The government needs to lift the squeeze on the private sector partly by revising its tax strategy. It should introduce a 20% Capital Gains Tax rate instead of the 28% of the 2010 budget. This is likely to yield more revenue than the current  higher rate.Treasury figures show CGT revenue falling in 2012-13 by £500 million when we have the first full year impact  of the higher rate.

         It should cut the Corporation Tax rate to 20%, to take the UK lower than most of the the western rival locations for inward investment. There will be some revenue loss for a the first two or three years, but thereafter there should be compensation from the additional jobs and profits located here to tax.

          It should return Income Tax to the top rate of 40% imposed  by the last Labour government for most of its term. This like the CGT change should increase revenues.

             The government needs to tell the Revenue and Customs to stop hounding small and medium sized firms and entrepreneurs. There has been a big increase in reported fishing expeditions or enquiries into anyone who earns above average and has some business interests. Very often the enquiries are worrying and time consuming for the taxpayer, only to result in agreement that everything has been properly declared and accounted for.

             To have a strong private sector led recovery the government has to impose fair taxes fairly. It needs to set competitive tax rates, at least vis a vis the higher tax advanced countries. That way the UK can keep more business here, and attract more business here. That way as well we can get some of the many serial entrepreneurs who are on strike back into creating businesses and jobs. There is a lot of successful entrepreneurial talent in this country sitting idle with cash to invest.  They need positive signals that they are wanted and they will be allowed to keep a decent proportion of anything they make.

              More people should be taken out of Income Tax altogether, to cut the tax and benefit merry go round on lower incomes. It is cheaper to let people keep more of what they earn, than to take it off them in tax and then give some of it back in credits and benefits. These tax changes taken together should mean the rich pay more the poor pay less.

             I am glad Mr Clegg likes the John Lewis model of employee ownership and participation. It would be good if the government revisited policies, to promote everyone an owner. That will require more and better tax breaks for equity participation in the business you work for.

 

          To get the economy kick started and to make faster inroads into the growing public debts, the government needs a big idea.  It needs to get some cash in, instead of constantly spending way beyond the cash generated.  How about this one?

            The government cancels Vehicle Excise Duty, saving motorists £5.8 billion a year. Insurance companies are required to issue insurance discs for display on a vehicle windscreen, and provide a back up computer record of all insured vehicles on their list which the police and other authorities can use if necessary. New vehicles are issued index numbers as at present, but these are recorded on the insurance systems.

           The government offers leases on the main motorways of the country to private operators. The motorways should be placed in packages for investors, preventing any one investor owning adjacent or competing motorways. The M1 would be under different management to the M5. The M3 , M4 and M40 would all be under diffferent management.

            Leaseholders would be able to levy tolls on users. In the first year the aim would be to keep the total toll revenue to around the £5.8 billion of cancelled VED. The government would impose maximum toll charges for any given motorway. Franchise holders would be free to offer discounts, off peak rates and any other lower charge they wished at any time of day or night. Toll revenues would rise in total as use rose. Private operators would be free to improve their motorways and expand their capacity, subject to planning, in any way they wished.

              The government would sell the motorways for £145 billion. This money would repay debt, saving the taxpayer around the £5.8 billion of revenue forgone in saved interest charges on public debt.

              The leases would be sold by open competition. The competition could be for the length of the franchise the operator would need , given the maximum toll and the required price of the lease. Alternatively the lease length can be specified and the competition is for the amount of money the lease is worth.

                  At the end of the franchise period the management reverts to the state, or the state can sell a new lease. The freehold of the road system remains in  government hands.

              The scheme has many advantages. It is good for owners of cars who only need them for short journeys on local roads, and the occasional longer journey which they carry out at off peak times. They will pay little or no toll charge and save all their VED.  It is good for those who want to limit car use, or think motorists should pay for what they use, as it means if you want to drive more on motorways you have to pay more. It will make heavy motorway users think carefully about their journeys.

                     It cuts the public debt. It is not ” selling off the family silver”, as the freehold still belongs to the state. The only losers are those  who use motorways a lot at peak times. They tend to be business users and richer individuals. Everyone has an option not to pay the tolls, as they can use slower main roads instead. Motorway users will benefit from more intelligent motorway management, where the way to maximise revenues will be to charge flexibly to move load from peak times to out of peak times, securing a smoother and better use of the motorway throughout the day and night.

