The European disunion

Yesterday we saw yet again just how dysfunctional the EU has become. Far from creating union, peace and harmony, it is creating rows and conflicts between European countries. Germany and Greece are showing great dislike of each other in public and have no ability so far to compromise and to understand each other’s point of view. Greece cannot accept Germany’s austere economics, and Germany has no wish to send financial assistance to a part of her currency zone with mass unemployment, deep recession and much reduced pay. France is at loggerheads with Italy over migrants admitted by Italy. France and the UK disagree over Calais and the Anglo-French border. The EU supporting part of Ukraine is fighting a hot war with other parts of that country as the EU stands and watches. Euro outs are getting a bad deal from Euro ins, southern states feel hard done by the richer northern states, the richer north has no wish to subsidise the south. The UK and Denmark opted out of the common approach to migrants.

Meanwhile the EU damages national democracies by preventing them taking action or legislating in ways they wish without providing a good working democracy of its own. There is no official opposition to the EU government. No-one has the duty at Council meetings or in the Parliament to expose the problems with EU policy, lay bare the waste or to show which policies are doing harm. As we saw last night, trying to govern by needing the agreement of 28 countries is absurd. They spend hours just having one round setting out their different attitudes, and then more hours as the hapless Chairman and Commission try to broker compromises between the more extreme views around the table, in the hope that tiredness will eventually cause all to give in and agree with something, however modest or inappropriate or vexatious.

The people who say we should stay in the EU whatever the EU offers us confine themselves to just two main arguments.

The first is the lie that 3 million jobs would be at risk if we left.
Our trade is not at risk, as Germany has made clear.
The day after we leave Germany will still want to sell us her cars and will make sure she can do so with sensible free trade rules.
Under WTO rules which we have automatically trade can flourish, as the rest of the world shows when trading with the EU.

The second is the EU guarantees us peace in Europe. If only. The EU has intervened clumsily in civil wars in former Yugoslavia and now in Ukraine, in ways which often make things worse.
Meanwhile it is obvious that the peace has been kept amongst the main powers of Europe and Russia since 1945 by NATO. The UK will remain a leading member of NATO, and NATO will continue to guarantee our security.

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Mr Redwood’s contribution to the debate on the European Union Referendum Bill, 16 June 2015

John Redwood (Wokingham (Con): I hope that, when the Government bring the Bill back on Report, they will give further consideration to the question of campaign spending limits. We are all freshly back from an energetic general election campaign, and one of the finest things about the United Kingdom’s traditions that ensure fair and free elections is the fact that we have pretty strict expenditure limits in each constituency. Those of us who were the incumbents fighting to retain our seats were rightly subject to rules stating that we could not use our incumbency in any way, as that would have provided us with an obvious advantage. We could not use our ability to raise more money, for example, because there were strict limits in place.

Those strict limits applied for a five-month period. We had the long campaign period, which was subject to expenditure control, followed by the short campaign period. It is the short campaign period for the referendum that we are talking about today. I believe that it was right to impose the campaign limits early, because political parties are increasingly campaigning well in advance of the general election proper, and it looks as though the referendum campaign will kick in well before the referendum proper. Indeed, there are clearly already stirrings, even before this Bill has passed through the House of Commons.

It is good that we all have to face the challenge from a number of candidates, any one of whom has a reasonable chance of raising the maximum that we are allowed to spend in a given constituency. It is quite a large sum for an individual to raise, but it is quite a modest sum for someone who has a reasonable amount of support or who asks for small or medium-sized donations from a range of people. It is not that difficult for a relatively popular party or candidate to raise the money needed in order to spend right up to the constituency limit, to give them the maximum chance in the challenge.

I understand that the sums will be rather bigger in a national referendum campaign, and that if one side is a lot more popular than the other, that would give it an advantage not only in the vote but in the amount of fundraising it could do. But I do think that, under the current Bill, the very large sums that would be available, because of the way the parties and some of the supporting organisations are thinking, are thoroughly disproportionate. That would give the impression of unfairness, and the British people have a great sense of fairness. Many people on the yes side have a sense of fairness and would prefer it if the referendum campaign were conducted with more equal sums of money, so that the weight and quality of the argument matter more than access to funds and special ways of messaging.

My second point is to support those who are talking about the duration of the campaign. The campaign proper could well be limited to four weeks. An awful lot can be said in four weeks. Those with little interest in politics will get rather bored if the referendum campaign dominates the news and media for more than four weeks. Given the natural interest of quite a lot of people in this subject, and the enthusiasm of many of those who wish to campaign on either side, there will, in reality, be a longer period. There should be a long and a short period, as there is in a general election, so that there is proper control of the messages and the money spent in the longer time period, although it would be up to either side, or both, to take the view that they really do want to concentrate their spend and their message in the last four weeks because they might be afraid of overdoing it. I suspect though that they will want a longer period, so we will need some kind of regulation on the longer time period—the full duration of the campaign proper.

My third point is to support those who have raised serious issues about the expenditure of public money, particularly about the expenditure of European Union money. It would be wrong for the European Union to spend any money intervening in a British referendum over whether the United Kingdom stays in the European Union. It is, after all, United Kingdom taxpayers’ money. On current polling, we know that there is a split of opinion, with very substantial bodies of opinion on both sides. People would be very reluctant to see their tax revenue taken by the European Union and then spent on putting out messages and propaganda on just one side of a very contentious referendum.

Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP): I must remind the right hon. Gentleman of what happened in the Scottish referendum. The only difference was the way that it was funded. In the United Kingdom, funds are collected centrally and go to London. If the European Union had the same model, they would be collected centrally and go to Brussels and then given out again. The point is that it is taxpayers’ money. In Scotland, we saw our taxpayers’ money come back to the UK Government and used against one side of the referendum campaign.

John Redwood: I quite understand, but I am suggesting something different. I am suggesting that to have a completely fair and independent referendum, there should be much stricter controls over the expenditure of Government money.

