Dire economics and dodgy assumptions behind the Leave campaign’s supposed ‘new trade deals

NEW_10K_YES_EU_STAR

New campaigning flag coming soon – https://www.indiegogo.com/projects/10-000-more-flags-for-yes/x/6905220#/

By Russell Bruce

A week ago I returned to Scotland to vote in the EU referendum. One week ago we left our hotel in Rhodes at 5p.m. (Greek time) after two sweltering weeks eventually arriving in back in the Scottish Borders at 3.30 a.m. on referendum day. Whilst soaking up the sun to ease away a dreich Scottish winter, the referendum was never far from our minds. Amongst the many international visitors there were not a few from England. As on previous visits abroad we failed to understand the Brit need to dress in Union flag t-shirts, carry Union flag bags, hang English flags from balconies and use Union towels at the pool. There were French visitors, Italian visitors, German visitors, those from Scandinavian countries and a sprinkling of Russians. None were emblazoned with their national flags.

Is there something about our southern neighbours’ need to assert a place in a world long gone? One evening at an adjacent table in an outdoor restaurant under flowering bougainvillea, a young lady, well young in comparison to us, sang a couple of lines of Rule Britannia and no doubt firmly believed Britain could still send gunboats up the Yangtze[1] if it chose to do so. It is a misbelief the campaign down south encapsulated, fighting a twenty-first century referendum grounded in the nineteenth – a time when most did not have the vote. We smiled at the outburst and wished them a pleasant evening when they left later. The whole tenor of the campaign down south was to most of Scotland conducted in a bizarre manner.

Labour pains

No sooner was the result in, and after months of the Tories tearing themselves apart, the Labour Party in Westminster decides they should join the fray. After weeks of Boris versus Dave now we will have weeks of the Parliamentary Labour Party versus Corbyn to level up the column inches. If there is one glimmer of sensible protest it is young Remain voters demonstrating outside Westminster. It is difficult to think this might lead anywhere but is a welcome contrast to the incidents of racial hate unleashed by a few who somehow think they have ‘got their country back’. We live in an interdependent world with only countries like North Korea on the outside.

I do not wish to knock our southern neighbours when they are down but they do not have the presence in the world they seem to think they have. The UK’s current account is a mess and the countries they think will sign new trade agreements already buy more goods from other EU countries than they do from the UK.

The US is the UK’s largest trading partner, accounting for 3.1% of US total trade. As a trading partner of the US, the UK ranks two places below Germany whose exports are worth 27.8 billion US$ compared to the value of UK exports to the US of 13 billion US$, marginally ahead of France’s exports (US Census Bureau, 2016).

UK ranks as 16th in exports to Australia. Australian exports to the UK rank in 29th place. German exports to Australia are 55% higher than those of the UK  (Trading Economics, 2016).

The UK’s top trading partners in order of size are – Imports: Germany, US, Netherlands, China and France. Exports: US, Germany, France, Netherlands and Ireland (HMRC, 2016). The UK has a long-term persistent trade gap, varying in recent months between £5 and £15 billion a month

Trade Relationships

John Redwood, the Conservative MP and a former Minister of State, was a vigorous campaigner for the UK leaving the EU. He argued the UK would improve its trade relationships when outside the EU. He has instanced China and India as examples with potential to increase UK exports. This argument hinges on the EU being an impediment to trading with countries outside the EU and that somehow the UK is especially handicapped in this regard by its membership. If we allow for the possibility that, in the future, it is at least theoretically possible, that the UK could establish new trading relationships with the rest of the world it does not alter the poor starting position. Such a reconstruction would be in all probability decades in the making.

China is a country the UK imports from, our fourth largest import partner, but when it comes to exports the UK is nowhere to be seen. The value of UK exports to China was worth only £14.1 billion in 2014 (UK Trade and Investment, 2015). The UK does not rank in the top 40 of China’s import partners although there has been some recent growth. Germany on the other hand is China’s fifth largest import partner despite the ‘disadvantage’ of being a EU member.

India is a country the UK has a long association with and we might expect our exports to this Commonweath country to be holding up well. 49.4% of Indian exports went to other Asian trade partners. The UK continues to import from India, accounting for 3.4% of Indian exports. In 2011/12 UK exports to India amounted 7666.17 million US$ or 1.57% of Indian imports. The UK ranked 21st as an import trading partner. Three EU countries plus Switzerland accounted for 13.66% of exports, to India – excludes other EU countries with a shares smaller than the UK. Both Germany and Belgium sold more to India than the UK in this period despite the supposed handicap of being members of the EU (Government of India, 2013).

