Category: Uncategorized

            The  news yesterday that the Treasury is asking all departments to draw up a contingent cut of 5% each is an interesting development. It only applies to about half of public spending, but is still a serious sum. The stated purpose is to have cuts available should the need arise to offset other increases in spending.

             Readers will know that I advised the government to spend around £30 billion or 5% less in the first year of this Parliament than they decided to spend. Where they put spending up  by 5.3% in their first year   I suggested keeping to a freeze.  Thereafter I accepted their profile of percentage cash increases, though I would have preferred a slower rate of increase in Year 2  and Year 3 and a faster one in Years 4 and  5. That would have saved us at least an additional £150 billion of borrowing over the five years compared to the government’s plan. I thought if we had done this there was a chance of getting through without the need for further cuts, and with a better prospect of a private sector led recovery.

              I hope the Treasury’s request will lead to a more informed debate about how much spending has increased by in recent years, and on where it could be reduced without damaging important front line services like hospitals and schools. It should also lead to a proper debate about why public sector inflation has been so high in 2010-11, and whether public sector inflation is now going to collapse given the pay freeze in place.

                 The government inherited a public sector that did not show good productivity growth, where quality and productivity were falling behind good private sector standards. We need to hear more from DWP about how they are reducing the error rate on benefits, more from each department about how they can manage numbers without incurring large redundancy bills, how they can do more in house without recourse to so many expensive external consultants, and how they can  dispose of surplus assets like property.

              We have spent two years mainly discussing how to squeeze more money out of the private sector by a wide range of extra taxes and public sector charges. Listening to Mr Cameron yesterday morning it sounds as if the government now wants to do more for all those who pay their own bills and have to pay these extra taxes. To do so he needs to get a better grip on value for money in the public sector. Let’s hope we can now have as much media interest in how every pound of tax is spent, as we have recently had in how it is raised.

 

              David Cameron has enjoyed two great successes as Prime Minister.

               He led western opinion on the subject of Libya, worked with France to intervene militarily, and  presided over a successful military intervention which helped the rebels bring down the dictator. I did not myself think this a good way to spend UK money and risk lives, but I  accept that he did it well and his international reputation was enhanced by it. It would be churlish to deny him the credit he is due for the successful action in its own terms.

                More importantly, he did refuse to allow the UK’s name to go on a new Treaty for fiscal austerity in the EU, and forced the partners to come up with an intergovernmental Treaty of 25 instead of an EU Treaty. This made him extremely popular with the public, reaching a temporary high of support. Conservative MPs including me were delighted by what he did, and hoped he would go on to develop a new relationship with the EU on the back of it.

                  Meanwhile, the government he leads has been struggling to assert its authority in a  number of areas. The Home Secretary is the most recent to admit that she cannot simply extradite a suspect for trial elsewhere owing to the entanglements of the European Court of Human Rights. The Immigration Minister, battling to implement the Prime Minister’s popular pledge to cut migration numbers susbtantially, cannot assert much control over the UK’s borders with the rest of the EU owing to the loss of powers in this area  under the last government.

                The Foreign Secretary cannot suddenly lift the sanctions on Burma following political progress there in the way he would like, owing to the EU control of our sanctions policy. The Chancellor finds himself offering large loans to the IMF at a time when his policy intends to clamp domestic public spending, owing to international agreements and understandings. The wide ranging work on benefits reform is hedged around with EU requirements concerning the payments of benefits to non UK EU nationals. Ministers are off to court to try to get a better answer for Britain. Local government Ministers had to go through various legal processes to assert their new planning policies.

                 The task of government is difficult enough, without Ministers being frustrated by international powers and other forces that seek to prevent or limit what they can do. It seems to me inevitable that in order to be able to govern our country, government has to negotiate a new relationship with the powers that bind us. The public want their government  to be able to act in the UK’s interest. In all to many areas the ECJ, the ECHR, the EU and other bodies make that difficult if not impossible.

