‘Like we never left!’ Britain STILL shackled to EU rules – Brexiteer sounds ominous alarm
Rishi Sunak may have to break income tax promise says expert
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And the MP for Wokingham has urged Boris Johnson and Chancellor Rishi Sunak to be bold by relaxing requirements to keep state borrowing low in order to fuel faster growth outside the bloc. Sir John, a member of the European Research Group (ERG) with strong views on what he sees as the shortcomings of the eurozone, made his remarks in the course of an op-ed written for the Conservative Home website.
The UK economy is currently being run on the Maastricht rules as if we had not left the EU
Sir John Redwood
He wrote: “The UK economy is currently being run on the Maastricht rules as if we had not left the EU.”
He referred to a report published by the Office for Budget Responsibility last month which had indicated the economy will be guided by requirements to get the budget deficit down below three percent of GDP, and that state debt as a percentage of GDP should be falling all the time it is above the 60 percent level.
Last year’s figure was £63.3billion, equivalent to 2.9 percent of overall GDP, according to the Office for National Statistics (ONS).
Mr Redwood said: “It is clear that the whole five year budget in question is dominated by the perceived need to get state debt falling as a percentage of the economy by the end of the forecast period.
“This has led to a range of measures to increase the tax take, with a large increase in the Corporation Tax rate, and a big increase in the numbers of people paying higher rate income tax through freezing allowances.
“My critics will argue that because we were outside the Euro we never had to follow the Maastricht rules.
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“The truth is we did. We still do because we have never changed the rules, even though now we are free to do so.”
Every year the Government had “faithfully reported” on progress being made to hit the debt rules, making it clear the policy was primarily steered by the need to control debt, Mr Redwood stressed.
He added: “That was the central driver of George Osborne’s so-called austerity economics
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“The latest Government figures after Brexit continue to report our progress against these EU rules.”
A requirement on states to keep their overall state borrowing low made sense in a single currency area – such as the eurozone – where different governments are permitted to borrow in a common currency.
Such rules were needed to avoid the “free-rider problem”, whereby some states took advantage of low interest rates to run up huge debts which all member states ended up servicing.
Sir John added: “The UK has no such problem. The UK as a single state with its own currency and central bank cannot take advantage of others.
“It does of course have to decide how much to borrow with affordability in mind. Borrow too much, and the interest bill could become unaffordable. Borrow excessively, and lenders could start demanding penal terms.”
The best type of control over debt build-up for the UK was one that managed the size and growth of the ”interest burden”, ie the amount of interest paid, Sir John argued.
He said: “The UK has a tradition of borrowing long, and can do so in current markets.
“This protects taxpayers against sudden rises in rates, and reduces any strain from refinancing the debt.”
Sir John warned: “The current state debt target is acting a constraint on faster growth. Offering tax rises and threats of tax rises for the years ahead damages confidence and deters new job creation and new investment.”
The UK’s productive capacity had been damaged by decades spent in the single market during which the nation had lost out in many areas, ranging from steel to consumer electronics and from temperate food production to electricity generation, he said.
He added: “We now need a favourable tax regime on self-employment, investment, enterprise and individual incomes to promote a substantial increase in our productive capacity.
“The state debt control implies more of the same old policies which we had to follow in the later single market years which did not do enough to boost high paid jobs through industrial investment and higher productivity.”
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