The Brexit Vision

Following the rejection of the UK’s very generous offer to the EU by the Commission and the Parliament, I am reminding people why we voted Leave by publishing the relevant section from my recent lecture.
The negotiating mandate put out by the EU falls well short of a Good Deal for us and for them, as it seeks to tie us down in far too many ways without offering a good reason to accept their terms.

The main benefits of Brexit come from once again being a self governing country

I find it extraordinary that so many who make their living out of government and politics

Are so defeatist about this greatest of countries

Why do they doubt our abilities to shape good laws

Frame a good economic policy

And trade with the five continents of the world based on what we are good at?

Why do they both say they love the EU

Yet have such a low view of it that they think its main aim will be to do us down

Why do they tell us every clause and line of the Treaties has to be enforced against the UK

Yet all those great clauses in the Treaties that require the EU to be a good neighbour and trading partner of nearby states will in their view go unenforced and unheeded

If the EU is as logical and legal as they say our future friendly relationship is assured

And if it is not and the Treaty is made for breaking, it need not concern us what it says, especially once we are out

Anyone who walks the corridors and great rooms at Westminster

Must see there the heroic story of our islands

There on the walls and in the sculptures are the establishment and the rebels

The winners and the losers, the great moments of our history

There is the signing of Magna Carta, the taming the King in the seventeenth century,

The union of the crowns,

The saving of Europe from Napoleon,

The passage of the Great Reform Bill and the triumph of the suffragettes

So many made common cause to put the people in charge through their vote

And to put Parliament in charge of carrying out their wishes

All the time we remained in the EU there were an increasing number of laws we could not change

More taxes we could not control. More money that someone else spent away from our shores

This system took away the very freedoms our ancestors fought for and established

Once back these powers will be used well and sometimes badly, but always as a result of strong argument and heated votes here at home,

We will doubtless have economic reversals out of the EU as we did in it

But the difference matters

Next time when mistakes are made they will be our mistakes

They will be mistakes the British people can punish and put right

More importantly

Taking back control gives us immediate opportunities

To legislate wisely
And to grow our prosperity

That is why I voted for Brexit

That is why many of the 17.4 million voted for Brexit

That is why many who voted Remain

Will be winners too from this course

Once we are at last out of the EU.

This great people

This once and future sovereign

Will have many contributions to make to the world

As we have in the past

Let us be a voice for freedom

A strong arm for peace

And a force for good around the globe

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The Italian election

The BBC and other parts of the media seem to be very quiet about the Italian election. You would have thought this stunning result was worth a bit of comment, analysis and discussion. Just as we saw in Greece, Germany, the Netherlands and elsewhere in the Eurozone the traditional centre right and centre left parties have been dashed aside. 5 Star, a fairly new movement, has swept through the south of Italy, whilst the Lega has dominated in the northern Italian plain, taking much of Lombardy, the Veneto, Trentino and Piedmont. The centre left governing party was left holding on to Tuscany, whilst losing in most of the country. It slumped to just 18.9% of the vote, with the centre right party Forza that had displaced the Christian democrats some years ago only polling 13.9%.

Both 5 Star and Lega are Eurosceptic. Mr Salvini who leads Lega speaks for the centre right coalition as its largest party. The coalition has 37% of the vote. Mr Di Maio, the leader of 5 Star, speaks for 32.3% of the vote. One of them should be Prime Minister, though coalition talks could I suppose find some other combination of parties which gave the job to someone else. The Lega campaigned for Italy to leave the Euro and to remove the Maastricht,Nice, Amsterdam and Lisbon Treaties from Italy’s constitution. 5 Star dropped its wish to leave the Euro, but made clear its opposition to EU budget and Euro austerity policies and proposed spending more with tax cuts.

Lega representatives have made clear their view that the EU should change its approach to the UK and try and rescue an Agreement which they think would be in the EU’s interests. They had already upset the EU authorities massively, so that will not make much difference to the relationship.

The Italian result is another in a long series showing growing anger and frustration with the economic and budgetary policies of the Euro, high levels of unemployment, and the EU’s migration policy. It will probably make Brussels corral the waggons of integration more and will doubtless entice them to try to influence the government formation talks which will now be fascinating. The collapse of Italy’s governing party to 18.9% does at least make Mrs Merkel’s 26% vote share for her CDU look good!

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Let the UK be a voice for free trade

Most economists and most western governments agree that the more you free trade the more prosperous the participating countries will be. It is clearly true in theory. If Country A removes tariffs or other barriers to importing better and cheaper items it will be better off by the amount it saves on the imports, whether the other side similarly liberates or not. If both sides remove barriers then clearly both will be better off, as each will concentrate on what they are best at, lifting the buying power and living standards in both countries.

