Author: johnredwood

This year’s Autumn Statement will come just before the end of the year, on a wintry December 5th. It should show us that this time the economy is performing better than the official forecasts. Tax revenue will be higher, the deficit lower, and output higher than the OBR thought in the spring. This gives the Chancellor room to accelerate the deficit reduction strategy, with or without tax cuts at the same time.

He could make his job easier still in cutting both the deficit and taxes by taking more action to curb the growth of spending. Cancelling or delaying HS2 for a few years could save £16bn over the next Parliament, and a bit in preparatory costs in this. Cutting the growth out of the Overseas Aid budget would be popular, whilst still leaving plenty for emergencies like Syria and the Philippines tsunami. Tightening the rules on eligibility to benefits for recently arrived migrants could also make a contribution. Helping more people to own a home couild cut the budget for subsidised rental housing.

The economy does need tax cuts. Individuals and families need tax cuts so they have more spending power. I assume there will be a further increase in the Income Tax threshold, as that seems to be the only tax cut that Lib Dems will readily accept. It is also time the Chancellor looked again at the threshold for 40% tax, which cuts in too soon on the income scale.

We also need cuts in capital taxes to stimulate more activity. Capital Gains Tax at 20% would raise more revenue for the next couple of years than keeping it at 28%. Changing Stamp Duty so the higher rates only apply to that part of the purchase price over the threshold would cost some revenue, but would stimulate home buying and ownership which in turn will stimulate housebuilding.

Small business is still feeling squeezed. Some relief on business rates would be a welcome way of helping them.

In 2013-14 the government plans to increase UK total public spending by 7% or £47bn. (Red Book 2013 Total Managed Expenditure). If you adjust for changes to the Post office Pension fund, the increase is still £19bn. Both current and capital spending is now rising, after the Labour cuts to capital spending earlier this decade which the Coalition largely implemented. Current spending has been rising in real terms under the current government, though at a slower pace than in the previous decade.

The continued buoyancy of public spending explains why the deficit remains persistently high, with planmned extra borrowing this year at £10 bn a month. The news that the economy is now growing faster than forecast means there should be welcome news of lower borrowing this year as tax receipts increase.

The UK in 2007 before the crash was already a high borrowing country. The cyclically adjusted deficit was 5% that year, compared to the US at 3%, Germany at 1% and Canada making debt repayments. The great recession of 2008-9 made the financial position much worse. The present government now expects it to take until near the end of the next Parliament to stop the additional borrowing.

As the last Red Book showed, the UK economy has been one of the better performers since the crash, with gross value added recovering faster than Euroland and considerably faster than countries like Italy and Spain. The USA has performed better, thanks to cheaper energy, faster deficit reduction through spending cuts and a stronger banking system to finance a private sector led recovery.The UK’s figures will look better still in the next statement, given the srong upturn in growth.

Tomorrow I will look at the action I would like to see to curb spending and cut taxes.

At the start of the Spectator debate this evening 89 were in favour of fracking, 37 were against and 44 had no view.
By the end of the debate 112 were in favour, 38 against and 15 abstained.
There was an air of realism in the hall about how the Uk can earn its living in future, and the requirement for more domestic energy supplies to meet our power needs.

From the early days of the Labour party and the Union movement its leaders faced a conflict. They said they wanted greater equality, but their Union supporters wanted higher pay for higher skills. Those who wanted to create, extend and defend differentials, higher pay for more skilled working, won the battle of ideas.

The Union movement became a means to defend craft and skill levels and to ensure that they gained extra pay for them. At times these were good, ensuring skill and quality in the work. At times this acted as a restraint on innovation and competition, preventing others from offering their labour without the qualification or Union membership to back their search for work.

Today the Labour movement lives with its contradictions. Labour does not wish to see the professional restrictions on legal or medical work pulled down, accepting the need for long training and up to date skills. In turn they accept the case for much higher pay for people who have these qualifications. They accept the need for higher pay for shop floor and senior management, and pay their own Union bosses well above the average of the workers they represent.

It is true the Labour and Union movement wishes to move lower pay up – as do many of us who are not part of their political movement. It is also true that in office, like any other government, Labour accepts they have to do this at an affordable pace for taxpayers. As lower pay moves up, they are also normally keen to increase higher pay as well, as the doctrine of the differential is engrained in their thinking.

