John Redwood's Diary
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The Bishops should have second thoughts

 

This Easter I have been re reading the Anglican Bishops letter for the General Election. It doesn’t make better reading the second time round. Rather it does now seem even more unfair and inaccurate  given how the economy has developed.

The Bishops main case is that all the political parties have failed, hence the need for their intervention. They tell us “The problem is no-one in politics today has a convincing story about a healthy balance between national government and global economic power”. “Our democracy is failing because successive administrations have done little to address the trends which are most influential in shaping ordinary people’s lives”.

I thought one of the big arguments in this election is just that balance between the state and the private sector, with different visions and versions from Conservative, Labour and SNP/Green. All the main parties think they are addressing the issues that most worry people, in their own way. Conservatives have put through a change to get multinationals to pay their fair share of profits tax. Labour wants to place further controls and taxes on big business.

This aggressive attack on all politicians and parties may be popular, but as I expected there is no evidence that the Church is going to put up candidates to show us how to do it, and little evidence that the Church has found an agenda which can unite electors and get them enthusiatically going to the polls where the parties in the Church’s words  “fail”.

So what are these trends in “ordinary people’s lives”, as the Church somewhat disdainfully calls us?

The first is rising unemployment which the Church says we have been experiencing since 2010 (p46). It is a pity they were unable to read the official figures which show great progress in cutting unemployment since 2010, and a pity they seem unaware that tackling nunemployment has been a central priority of the last government. Nor did the Opposition disagree with the aim. The argument is over how best to carry on cutting unemployment, and over how to ensure the jobs are well paid.

The second is their allegation of rising inequality.On page 49 the Church says we need to halt the move towards more inequality of wealth. On page 33 they wrongly state that material inequality continues to widen. Once again they failed to read the national official statistics. The Gini coefficient, a recognised measure of inequality,was at 34.7 in 2006-7 and has fallen since then under the coalition, where a lower figure means less inequality. The richest have made the biggest contribution to getting the deficit down through a substantial rise in the tax they pay.

The third is the Church’s belief that we need to share a cultural identity with the EU, not with the Commonwealth or other global groupings. Page 30 seems to be an attack on Eurosceptic opinion. There is no mention anywhere in the tract of the huge damage being done by the Euro,  by the EU austerity policies and the high energy costs that come from Brussels. Nor is there any sympathy for the unemployed on the continent or anger about the mass unemployment in some continental countries, and the especially high youth unemployment, let alone any suggested remedies.

I do think  Bishops  should set themselves higher standards of drafting and evidence before sounding off on these very sensitive issues. Have they yet had time to research the true trends of unemployment here and on the continent? Have they yet checked their facts on inequality and who is paying the extra taxes?  Will they correct their mistakes?

It would be good if the Bishops recognised  that Conservatives set out to create the conditions in which the economy generates  more jobs and better paid jobs, as we wish to tackle poverty vigorously. Their absurd caricature of the Thatcher years is too wrong to be able to rebut in a sensible space. I want to live in a prosperous society where there is opportunity for all and decent state support for those in need.

The UK has been a multi party democracy for years

 

There is nothing new in UK politics about some people wanting to vote for parties that are mainly about regional and national identity and related financial isues rather than about the main choice between major parties of the Union. Our Union has been the object of major debates in many decades. In a way that is very healthy, and has led to political change in the shape of our union and to the various powers held under the UK Parliament by different parts of the Union.

The 1974 October election saw 11 Scottish Nationalists,10 Ulster Unionists, 3 Plaid Cymru, one Social Democrat and Labour and one Independent elected to a Parliament with no overall majority for Labour or the Conservatives.  There were 39 MPs from  parties other than Labour or Conservative, and the Speaker.February that year had also seen 37 MPs other than Labour or Conservative and the Speaker elected for seven different parties, with no overall majority for anyone.

