One of the main arguments ahead of the budget is the one about what changes you get in revenue if you put tax rates up and if you cut tax rates. This is especially important and hotly contested over business taxes. UK corporation tax revenues increased as George Osborne cut rates. The Republic of Ireland collects proportionately much more tax from business by having a much lower rate than us and attracting many large businesses to locate more in the Republic. Indeed, in 2022 Ireland collected  24.4% of its total tax revenues from corporation tax with a 12.5% rate. The UK only managed 9% of tax revenues with a 19% rate.

There are also studies showing that if tax free shopping is allowed for visiting foreigners the UK will collect more tax overall, as it will boost  taxation on shop profits and shop employee incomes and on the hotels and other facilities the visitors use. UK revenues have been very sensitive to overall economic growth rates. rising more than official forecasts when times are improving, and producing less revenue than expected when growth falls away.

I noticed in the recent Sunday Times survey of economic forecast outturns the official OBR performed relatively badly in the table for 2022, reminding us how difficult it is for Chancellors to  make  the right policy  judgements when the supporting forecasts can be well off.

Angered by the cost of living squeeze and sky high energy prices, many people are  now hostile to the whole idea of company profits. It is encouraging them to demand ever higher windfall taxes to confiscate more or less the whole profit, and leads on to demands for  nationalisation. It is perhaps time to remind ourselves what profit making enterprises have achieved to raise our living standards, to provide well paid jobs and drive growth. It is also time to ask why countries like Venezuela that went the whole way in nationalising and imposing price controls ended up in poverty with large shortages. Many Venezuelans  are fleeing the country to live somewhere where profits are allowed and  living standards are higher.

The UK’s own experience with  nationalisation was poor. A nationalised steel industry put in five large integrated plants but could never sell enough of the steel given their cost levels and spent the  next two decades arguing over how many people to sack and how many plants to close. The nationalised railway had a poor record on safety, punctuality and service. It sacked many staff as its market share of the travel market plunged downwards. It lost a fortune for taxpayers who had to pay the bills. A nationalised phone company fell years behind the USA where competing private sector companies leapt ahead with better service and newer technology.  In the UK  there was little choice of phone, long waits to get a line and rationing including having to share a line with the neighbour for many customers. The electricity industry relied on coal power stations when cleaner and more efficient gas was available. The industry leapt ahead driving costs and emissions down by putting in combined cycle gas plants as soon as it was privatised. The coal industry was in long term decline, with bitter disputes about job losses and mine closures.

Wherever price controls have been tried investment falls and supply reduces. This makes the problem worse. Rent controls seem like a great and popular idea, but as rent controls come in so people withdraw properties from rental and shelve plans to build more. This usually makes the property shortage worse and results in higher rents in the medium term than if controls had not been introduced.

The combination of double corporation tax, a planned rise in the rate of business tax by 31%, and windfall taxes that will be imposed for several years whether there are windfalls or not is putting companies off investing in UK oil and gas production. These taxes will not only mean we import more and become ever more dependent on high and volatile world prices, they will also mean we collect less revenue in future. We will lose out on taxing good cashflows from oil and  gas fields under UK control, and watch as we pay high taxes to foreign governments to import their energy instead.

Profits are used to pay for investments in extra supply, which in turn sustains more and better paid jobs. No profits, means no investments. Fewer investments means lower living standards.

Facts4eu have published an updated version of my analysis of the Protocol issues on https://facts4eu.org/news/2023_feb_redwood_on_independence

It is difficult to write about a deal where there is  no text, and where the UK government assures us there is currently no deal over the Northern Ireland Protocol. Many of us would be delighted if there is  an agreement to free the flow of goods within the UK to and from NI to GB, and even happier if there is an agreement to lift the way the EU wishes to impose its laws on NI that do not apply in the rest of the UK. So what are we to make of the fevered speculation that there is a deal in the offing?

