Daniel Hannan: Voters tend to get some things wrong, but the big things right. So it is with the Internal Market Bill.

16 Sep

Daniel Hannan is a writer and columnist. He was a Conservative MEP from 1999 to 2020, and is now President of the Initiative for Free Trade.

As usual, the public has reacted to Westminster’s hysterics with an amused shrug. Lawyers and diplomats, pundits and politicians, are in a frenzied rage about the Government’s announcement that it might violate the Withdrawal Agreement. In some cases, the rage is confected; but in most, it is genuine.

The country as a whole, though, takes an altogether more relaxed view. Where politicians get bogged down in detail, voters tend to see things impressionistically. They sense – correctly – that international law is protean and often disputed.

Countries are forever being charged with infracting this or that treaty. The EU, for example, is in breach of several trade agreements, ranging from its groundless bans on overseas agricultural produce to its illicit Airbus subsidies. It also frequently violates its own treaties, sometimes on issues of enormous consequence. The eurozone bailouts, for example, were patently illegal, not just in the sense that they had no basis in the European treaties, but in the sense that they were expressly prohibited. No one in Brussels tried to claim otherwise. Rather, they pleaded raison d’état.

So when British voters see Eurocrats fainting like so many affronted Victorian matrons, they just don’t buy it. They know that Brussels has negotiated in a bellicose spirit from the start. They sense the difference in tone between Michel Barnier and negotiators from, say, Australia or Japan, who are uncomplicatedly keen on maximising mutual gains.

Where Labour and a handful of Tories see a violation of international law, most voters see the people who have always backed Brussels doing so once again. No doubt John Major and Tony Blair think of themselves as distinguished elder statesmen cautioning their country against error; but I’m prepared to bet that most people’s reaction will be, “Well, they would say that, wouldn’t they?”

For what it’s worth, I think most of the Bill’s opponents have decent motives. Some, no doubt, are driven by personal rancour, or by a reflexive opposition to anything the Prime Minister does. Some are still sore about Brexit. But many have genuine worries about international law.

I happen to think they are wrong. First, the Bill itself doesn’t violate any laws: it merely creates an emergency mechanism by which the most damaging aspects of the Northern Ireland Protocol can be prevented. Second, the bits that Brussels dislikes would come into effect only if, despite all its promises, the EU failed to agree a trade deal. Third, even if it came to that, there is a strong argument that not taking preventative action would constitute a worse legal breach than taking it – in other words, that suspending some aspects of the Protocol would be a lesser infraction than violating the principle, affirmed both in the Belfast Agreement and in the Protocol itself, that Northern Ireland’s status cannot change without its consent.

This last point barely featured in the debates, but it strikes me as elemental. If there is a clash between legal obligations – if, that is, we can only apply aspects of the Protocol by breaking other laws, such as Article VI of the 1801 Act of Union – then we should give  priority to our domestic constitutional order. This is not some Powellite assertion of British exceptionalism. It is a widely-shared principle upheld by, among others, the EU.

For example, in its 2008 ruling on the Kadi case (involving a Saudi businessman whose assets had been frozen), the European Court of Justice reiterated its doctrine that “a treaty can never enjoy primacy over provisions (including protection of fundamental human rights) that form part of the constitutional foundations of the Union.” That is, of course, precisely the argument that the Attorney General has made in a UK context.

To be clear, I am not suggesting that lots of people have pondered ECJ precedent and concluded that the EU is applying a double standard. Rather, in a shrewd and largely instinctive way, people have sussed that Britain faces an ill-disposed and hypocritical negotiating partner which is making unreasonable demands.

That, ultimately, is why Boris Johnson will get his Bill. It’s not just that he is right to have acted as he has (though he is). It’s that the country is with him. The Internal Market Bill has lined up everyone against the Government – except the general population. That split – radical lawyers, Europhile politicians, unelected peers and woke actors versus everyone else – is one with which Tory strategists are comfortable.

This is emphatically not an argument for always following public opinion. Apart from anything else, we are a fickle species. We demand the strictest possible lockdown, complete with curfews, and then complain about the downturn. We ask for increases in public spending, but we will react with fury when the money runs out. The last thing we want, when confronted with the consequences of our own choices, is to be reminded of what we asked for. Gavin Williamson could no more say “but you all told me to close the schools” Tony Blair could say “but you all supported the Iraq invasion when it was launched”. As Dryden put it, “Crowds err not, though to both extremes they run”.

Governing by opinion poll fails in its own terms. But, over the cycle, people generally get the big calls right. Not always; but more often than the elites. Brexit was a case in point. So is the Internal Market Bill.

James Frayne: Do voters care about breaking international law, and if so, how much?

15 Sep

James Frayne is Director of Public First and author of Meet the People, a guide to moving public opinion.

How much of an electoral risk is the Government taking by threatening to break international law? There hasn’t, to my knowledge, been much published polling on the issue and I haven’t seen any qual either. I’m not sure how revealing any opinion research would be at this point, anyway. Not only is the issue highly complex, but the Government hasn’t communicated a settled position on its intentions – and, in turn, the issue has not been played out properly in the media or in Parliament.

The public have only seen complex snippets. It’s therefore extremely unlikely the Government’s threat to break international law will have had much of an impact on public opinion at all so far. This isn’t to say the issue isn’t important or won’t have an impact in time. But it’s much more useful to consider how opinion might change and what might change it. How might we anticipate this change? Six questions come to mind.

Will this just split down Leave-Remain lines? As we know from the 2019 election, most people are bored to death by never-ending negotiations to leave. As we also know, almost everything on the Brexit process splits down Leave-Remain lines. There’s almost no crossover, where Leavers take the side of Remainers on an issue and vice versa. The well has been poisoned; you just have to take the occasional peek at Twitter and see otherwise normal people spewing bile at each other over Brexit.