Today the theory of free trade and international specialisation is under threat, both from Mr Trump who thinks tariffs and a trade war might be good for the USA, and from China, the EU and others who impose tariffs and non tariff barriers against trade whilst claiming to believe in free trade. It is the huge German/EU surplus on its US trade, and the Chinese surplus with the USA that has triggered Mr Trump’s interest in the first place. He argues that there is an excessive imbalance because China and the EU do not play fair. He points to cheap currencies, state subsidy of overcapacity and below cost prices for some Chinese goods, and the EU tariff of 10% on all imported cars as part of his case. He says he wants to rework NAFTA and explore bilateral trade deals that are fair to the USA and to the other party. He thinks a bad trade deal is damaging to US interests, undermining jobs and incomes at home as the US comes to rely on cheap imports and foreign exchange borrowings to pay for them. He points to high levels of protectionism on agricultural produce in the EU and the NAFTA area.

A trade war will make losers of all involved. What country A gains on domestic production by pricing out imports it loses on exports to Country B who retaliates, and loses out from the higher price level in its own country squeezing real incomes. With a steel tariff on imports into the US, for every steel job at home that helps, several steel using jobs at home are weakened.

At this juncture the UK stands close to the point where it is an independent country again capable of pursuing its own free trade policy globally through its membership of the WTO and its worldwide network of diplomatic and business contacts. This is a good time to make the case for freer world trade and to lead negotiations at the WTO to put new life into removing tariffs and other barriers. They are still universally high on agriculture, and a wider issue with many emerging market countries that retain high levels of protection in ways that are unhelpful to themselves.

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Complex supply chains and industrial integration

There is a strain of advice going to Ministers from officials,the CBI and others of the Remain persuasion that we now have complex supply chains in business, and that European integration of industrial activity means we have to stick close to the single market.

In the 1980s before I became a Minister I chaired a large quoted industrial group. Between 2003 and 2010 in the opposition years I chaired an industrial group servicing the global market with some European production, as well as plants in the USA, India and China. I now realise I was in charge of complex supply chains. They did not cause problems at the time, despite the fact that components and finished product crossed many borders both within and outside the EU.

I have two main conclusions from my experience. The first is it is true that just in time and high quality production required careful management of suppliers. Sourcing was global, not regional. There is a high degree of mutual dependence in modern industry on a range of suppliers around the world. Large companies do not rely just on the EU or just on the US these days.

The second is we had no more difficulties with non EU sourced components than with EU products, despite all such products if needed in EU based factories having to come in under WTO rules.

The crucial things we had to manage were the quality and quantity suppliers could deliver, and the ability of the transport system to deliver them over long distances in some cases. Government interference in the process was rarely the main problem. Goods moved with electronic manifests, were always traceable and well known to the authorities in the countries they were travelling through.

There is absolutely no need to bend or drive UK policy on some fear about supply chains. Cheaper good quality components and products will still get there from EU and non EU places as they do today, whatever Agreement or lack of Agreement we end up with.

In the case of the pharmaceutical industry some claim to worry about the degree of UK/EU business integration, whilst ignoring the fact that UK/US business integration is much closer for the majors and takes place across WTO rules based frontiers.

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The twin deficits

For several years the UK economic debate has been fixated by the state deficit and borrowing requirement, and has largely ignored the balance of payments deficit. I presume this is because of official adherence to all EU rules and guidance, so they have been trying to get our budget deficit back down to Maastricht compliance levels at under 3% of GDP. There is celebration this month because at last we have got there thanks to a further surge in tax revenues that outperform the usual Treasury pessimistic forecasts that delight in getting it wrong.

I have not been worried about the state deficit for sometime, ever since Mr Brown found out that the UK state can literally print money to pay its bills. Mr Osborne, originally a critic of this in opposition, then discovered its charms in office as well. It turned out to have no adverse consequences on shop price inflation, though of course it caused massive price inflation in government bonds, because it was accompanied by severe pressure against bank lending to the private sector to avoid an inflationary blow off. I always adjust the outstanding debt by the £435 bn the state has bought up, as this is in no sense a debt we owe. So our government borrowing level (excluding future state pensions which some here worry about and which have always been pay as you go out of taxation) is modest by world standards at around 65% of GDP, and at current interest rates is affordable.

Most of the state debt we owe to each other anyway. The government owes it to taxpayers who own the debt in their pension funds and insurance policies. The state can always raise enough money to pay the donestic bills backed by the huge powers to tax, and as we have just seen when credit expansion and inflation are low it can also use liquidity created by the monetary authorities.

The deficit I worry about much more is our external deficit. That is the one where we have to buy foreign currencies to pay for it. It is the reason why we keep selling some of our best property and business assets to foreigners, and why we have to borrow abroad. Running at around 5% of GDP it is high by world standards, and means we gradually get into more debt or sell more assets to keep up with it. When you owe money to foreigners they may not accept money created to pay them off but will need real assets.

