The collapse of traditional parties on the continent

Mrs Merkel’s bad loss of votes and seats in the 2017 German election was part of a continental pattern. In practically every Euro member state there has been a similar collapse in support for the two traditional parties of the centre left and centre right that alternated in government in the last century. Their vote has been lost to challenger parties of the right and the left. Some say the rise of the so called populist parties is the result of the financial crash and the poor economic performance since 2007.

This explanation does not seem to be correct, as the USA and the UK also suffered from a similar banking crash and recession in 2007-9. It is true that we have made a bit better recovery than many parts of the continent since then, but the similar problems with real income growth and productivity characterise most of the advanced world. In the USA the two main traditional parties continue to dominate US politics. In the UK following the Brexit vote there was a sharp improvement in the vote share going to both the Conservative and Labour parties in the 2017 UK election, giving the UK a very different political path to that on the continent. Between them Labour and Conservative commanded 83% of the vote.

The extent of the decline of the parties similar to Labour and Conservative in the rest of the EU is very marked. In Greece, Pasok (centre left) recorded just 6.3% of the vote in the last General election, and New Democracy (centre right ) 28.1%. A left inclined Syriza has taken over as the main governing party.

In Belgium The Socialist party polled just 11.7% in the 2014 election, and The Christian Democrats 11.6%. The vote has splintered to a range of regionally based parties. In the Netherlands in the 2017 election the socialists claimed just 9.1% of the vote and the VVD (centre right) 21.3%.

In Spain the PP (centre right ) managed 33% with PSOE (socialist) on 22.6%. The PP is in minority coalition government.

In France En Marche swept all aside in the legislative elections, leaving the Republican party (centre right) on 22% and the Socialists on 5.7%.

In Germany the CDU polled just 26.8% this autumn and the SPD 22.6%.

The challenger parties that have captured much of the support have several similar characteristics. They often campaign to relax the austerity controls of the Euro scheme on their economies, favouring higher levels of public spending and borrowing than is permitted. Some of them also campaign in favour of ending freedom of movement within the EU, wanting some controls on migrant numbers into their countries. Some of the parties are Eurosceptic, seeking exit from the Euro. Others merely campaign for a very different type of Euro with a subsidy union to back it up. Some of the successful challenger parties are wanting regional independence or autonomy, as with the Catalan nationalists, the Belgian regional parties and the Lega Nord in Italy.

It looks as if the collapse of the old main parties on the continent is a Euro area phenomenon related to economic pressures within the zone,leading to identity issues affecting national and regional politics. It is curious how the grand old parties allow this decline to happen, and how none of them so far have found a way to recover. One of their main problems is they cannot offer much change in economic policy given the way the Euro scheme works. Locked into policies which electors do not like, voters turn instead to new parties and noisier parties in the hope they will break out of the EU consensus. Normally democratic parties change policies that make them unpopular and fight to keep their voting base. The EU has changed all that in the Euro area.

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The Irish border with Northern Ireland

The UK government is keen to keep an open border similar to the present one after Brexit. It has set out how this can take place.

The Republic of Ireland and Northern Ireland have enjoyed a Common Travel area for many years. It pre dated our entry into the EEC. There is no wish to change this on exit. People will be free to cross the Ireland/Northern Ireland border as today. New UK migration controls are likely to rely on benefit controls and work permits if people wish to settle in the UK.

The current border is a VAT and currency border at the moment. Goods and services entailing cross border transactions require today paperwork or electronic filings to handle the different tax regimes and any currency adjustments. If we end up with the WTO model for Brexit,it will be possible to add a customs tariff line to the documentation that already is generated for a trade transaction across the border.

The likely approach will be for the larger importers and exporters to register as Authorised Economic Operators. They will be able to file electronic paperwork about truck consignments in advance of travel. Number plate recognition technology can be used at road border points to ensure the necessary registrations and payments occur without the need for physical barriers or stops.

Smaller consignments by small businesses living near the border can be exempted.

The UK has offered a friendly and sensible approach to preserve the advantages of the current border arrangements. The EU could adopt the same or could suggest other improvements for mutual agreement.

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We owe the EU nothing

There is general agreement that there is no legal requirement for the UK to pay the EU anything on exit. There is no provision in the Treaty for an exit bill. We received no payment on joining to deal with liabilities the other members had already incurred. No one suggests if a net recipient country wanted to leave they would receive a leaving bonus. No one in the referendum campaign said we would face a bill.The EU has never produced a legal base for a divorce bill.

Some seem to think we should nonetheless pay something to get a deal. It is most important that this is always called an ex gratia payment or gift, as the UK must not by its language and promises create some legal obligation under EU law that does not exist at the moment. There is a danger in seeking some signed promise of trade talks in return for some written offer of money in turn. Under EU law we could create a legal obligation if we use the wrong words where there is none at the moment. There is a danger that making a contingent offer subject to getting a good Agreement will just be banked by the EU.