ConservativeHome has taken an unusual position here: it’s associated with Leave but has encouraged MPs to vote against the Government. How common will ConservativeHome’s position be? This is the crucial question. Until significant numbers of Leavers (particularly Conservative Leavers) come out and join ConservativeHome, it seems most likely that Leavers will tacitly back the Government. Public opinion would shift if more Leavers follow the Editor’s advice.

Will this just look like Brexit chaos? The entire Brexit negotiation process has been a massive fiasco. From the morning after the referendum, government on this has been a shambles. One of the reasons so many people wanted to ‘get Brexit done’ was because they wanted the chaos to go away. I wonder therefore whether many will just write this off as being just another cock-up. Government opponents will need to explain why this is a special case. At present, they haven’t yet been able to do this effectively, although the arrival of more senior Conservative politicians into the fray might change things somewhat.

Can the public ever be made to care about international law? International law is complex, of course. But my sense is that it can’t be simplified in the way those hostile to the Government’s threat are seeking to do. People like Blair and Major are talking about how Britain’s moral standing will be adversely affected and so on. While a reasonable point, there are two reasons this won’t work.

Firstly, because, Brexit partisans aside, and rightly or wrongly, most people still consider Britain to be a moral actor in the world; this alone won’t undermine that. Secondly, more importantly, because many believe other countries break international law all the time. That said, opinion would surely change if and when the public are confronted with the prospect of another country unilaterally changing a treaty they had agreed with us. (It’s also worth adding the straight reality that Tony Blair is hardly the best advocate for international law.)

What is the reputation of the law more generally? My very strong sense is that the English public have also lost respect for ‘the law’ more generally. They believe  the law no longer reflects natural justice and, that word again, fairness. Respect for the law has been slowly eroding for many years now, but it has been eroding very quickly in recent years. Increasingly, people have not only heard stories about pathetically weak sentencing, but they’ve also heard, in their eyes, perfectly reasonable Government policy decisions being unpicked by the courts.

The Establishment Left has claimed this shift in opinion amounts to a swing against an independent judiciary and the beginnings of a march towards a more political legal system. It’s nothing so thought-through; rather, people think the law no longer reflects right and wrong and therefore the accusation levelled at Britain – as being a law breaker – simply doesn’t have the same power that it once might have done

What do the public think about the EU’s behaviour during negotiations? It would be an exaggeration to say the mass of the public have followed Brexit negotiations closely. But, to the extent they have, my sense is that they think the EU has behaved with hostility towards Britain.

Varadkar, Barnier and Juncker seemed to revel in Britain’s difficulties during negotiations. The pro-EU British media liked to praise these politicians for this, on the basis they were teaching about the reality of its new position. But it was always going to be pointlessly destructive because it stored up English resentment that, when the time came, the Government would be able to tap into – as it now might well do.

Will the public cut slack to the Government over Northern Ireland? It’s important to consider the merits of the Government’s stated case – or, rather, what the public will think of these merits.

At one level, the Government has a very strong argument: it’s perfectly reasonable to argue Northern Ireland, as much part of the UK as England, should not be treated differently. The problem, of course, is that the Government initially said it should be treated differently and that it had secured a winning agreement.

Will the public rally behind Northern Ireland if the Government makes a case that the agreement is having unintended consequences, or will they think Northern Ireland isn’t worth the bother? There’s no question that unionist sentiment has faded in recent times; not because of a surge in English nationalism, but because of a sense that Scotland, particularly, wants to go its own way. The UK doesn’t seem the country it did even 10 years ago. Will English Leavers think the Government should therefore dig in in the way it seems to be planning?

What does all this mean? My sense is that, on current trajectory, the Government’s opponents will not be able to make this an issue the public care about (Covid obviously towers above everything at the moment) in time. The only way this will change is if Conservative Leavers are mobilised en masse – and if perceived historical allies start to question this behaviour too, mostly from the US, but also Canada and Australia. As it stands, it’s mostly been anti-Brexit voices who have made the running on this issue, which, as I note above, makes it look like just another day in BrexitLand.

Profile: Erin O’Toole, the genial and reassuringly dull Conservative who could soon be Prime Minister of Canada

9 Sep

When the editor of ConHome, swift to discern a new trend, commissioned me to write a profile of Erin O’Toole, I confess I had no idea who he was talking about.

Brexit has prompted a renewed interest in the politics of Australia, New Zealand and Canada, previously seen as countries from which the United Kingdom had diverged.

But of those three countries, Canada has so far attracted the least coverage, and O’Toole’s election on 23rd August as leader of the Conservative Party of Canada, so as Leader of the Opposition and perhaps within a few months Prime Minister, was pretty much ignored in the British press.

Even in Canada, the result did not cause wild excitement. For although the Prime Minister since 2015, Justin Trudeau. has led, since last October’s general election, a minority government, which means there is a strong possibility of new elections, perhaps next spring, which the Conservatives might win, O’Toole’s manner is unexciting.

He a calm, genial, avuncular figure, and although, at 47, he is a year younger than Trudeau, he has the decency to look and sound a generation older.

If Canadians want someone who will stand up, in a stalwart but good-humoured way, for old-fashioned good manners against liberal iconoclasm, they will turn to O’Toole.

Here is a passage from his acceptance speech, delivered in the middle of the night after he won the leadership. He refers to his wife, Rebecca, and speaks quite often in French, while apologising for his English accent:

“Je suis né à Montréal et j’ai grandi en Ontario. J’ai appris mon français dans les Forces Armées Canadiennes. Et oui, je parle comme un anglo… mais un anglo qui respecte les francophones et qui est fier du français dans notre pays. Je suis en politique pour me battre pour tous les Canadiens et nos deux langues nationales.

“Like millions of Canadians, Rebecca and I have been juggling a lot of jobs lately. With our kids at home, COVID has made us appreciate teachers more than ever before.

