Getting rid of continental jurisdiction over the UK is as easy an enacting an Act of Parliament.  It was an Act of Parliament that brought in major EU powers. It is through amending or repealing that same Statute that EU powers can be limited or removed.

             England had to do this before. In 1533 Henry VIII was worried about the succession and believed his marriage to Catherine of Aragon to be void, as he had married his brother’s wife. The King wished  English divines to settle the matter without fear of Rome intervening and overruling. The Crown appealed to long history and custom, and to the powers of Parliament, to assert its own authority at the expense of the see of Rome. Parliament willingly passed an Act preventing future appeal of legal cases to Rome or elsewhere overseas. The UK wanted to make its own decisions. Royal will used Parliamentary authority to allow the Crown to end appeals to Rome.

           In language which rings down the centuries Parliament said:

“…this realm of England is an empire, and so hath been accepted in the world, governed by one supreme head and King…

And whereas the King his most noble progenitors and the nobility and Commons of this said realm, at divers and sundry Parliaments…made sundry ordinances,laws, statutes and provisions for the entire and sure conservation of the prerogatives liberties and pre-eminences of the said imperial crown of this realm, and of the jurisdictions spiritual and temporal of the same, to keep it from the annoyance as well as the see of Rome as from the authority of other foreign potentates attempting the diminution or violation thereof…”

         The EU has violated and diminished that imperial sovereignty, confirmed as the King’s by Parliament in 1533 and progressively transferred to Parliament over the ensuing three centuries. What could be corrected by a revolutionary Act in 1533, with some distortion of the past truth about  the power of the see of Rome, could today be corrected by an Act of Parliamentary will. The Commons needs to  invoke  the spirit of English and British independence that was common for three centuries or more prior to 1972.

          Those who say that the UK can no longer be independent because it has signed binding Treaties do not seem to grasp our long history of independence, or understand how Treaties work. Treaties are solemn and binding for the time that they suit the signatories to them. When they cease to suit one or more of the contracting parties, they are renegotiated or renounced. 

                 If the UK wants a different relationship with the EU it merely has to assert some political will. It will either be able to negotiate one more to its liking, or assert one, as Henry VIII did in rejecting appeals to Rome. It would be a less revolutionary act than Henry’s with more history and precedent on its side, thanks no little to the successful change of relationship with Europe achieved by the Reformation.

                Looking out at the sea of Union flags in London over the Jubilee week-end,without  a single  twelve star banner of our EU  membership or servitude in sight, it seems  time for Parliament to awake. Many UK voters want their Parliament to do as the people wish, not as Brussels commands. They want the High Court of Parliament to be the ultimate source of authority in many areas. They dislike the new fashion of appeal to a distant European court to find out what we are allowed to do.

 

         I am breaking off from my series on the EU for a day or two to deal with the demand for some response to Mr Krugman.

           I agree with Mr Krugman that we need more econ0mic growth. We need it to create more jobs in the US, the UK and the rest of the EU. We need it to raise living standards. Like Mr Krugman I am no fan of austerity.

           I also see Mr Krugman agrees that the Euro was a badly designed currency. He and I agree that there have been major imbalances between various states in Euroland, with no easy way of correcting the large balance of payments and banking imbalances that have built up thr0ugh the foolish design of the system. He has pointed out that Florida, after a housing bubble, received 4% of its GDP in the form of enhanced federal transfers. This is aid on a scale unknown within the Eurozone, where the richer areas are reluctant to subsidise the poorer areas. I have always argued you need a banking, budgetary and payments union to make a success of a single currency. Alternatively they need to get on and break it up quickly and cleanly.

             Where I find Mr Krugman less convincing is in his belief that a country deeply in debt can simply borrow more or print more to create sufficient extra public sector demand to get back to rapid growth. He believes that most of the UK deficit is cyclical – that it will vanish once we have fuller employment. He further believes we can get to full employment by printing and spending more in  the public sector, without triggering an inflation which could  damage the private sector . Such an inflation could more  than  offset  or swamp the beneficial effect of more public spending on demand. Any analysis of past UK recoveries would lead people to doubt this idea.

