Interview: Truss. “The number one problem in this country, which everyone is feeling in their pockets, is a lack of economic growth.”

29 Jul

“I don’t believe in regrets,” Liz Truss says. She does not repine at the blue on blue attacks during the leadership debates, and wants instead to concentrate in the two years until the general election on “really delivering what we promised in the 2019 manifesto”.

Truss gives an unrepentant defence of her tax plans and her determination to go for growth, and proposes changing the Bank of England’s mandate. She says she would be “very happy to have Rishi as part of my team”.

Since the start of the leadership campaign, she added, she has “taken Twitter off my phone, and I’m living in bliss, just focussed on Conservative Party members”.

According to Truss,

“People voted Conservative not because they wanted some Labour policies. They changed their vote from Labour to the Conservatives because they wanted things to be different.”

In this interview – which was held yesterday morning, in the new CCHQ in Leeds – she outlines how she wants things to be different, but first touches on the sudden end to the Talk TV election debate earlier this week.

ConHome: “Have you given the inside story of that Kate McCann fainting fit in full?”

Truss: “You know, she just, she fainted, I was busy talking about Russia/Ukraine, I didn’t know what had happened, I was just completely shocked. I’m very pleased that she’s better now.”

ConHome: “Did you actually tend her yourself, did you bend over her?”

Truss: “I went to try and help her, and then some people arrived with some medical equipment. The whole set-up was that there was an audience, but they were in a different studio, so I think a lot of people didn’t realise what had actually happened.”

ConHome: “During this week’s BBC debate, the Political Editor of The Times tweeted, “A spokesman for Liz Truss claims that Rishi Sunak is not fit for office: ‘Rishi Sunak has tonight proven he is not fit for office. His aggressive mansplaining and shouty private school behaviour is desperate, unbecoming and is a gift to Labour’.

“Is Sunak fit for office? If not, why? And if so, why the tweet?”

Truss: “Rishi is someone who, you know, is a very effective minister. I would be very pleased to have Rishi as part of my team, depending on how things work out, and I’m not in any way complacent.

“There’s still a lot of this campaign to go. What we’ve seen in this leadership contest is really talented people come forward, you know, Kemi, Penny, Suella, and what the future needs to be, we need to bring the party together, we need to have the best of the Conservative Party and people who are people that deliver and can drive forward our country, and that’s my focus.”

ConHome: “So this tweet didn’t convey your views.”

Truss: “I don’t know anything about this tweet. I have to say that since this election campaign has started I’ve taken Twitter off my phone, and I’m living in bliss, just focussed on Conservative Party members, travelling round the country talking to members, and my positive message which is about turbo-charging our economy, unleashing the potential of Britain, keeping taxes low, being pro-business, that’s what my campaign is about.”

ConHome: “But does someone tweet on your behalf? Sometimes on Twitter you have to be quite spontaneous and quick.”

Truss: “I know, but we’re here in Leeds today for the hustings, and I’m just being totally focussed on talking to our members, because that’s what this is, this is the party members’ decision.

“And there’s all kinds of people on Twitter who’ve got absolutely nothing to do with the Conservative Party. So actually the majority of them perhaps are not of our way of thinking.”

ConHome: “We focus on the tweets, though, because it captures perhaps the slightly self-destructive – in party terms – nature of some of the debate so far.

“Because we’ve also seen those debates where hackles have been raised and accusations of mansplaining have later been levelled.

“Do you regret taking part in any of those debates? Do you think they’re distracting from you actually going to hustings and speaking to party members?”

Truss: “I don’t believe in regrets.”

ConHome: “Je ne regrette rien. To quote your favourite singer, you just want to shake it off, do you?”

Truss: “Well absolutely, Taylor had it right. But look, this leadership election happened very, very quickly. And in fact I was in Indonesia when the PM took the decision to step down and when I arrived back in the United Kingdom frankly a lot of the die had been cast on the format of this leadership election.

“And it is what it is. I think we’ve now had the opportunity to debate, people have seen there is a serious economic divide between me and Rishi.

“We’ve had that out in a series of debates. So whatever the other stuff, I think people understand my position on taxation, my position on economic growth, being pro-active on those post-Brexit freedoms to unleash the potential of our economy.

“And the debate has highlighted that fundamental difference. But now I am focussed on working, talking to party members, putting across a broader range of policies.

“And I don’t think the debates are the best format. I think the hustings that we’re having are a better format to have that discussion.”