Mr MacNeil: I am very grateful to the right hon. Gentleman for his revelatory tone and words. He said that he wants a stricter and fairer system, so his commentary on the Scottish referendum is instructive and very welcome.

John Redwood: The result in Scotland was pretty conclusive, so the expenditure of Government money was not the crucial thing that made the difference to the result. The result speaks for itself. But we can always learn from past experiences. For my choice, I do not favour the expenditure of public money on interfering in elections and referendums. I am known to be careful with public money anyway, and I would not want the money to be spent on this area. It is for individuals to decide what they wish to do by way of political intervention, and they can make their own decisions. If we let them have more of their own money to spend, they may wish to spend it on interventions in elections. That is how I would rather it was done. In this case, it would be particularly counterproductive for the European Union to spend some of our money, which we send to them, on intervening on one side. It would cause enormous resentments. Indeed, the no campaign might even welcome it as it would be a cause in itself which it would make use of if this became a clear use or abuse of public money.

Kate Hoey (Vauxhall) (Lab): I raised the issue of the EU on Second Reading. I had a helpful letter back from the Minister for Europe this week. Will the right hon. Gentleman comment on his final paragraph? He says:

“I would trust the proper diplomatic relationships with Governments and institutions, and encourage them to stick by their duty to respect the right of the British people to take their own decision responsibly.”

I do not feel that I can trust the EU on this very important issue. Does the right hon. Gentleman feel that?

John Redwood: I am afraid that I do share some of the hon. Lady’s worries. I would like to see that clearly stated in writing and as an act of policy from the EU itself. That would probably be much appreciated in many sections of the United Kingdom, so that we can be sure that there would not be clumsy, unwarranted or unwelcome interference. It would be a double irony if the EU were using our money to do it. That is what makes it particularly difficult. UK taxpayers of both views would be paying the money to the EU, but only one side of the argument would be funded by that money.

Mr Christopher Chope (Christchurch) (Con): Surely the Government could do something on this front. They could ask the European Commission and the European Union not to intervene and not to fund the referendum campaign. They could then get a written undertaking from the Commission not to use European Union funds. That is outside the scope of the Bill, but the Minister could give such an undertaking.

John Redwood: Indeed. I am speaking to amendment 10 tabled by my hon. Friend the Member for Stone (Sir William Cash), who seeks to clarify this point and prevent the use or abuse of EU money. I hope that the Minister will respond and that he will have his own proposals on Report. The Electoral Commission has given exceedingly good advice across the board on this referendum. It seemed to suggest that it would not be right for the EU to give money for the campaign, and it would be nice to have a reassurance that the Government share that view and accept the advice of that august body, which is there to guide us. There is an additional issue with EU money, to which some colleagues have referred. What do we do about the EU money that is routed to bodies or organisations within the UK that choose to make a donation to a referendum campaign? That is another difficulty. As I understand it, such a donation would be perfectly legal because the organisation giving the money would be able to say that it had other sources of money and it was not a direct gift of EU money to the referendum campaign. Such a body may be swayed by the fact that it had had generous access to EU moneys in the past. While one would hope that none of them were donating for that reason, people would suspect that a body in receipt of substantial EU moneys in the normal course of business that saw fit to give money to the campaign to stay in would hope that the EU would be better disposed to it when it put in its next application for money.

Sir William Cash: I do not know whether my right hon. Friend was here when we were debating part of this, but the Electoral Commission’s position is that a central principle of the regulatory regime that it supervises is that foreign sources of funding should not have undue influence on our democratic process. It has come to the conclusion that the European Commission does not fall within the list of bodies that can register as a campaigner. Does my right hon. Friend agree that we have to get to the bottom of that? It is highly arguable that the European constitutional arrangements are effectively embedded in our own constitutional arrangements by virtue of sections 2 and 3 of the European Communities Act 1972. We need to get this right.

John Redwood: I was present to hear my hon. Friend speak to his amendment, and I am aware of the legal minefield that the provision could represent. That is why I worded my remarks cautiously—I said that I thought it was the view of the Electoral Commission that it would not be appropriate for the EU to spend money on the campaign. As he reminds us, it has made a clear statement about being a principal donor to the campaign, but there are other ways in which it could help, and it might argue that it was a domestic institution for these purposes. It might say that the EU’s writ runs within the UK. There is an office of the EU in London; it might try and route it through the London office. We need to say that that would be unwise. The Minister may think that it is illegal or that it should be impeded in some way. We need clear guidance from the Minister.

I return to the issue of indirect funding of the campaign by grant-in-aid to organisations that are helped or partially funded by the EU. Of course, it is a matter for the referendum campaign to argue over the rights and wrongs of EU funding. I am sure the no campaign will want to say that the money we send to Brussels and which it gives back to our organisations could be given to them directly by the United Kingdom Government if Brussels were not in the way. It could be pointed out that the £11 billion we send to Brussels in tax revenue is spent outside the UK, so, were we to leave, that money would be available for either tax cuts or extra spending in the United Kingdom.

That would be a matter of debate in the referendum, but an issue for the Bill relates to the legality, morality and political wisdom and judgment regarding the point at which an organisation becomes so dependent on EU funding that it has a very strong interest in it. Restrictions or limitations—or at least a declaration of interest—might need to be made if such a body decides to become involved in the referendum campaign. It would be wise to let people know of such a clear financial interest if the body played an important part in the yes campaign.

Sir William Cash: Does my right hon. Friend think it would be possible to have a register of interests? Then, when companies go on the BBC and say, “We don’t want the United Kingdom to leave the EU,” we would know where their money comes from, what their actual policy is and the extent to which they are dominated by the EU system.

