk taking.

                 Labour would be wise not to bash the rich. Mr Blair was wrong about many policy matters, especially wars, but he was right about this. Labour has to get on with the rich to govern. Conservatives have to  look after the poor and should want to do so  to govern. That’s the deal.

               There is one thing worse than having lots of rich in London. That would be not having them. They pay lots of tax and help swell demand.  There is nothing wrong with aspiration. Aspiration becomes less of an incentive if anyone succeeding is regarded as unpleasantly rich, an object of criticism and for higher taxation.

 

            As I assumed, UKIP have said they are going to fight all the seats at the General Election. That means there is no deal to be done between the Conservatives and UKIP. They have no MPs to help us in the current Commons, and they want all Conservative MPs  thrown out of Parliament. That includes those  who have sustained the battle against federal Treaties, in favour of a referendum and in favour of EU exit.

           What is more surprising is Mr Farage, generally thought to be their best candidate, still will not confirm he is fighting the next General Election himself, and will not tell us where he would want to be a candidate if he does. The three main parties with MPs in the Commons all think that you need to choose candidates early to have the best chance of success, particularly if you are the challenger starting well behind in the polls.

            I myself was selected with two years to run to the next General Election. Those two years were invaluable to be able to get know the constituency, its people and problems, to move in and become part of the community. As a candidate you have no late nights at Westminster to worry about and more free time to get out and about. Where Conservative or Labour have won marginals, it normally follows a long period of hard work in the constituency by the candidate.

                 With UKIP on 10% in the polls the question of electing MPs is academic. If the vote remains that low and is widely spread there will be no UKIP MPs in 2015, any more than there were in 2010. The UKIP strategy is to hope that the European election acts as a springboard for them. These are not my predictions, but come from the UKIP website itself. They host a long article on the polling – though they say beneath it is not endorsed by UKIP! Nonetheless the article is clearly written by a UKIP supporter and given pride of place on the official website of the party.

          The article says that at 16% of the vote – the highwater mark of polls before the recent decline in support – UKIP does most damage to the Conservatives. From 16-25% UKIP damages Labour more.  The site says “UKIP only wins 2 seats at 25% of the vote”, the level it has reached in a recent  by election. The site goes on to say “Is it too outlandish to think that UKIP could hold the balance of power? Probably….” So UKIP themselves do not think they can win very much, or indeed anything at all at Westminster.

          Certainly last time they polled much better in the European elections, and did secure 13 MEPs, coming second to the Conservatives with 16.5% of the vote.  However, their vote subsided by 2010 in the General Election to 3%. The present scarce polls on the European elections show again that they may poll better in those than their general poll rating, which stays well below the level to win a seat. So for the strategy of take off to work, there needs to be some new factor in 2014-15  that did not apply in 2009-10.

           Maybe that explains why the Leader will not commit himself to a Westminster seat. Maybe he  does not think he can find one where he can win. Meanwhile, of the 13 MEPs who were elected for UKIP in 2009, only 9 are still UKIP MEPs. Four have left to join other parties or have left for other reasons. It’s a high attrition rate, implying problems within the high command. It would be interesting to hear from UKIP supporters why their MEPs have found it so difficult to stick with them, and what they think of UKIP’s polling analysis. What also do they think of the “We demand a referendum party”, with support from former UKIP people? What did they think of yesterday’s conference, condemned by Mr Farage as a failure?

 

 Listening to the Scottish debate this week, one year before they finally have their referendum on whether to leave the UK, you do have to ask if Mr Salmond is serious about wanting an independent country.

        He first of all seems keen to stick with the pound. That means a newly independent Scotland would rely on the Bank of England to decide its interest rates and amount of money in circulation. Scotland would have no say over  that foreign central Bank.

      Then he wants to stick with the Queen. So newly independent Scotland would still share a Head of State with the rest of the UK. Presumably the Queen’s head would still be on Scottish postage stamps, just as it would remain on the banknotes.

       He wants Scotland to remain in or to join the EU. Scotland as a new country would have to join on terms likely to ensure Scotland’s full compliance with all the laws and rules currently negotiated.  Scotland might even have to join the Euro, as she would not necessarily inherit Mr Major’s opt out for the UK.  Much of the government of Scotland would then fall under EU rules and laws, where a small country like Scotland would have even less say than the UK manages at present, which is all too little.

