In recent years there has been an avalanche of new regulations from the EU governing banking, financial services and insurance. I attended a seminar last week to catch up with the latest developments. It was a long meeting.

We are witnessing the early developments of regulation from the main European Supervisory Agencies (ESAs).

UCITs V has been developed to regulate investment funds. CRD IV is to regulate bank capital. The EU is working on a Bank Resolution and Recovery Directive, and on proposals for bank structural reform. The banking ESA is undertaking stress tests on banks and is seeking extra powers including binding arbitrations.

The Single Resolution Mechanism (SRM) will propose  a resolution mechanism to be approved by the Commission, to be triggered by the ECB. The Resolution fund will be paid for by all the Euro member states, but will be 60% mutualised within two years of its establishment.

The EU is working on changes or improvements to its anti money laundering legislation, on payments, benchmarks, and KIDIP consumer protection. It is backing the Asset Quality Review (AQR), and will allign EU leverage ratios for banks with Basel III international agreement.  The SSM, the new banking supervisor in the ECB, plans 1000 staff to supervise the main EU banks.  There will be a single rule book for banks across the single market, not just the Euro area. The system of living wills for  banks will be incorporated into the new system.

The aim will be a comprehensive system of consumer and professional market regulation in all financial areas. Every area will need to conform to the general rules against financial crime and money laundering. There will then be differing individual requirements sector by sector depending on the type of business and the nature of the customers.

Increasingly the UK regulators will be enforcing EU requirements. I mention this in a neutral spirit, but if we wish to have a well informed debate about the relative powers of the Uk and EU governments it is always now wise first to ask what are their respective powers and responsibilities. In the area of financial regulation the EU is clearly now in charge.

The EU is also  keen to increase its involvement in taxation. The UK has declined to join the scheme to introduce a Financial Transaction Tax, but other countries will go ahead without us. The EU is also planning to require more exchange of information over savings taxes, extanding the range of current proposals, as they wish to move closer to common savings taxation.

The UK says that as it is not in the Euro area it can still have its own distinctive system. Yet developments show that in so many ways membership of the EU as a non Euro member still sucks us into the general movement towards EU control.

 

Some of the comments coming in about the behaviour  of the European  governing class remind me of King Lear’s discovery:

“Even a dog’s obeyed  in office…

Plate sin with gold,

And the strong lance of justice hurtles breaks;

Arm it in rags, a pigmy’s straw doth pierce it…”

I think things have improved a bit since Lear’s day, but at least it shows it is not a new problem.

 

Imagine the howls of protest from the left if a pro free enterprise group had taken over the government of the EU and were presiding over mass unemployment on the current scale. Yet today, with the big government brigade in charge of the EU, it is apparently acceptable that 18,965,000 people of working age are unemployed in the Euro zone.

No-one in the EU government seems to get cross about it. They do not seem to do any of the obvious things you would do if you wanted to bring unemployment down. Instead of making it easier for business to generate jobs they think up new ways to  tax and regulate. Instead of mending the banks and easing money policy they prolong the agony brought about by broken banks and demand they lend less. Instead of creating an energy market with prices that match our leading world competitors, they happily pile on more and more cost and tax to energy to make us as uncompetitive as possible.

The prospects have been even worse for the young. Almost one quarter of people under the age of 25 are out of work in the Euro area. In places like Spain and Greece half the young generation are workless. Still no-one seems to wake up in the EU government and ask why, let alone propose doing something that might make a difference to this lamentable state of affairs.

The EU goes about its business of feather bedding the governing class and leaving the many to fend for themselves in  a malfunctioning economy and currency union that sensible people warned them could not work. When we hear from this elite that letting people vote and have their say, as in Switzerland on migration, is dangerous, it is no wonder so many people in the UK have had enough of their arrogance and incompetence.

 

The Treasury have been too optimistic about how much extra revenue they will get from a big hike in the rate of Capital Gains Tax. Indeed, it is coming in this year £1.2bn down on last year’s forecast, or a whopping 23% shortfall.  Just as they underestimate the extra revenue you get in from Income Tax rate cuts, so they exaggerate the extra revenue you get from tax rises.