           Mr Krugman does not agree with those in the UK who say that President Obama has got it right by administering a big public sector spending boost which has led to faster growth. He is very criticial of the US for cutting too far too fast. He points out that since the middle of 2011 US real government spending per head has been falling. Despite or because of this the US economy has grown reasonably for the last three quarters. Meanwhile the UK, where real public spending has been rising, has experienced two quarters of decline in output. Not all of the differences in spending levels are the result of cyclical effects.

            If we look at the UK’s recovery from the 1981 and the 1991-2 recessions, we will see that in each case the government cut the growth rate of public spending and the economy started to grow more quickly. On each occasion commentators and the Opposition united to say that public spending was being cut savagely and too far.  In each case the move to decent growth came from a good increase in private sector consumption and investment.

            In 1981 output fell 2.5% whilst public spending was constant. In 1983 compared to 1982 real public spending rose by just 0.5% whilst investment and consumption expanded to give an overall growth rate of 2%.

           In 1991 output fell 2.5% whilst public spending rose by 3.25% in real terms. In 1992 real public spending came down  by 0.25%, and rose by the same amount in 1993. By 1993 the economy was growing at 1.25%, and by 3% in 1994.

           On both occasions of recovery the government felt it had to set out a path for cutting the level of public borrowing, to prevent high interest rates doing more damage to the larger private sector.

             Growth came from a change in the stock cycle, from a pick up in private sector investment, and from increased consumption. Any or all of these could have been hit by a loss of market confidence in the public finances, leading to crisis interest rates.

               This time there are some differences. The first is that the loss of output in the recession was far larger than in 1981 or 1991-2. The second is the level of public spending and borrowing is so much higher relative to the size of the economy, than in the earlier periods. The Public Sector Borrowing Requirement was 2.75% of GDP  in 1982-3, and 5.75% in 1992-3. The third is the banks are under much stricter regulatory requirements to cut loans and reduce credit to the private sector than in previous periods. The fourth is official interest rates are much lower. Then as now, sensible commentators and Ministers allow some  extra borrowing to accommodate  the impact of lower activity.

             Mr Krugman would doubtless argue that the magnitude of the output loss coupled with the savage deleveraging of banks in the private sector is a good reason to demand even more extraordinary measures to increase spending and borrowing in the public sector further. I would argue that we need instead to look at the intensity of the private sector squeeze, and do more to alleviate that. The combination of large tax rises and continuing high inflation for many basics have squeezed the UK private sector badly, and left it so far unable to trigger the bounce back that has characterised previous recoveries. We need work on tax levels and banks, as I have argued here, with continuing pressure to improve productivity in the public sector.

 

 

 

The main argument that advocates of our current EU relationship advance is that we do more than half our trade with the EU so we have to maintain full membership to keep all those jobs. It is the most stupid argument in current UK politics. It is extraordinary that it has been trotted out uncritically for more than fortty years, and still many in the media fall for it.

It is often based on the lie that more than half our trade is with the rest of the EU. This figure ignores our very profitable trade in services, where well over half is with non EU countries. It ignores the Rotterdam and Amsterdam entrepot effect, where trade with the rest of the world passes through these large ports and is counted as EU trade when it is with places further away.  It fails to take into account that our trade with the rest of the EU is in heavy deficit, whilst our trade with the rest of the world is in good surplus.

Worse still, it assumes if we tried to change our relationship or if the UK electors voted to leave, that trade would be lost. Are they seriously suggesting Germany would no longer sell us BMWs and Mercedes? Do they think we could not manage by buying cars we make here, if they will no longer sell us cars they make over there?

Do they not grasp that EU countries are signatories to international agreements on trade which would prevent any such interference in trade with the UK?  Why do they wish to bind us into close union with countries which they think have such ill intent towards us that they would seek to damage trade with us as revenge for our wanting more independence?

