Author: johnredwood

The Bank’s Report and measures today are mired in gloom.
I have no problem with the Bank allowing banks to extend more credit to businesses and individuals. I support them making liquidity and foreign currencies available to commercial banks so they can do their jobs.
What I would like to see is commentary from the Bank that is balanced. They accentuate the falls in banks shares, possible problems with property investment and the fall in the pound. They do not think through the lower borrowing costs thanks to the surge in UK government prices. Never has the UK’s credit rating in the market been so high. They do not stress the positive side of the fall in the pound, which will promote exports and inward investment and amounts to a monetary loosening. They do not point out that at lower interest rates the UK government will save money on the interest charges on its debts as it rolls over old debt and incurs new debt. That gives the government the option of a lower deficit or more money to spend.

Whilst we await the first round voting results from the Conservative leadership I feel I should give readers the opportunity to think about the role and performance of the Opposition in Parliament.

I have always regarded the Opposition as an important part of the UK constitution. Any government needs the challenge and arguments good Opposition brings. It leads to better decision taking, to second thoughts when the first proposal is ill thought through, and to the exposure of failings and worse in government management. In recent years the Opposition has in effect been part of the government. Since 2010 much of the big programme of European measures, spending plans and EU laws have been voted through thanks to Opposition support or abstention, at a time when the Conservative governing party has had many rebels on EU matters. I have talked before about the emergence of a grand coalition to keep the EU plans alive. This presumably is no longer needed as we head to the exit.

It takes a lot of MPs to run a good opposition. There needs to be a full team of shadow Ministers, following the detail of each Minister’s actions, and keeping up with the wider work of the departments of state. There need to be enough people to man the Select Committees and the Bill Committees of the House, often working at the same time as other MPs need to be in the main Commons chamber keeping the debate going. There are also the debates in Westminster Hall which require an official Opposition presence.

Mr Corbyn has a large mandate from his own party members. His election win was remarkable for modern politics, winning an outright majority on the first round instead of having to face a run off against the most popular opponent. Most of his MPs were always sceptical about his views and talents. Now the big majority of them refuse to serve in his shadow government, making it extremely difficult for him to lead a credible opposition staffing all the tasks they need to fulfil in Parliament.

The irony is that his rebellious MPs seem to want to move policy and attitudes further away from those of many members and voters. Mr Corbyn himself seemed to compromise his Eurosceptic views in order to accommodate his former Shadow Cabinet. This drove him apart from millions of Labour voters who voted Brexit in the referendum, whilst not protecting him from accusations of insufficient commitment to the Remain cause amongst his MPs. They claim most Labour voters did vote Remain nonetheless, yet the figures for the Leave vote were very high in many once safe Labour areas.

Mr Corbyn understands the disillusion with elite politics felt by many voters in those Labour areas, but is finding it difficult to concentrate the conversations in ways that will help them thanks to the antagonism of many of his MPs.

What should he and they do next? Can Labour elect a new more moderate leader, given its membership? Would such a leader anyway be able to reconnect with the voters that seem to be drifting away from their old allegiances?

On Tuesday I will vote for Andrea Leadsom. Her message is fresh and exciting. Behind it lies a lifetime of business and political experience.

In recent months she has shown she is a woman of principle, placing the UK’s interests before her own, campaigning for a cause that was unfashionable in the government she served. She did so with passion, with dignity and with effectiveness. Those are the qualities I look for in our next Prime Minister.

I like her vision of a global UK, looking outward to the wider world. To do that well the UK needs to regain her vote and voice on international bodies the EU took us off. We need to have a fair migration system with the same rules for Europe as the rest of the world. We need to be able to spend our own money on our own priorities.

She understands that we need a speedy and smooth transition from EU subsidiary state to an independent UK. She recognises that there are many who want to make it complex. At its heart is a simple legislative act, to reassert UK control over our laws, borders and money. The faster we do that, and the more we reassure our former partners that we do not wish to impede their trade with us, the better.

I spent part of my life as the UK’s single market Minister. Much of the time was used up opposing needless regulations, or seeking to amend clumsy laws. I never thought you needed almost 300 new laws to be able to trade with each other. They said the programme was completed in 1992, but subsequently we learnt we needed many hundreds of extra laws to extend and improve the construction we created in the last century. Trying to agree something sensible and that works with 27 other countries is exceptionally difficult. That is why the EU does not have free trade deals with the USA, India, China or Brazil, four of the largest economies in the world.

I came to see that so much of the so called single market programme was more about creating a common EU government and less about oiling the wheels of exports and imports. The Cassis de Dijon judgement which said that if a product is accepted as of merchandisable quality in one EU country it should be allowed for sale in any other EU country was all you need as the basis of a common market. Some common regulatory standards can be added in various areas, but too much prescription impedes innovation and penalises small and challenger companies. We should worry that for all its laws and rules the EU has not led the digital and internet revolution. The USA has done that, spawning all the large new companies that dominate the market.

As a business woman Andrea understands this. She wants to see more business success, not less. She wants more investment and more opportunities for UK students and employees. She wants the prosperity that business can bring to percolate through every part of our country. She is driven by a charitable wish to help those in need, and by an ambition to offer more opportunity and prosperity to the many.