John Redwood: A register of interests would be one way of handling it. It would be quite complicated for large companies, but rather easier for grant-receiving organisations. The issue for companies is rather different. I am all in favour of business people taking an active part in our politics, but they may need to intervene as individuals, because if they are an executive in a very large company that has a broad shareholder base, they may not be speaking for their shareholders on a very political issue. People would ask them, “Is this your private view or are you speaking for the company and has it been tested in a company general meeting?” That is probably a debate for another day. I am all in favour of major business involvement, but unless someone owns the company they have to be careful in associating the company with their own particular views.

The conclusion I wish to put to the Government is that this Bill is extremely welcome, but it is work in progress. These are very complicated areas, because the EU is a unique and powerful institution. In order to have a fair assessment by the British people of its worth or demerits, we need to be very careful and to not in any way trammel our usual belief in independence and fairness when we test the mood of the people. I do not think the Bill quite yet meets that requirement, but I hope that, on Report, Ministers will have better and more detailed answers about how we handle the scale of campaign donations and the period prior to the referendum campaign proper with respect to controls over messages and financing, and that they will be able to address the very vexed subject of how much power, influence, money and messaging the EU itself can inject into what should be a United Kingdom debate.

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The emerging United States of Euroland

It has long been permitted to talk of political union on the continent, just as surely as it has been regularly denied in the UK. On 22nd June the “five Presidents” of the Euro area (EU Commission President, Eurogroup President, the President of the Euro Summit, the President of the ECB and the President of the European Parliament) set out their vision of how to deepen economic and monetary union.Their wishes include a common Euro area Treasury with binding commitments to converge the economies of the zone, controlling and disciplining fiscal policies for each nation and completing a financial union.

They recognise that there is too much divergence of economic performance across the zone and they are not happy with 18 million people unemployed in the area. They are concerned about the lack of social cohesion and the shortfall in democratic accountability. It’s good they have noticed these obvious weaknesses of the Eurozone. Their solution is more central control, moving gradually to a common Euro area budget and Treasury. They do not go into the detail of how this would imply substantial transfers of money from the richer to the poorer parts of the zone.

The Euro has always been an orphan currency in search of a country to be its parent.The 5 Presidents wish to get close to a United States of Euroland to act as the sponsor of the currency, and to direct the economic policies of the differing regions of the zone. They aim for a White Paper in 2017. They wish to direct national economic policies more strongly through the European semester process. They want each country to have a competitiveness authority to seek to bring economies more into line with each other. They wish to buttress their single banking regulatory system with a common deposit insurance fund and a single resolution mechanism for banks.

They seek an Advisory Fiscal Board to creep towards controlling budgets more directly, and a common macro economic stabilisation function with access to finance.They want the Euro area to have a single representative on the IMF and to speak with one voice in world economic fora. They want to supplement the economic changes with stronger social policies.They are vague over how democratic accountability can be strengthened, mentioning both the European Parliament and national Parliaments.

All this points to the creation of a United States of Euroland. Single currencies need single budgets, single social policies,and massive transfers of money within the zones to enable them to work. The EU first created its currency and is now belatedly trying to create the country to back it. The UK should understand the force of this movement, and should be clear it cannot join any part of it.

The UK now needs to stress to the EU that they cannot use the EU budget for these purposes. There will have to be a separate Euro area budget to take in extra tax revenue from the Euro area and to distribute it for their common welfare and regional policies. I raised this in the Commons yesterday with the Treasury Minister taking through the EU Finance Bill.

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Why we need to raise quality and productivity in the public sector

After making the Commons speech I found the figures for public sector productivity. Between 1997 and 2010 there was no growth at all in public sector productivity. If the public sector had been able to match the manufacturing sector longer term trend of say 2.5% a year productivity increases we would now have 37% more public service for our spending, or we could spend 27% less money to receive the same level of service. That is big money.

In the private sector what the public sector calls “cuts” are sensible reductions in cost to make things cheaper, or sensible improvements in quality by cutting out waste and error. One of the big differences I have seen between those parts of the public sector I have led as a Minister and those companies I have led as a Chairman or director is the approach to quality and cost. In the private sector lower cost is often seen as an ally of higher quality. The best ways to get costs down are to do things right first time, to waste less input, spend less time doing something, and avoid customer complaints by offering good product and service. In the public sector taking out cost is seen as a threat to staff, and is often used as a reason for poor performance or for the need to reduce service.

In a cost cutting shop the manager does not usually tell the boss that the next cut has to be a cut to the number of customers who can be handled, or a reduction in the number of products they sell to customers. The manager looks for ways of automating more, helping staff perform better, finding ways to sell more goods to bring in more revenue. In parts of the public sector, when asked to cut costs, managers parade a set of cuts to services in the hope that these will prove unacceptable to the boss.

Given the new enthusiasm for productivity gains on both sides of the Commons, now would be a good time to launch a plan to raise quality and productivity throughout the public sector.

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Mr Redwood’s contribution to the debate on productivity, 17 June 2015

I reproduce below my argument on productivity in the Commons, as I wish to go on to write further posts on this topic building on the central argument I set out. I am sorry that the site did not publish it early this morning on this part – it appeared under debates. I have only just realised and remedied.

John Redwood (Wokingham) (Con):The productivity puzzle can be understood and resolved. It is a combination of bad news and not such bad news. There was a sharp fall in productivity at the time of the crisis, because we lost a lot of very expensive output, a lot of people lost their jobs and the net result was a big fall. Since the crisis has hit, there has been a continued loss of top-end jobs in areas such as oil, financial services and banking, which score very well in terms of the way people compile productivity figures. An industry such as oil, which produces a lot of extremely valuable output and has a limited number of very well-paid people, gives an enormous boost to productivity, as we have learned today from Norway. We have just lived through a period when, through no fault of any of the three Governments who have been presiding over it, there has been a sharp decline in the output of oil—because it is now a very mature province—and a big fall in the oil price. That recent fall is down to market circumstance and to things happening well away from this country.