Global exoprts to India

The US and UK both have large trade deficits. The UK has a small deficit in its trade with the US whilst Germany, Italy and France, and perhaps most significantly, Ireland sells considerably more to the US than they buy. The UK, the world’s 6th largest economy and Ireland, world’s 44th largest economy both have long associations with the US, have major trading partner status, are EU members yet seem not to be unduly disadvantaged by their EU status.

Two deductions can be drawn in relation to this analysis. Firstly there is strong evidence of a regional bias in the distribution of global trade, and secondly the UK performs poorly as an exporter in global markets where other EU countries achieve higher levels of export penetration, as does China, since it emerged as a major global economy. More surprisingly, export penetration in countries the UK has considerable links and history with are no longer major markets for UK exports.

The realty of world trade shows the strongest relationships are regional with only the major economies US, China, EU and Japan managing to break through and sell to the world. Outside the EU, with trade deals problematic, the growth of UK exports will be long in the making. Scotland is in a much better position and without Scottish exports rUK drops down the international league table.

I will draw a veil over the infighting in the UK government and HM’s opposition. We all know where the real opposition in Westminster comes from these days. In comparison Scotland is at ease and determined to find a solution to prevent us being taken out of the EU against the wishes of the Scottish electorate. Four of the five parties in the Scottish parliament gave Nicola Sturgeon a mandate to pursue opportunity for Scotland to remain in the EU.

As Nicola Sturgeon heads for Brussels for exploratory talks with the EU, rUK can only begin discussions when they finally get round to moving Article 50, for which they need a plan. The Scottish government does scenario planning so that it can move quickly. Westminster ‘remains’ as much in the dark as an electorate and a media that failed to ask questions about what would happen when the UK voted to leave. Not to worry England – Boris thinks it will be OK!

As for flags, we saw lots of Greek flags when we were in Greece and a lot of EU flags. Despite not being well treated of late, the Greeks are still committed to the EU. We left our saltires at home where they belong. Now we are back we are looking them out again along and the other Union flag – that’s the blue one with 12 yellow stars.

There is a strange mixture of arrogance and inferiority in those who go to other countries wrapped in their own flag.

Did I mention that apart from the downgrading of all UK credit ratings and creating panic on world markets sensitive to persistent low growth, the UK’s growth rate has been cut from 1.6% to 0.6% (Stephanie Flanders, June 2016) for the rest of 2016? Oh well another time.

[1] The Royal Navy had an average of 15 gunboats in Chinese waters until 1941. The RN’s China Station maintained regular patrols up and down the Yangtze from its base in Shanghai.

This article first published on Newsnet.scot 29th June 2016

The fundraiser to produce the Saltire/Eu flag used to head this article is a collaboration between The National Yes Registry and ayeMail.scot

REFERENCES

ASSEAN 2016 http://www.asean.org/asean/asean-member-states/

Channel 4, 2016, Boris v Dave: The Battle for Europe, 25th May 2016http://www.channel4.com/programmes/boris-v-dave-the-battle-for-europe?promo=coming_soon

Flanders, S., Brexit: a shock for markets or a crisis?

Government of India, 2013, Guardian Dataset https://docs.google.com/spreadsheets/d/1C5_-sxe-LkVRjPpNXBzQkE-b06LvWWPj8dDrJjDjU2Q/edit#gid=0

HMRC 2016 Overseas Trade Statistics https://www.uktradeinfo.com/Statistics/OverseasTradeStatistics/Pages/OTS.aspx

Statistic Times (2016) http://statisticstimes.com/economy/countries-by-projected-gdp.php

The Wall Street Journal (2015) http://www.wsj.com/articles/southeast-asia-launches-huge-trade-bloc-1451419463

Trading Economics, (3) 2016 http://www.tradingeconomics.com/united-kingdom/current-account-to-gdp

Statista 1 (2016) [http://www.statista.com/statistics/270326/main-export-partners-for-china/

Sturgeon, N., 2016, The EU isn’t just about business. That’s why I think Scotland will vote to stay The Guardian 29th February 2016, http://www.theguardian.com/commentisfree/2016/feb/29/eu-business-scotland-vote-stay-uk-economic-arguments

UK Trade and Investment (2015) Doing business in China: China trade and export guide, https://www.gov.uk/government/publications/exporting-to-china/exporting-to-china

World’s Top Exports, 2016 China’s Top Export Partners, March 22 2016 http://www.worldstopexports.com/chinas-top-import-partners/

 

 

 

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What has the SNP ever done for the Borders?

