This week listening to Labour I thought I had woken up again in the 1970s. Labour wants “solemn and binding” guarantees from Pfizer that it will never sack a British worker if it takes over Astra Zeneca, and will invest large sums in research facilities at Cambridge.

There is something absurd about politicians demanding assurances that a company’s promise will be held to whatever happens next. Anyone who has experience of government knows that events can force a rethink of the genuine promise honestly made. They also should know that an individual can make a promise, but changes to personnel in the government or company subsequently may change the policy in ways the person making the promise can no longer influence.

It is of course sensible to ask enough questions to make sure the promise is honestly made. We do not want a Pfizer promise like the Lib Dem one to rule out tuition fees for university students, only to see them newly  in power craft a policy and recommend it which did the opposite of what they promised.

It is difficult to go much beyond that. Sometimes people in power make promises which may have been honestly made, but later are forced to choose between two different promises, as it is not always possible to carry out both when circumstances change. Labour promised an ethical foreign policy, yet under the influence of allies and wanting to uphold the US special relationship ended up fighting a war in Iraq which was heavily criticised at the time on ethical grounds.  Labour also promised no Income Tax rises, yet ended their period in office with Income Tax and National Insurance tax rises owing to the collapse of the economy and Great recession on their watch. Sometimes parties promise things they know they cannot possibly carry out, like UKIP promising to take us out of the EU if we vote for them in the European elections. A few days before elections I do not have the luxury of pointing out any Conservative examples, without danger of misrepresentation, but I am sure my readers will be keen to supply some they think occurred.

Sometimes things deteriorate far more than expected. In the case of a company if trade turns down and revenue falls, they may well have to cut costs in ways they had not expected. Companies do not have the luxury of governments with their own currencies, of being able to print more money or borrow cheaply. If a company cannot pay all the bills it has to make cuts.

In the case of Pfizer, what happens if the CEO changes from the one making the promsie? What if the shareholders of the enlarged group if they succeed with a bid have a different view from that of the bidding management of Pfizer?

As I have pointed out before, both Pfizer and Astra Zeneca have been cutting their workforces. Astra is currently closing its research facilities in the north. We will never know for sure which route is the best for British jobs and research, because only one side will win and  have the chance to show us what they can do.

From July 2010 the Capital Gains Tax rate rose from a sensible 18% under the Labour government to an uncompetitive 28%. Presumably the idea was to collect more revenue from it. Even the Treasury, however, expected a dip in the first full year after its implementation (2012-13, as CGT is paid the year after the gains on which it is calculated). They then expected revenues to pick up.

In the 2013 Budget the Treasury gave new forecasts, where they accepted that CGT revenues would be lower in 2012-13 at £3.9bn but would bounce up to £5.1bn the following year. By the time of Budget 2014 they had to revise the figures again. This time they forecast revenues lower in both 2012-13 and 2013-14 at £3.9bn in each year, £400 m down on the £4.3bn collected in 2011-12. A massive £1.2 bn of forecast revenue had gone missing, despite the economy growing faster than they expected. Clearly the taxpayer has lost out so far from the increase in the rate of CGT. If it had stayed at 18% 2011-12 might have come in a bit lower, as there would have been no need for some to pre-empt the higher rate in the week or two of rumours that preceded the imposition in June 2010. The following two years would doubtless have seen considerably more revenue than the Treasury will receive at the higher rate.

CGT is the most easily avoidable tax. Many individuals and companies simply refuse to sell assets which are sitting on large gains, even though they would rather switch them into something more useful for their current needs. Rich individuals who have power to switch the domicile of themselves or their assets find it more worthwhile to do so if they are thinking of selling something at a good profit. Individuals with losses as well as gains make sure they take offsetting losses when rejigging their investments. High rates of CGT are probably stopping people selling second homes in London, even though they may not need them any more, helping to fuel the boom.

I remember making the case against a higher rate of CGT at the time of the 2010 budget. The Lib Dems wanted a 40% rate, I wanted to keep Labour’s rate, and we ended up with a compromise. It’s more proof that the Treasury do not have a good model of tax receipts. Just as they under estimate rising revenues when rates are cut, so in this case they have grossly overestimated the gains so far from a higher CGT rate.

 

One of the worst features of the EU is the way it wants to suppress people’s natural senses of identity. England is the country they do not allow on a map. It is a curious paradox that the EU wants to prevent the UK government having a new relationship that works for us, yet wishes to bolster the other member states who face separatist problems. Having encouraged senses of regional identity, the EU now backs national governments by telling Catalonia it has to stay with Spain, and  the Veneto to stay in Italy  even though a strong message has been sent in a recent informal referendum. Above all, the EU wants to keep the Ukraine together when the government of the Ukraine visibly cannot govern large parts of the country  because consent has broken down.

