Mr Miliband and Mr Clegg have been too ready to condemn the idea that the UK needs a new relationship with the EU. They are in denial about the massive amount of power the EU wields over our government. They should try reading a bit more.  They should start with a recent publication of the UK government entitled  “Europe 2020: UK National Reform Programme 2014”.

This extraordinary and little discussed document is 91 pages long. It is the UK’s government response to the “country specific recommendations addressed to the UK by Heads of state or government at the European Council  in June 2013….” and reports “against policies in support of the Europe 2020  Strategy priorities…”

The UK was told to do six things. The first is  to “implement a reinforced budgetary strategy… ensure the correction of the excessive deficit….prioritising timely capital expenditure with high economic returns…in order to raise revenue make greater use of the standard rate of VAT”.

I have no disagreement with the EU’s view that we need to remove the excessive deficit. My complaint is that it should be none of their business, but something we settle here in the UK. As a good European Mr Miliband under this requirement would have little scope to change the current UK approach to spending and borrowing. It is interesting that the EU is effectively critical of Labour’s heavy cuts in public capital spending which they put in in 2010. Their words seeking more public capital expenditure do not seem to include HS2 as that is not a project showing “high economic returns”. Mr Miliband might also worry about the EU’s belief in raising VAT further, when he has been an opponent of higher VAT.

The second requirement is to “increase housing supply, including through further liberalisation of spatial planning laws…take steps to improve the functioning of rental markets, in particular by making longer rental terms attractive to both tenants and landlords”. This seems to have already inspired Mr  Miliband to adopt just such policies, so he will probably have no difficulty with it. However, the EU also warns against land and property taxes which impede residential construction, which he might find more annoying.

The third is to do more work on training and apprenticeships.

The fourth is to improve work incentives through fair welfare reforms, and to accelerate measures to cut the costs of childcare. This includes support for Universal Credit, a policy Mr Miliband is not keen on.

The fifth is to improve the supply of bank finance and strengthen competition in banking. Labour in office did the opposite by encouraging all too many inappropriate banking mergers.

The sixth is to “facilitate a timely increase in network infrastructure investment…provide a stable regulatory framework for investment in new energy capacity”. I love the irony of this one. The EU has required the UK to generate more power from non carbon sources, and is now querying the level of subsidy needed to do just that!

The UK government has tabled 51 statistical indicators to allow the EU to monitor progress on these matters and criticise us in the future if insufficient progress is made.

Doubtless pro Europeans will claim that this is guidance, not mandatory in the case of the UK. That is not entirely true. This work includes, for example, the renewable energy and carbon dioxide reduction targets which the UK has to follow under EU law. The UK’s position in the EU “semester” or common budget controls is ambiguous, with the EU’s role clearly growing despite the lack of a power to fine the UK if it does not comply with the EU’s budgetary demands for the UK domestic budget.

All of this control , guidance and legal requirement over central issues of public policy is appropriate for countries in a currency union moving rapidly towards a political union. It is not appropriate for an independent country which wishes to have good relations and plenty of trade with the neighbours. Were Mr Miliband to become Prime Minister, he might start to find it all too intrusive, as clearly some of it is not in accordance with his views on budgets and tax.

 

 

 

There is one strong reason why nationalising the railways would be an odd idea – they are largely nationalised already.

All the track, signals, train pathway timetabling and stations are owned by a monopoly business largely financed by taxpayers and entirely owned by taxpayers. The train companies lease trains and run services over the nationalised tracks under strict controls from the Rail regulator and the Transport Department. They have to conform to five year centralised plans, and they gain near monopoly rights to use given regional track systems. The only element of competition in the whole thing is the occasional competition for the monopoly franchises. The majority of the revenue to sustain Network Rail comes in the form of taxpayer financed subsidy.

When the railways were privatised a two tier structure was set up. There was a privatised monopoly track owner, and regional monopoly train franchise holders. This greatly limited the amount of competition introduced by privatisation, but even this limited competition administered a shake up and reversed the long term decline in rail use that had characterised the whole post war nationalised industry experience. Labour re nationalised the track and stations, though pretended they had not by holding all the assets and shares in a so called private company which just happens to be financed and owned by taxpayers.