Watch this video then ask what the Tories have ever done for this part of the Borders except carp

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There are Tories around, that’s why I am both votes SNP

By Russell BruceSouth of scot results 2011.numbersDown here in the South of Scotland we still have Tories and some of them were sitting MSPs in the last parliament. Despite losing regional list seats, in other regions at the 2011 elections, the Tories held on in the South of Scotland by winning constituency seats.

The Tories won Ayr, Galloway & West Dumfries, and Ettrick, Roxburgh & Berwickshire last time in the South of Scotland. The SNP were the challengers in 2 of these seats and a close third to the Tories in Dumfriesshire, held by Labour. Labour also held on to East Lothian with a wafer thin majority of 155 against the SNP.

The SNP won 4 seats, holding Midlothian South, Tweeddale & Lauderdale and Kilmarnock & Irvine Valley. They took 2 seats from Labour; Clydesdale and Carrick, Cumnock & Doon Valley. Because of a strong vote on the regional list, the SNP added another 4 regional seats in 2011.

Everybody has a theory as to how it will all work out this Thursday. The reality is nobody knows. The polls just give a clue to how the parties are placed nationally and which parties are the leading contenders in each constituency in the South of Scotland.

Stretching from Stranraer to Dunbar and Irvine to Burnmouth, there is no way anyone can work out what the regional list vote will deliver in seats to each party. Three council areas and part of four others form the South of Scotland electoral region. Several constituency results will be close, especially where the SNP and the Tories are head to head.

Once the constituency seats are all declared, the actual vote on the 2nd regional ballot is used to allocate seats to the main parties. If you want to get a good description of how the Additional Member system works then watch James Kelly on https://www.youtube.com/watch?v=DzHPiO4vKww

Last time round, of the nine constituencies, the SNP won 4 the Conservatives 3 and Labour 2. The Liberal Democrats didn’t win any and only had enough votes on the regional vote to gain one list seat. It is quite possible they will not win a regional seat this time.

I have to declare an interest in Ettrick, Roxburgh and Berwickshire as I live here. Paul Wheelhouse is working his socks off to take the seat from the Tory candidate. Nothing is guaranteed until the last vote is cast and a good turnout is needed to take Paul over the line.

I respect the right of people to make their own choices should they decide to split their two votes. The question is – just how much as individuals we want to ensure an SNP majority government? With the constituency vote we have one chance and with our regional list vote, a second. Winning Ettrick, Roxburgh and Berwickshire would still give us the potential to take regional list seats.

We know a few SNP voters are thinking of voting Green with their second vote. The Greens have gained leverage in some regions, especially Lothian. Their support is variable across Scotland and the sub samples from the polls are fairly consistent, indicating that they have less support than even the Lib Dems in the South of Scotland.

Last word to a former Lib Dem candidate

For sale Sc Lib Dem

Whist out filming a few days ago I came across these signs on a Selkirk garden fence. As it turns out the owner, selling his house had been a Liberal Democrat council candidate in the past but has not been a member for years. In an interesting comment to the Scotsman he said,

“The Lib Dems had a good run here, maybe this is just the SNP’s day. If so, God bless ’em. Let’s see what they do with it.”

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Two choices: Paul or John

By Russell Bruce

With just over week to go to the Scottish elections things are hotting up in a tight contest between the SNP and the Tories in Ettrick, Roxburgh and Berwickshire.

That it a straight choice is the one thing Paul and John agree on. Like the General Election result in Berwickshire, Roxburgh and Selkirk, it is shaping up to be another close result. The SNP’s Calum Kerr beat Conservative candidate, John Lamont, to become the new SNP Westminster MP.

BRS result.xlsx

The latest epistle left on the doorstep from this shy Tory candidate claims: “Only a vote for John Lamont can stop the SNP locally”. Having lost in his Westminster bid, the Tory candidate is struggling to hold on in the Scottish Parliament.

Interesting pitch. The converse is obvious, only the SNP can beat the Tory candidate. Not that he makes much of being a Conservative. So proud of his party, he makes no mention of his political connection in his election leaflets. The only clue is in his email address in small print. It is a strange way to run a campaign – almost as if he is ashamed of standing as a Conservative – too many negative associations.

John claims to stand on a platform of ‘putting people before party politics’, yet he was against the hundreds of millions of pounds the SNP Government has invested in infrastructure and tourism in the Borders.

