Mrs May has said that she wants a Free Trade Agreement with the EU to be in place before we leave. However it is looking more and more likely that this won't happen. The emphasis in the time remaining will have to be on the broad relationship. Once this has been decided then the details of trading in each industrial sector can be addressed.
What would this mean? It is hard to know. Mrs May wants an "implementation period" post-Brexit "to put in place the practical changes". However, if trade terms have not been decided in detail then we will be trading with the EU on WTO terms. There is little chance that the implementation period could also be a "transition period" with all our current access to the EU markets. The complexity of such a deal would require a far more experienced negotiating team than we have, and far more leverage than we can bring to bear.
On the other hand, even having a FTA is no substitute for our current status within the EU customs union.
There is another serious issue and Dr Fox, our trade secretary, needs to deal with it quickly. Currently we share WTO quotas with the EU. Our plan was to split those with the EU when we leave, but other WTO countries such as NZ and the US want larger quotas to make up for the newly divided market.
Even if we negotiate a deal with the EU we will be trading with everyone else on WTO terms. If we annoy WTO members then they can punish us in a number of ways. For example the WTO determines allowable internal subsidies (such as support for farming). We also need to join its Government Procurement Agreement, worth £1.3 trillion to the UK. This needs the approval of all 19 members of the GPA.
If we have a deal with the EU (which takes 50% of our current exports) then we can afford to stand our ground with the WTO. If we fall off the Brexit cliff then we will be going cap in hand to the WTO.
Wednesday, 31 January 2018
Sunday, 28 January 2018
Tax and spend
The NHS is in serious difficulties, and the government believes throwing more money at it will help. Mr Johnson wants his notional £350 million to be picked from the magic money tree, but the more realistic cabinet ministers have another plan. Create a special tax - a beefed up the National Insurance tax - which is specifically to pay for the NHS (called a 'hypothecated' tax).
Sounds sensible, though if the tax is specifically to pay for the NHS does that mean that that is all the NHS gets, or will central tax funds also be given? If the NHS doesn't know how much it will get year to year then that could well be worse than being starved of funds but being able to plan ahead.
Of course, this could be addressed by top ups, so is not a fundamental objection. A much bigger issue is the idea that if the government needs more money then they simply increase taxation.
Obviously this has to stop somewhere - once you are taxing people at 100% there isn't any more money you can squeeze out of them. In fact historically it looks as though 35% is about as far as it is possible to go. Previous governments have changed the mix but the total tax take has stayed very close to 35% over the past 50 years.
The present Tory administration is already above that mark, so an additional tax won't be a magic money tree, it will simply change people's behaviour. Try to squeeze more out of high earners? France and Germany are already trying to entice such people over to them. Take the money out of the pockets of the Just About Managing means paying it back to them as benefits.
What about targeting the middle classes? It is unlikely the Conservatives would impose punitive taxation on the Tory heartlands, but if they did, reducing the net income of their core voters will mean the voters reducing their spending, shrinking the economy and so knocking the overall tax take back to 35% or so.
The government is spending around 45% of our national income, we are only paying for 35% - where is the rest coming from? Right now it is being 'borrowed' from our children and their children as the Tories keep increasing our national debt. There are no obvious windfalls out there - anything that can be privatised has been. Expropriation is often used by other countries in this situation, but that simply makes things worse.
With Brexit coming and all the economic damage that will follow in its wake, the government needs to wake up to its responsibilities and sort out the national finances. Simply shaking more money from our pockets won't work.
Sounds sensible, though if the tax is specifically to pay for the NHS does that mean that that is all the NHS gets, or will central tax funds also be given? If the NHS doesn't know how much it will get year to year then that could well be worse than being starved of funds but being able to plan ahead.
Of course, this could be addressed by top ups, so is not a fundamental objection. A much bigger issue is the idea that if the government needs more money then they simply increase taxation.
Obviously this has to stop somewhere - once you are taxing people at 100% there isn't any more money you can squeeze out of them. In fact historically it looks as though 35% is about as far as it is possible to go. Previous governments have changed the mix but the total tax take has stayed very close to 35% over the past 50 years.
The present Tory administration is already above that mark, so an additional tax won't be a magic money tree, it will simply change people's behaviour. Try to squeeze more out of high earners? France and Germany are already trying to entice such people over to them. Take the money out of the pockets of the Just About Managing means paying it back to them as benefits.
What about targeting the middle classes? It is unlikely the Conservatives would impose punitive taxation on the Tory heartlands, but if they did, reducing the net income of their core voters will mean the voters reducing their spending, shrinking the economy and so knocking the overall tax take back to 35% or so.
The government is spending around 45% of our national income, we are only paying for 35% - where is the rest coming from? Right now it is being 'borrowed' from our children and their children as the Tories keep increasing our national debt. There are no obvious windfalls out there - anything that can be privatised has been. Expropriation is often used by other countries in this situation, but that simply makes things worse.
With Brexit coming and all the economic damage that will follow in its wake, the government needs to wake up to its responsibilities and sort out the national finances. Simply shaking more money from our pockets won't work.
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