The government should not sign the draft Withdrawal Agreement with the EU

I have advised the government not to sign a one sided Withdrawal Agreement. They have always confirmed they will not sign it unless and until it is balanced by a good Future Partnership Agreement, which is still nowhere to be seen. I need to remind them why the present draft Withdrawal Agreement is thoroughly unsuitable for the UK anyway.

The UK voted to leave the EU and its complex binding legal Treaty architecture. We will do so thanks to Parliament passing the Notification of Withdrawal Act and the EU Withdrawal Act. We did not vote to recreate much of the legal structure by immediately signing a new binding Treaty with some of the characteristics of the one we are quitting. The long and complex document is mainly written for the benefit of the EU, to lock the UK into continuing financial and legal obligations that are not appropriate to an independent country.

Several clauses assert the supremacy of European law and the ECJ. The EU side believes any such Agreement is ultimately a matter for the ECJ to interpret. Article 4 requires the UK and UK courts to follow ECJ decisions when taking cases under the Agreement. The Joint Committee to be established to police the Agreement can refer matters to the ECJ for adjudication where the two parties disagree, and the EU side thinks they should have the right to do this even where the UK does not want the ECJ involved!

Extensive rights are to be granted under the Agreement to EU nationals who come to the UK after we have left  but are still in transition, and family members qualify after we have left even though they have not come to the UK prior to departure. In other words the UK does not have the right to decide its own borders policy after departure for many EU citizens.

The draft Agreement also seeks to restrict the UK’s freedom to run its own benefits policy after March 2019.

The Agreement is wide ranging, seeking to bind us in to elements of the common Home and defence policies, trade and goods regulation, public contracts and various regulatory bodies.

It offers comprehensive immunities and exemption from UK taxes to a wide range of senior EU officials, and provides for secrecy over various EU matters.

The financial provisions are particularly detailed and onerous. Clauses 133-6 provide for continuing budget contributions and pension payments long after we have left, with prolonged exposure to the European Investment Bank risks without access to any new loans.

We voted to leave intimidating legal restrictions and Agreements like this one, not to volunteer for another.

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Tax rises do economic and political damage

Let me have another go at persauding this government to turn away fom raising tax rates and finding new things to tax.  Their own record should tell them that such proposals are usually unpopular with many voters. Where they have gone for higher taxes they have proved to be economically damaging.

Even the government now sees that the higher Stamp Duty rates imposed by Mr Osborne have hit the amount of revenue. Coupled with other adverse tax changes they have cut the flow of buy to let property investment, led to a substantial decline in turnover in various types of residential property, and reduced other tax revenues from the hit to the property market.

The Higher Vehicle Excise Duties imposed on dearer cars in the 2016 budget, coupled with the threat of new and additional taxes on diesel and maybe on petrol cars to come, led to a sharp decline in new car sales and to some decline  in UK car industry output. That too cut various tax revenues that the government would otherwise have enjoyed.

The proposal in the Conservative Manifesto that people would need to make a larger financial contribution to their care when living in their own homes was greeted with a hostile response and was seen as a new tax. It had to be dropped, after it damaged the chances of a Conserative outright victory in the General Election.  The government says it is looking again at how to pay for social care. It needs to be careful. There is little  support for a new death tax.

The Treasury is always threatening some group  or other with the possibility of new or higher taxes. There is little support for the bad idea of making the self employed pay more National Isurance. We need to be making it easier for people to work for themselves, not dearer.

Some want to tax technology more because it is popular and fast growing. Why not sit back and enjoy the higher revenues that will come as its growth takes place, rather than try to get more of the high tech success stories to go offshore altogether.

The way to get more tax revenue in is to cut rates and promote growth. In a very footlooose and competitive world the USA has just got a lot more competitive thanks to the Administration’s tax cuts. The UK needs to go the same way to succeed.

 

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Iran and a conflict of laws

The US President brought sanctions against Iran into effect on 7 August, with more to come in November. UK and EU companies are warned that they need to comply with the bans on automotive, oil trading and other goods with Iran being introduced in two phases. The US Executive Order  takes powers to enforce this against foreign companies by warning them that if they do not comply their assets and income in the USA can be distrained to pay fines and penalties, actions can be taken against their executives on landing in the USA, and they will find they cannot use US banks to facilitate their trade and business anywhere in the world. Many EU and UK companies have accepted this extra territorial assertion of power and are cutting their Iran trade in order to keep the far bigger US and global trade that could be damaged otherwise.