Today the East coast mainline franchise is run as a nationalised monopoly, and Labour is looking at doing the same for some of the other franchises as they expire were they to win the next election. That would be a good way to stop the modest  cost and price competition we currently enjoy  and would help  limit innovation. For four decades a fully nationalised and integrated monopoly industry presided over large cash losses for taxpayers, high  and rising fares, declining train usage, little innovation and poor service levels. Why would a future completely nationalised BR be any different?

Fares for commuters on crowded routes into our main cities are too high and service levels not good enough. Too many cross country and mainline express trains fail to attract nearly enough paying passengers, whilst a limited number of trains and routes beyond the commuter lines suffer from overcrowding. We need more innovation, not less, more competitive pressure to do more for less as the airlines have done, new thinking on how to improve service and allow more of us more fo the time to choose the train for our travel. That requires a more competitive industry with more private capital and management, not a return to BR days.  Where challenger railway companies have been allowed they have helped lower prices and improve the range and quality of services.

 

We have recently learned that following a recalculation of GDP for Nigeria, it emerged last year as Africa’s largest economy with a GDP of $509 billion.  It overtook South Africa in terms of total output, but still remains a long way behind in per capita income given the much greater population in Nigeria.

What should give us pause for thought is how small this output still is for a country of 170 million people. It means Nigeria’s output is still lower than London’s, with just 8 million people. It should put our criticisms of the UK economy into context, and reminds us how much more there is to do to tackle poverty in other parts of the world.

 

Germany exports luxurious gas guzzling cars to the world’s rich. You do not hear many  Germans queuing up to complain about the conduct of Mercedes customers, seeking to expose the tax dodges of some who buy luxury cars. Nor are most Germans keen  to regulate and tax the high fuel using car industry out of existence in the name of the environment. Germany may be green in  some ways, but never in a way which would stop it making so many high fuel burning vehicles.

The UK sells top end flats to the same people, building very expensive flats that would otherwise not exist. We sell  the super rich a little bit of London. Many in the UK think this is a disaster. They clamour for higher Stamp duty and Capital Gains to try to tax them out. They talk about other possible controls. In a way the UK product is shrewder than the German. Whereas the German car, once exported, is serviced and maintained in a foreign country, the UK flat stays here and provides UK jobs to furnish, equip and service it. The UK can carry on taxing the flat owner, whilst the overseas country gets to tax the German car.

France sells some expensive processed water to the super rich in the form of wines and perfumes. You do not hear the French complaining that the rich are getting inebriated on French wines, or that the foreign buying means that French people can no longer afford their own Chateau  Latour or Yquem. They work hard to package the wine and tell the story of its production in a way geared to maximise the revenue take from the world’s super rich for the “finest” wines available.

The Uk specialises in private banking and financial services for those same super rich. The air is thick with complaints about the charges and practices of parts of the banking and financial service industry. The UK is quick to condemn and keen to tax and regulate one of its best money earners. Do too much and the rich will be off to Switzerland or Hong Kong for those services. All main political parties want to change the balance between financial services and the rest. Germany does not have a policy of reducing its dependence on auto manufacture.

I am all in favour of us broadening the range of products and services we can sell abroad. It makes sense to do so. What does not make sense is to be so critical of the ways we currently have of earning overseas revenue, before we have found better ways of paying the bills. Maybe part of the answer to help pay for all the imports is to export more financial and banking services, and sell more top end flats. Otherwise we have to carry on selling off the assets we already own, as we have had to do in recent years given the large balance of payments deficit. One of the hard truths of lfie that socialists do not like is you have to sell more to the rich, as they have the money to employ people.

 

Under both recent governments the UK has got used to buying many more imported goods than we export. Years ago when we did this, we sold more services abroad and enjoyed a surplus of earnings on investments from overseas, which gave us sufficient foreign currency to pay for the goods.