The first scenario is I am afraid the least likely. In this the EU has at last realised its demands to have a border between GB and NI, and to require NI obeys all new EU laws does violate the first 3 Articles of the Protocol itself and prevents Unionists from returning to Stormont. They have kept their decision to make  a revision to their demands secret whilst they get buy in, but we will be pleasantly surprised and will be able to welcome the  new deal when announced. It will remove the democratic deficit , uphold the UK internal market and will look to the Uk to ensure compliant goods only flow to the EU across the invisible  Irish land border.  Mutual enforcement where the UK enforces EU standards on all exports to the EU and vice versa has always been the sensible outcome. There is then no need for a physical border into NI  nor into the EU. The UK has never proposed a  new physical border into the UK from the Republic.

The second scenario is  the EU and UK are close to having agreement on how the UK should manage an internal border, with relaxations for the bulk of goods which are internal trade within the UK. Without any agreement on EU laws and  their enforcement by the EU’s own court it is difficult to see how this could persuade the Unionists back into power sharing. Were the UK government to press ahead with this it could get it through Parliament because Labour has said it will support more or less any Agreement, but it will not resolve the larger Good Friday Agreement issues with the Unionists. It also leaves open how much electronic paperwork companies would need to produce to satisfy EU demands for data on internal UK trade and whether this will still impede our internal market.

The third scenario is there are still genuine talks underway concerning the democratic deficit issues but the EU is reluctant to move. All the time the EU insists on imposing its laws and ECJ judgements on NI the UK government should decline to settle, knowing it will not sort out the Good Friday matters.

As the PM  takes up arms against a sea of troubles it is a good idea to determine which are the battles to fight and where his powers as PM can make the most difference. His five aims set out clearly at the beginning of the year were a good start.

The PM is  with all Conservative MPs the custodian of the 2019 Manifesto. The central theme was to get Brexit done. The millions of Brexit voters who backed us did not just mean to complete our tortured exit,  but to follow up to secure some Brexit wins. There is still much to do to deliver.

The EU has behaved badly to Northern Ireland, distorting the meaning of the Protocol to enforce laws on NI against its will, to impede GB  to NI trade and to refuse to respect the UK internal market and sovereignty of our country clearly set out in the Agreement. Worse still, the EU has undermined  Stormont and the Good Friday agreement. There can be no compromise on these central constitutional matters. Unionists expect the UK to stand up for their interests as the EU does for the Republic. The PM  should be friendly but firm with the EU and hasten the passage of our NI legislation. We are quite entitled to legislate an answer all the time the EU refuses to understand why current arrangements subvert the peace agreement.

The PM’s first priority he told us is to stop illegal migration by small boats across the Channel. We now have the freedoms to legislate and to instruct our courts and border authority accordingly. The legislation should be clear and targeted on the specific issue of illegal arrivals and can include a clause telling the courts that the Act overrides any other laws and rules that courts might like to apply, including any European Court of Human Rights intervention.  We held out against votes for prisoners without leaving the ECHR and can exempt ourselves from any ECHR attempt to impose illegal travellers on us.

His second priority must be to  get growth back into the economy. His wish to get borrowing down in five years time is best advanced by getting growth, as growth brings higher revenues and less benefit spending. His wish to get inflation down will be assisted by more investment in additional supply of things like energy and food which have fuelled the inflation.

His third priority is to cut NHS waiting lists and waiting times. That requires better management of the substantial extra money and additional people committed to the NHS in the last three years.

At the end of the last century Labour pushed through a devolved Parliament for Scotland and a  devolved Assembly for Wales. They did so claiming it would end the growth of the emerging nationalist parties in both parts of the UK.

Instead in Scotland it gave a platform and more grievance to the modest minority campaigning for independence twenty five years ago, swelling their support and leading to an SNP government in Edinburgh always pressing for more powers and for full independence. Under Nicola Sturgeon the SNP became a very successful vote winning party, drawing the support of a much enlarged  minority that did want an independent Scotland and adding to it others who thought it a good idea to have an aggressive Scottish government seeking to maximise money and support from the rest of the UK under threat of leaving.

It led directly to the need for an independence referendum, which the SNP said they would regard as a once in a generation opportunity. No sooner had they lost and they were looking for reasons to try again, wanting to commit Scotland to  permanent uncertainties and painful divisions as long as they lacked a majority for their cause. Nicola Sturgeon managed to keep in office whilst fuelling the divisions,. She did not seek to use the governing powers she enjoyed to improve Scottish services, but as a battering ram against the Union. During covid she gained advance information on the views and understandings of the Union government, to always go earlier and for more lockdown than the rest of the country. There was no wish to work collaboratively at a time of public health danger common to all when the rest of the UK wished to help  and share with Scotland.