On that occasion those two Parliaments produced  Labour minority governments which presided over economic calamity, the country running out of money, a trip to the IMF, and major cuts in public spending forced by the economic circumstance of a country whose government was unable to control its budget properly.

On current opinion polls there could be more MPs from nationalist parties than in 1974, if the present popularity of the SNP is sustained until polling day. This will require some justice for England in the next Parliament, something which seems to be in small supply from most parties. We will need the Conservative policy of English votes for English issues.

It also means paradoxically that the people of England will be able to choose who governs the UK with less help from outside England, if enough English voters can agreee on which of the two main parties should win. Only if English voters remain very evenly split between Labour and the Conservatives, or if a large number of English voters themselves want to vote for other parties do we end up with a situatlon where there is no majority government. I find it fascinating that Labour still does not see the need to offer fairness to England in such a situation, at a time when many English voters do want a new settlement for them.

 

How free enterprise and innovation cut austerity

 

Free enterprise capitalism is the parent of higher living standards and better lives for the many. The luxuries of the few of the previous generation can become the norm for most in the next. Today we can enjoy service and facilities that we could not even dream about twenty years ago.

In the 1950s, many homes  had no tv, no fridge, no car, no telephone.  These middle class luxuries arrived gradually in the 1960s as people  got pay rises and as these luxury products became cheaper relative to wages. The financial system also found new ways to help people of modest means to buy them. Many tvs were rented. Car finance took some of the waiting out of wanting. More mortgages became available, so  many  could buy their first home.

The progress of many in the UK from blue collar to white collar work, from working for someone else to running your own business, from renting to owning a home,from living without phone or tv or fridge to having those former luxuries which became necessities reminds us just how much free enterprise has delivered. It also reminds us that sensible borrowing by individuals and families was an important part of the road to owning property and having better equipped homes.

Today many take for granted the fridge and tv. Most expect a mobile phone and a home or hand held computer with more power than many company computers enjoyed in  the last century. These advances are good news. As technology expands, so our idea of the good life and of what is possible expands. The world I wish to live in recognises that allowing sensible borrowing in the private sector,cutting taxes to allow people to spend more of what they earn, and always making it worthwhile to work are the central policies to banish austerity. There is a new generation to help into home  and car ownership. There has been too much private austerity thanks to the banking crash. We now need a stable banking system capable of allowing and financing growth, and a tax system which leaves people with enough money to buy goods and services from each other in a growing economy.

 

I oppose austerity

 

We have had too much austerity in this country – in the private sector in the period 2007-9. I opposed it at the time. I now support policies to give us private sector prosperity again. That’s more prosperity for every individual and family. I want to see more jobs, more better paid jobs, lower taxes and better living standards  for the many.

The absurd political debate between the parties of the left argues about austerity in the public sector. Look at the figures. Total managed public spending was just£629 billion in 2008-9, and was £732 billion in 2014-15. The severe cuts, the reductions in income and spending power, took place in the private sector, mainly between 2007 and 2010, thanks to Labour’s great recession. Real incomes fell, many people were thrown out of work and lost all their earned income, there were pay cuts, the end of bonuses and reduced overtime.

Why did this happen? Because a Labour government helped by the FSA, the banking regulator it set up, and by the Bank of England, put interest rates up too high, starved the banking system of cash, and forced the banks to lend less and slim their balance sheets. They did  this because in the preivous period they had allowed the banks to expand too much, lend too much, and had not required them to hold sufficient cash and capital. Their asterity policy was too extreme and too fast acting, so it brought several banks down, and with it private sector credit, jobs and incomes.

I urged them not to overexpand bank balance sheets and not to allow mega mergers on the way up, and urged them to be less severe and allow longer for adjustment on the way down. When the coaltion came into power they caried on for a bit with the extreme bank slimming policies for RBS andLloyds/HBos they inherited from Labour, which  kept the economy from growing. The economy started to perform much better when the government changed its approach to RBS after a couple of years, and started to build a decent UK bank that could help finance a good recovery.