                  Some Conservative MPs are pressing again for the UK to have its own Human Rights Bill, to be policed and adjudicated in British courts. Work is also well advanced on a wide range of powers that we want back from the EU. In order to govern well, a government needs to have the powers to make decisions and enforce them, subject just to the checks and balances that come from answering to Parliament, and under the rule of UK law which Parliament itself determines.

 

           Every week when Parliament is in session the executive of the 1922 backbenchers committee meets to decide what to tell the Prime Minister about backbench attitudes and reactions to the government’s business. The full 1922 Committee also meets every Wednesday, where any Conservative MP can attend, and voice any criticism in the privacy of the meeting  they wish.

            I have never before written about these meetings. They are best kept private. Sometimes they are unremarkable. Sometimes they express support for a Minister or a policy. Sometimes we summon a Minister to  get a progress report or  home in on problems that matter to us. The Chancellor comes for a consultation meeting with us before a  budget when he is forming his measures. He comes after budget to report. The Prime Minister comes once a term to tell us how he sees things and to take our questions. Sometimes these meetings  send tough messages, wanting change to what the government is doing or how it is behaving.

               On Thursday, as some of you will have seen from widespread press coverage, there was an extraordinary meeting of the 1922 Committee to discuss government plans to reform the House of Lords in the next session. It was billed as extraordinary because it was on a different day, in addition to the usual weekly meeting, and was designed to handle just the one main topic.  Someone present must have  decided to ignore the normal confidentiality and tell the press about some of it. It turned out to be extraordinary in more ways than one.

                It became clear that Conservative MPs do not want any Bill on Lords reform in the next Queen’s speech. The Conservative party, like all the main parties, is divided over how to reform the Lords. Some want an all elected second chamber. Some want a  hybrid chamber , with some elected and some selected, like the Bishops. Some want selected peers but wish to see reform of length of service, retirement dates, reduction in numbers and other changes. Some want it left alone, thinking it is fine as it is.

                           However, last week  consensus broke out. Practically all  decided that a Bill on Lords reform this year would be wrong. At a time of major economic crisis in Euroland,with the need to battle down the deficit at home and complete major reforms of welfare and public service, there was no appetite to open a new front by taking on the Lords. All reported a complete lack of interest from constituents in this cause. Many thought the politicians would look even more out of touch if they went ahead with a Westminster issue at such a time. How would it look to be discussing new high pay and allowances for Senators, replacing much cheaper current arrangements, when the debate is meant to be about cutting public spending?

                      I now read that this “rebellion” had some official stimulus. If there were, it was well hidden. None of the colleagues I spoke to had been asked to be present.  None had been given the wink that this was something they were allowed to rebel about. It seemed that many MPs for varying reasons had decided they needed  to warn the government now,before they put such a Bill in the Queen’s Speech, that its passage would be troubled at best, and probably dependent on Labour votes.

                           Many feel that such a major constitutional change would warrant a referendum. After all, if voting systems and elected Mayors qualify for a referendum then so surely should major Lords reform. Labour too would want to vote for such a referendum. Many Conservatives would wish to add that if we can have yet another constitutional referendum on something  we don’t want to change,  could we not at the same time have one on something we do wish to change, our relationship with the EU? There is concern that the Bill may include electing   the Lords by a system of proportional voting, so soon after the public decisively rejected such a voting system for the Commons.  What part of “No” did they not understand?

                        I hope the government is wise, and grasps that this is a topic which needs further discussion and  thought. It might be a good idea to seek a consensus first on what the Lords is for, before moving to thinking about how to choose its members. Now is not the time to legislate. I have never seen the Conservative Parliamentary party so at variance with its front bench on a single issue.

 

I recently posted the government statement of what they are doing about immigration because I know how important this issue is to many who read this site. Some of you were grateful and surprised by how much action the government is taking. Others cynically complained that it was all words, pointing out that over the last year there has still been a high level of entry.