There was also a big loss of top-end jobs in banking and financial services. There will be mixed views in the House of Commons on the social value of those jobs, but they scored very well in the run-up to the crash. Some of those jobs have now gone all together and some have gone to lower tax jurisdictions elsewhere. The bad news side of it accounts for the drop in productivity during the crisis and the slow growth since the crisis.

The better reason why our productivity is below that of some of our continental comparators is that we have gone for a model—I think and hope with the agreement of all parties—of having more people in employment and of creating conditions in which this economy can produce many more lower paid jobs in the hope that that will lead on to higher paid jobs and more output and activity, which is a better model than those people being out of work.

Let us look at the way the productivity figures are calculated. If a country sacks 10% of the least productive people in the economy, which is the kind of thing that the euro was doing to some of our competitor countries in euroland, it can be flattering for its productivity figures, because the least productive jobs go, and the productivity of the total country rises, but the country is a lot worse off, because it then has 10% of its workforce out of work who would otherwise have been in less productive jobs. It is the same in a business. The easiest way for a business with below-average productivity to get to average or above-average productivity is to close its worst factory, but that is not always the answer that people in this House would like.

George Kerevan (East Lothian) (SNP): The right hon. Gentleman is making the best he can of a bad job. For instance, if we look at the share of research and development in gross domestic product in the UK, we see that it was down not just over the 1990s, when we had the last Conservative Government, but for the period from 2000 to 2007. R and D is a fundamental component of productivity and it is down. He cannot gainsay that.

John Redwood: One has to first understand a problem before one can address the problem. I think we are all in agreement on this issue. Would we like higher productivity? Yes, we would. Would we like more better paid jobs? Yes, we would, and that goes for Conservatives as much as any other party in this House—probably more than any other party in this House. We not only will the end—more high-paid jobs—but are prepared to take some of the decisions that Opposition parties always deny or query in order to allow those better paid jobs to be created.

Let me go on from the analysis. I hope that the hon. Gentleman will reflect on what I have said and understand that I have provided a good explanation of the path that productivity has taken since 2007, which is a matter of common concern but has some understandable things that we cannot address. For example, we cannot suddenly wish a lot more oil into Scotland, and that remains a fact. We will not be able suddenly to create all those high-end banking jobs. Some Opposition parties probably would not like them anyway. We are where we are. What we can do about productivity is to work away on those parts of the economy where the performance has been most disappointing.

Amanda Milling (Cannock Chase) (Con): Does my right hon. Friend agree that cutting some of the red tape that affects our small and medium-sized businesses would help with the productivity puzzle?

John Redwood: I agree, but only if we have ineffective or over-the-top regulation. Removing it can give more people access to the market and provide a greater competitive challenge, but we need some regulation, because we need rules and certain guarantees in the market.

Let us take a sector that I asked the shadow Chancellor about. It was a problem that, in the Labour years, we had a long period of practically no growth in public sector productivity. I am the first to admit that the concept of productivity is more difficult in parts of the public sector. People actually like more teachers relative to the number of pupils, because they hope that that will create better teaching and a better system in classes, but it means that productivity falls. That means that we need other parts of the public sector, where the productivity issue is more straightforward or more like the private sector, to be even better, so that the overall performance of the public sector does not lag behind and cause difficulties. As we have quite a big public sector in this economy, the performance of the public sector is very important. It also happens to be the area where Ministers have most control and most direct influence, so it is the area that this House should spend more time on, because we are collectively responsible for the performance of the public sector. I think most parties now agree that we want to get more for less in the public sector, so that we can control public spending. There are disagreements about how much control we should exert on public spending, but I hope there is agreement that if it is possible to do more for less while improving—or not damaging—quality, that is a good thing to do.

Bill Esterson (Sefton Central) (Lab) rose—

John Redwood: I am afraid I need to move on because many people wish to speak. Time is limited.
I draw the attention of my right hon. Friend the Chief Secretary to the Treasury to the issue that I raised with him in my intervention. One very important industry that is almost completely nationalised—the tracks, signals and stations are completely nationalised and the train operating companies are very strongly regulated and controlled by franchises, so they are almost nationalised—is the railway industry. It is a growing industry, and this Government are committing a lot of money to it. It is an industry which, I believe, all the main parties in the House wish to commit money to and wish to grow and invest in.

However, an independent study in 2011, the McNulty report, showed that our railway does less for more cost than comparable railways on the continent. It should be a matter of great concern, and I hope it will be a matter for review by those dealing with the railways and with public spending, because as we channel those huge sums of money into our railway to try to get expansion and improvement, we need to pull off the trick that the best private sector companies manage—of driving quality up and costs down at the same time. A myth in some public sector managers’ minds is that a cut in the amount spent is bound to lead to worse quality or impaired service, whereas every day in a good private sector company they go to work saying, “How can I spend less and serve the customer better? How can I apply new technology so that I get more for less? How can I have a better skilled and better motivated workforce?”—I hope it is not done by unpleasant management, because that usually leads to the wrong results—and “How can I motivate the workforce more so that they are empowered to achieve more and do less?”

That is the spirit that we need in the public sector, and if we began with the railways, it would make a very important contribution to improving our overall productivity rate.

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Referendum – framing the choice

Those who want to stay in the current EU will seek to pose as the champions of the status quo. They will doubtless propose all sorts of lies over what might happen if we left.

The true choice is rather different. If you vote to stay in under the current treaties you will be taken for a ride to political union. Being in is not a stable status quo, but a wild ride to more Brussels control, more EU interference, less UK democratic power. There will be more and more areas where UK voters will not be able to elect politicians to Westminster to settle matters for them as they wish.

Leaving the current treaties is not turning our back on Europe or saying good bye to French wine, German cars, and trips to the Spanish costas. Our trade is not at risk, our travel will not be impeded, our friendships will not be altered. Many of us will find it easier to be friendly with our neighbours when we no longer have to row with them over how they want to boss us about within the EU legal framework. Few can think further EU integration, visible in the Eurozone, has been good for friendly relations between Athens and Berlin.

