The US budget deficit is tumbling, according to the latest  numbers. The combination  of  recent large cuts in  public spending, and continued economic growth, is working well. The US economy is recovering on the back of the shale gas revolution, cheap energy to power more factory output, and the continued ability of the US to harness the digital revolution to business success.

              Meanwhile, the EU numbers remain dreadful. Italy has been in recession for seven quarters, with economic output falling another 0.5% in the most recent quarter. Germany is down 1.4% on the last year but managed a very small increment to output in the first quarter of this year. France is in double dip recession, with the position continuing to deteriorate.

              The UK economy looks as if it is now picking up. April was probably a stronger month than the previous  half year has seen. There are welcome signs of more full time jobs, some increase in housing activity, and a pick up in consumer confidence. The London economy appears to be doing well, with continuing difficulties spreading the progress to all parts of the UK.

               Some of the extra money being created is now finding its way into activity. Some will also find its way into rising asset prices. We see worldwide in the advanced country Stock markets that the susbtantial sums being created to promote growth are fuelling asset price rises. The authorities have to judge when to ease off the monetary accelerator in a way which does not damage the recovery but does prevent asset prices becoming unrealistic again.

Apparently Ministers are advised to abstain today on the issue of whether we should have an early referendum on the EU. Let’s look at the case for each possible course of action:

Vote against the proposal to amend the Queen’s speech motion

Conventionally this is what Ministers would do. After all, they framed the Queen’s speech and signed off that it was the right programme for the country. Accepting an amendment implies they were wrong, and should have put a referendum bill in themselves. We know they gave thought to doing so, as they were bombarded with proposals for a referendum from Conservative MPs in good time  before they completed the Queen’s speech.

They should vote against if they wish to block any future attempt this Parliament to put a referendum motion and Bill to the Commons. Otherwise they will be accused of u-turn or worse if they fail to vote this amendment down but vote down any attempt to implement its views at a later date. I guess the Lib Dem Ministers will do just this, showing that the Lib Dem party has decisively torn up its pre 2010 election pledge to off an In/Out referendum now it is in more of a position to call one.

Vote for the proposal

Conservative Ministers could vote for the amendment,  saying that an In/Out  referendum is now Conservative party policy, so to vote against would be  bizarre. They could support either an immediate Mandate referendum to get on with negotiaitng a new relationship, or early legislation for the 2017 In/Out or both and be consistent with Conservative policy.

When asked why they were supporting criticism of their own Queen’s Speech, they could argue that it is the Coalition’s Queen’s speech, which is why it does not  in this area reflect Conservative policy. Different rules surely apply to Coalition government than have applied to single party government in the past. The Lib Dems after all changed their voting on cutting the number of MPs despite prior Coalition agreement.

Abstain

Abstention overcomes the problem of being seen to criticise their own Coalition Queen’s speech, whilst avoiding having to vote against official Conservative policy. Ministers are likely to see  it as the least bad compromise.

It also means that the attitude of Labour is in the spotlight, as Labour can determine the outcome if most Ministers abstain. Unfortunately as Labour now looks likely to vote against it, it seems the amendment to the Queen’s speech is doomed.

Conclusion

The danger of Lib Dems and Labour being against a referendum, and Conservative Ministers feeling they have to abstain, is that Parliament fails to reflect the majority wish to the voters.

In the debate yesterday the main problem as always was getting people to look at the facts. Conventional wisdom has it that the US has  carried on spendign and borrowing on a large scale. This fiscal stimulus has promoted growth. Meanwhile according to the UK’s critics, the UK has cut too far too fast, resulting in practically no growth.

Let’s try looking at the official figures the governments publish. In fiscal year 2010 the US government, federal, state and local,  spent $5.94 trillion. In fiscal 2014 they plan to spend $6.3 trillion. That is an increase of just 6%. In the UK total public spending was £669 bn in 2009-10, and will be £720 billion this year, an increase of 7.6%. Current public spending rises by 12% over the same period.

These figures are not adjusted for inflation. If you look at the real changes, the US had a small fall whilst the UK had a real increase in current spending over that time period.

If you look at the all important question of whether public spending contributed to growth or to a decline in economic activity again the pattern is different. In the US in 11 of the last 13 quarters US public spending has made GDP growth less. In all but one quarter in the UK between Q4 2010 and Q4 2012 public spending has made a positive contribution to UK growth.

The gap between the two economies is getting larger, with the US now starting large cuts in federal spending after sustaining previous  levels. In the last quarter of 2012 US federal spending was cut by 14.8% and by 8.4% in the first quarter of 2013.