Trying to keep discussion of payments to general indications and headings will not stop the EU putting a figure on any indication and applying moral pressure on us to pay that amount. Nor would it stop them trying to get that money without a good Agreement.

As we dont owe anything the best thing to do is to offer nothing. The public show in polls that they have no wish to pay large sums to the EU. It is time to spend the money at home instead.

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Build rates and planning permissions

Wokingham Borough has made a substantial number of planning permissions for new homes available to the housebuilding industry. Sometimes the developers do not build these homes at the pace the local plan would like. Others then apply for additional planning permissions because the build rate is not fast enough.

The Council and I have made these points to the government. In the Budget the Chancellor announced that Sir Oliver Letwin will lead an Inquiry into how the build rate can be speeded up to avoid the unplanned consequences of failure to use existing permissions. I will take this up again with the Inquiry.

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New garden towns and the Oxford to Cambridge corridor

The government has stated its wish to find locations for new garden towns, and to expand ambitions for the Oxford to Cambridge growth corridor.

The UK’s original garden settlements grew from the provision of housing for a workforce. Josiah Wedgwood built better employee housing near  his new factory at Etruria in the eighteenth century. Later developments  like Port Sunlight and Bournville continued the tradition of creating a village community for a workforce, with better quality housing with gardens, green spaces and community facilities.

The garden towns movement began with Letchworth and Welwyn. It extended its influence over larger and more recent new towns like Milton Keynes. The idea was to preserve a more rural setting for housing and to use good architecture and design to create a better  environment. The developments contrasted with the more crowded housing of the Industrial Revolution in the large industrial cities where gardens were cramped or non existent and space more restricted for each family.

These success stories of UK architecture and planning show that it is possible to build in ways that reflect the wishes of many to live in green surroundings and to harness the best of design.

Modern developers often build properties that draw on traditional styles of house with characteristics from former eras. There are contemporary variants of Elizabethan half timbered, of Georgian classical and terrace, and of Victorian villa and terrace.

It will be interesting to see where the government  might find support for new garden towns and to see  what designs the advocates will propose. Milton Keynes is in my view a success story, with a very green environment to offset the grid pattern of main roads and service roads which place the town firmly in the age of the car.

Our traditional settlements that have grown more slowly over the years benefit from a rich diversity in styles as each era added or replaced some parts of the urban landscape. They usually retain an ancient road pattern which creates jams and bottlenecks as people try to get to school, work and the shops using their cars.  The new towns offer a chance of  design that accommodates the instinct for personal mobility that people share.

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Budget reflections

As we had read in the newspapers, the Office of Budget Responsibility decided to downgrade their forecasts for productivity, which led to a reduction in the growth forecasts. These growth forecasts have been up, down, up and now down a bit over the last two years as various assumptions have been changed. The latest version shows growth at 1.4% in 2018 and at 1.3% in 2019, down from 1.6% and 1.7% in the Spring forecast.  These forecasts relate mainly to the pre Brexit period, with growth rising again in 2021 and 2022 after exit.

Despite this revision the government is still on track to start to cut debt as a proportion of GDP from next year onwards. Public sector borrowing is now estimated at £49.9bn this year compared with the £58.3bn in the Spring forecast, and to fall in  cash terms for every year over the next five years. Revenues have been more buoyant than the forecasters expected.

The OBR may be right to reduce its productivity figure, as all major economies have experienced slower productivity growth than before the banking  crash of 2009. The UK has been particularly successful at creating many more jobs.  This will tend to reduce the average rate of productivity growth.  Productivity is measured by comparing the value of the output sold with the numbers of employees creating it. As an economy increases the share of certain services it will tend to slow the growth of productivity. Faster productivity growth with higher productivity numbers is generated by large investments in oil extraction, chemical plants, automated engineering works and the like where the amount of output per employee is very high reflecting the large amounts of capital equipment put in.

It does seem that the global number crunchers are having difficulty capturing the value and the efficiency of the new digital revolution. The big digital service providers are cutting prices of traditional activities and supplying substantial service free to the individual user. Is this fully captured in the way they calculate the figures?

Meanwhile the official forecasters have struggled by taking too pessimistic a view of Brexit. Their idea that investment and confidence would be hit badly affected their short term forecasts after the vote. Some of this has now been adjusted in the latest forecasts which assume business investment will resume growth from this year onwards after a pause in 2016. They now expect employment to rise each year a little as the economy continues to create extra jobs. They expect good growth in UK exports this year and next, with very little  growth in trade in 2020 and 2021.

Overall the forecasts look more sensible than the pessimistic ones in the summer of 2016. There could be more surprises on the upside, as there were today on the deficit this year and the tax revenues.