The EU’s  dislike of England and our approach to supranational government is fuelling a wish  for England to leave the EU, and will be sorted out when the UK or the rest of the UK minus Scotland  finally has our EU referendum. In many areas the EU backs defensive national governments who think they can ignore separatist movements. In the case of England the EU antagonises  the Conservative part of the Coalition government by its often unhelpful response to UK wishes for less interference and more freedom.

The western powers are right to say that yesterday’s referendum in Donetsk and Lugansk was neither legal nor properly conducted. Those wanting out may have voted more than once in some cases, and those who wished to stay in the Ukraine may have taken the advice of the Ukrainian government to stay away from the polls. However, no-one can doubt that a large number of people in Eastern Ukraine do not accept the legitimacy of the current Kiev government, and do fear its intentions towards them.

At the very least the Ukrainian government should talk to the rebels. Sending in the army and trying to remove them by force is not the right answer, and will intensify the civil war in the making. It will increase  the bitterness on both sides. The Ukrainian regime needs to discuss whether a much greater degree of autonomy within the Ukraine would satisfy enough easterners. Are there guarantees that the Ukrainian government can offer on  Russian language and customs that would be credible?

If it is not possible to find a way of jointly governing in the Ukrainian state, then the Ukrainian government needs to offer a legal and properly organised referendum with sensible propositions on the ballot paper that could attract consent.

The UK has offered Scotland a referendum despite the absence of SNP MPs in large numbers at Westminster, and in good time whilst the UK can  govern Scotland with consent. The people of Scotland will now decide whether they wish to renew their consent to Union government or whether they wish to be self governing. If they decide Yes to the Union they will  understand that has to be for a considerable time, as unions should not  be made and broken too often.  That could be a model for any  part of a European state that is unhappy about its current status. It is not just the EU that needs to amend its ways of tackling these issues, but it is the EU that has played an important part in fomenting regional identities which may  now affect not just the individual member states but also EU policy  itself.

 

Today I read that I can get a train ticket to Birmingham for £6, to Stoke for £8 and to Leeds for £14.60 from London. Doesn’t sound like a crowded railway at the moment.

 

The legal position over this bid is very clear. Labour legislated in 2002 to stop Ministers interfering in future bids and deals outside defence and the media. In 2004 they signed up to the European Mergers Regulation, which means that larger company bids involving businesses with activities in more than one member state of the EU are under the sole legal control of the EU Competition authorities. As I put to Dr Cable, and as he agreed, the Astra Zeneca potential bid falls to be determined by the EU and by the EU alone.

However, the actual position has become more ambiguous than the legal position, thanks to the behaviour of Pfizer and Dr Cable. Dr Cable has taken legal advice and constantly stresses that he is “neutral” about the bid. He has to be. However, he has also made clear that he is looking for a role in the debate over the future of Astra Zeneca, and has been aided in this by the actions of Pfizer. The bidding company has decided that it will co-operate with the UK government regardless of the legal realities.

Their decision to do this reflects the realities of power. Whilst Dr Cable cannot block their bid, Pfizer will need the co-operation of parts of the UK government if they are to increase their presence in the UK successully. The NHS is their  largest customer. They may need planning permissions for new facilities. They may want government help with training and apprenticeships. The various ways in which a very large state apparatus impinges on a pharmaceutical company argues for a good relationship from the outset. If Dr Cable wants to discuss the future, then he will be able to. If Parliament wants to examine the issues, then Pfizer will have to put up executives to come and talk.

Pfizer may offer indications or promises on future jobs, the extent of their research commitment, and their future UK presence. These may be well meant, but it is difficult  for them to be binding. Astra Zeneca may offer something similar. As the past shows, they like Pfizer have been reducing their workforce in the face of falling turnover.

The truth is which ever management gets the prize to manage these assets in the future, they will have to adjust their plans depending on their sales and profits. We will never know whether Astra or Pfizer will keep more jobs or generate better results, because only one will win and have the chance to show us what they can do.

It is bizarre that so many UK politicians have learnt so little that they think they can second guess this deal and reach the answer which will guarantee all those jobs and facilities for the foreseeable future. The buying habits of drug consumers, and  changes made in other countries affecting their relative competitiveness, will determine whether we keep these jobs or not. The large pharmaceutical companies are having to cut costs one way or another, so redundancies cannot be ruled out whoever wins.

 

Mr Miliband and Mr Clegg have been too ready to condemn the idea that the UK needs a new relationship with the EU. They are in denial about the massive amount of power the EU wields over our government. They should try reading a bit more.  They should start with a recent publication of the UK government entitled  “Europe 2020: UK National Reform Programme 2014”.