I have listened carefully to Ministers and talked regularly to them about what they are doing. I am quite sure they wish to control numbers, and are taking actions which they believe will do that in a fair and sensible way. They are well aware that so far the numbers have not reduced, but point out that it takes time to get each of these measures into effect and to ensure they are working well at each entry point into the country. They accept that the proof of their measures comes over the next year, when they expect to see results. They are of course ready and willing to examine other ways to achieve what they wish to achieve, especially if the numbers do not decline  as they expect.

The Coalition has never said it intends to change the arrangements for EU migrants. It so happens this is not the bulk of recent inward migration. The Conservative side of the Coalition always negotiated opt outs for the UK from the common borders when in government, as we regarded it as very important to keep control of our own borders policy. The last Labour government changed that, and put the UK under more of the EU measures in this area. Conservatives campaigned in 2005 and 2010 to get powers back from the EU. The last election manifesto did not specify all the  areas which would figure in a renegotiation , but many Conservatives would wish to include borders in such a process. Most of these moves were prevented by the Coalition Agreement, and cannot be pursued without a Commons majority for them.

 

I support President Obama, who has said that the USA does not wish to put more into the IMF to bail out members of the Eurozone. The USA thinks the Eurozone should do more for itself. I do not think the UK should be putting more of our money at risk in the Euro through the IMF either.

IMF programmes are for sovereign countries. They usually require austerity packages, which are plentiful in Euroland, and devaluations, which are ruled out within the Euro. They require states going through an IMF programme to follow appropriate monetary policies for them controlled by their Central Banks and governments.  Again, Euroland members cannot do this, as they have to accept the one size does not fit all policy laid down by the ECB and the EU.

Greece or Portugal are to Euroland as Arkansas or California are to the US monetary union. No-one thinks the IMF should lend money to an American state in a tight corner. Similarly there would be  no question of IMF loans to Wales or  Northern Ireland if they needed financial help within the sterling area. The duty and responsiblity rests with the sovereign of the currency area to send them enough transfer payment or to stand behind the collective borrowing to finance their activities.

It is not the rest of the world’s fault that Euroland lacks a full sovereign to back up the currency and to send sufficient transfer payments from the rich to the poor within the union. I do  not see why the IMF should provide money that the Union itself is unwilling to provide, when the troubles in Euroland primarily relate to imbalances within the union that the Union should sort out.

The UK Parliament has already approved this money. I did  vote against when it was put to the vote.

 

          Latest polls suggest Boris will win the Mayoralty for a second time, with Ken in second place. This outcome looks more likely, now Boris has pledged to cut the Council Tax every year in his next term, with a total reduction of 10%. Every little helps. Council Taxes in the last decade rushed up, leaving people worried about whether they could still afford to live in their own home past retirement and on a pension.

          The polling also says that Boris is a  more popular in London than the Conservative party. This does not surprise me. Boris has his own following. Many people admire his entertainment value. They think an Olympics with him in charge would be more fun than  under the other candidates. He also knows how to touch the core Conservative vote. He has called for a tougher approach to the EU in general and its regulatory tendencies in particular. He has called for lower general taxes.

          Talk is easy, as many of you point out, if you are not responsible for the matters you are talking about. We now hear that when it comes to his own bit of the public sector, he is prepared to trim spending and get the bills down a bit. If that were repeated across all the Boroughs, it would make a big difference to living standards in London, as the Boroughs are big spenders. He has also taken action over law and order, another Conservative priority, as he understands most people’s wish to feel safer.

              There are no signs in the London polls of any break through by UKIP in this most prominent and newsworthy of all the local elections underway. If Boris wins, it will be his triumph, with his own version of how Conservatives should talk and act.

The candidates in the election are:

Carlos Cortigiana    BNP

Boris Johnson    Conservative

Lawrence Webb       Fresh Choice for London  (UKIP)

Jenny Jones     Green

Siobhan Benita   Independent

Ken Livingstone    Labour

Brian Paddick    Liberal Democrats

 

 

 

             The imposition of a ban on hosepipe use in the south of England coincided neatly with the arrival of rain bearing winds day after day. It is a very wet kind of drought.

               It goes alongside the very cold kind of global warming we are experiencing yet again this April.