In 2011-12 Capital Gains Tax brought in £4.3bn. This fell to £3.9bn in 2012-13 with   the continuing  higher rate, as I predicted but as many sought to deny. That was  a fall  of 10% in revenue. Not to be downhearted, the Treasury decided this was a one off event. They forecast a healthy rise in CGT this year to £5.1bn in the 2013 budget. A year later, in Budget 2014, the forecast for the year just about to end slumped from £5.1bn back to the previous year’s £3.9bn, still 10% lower than 2011-12.

The Treasury do not seem to understand CGT. People with assets have considerable scope to delay or cancel sales if the prospective  tax bill is too high. Sometimes they can find offsetting losses to take if they do wish to sell something sitting on a profit. People with flats in London they do not use very much any more decide to keep hold of them as they do not want to pay all the CGT. People with shares sitting on good gains delay sales, and phase them when they have offsetting losses and allowances to cushion the tax bill. Assets which could be better used by others are not sold on.

The rate at which you would maximise CGT revenue is likely to be a low rate because it so easy for people with assets to avoid this tax quite legally. It is not tax avoidance to sit on an asset you no longer need because it stands on a big gain. Gordon Brown seemed to understand this, and took CGT down to 18% which may well be near the optimum rate to maximise the revenue. People wanting the public sector to spend more should worry that CGT is too high to maximise revenue at the moment. The Treasury needs to improve its model to forecast this tax more accurately.

 

The second EU debate was bad tempered and  repetitious. The strange thing about it was the posture and tactics adopted by Nick Clegg.

Like the other small band of vocal pro EU politicians in UK politics, Nick promised us he would make the case for the EU but spent most of his time minimising  the EU’s importance and playing down or denying the EU’s main strategic aims and direction of travel.

There will be no EU army , he promised us. What about the 60,000 troops available as a Rapid Reaction force already? What about the call for the EU to have drones and border protections? What about all the features of the Common Foreign and Security Policy?

There will be no more big transfers of power worthy of a referendum any time soon, he assured us. Has he not noticed the big transfers of power to complete the EU’s control of banking and financial services going on on his watch? Has he not seen the latest moves to extend and strengthen the EU’s climate change and energy policy? Has he forgotten that he is advocating within government a big transfer of power over our Criminal Justice system through a series of proposed opt ins? Has he not understood the significance of the ECJ gaining power over European human rights?   Why do none of these warrant a referendum?

He told us he is against so much EU red tape. When did he last secure the repeal of any of it? Why has he gone along with a big increase in the volume of Directives, Regulations and consequential UK Statutory Instruments, if he thinks there is already too much red tape?

Just like last time, he concentrated on the big lie that we would lose jobs if we left the EU because they would deliberately damage their trade with us. He does not explain why he has such a poor opinion of our EU partners that he thinks they would spite themselves to do us harm, yet he wants to be in ever closer union with these self same countries. There is no way Germany will want to stop exporting to us as they sell us so much more than we sell them, so their Finance Minister has already said there would have to be a good trade agreement between the UK and the EU.

He added the extraordinary claim that just 7% of our laws come from Brussels. I guess he gets to that very low figure by leaving out the bulk of EU law which is implemented in the UK by means of Statutory Instruments under the 1972 Communities Act. No-one sensible accepts his definitions, and some will also querying his counting. The majority of UK law comes from the EU these days on most definitions.

I could understand someone with passion making the case for the full blown political, economic and monetary union that will be the completed EU. I would not agree for the UK, but could appreciate the vision. They would want the Ode to Joy to take precedence over the UK anthem, want the European Parliament to make most of our laws on the advice of the Commission, want there to be a common foreign and security policy which we supported and helped, want there to be s single currency and economic area, and would accept free movement of people. That agenda is the agenda of most of pro EU Europe.

Mr Clegg tried to make out such an agenda does not exists. He should get out more, and travel to the continent more often. Then he might find out the true nature of the cause he claims to support, and might then come home and make the case for the EU as France and Germany  wish it to be. It is no good the pro EU people continuing to disguise it as some greater trade area, when it has gone far beyond that in design, ambition and even in execution.

Until he does that, I and many others will not believe him.

 

I do not think the issue of Scottish independence should be determined by whether in the next few years Scotland might be marginally better off or worse off financially. It should certainly not be determined on the say so of a few large companies, either telling the Scottish people they will cut jobs  if Scotland votes Yes, or telling them that an independent Scotland could make a few tax concessions to companies which would make things better for those companies.