This extraordinary and little discussed document is 91 pages long. It is the UK’s government response to the “country specific recommendations addressed to the UK by Heads of state or government at the European Council  in June 2013….” and reports “against policies in support of the Europe 2020  Strategy priorities…”

The UK was told to do six things. The first is  to “implement a reinforced budgetary strategy… ensure the correction of the excessive deficit….prioritising timely capital expenditure with high economic returns…in order to raise revenue make greater use of the standard rate of VAT”.

I have no disagreement with the EU’s view that we need to remove the excessive deficit. My complaint is that it should be none of their business, but something we settle here in the UK. As a good European Mr Miliband under this requirement would have little scope to change the current UK approach to spending and borrowing. It is interesting that the EU is effectively critical of Labour’s heavy cuts in public capital spending which they put in in 2010. Their words seeking more public capital expenditure do not seem to include HS2 as that is not a project showing “high economic returns”. Mr Miliband might also worry about the EU’s belief in raising VAT further, when he has been an opponent of higher VAT.

The second requirement is to “increase housing supply, including through further liberalisation of spatial planning laws…take steps to improve the functioning of rental markets, in particular by making longer rental terms attractive to both tenants and landlords”. This seems to have already inspired Mr  Miliband to adopt just such policies, so he will probably have no difficulty with it. However, the EU also warns against land and property taxes which impede residential construction, which he might find more annoying.

The third is to do more work on training and apprenticeships.

The fourth is to improve work incentives through fair welfare reforms, and to accelerate measures to cut the costs of childcare. This includes support for Universal Credit, a policy Mr Miliband is not keen on.

The fifth is to improve the supply of bank finance and strengthen competition in banking. Labour in office did the opposite by encouraging all too many inappropriate banking mergers.

The sixth is to “facilitate a timely increase in network infrastructure investment…provide a stable regulatory framework for investment in new energy capacity”. I love the irony of this one. The EU has required the UK to generate more power from non carbon sources, and is now querying the level of subsidy needed to do just that!

The UK government has tabled 51 statistical indicators to allow the EU to monitor progress on these matters and criticise us in the future if insufficient progress is made.

Doubtless pro Europeans will claim that this is guidance, not mandatory in the case of the UK. That is not entirely true. This work includes, for example, the renewable energy and carbon dioxide reduction targets which the UK has to follow under EU law. The UK’s position in the EU “semester” or common budget controls is ambiguous, with the EU’s role clearly growing despite the lack of a power to fine the UK if it does not comply with the EU’s budgetary demands for the UK domestic budget.

All of this control , guidance and legal requirement over central issues of public policy is appropriate for countries in a currency union moving rapidly towards a political union. It is not appropriate for an independent country which wishes to have good relations and plenty of trade with the neighbours. Were Mr Miliband to become Prime Minister, he might start to find it all too intrusive, as clearly some of it is not in accordance with his views on budgets and tax.

 

 

 

There is one strong reason why nationalising the railways would be an odd idea – they are largely nationalised already.

All the track, signals, train pathway timetabling and stations are owned by a monopoly business largely financed by taxpayers and entirely owned by taxpayers. The train companies lease trains and run services over the nationalised tracks under strict controls from the Rail regulator and the Transport Department. They have to conform to five year centralised plans, and they gain near monopoly rights to use given regional track systems. The only element of competition in the whole thing is the occasional competition for the monopoly franchises. The majority of the revenue to sustain Network Rail comes in the form of taxpayer financed subsidy.

When the railways were privatised a two tier structure was set up. There was a privatised monopoly track owner, and regional monopoly train franchise holders. This greatly limited the amount of competition introduced by privatisation, but even this limited competition administered a shake up and reversed the long term decline in rail use that had characterised the whole post war nationalised industry experience. Labour re nationalised the track and stations, though pretended they had not by holding all the assets and shares in a so called private company which just happens to be financed and owned by taxpayers.

Today the East coast mainline franchise is run as a nationalised monopoly, and Labour is looking at doing the same for some of the other franchises as they expire were they to win the next election. That would be a good way to stop the modest  cost and price competition we currently enjoy  and would help  limit innovation. For four decades a fully nationalised and integrated monopoly industry presided over large cash losses for taxpayers, high  and rising fares, declining train usage, little innovation and poor service levels. Why would a future completely nationalised BR be any different?

Fares for commuters on crowded routes into our main cities are too high and service levels not good enough. Too many cross country and mainline express trains fail to attract nearly enough paying passengers, whilst a limited number of trains and routes beyond the commuter lines suffer from overcrowding. We need more innovation, not less, more competitive pressure to do more for less as the airlines have done, new thinking on how to improve service and allow more of us more fo the time to choose the train for our travel. That requires a more competitive industry with more private capital and management, not a return to BR days.  Where challenger railway companies have been allowed they have helped lower prices and improve the range and quality of services.