                It’s a funny kind of independence when you find so much is controlled from abroad. Maybe Mr Salmond has only ever really wanted devo max. Maybe he is grasping that so far a majority of Scots do not wish to be truly independent.

               There are three letters that probably have influenced a lot of Scots to want to keep the union with the rest of the UK – RBS. Just imagine the cost to each Scottish taxpayer if RBS had fallen to be rescued financially by the Scottish state rather than by the whole UK. And imagine what Scotland’s revenues will look like in a few years time when North Oil has run down further.

 

Mr Clegg’s “appeal” is based on the pursuit of power for its own sake. He tells us he can form a coalition after 2015 with either Mr Cameron or Mr Miliband.  That shows how elastic his principles have become.Indeed, he argues that any coalition with Lib dems would be better than any other possible government.

It means, for example,  that he could either support a government renegotiating our relationship with the EU and then undertaking a crucial referendum on that topic, or a government which thinks the current big range of powers held by the EU is just fine, with no need for a referendum.

It means he could either support a government which intends to complete the job of removing the budget deficit by squeezing the growth rate in public spending, or support a government which thinks the UK should spend and borrow more.

It means he could either support a government which thinks current rates of tax on the so called rich are high enough, or join one which wishes to raise wealth taxes, impose a Mansion Tax and raid pension funds further.

It means his party can either support a party which wants cheaper energy and wishes to back shale gas exploitation, or supports a party which signed up to the entire EU dearer energy agenda and wanted to increase fuel duties considerably more than this government has allowed.

It was useful to find out this week  that the Lib Dems think anyone earning more than £50,000 a year is well off and should pay more tax. Surely income levels need to be related to the cost of living and the cost of housing in different areas.

I trust the Conservative Manifesto will not only wish to go further in easing the tax burden on all on lower incomes as part of the continuing reforms to make work pay, but will also wish to ease the tax squeeze on the middle. The 40% tax rate starts at too low an income so  the threshold  needs to be amended.

 

Yesterday I heard the story of the Monetary Policy Committee at a meeting where we were told we should not quote the source. I am pleased to say it was just the same as the story you can read on their website or hear in the public media. I will draw on the public materials.

Thinking again about  it all, I was struck forcefully   by the question what is the point of it? What can the MPC do that the Chancellor and Governor cannot do, as they used to without an MPC?  Interest rates have stayed at 0.5% for more than 5 years. Quantitative easing is now in the past, and anyway needs Chancellor’s  approval. The Committee has leant over backwards to say they are most unlikely to raise interest rates for the next two years. Nine people solemnly read and think a lot, discuss at some length, and conclude each month to keep rates on hold.

Inflation has averaged around 3.5% compared to the 2% target. The MPC tells us inflation was higher because the devaluation of sterling had a big impact on import costs, because oil and energy prices rose, and because  commodity prices generally did go up a lot in the period, though have since come down. The MPC would only be concerned about higher inflation if it came from “domestic pressures” like wages, where increases  have stayed low.

The MPC recognsies predicting international commodity and oil prices is very difficult. They just use market futures prices, which of course shift around a lot. They have produced a series of forecasts of the UK economic future over the years of their existence that have not excelled compared to the forecasts of many private sector commentators. They duplicate the work of the Office of Budget Responsibility, who also use public money to produce forecasts, often similar to the Bank’s.

During the crisis the old MPC did badly. It kept rates too low for too long to help the boom. It then kept them too high for too long to ensure the bust, as I complained at the time. Now it has created a lot of new money to make up for the weak banks it helped weaken. It has not hit its inflation target for a long time.

I wish today’s MPC well. It seems more balanced than the MPC that cheered the boom on, or the MPC which gloomily assisted in the crash. Maybe we want it to do nothing elegantly for a bit. These are early days for the recovery. Monetary activism in the form of printing  more money could trigger more inflation which we don’t want. A rush to push up interest rates could throttle the recovery.