It is therefore interesting to see that the US has achieved a much better growth performance than the UK in recent years. It gives a lie to those who both argue the US has sustained higher real spending levels with higher growth in spending than the UK; to those who say the Uk has actually cut spending  overall; and to those who think cutting public spending by more  will automatically give the country doing it less  overall economic growth.

 

         As there are no elections for the rest of this year – unless by elections come along – I wish to use this break from the hustings to revise my approach to posting party political material.

          In future if someone writes in saying in terms Vote x party (including Conservative) or vote for Y individual I will not post any part of  that comment. All the main parties have their own websites and propaganda facilities you can use for those purposes.

          If someone writes in with a summary or cross reference to a party’s stance on an issue  with nothing new or critical to say about it I will not post that either, unless it is needed as part of the debate because what that party says is under examination. Again, we can all look these up on the relevant websites.

         It is any way better if you wish to post pro party material to do it from a regulated site. As we get nearer to a General Election it is even more important that all such postings should be through a regulated site making proper expense returns, with an imprint on the material under Election law.

 

           There are four possible referenda on offer at the moment and in discussion in Westminster.

1. There is Mr Cameron’s proposal,a  referendum in 2017 on the question

Do you wish to accept the new relationship with the EU we have negotiated, or leave the EU?,

to be legislated for now.

2. There is the UKIP favoured In/Out referendum as soon as possible.

3.There is the Mandate referendum now, on the question

Do you want the Uk government to negotiate a new relationship with the EU based on trade and political co-operation?,

to be followed by an In/Out on the new terms

4.There could be a hybrid, offering voters a choice between In/Out and renegotiate.

             The advantage of the hybrid is it could give a mandate for renegotiation if that is the most popular, or could lead to early exit if there is a strong majority already for that course of action. The problems with the hybrid include the likelihood that no one course of action gets an overall majority, undermining its authority, and the lack of much support for it in Parliament. I cannot see this being a serious runner.

               The advantage of Mr Cameron’s referendum   is that it is the only one so far backed by the leader of a major party with MPs in the present Commons to vote for it. The disadvantages to non believers  include that it depends on a Conservative victory at the General Election and  it is later than people want. I do not think it is sufficient.I do think a Conservative government led by Mr Cameron would hold it as promised. Conservative MPs elected on a manifesto pledge to do so would insist on it, and I think he would wish to keep his word.

               The immediate In/Out referendum has two major disadvantages. The first is it has the fewest votes in the current Commons, and it is difficult to see how that can change, as the main party leaders are all against it. The second is were we to hold one early next year the CBI, TUC, Labour party, Lib Dem party and many business groups, lobbyists and quangoes would line up for In. Most Conservatives would be for Out but some well known figures including some senior Ministers would also join the Ins. Were we to hold an In/Out referendum which led to a vote to stay in, Eurosceptics could not restart the debate for several years as the people would have spoken just as they did in 1975. One of the arguments the In crowd would use is that the UK had not even tried to get satisfaction for its problems by talking to the EU about it first. They would make much of the absence of agreed successor arrangements for a wide range of important matters. They would run endless scares about how cold it would be for the UK outside the EU’s embrace which some would believe.

                That leaves the Mandate referendum which I have discussed before. Assuming 80% plus would vote for the negotiation of a new relationship with the EU it w0uld give the Prime Minister  every help in seeking that new relationship most of us want. If the EU still turned us down after that as many think they would , then the public could and most likely would vote to leave. The EU would by then have had every chance to sort out what matters to them as well as to us, and would know the UK’s likely intentions.

                It is good news that two Cabinet Ministers have come out in favour of voting  for Out of the EU, with others also of the same opinion. Given the difficulty of governing this country from the UK now that the EU has such wide ranging powers, it would be good to hear of more Ministers who have come to realise we no longer have a self governing democracy here at home all the time we remain subservient to the EU  treaties.

 

           This week a group of mainly Conservative MPs tabled an amendment to the Queen’s Speech. The amendment states, in Queen’s speech style language,

               “This House respectfully regrets that an EU referendum Bill is not included in the Gracious speech”.

           Some of you would want a full bloodied motion, but I can assure you this did the job in Parliament. Everyone deciding how to vote on this amendment knows what it means on the main point. If you vote for the Amendment you want legislation in this session to hold a referendum. If you vote against it you clearly do not want a referendum. It would be most unusual for an amendment critical of a Queen’s speech to pass. Previous governments of a single party have united behind their Queen’s speech programme and voted down criticisms.

            The Motion does not tell us when the referendum should be held, or even what the referendum should ask in detail. The reason for that was simple. Mr Baron wished to maximise support for his motion. This motion allows an MP who wants to legislate soon  for a referendum in 2017 to vote Yes, as well as a person who wants an immediate In/Out referendum and an MP who wants a Mandate referendum now.