Those of us who wish to leave the Consolidated Treaty need to explain just what a radical, activist document it is. It is not a steady state but a constant journey. It is progress towards ever closer union, or the road to a single state. That is why the UK finds it all so difficult and why Mr Cameron is right to want to take ever closer union out. If he succeeds, he also needs to take us out of the treaty architecture than locks us into the non Euro parts of ever closer union.

The government is beginning to frame the negotiating challenge as being can a country like the UK live outside the Euro without the Euro area coming to override and rule us. They are themselves clearly worried by the way new controls over banks, remuneration, trading, new taxes and other items are coming from the Eurozone and encroaching into the so called single market. They need to understand this is just the latest version of an old problem with the single market. It has long been used as a Trojan horse to establish EU controls over many areas of government that are not strictly needed to buy and sell cars or soapflakes. We need to change not just our future relationship with the ever more powerful Eurozone, but also with past treaties which have usurped our government in many fields.

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Which children are handling the Greek crisis?

Madame Lagarde wants more adults in the room to negotiate a Greek settlement. Is she just being dismissive of the Greek government? It does not help find a compromise or solution to be cutting in public about the principle actors in the drama.

Or does she also have in mind those mysterious sources who are foolishly briefing that the Greek banks might have to close on Monday? All those who from positions of authority suggest capital controls or restrictions on Greek bank accounts must know they are fostering a run on the Greek banks.(I am publishing this at the week-end as most banks in Greece are normally closed then. I have no position of authority in the Eurozone anyway). Adults would know this does not help either Greece or the rest of the Eurozone. Responsible custodians of the Euro would see problems in Greek commercial banks as problems for the zone as a whole. After all, the European central Bank has already poured Euro 83 billion into supporting those banks. You would have thought the last thing they wanted was further withdrawals of deposits which simply mean the rest of the zone has to lend Greece yet more money through the ECB.

This blog has also advised the IMF to play no part in financing member governments of the Eurozone, pointing out that a Eurozone member cannot meet usual IMF criteria for loans. A Eurozone member state cannot devalue to become more competitive, and cannot print more money to repay loans. The IMF would not lend money to Scotland but would expect the UK to borrow the money Scotland needs, so why does it lend money to Greece when the Eurozone could borrow the money Greece needs if it wished to do so? How grown up has the approach of the IMF been?

The modern temptation for prominent politicians and senior officials to take to the media and negotiate in public on sensitive matters of finance and confidence makes it more difficult to stabilise troubled situations and to find a solution. How grown up is it to think that another round of public spending cuts will help the Greek economy recover, after falling by a massive 25% in incomes and output? The UK by agreement of all parties usually allows the deficit to rise when the economy is in deep recession. How grown up is to think pay and pension cuts and more redundancies in an economy with 25% unemployment will be acceptable to Greek people and therefore something the Greek government can sign up to?

My view is both the Greek government and the Eurozone bosses are wrong about how to solve the Greek economic crisis. The first step I would recommend is exit from the Euro and devaluation. Given that both sides refuse to do that, the Eurozone has to accept Greece needs more money to keep going, and Greece has to accept it needs to work with the agreement of its creditors. The complete absence of give and take on both sides is worrying and prolongs the agony and the damage. This is not how a single currency should be run. It confirms my view that EURO stands for European Unemployment and Recession Organisation.

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The debate on the Scotland Bill

John Redwood (Wokingham) (Con): I have always been a Unionist, but my idea of my country, the United Kingdom, is that it must be a democracy at peace with itself, and can only proceed as a happy and successful democracy if it has the consent of most of the people most of the time to the Union institutions and the powers of those institutions.

I am pleased that, because we proceed democratically and understand the need for consent, this Parliament listened to Scotland and, quite recently, granted a referendum to establish whether it was the settled will of the Scottish people to leave the United Kingdom altogether and set up their own arrangements. We discovered two things as a result of that democratic exercise. We discovered that the Scottish National party itself was not arguing for full independence: it wanted to remain part of the currency union, for example. I do not see how it is conceivably possible for an independent country to be part of a currency union.

Peter Grant (Glenrothes) (SNP): Is the right hon. Gentleman seriously suggesting that Germany is not an independent nation?

John Redwood: That is exactly the problem: Germany is not an independent nation. No member of the eurozone is an independent nation, and that is why those countries are experiencing such trouble. The trouble is not just for Greece, which is very visibly not independent, because it is being told how to conduct its economic policy. Germany is not independent either. Germany did not wish to lend Greece huge sums of money, but the European Central Bank, acting in the name of Germany, has advanced huge sums of money, which it will find very difficult to get back, but which Germany has to stand behind.

Patricia Gibson (North Ayrshire and Arran) (SNP) rose—

John Redwood: If SNP Members will allow me a little time, I will say things that they will like. I am not trying to make life difficult for them.

This is my analysis. In the referendum the SNP went for something more akin to home rule than what I would regard as full independence, but at that stage the Scottish people said no even to that. They seemed to say yes to the rather larger devolution of powers that the three main Unionist parties were then offering. However, we are now experiencing new circumstances.

Like my hon. Friend the Member for Gainsborough (Sir Edward Leigh), who has tabled a very interesting amendment, I think that this Parliament must listen to the new voice of the Scottish people. It is clear that there has been a shift of opinion towards more home rule than the Unionist parties were offering at the time of the referendum. That is why we are here today, listening very carefully to what the SNP has to say, and that is why I think it extremely important for us to have this debate on full fiscal independence, or fiscal autonomy. It would be one way for our Parliament to respond when the Scottish people have said, “We do not want to be completely independent as a separate country, but we want much more self-government—or home rule—than was envisaged by the Unionist parties at the time of the referendum, because we can see that that was not very popular.”