Now she has resigned it is possible to have a more informed debate about why the Scottish devolved powers in crucial areas like health and education have not been used to make improvements in services and management, despite the more generous money allocations sent by the Union Parliament. It is possible to rethink the collision course Nicola Sturgeon was designing to raise the issue of independence again, despite losing a court case over another  referendum. Her party can rethink its views in letting rapists serve sentences in women’s prisons which proved to be a provocation too far even  for the very tolerant UK government.

Meanwhile our Union is also threatened in Northern Ireland by the EU. Fresh from its success in standing up at last to the SNP by seeking to override its unwise law, the government of the UK now needs to complete the passage of tis legislation to restore UK government of Northern Ireland.

The Unionist community in Northern Ireland has been ignored and angered by the actions and words of the European Union. The Northern Ireland Protocol has as its first Article a statement that the Good Friday or Belfast Agreement takes precedence over the Protocol. It states that the constitutional status of Northern Ireland is to be upheld and all has to proceed based on the principle of consent. The hard won peace in 1998 established Stormont as a devolved Assembly where all decisions were to be agreed between the two main communities, Republican and Unionist.

The EU’s insistence that all new laws passed by the EU apply to Northern Ireland breaks that promise of consent. Northern Ireland sends no Ministers to the Council to frame the laws and has no MEPs in the Parliament to approve them. The European Court of Justice is the ultimate authority on how those laws are interpreted and enforced. For this reason all Unionist parties in Northern Ireland refuse to return to Stormont to govern in agreement with their Republican colleagues.

The EU wishes to portray this dispute and the rest of Brexit as a matter of trade, when it is primarily a matter of who governs. There are various ways of smoothing the passage of goods between Great Britain, Northern Ireland and the Republic of Ireland that do not require EU laws to apply to Northern Ireland and do not end up in the European Court of Justice. It is the EU’s refusal to explore such options that have left this issue unresolved for so long. The EU should return to the negotiating table willing to accept Article 1 of the Protocol and the Articles of the Good Friday Agreement, and to see they are incompatible with Northern Ireland having to accept EU law and the EU Court.

The UK and the EU have both said they do not want new physical border controls. There is no need for them. The EU now seems to want to walk away from this promise, by proposing new border posts and controls between GB and Northern Ireland, whilst respecting the wish not to have such further controls between NI and the Republic. It is neither sensible nor fair to suggest creating a complex internal border within the UK to avoid one with the EU. The UK would happily make it an offence to seek to send unwanted or non compliant goods to the Republic from Northern Ireland, and would use full state powers to enforce against smuggling. Checks needed on GB to NI trade can as now take place at the premises of the company despatching the goods from GB or at the premises of the buyer in NI. All will be covered by the usual standards, enforcement and electronic paperwork that is used to regulate internal trade in GB. Trusted trader schemes work well. Surely a UK supermarket chain which can send sausages to Liverpool without a border check at the city edge can also be trusted to send the same sausages to Belfast for its store there?

The UK government has said it cannot accept proposals which do not result in the restoration of Stormont. As Unionists have made clear, it will require a sensible fix on trade issues which end the idea that Northern Ireland is governed by EU laws and is still under some influence or jurisdiction of the European Court of Justice. The EU/UK trade agreement has reference to an independent arbitrator for disputes, not to the ECJ. That is what is needed as a long stop in issues of UK to EU trade across the invisible Northern Irish border. People in Northern Ireland will follow EU rules and requirements for anything they export to the Republic as all countries selling into the EU need to do, but not for the rest of their business activity.

Those who battle Treasury orthodoxy of no tax cuts often end up going for a feeble compromise of allowing more tax offsets, tax free allowances and temporary concessions. These are well intentioned and marginally better than unrelieved high taxes, but they will not provide the big boost to investment we need.