The UK had too much austerity inflicted on it by Labiour at the end of the last decade. For the last couple of years we have seen growth resume, with many more people in jobs and with some growth in pay, overtime and bonuses. That is what we need. Tax cuts for the many will also help drive a rise in living standards and more jobs and activity.

Can the debate please concentrate on where we have suffered from austerity, and what are the best policies to banish austerity from the homes of the UK?Higher taxes and more public sector borrowing will not promote greater individual wealth and income.

The relentless march to a more united Europe

This week Mr Hollande assured Mrs Merkel that the French local election results would make no difference to France’s economic policy despite the poor showing for his party. He confirmed that France would try to  stick to the Euro disciplines. In practice France is finding it too difficult to hit the deficit target, but apparently wants to.  Meanwhile France and Germany signed up to further joint projects to reinforce the merging of their two economies within the Eurozone and its common framework. Both of them played down the threat to the Euro from Greece, saying they wanted the experts to make more rapid progress assessing Greece’s latest policy offering, and claiming  to be relaxed about the Greek visit to Moscow.

Stories circulate  that Greece may face capital controls and suspension of bank account convertibility if things get worse, or that Greece is even planning to nationalise the Greek commercial banks and issue a parallel or new Greek currency to pay the bills. The Greek government denies these rumours and has just tabled new proposals to try to comply with some of the requests of their creditors.  It seems to me more likely that Greece and the rest of the Eurozone will cobble together a compromise, as it seems clear Mrs Merkel and Mr Hollande do not wish to see an exit of Greece from the currency. Meanwhile the ECB lend more to Greece to keep the banks going.

All this reinforces a central truth for the UK. The Euro is driving relentlessly the process of political union for its members. They will volunteer for more and more joint projects, investments and shared networks as part of a deliberate policy to blur national distinctions and make more matters truly European.They are edging towards a proper banking union, where the ECB is still financing the Greek commercial banks as they are  under pressure. They will need to make more progress in achieving common welfare and larger transfers of cash from the richer to the poorer areas. The UK wants  no part of this, and will have to battle to stay out or get out of the intrusive features of political union to support the monetary union.

I just hope enough UK people understand the urgency of all this. The Greek drama is driving events at a fast pace. The UK needs a new relationship soon to avoid being sucked into the EU political union. Last night five of the parties present either pretended there is no issue with the EU, or affected to be  relaxed about all its current policies, powers, and direction. On this issue these five parties are out of step with a majority of people in the UK. The UK needs the renegotiation and the referendum which Conservative policy offers. Polls also make clear the public  is not about to elect a government pledged to leave without negotiation and discussion with the rest of the EU.

Voters who care about self  determination and democracy here in the UK need to ask how they can best further that aim in the election.

The media and the debate

 

              There are  two “truths”  retailed today by the media about the debates that need to be challenged.

                The first is that politics has changed irrevocably to a multi party model, because we saw 7 leaders in the debate! Current polls suggest that the 2 main parties now command a better combined share of the vote than they did in 2010 – around 70% compared to 65%.They also suggest that 3 of the 7 parties are likely to win just a single figure number  of seats between them, as they did in 2010. The party likely to come third, the SNP, will not attract a single vote let alone win a single seat outside Scotland which has just 9% of the seats on offer. The UK does not suddenly become a multi party democracy because of a single tv programme. The voters will decide if they want several parties involved in a government, and in recent weeks the polls have been moving more in favour of the 2 largest parties.We have had a Parliament for the last 5 years where neither major party had a majority.