ConHome: “On economic policy, you’ve also mentioned in the last week that you think the mandate of the Bank of England should be changed. How would you change the mandate? How high do you think interest rates should be?”

Truss: “We should look again at the Bank of England’s mandate. It was set in 1997 in completely different times, and one of the issues round controlling inflation is around monetary policy, and that’s not just about interest rates, it’s also about quantitative easing that is taking place.

“And I want to look at the best practice of central banks around the world, look at which banks have been best at controlling inflation, and revisit the mandate.

“I haven’t made any decisions and the Chancellor hasn’t made any decisions about exactly how that mandate would change.

“But I think it’s important that we review our monetary policy and the monetary policy settings and the mandate of the Bank of England, and make sure it is delivering for the times we’re in now.

“And of course inflation is a major concern for people. It has pushed up people’s bills, it’s one of the reasons I want to make sure we are taking as little in tax from people as possible, because of those inflationary pressures that they’re facing.”

ConHome: “The route traditionally to lower taxes is reducing spending. You have proposed a spending review. Do you have any idea of what areas you would want to cut in order to finance tax cuts, or do you think this is not necessarily something you have to do in order to cut taxes?”

Truss: “First of all, some of the tax points I’m making are about not raising taxes. So the current proposal is that we raise corporation tax to be the same level as France.

“And I think that will put off investors from investing in Britain, in fact there’s some evidence that that is already happening, and it will mean in the long term we get less revenue in.

“So as has been pointed out by many, if you raise taxes too high, it’s counterproductive, you get less revenues in.

“The tax reduction I’m proposing on National Insurance, which is reversing the decision that broke our manifesto commitment, and holding tax low on corporation tax, as well as having a temporary moratorium on the Green Levy, those are affordable within our existing budgets.

“And we will still be able to start paying down the National Debt in three years.

“But what I will do is take the tough supply-side decisions in order to really get the economy going, so low-tax investment zones, sorting out Solvency II and MIFID, sorting out the trade unions, putting that legislation through on essential services…”

ConHome: “Building more houses?”

Truss: “Well I’ll come to that in a minute. But so that we get the economy going, which is important to avoid a recession.

“The number one problem in this country, which everyone is feeling in their pockets, is a lack of economic growth. We’re currently projected to have a recession, we need to avoid that, we need to get growth going, and we need to keep taxes low.

“Now on the Spending Review, I did want to answer that question, I don’t want to cut public spending. So I support the extra money that we’re putting into social care, for example.

“What I want to do is reform the public sector over the long term, so it’s more efficient. So for example we have many people who are currently economically inactive. We need to improve the incentives to help get those people into work.

“But that takes time. So what I will do is lay out a ten-year plan for public service reform, and a ten-year plan to change Britain’s economic growth rate.

“We should be growing on average at 2.5 per cent. And happiness is a faster-growing private sector than public sector. That’s what we need to achieve.

“What is a mistake is putting up taxes now that will hamper growth. You cannot tax your way to growth. Do you want me to answer on housing?”

ConHome: “Yes. Housing is very important, especially for young people who see no hope of ever getting a place of their own.”

Truss: “Absolutely, but the way we have gone about it, and I say this not just recently, but the previous Labour Government as well, top-down Whitehall-set housing targets do not work.

“They create huge fear across the country, and they haven’t actually delivered the housing that we need.

“So what I favour, I’m talking about these low-tax investment zones which will also have a simpler planning system attached to them, more incentives at a local level to build houses, but that also are connected to businesses, a modern Bournville if you like, and infrastructure.

“We need to think differently, and we also need different approaches in different parts of the country. What’s good in Cornwall is not necessarily good in London. In London I support more building up of houses, allowing people to extend their houses upwards, using brownfield sites.

“In places like Cornwall, having more homes where people working in local industry can live and they’re attached to each other, like Bournville.

“What we have at the moment is a very antiquated, antediluvian planning system.”

ConHome: “Would you repeal the 1947 Town and Country Planning Act?”

Truss: “What I would do is use the Levelling Up Bill to put in these low-tax investment zones and to do what we can to improve the system.

“But the system does need long-term reform.”

ConHome: “So the Town and Country Planning Act wouldn’t apply in these zones?”

Truss: “Well there would be new zoning rules. But these zones, they would be locally driven, they would only be there if it was supported by the local Members of Parliament, the local council, that’s important.

