Author: johnredwood

 

The debates over this year’s Finance Bill have been predictable and repititious. The Labour opposition has been keen to find new ways of taxing people. Their biggest hope was to move an amendment to bring in a Mansion Tax, trying to tempt the Liberal Democrat backbenchers into voting for what was Liberal Democrat policy. They still want to tax banks more, and wish to add further anti avoidance measures to the Coalition’s tally.

The results were poor, with most Liberal Democrats staying away from the debate, and all Liberal Democrat Ministers happy to support the government line. Even if Labour had been more persuasive and found a few more backbench Lib Dem rebels they would have been well short of victory. The arithmetic of the House is simple. Labour and Lib Dem backbenchers can never win a vote. Labour and enough Conservative rebels can win  and have won a vote.

The Treasury did produce some numbers to give us an insight into a Mansion Tax. Labour wish to raise £2bn from it, and wish to confine it to properties over £2m. That would mean an average tax of £36,000 each year per property, though Labour stressed they wanted to have a higher rate on dearer ones and a lower rate on the ones near the £2m threshold.

There still seem to be a good many MPs who think the UK’s problem is too little tax rather than too much spending. Though all three parties now give voice to the idea that the deficit has to be brought down and the rate of increase in cash public spending cut, underneath lies an urge to tax more. Parliament devotes too little time to exploring how parts of the public service could do more for less, or thinking about which parts of public spending are less desirable or necessary. The PAC is busy running campaigns over companies and institutions which pay too little tax in their view, rather than highlighting waste, fraud and over the top spending.

MPs often quote the figure that the Coalition has made 80% of the adjustment to the deficit by cuts in spending and only 20% by tax rises. Yet the cash figures show a very different picture. The Coalition so far has relied entirely on higher tax revenues to cut the deficit, as cash and real terms current spending is up, and they increased the capital spending figures a little from the deep cuts Labour announced whilst still in office.

The new Governor comes with a great deal of goodwill and cross party support. All want him to succeed. Success means using monetary and banking policy to promote faster and sustainable growth. Dangers include allowing a new asset bubble or two to overheat, and failing to do enough to spur the UK economy in the right direction. The latter is probably the bigger worry for more people.

The new Governor also has at his  disposal a wide range of powers he can use  and measures he can pursue. He is both the regulator of the commercial banks,and the fixer of the main short term interest rate. He can both advise on whether to buy in more government bonds and other instruments, and influence the balance sheets of all the main commercial banks in the system. He is  both Chief Regulator and a major player in the financial markets.

The central anomaly in recent policy has been the divergence between the wish of the banking regulators, who want bank balance sheets to carry on contracting so banks have much more capital relative to their loans outstanding, and the  Monetary policy Committee, who have wanted to increase the amount of money in circulation, which should mean expanding commercial bank balance sheets. Some Regulators now say they want banks to lend more whilst raising their capital ratios, or keeping a b igger reserve. In practice their requests to do this have  not been implemented in the main, as banks have struggled to be profitable enough to justify more business, and do not think they can raise large amounts of new capital from the markets. RBS has reduced its balance sheet by £900 billion to try to improve its capital ratios. The government would not have been keen to put huge new sums into its share capital instead.

Most money today is not held as bank notes or gold coins, but held as deposits in commercial banks. It is deposit account and current account  money that makes up most of the money supply and is what most of us and companies  rely on to pay our bills and make any investments   business can afford.  If the authorities now want a faster expansion, they need to accept that more money will be held in bank accounts. The balance sheets of commercial banks will therefore exapnd, as your or my bank balance is the commercial banks’ liability.

They need to put our money to work. They need to lend a sensible amount of it on to make a profit. We will have stronger banks if they make a bit more money and keep some of the retained profit to strengthen their position and finance more loans. Demanding more capital and demanding more lending can be like trying to drive with your foot hard down on both the accelerator and the brake. The brake tends to win. How to have both stronger banks and finance a decent recovery remains the central policy conundrum. Sorting out RBS is central to resolving this issue. Moving on from treating the banks as the whipping boy for all the ills of society may also be necessary if we are to make faster progress.