A business looking at an investment is of course worried about the up front costs and cash outflows when making the initial commitment. An investment allowance allowing the business to pay less business  tax in the year or two when it is building the new factory can help with that initial cash outlay. What the up front allowance cannot do is to make the figures for the rewards on the investment over the life of the project look much better to justify going ahead in the first place. An investment when our business tax rate is 19% looks a lot better over 25 years than if you have to put a 25% tax rate in. An investment earning £100 m of profits over 25 years will pay £6m or 37% more tax at 25% than at 19%.

Worse still is many company investors will look at where best to place their next factory or office from a list of countries ranked by their headline tax rate. Where the UK at 19% was in a decent place on the table, at 25% it is an also ran. Many lists will not include countries with a rate that high. The company with a possible £100 m of profits will stay and pay £19m but may well not hang around to pay £25m.

The Treasury needs urgently to rethink its policies to attracts and sustain investment in the UK. 25% does not hack it, with or without super allowances at the beginning.

One of the joys of tax cutting which even gloomy Treasury advisers should like is the way cutting taxes can allow you to end or cut subsidies. The present government has been dragged into an expensive and poor  model of taxing too much then offering subsidies as offsets, or vice versa. We read how they offered subsidies to Astra Zeneca to put their investment into the UK only to find Astra preferred a lower tax rate and rightly so.

We are currently offering substantial subsidies to users of domestic gas fuel, whilst charging VAT on the fuel as well. Why? If the government suspended the VAT whilst fuel prices are high there would be two  big benefits. Inflation would come down a bit quicker, cutting other public sector costs. Energy subsidies could be reduced saving more public spending. Cut out the middleman and woman employed  to get the tax right and get the subsidy payment right, and save on admin.

We currently impose the highest  carbon taxes on our high energy using industries like steel and ceramics. They then are not competitive, and end up needing large subsidies from taxpayers if they are to have any chance of limping on in a  very competitive world. Why do the round trip and end up with a bad answer? Suspend the taxes whilst times are tough.

The government has got to get away from the idea that it is wise enough to fix prices, settle subsidies, offer tax incentives and dictate a new pattern of economic output unrelated to people’s wishes and preferences. There is too much nudging and not enough allowing. If government sets out too may rules and interventions big business and rich people decide to go elsewhere. The interventionist model ends up with too heavy a reliance of imports. Too much borrowing and money printing ends in poor outcomes. That is why we need to cut tax rates to raise investment and tax revenues. That is why it is foolish to tax to raise money to subsidise the activities you are overtaxing.

The decision by Astra Zeneca to put a major new investment  into Ireland where they charge 15% business tax compared to our new rate of 25% shows just how stupid our high tax policy is. Instead of getting 15% of a good stream of profits over many years alongside income tax and VAT on all the well paid ,jobs they bring, the UK has settled not to have any of it. 25%  of nothing is  nothing.

The same folly is evident in the North Sea. In a rush to get a bit more revenue this year with high and erratic windfall taxes, the government has delayed or lost important investments in new gas and oil fields. Instead of generating more well paid jobs and plenty of tax revenue on the output over the next decade or two, we opt to import and to pay huge taxes away to foreign governments on all the imports. Just one of the fields not currently going ahead would generate a gross £25bn over its life, with a lot of that passing directly to the Treasury in taxes.

Ireland makes my  case perfectly. With a much lower rate of business tax than us Ireland enjoys a much higher proportion of its revenues from business tax because so many businesses go there to set up an HQ and to invest in plants and offices. Ireland  has a much higher per capita national income than us thanks to all the foreign investors congregating there to create jobs and spend money. The UK should copy them with a 15% tax rate as Jeremy Hunt himself proposed last summer. We too would get more revenue and have higher per capita average incomes. Enthusiasts for the EU are always urging us to align more with our Irish neighbours. This would be a great way of doing just that.

When Margaret Thatcher and her Chancellors cut higher rate income tax from 83% to 60% and then to 40% the amount of income tax paid by the better off rose in cash terms, rose in real terms, and rose as a proportion of total income tax. What’s not to like for all involved? When George Osborne drove UK corporation tax down gradually to 19%, the take from company tax went up, not down. So why do OBR and Treasury models tell Ministers any cut in tax rates will lead to a reduction in tax revenue we cannot afford? History and modern experience suggests otherwise.