The Unionist parties collectively did rather badly in Scotland come the general election. [Interruption.] Well, between them, they received just under half the vote, while the Scottish nationalist party received just over half the vote. Because the Unionist vote was split, practically no Unionist Members of Parliament were elected, but it is still the case that Scottish opinion is fairly evenly balanced. The Scottish nationalists did not get 70% or 80% of the vote. If they had done, then, as far as I am concerned, they would really be in a position to tell us the answer, but, as judged by the vote, they speak for only about half the Scottish people. However, as representatives, they speak for practically all the Scottish people because they have most of the Members in this place.

I am listening very carefully and will want to hear more about what SNP Members want, but I am also very conscious that, in parallel with this exercise on powers as set out in this Bill, in some way far more important negotiations are already under way on what the new financial settlement will be, and those are not yet being reported to this House. That is crucial not just to the SNP and its representation of the Scottish people, but to the people of England. I find the more home rule that is on offer and the more we hear the Scottish voice, the more I have to be an advocate not of the Union, but of England, because someone needs to speak for England and to say that the consequences of much enhanced Scottish devolution, and some fiscal devolution as well, are serious for England. England needs to be in the discussion just as Scotland does, as this is our joint country and a major change in its arrangements will have a fundamental impact on England.

While I am very attracted to the idea of my hon. Friend the Member for Gainsborough that it would be a shrewd move to, for once, get ahead of the Scottish appetite for home rule and on this occasion to grant full fiscal devolution, we need to ask how feasible that is and what the consequences will be for Scotland and England. If Scotland wishes to be part of common welfare and pension guarantees, some limitation is already imposed on the spending side of full fiscal devolution. We have to think about the position of England if cross-guarantees are being offered for some part of that welfare package. If we are going to proceed in the way the Government currently plan and the way the negotiations are currently being undertaken—as I understand it, there is an attempt to find a way of adjusting the block grant for Scotland to take into account the new Scottish responsibilities, as some items of spending will have to be added in as a result of the devolution of new functions, and there will be a reduction in the block grant to take account of those taxes that are now Scotland’s to fix and collect—therein lies an immediate problem.

Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP): Would not an easier solution be for Scotland to collect its own tax, as Catalonia does, and then pay into the centre, rather than the centre paying out? The taxes should be raised by the Government of the territory paying the taxes and paid into the centre rather than giving them to the centre for it to then pay out. In that way, the centre will have to stop saying it is subsidising people when it returns their own taxes.

John Redwood: But if Scotland wisely decides to have lower tax rates to make itself more popular, the Union will be losing out if those lower tax rates collect less money.

Mr MacNeil: The right hon. Gentleman should realise that it is not lower taxes that have made the SNP more popular; it is better public services in Scotland—that has given us 50% of the vote versus his party’s 37%.

John Redwood: If Scotland wishes to impose higher taxes, the Union has less of a problem with that—unless it chooses to impose higher tax rates which collect less revenue, because those could be a problem for the Union as a whole—but it would be a problem for Scotland if it had to collect higher tax levels and it did not get all the money back; I would have thought it would want to get all the extra money back that it was collecting. Full fiscal autonomy means it would take responsibility for both raising the money and spending it. If Scotland wishes to spend more under fiscal autonomy, she can do so if she has a magic way of getting more money off people through either higher or lower tax rates, whichever work in the particular fiscal circumstances.

We need to have working papers on how full fiscal devolution might work and whether it is truly full fiscal devolution, because if we are going to full fiscal devolution, England will want guarantees that we are no longer acting as a buffer or subsiding the Scottish settlement, just as Scotland will want guarantees that she has got a fair deal and is capturing the benefits of her fiscal independence. If we go for a mixed system, which is where we currently are with the real debate between the Smith commission, the pro-Union parties and the SNP, there is a lot to be worked out, and I hope that at some point those on the Treasury Bench will share some of their thinking with the House.

Andrew Gwynne (Denton and Reddish) (Lab): I find myself in the unusual position of agreeing with much of what the right hon. Gentleman is saying. Do not these arguments illustrate the asymmetrical nature of the devolution settlement across the four nations of the United Kingdom? Does he agree that whichever funding model we go for in relation to Scotland, there will be implications for the finances of the other three nations? Does he not think that we need a constitutional convention to put that right?

John Redwood: No, I do not think that we need a constitutional convention, because that would create endless delay and complications. I agree with previous comments that we are here to try to solve this problem for our respective constituents. I spent quite a lot of my time during the election speaking for England and saying that I wanted to ensure that England got a reasonable deal out of this. SNP representatives clearly did the same in relation to Scotland, and we both achieved similar levels of success in attracting lots of votes for what we were saying.

Mr MacNeil: The right hon. Gentleman talks about getting good deals for the various parts of the UK, but let us look at the wider British Isles. Does he think that the aggregate GDP of the British Isles would be as high as it is today without the full fiscal autonomy that the Republic of Ireland, the Isle of Man and the United Kingdom all enjoy? If the aggregate GDP of the British Isles is higher for those reasons, does he not agree that it will be higher still when Scotland achieves its full fiscal autonomy?

John Redwood: I start from the point of view of democracy. A democratic state has to have the full range of powers, including fiscal autonomy and its own currency. That is different from asking: what is your state? I would still rather have the United Kingdom as my state, but I have just explained that if it is the will of the Scottish people that the UK is no longer their preferred state, they must leave—of course they must.

Mr MacNeil: The right hon. Gentleman is being very kind in enabling our dialogue to continue. I am sure he would acknowledge that the UK functioned between 1603 and 1707, when the Parliaments were independent.

John Redwood: Well, it functioned after a fashion, but I would not have wanted to live through that time. The nations were clearly not nearly as rich as they are today. Labour Members sometimes try to pretend that we have gone back to an ancient age, but I am sure that none of them would willingly go back in time and live in that era, because we are obviously so much better off now.