It is all absurd. The rest of the EU has too much to lose from its lucrative UK trade to want to damage it, and would be restrained anyway by the legal requirements of the international trading system.

They sometimes go on to argue that we need to be inside to have influence over the rules and regulations that apply to goods and services we supply to the rest of the EU. We have no such influence over the rules and regulations imposed by the US or China on our trade with them, but they never argue we should join some type of political union with these countries to sort this out. The problem with belonging to the EU is that we need to apply EU rules not just to goods and services we supply to other EU countries, but they also  make us apply them to products we want to sell to third countries. As often the UK ends up with more rules and regulations than it wants or needs, this can make it more difficult to sell outside Europe.

 

Two arguments are constantly recited by the defenders of our current EU entanglement. Today I wish to deal with the more serious, the proposition that the EU is necessary to prevent wars in Europe.

This argument looks to some  at first to be attractive and well based. After all, say its proponents, Europe was torn apart by two long and damaging wars in the first half of the twentieth century. Who wouldn’t want to avoid that again? They go on, emboldened by the general agreement that European wars are a bad thing, to point out there has been no recurrence of major European war since the EEC and the EU were formed.

This is rather like arguing that we need to belong to the EU to keep horses and carts off our streets. In the nineteenth and early twentieth century our streets teemed with them, but since joining the EU they have disappeared.  The obvious rejoinder to both arguments is that membership of the EU has nothing to do with much of Europe being at peace, nor with how many horses and carts there are.

After 1945 the European world was radically changed in many important ways. West Germany was created as a democracy and decided to become a peace loving country with no aggressive military machine. Occupying forces also remained in Germany for the first 45 years after the  Second World War  to make sure the new Germany was a peace loving state with no means to invade others. The US army above all else acted as the new guarantor of European borders. It was also there in case any other country  decided against peaceful co-existence with Germany.

Gradually the major western countries all became democracies. They wished to pursue policies of peace and trade with the neighbours. They also had to live in a  world where the UN and the US acted as policemen for agreed borders drawn up after 1945. Plucky Belgium was never likely to invade France nor did the Netherlands have military ambitions in Germany.

With the UN, the US presence, NATO, and peace loving western governments, there was no danger of war in western Europe. The UK has not had territorial ambitions on the continent of Europe for more than a century. The UK did not need to join the EEC to remain peace loving nor to ensure it was free from invasion threat. Its membership of NATO and the UN gave it additional security, though this  was not needed against the members of the EEC.

I would turn the argument about the EU and war around and say there is more danger of a European war with the EU than without it. If the EU is about a peaceful Europe, why then does it wish to arm itself? What need has it of an army, unless it envisages military action? How could we be sure this force would only be for interventions outside Europe’s borders? After all, the EU has already attempted through member states to intervene in Balkan wars, and has expressed strong views on how the Balkans should be settled. Some would say EU interventions in  the Balkans did not always assist the peace.

I would be more willing to accept the argument that the EU is a force for peace if the EU stopped preparing for war.  I would find it less absurd as an argument if the EU refrained from wanting a military machine, and if it kept out of sensitive European political issues which stir up tensions over belonging and nationhood. It needs to  soothe them down, not stoke them up by injecting more division and another layer of split loyalties . Inserting a new and clumsy power into the old cauldron of  identity politics on the continent is far from helpful for the peace.  We see how the Euro, one of the drivers of more integration, is becoming a force for disharmony and tension between the member states.

 

 

Like many I will be celebrating the Queen’s Diamond Jubilee this week-end. She is  an important source of stability and continuity in a ceaselessly changing world. She has many well wishers. She commands respect by staying above the political debate. As a constitutional monarch in a democracy she leaves  her Ministers to govern as they  wish.  She acts as a focus for state occasions, sounds a voice for unity and  acts as a very distinguished   and regal  representative of the United Kingdom at home and abroad. She is the UK’s greatest Ambassador.