The markets have their own way of doing these things. They are putting up market interest rates anyay. The MPC does not seem to have a plan to make the markets do what the MPC wants.

So do we need both Bank and OBR economic forecasts?   How much more value does an MPC of nine expensive people provide rather than one of say 5? As most agree we need the good bits of the public sector to do more with less, and other bits of the public sector to do less with less, could we find a few savings here as MPC members reach the end of their terms?

 

You know there is a recovery underway when the critics of the economic strategy change their tune from saying “austerity cannot work” and “there will not be a recovery in growth or jobs” . Instead the critics now argue the government is complacent for daring to say a recovery has started, complain that living standards are not yet rising after a long period beginning with Labour’s Great Recession when they have been falling, and suggest at the same time there is a housing asset bubble.

So what is happening?  There is a decent recovery led by new private sector jobs. There are 1.4 million  extra jobs in the private sector since 2010. Unemployment has fallen, though by much less than the number of new jobs owing to continued net inward migration, which has itself come down. Output is now expanding, probably at the fastest rate of the major economies. The government has been careful in how it has described this, and is far from complacent about the state of the UK economy. They stress the need to do more to raise living standards, to curb the debt and spread the growth more widely.

The best news for living standards recently has been the rise of the pound against the dollar and some other leading currencies. As we import so much, a stronger pound cuts import costs and helps control inflation. The recent rises still leaves the pound much more competitive for our exports than prior to the Great Recession and credit crunch. The move to a negotiated settlement in Syria rather than a military escalation has also helped by lowering the oil price. More needs to be done to make energy cheaper, to control public sector costs and charges, to lower  tax on working families and to stimulate more competition and cheaper prices in other areas.

The government’s freezing of Council Tax, raising of Tax Threasholds for Income Tax, removing  Labour’s planned Fuel Duty increases and creating a climate for more jobs are all helping with living standards. Higher VAT and the continuation of the  Miliband/EU dear energy policies have been less helpful.

It is difficult to accept the claim that we already have a housing bubble in the UK. The housing market in many parts of the country  still shows prices well below the 2007 peak. Transaction volume has been much lower than during the 2005-7 bubble.

It is true the Uk has a new good export business, building very expensive luxury flats in a few parts of central London and selling them to foreigners. This does not signify that the rest of the country or the UK mortgage financed market is in the same state of rapid turnover and rising prices – far from it in most cases. Higher house prices from modest rises elsewhere will stimulate more turnover and activity, make it more worthwhile for developers and builders to build some new homes, and create more jobs and better incomes for a wide variety of people in housing related activity. The market generally is far from overheated and does not yet need a dose of cold water all over it.

 

          A contributor accused me of unfairness in my attempted independent analysis of what contributions the Lib Dems have made to coalition. I have reviewed it in the light of the news and views coming from their conference.

          Mr Davey obligingly reinforced my view of the main difference – the Lib Dems want more windfarms and dearer “green” energy, the Conservatives want cheaper energy with more gas. Mr Davey went out of his way to criticise Conservatives in general and Mr Paterson in particular for being anti wind farm.

         The Conference voted in favour of the tuition fees policy Dr Cable created in government, confirming my view that Lib Dems have radically changed their position on this issue after campaigning in 2010 against tuition fees.

         Today the conference is likely to back the Coalition budget strategy and general economic policy, despite noises off from Dr Cable, Lord Oakeshott and a few of his friends. There has been no great split with Conservatives on the so called “austerity” policy, of reducing the growth rate in public spending.

       The Lib Dems duly announced their Bag tax, with some Conservatives worried that it will be dubbed a tax on shopping.

               The one pleasant  surprise was to hear this morning that Lib Dems are considering adopting an EU referendum as policy again, as they did prior to 2010. It was a pity they dropped this policy once in government.

 

           Last week the media criticised MPs for spending more in 2012-13 than in 2008-9 on running their offices and on their general expenses. After all, the critics pointed out, IPSA the independent body brought in to curb excesses this Parliament had changed the rules over what can be claimed, and cut the items and amounts in many cases.

         Despite this total MP claims have risen from £95.4m in 2008-9 to £98.1m in 2012. That means the average is now £150,000 per MP. So why so much and why has it gone up?