“My mother, who passed away when I was nine, was a teacher. And, throughout my life, I have wished she was here to give me advice.  Right now, I wish she were here to see her child succeed.  But, I know she is here tonight because I can see her in my daughter who shares her name.”

O’Toole’s father worked for General Motors for 30 years, and from 1995 to 2014 was a member of the provincial assembly in Ontario.

This was an example of public service which the son decided to follow. But first he joined the Canadian air force, in which he hoped to serve as a pilot, but instead found himself selected to be navigator on “an old, antiquated helicopter”, rising to the rank of captain.

“You learn more from your setbacks than from your successes,” he said afterwards.

He loves the armed forces, and that indispensable extension of the armed forces, the Merchant Navy. While glancing down O’Toole’s Twitter feed, I came across a message from a few days ago adorned by the Canadian flag and the Union Jack, which said in English and French:

“Let us always remember the courage and determination of our Merchant Navy. We will never forget those we have lost and the service and sacrifice of our brave women and men in uniform.”

I was brought up on such sentiments. How wonderful to find them being expressed in 2020, by the man who might be the next Prime Minister of Canada.

On leaving the air force, he read law, and was soon profitably employed as a lawyer. In 2014, Bev Oda, the first Japanese Canadian MP and Cabinet minister, resigned her seat in Durham, north-west of Toronto, after being found to have made unacceptable expenses claims.

O’Toole’s father still represented Durham at provincial level. The son won the by-election to represent Durham in Ottawa.

He was soon made Minister of Veterans’ Affairs, his predecessor having infuriated the veterans. The new minister, who had taken a close interest in the welfare of veterans and had set up a mental health charity in that field, calmed things down.

In 2917, when he was still ordinary enough to pretend not to be a career politician, O’Toole ran for the Conservative leadership. He came third, but gained respect for declining to hurl personal abuse at his rivals, and was rewarded with the foreign affairs portfolio.

Andrew Scheer, victor of that contest, failed in 2019 to overthrow Trudeau, and was forced to stand down. O’Toole stood again, struck an angrier note than he had before, obtained the endorsement of Jason Kenney, the celebrated Premier of Alberta, and won by positioning himself as a True Blue Conservative who made right-wing noises without, generally speaking, committing himself to anything so inconvenient as right-wing policies.

He has, however, for several years been a firm supporter of CANZUK, the projected alliance between Canada, Australia, New Zealand and the United Kingdom.

And he is in favour of eliminating the budget deficit, increasing child benefit, cutting and simplifying taxes, building the pipelines which are such a divisive issue in Canadian politics, and taking a hard line on China.

Conrad Black, one of the few Canadian pundits of whom readers of ConHome will almost certainly have heard, said in a recent piece for The National Post that O’Toole

“has the minor distinction of being the first holder of his position since John Bracken, who led the Progressive Conservatives in the 1945 general election, that I have never met. But I think his chances of success are quite promising, for several reasons. First, he is a confident man and has a largely self-made career… In addition to self-confidence and tactical skill, O’Toole appears to have an intuition about where the voters are… He is a bit ordinary, but so are most people (and most politicians).”

To get a better idea of O’Toole, and what might be called his dull quick-wittedness, it is worth watching his accomplished performance on Maclean’s 60-second challenge.

And here for purposes of comparison is Trudeau.

Which will the Canadians prefer? One can’t help feeling that Boris Johnson, so keen to cultivate his Australian contacts, may have missed a trick by failing to send his congratulations to O’Toole.

Channel crossings are undermining the Government’s narrative about ‘taking back control’ of immigration

4 Sep

When Vote Leave promised to ‘take back control’, one of the issues at the top of the list was immigration. Leaving the EU meant ending freedom of movement and gaining the freedom to implement a points-based system which better reflected Britain’s national priorities.

This did not necessarily mean a draconian system – evidence suggested voters’ attitudes towards immigration actually got more liberal after the referendum – but that would be up to Parliament.

Yet only months after the electoral triumph of what has been called a ‘Vote Leave’ government, this narrative of control is being undermined by the toxic drip-feed of stories about migrant boats crossing the Channel.

Priti Patel clearly grasps that this is a problem, which is why we’re getting tough-sounding stories about calls to institute Royal Navy patrols and thwarting bids by ‘activist lawyers’ to prevent deportations. This morning she hit out at social media companies for allegedly failing to take action against people smugglers publicising their businesses online.

But it is less obvious what can actually be done. Patrolling the Channel invites the same problem as we see in the Mediterranean, wherein refugees located by the Italian Navy often put themselves into the water knowing the Italians won’t leave them there. Likewise footage of dingies arriving on the beach and their occupants disappearing inland may spark outrage, but the Home Office can’t really prevent that without erecting some sort of Atlantic Wall on the Kent coast.

Theresa May’s strategy was a more ‘defence in depth’ approach, with the Home Office drafting landlords and employers to help locate illegal entrants once they were in the UK – the ‘hostile environment’. The problem with this, setting aside the political challenges posed by the fallout from Windrush, is that without an effective detention and deportation system it risks just forcing people into the black economy.

This is all without getting into the possible difficulties posed by the above-mentioned ‘activist lawyers’, the courts, our membership of the ECHR, and so on, which Natalie Elphicke MP touched on in her article on the subject.

Usually Australia, which has been running ‘Operation Sovereign Borders’ since 2013, is held up as the example to follow. But it enjoys some advantages Britain does not: it is outside some of the aforementioned legal structures; would-be ‘boat people’ face a much longer journey; and it has in Nauru a very handy offshore detention option unavailable to the Home Office (unless Sealand were interested).

Some of these problems are soluble. It should be fairly straightforward to legislate on the issue of traffickers exploiting social media, and Tim Loughton’s suggestion of using cruise ships as offshore detention facilities could be very timely given that the industry is facing a billion-dollar question about what to do with its mothballed vessels. Smoothing the legal pathway to deportation could also be including in whatever replaces the Government’s now-abandoned Constitution, Democracy, and Human Rights Commission.

