A very European policy?


¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† The UK’s economic policies carry a strong family resemblance to EU policy generally. That does not make them¬† wrong, but it is worth examining similarities, both where they might help and where they will hinder.

                The EU correctly thinks high government deficits are unsustainable and need to be brought down. It recommends a 3% ceiling on annual borrowing, and a 60% ceiling on the stock of  state debt, as proportions of National Income.  This is prudent and sensible. It will take the UK a long time to get back to these levels on current forecasts, but the intended direction of travel is clear.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† Most EU countries are embarked on deficit reduction policies. One of the most popular ways of doing this¬†is through increasing VAT.¬† In the last couple of years the Czech republic and ¬†Estonia have lifted their rates to 20%, as has the UK. Latvia,¬†Lithuania, ¬†Finland, Greece, Spain, Ireland and Hungary have also raised their rates. ¬†VAT is of course an EU required tax, and the EU draws a stated ¬†proportion of the VAT revenues from each country to support its own expanding budget. Cutting public spending at the EU level, which would be a better economic option for deficit reduciton, is not on the agenda, despite the UK government’s attempts to pursue this.

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† The EU has put in place a dear energy policy, requiring expensive developments of renewables and imposing carbon penalties on energy users. The EU as a whole will find increasing amounts of heavy industry investment go elsewhere, as energy costs are an important part of total manufacturing costs, expecially in cases like the ¬†steel industry, foundries and castings. There is a danger that the EU’s energy policy will not succeed in curbing world carbon dioxide emissions, but will succeed in accelerating the transfer of heavy industry away from Europe.

                  The EU is advocating  more trans European rail investment, preferring rail links to other forms of air or surface transportation.  This makes hitting deficit reduction targets more difficult, as railways are extensively subsidised throughout Europe.

                  The EU advocates European level bank and financial service regulation, in addition to global regulatory standards and national regulatory activity. The Uk may find that bringing more of its successful financial service industry under EU control makes London a less desirable location for such  businesses, helping the transfer away to Hong Kong, Singapore, Shanghai  and other emerging centres.


  1. norman
    January 4, 2011

    A decent rule of thumb is that if the EU proposes one thing then do the exact opposite such is it’s track record on getting things completely wrong.

    I also apply the same rule to long term Met Office forecasts.

    In fact, it works for just about every bureaucracy dominated government body.

  2. lifelogic
    January 4, 2011

    You are correct but rather too gentle in your approach.

    In short they have a mad big tax/big government policy and a mad expensive green energy policy. They push trains from a religious standpoint which might make sense sometimes but usually does not (especially in the small UK). Even after the subsidy and tax advantages when compared to planes and roads trains often make very little sense economically or even environmentally.

    The EU will also push financial services out of London and the EU too.

    These policies are all terrible for the UK in particular.

    Grant Shapps the housing minister should be told that house prices are about supply and demand if he wants better supply he should get rid of daft planning restrictions and silly building regulations and excessive stamp duty and other taxes which all force prices up. Silly and often unreliable condensing boilers and energy reports for example.

    It is not his role to control price increases at 2% in some great 10 year plan. Higher prices will encourage more building and supply. He should just sort out banking and the availability of development finance and mortgages and the above.

    1. lifelogic
      January 4, 2011

      Trains are also far more vulnerable to trade union control than other transport system are. All things considered they generally have no real green advantage either particularly the high speed trains – just in case you do still believe in the CO2 devil gas exaggeration/religion.

    2. Mark
      January 4, 2011

      Higher house prices have done NOTHING to increase the supply of houses, because new buyers cannot afford the prices. House prices have been driven and distorted by easy credit for mortgages and low interest rates. There is no fundamental shortage of housing in an economy that offers 26 million dwellings for 62 million people – only misallocation due to distortion of markets for rent and sale of houses. The main impact of planning regulation has been to impose unsuitable “affordable” homes on us: homes that will become slums in a few years time. It is a pleasure to note that the rules that dictate that such homes should be provided with inadequate parking have today been abolished – a step in the right direction.