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A new UK fishing policy

I have long argued we should be able to produce a new UK fishing policy which is kinder to both our fish and our fishermen.

Fishing for Leave has come up with some interesting proposals designed to allow us to catch more fish for our own consumption whilst conserving more fish at the same time.

As they point out, it is not difficult to design a better policy than the long lasting Common Fisheries Policy. This was based on a quota system for each type of regulated fish. A fishing vessel had to throw back all dead fish that did not conform to the required limits on landings. It meant the UK fishery caught a lot of fish that had to be dumped dead.

After years of this damaging approach they decided to try to ban dumping. This is difficult to enforce without cameras on every boat in the right places. It also means when enforced  vessels are  banned from fishing as soon as they  hit quota problems on any given species.

Fishing for leave recommends a different approach. All fish caught should be landed and used. If we can eat all the fish caught we can  catch far fewer fish than needed with a discard policy in place, whilst landing more than under the old policy. The fishery would be protected by limiting days at sea for the fleet, to limit overall catches. In order to stop vessels pursuing too many fish of a particular kind because it is valuable or popular the system would include reducing days at sea for any vessel that did pursue too many fish of a species that was at risk.

This proposal looks like a good basis for forming a new policy. The aim must be to protect our fishery so it is there for the future. There has to be some way to prevent excessive exploitation leading to a bad decline in fish stocks. It should also aim to deliver a fishing industry that does supply us with the fish we want to eat. We always used to have a surplus of fish when we ran our own policy, and can do so again.

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Official figures for the UK contributions to the EU

The official HMT and OBR figures for 2016 shows the following

Total gross contributions       £23.148 billion    (£445m a week)

Gross contributions less rebate    £17.865 bn    (£343 m a week)

Gross contribution less rebate and monies paid back to the UK  through EU programmes    £11.73bn  (£225 m a week)


The gross contributions are made up from

Customs revenues      £3.347bn

VAT EU share   £3.647bn

GNI levy           £16.154bn

We need some new estimates of what customs levies would bring in were we to opt for the WTO model. Indicative figures are that the UK would levy £12bn on EU imports into the UK. This money would be available to give back to UK consumers as tax cuts and benefit increases, so customers were not worse off if they wished to continue to buy so much EU product.  The EU would levy £5bn on UK exports to the EU, which would still leave our products more competitive than two years ago before the rise of the Euro.


The WTO model the big attraction of no so called divorce bill.



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Better jobs

The UK economy has been good at creating many new jobs over the last seven years. It has been successful at taking unemployment down substantially. One of the main aims now should be to promote higher skilled and better paid jobs. This is the essence of  how to tackle the so called productivity problem.

It is  normally easier to get from a job to a better paid job, than to get from unemployment into work. It is possible for many to work with their employer. Good companies have schemes to foster training and to help employees achieve qualifications. This usually leads in turn to promotion within the firm.

There are many skilled areas where the UK is recruiting where we could do with more skilled young people from our own Colleges. Various companies and industries complain of a shortage of good people with the right skills. Often they turn to inviting in people from overseas to fill the gaps. The UK economy has been great at generating jobs for new migrants as well as for people already settled here.

Raising employee productivity can take place in several ways. The company may just get better at selling service or product, and raise the amount supplied per worker through good sales combined with processes that allow the existing workforce to service some of the growth. The value of the company’s output may rise for other reasons. When, for example, the oil price goes up the employees of the oil producers become more productive because the  value they each produce rises. A company may introduce better product or service which commands a higher prices which also boosts productivity.  A company may invest more capital in computing, automation or more modern process which can allow the same workforce to produce and sell more.

The UK has a great opportunity to replace more imports with domestic production given the improvement in our competitiveness in the last couple of years.



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So the EU budget rebate is at risk

In the endless referendum debates and interviews about the money I always stressed that the £350 m was an accurate official figure for the gross amount. I also quoted the various  net amounts if they were relevant to the specific question.

Quite often Remain speakers claimed we do not send the gross amount, but retain the rebate at home. We have further confirmation from the EU that we do send the gross amount and have to reclaim the rebate later. Now there are stories that the EU will not pay the last rebate owing. In that case we should only send the contribution net of estimated rebate.

We also read that the EU thinks we should accept some  future liability for Ukrainian loans from the EU. This reveals an interesting EU worry. EU policy towards the Ukraine has been problematic. The wide ranging Association Agreement was part of the reason for political change in Ukraine which led to the loss of Crimea and to a bitter civil war which damaged the economy. The EU and the IMF were drawn into offering substantial financial support for the troubled economy.

It is difficult to see why the UK when out of the EU should have to stand behind loans the EU has made when we will not be receiving any financial gains the EU might make on other assets.

If this  is the best the EU can come up with we should continue to plan  to leave under the WTO option. The UK should not make any concessions.

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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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