               Those of you who want an In/Out referendum now will probably complain. The truth is that amongst MPs  even on the side of a referendum on the EU there are split views on how and when. It would be a pity to lose this motion by being too specific and putting off MPs from supporting it because they do not like the detail.

               It appeared yesterday  the motion has already attracted the support of a very important MP, Mr Cameron. He was reported to  say Conservative Ministers can vote for it, a necessary condition for the motion to have a better  chance of passing. This morning we read that Conservative Ministers can merely abstain whilst backbenchers can vote for it.

            Now the question is what will Mr Miliband do? If he asks Labour to vote for the motion,  it would pass with or without the Conservative Ministers. I read he is not going to support it.  If he  merely ask them to abstain from voting, the motion will now pass thanks to the majority of Conservative MPs voting for it, with many Ministers abstaining. I assume the Lib Dems, Green  and most Nationalists will vote against the referendum. There will be quite enough Conservative backbenchers for the amendment  to carry it  if Labour abstains en masse.  Conservative Ministers abstaining will swell the majority.

               If Parliament approves this amendment, then the next step will be to present a Bill, where the questions of when and what referendum have to be addressed. There is substantial debate within Parliament on these issues, which I  will talk about more tomorrow. Parliament needs to get closer to a common view to be able to legislate.

              If Parliament passes the amendment it will not be good enough for the government to say that there will still be no Bill for a referendum. The will of Parliament will have come into line with the wishes of ther people to get on with sorting out our relationship with the EU by involving the voters in this overriding issue.

 

            On Monday at 5 pm I am debating austerity and growth policies at the Sheldonian Theatre , Oxford under the chairmanship of the Warden of St Antony’s College. The other main  participants are Martin Wolf of the FT, Robert Skidelsky and Meghnad Desai.

            The topic is “Austerity in the UK and the  Eurozone: kill or cure?” Anyone interested in hearing is welcome to attend this public debate, at no cost to them.

            My Parliamentary duties allow me to do this, as Parliament is having another day’s debate on the Queen’s speech. I have already made my speech in this debate and am not allowed to speak again in the main debate. There will be no vote on Monday.

 

           In a way I was one of  the first modern Tory modernisers. In 1995 I said “No change, no chance”, and called for new policies and new approaches to Conservative politics. The party opted for no change, and went down a very large defeat.

            In opposition a group of people developed a modernising agenda. Some of it made a lot of sense. They said the party has to be comfortable in modern Britain, and not think it can put the social clock back to the 1950s. They were happy to have a liberal economic agenda as I favour, as long as there was a more liberal social agenda too.  In political terms the aim was to reach out to new voters and to  voters for parties of the centre left, to build a Conservative majority. Subject to careful choice of socially liberal measures and how far that went, this could have worked as an election winning strategy. A well judged reduction in political correctness, leaving people freer to run their own lives, would be welcome and popular.

           Unfortunately the strategy developed harsh edges, at a time when the aim was stated to be make the Conservatives more cuddly and likeable. Some exponents decided that the traditional Conservatives had nowhere else to go, so they could briefed against, left out in the cold or otherwise badly treated. Some of the positive measures of the modernising strategy, like the emphasis on climate change theory and the more recent approach to single sex marriage, caused adverse reactions amongst many  Conservatives , making the party look split rather than modern.

          The strategy also rested on highlighting issues that have been  traditional  strong suits of the left, and ignoring or playing down issues like the EU, law and order and tax cuts where Conservatives have fared better in the past. The Conservatives failed to break through in 2001, and failed to win an outright victory in 2010 despite substantial modernising steps. Some say Consevatives  lost because the party modernised too much in the wrong way, others say the party did not win because it still had not modernised enough.

              In the last three years there has been a great opportunity for the modernisers to show their strategy working, as around half the voters who voted for the Lib Dems in 2010 are currently  no longer prepared to vote for their old party for a variety of reasons. The government modernising agenda of green energy, same sex marriage, increased overseas aid, the concentration  on issues like health and schools rather than tax cuts, the EU and law and order should have been able to attract some of those departing Lib Dems, yet most of them have gone elsewhere. Meanwhile that same agenda has clearly driven numerous voters in the most recent Coucnil elections to vote UKIP instead of Conservative.

          Conservative opinion ratings have gone up when the PM has vetoed the Fiscal treaty, cut the EU budget , set a cap on total welfare payments to each family and made other commitments to welfare reform. In the days ahead I will look at how the Conservative party could come up with an agenda that suits many traditional Conservatives, whilst also showing that the party can reach out to people who have not voted for it for many years, and to younger people who have never voted for it.