                The second media myth is that the leaders of the Greens, Plaid and the SNP did a great job challenging the “austerity politics” of Labour, Conservative and Lib Dem. This is a bizarre distortion of the debate. The 3 main parties of the 2010 Parliament all clearly want more jobs, higher living standards and a bigger UK economy. The debate is about the politics of growth, and how you best speed and secure it. Based on Labour’s  crash of 2008 and other past experience, all 3 parties agree that excessive public sector debts and deficits can create recession and force spending cuts.  Labour, Lib Dem and the Conservatives are having a debate about the speed of deficit reduction, and the affordability and priorities for spending as they are all persuaded that it would not be a good idea to go the Greek route of spending and borrowing beyond your credit worthiness. They speak for most people in taking this view. All 3 parties wish to boost spending on the NHS.

                    Plaid, SNP and the Greens may well want to spend more of other people’s money, and want to borrow more. They were not put under any serious pressure last night to explain why countries that run up excessive debts usually get into serious financial trouble and end up forced to make spending cuts we have no wish to make. Nor were the parties of the left last night willing to share any work on figures which might have exposed the huge gap between what they think they can raise in extra taxes on the rich and what they wish to spend.  The fact that some Labour voters prefer the Leader of the SNPto their own leader, and some Lib Dems prefer what  the Greens said last night, is not going to make much difference come election day. The former group cannot vote SNP even if they wanted to, and the Lib Dem vote fell off a cliff in the polls a long time ago.

New homes and more households

When the Conservatives last left office, in 1996-7, the UK started work on 195,000 new homes that year. Net migration was running at just 50,000 a year. It meant that there were additional homes to allow for new household formation, as young people left their parents’ houses, and as some people divorced.

By 2009/10, the last Labour year in government, new homes started had slumped to just 124,000. Meanwhile net migration surged to well over 250,000. The UK was not building nearly enough new homes to keep pace with the rate of entry into the country by new arrivals, let alone to keep up with the needs of young people and  those wishing to live on their own who were already settled here .

Last year new homes started reached 160,000, still well below the level needed if we are to keep up with current migration levels. Fortunately Mr Cameron has made clear his wish to take further measures to get migration down to more manageable numbers. It will be part of his renegotiation with the rest of the EU if Conservatives win the election. The parties who do not favour limiting migration in the way proposed by Mr Cameron have to explain just how many homes they would need to build, and  where they might be planning to build them. It is also difficult to see how they would be financed.

The last coalition government did take measures to control students coming to bogus colleges. More can be done to limit non EU migration by controlling the issue of permits to come and work here. The EU may well agree to changes to rules concerning the payment of top up benefits to recently arrived migrants who have not paid in to the UK system. It seems to be accepting tightening of the rules about those without work who say they are seeking work. The renegotiation will also need to include discussion of access  to benefits for those seeking unskilled jobs and low skilled jobs which might be needed by people already here.

The measures taken to ease mortgage credit, help with deposits and reward those saving for a home of their own will assist. Some worry that any measure merely fuels further price rises. The main issue rem ains bringing supply and demand for homes into better balance. It is difficult to see how you can do this without some better controls on net migration.

Whose side are we on now in the Middle East?

When I and others opposed UK military intervention in Syria, we did so in part because we did not see a side we wished to be on. We were no admirers of Assad, spun then as the demon dictator,  whom Mr Hague wanted to oust from office. We were told there were moderate opposition forces who could take over and run  a western style democratic government, if we helped them dislodge the dictator.

I read about the opposition, and met some of them when Mr Hague invited them to London. It was already clear that parts of the opposition had more in common with Al Qaeda than with western liberal style democracy. One of the dangers lay in arming the so called moderate rebels, only to see the weapons get into the hands of the terrorist rebels either by agreement or by violence.

Today we learn of the capture of Idlib by Jabhat-al-Nusra, an important part of the Syrian opposition forces but scarcely a group of pro western moderates. Syria is now split between Assad in Damascus, Al Nusra in Idlib and ISIL in Raqqa.

Meanwhile conflict has spread to Yemen, with Saudi and other Sunni forces intervening militarily against the Shia interests. Libya remains badly war torn and split into warring bands.