 

           I am going to write a few posts over the next week  about the Budget, as  I compile my budget submission to the Treasury.

            The government’s stated policy is to eliminate the government’s structural deficit, mainly by cutting public spending. It intends to promote a strong private sector led recovery, to create more jobs, cutting the welfare bills and employing labour shed from the public sector.

             I entitrely agree with the stated policy. It think it would work well. As readers of this site will know, the problem is not the strategy, but the fact that the government is not following it.

             Instead of the stated policy, the first two years have seen a tough squeeze on the private sector, and continued expansion of public spending. Annual current public spending is now £52 billion a year more than in the last Labour year, an increase of 8.7% in cash terms.(Red Book 2011 p 93, Autumn Statement 2011 p 77)  When I first pointed this out the government and media response was that there would be real overall cuts despite the large cash increases. Now the latest government  figures confirm my view, that the first two years (2010 and 2011)have seen a real increase in overall current spending. (Autumn Statement 2011 p 17 Table 1.1). Individual departments have been cut, but others have grown.

            The private sector has been squeezed partly by policy and partly by inflation. Large increases in tax rates on incomes and capital gains have hit the people most likely to set up and invest in new businesses and create jobs. Increases in VAT along with big rises in enegry prices and other basics have cut living standards and reduced disposable incomes.

               My pre budget posts will explore what can be done to lift the squeeze on the private sector, to get control of public spending, and to get back onto the planned policy track set out  at the beginning. If you want a private sector led recovery you need to have bank facilities, tax rates and cost levels that facilitate faster growth. You need optimisim and confidence. Lifting the squeeze on the private sector is necessary to bring that stronger recovery about.

               Now is the time to take action to do this. Inflation is at last coming down. Energy prices have started to fall. Food retailing is going to become ever more price competitive. The government needs to reinforce these favourable trends by a number of policy actions. I will be looking at the tax action, the bank action and the regulatory action the government could take to assist.

 

          The downgrade of Euroland bonds has been like the green bottles song. Now there is just Germany with a stable AAA rating from S and P. The Netherlands, Finland and  Luxembourg are on AAA with negative watch. (apologies for leaving out the two small ones earlier, based on a radio report which I have now properly checked out)  I pointed out a long time ago on this site that the famous big bazooka EFSF, the fund they said would rescue Euro countries in trouble, always rested on their ability to borrow on the strength of their collective credit rating. So far they have borrowed very little for this fund. That has just got more difficult, as the EFSF’s own credit rating must be weakened by the downgrades of Euro country bonds.

          As S and P say,  they do not just have a problem of spending and borrowing too much. They also have a problem of earning and growing too little. They need to tackle both those problems . The Euro makes solving the second one far more difficult.

          Outside the Euro in Europe Switzerland, Norway, Sweden and the UK are on a stable AAA rating. The Agency has taken into account the problems of governance and the inflexibility of the single currency in  its latest downgrades.

 

          I was glad to hear leading members of the government say today they plan to think again about how they will implement their policy of cutting Child Benefit for the better off.

          In the original proposal there were two big problems that gave rise to a sense of injustice. The first was the differing treatment of the one earner and two earner couple. A single earner couple on £45,000 a year loses all child assistance, whilst a two earner couple on £80,000 still receives it. That needs changing.

           The second was the fact that as soon as your pay goes over the 40% Tax threshold you lose all child benefits. This could be a perverse incentive to avoid promotion or extra pay. That too needs examining.

             The Chancellor could still make his savings, whilst working out a fairer and gradual withdrawal system that tackles both these problems.  I have discussed these matters in the past with colleagues, and never thought they would implement the original proposal as reported.

 

           Many bloggers to this site are delightfully cynical  about politics, and sceptical about many politicians. That is healthy in a democracy. Nor is it my job to act as shop steward for MPs. I am not a Shop Steward, and my colleagues would not welcome having one. If an MP reaches the point where he thinks it is about him rather than about the people he serves, it is time for him to be moving on to a different job.