But ultimately the Home Secretary is in a difficult position because the real keys to a lasting solution – new agreements with France and the other countries to which illegal entrants ultimately need to be deported – are not her department. But managing the day-to-day fallout is.

Tony Abbott may have the right expertise for the Board of Trade, but his past comments shouldn’t be downplayed

3 Sep

With everything else going on at the moment – the pandemic, a record number of migrant Channel crossings in one day and the Tory revolt over Huawei – it might come as something of a surprise to ministers to be quizzed over none other than Tony Abbott, the former Australian prime minister.

He’s reportedly being considered to be joint president of Britain’s relaunched Board of Trade. There has been some confusion over this, with suggestions he has already accepted the role, but Downing Street has not confirmed it. Perhaps because the development has caused a fair bit of controversy. Keir Starmer has said “I have real concerns about Tony Abbott and don’t think he’s the right person for the job“, and Caroline Noakes wasn’t much politer. On BBC Politics Live she said he was a “misogynist” and that it would be “awful” for him to represent Britain on the world stage.

While some members of the public may not have heard of, let alone be offended by, Abbott, his past comments on women and homosexuality have been well documented. Many will remember Julia Gillard, the 27th prime minister of Australia, giving her famous “misogyny speech” of 2012, in which she said of Abbott: “If he wants to know what misogyny looks like in modern Australia, he doesn’t need a motion in the House of Representatives, he needs a mirror. That’s what he needs.”

So what was she referring to? Her speech pointed out various examples of when he had offended her, and his casual misogyny has been expanded on elsewhere. In August 2013, as one example, he was asked what qualities a female candidate, Fiona Scott, had in common with a previous MP, while campaigning in the Western Sydney seat of Lindsay. In response he said, “They’re young, feisty, I think I can probably say have a bit of sex appeal”.

Some of his other remarks have been documented by The Washington Post. In 2010, he claimed, for instance, “What the housewives of Australia need to understand as they do the ironing is that if they get it done commercially it’s going to go up in price and their own power bills when they switch the iron on are going to go up”, and he also said “I probably feel a bit threatened” by homosexuality.

In 2014, he was accused of sexism again after he told a local TV station: “As many of us know… women are particularly focused on the household budget, and the repeal of the carbon tax means a $550-a-year-benefit for the average family.”

In short, it’s not particularly difficult to find a selection of backwards statements by him. So it’s not surprising the Government is now on the defence.

Matt Hancock is one of the first ministers to be grilled on the reports. Speaking to Sky News, he said: “As far as I understand it, the proposal is that Mr Abbott supports the UK on trade policy, which is an area in which he has got a huge area of expertise. I bow to nobody in my support for everybody to love who they love, whoever that is. But we need to have the best experts in the world working in their field”.

Liz Truss also said: “I’m not going to spend my time talking about comments other people have made in the past” when asked about him, and blasted Labour for its hypocrisy, given that the party’s former shadow chancellor, John McDonnell, had “called for the lynching of one of [Esther McVey] and never apologised for it”.

They’re fair responses, and yet it’s impossible to get away from that question – should someone who makes these comments be appointed to such an esteemed role? Even if their sentiments have nothing to do with trade.

Having just watched Mrs America, a fantastic series on the BBC about the Equal Rights Amendment in America, it struck me how much things have changed for women – especially in how they are viewed – and also, how much some things haven’t changed at all. There are still misogynistic attitudes that go unchallenged.

It brings me back to Abbott… Some people may dismiss his comments. They may say “get over yourself”, or “this is just another example of political correctness gone mad” or that his views simply reflect his Catholicism. Some people may even like that he’s blunt, viewing it as a nice change from the usual sanctimonious remarks of politicians.

And then there are those who he’s actually speaking about, wondering why we’re still hearing these things. Sure, Abbott may be the best candidate for the role. It’s just shame in 2020 that we make these trade-offs.

Ryan Bourne: A message for Johnson and Sunak on tax rises. Not now. And not these.

2 Sep

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

How’s this for a false dichotomy? Last Saturday, Prospect asked: “Post-Covid, are taxes hikes essential to fund the future? Or should we abandon “deficit fetishism” and spend our way to prosperity?” [i.e. through borrowing]. I shouldn’t need to tell ConservativeHome readers that “spend to grow” and “spend to grow”—the only difference being how to finance it—are not an exhaustive set of fiscal policy options post-pandemic.

But that tweet, sadly, reflects conventional wisdom. You should take the pre-Budget briefing in the Sunday papers about Treasury desires for £20-30 billion in tax hikes through capital gains tax, corporation tax, fuel duty, an online sales tax and restrictions on pensions tax relief with a pinch of salt. Before every recent budget such stories have emerged, perhaps due to kite-flying or overexcited journalistic coverage of illustrative exercises in how one could raise revenues. One suspects the briefings may even be a political ploy—raising fears in the Tory base before Number Ten saves the day.

Yet there’s undoubtedly an unnerving regularity to them. Alongside a steady drumbeat from “One Nation” Tories and such organisations as the Resolution Foundation, the idea that large tax hikes will be desirable and necessary is taking hold, with Covid-19 apparently making this agenda more urgent.

We are told, as the kitchen sink of argumentation is thrown, that the pandemic itself proves the false economy of a “hollowed out” state after a decade of austerity. Or that the “levelling up” and the “inevitable” higher spending we will now want on health, welfare benefits, and higher public sector pay means tax hikes are needed. Or that the crisis necessitates urgent repair to the public finances, and that there’s simply nowhere left to cut spending.