Mr Kevan Jones (North Durham) (Lab): I do not want to divert from the subject, but was not the reason for the Scots’ enthusiasm in going forward in 1707—[Interruption.]It was not an economic blockade; it was speculation in the colonies of central America.

John Redwood: Yes, it was a kind of early version of the banking crash, which also reminds us that Scottish banks can sometimes get into trouble, and that the Union’s insurance can be quite helpful to them.

George Kerevan (East Lothian) (SNP): May I return the discussion to the here and now? I should like to clarify something that the right hon. Gentleman said, because I think I agree with him. Is he saying that there was a clear desire in the debate that took place in Scotland post-Smith for a fuller measure of complete domestic fiscal control within the UK, but that achieving it would require serious discussions about how it would work in Scotland and how it would affect the fiscal arrangements in the rest of the UK? Does he agree that it could be done reasonably quickly, but would require transitional arrangements? It cannot be done overnight, but it is the way to go. If we do not do this, we will end up having endless piecemeal discussions, which would produce more friction than light.

John Redwood: I am making an even more urgent point than that. I am saying that that discussion is going on in parallel while we are debating this Bill. I hope that its content will be shared with the House at some point, because it is a matter of great importance to the United Kingdom, to England, to Scotland and so forth. As I understand it, those taking part in the negotiations are up against these very issues. If, for example, too much independence is given to Scotland on spending patterns, would there be a Union guarantee to pay for it all? How would it be fair to other parts of the Union if Scotland could increase her spending without having to take responsibility for raising the money for it? If Scotland starts to raise more of her own money, how do we adjust the block grant? In the current negotiations, nobody is suggesting getting rid of the block grant and saying that Scotland can have all her own money and just spend her own money. I am not even sure that is what the SNP wants. Negotiation is going on about how far—[Interruption.] If the SNP genuinely wants all that, that is fine. We then have to have a serious discussion, before it could be agreed to, over the borrowing. I will call it “borrowing”; I do not think “black hole” is a terribly useful term.

It is obvious that the United Kingdom has been living well beyond its means as a state for many years and is still borrowing large sums, and that, collectively, the United Kingdom, including Scotland, has built up those debts. Some of that money has been spent in Scotland and some of it has been spent in England. If we went for so-called full fiscal autonomy, we would face the question of what do we do about the new borrowing and what do we do about the past borrowing. One thing we have surely learnt from Greece and other places in the euro currency union is that the borrowing of a state in a currency union is of great concern and interest to the rest of that union. There would therefore have to be an agreement on borrowing, with past debt levels attributed to Scotland, because it would have to pay an interest bill on those. Future build-up of Scottish debt would also have to be addressed: whether it would be separate Scottish debt or would still come with the full Union guarantee, which would probably make it a bit cheaper. That becomes the centre of the row, rather than it being over which taxes we have.

Patricia Gibson: Does the right hon. Gentleman not agree that successive Westminster Governments could learn much from the economic management of the Scottish Parliament, which has balanced its budget, in a fixed budget, every year, while Westminster has run up successive debts?

John Redwood: That is because all the time that it is a subsidiary Parliament of the Union, and part of our public expenditure and borrowing plans, it has to abide by the remit. The hon. Lady is right in that it has been given a tougher remit than the Union gives itself, but it is not fair to say that that is of no interest or benefit to Scotland, because of course much of the Union expenditure is also being committed proportionately in Scotland and so it is Scotland’s share of the debt as well. I am making a factual statement; I am not trying to make party political points, wind up the SNP, rerun the referendum or anything like that. I am just trying to get this Committee to understand that grave and big issues are being hammered out elsewhere, we are not hearing about them and they impinge very much on this crucial debate that we are now having.

I have intervened in the debate because I want an opportunity to talk about this financial settlement, which matters to England as well as to Scotland. The proposal put forward by my hon. Friend the Member for Gainsborough brings things centre stage. If we went down his route and had full fiscal autonomy, I would want to know what that meant; how much responsibility Scotland would take, for example, for pensions as well as welfare; and what the borrowing settlement would be. The residual is the borrowing, and unless we know what the answer is on that, we still will not have a happy Union or stable expenditure.

Ian Blackford (Ross, Skye and Lochaber) (SNP): I thank the right hon. Gentleman for his most gracious speech and his thoughtful remarks about the future of the constitutional arrangements between Scotland and the rest of the UK. It is perhaps worth remembering that when Gordon Brown spoke on behalf of the three Unionist parties prior to the referendum, what was offered was as close to federalism as we could get. What was talked about was home rule in the spirit of Keir Hardie. It is akin to the remarks that the right hon. Gentleman is making. It is perhaps worth remembering that the manifesto commitment the SNP stood on was delivering powers for a purpose to the Scottish Parliament. He is right: that is what the Scottish people voted for in returning 56 Members of Parliament to this Chamber.

John Redwood: Then I think we need to have another debate, on another day, which looks at what is going on in these important financial discussions. Although my constituents are interested in what powers Scotland gets, they are far more interested in how the money works between the different parts of the Union. We have no papers before us today to elucidate that.

Ian Murray (Edinburgh South) (Lab): For the second time in five and a bit years, I agree with the right hon. Gentleman. On the complicated nature of the fiscal framework, which I believe he is trying to unpack, does he not agree that the Labour new clause, which will be debated at some point, to set up an independent commission on the costs and implications of full fiscal autonomy provides a much more reasonable and sensible approach?

John Redwood: We are where we are. Promises were made, I thought in good faith, by the three Front-Bench teams. They were not my chosen promises; they were made on behalf of the three Unionist parties. They did the job for the referendum, but they then did not do much of a job for the Unionist parties at the general election. However, we cannot now be seen to be delaying for any great length. There needs to be proper work—and I am sure that proper work is going on in the Government at the moment as they try to work out a financial settlement in parallel to this Bill. I am just suggesting that perhaps this Parliament needs to have some of that thinking shared with it.