I do not want the UK supporting either Sunni or Shia forces in these religious wars. I do not see how we could intervene helpfully to try to settle a democratic answer to the governing problems of Iraq, Syria, Libya or Yemen. The recent conquest of Idlib is a reminder of how complex these wars are, and how well supported on the ground some of the extremist movements still are.

Public spending – the longer perspective

Most of the time Labour wrongly claims Conservatives cut spending. Maybe Labour claims are an appropriate topic on April Fool’s day.  These claims usually become more extreme and absurd at election time. I thought a few facts might help inform the debate.

Throughout the Thatcher years in office, 1979  to 1990, Labour claimed  the Conservatives  were making deep cuts. Total managed expenditure was £315bn in 1978-79, the last Labour year (in 2007-8 prices). In her last year in office spending reached £358.6bn (in 2007-8 prices). In other words real spending, spending after allowing for inflation, had risen by 14% during the Thatcher years.

John Major was also attacked for Tory cuts, though less personally than Mrs Thatcher. By the time he left government  in 1997, spending had risen to £410.8bn (2007-8 prices), a further real increase of 14.6% over his period in office. Conservatives always increased real spending on the NHS, appreciating the popularity of the free at the point of use principle behind this service.

Labour continued with real increases in spending during their time in office, boosting the rate of increase considerably  in the later years after a more prudent start.  The Coalition has increased total managed spending from £669.7bn in the last Labour year to £732 bn in 2014-15, a small real increase and a 9.4%  cash increase. The Coalition, like its Conservative and Labour predecessors, always increased the NHS in real terms.

The issue we should be debating is not the quantity of money overall, but what we get for the money we do spend. Instead of having endless debates about how much real increase there has been, and who might offer the larger increase, we need debates about who can get best value for the money we spend. The debates should be more  about what public service  we want, not how much do we want to spend. When you go out to buy things for yourself you do not insist on spending up to budget, or insist on a real terms increase in your spending. You try to buy what you want for the lowest price, and are pleased if you get something better for less.

The Brexit debate

 

Last Thursday morning I debated Brexit with Alastair Darling at the National Institute of Economic and Social Research where we are both Governors (an honorific post).

I wished to get across two main points. No-one I know of a Eurosceptic persuasion wishes to damage our trade with the rest of Europe in any way. We believe we can have a different relationship which does  not entail us being part of their political and currency union, whilst maintaining strong trade links on decent terms. The second is that the UK has a large balance of payments deficit with the rest of the EU, which makes it even more likely the other member states will want to do all they can to protect and buttress trade with the UK, as they are the winners from it.

The minority of British  people who want to stay in the EU enough to argue it is a good idea to belong, nearly always go on about trade. There are few in the UK who argue for full participation, few who want us to join the Euro, few who believe in a political union, few who want common taxation and welfare policies at the EU level. I would have more respect for advocates of our membership of the EU if they did come out and say they wanted to belong to a United States of Europe, and if they would explain why they thought that was both possible and desirable.

I argued that whoever wishes to help form the government in May 2015 needs to recognise that the EU project is hurtling on to full political union, as they wrestle with the troubles of the Euro. They are out to complete a banking union, they are edging towards a welfare union, and already assert considerable control over budgets and economic policy on Eurozone members. The UK does not want any of that, so it needs to define a new relationship now. That relationship should be based on trade.

The UK is in a strong position to create a new relationship based on trade. We are the customers, as we buy so much from them than they buy from us. To those who say there are dangers if we no longer are round the table when they make up their laws, I reply that we are not round the lawmaking table when the rest of the world makes their laws,. We run a surplus with them!

Many businesses want to be able to export, but do not like all of the controls and regulations that have come from Brussels in recent years. Dear energy is one of the worst features of the EU regime, which hinder many businesses. For the sake of business, we need a relationship based on trade and market access, where we do not have to take all of the high cost and negative parts of the EU policies for our trade at home or with the rest of the world.