“I was a councillor in Greenwich and I sat on a planning committee and it is hours of my life I will never get back. The whole system where you make all these decisions and then you get overruled by the inspectorate in Bristol doesn’t work, and we do need to change that.

“A lot of the things I’m talking about need long-term reform, but my absolute objective is in the two years until the general election really delivering what we promised in the 2019 manifesto, getting the economy growing, reducing taxes, to help people to get into work, help companies start up.

“I want us to be on the side of the self-employed, the small businesses, the people who get out of bed every day to get into work, and who do the right thing. That’s what I want to focus on.

“There are longer-term reforms needed in government, longer-term reforms needed to help the economy grow, but the immediate focus has to be on unleashing that potential and driving growth.”

ConHome: “We interviewed Rishi Sunak yesterday and he was citing without actually naming Patrick Minford and saying with your tax plans interest rates would go up to seven per cent, that’s what Minford has said.

“We wondered whether with interest rates at seven per cent perhaps there’d be a housing crash.”

Truss: “Frankly this is just scaremongering. Inflation is projected to come down next year. And the Bank of England is independent, it makes decisions about interest rates completely independently of government.”

ConHome: “Should it have raised interest rates sooner?”

Truss: “Well, as I’ve said, I want to review the mandate.”

ConHome: “And that won’t impair their independence, reviewing the mandate?”

Truss: “No.”

ConHome: “They might start to feel a bit nervous.”

Truss: “Well are we really saying that the mandate Gordon Brown set in 1997 is fixed in stone forever? I mean that seems an extraordinary claim.

“It’s always been the case that the Bank of England operate within the mandate set by the Chancellor. And what I’m saying is that should be reviewed.

“But the tax plans I put forward, first of all not raising corporation tax is not inflationary, in fact it should have a positive effect on bringing down inflation because we’re increasing supply in the economy, so there’s absolutely no evidence to suggest any of my plans would affect inflation.”

ConHome: “This contest is obviously affected by the early release of ballot papers, which has incentivised you to make pledges early, and then of course the question is whether the pledges are deliverable.

“And an obvious example is your commitment to lifting the ban on new grammar schools. There’s not much more than two years left. How could you get this through the Lords? It wasn’t in the manifesto so you can’t say the Parliament Act covers this as a manifesto commitment.”

Truss: “Well I’m a huge supporter of grammar schools. I went to school not too far from here, at Roundhay School in Leeds which was a comprehensive.”

ConHome: “Was it a former grammar school?”

Truss: “It was a former grammar school and it became a comprehensive school. My two daughters now attend a grammar school, and I want people around the country to have the choice that we have to be able to send our daughters to a grammar school.

“And I also want to see more free schools opened, so for example the Michaela School in Brent I think is a fantastic example of a school which completely counters the soft bigotry of low expectations and expects high standards of everybody.

“And for me it’s about parents and children having the choice of that range of good schools. And the more good schools we have the more choice people have.”

ConHome: “What are you going to be able to do about this, supposing you become Prime Minister, between now and the next general election?”

Truss: “Well I will make the case to the country that this is the right thing to do, and I will encourage the Lords to support the will of the democratically elected House of Commons.”

ConHome: “Do you feel constrained by the 2019 manifesto? Are there things that you were elected on in 2019 that you would not necessarily agree with, that you would rather scrap and embark on a more Trussite agenda if you had the chance?”

Truss: “I think it’s a very good manifesto. We need to deliver it. And what people are going to judge us on at the next general election is have we delivered.

“This is why it’s so important for me not to raise National Insurance when we didn’t have to, because we had a specific manifesto commitment not to do so.

“It also why it’s important to level up the country, get spades in the ground, show the economy is growing, because that is the big promise we made in 2019, that things were going to be different.

“People voted Conservative not because they wanted some Labour policies. They changed their vote from Labour to the Conservatives because they wanted things to be different.

“They want to see more enterprise in their area, more opportunities, more good schools, better transport. Those are all the things that we promised. That is why people voted Conservative and that is what we need to deliver.”

ConHome: “At what point then did you realise it was a mistake to have voted Remain in 2016?”

Truss: “Well pretty much after the public voted to leave. First of all, the public have voted that, I said on the day I’m putting my shoulder to the wheel to deliver this.

“And pretty much immediately frankly I saw the huge opportunities, and none of the portents of doom came to fruition.