      1. lifelogic
        January 4, 2011

        Higher house prices do increase supply as it makes it worth building where it would not be with lower prices but higher building costs (due to the devaluing pound and excessive tax and regulation) counteract this somewhat.

        Certainly as usual political control of the planning process has built the wrong houses in the wrong place with the wrong parking facilities. Just as they did with the Millennium tent, the Olympics stadia and countless other things and will also do with high speed train if they are allowed to.

        1. Mark
          January 4, 2011

          The crude statistics show a negative correlation between house prices and building: the highest levels of building were in the 1950s and 1960s (see Table 241 from the DCLG website), when even deflated by RPI prices were much lower than at any time since. Our high prices have just produced the lowest level of house building since 1924. Of course, the 1950s and 1960s were dominated by replacing houses damaged in wartime and slum clearance, as well as a general expansion to provide for the rising numbers of families. By around 1990, the last of the baby boomers were attaining the age of new household formation, so demand to add to the housing stock diminished.

          I am reasonably certain although I can’t readily lay my hands on the numbers to prove it, that house building was at higher levels in the Depression of the 1930s than it was during the booming 1920s, despite lower prices. The 1920s saw many stockbroker houses built, but rather fewer houses for the general populace.

          1. alan jutson
            January 5, 2011


            I believe that housebuilding is lower now, due to Planning Constraints.

            Back in the 30’s we had Government incentives (the will) for building new towns and suburbia, now we have controls on green belt, conservation areas, areas of natural beauty, areas of scientific interest and the like, as well as a nimby culture.

            Back in the 30’s we were prepared to build new roads and infrastructure to serve the new built towns, now we want to put in speed humps and chicanes to slow traffic movement.

            It depends upon what you want. To retain open space for an ever increasing population, or to build houses for them.

            If we had an oversupply of houses, then the price would come down ! Just like in Spain now.

            The problem we have as a Country is the people who promote you cannot do that culture, are winning the battle against the yes we can approach.

          2. Mark
            January 5, 2011

            Spain is an example (as is Eire) that shows you can have a massive and increasing oversupply of houses and yet rising prices. That dynamic is driven by money pumped into housing and speculative fever, until like a Disney cartoon, the legs spinning having run over the clifftop temporarily suspending the law of gravity turn to a precipitate fall.

            As to the 1920s/30s, it’s worth noting that WW I caused an almost complete halt in housebuilding, and also had a significant impact on the population numbers. By the 1930s though overcrowding and slums were a significant problem, as Asquith’s Homes for Heroes programme had really been inadequate to provide for soldiers returning from the front. House building is strongly driven by demographic factors, and by wars that cause building to cease, with a subsequent catch-up.

            I have found (p12) here:


            the history of house building in the UK for the 20th century which clearly shows the 1930s had much higher levels of building than the 1920s (almost matching the post war peak in the 1960s), despite prices lowered by the depression.

            One of the factors that limited house building in the 1920s was rent controls imposed in 1924 on smaller properties – from which large properties were exempt. We have seen an echo of this in the effects of highly subsidised rents for public sector housing leading to sharply reduced building.

      2. Javelin
        January 4, 2011

        Agreed. We are back in 1991. Once interest rates shift up, house prices will fall.

  3. Stop Common Purpose
    January 4, 2011

    “…but will succeed in accelerating the transfer of heavy industry away from Europe.”

    That is their intention, Mr Redwood.

    It is part of the UN Agenda 21 Sustainable Development scam.

  4. FaustiesBlog
    January 4, 2011

    So the EU have decimated our fishing industry, ruining our farming industry, causing our manufacturing industry to leave the country, curtailing our financial sector and over all, increasing job-destroying regulation putting up prices of everything to ruinous levels at a time when unemployment is rising.

    It then has the gall to increase the budget.

    From where will growth come?

    By the way, VAT was originally supposed to fund the EU, when it was first instituted, back when it was pegged at 6%. Then it was raised to 15% to compensate for the poll tax.

    Now, we pay VAT of 20% PLUS billions a year dues to Brussels, and our council tax has doubled in 10 years.

    Is there such a thing as a temporary tax? Do they always have to go up and up and up?

    Isn’t it time we started putting sunset clauses on budget items so that they have to be explicitly renewed at intervals?