None of these arguments, however, stand the test of reason. Countries that have dealt with the Coronavirus better include those (South Korea, Taiwan, Australia) with much lower tax-to-GDP ratios than the UK and much lower health spending too. Many with higher tax-to-GDP ratios (France, Belgium, Italy) have seen similarly shocking death tolls to us.

At best, any failure to deliver resources where needed reflects bad state priorities, not an impoverished public realm. Indeed, the story of a hollowed-out state at a time of the highest tax burden since the early 1980s, coupled with this international evidence, suggests ascribing blame to austerity for poor performance is both ahistorical and parochial.

The wisdom or otherwise of  the “levelling up” agenda, and how best to pay for it, is largely unrelated to the pandemic too. Actually, to the extent that Covid-19 affects the desirability of infrastructure and public service spending in the regions, it throws substantial doubt on the benefits of projects such as HS2 and other city and town revival plans.

Who knows what lasting impact the crisis will have on remote working, the location of activity, and favoured transport modes? One Nationers arguing that the virus proves the need to level up would have us believe that the pandemic’s effects are significant enough for a tax revolution, but insignificant enough to alter the desirability of any of their proposed spending. One might almost suggest motivated reasoning here.

In macroeconomic terms, the case for significant tax rises now is weaker still. The point of bridging support through furlough was to shelter businesses and workers from this unexpected shock. To pass the bill to the private sector now as it struggles back to life would strangle the recovery. And for what? Borrowing costs are low, and we have no idea yet whether and how much this crisis will leave a permanent budget hole once emergency spending stops and private sector activity revives. In fact, even borrowing to date has not been as high as initially feared.

Of course, the extra debt to deal with the crisis has to be paid somehow, eventually. But, as I argued here before, unusual shocks such as pandemics and wars primarily result in step-level debt-to-GDP increases rather than ongoing budget holes, because you stop spending on the immediate threat afterwards.

The implication is that modest consolidation over decades is optimal to account for the extra incurred debt, rather than adopting large tax increases to compensate over a Parliament. Economists call it “tax smoothing”—debt provides a safety valve to allow us to only modestly change spending or taxation over long periods to maintain incentives. Of course, if the Government thinks that, for political reasons, it must expand welfare benefits or health spending permanently, this would be a normative choice: there is nothing inevitable about sharp tax hikes.

Even if you think permanent scarring will occur, those taxes suggested to raise revenue seem bizarre choices today. The Government presumably wants us to be Covid-cautious still. Two ways of reducing risks would be to drive more rather than use public transport and to shop more online.

Aside from all the other downsides of raising fuel duty and introducing an online sales tax, to use the tax system to incentivise worsening virus transmission right now by making driving and online shopping more expensive seems bizarre.

Raising top capital gains tax rates to 40 or 45 per cent would simply be self-defeating from a revenue-raising perspective. Capital Gains Tax on many investments represents a double tax. The justification for having it at all is to deter people hiding income as capital gains.

But there’s a revenue-maximizing balance between this effect and deterring people from selling assets. The Coalition government introduced a top 28 per cent CGT rate precisely because HMRC research suggested this raised most revenue. Though it was then lowered to 20 per cent under George Osborne, raising it to 40 per cent plus would reduce revenue relative to a lower rate. We’d get less investment and entrepreneurship when we need it most too.

And then there’s the mooted corporation tax rise from 19 back to 24 per cent. Taxes on mobile capital will deter foreign investment just as Brexit is set to happen, as well as reducing the after-tax return on new domestic projects. Who will bear the costs? Not just “the wealthy,” as commonly asserted, but workers too: evidence suggests that they bear between 30 and 70 percent of the burden of taxes on corporations.

Not only is the tax rise call premature then, but the specific proposals don’t conform to the pandemic’s needs or Boris’s Johnson’s ambitions to create a high-wage economy. Covid-19 may permanently scar the public finances, sure. But as yet its full effects are unknown and there’s little cost to pausing to see. Anything else at this stage is using the crisis as a pretext for raising funds for hobby horses.

If the Prime Minister truly objects to this rationale as reported and understands the threat to the nascent recovery of sharp tax rises today, he should take this message to his Chancellor: on tax rises, not now and not these.

Ryan Bourne: A message for Johnson and Sunak on tax rises. Not now. And not these.

2 Sep

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

How’s this for a false dichotomy? Last Saturday, Prospect asked: “Post-Covid, are taxes hikes essential to fund the future? Or should we abandon “deficit fetishism” and spend our way to prosperity?” [i.e. through borrowing]. I shouldn’t need to tell ConservativeHome readers that “spend to grow” and “spend to grow”—the only difference being how to finance it—are not an exhaustive set of fiscal policy options post-pandemic.

But that tweet, sadly, reflects conventional wisdom. You should take the pre-Budget briefing in the Sunday papers about Treasury desires for £20-30 billion in tax hikes through capital gains tax, corporation tax, fuel duty, an online sales tax and restrictions on pensions tax relief with a pinch of salt. Before every recent budget such stories have emerged, perhaps due to kite-flying or overexcited journalistic coverage of illustrative exercises in how one could raise revenues. One suspects the briefings may even be a political ploy—raising fears in the Tory base before Number Ten saves the day.

Yet there’s undoubtedly an unnerving regularity to them. Alongside a steady drumbeat from “One Nation” Tories and such organisations as the Resolution Foundation, the idea that large tax hikes will be desirable and necessary is taking hold, with Covid-19 apparently making this agenda more urgent.

We are told, as the kitchen sink of argumentation is thrown, that the pandemic itself proves the false economy of a “hollowed out” state after a decade of austerity. Or that the “levelling up” and the “inevitable” higher spending we will now want on health, welfare benefits, and higher public sector pay means tax hikes are needed. Or that the crisis necessitates urgent repair to the public finances, and that there’s simply nowhere left to cut spending.