          The main item in the spending is staff. Most people working as executives do not have the  salaries of staff reporting to them recorded as part of “their” expenses and remuneration.  Some MPs employ staff to do research, to write speeches, to talk to the media, as well as employing staff to help with casework, office organisation and organising the diary.MPs themselves of course run the surgeries, supervise the casework, undertake the constituency visits and consultations,  do all the work in the Commons, and undertake the political activities which Parliamentary staff must not handle.   Staff wages and salaries have gone up since 2008-9, though more recently there have been tight controls on pay increases as for the rest of the public sector.

           The other big item is living accommodation in central London for the majority of MPs who cannot get back to their constituency homes, given the working hours through to 10.20pm on Mondays and 7.20pm  on Tuesdays and Wednesdays, and the need to be back by 9am the following morning. IPSA decided to disallow mortgage interest on a flat an MP had bought, but IPSA does pay rent bills. Many MPs have switched to renting, and all new MPs have to rent, so there has been a big increase in rental costs and an overall increase in cost as this is a dearer way of providing housing.

           As some of you strongly think MPs claim too much, I am inviting you to contribute.  How many staff you think would be appropriate, and for what tasks? Do you think IPSA have got the housing right? 

          I am also interested in your thoughts on employing a relative. This has  attracted considerable attention, with some saying relatives work longer  hours and will work outside normal office hours, whilst others think it is more difficult to ensure  a relative does provide value for money.

 

(PS I will not publish  personal assaults on individual MPs, as I cannot check it all out. I do not myself employ a relative, and last year claimed £65,807 for my office and other costs so you do not need to ask. ).

 

          We have learnt today what the Liberal Democrats want for their party conference. They want a plastic bag tax. We hear that the Coalition government may be about to grant them their wishes. The Lib Dems will be at home proposing a new tax with “green” associations. It’s not something Conservatives have been asking for at  their party conference.

          In government the Liberal Democrats have made a distinctive contribution in  two crucial departments of state where they have the principal Minister. At Energy they have driven forward the dear energy policies of the green movement, keenly advancing windfarms against reluctant Conservatives. They have stayed true to their anti global warming instincts, presiding over closures of cheaper carbon based energy generation and substituting dearer intermittent systems.

            At Business surprisingly their man designed and pushed through a scheme for higher student charges and loans. In the 2010 election Conservatives said they would keep Labour’s student loan scheme, and would consider higher charges. Lib Dems campaigned stridently in favour of abolishing student loans, and condemned any suggestion of increases. Dr Cable’s scheme and the Lib Dem 3 line whip to support it came as a surprise.

           The Lib Dems main claim for themselves is that they have pushed through the big increase in Income Tax thresholds, taking more lower paid people out of Income Tax altogether. It is true they backed this scheme at the election and in government, but also true that Conservatives have been equally enthusiastic about this policy, pushed through by a Conservative Chancellor with the keen support of both parties. Had there been a  majority Conservative government there would also have been Income Tax cuts for the lower paid.

                  Both parties have signed up to cutting the deficit and both agree that it should be made more worthwhile working. The best welfare policy for the many of working age  is a job.

                 Conservatives helped the Lib Dems secure a referendum on the Alternative vote, which has settled that issue.

                  Lib Dems do not want to help cut the costs of politics by reducing the number of MPs, and no longer want to vote for a referendum on our EU membership, though they advocated one in opposition. They have succeeded in stopping the Coalition government doing either, even when the referendum is delayed until 2016/17. Conservative MPs  have blocked the Lib Dem’s scheme for Lords reform, which did not establish sufficient support in the Lords either.

                 Conservatives have felt constrained by the Lib Dems most importantly over the matter of the EU. Most Conservatives want to get on with negotiating a new relationship with the EU now, and want to stop and curb the powers of Brussels in many areas. The Lib Dems in government as out of it have remained true to their belief that EU membership is good for us, and more EU government would be welcome.

                   Come the European election and the General Election there will be plenty for Conservatives and Lib Dems to disagree about, so the public can have a choice on big issues like the EU, the constitution and energy policy.