             Spare me the official explanations. I understand that winter rainfall has been below average for two winters running. I  understand that two cold winters and now a cold April may be just patches of weather. We can shivver together, with many still worrying about the long term trend of global warming.

               The problem with all these clever explanations, right or wrong, is they defy the present reality that most preoccupies people. It is easier to persuade people there is a natural crisis in our water supply if  there has been no rain for weeks and if we are living through a freak heat wave. It is much easier to get people to believe global warming if most of the time they feel warmer than they did a decade ago.

                   I do not accept the water industry’s claim that the rainfall has been so unusual that we must blame the gods of nature for the shortage of water. I have been urging the water industry in London and the south-east to build more capacity for over a decade now. I remember sending out a press statement years ago when we won the Olympic bid saying that if we did not build another reservoir in the south we would be welcoming people to the Olympics with water rationing in place.  They did eventually get round to building an expensive desalination plant, which helps. The truth is they need more storage capacity, and fewer leaks, throughout the south.

                  People outside the south cannot understand the fuss about water. They have had plenty of snow and rain for their needs. The problem in the south is successive governments have allowed the entry of several  millions of additional people, many of whom have settled in the south, without ordering the extra water capacity they need.

                 There is plenty of rain, even in the south. We do not collect enough of it, and we do not have good enough delivery systems once captured.  That can be mended, so even after a winter or two of below average rainfall, we can still use the water we want. Water is the ultimate renewable resource. You cannot destroy it. You just need to capture a bit more of it on its way back to  the sea, after rainfall. Other industries take pleasure in meeting growing demand for their products. I do not recall Easter egg rationing or a shortage of turkeys at Christmas.

 Knowing how important many of you think this issue is, I reproduce below the government’s account of what it has done so far to change the immigration system:

• “The first ever permanent cap on non-EU work migrants has now been in place for a year. The limit has not been reached in any month since the cap came into effect, so the numbers are falling while necessary skilled workers are allowed in.

 

• We have also reformed the student visa system – the largest route of entry.  116 licences to colleges have been revoked and another 179 licenses  suspended. The reforms include a new accreditation system for colleges; new rules on the standard of English required for students; new restrictions to limit students working and bringing dependants; and ending the post-study work option for all but the very brightest. The number of Tier 4 student visas issued has fallen by 19% in the second half of 2011, compared to the same period in 2010.

 

• We have cut the automatic link between coming here to work and staying here permanently. Skilled temporary workers wanting to apply for settlement  have to be earning £35,000 per year or the going rate for their job, whichever is higher.

 

• We will shortly set out measures to reform family immigration. A new minimum income requirement will also be introduced, to stop people coming here to live off benefits.  We will extend the probationary period before a non-EEA spouse or partner can apply for settlement from two to five years, which will have the effect of reducing access to benefits for those who have recently arrived.

 

As well as reforming routes of entry, we are also strengthening security at our border.  The UK Border Force is now a separate command within the Home Office under Chief Constable Brian Moore, with a clear focus on law enforcement.  

Each month we stop approximately 1,000 people who should be refused entry to the UK from even boarding a plane.  From this month, we will have advance sight of details of every passenger on non-EEA flights to the UK. This 100 per cent coverage, combined with our strict visa regime, means that all non-EEA passengers arriving from outside Europe will have been checked once, and many twice, before they reach the UK. This summer the border will be better protected than ever before, which is vitally important in an Olympic year.

We are also improving our immigration processes to continue to deliver better outcomes.

 

• 60% of new asylum applicants now receive a decision in just 30 days.
• Last year we removed over 4,500 foreign criminals.
• We now start deportation action on foreign national prisoners 18 months before the end of their sentence.
• We have started interviewing selected visa applicants to test their credibility.”

 

 

 

 

             As always the Red Book published at the time of the last budget rests unread by many MPs and commentators. In it is the following interesting figures:

Revenue from self assessment Income Tax

2011-12    £20.1 billion

2012-13    £22.3 billion

2013-14    £22.9 billion

2014-15    £28.5 billion

Self assessment tax receipts are dominated by receipts from higher rate taxpayers. 2011-13, when they average £21.2 billion a year , is in  the period of the 50%tax rate.  2013-15, when they average £25.7 billion, is a  period  of the lower 45p  rate.

