I do wish the government would reverse the damage it has done to the UK car industry through its higher VED, its attack on diesels and the credit squeeze. Last month car sales were very weak in what should be a good month, with the biggest hit predictably taken by diesels. The latest credit and money growth figures from the Bank of England show that last month there was no money growth at all, with a big fall in car loans.  This  left the yearly rate of money growth  at a new low level below the current rate of inflation. Domestic policy continues to slow the UK economy, with the car sector and dearer properties bearing the brunt of the tax attack.

It is especially strange that the Business department, ever vigilant of alleged and often implausible problems for the car industry from Brexit, says nothing about the obvious damage to car output and car sales by the tax and credit policies currently being pursued. Indeed, with diesel car sales down more than 4o % now, it is difficult to understand how they have not observed this and not done something about it.

Returning VED to the levels prior to the 2017 budget would be a good start. Allowing more car loans, one per person in employment at sensible levels would also be a good idea.

Cutting Stamp Duty to 2016 levels where it is currently higher would help unblock the homes market. The Treasury had to admit in the budget that Stamp duty receipts will be £1bn lower this year than forecast owing to the decline in transactions and their model forecasting errors from the higher rates, with a loss of nearly £4bn over the five year forecast period.

I have received the enclosed update on School Funding from the Secretary of State for Education:

“£400 million additional capital for schools this financial year

Schools can spend this additional £400 million on capital projects to meet their own priorities. This may include improvements to buildings, equipment and other facilities. Examples could include investing in IT infrastructure; small scale enhancement to buildings; or renovations to sports facilities or equipment.

By December, we will share an online calculator so that schools can estimate their allocation and make plans to spend the money. We will then publish individual allocations in January. These allocations are for individual schools, although in some cases the payments will be routed via local authorities, dioceses or multi-academy trusts, as is the case for ‘devolved formula capital’ (DFC). An average size primary school will receive £10,000 and an average size secondary school, £50,000. The amounts cannot be ‘top sliced’ by local authorities.

The funding will be made available to: maintained nursery, primary and secondary schools, academies and free schools, special schools, pupil referral units, non-maintained special schools and sixth form colleges. It will also be allocated to those specialist post-16 institutions that have eligible state-funded pupils.

Given we expect this money will be spent on improvements rather than as part of major capital projects, and the calculator will support schools to plan ahead, the expectation is that schools will spend the money in financial year 2018-19. However, the normal terms of DFC apply; these provide some flexibility for the funding to be spent over the following two financial years if necessary.

This funding is in addition to the £1.4 billion of condition allocations already provided this year to those responsible for maintaining school buildings. Overall, we are investing £23 billion in the school estate between 2016-17 and 2020-21.

Additional school funding update

I am acutely conscious of the budgeting challenges for schools. To respond to those and to support the transition to the National Funding Formula, we have made available £1.3bn in additional funding since the last spending review. More money is going into our schools than ever before (£42.4bn this year and £43.5bn next year). But I do recognise that budgets remain tight.

Earlier this year, we announced the biggest increase to teachers’ pay since 2010: a 3.5% increase to the main pay range, 2% to the upper pay range and 1.5% for school leaders. We will be funding this with £508 million over two years, over and above the core funding allocations schools have received, to cover the difference between the 1% that schools would previously have been budgeting for, and the pay award. The £187 million for this year’s pay award is going out to local authorities and academies now. We also intend to fully fund schools and academies for the increased costs of teachers’ pensions, planned for September next year.

We have set out the range of practical help and support available in managing the £10 billion of non-staffing spend across the school system; and a further 10 new recommended deals for schools have just gone live. We have also published Good Estate Management for Schools to support management of school buildings and facilities. The range of support is summarised here: https://www.gov.uk/government/publications/supporting-excellent-school-resource-management.”

I have been puzzling over why so many commentators think a so called No Deal departure would be a heavy negative for the UK economy.
There seem to be a series of specific fears that are unlikely to be realised e.g.

1 “Planes will not fly on 30 March. “

The overfly rights are under the Chicago Convention which will be unaffected by the UK ‘s departure from the EU. Landing rights are in the gift of member states and will presumably be mutually reaffirmed in time for exit. Airlines continue to sell tickets for post 29 March and do not expect to be grounded.

2. “Just in time supply items will be held up at UK ports, wrecking the factory plans.”

UK ports will be entirely under UK control. There are no plans being made that I have read about to hold goods up for longer. The addition of a customs payment to current VAT and Excise payments and currency changes can be done away from the border from existing compliance filings electronically, with or without a tweak to the computer data. Intrastat declarations are already very comprehensive and mandatory for EU trade. Products meeting specifications under contract will not need new inspection systems on 30 March.

3. “Food imports will be detained by the need for longer and more complex inspections at borders.”

Again there is no need for the UK to impose damaging delays and extra checks, and on imports it is a matter for the UK authorities. Current contracts contain inspection regimes, usually at the farm or processing plants, and product will also continue to be inspected carefully by the purchaser.