    Moving to China is beginning to appeal.

    1. Stuart Fairney
      January 4, 2011

      I am inclined to agree. To hell with voting for three vox pops who say and do more or less the same thing, just end income tax, general meddling and keep the government to under 10% of GDP and you can have my poll card back for all the good it does in the UK.

  5. Tony T
    January 4, 2011

    I seem to recall seeing somewhere that according to EU rules once VAT is raised to any given level it can’t be reduced, is that correct? If so we’ve been sold down the river again by our noble leaders.
    Reply: Can reduce

    1. backofanenvelope
      January 4, 2011

      There is, is there not, a 5% floor on VAT? Which is why VAT on energy could not be reduced to zero by Gordon Brown.

      1. alan jutson
        January 4, 2011


        Not sure about a minimum level but:

        New Build Housing is Zero Rated, as are Listed Buildings.

        That is different from being Vat exempt.

  6. Ralph Musgrave
    January 4, 2011

    ‚ÄúThe deficit is too big, so let‚Äôs raise taxes‚ÄĚ. Those who advocate this idea never refer to the elephant in the room, namely what to do about the unemployment that results from the raised taxes. That is, they appear to have no idea how to reduce the deficit (and/or national debt) WHILE MAINTING EMPLOYMENT LEVELS. Well let me put them out of their misery. The appropriate procedure is thus.

    1. Create new money and buy back the debt. 2. If that is too stimulatory (and/or inflationary) counterbalance that by doing some of the ‚Äúbuy back‚ÄĚ in a DEFLATIONARY way, that is get some of the money for the buy back from extra tax. QED.

    If the policy in the above paragraph were adopted on a continuous basis it would amount to letting the deficit accumulate as extra monetary base rather than as extra national debt. This is a perfectly reasonable and sensible policy, advocated by many economists, e.g. Milton Friedman here: http://nb.vse.cz/~BARTONP/mae911/friedman.pdf
    (See p. 250, last para, where Friedman says that ‚ÄúGovernment would not issue interest bearing securities‚Ķ.‚ÄĚ)

    1. Iain Gill
      January 4, 2011

      bit too simplistic

      ignores immigration and outsourcing of work to other countries

      much of previous stimulus and state intervention has ended up creating jobs in other countries

    2. Acorn
      January 4, 2011

      So you want to put politicians in charge of printing the money!!! You want politicians to set the “theoretical” income level, that this system requires!!! A bunch of politicians famous for scamming their own expenses!!!!!!!

      Even Friedman gave up on this idea, when he discovered he had actually re-invented the Gold Standard. Now; there is a good idea.

  7. Iain Gill
    January 4, 2011

    Re “There is a danger that the EU‚Äôs energy policy will not succeed in curbing world carbon dioxide emissions, but will succeed in accelerating the transfer of heavy industry away from Europe.” its not a danger its a cetainty

  8. Ralph Musgrave
    January 4, 2011

    I should have said above that the procedure I advocated above is a method of reducing the national debt (to nothing at all if need be). In contrast it does not necessarily reduce the deficit. But the worry behind the deficit is an expanding national debt, so the ‚Äúprocedure‚ÄĚ solves the fundamental problem.

    1. Mark
      January 4, 2011

      ….and replaces it with inflation that destroys the value of money, and the state along with it, for no-one will accept the state’s coin. It was one of the key factors that drove the fall of the Roman Empire, and many other civilisations and countries.

      1. FaustiesBlog
        January 4, 2011

        Inflation is already destroying the value of money, while our deficit and debt grow.

        The CPI and RPI are fictions. They don’t take into account the major items in any household budget which are galloping – in some cases, up to 20%. Included in these ridiculously unrepresentative indices are mobile phones. The last time I purchased a mobile phone was 5 years ago.

  9. waramess
    January 4, 2011

    It is no longer possible to understand the direction of either the government or indeed this blog if the sum total of the intellect is what tax should be raised to reduce the deficit or indeed Ralph Musgraves idea of yet another way Governments might rip off the private sector in order to maintain its own size.

    Can nobody see that if the public sector continues to expand in absolute terms, either by increasing taxes or by money printing then the private sector will decline.