          Occasionally, however, I feel I need to tell you more of the mood of the House and the things that do play on MPs’ minds. After all, many of you interested in politics and government want to influence the people who govern you, whilst reserving the right to condemn, criticise and complain. Some of you seem to think that there are lots of safe seats, “seats for life”. These are somehow given out by party High Commands to those whose faces fit. This makes these people immune to commonsense or persuasive lobbying from electors. After all, you argue, these lucky lifers just need to keep the whips or leaders reasonably happy and so they keep their jobs for life.

            That is not generally true in my experience. In the Conservative party candidates are selected by local Committees. It is true they select from a  very long list of approved candidates that Central Office has passed. This list contains a very wide range of characters and viewpoints, as examination of the statements and voting records of current Conservative MPs displays.  It may occasionally be true that the Centre has a view on what type of candidate or even which candidate is to be preferred. They have no power, however, to place such a person in the job in normal circumstances. In many cases any attempt  by Central Office to influence could backfire. Doughty independent minded Selection Committees might see it as a negative that Candidiate X was CCHQ approved.

 

              Most successful Conservative candidiates who make it to the Commons have served a long apprenticeship. They have usually fought a seat they could not win. They have often been Councillors. They may well have done national policy work, and usually now have been active in community programmes of one sort or another. They may well have nursed the constituency that finally elects them for two or three years before the General Election, acting as an unpaid community worker and campaigner.

              20 years ago there were 7 Conservative MPs in the place I know best, my home county of Berkshire. Most pundits then would have said that six of those seven seats were safe seats, “seats for life” for their incumbents. The seventh, Slough, would have been put down as a swing marginal between the Conservatives and Labour. The caricature of Berkshire then, the royal county, was a pure blue home counties area. People would joke that you could put a sheep up and as long as it had a blue rosette it would be elected. So what happened next?

            Conservatives held all seven seats in the 1992 General Election. One elected a new MP to replace someone who willingly retired. Tragically that new MP died prematurely during the Parliament. The Lib Dems took the seat in the by-election which followed. They held the seat in the 1997 and 2001 elections, only to lose it in 2005 to the Conservatives.

            The MPs for Reading East and Reading West had majorities of 16217 and 16753 at the 1987 election. They won easily in 1992. Both decided to retire in 1997. The MP for Reading East would I think have liked to carry on, but was concerned about  his  ability to win the seat. Both seats were lost to Labour. The Conservatives recaptured Reading East in 2005, two elections later, and recaptured Reading West only in 2010, three elections later.

               Berkshire East (Bracknell) and Windsor remained in Conservative hands. Their incumbent MPs both, however, resigned when they lost the confidence of their Conservative Associations over how they had handled their expenses. The Associations chose new candidates who were able to win in the Conservative cause. 

              Slough went Labour in 1997 and remained Labour, even in 2010, confounding ideas that it was a swing seat.

               So out of the six “seats for life” three saw two changes in  the MP and party thanks to the wishes of electors  in elections, and two saw changes in MP when the winning party chose a new candidate, worrying that the incumbent MP might have lost the electors’ confidence as well as the local party’s.

             Labour has had similar experiences with its so called “seats for life”. In the 1970s pundits said the arc of seats in south London were rock solid safe Labour seats. Yet Labour lost Bermondsey in a by-election in 1982, and it has stayed Lib Dem ever since.

             Today in Parliament this type of background generates great uncertainties in many MPs. Whilst Lib Dems stay cheerful in public as they have to do, they would not be human without pausing to look at the electoral consequences of their current poll ratings. Lib Dems will be doing private calculations of how far they need to get their vote to rise to save a significant number of their seats.

       The boundary review is abolishing 50 seats in total. It is a preoccupation of many MPs. Many more seats have changed boundaries that make minor or major differences to how winnable those seats are for their current incumbents. As 31 seats are taken away from England, 10 from Wales, 7 from Scotland and 2 from Northern Ireland, there is jostling for position as MPs seek to gain the favourable attention of the selection committees for the new seats.

            All this creates a jittery Parliament. It certainly makes MPs accountable. The average MP does the job for 10 years or two Parliaments. MPs often do not do what you would like them to do, but they are more conscious than most that they each have around 75,000 bosses and they live in the goldfishbowl of public accountability. They cannot please all 75,000, as electors have such differing views and problems.