One quarter of the payments deficit is the government’s payments abroad for EU contributions and overseas aid. Stopping the EU payments halves that, and spending more of our overseas aid on the refugees who come to the UK here in the UK would help as well. Under overseas aid rules you can include the first year costs of refugees and migrants in your own country, and supplies and capital items you need to provide aid abroad. So lets make sure where appropriate we do spend the aid money at home or in the country we are helping, rather than buying imports from other advanced countries with it. One of the big wins from Brexit should be the opportunity to slash the big deficit in fish and food which is an important part of the burden of this overseas drag on our finances. I want the Treasury to take the balance of payments deficit more seriously and to act as a counter to those who want us to give more money away to the EU to perpetuate this large imbalance.

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Media interviews on Brexit

It is commonplace for tv programmes on the BBC and even on some independent channels to interview far more Remain than Brexit sympathisers, and to give them more uninterrupted airtime. Doing some interviews again this week I was reminded how bizarre it sometimes is.

There is first the test they sometimes apply to you. They ask if you would be willing to come on. When you say you will they then interview you for the task to see if they think your views are the ones they wish you to have for the sake of their programme. Sometimes they drop you, presumably because your views are not stupid or extreme.

Then there is the barrage of interruptions when you are on, if you dare to say sensible and moderate things. They are constantly putting words in your mouth that you have never uttered or thought, and you have to spend the interview denying their words are or ever have been your views. They are particularly hostile to new points or points they have not heard before.

If you look as if you are going to answer a question they think should floor you, they interrupt with another one in the hope that you will not have an answer to that.

I cant remember on Brexit when I was last asked an original or different question. The whole debate is repetitious, going over the same old lines we rehearsed on both sides endlessly for the referendum campaign. Every day is Groundhog day. We have debated at length the issue of membership of the Customs Union and single market, and the Commons has twice decisively voted against remaining in either. Now Labour wants to do it all over again as some Labour MPs have apparently changed their mind and wish to ditch their Manifesto on this matter. So the media then goes through it all over again.There is little likelihood of another Commons vote beforre Easter on this.

It is easy for the media to know what I am likely to say, because my views are all set out on every issue they raise on this topic on this website. Most of them interviewing me seem to be briefed by researchers that have never read my actual views, yet nonetheless reckon they know them better than I do.

Some in the media still have not grasped that the Northern Ireland/Republic of Ireland border is already a complex border with a different currency, different Excise taxes, VAT and Income taxes either side which need sorting out as goods move across. This does not need a man or woman in a kiosk on the border doing the sums whilst vans and lorries wait. It is all done electronically. So why can’t the new arrangements be done similarly? Have these interviewers ever heard of TIR, Authorised Economic Operators, and electronic manifests? If not, it is difficult for them to ask sensible questions of those who think all this means watch towers and Customs officers holding everyone up which no-one wants and we do not need.

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Cake and eat it

The whole point about having cake is to eat it. If we do a good deal with the EU both sides can have their cake and eat it. If a deal means too little cake for one side there’s no point in the deal. No Deal will let us eat more cake than a bad deal.

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Good news for industrial investment in post Brexit UK

As we are constantly hearing cautionary remarks from trade bodies, from the motor industry and sometimes even from companies like Airbus about their future in the UK as manufacturers, it might be a good time to examine what they are actually doing rather than listening to remarks which become highly spun and negative.

Toyota has announced a £240 million investment at Burnaston and will make its new Auris model there.
Nissan is going ahead with a 20% increase in its production capacity in Sunderland. It is also planning to raise the proportion of UK manufactured components used from 40% to 80%. This is important for rules of origin under WTO rules and is in line with government policy to encourage a higher local sourced percentage.
Aston Martin announced its new factory in St Athan’s before the referendum but has since confirmed it and announced deals with Japan and China to underpin the expansion. That second factory will make a new model.
Airbus has carried on with its investment and said it is still “very highly committed to the UK” whilst also pressing for a close future relationship with the EU
Siemens has announced a £200 million new plant for Goole in Yorkshire to make trains. In December 2016 after the vote it also committed £310 m to a wind turbine blade plant in Hull.

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Rough going on gas

Yesterday industry had to reduce its demand for gas to allow priority to households. Compensation will be paid to industry as a result which we will all have to pay.
I have long argued that we need to make more energy available, and that margins are now too tight. The loss of the Rough Storage capacity for gas has taken one more reserve and flexibility out of our system, leaving us short on a cold day. The gas forecasts were based on the assumption that less gas would be used for electricity generation, with more planned reliance on imported electricity. Yesterday we certainly imported plenty of power from France, the Netherlands and Ireland, but still we ran short of gas.
I will write again to Ministers urging them to adopt a policy of self sufficiency in UK energy. We do not wish to be dependent on the goodwill of others to keep the lights on, nor should we have to tell industry to make less because we are short of fuel.

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Are we there yet?

A majority of the public just want the EU to get on with it, so we can complete Brexit.

We voted to take back control of our laws, our borders and our money, so we know our destination . Increasingly the travellers in the car are asking “Are we there yet?”. Instead they are told we are still stuck in a traffic jam in London, with arguments going on over which is the best route to our destination. Meanwhile the Opposition are rushing round trying to close the roads we need to take to get to Brexit.

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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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