Many of us wish to show our appreciation of her public service. These royal occasions allow us to come together to show our love of country. It gives us a sense of belonging to a country with a great past and a future full of opportunity.

 

                         We still call our Heads of State “sovereign”. Their “sovereign” powers have long been stripped away by Parliaments keen to take over the power of commanding  taxation, armies, public services and lawmaking.  Governments still make laws, sign Treaties and undertake deeds in the name of  Her Majesty.  The Queen would not dream of interfering in how they use these powers.

              Sometimes people write to me to say the Queen should intervene and demand back many of these “sovereign” powers that are now exercised by the EU. They sometimes  say they are writing to the Queen to insist on her upholding her Coronation Oath. They think she has some magical power to enforce Magna Carta, as if this ancient law has primacy or more relevance than the modern Statute law including the European Communities Act which commands us. Sometimes they demand the Queen requires  the repatriation of powers from the EU  which they wish had stayed here at home.

            A constitional monarch in an elected democracy has no such power. Parliament is the new sovereign, acting in the name of the people and dismissable by the people.  Parliament gave away important powers by first enacting the European Communities Act 1972, and then by subsequent enlargement of the areas of competence of the EU by ratifying and enacting subsequent Treaty changes. The powers were no longer the monarch’s to give away, and the monarch played no active part in doing so.

           Parliament consulted the people in a referendum in 1975 under the then Labour government about the transfer of sovereignty. Many now say fairly they were not around for such a vote. Some who were then voters  say that if they had read and understood the Treaty of Rome at the time, instead of relying on reassurances offered by various politicians, they might have voted against. The fact remains that the UK did vote to stay in the EEC. At no election since our joining has a pull out party won.  In the last decade the official Opposition, the Conservatives, opposed the major transfers of power at Nice, Amsterdam and Lisbon. They spoke against them and voted against them in the Commons.  This made no favourable difference to General Election outcomes for the Conservatives.  They finally did better in an election in 2010 without offering repeal of the Treaties they had rightly voted against in the preceeding Parliaments, though individual Conservative candidates and MPs did wish to repeal these measures.

               Over the next few days I wish to explore more the damage done to our sovereignty, and the options we have for redeeming it.

 

 Eurostat has produced an interesting document comparing the tax policies of the various EU countries. It begins with the stark conclusion:

          ” The European Union is, taken as a whole, a high tax area”

   It points out that in Japan and the USA taxes are 40% lower as a proportion of GDP. Tax levels in the rest of the advanced world and in the developing world are usually lower than the EU by a considerable margin.

           The UK is in the middle of the EU pack for overall taxation, at 38% of GDP. Where the UK is at the dear end within the overall high tax area is the taxation of income and capital.

            The UK is the second highest when it comes to the share of income  taxes in the total tax take. The UK gets 44% of all its revenue by taxing earnings and enterprise, where France gets just 26%and Germany 29%. There are only five countries with a higher top rate of Income Tax  than  the UK’s. The UK also has the third highest implicit tax rate on capital, at 37%.

          So all those why say the UK is too Anglo Saxon, and would do better if it had tax rates of a more egalitarian kind as on the continent, should rejoice. The UK is already leading the pack of high tax EU countries when it comes to the proportion of tax revenue that comes from  taxing income and capital, and is near the top when it comes to tax rates on the rich and successful.

          The problem for the EU as a whole is the high cost large government model is not delivering the same faster growth and rising living standards that lower tax and smaller government models are delivering elsewhere.

The latest figures for manufacturing show more weakness expected in orders and output.

It’s not just from exports but also from weak domestic demand.

It is a reminder that the tax and inflation squeeze on incomes is hitting demand for manufactured products.

Speculation from the Treasury that they might raise taxes on cars is far from helpful if you wish to stimulate the purchase of new vehicles made in the UK.