“I want to get all of the existing EU law off the statute books by the end of 2023.”

ConHome: “Thirty-two per cent of Tory MPs backed you in the last ballot. Boris Johnson was just over half. Iain Duncan Smith was 33 per cent. What kind of basis is this for leading the party in Parliament?”

Truss: “In terms of my parliamentary supporters I’ve got supporters from right across the Conservative Party. And I would want to run a Government of the most talented people wherever they’re from in the country, whichever part of the Conservative Party they’re in.

“And I would unite people around the delivery of our 2019 manifesto, and the promise of unleashing Britain’s opportunities. I’m a positive, optimistic person, I believe our best days are ahead…”

ConHome groaned at the use of the cliché.

Truss: “I do! I hate this declinist stuff. There’s too much talking the country down, saying ‘you can’t do this’, saying ‘if we do this it will all be a disaster’. That’s why I’m in politics.”

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Interview: Sunak. “I genuinely think saddling our children with debts that we didn’t have the courage to deal with ourselves isn’t right.”

28 Jul

Rishi Sunak readily admits he is behind in the race to become the next Prime Minister: “I think it’s pretty clear I’m the underdog [laughter].”

But he also reckons that while he hasn’t “taken the easy road”, he is standing up for “commonsense Thatcherism”, a position which is more “moral”, “conservative” and realistic than the unfunded tax cuts commended by his opponents.

Sunak has been accused, by Liz Truss supporters such as Kwasi Kwarteng, of conducting “a screeching U-turn” by coming out for a VAT cut on energy bills.

In this interview, Sunak rejects that accusation, and retorts that “a screeching U-turn on lots of policies that were in the 2019 manifesto”  would “be tricky to implement”.

He says he has not engaged in the “Dutch auction of tax cuts” in which other candidates indulged, and has found that “actually wherever I’m going I’m getting a very positive reception and winning people round”.

In Sunak’s view, the Conservative Party should in future leadership contests negotiate on behalf of all the candidates with the broadcasters, in order to make sure that in televised debates “our party is not doing things that essentially write Labour’s next leaflets for them”.

This interview was conducted yesterday afternoon at Sawston Hall, in the village of Sawston, south of Cambridge, where Sunak was about to address a meeting of around a hundred Conservative Party members.

ConHome: “Tom Tugendhat revealed a private conversation to attack you in an earlier debate. Kemi Badenoch revealed a private Treasury discussion to do the same.

“Penny Mordaunt tweeted that either you or Liz Truss would ‘murder’ the Conservative Party. Truss’s spokesman has said you’re ‘not fit for office’, and you’ve attacked Truss for offering ‘socialism’.

“Hasn’t the only winner from this blue-on-blue contest so far been Keir Starmer, and given this level of vitriol why do any of you deserve to win?”

Sunak: “Well just to be clear, I’ve actually tried to be very positive throughout the campaign. From the get-go there was a lot coming my way, as you can probably remember, and I didn’t really respond to any of that. I’ve still not responded to any of it.

“The quote you’re referring to was not about her personally. I said something for nothing economics isn’t conservative, it’s socialism. That’s what I said. That was not about a person, that was about a policy.

“So I’ve been very clear about that, and I haven’t talked about any private conversations, and I haven’t talked about the many things that happened in government while I was there, very deliberately, because as I said in the debates we’re one Conservative team and one Conservative family.”

ConHome: “But you’re more Conservative than she is? – you have a proper profound belief in the morality of sound money and all that.”

Sunak: “I do, that is important to me, no it does matter to me, as everyone can see in this leadership election. I haven’t taken the easy road and I’ve wanted to make the argument that that should matter.

“And as a Conservative it’s something that I believe really deeply. And we’re now getting attacked by the Labour Party, Keir Starmer just the other day again was able to attack Conservatives for what in his words was peddling the fantasy economics of unfunded promises.

“Those were his words. He also used the expression ‘magic money tree’ to describe what he was hearing. I think we need to ask ourselves as Conservatives if the Labour Party is in a position where they’re able to attack us for that, think forward to an election, and what historically has been one of the strongest dividing lines between us – I don’t think that’s a very politically good place for us to be.

“I also don’t think it’s a sensible economic place for us to be and I don’t think it’s a particularly moral place for us to be because I genuinely think saddling our children with debts that we didn’t have the courage to deal with ourselves isn’t right.”

ConHome: “So how does this U-turn on the VAT cut fit in with that? Doesn’t that undermine your sound money message?”