With the Labour party in meltdown and the Lib Dems still on the lows of the general election it is looking too close to call here in Ettrick, Roxburgh and Berwickshire as the SNP and Conservatives battle it out in the final days.

What voters need as they head off to the polls is an indication of what Paul and John can offer the people of Ettrick, Roxburgh and Berwickshire.

So we thought a comparison of what Paul and John have done for our area might be useful to the electorate, with a wee look at what they plan to deliver over the next 5 years. We couldn’t find anything much from John. But did find a few things the Conservatives would take away if they got the chance.

Then we looked at their personal record on public expenditure. Paul was the clear winner when it came to keeping his expenses down. Tory John looks a bit high maintenance.

Two choices 1 web

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Migrants and tax credits – Cameron ‘misguided and misleading’, say researchers

Cameron Colombo

By Russell Bruce

This article first published on Newsnet.scot on 6th February 2016

The National Institute of Social and Economic Research (NIESR) has just released some limited information from the UK government on migrant tax credit claims.

Jonathan Portes, Principal Research Fellow at NIESR, said: “The Prime Minster’s focus on migrants’ benefits is misguided and this new data shows that the Prime Minister’s claim that 40 percent of recently arrived European migrants were dependent on benefits was at best selective and misleading.

“Given that well over a million European migrants registered for National Insurance numbers over the period in question [2009/10 to 2012/13] , and far more since, this suggests that claim rates among newly arrived migrants are, as researchers have always argued, quite low. Once again this suggests that the PM’S focus on this issue is misguided – the “emergency brake”” will have only a modest impact on benefit receipt, and is highly unlikely to have a significant impact on migration flows.”

This latest data still leaves some important questions unanswered.  In particular, the government is still refusing to tell us – for obvious political reasons – how many recent European migrants are recorded as being active in the UK labour market.”

In finally releasing this long awaited data the government chose to limit the information provided. Researchers and journalists are still waiting for freedom of information requests to be properly fulfilled. It seems the missing information might be an inconvenient truth undermining the Conservative governments chosen narrative.

Portes added: “But a distressing lack of transparency and a continued approach of only releasing partial and selective data continues. This is both disappointing and unhelpful for the public debate.”

Substitute unhelpful to David Cameron and UKIP jumping jacks and we begin to see for whom public debate is unhelpful.

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Tax Credits: saved at a stroke

Cut the ‘benefits’ of the wealthy instead!

By Russell Bruce

George Osborne has to find savings of £4.5bn to reinstate his proposed tax credit cuts as the House of Lords, being unusually populist, decided to throw out his changes to Tax Credits.

I thought I might be helpful and suggest where the money could be found. Nothing revolutionary – except perhaps to Daily Mail readers. The idea has been around for some time about one area where the tax system can be reformed, simplified and savings made.

“Today’s tax-based incentives to save for retirement are hugely expensive

and, worse, ineffectively deployed. Skewed towards the wealthy,

they do far less that they should to minimise pensioner poverty.”

Centre for Policy Studies, 2012

The welfare state was set up to make our society more equal. Benefit has become a dirty word in a right-wing controlled state, like the UK. But there are two sides to state benefits. On one side is the cost of the range of payments made to families and individuals, including Tax Credits. On the reverse there is the tax credit, or tax relief, only the wealthy are in a position to fully benefit from.

Two sides of the coin – completely separate – never spoken about in the same terms. Yet, both are in effect, transfers from which recipients ‘benefit’.

Tax credits cost around £30[1] billion a year and the tax relief on pensions cost the Treasury £34.3 billion[2], disproportionally benefiting higher earners. Encouraging people to save for their retirement is a good thing and has many advantages for the state in the longer term. Retirees will have more money to spend in retirement and some of that spend will come back in tax revenues.

George Osborne planned to save £4.5bn by cutting Tax Credits to those on low incomes in the tax year starting April 2016. At a stroke, the tax credit cuts can be reinstated, just by cutting the cost of pension tax relief by a mere 13.1% to find that £4.5 billion[3]. What is more, we can make the system of tax relief on pensions more efficient and fairer.

Currently tax relief is based on the amount of tax you pay at 20%, 40% or 45%. Pension providers claim tax relief at 20% on your behalf from the Treasury. Higher rate, 40% and 45%, taxpayers have to claim the additional relief of 20% or 25% on their tax return. By introducing a flat rate of relief this will reduce the cost to the Treasury, simplify administration and reduce the cost of collection.

Everyone up to the age of 75, even if they do not pay tax, can put up to £2,880 a year into a pension and the Treasury will top it up by £720 to £3,600. So 20% of the total, but actually 25% more than you contributed.