The vote should be about whether most Scottish people want to remain British, or whether they feel they can only express their sense of identity by backing an independent nation. As a Unionist myself the last thing I want is to keep Scotland in the Union against the hearts and feelings of a majority of the Scottish people. We need willing  and loyal supporters of our union if it is to thrive. Nor do I want to see a highly marginal vote, with maybe just 52% in favour of the Union, with demands in a few years time to do it all over again. The Union needs stability and support from all parts. This referendum somehow has to be used to secure that support from most Scots, or has to provide them the moment to leave.

I hope we hear more emotional appeals for both an independent Scotland and for the Union. I hope one of those appeals reaches out to enough people to give us a clear answer. It is no good pretending this fundamental question of identity is not emotional. It is not a matter of fine accounting calculation. You do not enter a successful marriage by working out how you might get the better of the merger of your working lives and bank accounts. A successful partnership does not come from thinking how you can live off the other parties, but comes from energy, effort and thinking of  others as well as yourself.

A union of two countries is not just for a few years. You should not unpick it when you think you might have a few more years of higher tax revenue, or seek to put it together if you are down on your luck. It is about how you feel, how you define who you are, and what you think of the neighbours. A union of countries means sticking together during good times and bad. It means going to the aid of each other in war or financial disaster. Becoming independent means wanting to do for yourself what before the Union did for you. That is the fundamental  question.

 

The answer is the cut in top rate of Income Tax from 50p to 45p. (apart from the initial VAT increase).

That should come as no surprise to readers of this site, but will be a shock to many of the conventional pundits who have taken the precaution of not reading the latest HM Revenue and Customs figures which get in the way of their usual prejudice on the topic.

I do not understand where the Treasury got their £100 m cost of the 45p rate from. The Revenue and Customs figures for what actually happened is stunning proof that the tax cut from 50p to 45 has led to a big tax increase on the rich. Total income tax collected from people earning more than £150,000 has surged from £40bn to £49bn this year compared to last. It has more than made up for the loss of tax revenue from lower earners following the big increase in tax thresholds.

The 50p rate was costly. The UK lost high earners overseas, and encountered the ability of rich people to earn less and declare less income when rates are high. The rareified group of people earning more than £2m declared income of £12.2bn in 2012-13, but paid tax on £26 bn of income the following year with the lower rate. This small group of people alone more than paid for the rise in threshold to take many lower earners out of tax altogether.

The top 1% of earners now earn 13% of the income but pay 28% of the total income tax.  The top 5% earn one quarter of the income but pay around half the total income tax. This progressive structure works as long as the government does not get too greedy, setting a higher  rate which means the rich pay less because they either go or they earn and declare less.

The tax revenues generally are not as buoyant as the Treasury and OBR have been forecasting.Income tax, which brought in £152bn in 2011, fell in 2012, and only recovered to £158bn in 2013. This is despite a £9 bn tax hike on the high earners, showing the state is still collecting less from most taxpayers.

I wonder how much more revenue the Treasury would enjoy if the top rate were set at a more competitive rate? I suspect that too would see a further surge in revenue, money the state clearly needs to end the deficit. The very small group of people earning more than £2m a year will pay £10bn of income tax  this year, exactly double the previous year.

 

(These figures are taken from HM Revenue and Customs  Tax Liabilities Feb 2014 edition)

 

It is conventional for websites and newspapers to compete with each other to come up with a ludicrous story on April 1st that people fall for. As I thought about what mine should be, I concluded that truth these days is often much more extreme than fiction. Instead I thought I would list a few stories that are true that could have been good April Fool jests some years ago. I ask you to write in with your contribution in a  similar spirit.

UK to close 7 power stations producing cheap power because the EU does not like them . This will leave the UK short of power  on cold winter days, and will help  drive the price of electricity up substantially.

UK to rely for 20% of its electricity on wind power, generated by very expensive wind farms that we have to subsidise. The country will have to get round to building an equivalent amount of capacity to the wind farms to stand idle when they are producing, for the periods when the wind is not blowing. This will be done to limit the amount of CO2 the UK produces, so we can import products from elsewhere where they have cheaper power and produce more CO2. No-one will  worry about how much CO2 is expended building all the extra power stations for double banking.

The Environment Agency will decide that it should not carry on dredging the rivers and water courses in the Somerset levels, and will not maintain or increase the capacity of the pumps, so the levels can flood badly whenever it rains too much. This will be done in the name of restoring old wetland habitats under an EU Directive. The slogan will be “Water foul  before people”.