Sunak: “No, because there’s a big difference between things that by their nature are deliberately temporary, and designed to deal with a particular problem at a moment in time, and things that are structural.

“So what you’re hearing is structural changes to the tax system that are permanent. What we’ve heard from others is I think at the last total £40 billion plus of permanent unfunded tax cuts, tax cuts funded by borrowing.

“That’s not what I’m suggesting at all. What I’m suggesting is a response to deal with an immediate crisis in here and now.

“And I’ve always been clear that as we knew exactly what energy bills would be, we would refine the support we put in place if that was required.”

ConHome: “On that, do  you worry about unfunded tax cuts primarily from an inflation perspective or because you just don’t like borrowing to make tax cuts?”

Sunak: “Both. I think both are wrong. You’ve had all these people from Margaret Thatcher’s Cabinet, whether it’s Peter Lilley or Michael Howard or Norman Lamont or William Hague, because I believed what I was doing was commonsense Thatcherism.

“And I’m delighted and pleased that lots of people who were familiar with and lived through some of those arguments have supported that point of view, that you do need to get a grip of inflation first, before embarking on the things that I want to bring, which is a radical reform of our economy to drive growth primarily through innovation and investment.

“And she understood that, that’s what I think is important, and I think it would be very dangerous. And it’s not just me who said that, as I pointed out the other day when Liz Truss was asked if she could name a single economist who supported her plan. She named someone…”

ConHome: “Patrick Minford.”

Sunak: “Patrick Minford, who went on to say that to accommodate these things interest rates would have to rise, he used the number seven per cent, that’s not come from me, it’s come from the person she invoked in support of her position.

“And seven per cent interest rates would mean a typical mortgage would go up by about £6,000. That’s what that costs and I don’t think that is a good thing, I think that would be very damaging for millions of families up and down the country.

“That’s the inflationary argument, but there is also a moral thing.”

ConHome: “Seven per cent interest rates might not be good for millions of families with mortgages, but for those of us trying to get on the housing ladder, they might be slightly helpful in that respect.”

Sunak: “I don’t think it would. Seven per cent would be a big problem for you to get your first mortgage.”

ConHome: “It was more thinking of people having to default on them. But it’s not a particularly nice subject.”

Sunak: “I don’t think we want lots of defaults. Neither do I want people getting on the housing ladder having to deal with seven per cent interest rates.”

ConHome: “Did you say to Liz Truss after the ITV debate, ‘Why are we doing this?’ and if so, why didn’t you ask yourself the question before it rather than afterwards?”

Sunak: “The point I’ve made to the party is that when all this is said and done, someone, the party ideally, should take a step back and figure out what the right process is for having TV debates as part of a leadership contest.”

ConHome: “And what should they conclude about that?”

Sunak: “I think there might be an argument for the party negotiating on behalf of all candidates together with the broadcasters. That might be a sensible thing if the party sets the rules of the contest in general.

“Because there’s two competing things we’re trying to balance. One is a genuine need for scrutiny of candidates, and that is entirely reasonable and fair, because ultimately this person is going to become Prime Minister.

“But that need for scrutiny needs to be balanced with need as well to make sure that our party is not doing things that essentially write Labour’s next leaflets for them.”

ConHome: “You can get into a terrible auction.”

Sunak: “That’s why I can imagine the party on behalf of everybody figures out what the right mix of TV debates or interviews is, and when they should be, and can do that on behalf of all candidates.

“That’s something they should look at certainly. I think we’ve now had more TV debates probably in this election than in most general elections probably.”

ConHome: “If the two candidates are locked in a mutual spiral of who can cut the most taxes, or who can be the most fiscally conservative, or indeed who can be the more Thatcherite, then we’re actually missing the conversation the party should be having.”

Sunak: “I don’t mind a debate about policies and ideas, that’s entirely reasonable. My view is that embarking on a spree of excessive borrowing to fund tax cuts right now would not be the right thing for the economy or indeed the conservative thing to do.

“I’m going to deliver tax cuts, but I’m going to do it in a responsible way after we’ve gripped inflation, and I’m going to cut the taxes which actually I care most about, which are the taxes on people’s hard work, which is why I’ve already put in place an income tax cut in this Parliament, and I’d like to go further.

“But also cut the taxes on business that actually make a difference to growth and productivity, not just what sounds good. Now all my business experience, all my career, all the time as Chancellor, has led me to the conclusion that focussing solely on the headline rate of corporation tax is simply wrong.