Table 1 shows how higher rate taxpayers contribute less to achieve the same total pension investment that basic rate taxpayers obtain. The higher your income and tax rate, the less money you need to find as the rest is paid for by the government.

Tables 2 and 3 show the effect of a new flat rate relief at 33.3% and 25%

Pension tax relief.numbers

Under the present system higher rate taxpayers get an extra bonus from George Osborne. Indeed, as they also got from Gordon Brown and Alistair Darling. 40% taxpayers get twice the amount of Treasury cash as basic rate and non-taxpayers, whilst those on 45% get back an extra £1260.

Moving to a flat rate relief system will never create a truly level playing field because the more you earn, the more you can invest in your pension and the more the Treasury shells out to keep you in the lifestyle you have become accustomed to, in your later years.

This is a reasonable compromise because the more you earn, the more you pay in tax and the wealthy never tire of telling us how much they pay of the total tax take. By investing more in a pension and getting more tax relief, but at a flat rate, rather than your marginal rate of tax, still enables the wealthy to keep more of their earnings advantage, but no longer at the expense of those on low and middle incomes.

For the 2015/16 tax year there are an estimated 29.7 million taxpayers. Of those 24 million pay at the basic 20% rate, 4.65 million at the higher 40% rate and just 332,000 pay the additional rate at 45%.[4]

As I wrote at the beginning, the proposal for a flat rate of tax relief on pension contributions is not revolutionary. What is different in this proposal is the linkage of tax allowances and tax relief to welfare payments including Tax Credits. All constitute ‘benefit’ transfers to citizens by the state.

The Centre for Policy Studies (CPS) produced a paper in 2012 showing how costly and ineffective pension tax reliefs are[5]. In the conclusion to their report the CPS said, “Today’s tax-based incentives to save for retirement are hugely expensive and, worse, ineffectively deployed. Skewed towards the wealthy, they do far less that they should to minimise pensioner poverty. Furthermore, they do little to catalyse a savings culture amongst younger workers, thereby exacerbating the looming generational inequality.”

Most readers will be familiar with statements indicating how welfare spending rises year on year. What never gets a mention is how the bill for pension tax relief also rises year on year. In 2001/02 the cost to the Treasury of pension tax relief amounted to £17.5 billion. For the current tax year it has doubled. For the 10 years from 2001/02 to 2010/11 the total cost came to £262 billion.[6]

A flat rate of pension tax relief would not be a tax rise per se, Because the relief comes before the final calculation of revenue, it is not classed as spending, but all tax allowances and reliefs are, none the less, a means of reducing revenue and a cost to a nation’s revenues.

Tax allowances are justified as part a progressive tax policy. Extended higher rate relief, on the other hand, is not a progressive measure but a benefit extension to those on higher tax rates.

Those on high incomes with high net worth have access to an annual tax free Capital Gains Tax Allowance of £11,100, can obtain pension tax relief for significant contributions (subject to the lifetime allowance) and are best placed to take full advantage of their annual ISA tax shelter allowance, currently £15,240.

Introducing flat rate pension relief at 25% or 33% would actually benefit and improve access to pension saving for 24 million basic rate taxpayers and voters. Only the wealthy lose. Whist I have no wish to see another Conservative government in 2020 this is something, I would have thought would appeal to George Osborne, a man known to have future political ambitions.

All that is required is to run the numbers to determine a flat rate that will save £4.5 billion to restore the Tax Credits cuts to the low paid.

Why are you dithering George?

 

References

[1] http://www.independent.co.uk/news/uk/politics/tax-credits-what-they-are-and-how-the-cuts-could-affect-you-a6707591.html

[2] Hargreaves Lansdown, Investment Times, December 2015, p.22

[3] http://www.bbc.co.uk/news/business-34572807

[4] https://www.gov.uk/government/statistics/number-of-individual-income-taxpayers-by-marginal-rate-gender-and-age Table 2

[5] http://www.cps.org.uk/files/reports/original/121123104830-costlyandineffective.pdf p

[6] ibid p.5

 

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Any news from India?

Any News from India? by Dorothy Bruce is a novel based in the Scottish Borders in which events from the Raj and pre independence India result in turmoil for families in quiet Borders Towns and past connections they were unaware of. Available from Berwickshire publishers Twinlaw Publishing and Amazon.

Dorothy is the only Scottish writer shortlisted for the HG Wells short story competition 2015 for her story ‘Bowler and bunnet, felt and fascinator.’

 

 

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