I welcome that approach and am impatient to get on with it. With Andrea leading us I look forward to an early passage of a Bill to taking control of our laws, borders and money. Far from expecting a Brexit recession or slower growth, I forecast that we will be able to stimulate our economy more with the extra money we have to spend. We will soon be able to negotiate job enhancing trade deals with many other countries. Already since Brexit the markets have given us our best ever credit rating as measured by our very low borrowing costs. That is a further improvement in our public finances. Government bonds at are at all time highs. We should be optimistic with the bond markets, and look for ways to free investors and companies to innovate, train and add jobs across our land.

I have seen Andrea go about briefing herself on all aspects of the EU project. She set up Fresh Start in the last Parliament. She worked well with a diverse group of colleagues. Between them they produced excellent papers charting just how much power had gone, and just how damaging many EU policies have been. Remember the Exchange Rate Mechanism, and the Common Fishery Policy? She now has the chance to use all that work to good effect, leading our team to negotiate a better future,. She will do so with skill, with vision and with control of the detail. I wish to help in any way to get her elected to do so.

I am all in favour of lower taxes after Brexit. People voted to get rid of Vat on domestic fuel, so Mr Osborne should get on and do that. Lower Corporation tax rates were not part of the offer. Is Mr Osborne planning an early budget to cut this tax? If so will he legislate to remove Vat  on domestic fuel which would boost consumer spending power and help the lower paid most.

Parliament effectively control the prerogative powers of government. The government can send a letter triggering Article 50  without asking Parliament. Like all such deeds Parliament can review or vote down any action of the government. If the government uses powers in ways Parliament does not like Parliament can pass a vote of no confidence. We do not need lawyers telling us how to legislate or control government.

On Saturday  Mr Osborne was back with the Treaury pro EU gloomy playbook. Their disgraceful short term forecast of what would happen on a Brexit vote has already been proved hopelessly wrong in most counts.

They said exit would drive up the cost of borrowing. Instead the government cost of borrowing has plunged and private sector loans are available at the same rates as before.

They said asset prices would fall undermining investor confidence. Instead shares of our large companies on the FTSE 100 are higher and people are out buying homes  again at prices 5% up on a year ago.

They said the UK deficit would rise. Instead the Treasury can now slash its forecast for future state borrowing costs as the price of future state borrowing has fallen by a remarkable 36%.

They said there would be a rush to cancel investment projects. So far there has been no such rush.

 

They said consumers would cut back their spending. Why? Who is doing that?

The only thing they have been right about is sterling has gone down. This is a substantial monetary stimulus to our economy. It means foreign buyers of UK assets now find them cheaper and better value. It will boost export activity and make inward investment more attractive.

It means we will buy more home goods and fewer imports.

Governor Carney need not offer lower official interest rates. That is unhelpful, pointing to an extra monetary easing we probably will not need. We do not want negative talk from those in charge of our economy. The danger us such talk will lower sterling too much.

When we come to see the immediate post Brexit figures I expect to see continued growth, and no falling off a cliff in demand as forecast by the Treasury.

GETTING OUT OF THE EU

 

 

The vote requires the government to take back control of our laws, taxes, borders  and spending. It left open how the negotiations would be handled. Vote Leave did rule out the Norwegian and Swiss models (and any other named country). By ruling out Norway the campaign also knowingly ruled out EEA membership, as this too entails accepting freedom of movement. Vote Leave said there would be a British model. The campaign argued that it could not predict what would result from the negotiation, but could live with the worst case which would be no special status, requiring the UK to rely on WTO rules.

 

WHAT DOES OUT LOOK LIKE

 

Model One

 

Special deal after negotiation:

The UK refuses to accept freedom of movement and explains the points based system to control numbers, geared to reducing total flows into low paid jobs. Also refuses to pay general contributions to EU budget. After haggling the rest of the EU decides they have a lot to lose from WTO levels of tariffs and other barriers against their exports to us. WTO allows 10% tariffs on cars which the Germans do not want, and much higher tariffs on some agricultural products which the French do not want, so there should be scope to bargain these down or keep zero as at present.

The City wants to keep the passports for services. There are ways round its loss, through the equivalence provisions of MIFID II and/or through subsidiaries in other countries. Most UCITs are anyway already based in Luxembourg or Dublin. The passports could be a trade off for not putting a 10% tariff on German cars. We also need to remember that many of them want passports to London as the largest market by far in the EU.

The ideal deal would be no new tariffs or barriers on access to single market, with no freedom of movement or contributions.

 

Model Two

 

No special  deal – exit and rely on WTO rules

 

The US imposes an average tariff of just 3.5% under WTO, with 45% of all items tariff free.   The EU imposes an average tariff of 5% on the rest of the world, which we can negotiate down as we develop trade deals with other countries in our own right. If they insist on their 5% average against us we will still be more competitive, as sterling has fallen by more than 5%.

 

BEST NEGOTIATING STYLE

 

Inject pace, and make clear we do  not want it to drag on for 2 years, as neither side rally wants that length of uncertainty. If they have no intention of giving in on money and movement then end the talks and go for WTO. If they will flex, then we can seek to persuade them that it is in our mutual interest not to place tariffs and barriers  in the way of their very profitable trade with us.

 

WE ARE ONLY OUT WHEN WE HAVE REPEALED THE 1972 ACT. 

 

We need to progress the repeal, transferring all EU law into UK law pending review and amendment. This could be done immediately, leaving the question of date of bringing into force until we know the negotiating timetable.