 

Dear Jeremy,

           I was pleased to read in the Sunday press that you are working on the issue of access to free health services in the UK by visitors. I have raised this matter as have  other MPs for some time, and think we need to ensure we are running a National Health Service, not a World Health Service.

          The rule we want and thought we had is simple. Any UK citizen is entitled to free provision of  both GP and hospital services. Any foreign visitor should have to pay, by holding insurance or having sufficient money to pay for treatments needed. Anyone involved in an accident or needing emergency treatment would of course be looked after without first querying their ability to pay, but for all non urgent treatments patients from 0verseas will be asked to provide insurance or a credit card or other means of payment before any consultation or  treatment is offered.

         British citizens do not wish to be asked each time they go to a GP or hospital to show their ID or other credentials. The hospitals and doctors wish to devote their time to offering medical advice and treatment, not to policing a fee system. The best way to do so this is to ensure our current NHS system works as intended.

          Everyone going to see a hospital consultant or seeking non emergency treatment in a hospital should be referred by his or her GP. Anyone seeking GP help should go to the practice where they are registered. Thus the policing of payment should be ensured through checking that anyone wanting to see a GP first has to register with a GP  practice. When you register with a GP you should show your birth certificate or passport or some other document which establishes your entitlement to free treatment. Otherwise if you are not a UK citizen you set up the payment system when you first register.

          People attending accident and emergency, when able to answer sensible enquiries about their status, should have to tell the hospital the name and address of their registered GP. Those who are not UK citizens should be asked for payment in most cases, and visitors to the UK should be advised to hold health insurance. EU visitors would need their EU health  card.  The UK should not deny life saving emergency treatment for lack of the means to pay or lack of clarity over future  payment.

          People coming from the rest of the EU have use of the health card system. GP practices and hospitals must insist on proper recording of all EU  card cases – who should not be able to register with a GP without establishing their health  Card status, so the UK can receive the money back it is owed.

 

Yours sincerely

 

John Redwood

My views on Mr Carney’s first day in the office are in this morning’s Times.

Advocates of being involved in Syria are out and about talking to Conservative MPs. They want us to agree that it is in the UK’s national interest to be involved in the future of Syria, though they accept for the time being that arming some of the rebels may not be the right policy. The government assures us it is not about to arm the rebels.

To me it is not in the UK’s national interest to contemplate intervention in Syria for a variety of reasons. The UN does not have an agreed view about the desirability of intervention, and the Security Council is split over whether the regime or the rebels should win. It is not therefore important to the UK’s role in the UN for us to take action. There is no UN mandate to enforce.

It is true, as some point out, that other regional powers are getting involed with Syria. Iran, Saudi Arabia, Qatar and others are said to be “helping” various forces within Syria. Clearly Iran, Israel and other regional powers have a close interest in who governs Syria and what their foreign policy might be. To Muslims, the dispute between Sunni and Shia is an important matter, but not one which concerns a western secular state or state with an established Chistian Church.

It is also true that if Syria is in the wrong hands (and people differ on who that includes) there can be continuing violence from the state.If the regime changed the new one could change the regional balance for the better or for the worse.

However, the more I hear of the complexities and troubles, the more it seems to me the UK does not have the force or the moral and political authority to be able to make a decisive intervention for the better. I also remain to be persuaded that it is in the UK’s national interest to be involved. We do not like the current Syrian regime. We might like a replacement even less, or one may take over that is better. I do not see that we are threatened or in danger from any Syrian regime, if we keep out of the conflict.

 

The latest gloomy review tells us that there is now too little spare capacity in our electricity generating system. The Energy Secretary tells businesses to prepare for reductions in supply, and suggests a system of offering them payments to avoid using electricity at times of stress in the system. This is not rationing, we are told. More accurately it is the acceptable face of rationing as it not compulsory and offers compensation for the inconvenience of too little supply.