None of these arguments, however, stand the test of reason. Countries that have dealt with the Coronavirus better include those (South Korea, Taiwan, Australia) with much lower tax-to-GDP ratios than the UK and much lower health spending too. Many with higher tax-to-GDP ratios (France, Belgium, Italy) have seen similarly shocking death tolls to us.

At best, any failure to deliver resources where needed reflects bad state priorities, not an impoverished public realm. Indeed, the story of a hollowed-out state at a time of the highest tax burden since the early 1980s, coupled with this international evidence, suggests ascribing blame to austerity for poor performance is both ahistorical and parochial.

The wisdom or otherwise of  the “levelling up” agenda, and how best to pay for it, is largely unrelated to the pandemic too. Actually, to the extent that Covid-19 affects the desirability of infrastructure and public service spending in the regions, it throws substantial doubt on the benefits of projects such as HS2 and other city and town revival plans.

Who knows what lasting impact the crisis will have on remote working, the location of activity, and favoured transport modes? One Nationers arguing that the virus proves the need to level up would have us believe that the pandemic’s effects are significant enough for a tax revolution, but insignificant enough to alter the desirability of any of their proposed spending. One might almost suggest motivated reasoning here.

In macroeconomic terms, the case for significant tax rises now is weaker still. The point of bridging support through furlough was to shelter businesses and workers from this unexpected shock. To pass the bill to the private sector now as it struggles back to life would strangle the recovery. And for what? Borrowing costs are low, and we have no idea yet whether and how much this crisis will leave a permanent budget hole once emergency spending stops and private sector activity revives. In fact, even borrowing to date has not been as high as initially feared.

Of course, the extra debt to deal with the crisis has to be paid somehow, eventually. But, as I argued here before, unusual shocks such as pandemics and wars primarily result in step-level debt-to-GDP increases rather than ongoing budget holes, because you stop spending on the immediate threat afterwards.

The implication is that modest consolidation over decades is optimal to account for the extra incurred debt, rather than adopting large tax increases to compensate over a Parliament. Economists call it “tax smoothing”—debt provides a safety valve to allow us to only modestly change spending or taxation over long periods to maintain incentives. Of course, if the Government thinks that, for political reasons, it must expand welfare benefits or health spending permanently, this would be a normative choice: there is nothing inevitable about sharp tax hikes.

Even if you think permanent scarring will occur, those taxes suggested to raise revenue seem bizarre choices today. The Government presumably wants us to be Covid-cautious still. Two ways of reducing risks would be to drive more rather than use public transport and to shop more online.

Aside from all the other downsides of raising fuel duty and introducing an online sales tax, to use the tax system to incentivise worsening virus transmission right now by making driving and online shopping more expensive seems bizarre.

Raising top capital gains tax rates to 40 or 45 per cent would simply be self-defeating from a revenue-raising perspective. Capital Gains Tax on many investments represents a double tax. The justification for having it at all is to deter people hiding income as capital gains.

But there’s a revenue-maximizing balance between this effect and deterring people from selling assets. The Coalition government introduced a top 28 per cent CGT rate precisely because HMRC research suggested this raised most revenue. Though it was then lowered to 20 per cent under George Osborne, raising it to 40 per cent plus would reduce revenue relative to a lower rate. We’d get less investment and entrepreneurship when we need it most too.

And then there’s the mooted corporation tax rise from 19 back to 24 per cent. Taxes on mobile capital will deter foreign investment just as Brexit is set to happen, as well as reducing the after-tax return on new domestic projects. Who will bear the costs? Not just “the wealthy,” as commonly asserted, but workers too: evidence suggests that they bear between 30 and 70 percent of the burden of taxes on corporations.

Not only is the tax rise call premature then, but the specific proposals don’t conform to the pandemic’s needs or Boris’s Johnson’s ambitions to create a high-wage economy. Covid-19 may permanently scar the public finances, sure. But as yet its full effects are unknown and there’s little cost to pausing to see. Anything else at this stage is using the crisis as a pretext for raising funds for hobby horses.

If the Prime Minister truly objects to this rationale as reported and understands the threat to the nascent recovery of sharp tax rises today, he should take this message to his Chancellor: on tax rises, not now and not these.

Ryan Bourne: A message for Johnson and Sunak on tax rises. Not now. And not these.

2 Sep

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

How’s this for a false dichotomy? Last Saturday, Prospect asked: “Post-Covid, are taxes hikes essential to fund the future? Or should we abandon “deficit fetishism” and spend our way to prosperity?” [i.e. through borrowing]. I shouldn’t need to tell ConservativeHome readers that “spend to grow” and “spend to grow”—the only difference being how to finance it—are not an exhaustive set of fiscal policy options post-pandemic.

But that tweet, sadly, reflects conventional wisdom. You should take the pre-Budget briefing in the Sunday papers about Treasury desires for £20-30 billion in tax hikes through capital gains tax, corporation tax, fuel duty, an online sales tax and restrictions on pensions tax relief with a pinch of salt. Before every recent budget such stories have emerged, perhaps due to kite-flying or overexcited journalistic coverage of illustrative exercises in how one could raise revenues. One suspects the briefings may even be a political ploy—raising fears in the Tory base before Number Ten saves the day.

Yet there’s undoubtedly an unnerving regularity to them. Alongside a steady drumbeat from “One Nation” Tories and such organisations as the Resolution Foundation, the idea that large tax hikes will be desirable and necessary is taking hold, with Covid-19 apparently making this agenda more urgent.

We are told, as the kitchen sink of argumentation is thrown, that the pandemic itself proves the false economy of a “hollowed out” state after a decade of austerity. Or that the “levelling up” and the “inevitable” higher spending we will now want on health, welfare benefits, and higher public sector pay means tax hikes are needed. Or that the crisis necessitates urgent repair to the public finances, and that there’s simply nowhere left to cut spending.