It is wrong of Labour to claim they are the party of equality. They are more truly the party of differentials, the very opposite approach. They usually support more and more regulation of jobs, requiring more training and qualifications. This in turn restricts the supply of labour to these chosen occupations, and forces the differentials up compared to people in low skill jobs.

During Labour’s long recent period in government income inequalities in the UK went up. Now they are back in opposition most Labour MPs say that crusading for equality is one of their main motives for being in politics. Why would it be any different next time they are in government, than last time? Why should we believe them that they now both know how to increase equality and will do it?

They could start by saying the Labour MPs will no longer take three times the national average wage as salary for being MPs but would be happy with average wages. They could go on and say that in future their party will put a three line whip on them to turn up every day Parliament is in session, so they have to be more like a factory or office worker who has to come to work every day the office or factory is open. At the moment there are many days when Parliament is in session when Labour does not whip their MPs to turn up and some do not turn up.

They could move on to saying that a future Labour government would show in the way it ran the public sector how income inequalities could be reduced or eliminated. It could promise not to appoint new management, Directors and other senior personnel on salaries offering a many times multiple of the average wage. Indeed, if they really believed in equality they should say that being a manager or Director of a public service is a privilege which people would want to do, whilst still earning the same as the average of those doing the work in the organisation concerned.

They could say that to create a more equal country they need to stop richer parents being able to buy a better education for their children. They could promise to prevent UK children attending the excellent independent schools, leaving them to be export only, inviting in fee paying foreign students.

They could say that inherited wealth is one of the main causes of inequality in modern Britain. Instead of increasing the threshold before paying IHT, and leaving the rate where it is, they could promise to cut the IHT threshold and put up the rate.

They could abolish the state lottery, on the grounds that people should not become very rich overnight for no effort because they have bought a lucky ticket.

In practice Labour will offer to do none of these things, and will do none of them should they return to office. I am certainly not advocating any of these policies myself, but I do not go round promising to do what it would take to enforce greater equality on a complex society. I believe in greater equality of opportunity, and helping people to become better off, not in trying to tax people out of the UK. Tomorrow I will look at why Labour rightly does not even believe in income equality at work.

Shortly we will see the Coalition offer on our energy bills. Current briefing suggests we can look forward to a £50 cut in the bill from the Coalition. This outbids the promise of a freeze from Labour should they win the 2015 election. Their promise does not explain how they would stop big rises before and after the freeze.

The Coalition is unlikely to offer the full £100 plus of green costs off the bills. The Lib Dems have been fighting hard to keep the bills up, as they like the green costs and charges and wish to make lower carbon emissions one of the main aims of energy policy. A compromise will be brokered as a result.

Based on this exchange, I would rather have the Coalition offer, and will vote for it accordingly. Around £50 off is progress. Slowing down, revising or making cheaper some of the green programmes will help at the margin to control the power bill.

All this is, however, modest progress compared to the largest part of our electricity costs. The truth is these are firmly driven by EU policies which Mr Miliband signed up to when in office. A £50 cut in costs will be eroded over the years ahead as the full costs of many more windfarms, and the impact of the plant closures of the cheaper power stations comes to be felt in full.

The only way in the future to get lower energy bills is to generate electricity in cheaper ways. The USA has cheaper energy than us because it is embracing the shale gas revolution. For those who are preoccupied by carbon dioxide outflows, the US policy is even cutting their CO2 output at the same time, as gas displaces other fossil fuels.

Our renegotiation of our relationship with the EU has to include as a central plank the need to control our own energy policy again, so we can pursue cheaper energy. Dear EU energy is one of several unpopular issues which will persuade more people to vote to leave the EU when we finally get a vote.

The European Scrutiny Committee of the Commons, a cross party body, has just produced an excellent report. They recommend that the government restores the veto over all current and future EU laws.

The Chairman, Bill Cash, has long held this view and has worked out the legal niceties. So have I long believed we need to restore the veto on everything. What Parliament would do under this scheme is amend the European Communities Act 1972 which is the source of all EU power in the UK, disapplying EU powers or laws where Parliament does not agree with them. The form of the legislation would provide UK courts with every reason to obey UK law, and not to appeal it to the ECJ.

I recommend the Committee’s report to the government.