Now we still generate a surplus from services, but no longer enjoy the same big net income from investments overseas compared to foreign interests taking loan interest and dividends out of the UK based on their investments here. All those years of boasting about how much foreign investment we have attracted into the UK takes its toll on the national income and wealth figures. Every time a foreigner buys an existing company or puts in a new factory of his own, he  gains the right to take money out of the UK as those assets earn him income. There are now bigger foreign incomes on  assets  in the UK than we earn from  holdings of wealth elsewhere.

If we cannot export enough goods and services to pay for all the imports, and if we no longer have enough interest and dividends coming in from our overseas holdings to offset all the interest and dividends now going out, we need to find another way to pay the bills. We have to either sell some assets to foreigners, or borrow money from abroad to keep hold of the assets we have. It amounts to the same thing in the end. If the UK does not sort out its balance of payments deficit, the loans will have to be repaid by selling some underlying assets.

When I wrote here briefly recently that the UK has to sell assets to pay for the imports, I was not recommending it as a policy. I was merely pointing out the obvious. Some seemed shocked. How else do you think we have been managing to import so much more than we can afford out of our regular income? How else do you propose we pay for all the excess imports if we cannot export more?

The Coalition government wants us to export more. That is the best way to afford our imports. We should be keen to export services as well as goods, as they all earn us the foreign currency we need to pay the bills. T0morrow I will look at the way the UK likes to attack the very  businesses that offer us most hope of exporting our way out of this problem.

I have just been reading the excellent Civitas Report on trade and the EU. It shows that under the regime of the single market the UK reaped no benefit by beign inside the so called market. Our exports to the rest of the EU went up much less than those of many countries which stayed outside the arrangement.

 

           News came out  today that  the UK, Denmark and Ireland lost another European Court case. Opted out from provisions over policing traffic offences, the UK learned that the measure will be revised as a road safety rather than a police co-operation measure, so it will apply to all 28 states regardless.

 

          I asked the Secretary of State today to confirm that large mergers involving companeis with assets and turnover in a variety of EU states fall to be decided by the EU authorities, not by individual member states. He of course confirmed that truth. He also agreed that Labour’s 2002 Act anyway took the politicians out of normal UK merger issues  save for ones involving the media or defence. Most of the debate about this matter in the UK is therefore irrelevant to the true legal position which will apply.

 

There is one good reason why government should not decide who should in the future owns the assets of Astra Zeneca. That is the government does not  own them, someone else does. If you want to live in a free society you need to permit private property, and allow people to sell and buy property as they see fit.

There has been a bipartisan agreement for many years that the government should only intervene to stop a takeover of a company if the takeover damages competition too much in the marketplace. Then government does intervene to prevent the accumulation of monopoly power by private interests. This settlement has also been reinforced by EU Competition Law. The last Labour government decided to make our competition law comply fully with emerging EU rules and requirements, which too are based on the prime aim of preventing damage to c0mpetition in the market. Monopolies are bad things, allowing companies to overcharge, provide a bad service, and fail to invest and innovate. That’s something the public sector knows all about from some of its own activities.

There have been few exemptions to the primacy of competition as the sole criterion to intervene. Media plurality is said to be one of them, yet this is really a reinforcement of the importance of anti monopoly provisions in the area of newspapers and tv channels. The main aim is to keep these markets competitive or to encourage more competition. They do not seem to apply to state broadcasters, in the usual asymmetric EU way.

Defence businesses may also operate under stricter and more comprehensive rules. In practice anyway government has a major role in deciding whether a defence business takeover or merger goes ahead, as the state is the main customer. It would be odd indeed if someone sought to  buy out a defence business in the UK that the UK government did not like, as they would not be able to sell the product to the home market, and the overseas sales are heavily regulated by the government. Sensitive technologies of importance to UK defence are protected by official secrets laws.

There is now also an additional criterion allowing government to intervene if a merger might threaten the stability of financial markets. Again this is little more than an underlining of the competition rules in the banking and financial sectors. Only very large mergers are likely to  cause problems under this clause, and they could also be ruled out on the grounds of market share in most cases as well.  Anyone seeking to buy a financial business would be well aware that it has to remain a regulated business, where the Financial regulators can force any requirements on the business they like when it comes to capital and conduct.