The EU acting for  the  member states argues against accepting these US sanctions. It has rushed out a reprise of the EU Blocking Statute of 1996 which was designed then to deal with US sanctions against Cuba, a legal instrument which was never used. It has added to this document provisions to cover trade with modern Iran, and seeks to impose a ban on EU companies complying with the US sanctions. Were this to be effective legally it would mean a double jeopardy for EU companies, facing legal actions against them and their US business if they bust the sanctions imposed by the US, and facing EU legal actions if they comply with the sanctions.

The form of the EU legal document is unclear. There is to be a committee of member states to supervise its actions. Member states themselves are invited to put in a penalties regime for companies breaking the Blocking Statute requirements. Bringing a case where a company simply  decides against doing business in Iran could be difficult if the member states do put in place the necessary legal enforcement, though it would be easier if an EU company had broken an existing contract for fear of US retaliation.

This development of a further trade spat between the USA and the EU is unhelpful. Meanwhile we await the talks between the EU and the US over car tariffs and other matters.

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Spending the £39 bn – cutting VAT

Once we take back control of our money and laws we can review the incidence and level of VAT. It becomes a UK tax on 29 March next year, after years of it being an EU imposition.

I have set out before my wishes. Surely most can agree we should abolish VAT on green products. We wish to encourage people to have more draught excluder and insulation, and to have better controls on their heating systems, yet the EU charges them top rate VAT on it all. Lets simply abolish it.

I would also like to see us abolish VAT on domestic fuels. Fuel is expensive, and hits those on lower incomes particularly hard. Successive governments say they want to tackle fuel poverty. The best contribution they could make would be to remove the tax on fuel.

We should also abolish VAT on female hygiene products.

These changes would create some loss of tax revenue, but are easily accommodated within the savings of £39bn if we leave without giving the EU a present. I set out the costings of all this in the Brexit budget I offered as an illustration of the scope prior to the referendum.

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Government tightens fiscal policy more to help slow the economy

The latest figures for borrowing show a further reduction in additional borrowing in the first quarter of the new financial year, as forecast here. Tax revenues are well up on a year ago, by more than the rise in spending, so additional borrowing falls again.

The authorities just need to be careful lest they slow the economy too much. Then they will find the deficit stops falling, as tax revenues are sensitive to the rate of growth. As expected, the combined fiscal and monetary tightening is slowing the economy, at a time when other advanced countries are offering more stimulatory policies.

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More lies about second referendums

I have never supported two referendums on whether to Leave or Stay within the EU, contrary to some misleading stories.

Years ago before the Conservative party agreed a simple Remain/Stay referendum there was a proposal to ask the people if they wanted to renegotiate our relationship, to be followed by an In/Out referendum. In the end the government  held a renegotiation without bothering with a referendum to approve such a renegotiation.

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A spending cut for the Treasury – stop sending money to the dead

Every day government sends out pension money and benefits to people who have died.  It then employs other staff to work out where there has happened, and to seek to reclaim it from relatives of the deceased. This process takes time and effort, and is not always successful. It is also upsetting to family members to receive communications about overpayments to their dead loved ones. There is a double cost in the money they do not get back and in the costs of the recovery, and a cashflow cost from all the erroneous payments made. I ask the Treasury to look at how to improve and save money.

More to the point this waste and cost could be easily saved. Most people who die in the UK are elderly UK citizens. They must be well known to the UK state, as they die under the supervision of an NHS hospital doctor in an NHS hospital, or under the eye of an NHS GP. In order to get the free NHS care the elderly person has to be well known to the UK authorities, with medical card, National Insurance number, and registered with a local surgery with name , address and these identifier details.  More importantly, the supervising doctor has to make out a medical certificate identifying the person and establishing date, time, place and cause of death.  This document could be used to inform the rest of government of the death and cease all payments from close to the time of death.

It is true that NHS hospitals often delay producing the Death Certificate for a few days for no good reason. Why not ask the senior medical person on duty when the person dies to produce the certificate before going off shift, as surely it is easiest to write out an accurate certificate whilst the memory on the ward is still fresh as to the time and circumstance of death. This can be promptly checked and reviewed by another unrelated doctor at the hospital.

The state, however, delays matters further by requiring a relative of the deceased to pick up the medical certificate and to take it to a Registrar of Deaths to create a second death certificate. This can delay matters longer, as Registrars are not available at week-ends or in the evenings. The relative has to go in person to  meet the registrar, and often there is a week’s delay or more before the first available  appointment can be secured. The relative is requested to take the birth certificate, marriage certificate, NHS card, NI number, tax reference, full name and address of the person as if the state does not know any of this from the medical death certificate and its own records. Still, however, when the formal Death Certificate is issued, the government may  go on paying the deceased.