The problem with this approach is it is still damaging to the UK economy and to consumers. We, the consumers, will have to pay for the payments to business to scale back their consumption. We are going to have to pay higher prices for our own power, as Mr Davey uses the price mechanism to ration energy use further.

The main reason we are in this predicament is our membership of the EU, which has driven a policy of dear energy and has now required us to close some of our power stations prematurely as the EU is against their emissions of CO2. The failure of the previous government to make alternative provision has compounded the problem. They did, of course, sign up to all this at EU level in the first place without considering how to keep the lights on.

Mr Davey now has to cut loose from his pro EU pro dear energy sympathies and show he can solve our immediate and growing problem. I have called for the retention of the power stations that we have recently closed for a period whilst we are building new conforming plant to generate power. This is an easy and cheap way of resolving the crisis. All Mr Davey has to do is to negotiate a derogation from the Enissions Directive for a limited time whilst he sorts out the underlying problems of power supply.

We are told  Euro friendly Ministers have influence in Brussels.  We are told by Europhiles that  Brussels is there to help make us more prosperous. This is a simple way to test out these propositions. Surely Brussels can see that driving up the price  of energy and finding acceptable  ways to ration are the last thing the UK needs at the moment?  It’s time for Mr Davey to save our recently closed power stations, and have them available to produce the power we need for the next few winters.

The EU would be well advised to grasp that of all its unpopular and costly policies which damage the UK, dear energy is one of the most unpopular.

 

         In 2009-10 total UK government spending was £669.3bn. The latest forecast of spending for 2015-16 is £744.7bn.

         Over a six year period that is a rise of £75.4bn or 12.65% in the amount of cash spent by the state.

          Most commentators and many politicians claim that this represents a severe squeeze, a  major cut. If challenged about how overall it can be called a cut when there has been such a big rise in cash spent, they resort to claiming it has been a real terms cut. They suggest the cash rise has not been enough to compensate for inflation.

         Alternatively, they highlight those budgets and areas within the total that have been cut, to allow faster growth in the government’s priority areas of welfare, pensions, health and education which have gone up.

            I have never denied that some budgets have been cut in both cash and real terms. Defence, for example, has clearly been cut. So too has the government overhead, which is a good idea. I just think that we need to start from the overall figures, and recognise these have been rising.

             The 12.75% increase in total public spending over the six years is around the same as the inflation rate as measured by the GDP deflator (using official forecasts for the future years). It appears that the first half of the Coalition government period in office saw small real increases in public spending as I highlighted at the time.These are  to be followed by small real declines in the second half, perhaps reaching 0.4% real decline per annum. If the government and the Bank do a better job on controlling inflation, then we could experience further small real increases in spending on these numbers. The recent declines in world commodity prices and the relative stability of sterling will help keep inflation down. Past inflation owed a lot to weak sterling and rising commodity prices.

              These so called real declines could be offset by proper control of public sector costs. With the cash increases available, it should be possible to increase the total amount of public service. Government priorities for above average increases in some areas  will still mean cuts in some others of course.

          The use of the language of cuts is a major obstacle to a proper debate on how much we can afford to spend and how much we get for our spending. If the government does more for less, as the private sector regularly does, there are those who would see the lower cost as a “cut”.

            However, some elements of public spending are treated differently. If MPs had a cash increase in their pay, this would be seen generally as an increase or rise. If MPs pointed out the increase was less than inflation  and was therefore a cut, few would see it like that.  They would correctly argue that MPs had had a rise. Before your blood pressure explodes, fear not. You will be relieved to know that  MP  pay last year after pension deductions was lower in cash terms than in 2009-10. 

          As most public sector spending is either the pay of public sector staff or the benefit and pension pay of people not in work, is it right to use very different language for describing public spending changes from the commonsense language we use about pay, where a cash increase is a rise? The truth is we are still spending a huge amount on government account. We need the government to do more for less in the priority areas, and to slim the overall size of government.