           Every MP who knows the job well  knows he or she could be  just one foolish statement or action away from losing it. Maybe some of you remember Howard Flight. He had his “seat for life” taken away for saying at the start of  a General Election that if an incoming Conservative government could find more economies it would spend less. He was particularly unlucky and unwise with his timing. It does remind you how slender is the line between “safe” seat and political oblivion.

 

I will be happy to support changes to company law to give shareholders the full power they need to fix or approve remuneration of directors and senior personnel in companies. I trust it will also give them the power to say “No” to large pay offs to executives leaving because their performance has disappointed. Executives on high pay should be fully answerable to shareholders. There are bad examples in poorly performing companies where pay and pay offs are too high, compounding the difficutlies of the enterprise concerned. Shareholders are the obvious group to provide some leadership and discipline, as it is their money the executives are using. There is nothing wrong with high rewards where the company is doing very well. Complaining about that is just the same old politics of jealousy that gets in the way of a successful enterprise economy.

I also hope the government will look again at what it is doing where it is the shareholder or owner. The best way of showing the private sector the leadership it expects from them would be to come up with sensible remuneration packages and plans for RBS where the government is the shareholder on behalf of taxpayers. I will not begrudge senior people at RBS high bonuses if and when their businesses are back in the private sector, trading profitably, and the taxpayer has got a sensible amount of their money back. In the meantime, making losses or little profit and still dependent on the huge sums the taxpayer has put in, it is difficult to explain why people running this business are paid so much. Sorting out RBS is essential for the greater wellbeing of the economy. It is also the main test of the goverment’s new approach to remuneration.

Yesterday’s announcement about High Speed 2 was given more significance by the media than perhaps it deserved. The route of the track from Birmingham to Leeds and Manchester, and the sites for the stations on the northern lines, remains to be finalised. If all goes according to plan the first passangers could travel on the new trains to Birmingham in 2026, and to the more northerly destinations in 2032-3.

I asked how much money will be spent this Parliament on this project. I was told just £200 million. This presumably covers the further work on consulting the public, confirming the works on the Birmingham section and choosing from the options for the northern legs. I was told that no construction contracts will be let this Parliament.

This means that a new government elected in 2015 at the scheduled General Election will in practice be able to make up its own mind about this project then, before letting the contracts. It will need to fit into the budgets being drawn up by the new government. It will need to demonstrate value for money and a good ratio of benefits to costs to the then Secretary of State for Transport and Chief Secretary to the Treasury. It would be wise to look again then at the forecasts of passenger demand, likely fare revenue, and the ratio of costs to benefits. It is also likely that voters in the affected constituencies will make this a continuing issue in the 2015 election.

I understand the strong feelings of some in the north that they would like to see this project go ahead to provide better travel links between north and south, in the expectation that it will stimulate northern economic activity. Such a view needs to grasp that we are talking about contributions to the economy from construction jobs towards the end of this decade, and stimulus to the wider economy from the transport links after 2026, 14 years away.

It makes it even more important that the present government, spared significant cost for this new railway, spends what money it does have in its transport budgets to boost other rail and road capacity for maximum economic advantage for the whole country as soon as possible. This one day railway will neither help the UK out of the recent recession by construction jobs soon, nor provide the stimulus to northern economic development this decade. This very fast train is on a very slow planning and building timetable.

The original London to Birimingahm railway took just five years to build, despite the opposition of local landowners who forced diversions of the route in places. It was also built with private sector finance. Not everything has got better and slicker.

Meanwhile, the best possible investment for the greater early success of northern – and southern – UK business might be better and faster broadband. Like the railways in the Victorian era, this is the latest technology, with much more private finance around to go into it.

I am with the Prime Minister when he says the UK Parliament should decide on when the referendum on Scottish independence is held, and what the question should be. Scottish nationalist concerns will be recognised by the UK Parliament holding a referendum on the topic, and by agreeing to their view that only Scottish voters should have a vote on this Union matter.

The referendum electorate raises issues which Westminster has to solve. Do people born in Scotland, temporarily resident in England, get a vote? Do people born in England, now resident in Scotland, get a vote? Should the referendum take the already established Scottish electoral roll, or should we allow a possible surge in new registrations as interested people register themselves at a Scottish address for it? What are the correct qualifications by residence, property ownership and employment? There are difficult issues in creating Scottish nationalist purity in the electorate when the two countries have become so intermingled by blood, marriage and residence.