The figures also include, of course, the impact of the reduced allowances on the tax revenue, which the Treasury forecasts to increase revenues by £490 million in 2014-15, but to have no impact in 2013-14. So if we exclude that effect, the average Self Assessment revenue for the second two year period comes out at £25.45  billion, still £4.25 billion higher per year than at the 50p rate.

So according to the government they will average £4.25 billion a year more at the 45p tax rate they are currently averaging at the 50p tax rate. It is of course possible that the government’s forecasts are wrong. Revenue may be lower in 2014-15 than they suggest.  It is even more likely the revenue loss from  the 50p rate in the last year of that rate will be bigger than they think, making the revenue gain from the lower rate that much larger.

It is difficult to marry these figures with the Red Book claim that they will lose £100 million of revenue from the rate change,which they say will be offset several times over by the changes to the allowances and the Stamp Duty on expensive properties.

On any normal basis you would say that cutting the rate seems to yield £4 billion more annual revenue, averaging two year figures in each case to try to deal with the shifting of income phenomenon. Presumably the official statisticians ascribe a high amount of the increase to their forecast of economic growth. It is difficult to believe tax revenues will leap as much as they suggest just from an increase in the growth rate. I suspect they underestimate the changes of behaviour these rate changes induce.

 

           As we get ready for the meetings of the IMF and World Bank this coming week-end a familiar Euro crisis is brewing again. Yesterday Spanish ten year bond yields rose more, to 6.16%.  This week Spain is planning to tap the 12 and 18 month money market on Tuesday, and to raise 2 and 10 year money on Thursday. It needs to carry on borrowing, to keep pace with its deficit, to pay all those public sector bills. Some are alarmed at how much it will have to pay to carry on borrowing.

        Spanish shares have been falling. Markets have raised more doubts about some Spanish banks. The government has taken powers to be able to move in and run any regional government in Spain which does not do a better job this year of running its own finances. In March Spanish banks were borrowing Euro 316 billion from the European Central Bank, a large sum.

          The original idea of the EU in response to earlier versions of the crisis was to set up a big “firewall” or fund of money to bail out countries in trouble. They then wished the IMF to put a lot more of its members money at risk to back up the European funds.  This has been held back by German reluctance to sign up to a very large European fund, and by US resistance to the idea that it should contribute through the IMF when Euroland does not do more for itself.

          The Germans successfully pegged the total funds available from Euroland and the EU to a possible Euro 800 billion, of which 300 billion is already pledged to Greece, Portugal and Ireland under existing programmes. Much of this money has to be borrowed by the European Stability Mechanism in due course, which is a Luxembourg intergovernmental organisation backed by the credit ratings of the Euro area countries.

             The IMF is being asked by the Euroland countries to have more money available to stand behind the possible borrowed funds the Europeans might raise on their own credit account. Japan and China are indicating that they might  put some money in. They do not wish the Euro to flounder, and they would like the Euro to stay higher against their currencies for trade reasons. So too might some of the other emerging market economies. It is unlikely the US will change its stance from “No”, as it is difficult to imagine Congress and Senate voting to ratify such spending, especially in an election year. The UK’s position is also undecided.

                 The truth is large firewalls cannot solve the big underlying problems. The emergency funds dispensed so far have bought some more time. This time has to be used to tackle the underlying huge imbalances. Somehow member states in the Euro have to show they can finance their budget deficits in the normal way without needing subsidised finance. Somehow the Euro zone has to finance its trade with itself comfortably. Somehow the zone has to strengthen its banks without forcing yet more austerity and recession on the weakest countries. That would be a useful agenda for the IMF to work through. Instead the Euro part of the discussion may turn out to be yet another talk about the extent of firewall funds, who pays the bills and when they might get set up. Instead of discussing how to finance failure, more thought needs to be given about how to get member countries out of the need for subsidised loans in the first place.