Lord Lawson was right to say in the Times on Monday that the Euro means an ever closer union in the EU, with ever more government from Brussels. He is right that the UK does not want that and cannot accept that. Some of us thought the EU bossed us around too much before the Euro. The Euro has clearly made it a lot worse.

The EU Trade Commissioner decided that made it a good day to launch an attack on Europsceptic MPs in the UK for not understanding the EU. I suspect our problem from his point of view is we read too much and understand too much, not the other way round. There is no point in Commissioners trying to threaten the UK with the tired old lie that we will lose 3.5 million jobs dependent on EU trade if we pull out. As they well know, the rest of theEU, especially Germany, sells us much more than we sell them. They will need to carry on with that trade, so they will be asking the UK for arrangements that allow that to happen.

If the EU was indeed a friendly partner and supporter of the UK , it would now be asking us what we need to allow us to trade and be friends with them. It would not be lecturing us, but would be listening sympathetically to what it is about the EU that we do not like. The fact that they do not do this, shows  some of them  do not think it is our club as well, and shows they have little wish for us to improve its performance and alter its masively over intrusive rules.

The big problem for business with all the single market rules, is they apply to everything we do at home and everything we sell to non EU countries, as well as applying to our exports to the EU. If we were a free country again, the EU rules would only apply to things we sold to them, making it easier for us to compete in the rest of the world’s growing markets.

I was asked to make my own position clearer. I cannot see how I can make it clearer. I have repeatedly said that I voted against continued membership in 1975, and that if we had a referendum today on In/Out on current terms I would vote for Out. I also want us to negotiate a relationship based on trade and political co-operation. Many of you tell me that cannot be achieved, in which case I would vote for Out on any referendum that followed such a negotiation. Those who just wish to leave need to accept there has to be a negotiation over which common rules will still apply so ferries can run, planes can fly etc. I have always thought the costs and legal impositions of membership were too high, and that it was always a political union in the making which we did not wish to join. That is why I voted against Rome in 1975, and opposed all subsequent treaties one way or another, as being incompatible with UK democracy and sovereignty. The whole Conservative party rightly voted against Nice, Amsterdam and Lisbon, which is why we cannot accept the current arrangements.

 

The last time a government had to control the excess spending and borrowing inherited from its Labour predecessor was 1979.

I have been reading Mr Moore’s new official biography of Margaret Thatcher. He guides us through the received wisdom and the well known press cuttings and literature. In the case of her private life he does shine new light with access to the fascinating family letters, especially to her sister.

When it comes to the first couple of years fighting the deficit and excess spending he is less sure of foot. The fascinating thing was that despite all the preparation in opposition to come in and control spending from Day one, the first two years saw a huge increase in public spending. This “fiscal stimulus” did not rush us out of recession, nor did it make the government popular.

I had been one of the two external advisers to the extensive Policy Group work done on public spending under Keith Joseph’s chairmanship in opposition. We had been through the published “books” with a fine toothcomb, and knew how the incoming  government should get to grips with runaway spending. Margaret had taken a strong personal interest in our work, as we  were regularly told. Our papers were often called in for pulping, as she was understandably afraid  that the detailed plans woud leak, even though they were in line with the regular public statements about the need to curb spending.

Yet in the first year the government took cash spending up from £75 bn (General Government expenditure) to  £90 bn, an increase of 20%, and in the second year up to £108.6bn, a further increase of  20.6%. The total increase over the two years was 44.8%   (Red Book p 120  1997-8 ). Public sector inflation was rapid, and a  lot of the increase went on higher wages. It was nonetheless a  real increase of 5.2% as scored in an understated way by the Treasury at a time of stories of massive public sector cuts. Actual inflation was 29.8%, so public spending went up by 15% more than the GDP deflator measure of inflation.(Red Book p 120).

So why did this happen? I think the main  reason was the official civil service presented eveything to Ministers in so called real terms. These figures concealed the huge cash increases in spending going on. I called John Hoskyns (Policy Adviser) at No 10 as soon as I saw some cash figures that revealed what was really going on. When I showed them to him he expressed surprise at the scale of the increases, as all the government debate was couched in terms of cuts and how many cuts the system could take. It was only  when Ministers and their advisers started to demand and to use  cash figures that the true scope of the spending control problem became clear to them.

The Coalition has put up spending by much less than the Thatcher government did in its first two years. They too, however, have tended to look at so called real figures instead of cash figures.  Where the Thatcher government increased spending by 44%, the Coalition increased current public spending  by just 7.8% in cash terms, and continued with most of Labour’s capital cuts. The Coalition has said it is cutting spending in real terms, yet overall current spending rose a little according to official figures. The rest of us have to budget in  cash. Our pay does not go up to allow for full inflation. The best way to budget in government if you want to bring the deficit down its to ask how many twenty pound notes each item costs.