 

Everyone agrees the main aim of Labour’s Bank of England was to get inflation down to 2% and keep it there. Most also agree that the Bank has been singularly unsuccessful at doing so.

Inflation as measured by the last government’s second choice of target, the CPI, surged to 5% in 2008. It has been above 2% for most of the last three years, often by a significant margin. Throughout that period the Bank has published fan charts showing inflation coming down quite quickly to the 2% level or below. The Bank has usually argued that the prospect is finely balanced between an overshoot and an undershoot. So far it has always overshot.

The Bank has argued that much of the inflation has been “imported” and so not so susceptible to control by changes in domestic interest rates. However, the period is characterised by a major devaluation of the pound.  By the end of 2008 the pound was around one quarter below its 2007 highest  levels.  The surge in world commodity prices at the end of the last decade did not  induce the same big increases in inflation in Euro and US markets that it helped induce in the UK. Subsequent falls in many commodity prices did not get UK inflation back down to target. A devaluation may well have something to do with the quantity and price of money.

The Bank in its defence is right to point out that the UK has not suffered a wage/price spiral in recent years, so  inflation has not soared above the 5% level. It is right that fighting recession requires looser money anyway – the problem with that argument is they did not deliver it at the right time as we discussed before.

The Bank is trying to control price rises in an economy which is vulnerable to import prices on  weaker sterling, vulnerable to energy and raw material prices, and vulnerable to state price rises and tax rises as the government battles to get the deficit down by increasing state revenues.

If the bank had moved interest rates higher in 2005-6 it would have curbed the inflation that broke out, and would have restrained some of the excess credit creation that followed. If the government had not run such a large deficit before the recession boosted spending  and cut taxes, that too would have helped keep price rises under control and would have given the state more flexibility in the downturn. If the government did more deficit reduction by controlling costs in the public sector, and less by pushing up taxes and charges on the private sector, that too would cut the inflation rate.

 

          The Bank’s remit includes assisting in promoting sensible growth, after ensuring price stability.  In 2008 Gross Domestic Product fell by 7%. It recovered a little in 2009-10, but has recently been hovering around zero growth. On current Bank projections it will not be back to the 2007 peak levels until 2014.

           The Coalition government forecast better growth in its first plans in the summer of 2010. Since then it has revised these down sharply for the first three years of the period, but reckons with the Bank that growth should be at much better levels in 2014 and 2015.

             The Bank’s main way of trying to assist recovery is to inject more money into the economy by creating it and buying government bonds. When it buys a government bond from the private sector, that frees cash for the private sector to spend or invest in something  more risky than a government loan. That should, according to the Bank, stimulate more activity.

                  It has certainly kept down the interest rate on government borrowing. This has been most helpful to the public sector, where additional  borrowing remains at high but reducing  levels. It allows more of the extra cash spending by government to go on goods and services rather than on additional debt interest.

                   It has not been so successful in keeping down private sector interest rates. The market in money between banks remains damaged. The leading banks all have to raise more capital or curtail their loans to comply with the much stricter cash and capital rules now in place, and to position themseleves for the even stricter ones coming in later.

                          The approach of the Bank of England is different from that of the European Central Bank. That has made much more money available to the commercial banks, to stimulate them and their lending capability directly. The Bank of England was keen to avoid lending to businesses through the corporate bond market, doing very little in its first programme of Quantitative Easing, and ruling it out in subsequent programmes. 

                            Some now think the Bank should intervene more firmly in the inter bank markets, to get private sector interest rates down closer to official rates to enforce its will for easier money. Others think the QE programme will in due course prove inflationary, and are concerned about the continuing run of inflation numbers well above target. The Review should ask why GDP has behaved so erratically, why it is now so low, and why it is taking so long to get it back above previous peak levels. The Reviewers need to answer why such a huge QE programme has had so little effect on the private sector.  It should ask if banking regulaiton is offsetting much of the QE impact outside the public sector.