“It has not led to an increase in business investment in this country, and if you want to see high growth, higher productivity, better jobs with higher wages, then we need businesses to invest more in capital, in innovation and R&D. I want to cut the taxes on those things, because our tax regime on those things is spectacularly ungenerous compared to lots of other countries.”

ConHome: “Do you feel this argument is getting through, or do you think you’re the underdog at the moment?”

Sunak: “I think it’s pretty clear I’m the underdog [laughter]. I don’t think there’s any doubt about that. But I’m happy to make the argument. I passionately believe in it.

“And I’m not engaging in a Dutch auction of tax cuts. I’ve decided not to. You saw earlier on when there were lots of people in this contest, there was a weekend where there was an escalating auction of tax cuts. I didn’t participate in that.

“It doesn’t make my life any easier, but I’m going to keep going round the country, and I’m going to keep talking to people, and actually wherever I’m going I’m getting a very positive reception and winning people round.”

ConHome: “Various Permanent Secretaries, at the Department for Education, the Ministry of Defence etcetera, have tweeted and emailed about the importance of Black Lives Matter.

“To many party members these emails and tweets are evidence that after 12 years of Conservative government Whitehall, along with the broader British Establishment, leans Left, and ministers seem powerless to do anything about it.

“Do you agree? Is there a culture war, and should the Conservative Party be fighting it?”

Sunak: “I’m incredibly proud of this country’s history, its traditions and its values. As a Conservative, I think it’s our responsibility, indeed our duty, to robustly defend those values, and that’s what I would do as Prime Minister.

“I’m not interested in people rewriting our history. I’m not interested in people to now say what I believe to be relatively commonsense, mainstream opinions and values should be marginalised, or in some cases labelled as racist or homophobic. That’s just not right and we should be prepared to call that out.

“I put out a video a day or two ago about my plan to tackle illegal migration, and I went out of my way to say it is not racist to say we should have controlled borders.

“I’m living proof that this is an incredibly tolerant, diverse country , and we shouldn’t be shy about defending that, and celebrating it, quite frankly.”

ConHome: “On the refugee cap, how would you get that through Parliament, when the Lords would resist it and it wasn’t in the manifesto so you can’t use the Parliament Act to drive it through.”

Sunak: “Well I think there’s a lot the new Prime Minister can try and do, but my strong point of view is we should have no option off the table in tackling this problem.

“We left the EU so we have parliamentary sovereignty, it’s not unreasonable if Parliament is having a sense of this is an acceptable and affordable level of people we can welcome to this country who are fleeing difficult situations.

“Of course we’re a compassionate country but there’s a limit to what we can do.”

ConHome: “How constrained do you feel by the 2019 manifesto?”

Sunak: “I think we have to recognise we’re actually relatively close to a general election, and that’s one thing that should be on all our members’ minds.

“All the conservative values that we cherish, all the policies that we cherish, will come to naught if we lose that next election.

“So who’s best placed to win that election? I believe I offer our party the best chance of winning what will be a historic fifth general election victory which hasn’t been done before.

“Given we’re all this way through Parliament I think a screeching U-turn on lots of policies that were in the 2019 manifesto is going to be tricky to implement.

“What the Government should focus on is now the things that we know are most pressing in people’s minds and grip them.

“So for me that’s the NHS waiting lists, which are a hugely challenging issue for millions of families. Tackling illegal migration. And making sure we realise the benefits of Brexit.

“The thing that will dominate all of those is the economy.”

ConHome: “Do you understand why some party members think that someone who held an American Green Card isn’t really settled here and can’t be Prime Minister?”

Sunak: “I lived and worked in America for a while and that’s why I had a Green Card, so I had the status there. And I happened to have it after I got back and gave it up when I was busy dealing with the pandemic, and as soon as it became relevant I gave it up immediately.

“So I love this country to my core. It’s why I’m sitting here, right, because this country welcomed my family as immigrants. They chose Great Britain because it was a very special place.

“I feel an enormous debt of gratitude to this country for everything it’s done for me and my family and I want to be Prime Minister to try to provide those same opportunities for everyone else, that’s what I’m about.”

ConHome: “How are you going to build us some houses?”

Sunak: “I set out a few ideas at your hustings. We need to do far more brownfield remediation…”

ConHome: “Will you repeal the 1947 Town and Country Planning Act?”