Today is the first opportunity, within the clear parameters of new clause 3, to try to expose a bit of the thinking on how a limited amount of fiscal autonomy will work, and on how many of these taxes Scotland will not only collect, but be responsible for and have knocked off the block grant. As I remember it, when the leaders came up with this promise, Gordon Brown was a big voice—obviously, he was not one of the leaders at the time—for rather less fiscal autonomy. He was trying to stop Scotland controlling her own income tax revenues, so I do not entirely share the interpretation of the Labour Front-Bench team of what Mr Brown was trying to do at that point.

I will bring my remarks to a close with the simple conclusion that the world has moved on because of the general election result. The debate on money is taking place elsewhere, but we currently have a short debate about money here. I hope that the Front-Bench team will share some of its thoughts on money. Fiscal devolution seems to be attractive to many people in Scotland, but we need to know where it ends and how we sort out all those crucial issues about debt and borrowing as well as about shared policies such as pensions.

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The Greek and German tragedy

I was asked this week in the Commons if I thought Germany was an independent country. Some were surprised when I said that of course it is not. Some people keep on confusing power with sovereignty. Germany is a powerful country, but her actions are now very circumscribed by the EU and more especially by the Euro. Germany had no wish to lend large sums of money to Greece, but has done so indirectly via the European Central Bank because she cannot win the votes and arguments on that body on some of the most important issues.

Germany and Greece are now locked together in a relationship of their making which is bigger and more powerful than either government. Mrs Merkel has to allow more and more lending to Greece whilst in public saying there will be no more loans unless Greece agrees to austerity policies to cut the deficit more. Greece has to listen to endless sermons on how to change its public spending and tax policies.In order to qualify for official loans to keep it going she has to agree to some of the advice. Previous Greek governments accepted the requirements and presided over a 25% decline in the output and incomes of their country as a result.

I have always assumed they will muddle through to a “solution”, with Greece promising a bit more by way of reform, and Germany agreeing to more loans. That would be more of the same which has sustained this difficult and precarious relationship since Greece joined the Euro. Germany has more supporters in the rest of the Euro than Greece on some of these issues, but has lost the battle over quantitative easing and a generally easier monetary policy.

The brinkmanship is now quite extensive on both sides. Germany has recently threatened Greece with the imposition of capital controls. This would mean that instead of the European Central Bank continuing to lend the Greek banks any amount of money they need to replace lost deposits, the Greek banks would instead have to tell depositors they can no longer withdraw their money, or can only withdraw it on worse terms. This is what the Euro authorities made Cyprus do, creating effectively a Cypriot Euro which was worth less than everyone else’s euro. The Syriza Greek government for its part simply refuses to cut pensions and pay, pointing out that Greece needs more demand to grow, not less.

Germany has drawn attention to the possibility of capital controls because clearly Germany is rightly alarmed by the huge build up in ECB loans to Greece, now in excess of Euro 83 billion. Sometime these two – and the other Euro members- are going to have to sit down and talk about debt cancellation. The trouble is the creditors will want more austerity policies which the Greek people and their government do not want. That’s why it is always easier to put off a settlement, just as long as the Germans have under the rules of the game to stand behind ever more lending to an unreformed Greece.

Neither side has wanted to bring the crisis to a head. If one does, then we will see the real negotiation. If Germany wants to keep the entire Euro enough she will have to allow Greece more money and more leeway. If Greece is more worried about capital controls and being excluded from the full Euro scheme then she will have to bow to more of the demands of her creditors. Agreement means Greece spending less or taxing more, and it means Germany paying or lending more to Greece. It is still not clear which side is the stronger in its resolve.

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Economic migrants to the EU

Yesterday news came that the French have blocked the border with Italy to impede the progress of illegal economic migrants. This is against the Shengen rules they signed up to. Italy demands “burden sharing”, seeking a system of quotas for all EU states to share the migrants she lets in to her country. The UK has exercised its opt out from any such measure, having in the past stood apart from Shengen common frontiers.

The problem with the burden sharing policy is it acts as an open invitation to hundreds of thousands of potential migrants to come to the EU. Is it a helpful policy  policy to offer a better life to all the brightest, best and most energetic people in poorer countries, as it will make the growth and greater prosperity of those places that much more difficult to achieve?

I heard a difficult  question recently  about  the issue of the UK’s role in the Mediterranean. Why we did not ask the navy ships to go to the ports in Libya where the people traffickers operate and offer free passage to economic migrants to spare them getting on to the dangerous boats and subsequently needing rescue? The first response someone else offered  to the question was for him not to suggest such a bad policy. The UK  after all does not welcome illegal economic migrants into the EU, so would not wish to offer them free passage in naval vessels. The person pursued his case. He said that surely it was similar to what the government is doing, but with the added advantage that the people we are trying to save from the waters of the sea out of their dangerous boats would no longer be at risk if we transported them all the way.

The question revealed the tension  at the heart of current policy. The UK is a decent country so it does not wish to stand by and watch as people drown when we and others like us can help save lives. The navy is doing good and has stopped people losing their lives. We have a great humanitarian impulse. The UK also has a policy of not encouraging illegal economic migrants. If we pick people up at sea and deliver them to the very place they wished to go illegally, we could b e offsetting  the policy of refusing illegals entry into the EU. If Italy grants these migrants EU permission to stay and work in the EU they can then travel to the UK as legal migrants.

There are many ways that the UK could bring its humanitarian instincts into line with its opposition to illegal economic migrants arriving in the EU. It could do more with the world community to stabilise and encourage a prosperous peace in the countries people are fleeing. It could do more with the local authorities in the ports where they operate and with the world community to stamp out people trafficking. It could if all else fails continue to help save people in distress at sea, but take them back to their port of departure. The ports of departure surely should be made more responsible for their fate, as those ports fail to root out the people traffickers and allow unseaworthy boats to attempt the Mediterranean crossing. They allow the cruelty of the traffickers.

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  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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