The Prime Minister hopes that by offering a simple question soon to the Scots on whether they wish to remain in the union with the rest of the UK or not, he will secure a Yes vote. This makes him a very traditional Conservative and Unionist. The latest modernisers in the Conservative party now include some who are more English nationalist. Whilst for Scots arguing over their identity and external relationships the prime issue is England, for the English arguing over the same things the main issue is the EU.

The Prime Minister will discover when moving into this territory for public debate that English nationalism is on the rise. In a way that is what Mr Salmond hoped for and has helped promote. Scottish nationalism is becoming more popular in England, as more English think they could be better off without the UK. The dream ticket for a modern English nationalist is a decision by Scotland to leave the UK, followed by the ending of membership of the EU because the member, the UK, no longer exists. Paradoxically, making the traditional case for the maintenance of the UK, the government may find itself drawn into the territory it is less keen to explore, the continuation of the UK’s membership of the EU.The EU itself apparently does not welcome the idea of Scotland breaking away from the UK. This may help win Yes votes in Scotland, but will antagonise more English voters the other way. Were Scotland to leave the UK the EU would have to renegotiate its relationship with what remained, as the new country that emerged after Scotland left would need a new name and would be smaller, affecting all the numbers for votes, contributions and the rest. It would also be a more Eurosceptic country.

Whilst the Prime Minister can take comfort from the fact that he can deny the English a vote on the Scottish question, and concentrate on the debate north of the border, he may find there is more debate about Englishness and English nationalism as a result of events in Scotland. He will need to build on his “No” to France and Germany over Treaty change, and demonstrate that he understands the EU frustrations of many English nationalists and of those who are thinking of joining them. He will need to offer more to avoid the divorce of this movement from the Conservative party.

It is a bold move to challenge Mr Salmond’s apparant leadership on this issue of identity. Saying bring it on, and providing focus to the debate is fine. Some in Scotland will counter that this is a Scottish matter, not a Union one. Mr Cameron needs to win this argument rapidly with a few well chosen soundbites. It has to be understood, however, that the politics of identity and belonging is about the most explosive type of politics there is. The English have been quiet for a long time, but the English lions are awakening. This may just be the alarm call they were wanting. The English too have an independence agenda. It mainly relates to the EU. The problem for the Prime Minister is the EU is now strongly linked to the union of the UK, both legally, and in people’s minds.

The government wishes to get the UK out of extreme debt. So far on its watch the private sector has done its bit. It has reined in credit card excesses, and gone soft on mortgage borrowing. The banks won’t lend 100% of a property any more, and many people are circumspect about taking on high debts to support high home prices. Many people have saved from their incomes so they have something to fall back on if things get worse.

Meanwhile the public sector has carried on with near record borrowing, whilst talking about cuts. It has made some, but overall it has raised its spending more. It has kept official interest rates at record lows, as it suits the government to be able to borrow at very cheap rates. The government has continued policies of taxing those who might save more at high levels, reducing their saving rate.

It has continued the past government policies of taxing pension savings more, confirming the death of many a private sector pension fund. The very low rates of interest on offficial debt have also been a death blow to pensions, as the pension funds rely on government bond income to purchase annuities to pay the pensions. The large deficits today are in no small measure the direct result of low government bond interest rates, as funds need to buy so many more government bonds to get the income they need to pay the pensions.

The way out of excessive debt is to save more. The way out of excessive dependence on state welfare is for more people to have savings and future pensions they can rely on, so they do not need so much money from the state. In order to encourage more self reliance and less state and individual debt, saings need to be more rewarding. We are at the point where the very low interest rate policies are doing damage to this wider social and moral issue. We need to make savings worthwhile. If it cannot be done by realistic interest rates, it needs to be done by sensible tax breaks. A balanced economy needs plenty of private savings, and wortwhile ways of investing them. A healthy society needs more families providing for themselves, where savings have a role to play.

Some of you have written in to say you do n ot agree with encouragement to people to buy their own home. The big advantage of home ownership coems before you retire, on the day your mortgage is paid off. Surely it is good to look forward to an old age where you do not have to pay rent? It is cheaper over the typical adult lifetime to buy your home than to rent it, even if renting from the subsidised public sector.