None of these arguments, however, stand the test of reason. Countries that have dealt with the Coronavirus better include those (South Korea, Taiwan, Australia) with much lower tax-to-GDP ratios than the UK and much lower health spending too. Many with higher tax-to-GDP ratios (France, Belgium, Italy) have seen similarly shocking death tolls to us.

At best, any failure to deliver resources where needed reflects bad state priorities, not an impoverished public realm. Indeed, the story of a hollowed-out state at a time of the highest tax burden since the early 1980s, coupled with this international evidence, suggests ascribing blame to austerity for poor performance is both ahistorical and parochial.

The wisdom or otherwise of  the “levelling up” agenda, and how best to pay for it, is largely unrelated to the pandemic too. Actually, to the extent that Covid-19 affects the desirability of infrastructure and public service spending in the regions, it throws substantial doubt on the benefits of projects such as HS2 and other city and town revival plans.

Who knows what lasting impact the crisis will have on remote working, the location of activity, and favoured transport modes? One Nationers arguing that the virus proves the need to level up would have us believe that the pandemic’s effects are significant enough for a tax revolution, but insignificant enough to alter the desirability of any of their proposed spending. One might almost suggest motivated reasoning here.

In macroeconomic terms, the case for significant tax rises now is weaker still. The point of bridging support through furlough was to shelter businesses and workers from this unexpected shock. To pass the bill to the private sector now as it struggles back to life would strangle the recovery. And for what? Borrowing costs are low, and we have no idea yet whether and how much this crisis will leave a permanent budget hole once emergency spending stops and private sector activity revives. In fact, even borrowing to date has not been as high as initially feared.

Of course, the extra debt to deal with the crisis has to be paid somehow, eventually. But, as I argued here before, unusual shocks such as pandemics and wars primarily result in step-level debt-to-GDP increases rather than ongoing budget holes, because you stop spending on the immediate threat afterwards.

The implication is that modest consolidation over decades is optimal to account for the extra incurred debt, rather than adopting large tax increases to compensate over a Parliament. Economists call it “tax smoothing”—debt provides a safety valve to allow us to only modestly change spending or taxation over long periods to maintain incentives. Of course, if the Government thinks that, for political reasons, it must expand welfare benefits or health spending permanently, this would be a normative choice: there is nothing inevitable about sharp tax hikes.

Even if you think permanent scarring will occur, those taxes suggested to raise revenue seem bizarre choices today. The Government presumably wants us to be Covid-cautious still. Two ways of reducing risks would be to drive more rather than use public transport and to shop more online.

Aside from all the other downsides of raising fuel duty and introducing an online sales tax, to use the tax system to incentivise worsening virus transmission right now by making driving and online shopping more expensive seems bizarre.

Raising top capital gains tax rates to 40 or 45 per cent would simply be self-defeating from a revenue-raising perspective. Capital Gains Tax on many investments represents a double tax. The justification for having it at all is to deter people hiding income as capital gains.

But there’s a revenue-maximizing balance between this effect and deterring people from selling assets. The Coalition government introduced a top 28 per cent CGT rate precisely because HMRC research suggested this raised most revenue. Though it was then lowered to 20 per cent under George Osborne, raising it to 40 per cent plus would reduce revenue relative to a lower rate. We’d get less investment and entrepreneurship when we need it most too.

And then there’s the mooted corporation tax rise from 19 back to 24 per cent. Taxes on mobile capital will deter foreign investment just as Brexit is set to happen, as well as reducing the after-tax return on new domestic projects. Who will bear the costs? Not just “the wealthy,” as commonly asserted, but workers too: evidence suggests that they bear between 30 and 70 percent of the burden of taxes on corporations.

Not only is the tax rise call premature then, but the specific proposals don’t conform to the pandemic’s needs or Boris’s Johnson’s ambitions to create a high-wage economy. Covid-19 may permanently scar the public finances, sure. But as yet its full effects are unknown and there’s little cost to pausing to see. Anything else at this stage is using the crisis as a pretext for raising funds for hobby horses.

If the Prime Minister truly objects to this rationale as reported and understands the threat to the nascent recovery of sharp tax rises today, he should take this message to his Chancellor: on tax rises, not now and not these.

Howard Flight: From rising demand for out of town housing, to increases in savings, the Covid trends to look out for.

31 Aug

Lord Flight is Chairman of Flight & Partners Recovery Fund and is a former Shadow Chief Secretary to the Treasury.

I expect the UK to emerge from this Covid-related economic and health shakeup with permanent major changes of behaviour. These should in turn impact on the values and relative prices of goods and services.

The first most obvious area is housing, house prices and where you live. The discovery with modern communication and technology that people can work at least three days a week from home without their output suffering looks set to release a large “working from home” revolution, particularly in London and the home counties.

As a friend recently commented to me, it is a pleasure to be living most of the time in the country; it adds two hours a day to his free time and £500 per month (effectively tax free) to his disposable income.

This implies, longer term, upward price pressure on out of town housing and downward relative pressure on city centre properties. Also surely the correct economic policy for the rail operators would be to reduce fares to encourage greater usage of the network?

This economic crisis has already unleashed a significant increase in the savings rate – in the home counties plus £2,000 pa per person and rising. The main reason looks to be fear of unemployment, but there is also, clearly, a risk of interest costs rising substantially at some stage in the not too distant future.

A relatively permanent increase in the savings rate implies bad news for the service sector. Higher savings are likely to be made across the young, middle aged and older sections of the community where the latter is helping to finance the young.

Savings should logically be the largest amongst the middle aged part of the population. We are likely to see the young as the key inventors; the middle aged as the investors, and the older part of the population financing the young and predominately financing new investment.

A trend which is not yet apparent is the relative performance of Greater London versus the “Rest”. House price and interest rate developments leave London relatively less affluent and the rest of the country better off.