    Why is nobody calling for a cut in the size of government? Is this now unpalatable thinking as soon as vested interests raise their flags and shout foul?

    Cut the deficit by cutting the size of government and do not compromise in favour of vested interests. Leave that to Dave and Ollie, but at least show some resistance.

  10. √Čoin Clarke
    January 4, 2011

    The exodus of heavy industry is not a point you hear often… but it is a good one. Arguably, we then emit carbon dioxide in an attempt to import the goods from that industry back into Europe. The UK under Thathcer had a good record on the enviroment… her clean air act, river pollution act, and measuring of carbon emissions, as well as banning CFCs, were all sensible measures. I think that we in the UK need to be more imaginative about how we can build upon that. Taxation is a lazy way of trying to solve the problem. Building Nuclear Power Stations are expanding on Carbon Capture Schemes are a better way. Relaxing planning laws for small enviromental businesses would also be a good idea. My son’s grandfather has tried for a decade to get planning permission to build a wind farm on his OWN mountain, but cannot get the permission.

    1. Simon
      January 6, 2011

      Is carbon capture is worth pursueing given the amount of energy it requires to liquify the CO2 and pump it underground ?

      The best estimates appear to be that it takes 25% of the energy generated , thus one has to burn 33% more coal in order to supply the same amount of power to the grid .

      When the cost of creating and maintaining the infrastructure is included and importing more coal , cos it won’t be mined from our thin wavy seams , it will be higher .

      The only carbon capture scheme that looks viable is planting trees , or should that be replanting them .

      Surely get a better return if the money was put into significantly reducing our energy usuage , solar , tidal and wave ?

  11. a-tracy
    January 4, 2011

    The proposed “3% ceiling on annual borrowing, and a 60% ceiling on the stock of state debt, as proportions of National Income” what year were we last in this situation and for how many years?

    I read on ConHome “an Ipsos Mori poll for The Economist found that the matters of greatest concern to the British people were the economy (61%)…It is these doorstep issues ‚ÄĒ not the eurozone bailout mechanism or the scrapping of control orders ‚ÄĒ that must be the focus of coalition attention in 2011” I thought the eurozone bailout affected our economy, I thought the EU affected our VAT rate and what goods VAT is charged on, I thought the EU requirements for prisoner voting affected the decisions we could make for ourselves in the UK? When UK residents say the ‘economy’ is of greatest concern I would guess that bailing out other Countries is part of this as we then have less to spend on our own services and expansion.

  12. Magnolia
    January 4, 2011

    I think VAT is wicked because it taxes money that’s already had tax paid on it when people buy things out of taxed income. It’s therefore a stealth tax and at ¬£1 paid to the tax man for every ¬£5 spent on VAT goods and services, it feels like a form of slavery, but in the current economic circumstances it also feels like the least worse option because I think it will take more from those people who have the most money and who like to splash out, even if it’s just in reality transferred from the Chancellor’s credit bill to the individual’s credit bill.
    Alan Johnson claimed on the Today programme that this rise in VAT would cause more lost jobs than Labour’s intended rise in National Insurance but I think he’s wrong because NI will affect all businesses including exporting one’s necessary for our recovery, where as VAT will only affect national business transactions, but I don’t really understand it enough.
    Where I take issue with VAT is in the charging of it on services involved in house maintenance which the resident couldn’t possibly do oneself. Why do I have to pay VAT on roofing repairs or painting and decorating to my eaves which I couldn’t do myself? and why should my elderly and frail mother have to pay VAT on decorating services inside her house which she could not do even though a younger person could? I thought VAT was meant to be a break on overspending on luxury goods and had no idea of it’s Europe origins until today but if essentials are meant to be excempt then why is a roof over one’s head a luxury in temperatures that went down to minus 16 degrees centigrade two weeks ago?

  13. Alte Fritz
    January 4, 2011

    Faustie may recall that stamp duty was introduced as a temporary tax to fund our participation in the War of Spanish Succession. Three hundred years later……

    If one follows the trail Mr R lays, then there is but one conclusion which is that unless we are prepared to acquiesce in each detail of the Project, then we ought to leave the EU. I do not really understand what drives the Project; much of it seems redolent of the corporate state.