Individuals are further encouraged to register with Tell Us Once. The irony of this is  not lost, when it is clearly tell us at least twice and turns out to be an invitation to tell them many more times. This entails putting onto another computer many of the details given to the Registrar, and saying what the relative knows about the deceased’s relations with the state. After doing this, payments are still often made to the deceased!

This is a bad system that imposes plenty of stress and hassle on the grieving relative, and fails to use the amply supplied information to  stop the flow of money promptly and cleanly. Surely in an age of computers which can talk to each other the state could stop paying pensions and benefits to the dead?

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How more EU damages political parties

The traditional parties like the Christian Democrats and Social democrats in most continental countries, and Labour and Conservative in the UK, have a history of changing leaders and changing policies whenever their popularity falls or their electoral success is threatened. That is the nature of democratic politics. Parties that want to govern have to please enough people enough of the time.

So what is bizarre is the way the EU holds them in thrall, in the case of the continental parties to the point of self destruction. Undue support for the austerity policies of the Euro has swept aside the traditional parties of Greece, Italy and France, throwing up new parties that have taken over government. In both Spain and Germany the two old giant parties  have been deeply wounded by the their adherence to the EU/Euro scheme.

The UK parties have been less damaged because self preservation – and a lot of pressure from a few of us in Parliament – kept them out of signing up to the Euro. At the last election the promise both made to take us out of the EU took support for Labour and Conservative back up to a combined high 83%. It is not surprising to see Conservative support now  falling with the PM trying to persuade people of her delayed and partial exit  in tge Chequers proposals. Many Conservative voters from 2017 feel let down, as they voted for a party that would get on with Brexit.

Mrs May needs to remember just how much damage too much EU has done to the Conservative party before. Mr Heath who took us into the EEC lost in 1974, the first election that followed that fateful decision. It was not just the EEC that cost him, but Labour offered a renegotiation and a referendum  which proved more popular, as people thought Mr Heath had done a bad deal. Sir John Major sacrificed his party and did huge damage to the UK economy by insisting on joining the Exchange Rate Mechanism. This duly plunged us into high inflation followed by recession, as I predicted at the time. This in turn meant the Conservatives spent the next 18 years from the 1997 election without a majority in Parliament, with 13 years in opposition with few seats, paying the price for the economic incompetence too much EU delivered. The false explanation that he lost in 1997 owing to disagreements about the EU can be easily rebutted by looking at the opinion poll graphs. The Conservatives lost support heavily as soon as the economic damage of the ERM was revealed, and never regained it – nor lost more – during the rows that followed.

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Stamp Duty receipts fall

As forecast here, Stamp Duty receipts are now lower than before Mr Osborne’s big increases in the rate of Stamp Duty on second homes, and dearer properties.

Other tax receipts will also have fallen from the sharp reduction in transactions that has resulted. It means less income and corporation tax from estate agents, removal firms, and home improvement businesses that do well out of people moving.

So why not cut the rates to raise more revenue?

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Beware the draft Withdrawal Agreement

It is difficult to see why some in government are so keen for us to complete negotiating a Withdrawal Agreement. The one the EU has in mind is a one sided grab of powers and money. Some in government seem to think we need another 21 months in limbo, technically out of the EU but in practice bound into it by a new Withdrawal Treaty on more penal terms than our current membership. What is they can agree after March 2019 that they have been unable to agree in the 2 years nine months from the vote until next March? Why not just get on with it with March 2019 as the deadline?

Mr Raab has tried to inject some negotiating counter into the proceedings by saying there needs to be a Future Relationship Agreement to justify this very generous Withdrawal Agreement for the EU. The problem is the UK civil service seem to accept that the Future Relationship Agreement will be a flimsy Head of Terms, effectively little more than an invitation to another 21 months of probably unfriendly and fruitless negotiations. Meanwhile the EU is understandably keen to get the UK to sign the Withdrawal Agreement in solemn Treaty form, so we are bound in and have to make the payments.

I have seen nothing so far on offer from the EU by way of a future relationship that justifies paying them another £39bn after we have left. Canada did not pay them for their FTA, so why do we need to pay them for something similar, if that turns out to be their best offer in the end? Nor do I like the idea that any future partnership would take the form of a complex and binding Association Agreement. These are used to impose EU rules and practices on states that would like to become members in due course.

The more I look at the UK economy and public services, the more important it seems to me that we have that money back soon. Then we can pull off what is needed for greater prosperity – tax cuts, spending increases and a fall in deficit.

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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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