An apparent trend is a greater interest in education by both the young and their parents – particularly amongst the rising immigrant community who have been performing extremely well academically. This should be good for the economy.

The Conservative Government has had a rough time, at least half of this, their own fault. As the General Election witnessed, and I believe is still the case, the electorate is not interested in Communism. What it wants, particularly, is what is perceived as “fairness”.

Fairness is not just financial fairness. As the Government’s education blunders have witnessed, young students, their parents, teachers and many Conservative members of Parliament have been driven by the wish to see fairness as amongst the young effected.

As Liz Truss, the Secretary of State for International Trade, has commented, fairness is the main case for free trade. After joining the EU, we fell behind our allies in terms of trade; now we have the chance to change this.

We are in a series of negotiations with the US, Japan, Australia and New Zealand to strike new, fair free trade agreements and lower tariffs for our exporters. Talks with all four are progressing well. Round Four of the US negotiations starts soon.

From Japan we have consensus on the major elements of a deal that will go beyond the agreement the EU has with the country. We aim to have agreement in principal by the end of August. Round two of talks with Australia start in mid September and the second round of discussions with New Zealand start a month later.

These deals are an important step towards accession to the Comprehensive and Progressive Agreement for the Trans Pacific Partnership Agreement which will hitch Britain to one of the fastest growing parts of the world.

CPTPP reduces tariffs on 95 per cent of goods between members and also sets high standards in areas like digital trade and data. Membership will help put Britain at the centre of a network of free trade agreements where parties treat each other fairly, play by the rules, and help make us a hub for businesses trading with the rest of the world.

Richard Holden: The Government must hold firm and stay on course as the Commons returns this week

31 Aug

Richard Holden is MP for North West Durham.

The Baa, Edmundbyers, Co Durham

In Edmundbyers they came en masse – well, en masse for a small village. It was the 30th or so stop out of 50 on my constituency summer surgery tour of the communities of North West Durham. Fifteen or so constituents were gathered, questions and comments at the ready, on village green.

As at other stops, some came to raise specific local issues. Some came to mention national policy. Many just came to meet their MP; put a face to the name, or to get the measure of someone they sometimes see on local telly or in the paper, who they elected last year. And, of course, many constituents just wanted to get a couple of things off their chest.

The interactions reminded me of visiting The Grey Horse, Consett for my “ask the candidate” session back in November. That “ask the candidate” was an interesting event because I came under very heavy questioning from the start.

What I learnt from the interrogation I got then, aside from a couple of Labour activists who’d been sent along, was that the toughness wasn’t really directed at me; I was just the person stood there who was taking years of pent up frustration. A deep frustration that came from years of resentment, not with me or even the Conservative Party, but with politics generally; at not having had any opportunity to speak to and question their elected representatives, or those seeking election, before.

This was rammed home time and again on my summer tour and, perhaps more tellingly still, when I attended a parish council meeting and was informed by those present, including by a Parish Councillor who’d been on for the best part of half a century, that no previous MP had ever reached out them, let alone attended one of their council meetings.

In many of the villages I visited in the last fortnight people said things like “I’ve never seen or heard of my councillor, never mind my MP in my village before.” Speaking to so many people in my constituency over the summer has reminded me of the deep sense of detachment many have felt from those they elected to represent them over many years, but also the impact an active local MP or councillor can make to people’s feeling of dislocation.

That initial reaction, as I found at The Grey Horse, is just that – a reaction. It’s the first thing that happens when presented with someone who you’re then able to ask a question of. What it isn’t is a response to you or a guide in any way to how people might vote or how they necessarily really feel.

I learnt several weeks after my grilling at The Grey Horse that people had been impressed by my clarity, honesty and the fact that I’d turned up in a heavily Labour part of my constituency without a massive entourage; that I had stood my ground and given as good, if not better, than I’d got. In fact, a good number of those present had their vote tipped in my direction on the strength of that session when compared with the other candidates they saw.

As MPs leave their constituencies at the end of the summer recess and head back to Parliament, it will serve us well to remember the difference between the initial reaction and the response, especially to those who seek to discern what the public want from polling them.

There is frustration out there at everything relating to the global Coronavirus pandemic. There is an acknowledgment that the support the Government has provided to the economy has been substantial and will need to be paid for. There is still, rightly, a lot of fear out there about the virus, but also a desire that we don’t let it unnecessarily continue to impinge on our lives more than is necessary.

The next few months in politics in the run up to Christmas and though the new year are going to be challenging. There are major issues on the table. Our future relationship with the EU negotiations, which are likely to go down to the wire. There are also multiple complex international trade negotiations with Japan, the US, Australia and others.

There’ll be a very difficult budget for our Chancellor. And a Fisheries Bill that’ll set out our post-EU fishing regime as well as other contentious legislation. These will all be set in the context of the ongoing impact of the global Coronavirus pandemic on jobs and the economy.

Internationally, the situation with China and Russia is increasingly charged. The United States faces what is set to be a potentially both bruising and close Presidential election. Even normally calm Japan, an increasingly crucial international partner and ally, is in the midst of a change, following the departure of their respected Prime Minister.

As all these things play-out, we Conservatives must not get distracted too by the initial reaction because things will be choppy. We’re in a political battle for the long-term future of our country. What’s important is the leadership we show as we look to where we want the country to be in the years ahead. In early 2016, who’d have imagined we’d be where we are now? In fact, at the general election eight months ago who’d have imagined we’d be where we are now?

What we’re crafting together in Parliament is a response to the question at the next general election: “who do you want to be governing the country for the next four or five years?” to the people in The Grey Horse in Consett and on the village green at Edmundbyers. There are many staging posts as we slowly make our way there, and through the first anniversary of the general election.

In the tumult of the next few months, the adage that a week is a long time in politics will be seen again to be all too true, but we’ve got to hold firm to delivering a very clear response to the only question that matters – one that will be answered way down the line in the ballot box.