Sunak: “I don’t think I can commit to that here and now [laughter]. Brownfield remediation…”

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Syed Kamall: There may be advantages to No Deal for both the UK and EU

18 Dec

Syed Kamall is the Academic and Research Director at the Institute for Economic Affairs, and was an MEP for London from 2005-2019.

As the clock ticks down towards the end of the year, it’s still possible that there may be a No Deal Brexit. Both sides warn that they would prefer a deal and that no deal would be damaging.

While probably most people would prefer a deal, myself included, a No Deal scenario may not be as bad as predicted. In fact, from a purely political perspective, there may be some advantages to no-deal for both the EU and UK.

Let’s start with economics and trade. No Deal does not mean no trade. One of the myths of international trade is that countries trade with each other. In fact, it is people and businesses in one country that trade with people and businesses in other countries, for mutual benefit. Governments can either facilitate trade by getting out of the way or hinder trade by getting in the way, usually in the form of tariff and non-tariff barriers. UK companies already trade with businesses and consumers in many countries with which the UK has no trade agreement.

Often this is under WTO rules. Where a company faces tariff or non-tariff barriers on its exports it will continue to sell to customers in that country if it can do so profitably despite the barriers. Therefore, British companies will continue to sell to customers in EU countries and companies from EU countries will continue to sell to UK customers. Of course, there will be some disruption and where costs increase, companies will seek to reduce or absorb them, raise prices or seek alternative markets. As with any change, there will be short term winners and losers, but No Deal does not mean no trade.

Before the EU referendum in 2016, the Government published statistics warning of the dire impact of Brexit on UK trade. However, this was based on a gravity model of trade, which views international trade as an extension of internal trade. In other words, an economy such as the UK gravitates towards trading with its closest neighbours and economies which are similar in terms of size, cultural preferences and stage of development. It sees trade with more distant markets grow more weakly than ‘neighbourhood’ trade.

Gravity in trade creation can be thought of as a function of distance and size. But as Patrick Minford of Cardiff University demonstrates in his latest book After Brexit, What Next?, modelling UK trade using the gravity model leads to widely inaccurate results. The Treasury has since changed its models, but makes assumptions which come to similar conclusions.

In a recent Institute of Economic Affairs webinar, Minford explained that while he has challenged the Treasury’s assumptions, they had so far refused to engage. Sound familiar? He also contends that while there will be some disruption to trade, the Treasury has also underestimated the gains from trading with the rest of the world.

Brexit is also about more than about trade. As a Professor of Politics and international relations, I naturally also take a political view of the situation and from this perspective, there may be some advantages to No deal for both the UK and EU.

Many EU and UK observers, including colleagues at the IEA, have been exasperated by the emphasis that UK negotiators have placed on defending the UK-based fishing industry. But while this may seem puzzling from a macro-economic perspective, it makes sense when looking at both domestic politics, as well as the politics of the negotiations.

The UK adopted a tough stance on fishing, since it was the one of the few strong bargaining chips left after the EU had out-negotiated the UK over the Withdrawal Agreement. The EU had set the terms of the negotiations, insisting on a Withdrawal Agreement before a new trade deal instead of parallel negotiations, and the UK meekly followed

From the perspective of Michel Barnier, the EU’s chief negotiator, this made sense. He regularly told me that he saw the best future relationship as a customs union, and one or two of Theresa May’s negotiating team seemed to agree. He attempted to put as many elements of a customs union as possible into the Agreement, but this effectively gave the impression that the UK was only half-leaving.

So now, for the UK, No Deal would effectively tell the EU: “we are leaving and we want to make our own rules.” For the EU, it would tells eurosceptic political parties in EU countries: “don’t think leaving the EU is easy” – especially those countries for which the EU accounts for much more than 50 per cent of exports.

The UK leaving the EU without a trade deal may be less preferable for many, but it allows both sides to reset the relationship. So would what happen next?

One scenario is that we would negotiate sector-by-sector agreements, as in the EU-Switzerland relationship, while for other sectors we would trade on WTO terms.

Another scenario is that both sides would see the advantages of an EU-UK trade deal and begin negotiations almost as if the UK had never a member of the EU. This mind-set was probably difficult against a background of withdrawal, negotiated by a Prime Minister who didn’t really want to leave, but might becomes easier if No Deal is the result at the end of the year. No Deal would offer a fresh start.