    Thinking again about my minor fit the other day over Estonia’s accession to the Euro zone, I suppose it is driven by fear of being on the periphery, and by a misplaced belief that the EU would protect Estonia from Russia if ever Russia again sought to take over that country.

    I cannot believe that the EU would do anything but blub in such circumstances, and that is why EU regulation and harmonisation are so much hokum. The willingness of the whole to protect each part is a characteristic of a unified state. The EU tries to build a state from top down rather than from bottom up. This approach seems to do harm without the prospect of doing good, although EU fans may disagree. But can anyone point to benefits flowing from the construction of the single market?

    1. sjb
      January 4, 2011

      Alte Fritz asked: “But can anyone point to benefits flowing from the construction of the single market?”

  14. Andy
    January 4, 2011


    “David Cameron dismissed claims the Tories would put up VAT if they win the General Election – insisting his first Budget would focus on cutting spending”

    “”We have absolutely no plans to raise VAT. Our first budget is all about recognising we need to get spending under control rather than putting up tax.”

    Some would argue that this is accurate, they did not have “plans” to raise VAT.

    If the electorate have to forensically analyse every statement made for all its possible get outs and interpretations it is no wonder we no longer believe a word spoken by politicians.

    1. Winston's Black Dog
      January 10, 2011

      John Major had no plans to increase VAT either.

      All Europhile Tories end up doing it though because their Masters in Brussels tell them to.

  15. BobE
    January 4, 2011

    I am hoping that the Euro currency disintegrates and breaks up the whole sorry mess. Which party will you vote for next time, Labour or ConDem?. There seems little or no difference between them. I wonder if the student vote will swing hard right as the other choices are so centrist.

  16. BobE
    January 4, 2011
  17. Jose
    January 4, 2011

    The EU members and much of the Commission are largely socialist-leaning and believe in high tax and high public spend; this is completely at odds of where we should be. We should be pushing for ever smaller government and beaurocracy and reducing the costs of government across the UK and the EU.
    The EU Parliament is completely exempt from reality, witness their attempt to raise the budget for next year by 5.9%. The UK must not give up any more monies or power to the EU. Next negotiating opportunity is the perfect one for us to recover ‘lost’ ground.

    1. norman
      January 4, 2011

      This negotiation was the perfect time and I’m pleased to say we’ve taken a harsh line on the EU budget. We may (note, only may) have limited it to a 3% rise this year and we’re pushing hard for the headline figure (the total costs are many times more but who can tell what damage it is doing to our economy) only to rise in line with inflation over the next five years. No doubt after those 5 years are past they’re hoping we’re in recovery and they can double down on increases to make up for these 5 years of austere 3% growth.

      As a matter of interest I wonder how many of us would accept a guaranteed 3% annual increase in our income over the next five years.

      Thank goodness we have a Eurosceptic PM fighting our corner! Imagine how much worse it would be under Labour, with European Arrest Warrants, European Foreign Services being set up, Treaty Amendments being ushered in through the back door, bullied into bailing out Eurozone countries, etc.

  18. Mike Stallard
    January 4, 2011

    The whole trouble with the EU is that it is made up of totally unelected failures and bureaucrats, none of whom have been able to get to the top of the tree in their own countries. They call the shots in Europe and everyone else does exactly what they are told.
    Mr Cameron, Mr Clegg and Mr Miliband and their colleagues mix far too easily with their opposite numbers in the EU and so fall in with the general consensus, even when (carbon emissions, railways, windmills, the city, strangling trade, fisheries) it is ridiculous.
    You have only to read the comments above to see that many thinking people are not happy.
    But is there just one politician who questions all this?
    I think not.
    So, Mr Redwood, let us have some action, please.

  19. Paul H
    January 4, 2011

    Hold on a minute, if the EU takes “a stated proportion” of each country’s VAT revenues then we have (yet again) just increased UK giving to the EU. Shouldn’t we use tax increases that retain all of the revenues within the UK?