 

We have recently learned that following a recalculation of GDP for Nigeria, it emerged last year as Africa’s largest economy with a GDP of $509 billion.  It overtook South Africa in terms of total output, but still remains a long way behind in per capita income given the much greater population in Nigeria.

What should give us pause for thought is how small this output still is for a country of 170 million people. It means Nigeria’s output is still lower than London’s, with just 8 million people. It should put our criticisms of the UK economy into context, and reminds us how much more there is to do to tackle poverty in other parts of the world.

 

Germany exports luxurious gas guzzling cars to the world’s rich. You do not hear many  Germans queuing up to complain about the conduct of Mercedes customers, seeking to expose the tax dodges of some who buy luxury cars. Nor are most Germans keen  to regulate and tax the high fuel using car industry out of existence in the name of the environment. Germany may be green in  some ways, but never in a way which would stop it making so many high fuel burning vehicles.

The UK sells top end flats to the same people, building very expensive flats that would otherwise not exist. We sell  the super rich a little bit of London. Many in the UK think this is a disaster. They clamour for higher Stamp duty and Capital Gains to try to tax them out. They talk about other possible controls. In a way the UK product is shrewder than the German. Whereas the German car, once exported, is serviced and maintained in a foreign country, the UK flat stays here and provides UK jobs to furnish, equip and service it. The UK can carry on taxing the flat owner, whilst the overseas country gets to tax the German car.

France sells some expensive processed water to the super rich in the form of wines and perfumes. You do not hear the French complaining that the rich are getting inebriated on French wines, or that the foreign buying means that French people can no longer afford their own Chateau  Latour or Yquem. They work hard to package the wine and tell the story of its production in a way geared to maximise the revenue take from the world’s super rich for the “finest” wines available.

The Uk specialises in private banking and financial services for those same super rich. The air is thick with complaints about the charges and practices of parts of the banking and financial service industry. The UK is quick to condemn and keen to tax and regulate one of its best money earners. Do too much and the rich will be off to Switzerland or Hong Kong for those services. All main political parties want to change the balance between financial services and the rest. Germany does not have a policy of reducing its dependence on auto manufacture.

I am all in favour of us broadening the range of products and services we can sell abroad. It makes sense to do so. What does not make sense is to be so critical of the ways we currently have of earning overseas revenue, before we have found better ways of paying the bills. Maybe part of the answer to help pay for all the imports is to export more financial and banking services, and sell more top end flats. Otherwise we have to carry on selling off the assets we already own, as we have had to do in recent years given the large balance of payments deficit. One of the hard truths of lfie that socialists do not like is you have to sell more to the rich, as they have the money to employ people.

 

Under both recent governments the UK has got used to buying many more imported goods than we export. Years ago when we did this, we sold more services abroad and enjoyed a surplus of earnings on investments from overseas, which gave us sufficient foreign currency to pay for the goods.

Now we still generate a surplus from services, but no longer enjoy the same big net income from investments overseas compared to foreign interests taking loan interest and dividends out of the UK based on their investments here. All those years of boasting about how much foreign investment we have attracted into the UK takes its toll on the national income and wealth figures. Every time a foreigner buys an existing company or puts in a new factory of his own, he  gains the right to take money out of the UK as those assets earn him income. There are now bigger foreign incomes on  assets  in the UK than we earn from  holdings of wealth elsewhere.

If we cannot export enough goods and services to pay for all the imports, and if we no longer have enough interest and dividends coming in from our overseas holdings to offset all the interest and dividends now going out, we need to find another way to pay the bills. We have to either sell some assets to foreigners, or borrow money from abroad to keep hold of the assets we have. It amounts to the same thing in the end. If the UK does not sort out its balance of payments deficit, the loans will have to be repaid by selling some underlying assets.

When I wrote here briefly recently that the UK has to sell assets to pay for the imports, I was not recommending it as a policy. I was merely pointing out the obvious. Some seemed shocked. How else do you think we have been managing to import so much more than we can afford out of our regular income? How else do you propose we pay for all the excess imports if we cannot export more?

The Coalition government wants us to export more. That is the best way to afford our imports. We should be keen to export services as well as goods, as they all earn us the foreign currency we need to pay the bills. T0morrow I will look at the way the UK likes to attack the very  businesses that offer us most hope of exporting our way out of this problem.

I have just been reading the excellent Civitas Report on trade and the EU. It shows that under the regime of the single market the UK reaped no benefit by beign inside the so called market. Our exports to the rest of the EU went up much less than those of many countries which stayed outside the arrangement.