Mr Miliband now says he wants a national interest catch all clause br0ught back. He might find this is against the EU law on  this topic, which could cause him some embarrassment as a good European enthusiast. He will also need to explain on what grounds government should intervene apart from competition under this new clause, and try to persuade us how a government Minister would be a better judge of these things than the owners of the company concerned.  He will also need to reassure us that this is not some further anti rich foreigner rant of the kind we are becoming used to from his party. It is always easy for a company to make all sorts of generous promises to the workforce and about investment plans  when trying to buy a company, but nothing to stop them changing their mind after the event or if circumstances change.

There are good foreign takeovers of UK companies and bad ones. I do not defend the right of foreign interests to buy UK companies on the grounds that the new owners will always be successful business people, or that they will always act in the interests of a UK workforce. Like British owners of businesses, some will prove talented and resourceful backers of the businesses they buy, and will grow them successfully here. Some will grow them worldwide. Some will do badly, or will strip assets out, just as some home spun entrepreneurs do.  I just don’t think government Ministers would be good at deciding who are the good guys to be trusted and who the bad. Nor do I think British owners of businesses will prosper as much  or work as hard if they know they will not be allowed to sell to the best bidder when the time comes.

 

There are competing ways on offer to make people better off.

There is the socialist way. That depends on taxing the better off more, to give more money to those who are on low incomes or no incomes. The problems with this method include the unwillingness of the rich to stay and pay if you put taxes up too much, the disincentive effect if you give out too much free money without strings, and the way you have to drag too many people into paying tax to sustain it all.

If you take it too far you end up with a corrupt and poor society like the old USSR. The new rich and privileged run the state and live off the taxes. The rest pretend to work and live off handouts. Average incomes are much lower than in freer societies. There is less income inequality, but far greater power imbalances between the haves and the have nots.

There is the free enterprise way. That relies on individuals offering public service for their own personal rewards. In doing so they  create more wealth and jobs. There can be higher levels of income inequality, but also a much  higher average than in the socialist systems. Democracy can reduce the power imbalances that you get in totalitarian societies, with the state championing those who need help.

In the UK we have always gone for a mixture. Keen advocates of free enterprise like me accept the need for substantial redistribution by higher tax revenues from the rich, and sensible benefit systems for those out of work or disabled. The political battleground is over the balance – how much extra tax, how many more benefits, what is the right balance of protection and incentive? Even more important is the battle over what rate of tax will maximise revenue and do least damage to the economy.

One of the  biggest differences between parties of the left and Conservatives lies in the approach to groups of people who typically do not support your party. The left likes to have hate lists. They love to boo the bankers, harry the hedge fund managers, belittle the believers in an independent UK and castigate in most unpleasant terms the “climate change deniers”. They simply do not like richer and successful people.

Good Conservatives have no equivalent list of groups we dislike. I like Labour condemn bankers who steal from their clients. I also condemn NHS doctors who kill or harm their patients, and nurses who put their own comforts above the needs of their patients. I do not think that because there are a few bad doctors and nurses I should criticise them as a group. Why do the left have to condemn all bankers, when most simply provide a necessary financial service to us all?

Conservatives  do mot  criticise Labour’s client groups, in the way Labour regularly criticises some groups of successful workers or business people. You cannot generalise easily about groups. If you choose to do so in condemnatory fashion you will condemn many who are decent and do not deserve your words.

 

 

The best way out of poverty is a job. The best way out of low income is a better paid job.

So how can we help more achieve these successes in life?

It starts in school. Some state schools offer a great ladder for children from low income households. Others do  not. This government is working on improvements.

It carries on after school. More people do well in life who make it to university or College to get further qualifications. We need to consider better access for all with the talent and energy to the best in post 18 education.

It continues over spending and investing. If you save and invest wisely, if you buy your own home early in life, you give yourself much more chance of financial success.

It can be a question of whether you have the confidence and the skills to run your own business or not. There can be better rewards for the plumber, the lawyer, the business consultant or the driver if you work for yourself and build up your own business. There are also more hazards and hurdles to leap.

So how can government help?

Should government intervene more in the early years, when disadvantaged children can be let down at home which make s school difficult?