The UK will hand over most of the regulation of its financial sector to the EU, in the belief that they will judge it wisely and look  after our interests.

The UK will invite in an extra 250,000 people  a year, whilst saying it intends to cut its CO2 output,  and protect our green and pleasant land.

 

 

 

 

Today the Chancellor will remind us in a speech that some important taxes are being cut. This is the way to promote more jobs and rising prosperity. The aim is to get more people off welfare into work, and to create the conditions for more good jobs to be created for people to improve their living standard. I repeat beneath the recent summary sent out by the Conservative party of the main tax cuts of the last Budget:

 

“Tax changes coming into effect this week:

 

On Tuesday:

 

• Corporation tax will be cut by 1 per cent to 21 per cent. It has fallen from 28 per cent in 2010 and will fall further to 20 per cent in April 2015, making it the lowest corporation tax rate in the G7.

 

• Tax on business investment virtually abolished for most businesses. The annual investment allowance will be doubled to £500,000, and will be extended by a further year to December 2015. This means 99.8 per cent of businesses could pay no tax on investment.

 

• Business rates reformed so that:
  • The annual increase is capped at two per cent;
  • The small business rates relief is extended for a further year, so that over half a million of the smallest businesses pay reduced rates and over a third of a million pay no rates at all; and
  • Targeted help for the high street in the form of a £1,000 discount for retail properties takes effect, benefitting around 300,000 shops, pubs and restaurants

 

• Fuel duty is frozen again.

 

On Sunday:

 

• The income tax-free personal allowance increases to £10,000. 24.5 million taxpayers will benefit, with a further quarter of a million taken out of paying income tax altogether. From April, typical basic rate taxpayers will have gained by £705 from all increases announced by this Government. Three million people on low incomes will be taken out of income tax altogether.

 

• Employer National Insurance Contributions will be cut by up to £2,000. This new Employment Allowance will benefit over one and a quarter million employers, over 90 per cent of them small businesses. 400,000 small businesses will no longer pay employer National Insurance at all.”

This is in addition to the savers’ package of measures which we have already discussed on this site, increasing the ISA allowance, offering new Pensioner Bonds in the next financial year and freeing savers to  make their own decisions about their pension savings.

 

 

One of the myths of some  commentators is that politicians and parties should not  “bang on” about the EU because electors are not interested.  It is true that if you ask people if the EU is one of their main issues, or if they want to hear about the EU, the  large majority will say they have other matters which they think are more important. Those matters are often jobs, immigration and energy prices.

That is why, of course, political parties who want to meet the wishes of the people do have to “bang on” about the EU. The feature of migration which most worries people presently is the open border with the rest of the EU. Many want the government to stop benefit tourists coming here from elsewhere in the EU. Others want to stop workers moving here to undercut wage rates or take jobs from local people. There has to be an EU/UK  policy answer to the worries about jobs and migration.

The same is true of housing policy. As someone wisely said in a posting here, maybe the UK has a migration problem more than a housing problem. As we have been inviting in an additional 250,000 people a year during much of Labour’s time in office, that means we have to build a new city the size of Southampton every year to accommodate them. We have not been building anything like enough houses to keep up with the large numbers of new arrivals. This means they have to face poor quality housing,  living too many in the same property, whilst house prices generally are driven up by the extra demand.

People rightly want cheaper energy. They want to know the lights will stay on. Labour not only put through UK legislation that means dearer energy ahead, but also signed us up to EU directives and regulations which force us to close cheaper fossil fuel power stations and rely much more on expensive and unreliable wind energy. To solve the problem legally we need a new policy in the EU as well as at home.

The commentators also say that the Conservatives have to keep quiet about the EU because the party is split on it. This is no longer true. The Conservative party as a united whole voted against Nice, Amsterdam and Lisbon, and the associated large transfers of powers to the EU under those Treaties. The Conservatives have been long united in opposition to the UK joining the Euro, and are the one major party which says never to joining the Euro.

Being in government with the Lib Dems has not changed these views. We still think the Nice Amsterdam and Lisbon Treaties were wrong. We either want a new relationship which gets rid of the large powers the EU holds, or a vote to leave. Conservatives want to tackle people’s worries about jobs,  migration, homes and energy prices. All these now have a large made in Brussels element we have to change.  The commentators are wrong to churn out their silly soundbites that people are not interested in the EU and the Conservatives have to keep off the subject.