  20. Acorn
    January 4, 2011

    A good post to bury bad news JR; like the VAT increase. So, if you will allow, please can I inject the following as a Jaguar owner suffering 23 miles per gallon and still perfectly willing to pay the price for the love of said Jaguar.

    Petrol 39.99 pence per litre (ppl). Plus Duty 58.95 ppl. Distribution and retail margin 9.31 ppl. VAT 21.65 ppl. Total price 129.9 pence per litre. So much for doing away with the war on motorists.

    Now JR; I know it is much easier to be a blogger when your party is in opposition, than it is when it is the government – Iain Dale has given up, you may have noticed. But, to quote Thatch “… don’t go wobbly George”. Else, we may have to start slagging you off on other sites for being Tory lobby fodder ūüėČ .

    Reply: How can you accuse me of going wobbly? I will continue to stand up for commonsense and freedom.

  21. Peter van Leeuwen
    January 4, 2011

    It seems to me that your government is co-author of all these EU policies. When member of a club, you win some you lose some (decisions going your way).

  22. Richard Aitkins
    January 5, 2011

    Mr. Redwood

    Now wonder the British people have lost their sense of identity when yo uand others constantly use the term “UK”. The UK is not a country, it is the constitutional status of a country called Great Britain and Northern Ireland, commonly called Britain.

    You use names such as Spain, Hungary, Greece etc., but can’t for some reason bring yourself to say Britain.

    By the way, my country is England and I am English.

  23. Viv Evans
    January 5, 2011

    Mr Redwood,
    re: EU Energy Policy – please look at this quote:

    ‘the new German Energy Efficiency Law that was quietly passed on the 4th of November 2010 with nary a press report and under the noses of its citizens -passed under the guise of ‚Äúnecessary-to-implement EU Directives‚ÄĚ to increase energy efficiency.’ -Is there any guarantee at all that this coalition government will not go down this road, and that there will not a similar law be introduced here?

    This does indeed pave the way for energy rationing. I never thought I’d see the day that such laws are even being contemplated, never mind introduced, as in Germany.

    It is high time for us to leave the EU!

  24. edgeplate
    January 5, 2011

    “The Uk may find that bringing more of its successful financial service industry under EU control makes London a less desirable location for such businesses, helping the transfer away to Hong Kong, Singapore, Shanghai and other emerging centres.”

    “May”? Will.

    The UK seems to be suffering from a death wish. Unless we have a radical change of government, e.g.not the red gang rather than the blue or blue/orange gang, it will be fulfilled.

  25. Lindsay McDougall
    January 6, 2011

    I don’t care what the EU advocates. I want to know what our politicians advocate and what steps they are going to take to return power to UK institutions.

    I acknowledge that in this parliament the fact of coalition imposes restraints. However, that does not prevent any Conservative MP saying what he wants the Party’s manifesto to say in the NEXT election. If the Conservative leadership does not share Mr Redwood’s opinions on this topic, I want to know as soon as possible.

    Meanwhile, there will be European elections in 2014. I suggest that we humble voters vote only for clearly Eurosceptic MPs, whether Conservative or UKIP.

  26. George Rowley
    January 7, 2011

    This is the day that VAT increases and what a sad day it is. People will have to pay more for everything they have and want. Many people I have heard have said very little about this but in my opinion it is difficult to see at the moment how it will afect our economy and whether the public will reduce their spending and both public and private sectors will lose their jobs. I wait with interest.

  27. Ian Grey
    January 8, 2011

    “VAT is of course an EU required tax, and the EU draws a stated proportion of the VAT revenues from each country to support its own expanding budget”.

    John, strange that you didn’t actually state what the UK’s stated proportion of VAT to the EU is. I can’t immediately find it anywhere, can you tell us or point us to a link?

    I had a vague memory that they took the first 15% which is why it couldn’t be reduced below that in 2009, however I may have misunderstood.

    Reply No, the “own resources” element is much lower than that. Total EU budget is from memory around 1% of combined GDPs.

  28. Winston's Black Dog
    January 10, 2011

    Talking of VAT why don’t we help the poor, vulnerable and elderly by removing it from gas and electricity?

    Answer: Because under aquis communitaire our Masters in Brussels won’t let us.

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