4.” Medicine imports will be delayed.”

As with food, things that have gained regulatory UK approval and are on the NHS approved list can be imported as before with similar inspection regimes and verification.

5” Calais will operate a go slow or blockade of UK exports to the continent”

The Calais port authorities have categorically denied this and say they wish to keep the business. Belgian and Dutch ports would like to take market share from Calais and see the need to offer a smooth service.

Making all these things work are in the mutual interest of the EU and the UK and are not controlled in the main by the EU authorities. There is every reason to suppose where they need agreements these can be reached, with a general wish to carry on as before.

There are then the economic arguments.

1” Imposition of customs dues will restrict and damage trade”

If nothing changes but the UK and EU impose EU level tariffs on each other then the EU will collect £5bn of extra customs, and the UK £13bn, given the large imbalance in trade in items that attract tariffs. The UK government could give the £13bn as tax cuts so people on average are not worse off from the higher prices. The high tariffs are almost entirely on food products, where the UK has a balance of trade deficit of £20bn with the rest of the EU. Imposing full EU tariffs is likely to lead to a lot of import substitution from cheaper non EU produce, and to a substantial market share gain by UK farmers. The UK gain in domestic market share should more than make up for losses of exports. There will be a crop cycle of adjustment to new demands. The UK can publish its own tariff schedule once it has left, and has the option of lowering tariffs compared to EU levels, which would mitigate the impact tariffs have on trade. It is difficult to see more than a marginal impact on the UK economy of high tariffs on food. Trade with the rest of the world which has been growing faster than EU trade for the UK would benefit from removing tariffs on products we cannot grow or produce for ourselves, removing small tariffs where the bureaucracy is not worth the trouble, and cutting very high food tariffs somewhat. The UK government has yet to publish a tariff schedule for March 30 for No Deal.

2.” There will be a confidence effect”

Presumably most businesses now understand that No Deal is an option, and see that its probability has risen as a result of the poor progress in talks so far and the EU rejection of the Chequers half in approach to the single market and customs union. There was a confidence impact on big business investment plans after the vote, but this did not prevent continued growth at a good rate for the first nine months after June 2016. Brexit voters expressed more consumer confidence after the vote. There were also some large inward investors who went ahead with big commitments, including the purchase of two £1bn plus London office blocks and major commitments to jobs and space in London by the leading US tec companies. If I am right in thinking we will avoid any big problem in the weeks after leaving, confidence should come back quite quickly to those large businesses that are preoccupied by this issue. There has not been the predicted exodus of businesses out of London despite more delay and difficulty in the negotiations than advertised.

3. “The UK authorities will raise taxes and tighten money to deal with the shock”

That would be entirely the wrong reaction and looks unlikely. On exit with no Withdrawal Agreement the UK state has £39bn more to play with over the next three years, and the balance of payments is immediately enhanced by the same amount. The Bank of England actually eased money after the vote, and could do so again were there to be any problems after exit. The Treasury has fire power to spend more and tax less were the economy to slow further.

The economy will get a bigger boost by leaving without a Withdrawal Agreement and spending the £39bn at home. Prolonging exit for 21 months or more prolongs uncertainty, commits us to large extra payments and does not even guarantee a better trade deal.

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Councillors and others have told me that Wokingham and West Berkshire need more money to help provide good quality care services. I have regularly put this case to Ministers in public and private.

It is good news that in the budget the government promises an additional £240 m this year for adult social care, and the same again next year. There is in addition an extra £410 m next year for adult and children’s social care. We await the distribution of these sums between Councils. There is also an additional £55 m this year for Disabled Facilities grants for children and adults.

The government is also working on a Green (consultative) paper on adult social care to put the funding of this service on a “fairer and more sustainable footing”.

John Redwood (Wokingham) (Con): I have declared my business interests in the register, but I am not going to be talking about them.

I welcome this Budget. I particularly welcome the decision to provide some more money for crucial public services. In Wokingham and West Berkshire, we need more money for social care, and there is some in the Budget. We need more money for our local surgeries and hospitals, and a lot of money will be coming through for the health service in the years ahead. I just urge the Government to ensure that it is well spent and that there a proper prospectus before the money is finally committed in detail.

We definitely need more money for our roads and local transport. I am pleased to see funds with imaginative ideas to improve flows and safety over junctions and to ensure more roundabout junctions and improvements in strategic local route networks. I will be working with West Berkshire and Wokingham Councils, encouraging them to come forward with schemes that I hope qualify, because these are important to the productivity of my part of the world and, indeed, any part of the United Kingdom. Anyone with customers or clients in their area who goes to work daily in a van or car cannot book as many appointments as they would like and might lose one or two contracts each day because they are spending far too many minutes or even hours in traffic jams, particularly at the busy periods of the day. We therefore need to improve flows, which can also improve safety and lower fuel usage, which would be great benefits.

I also welcome the way that the Chancellor is injecting a bit more money into the economy, because there has been quite a sharp fiscal and monetary squeeze administered to the economy since March 2017. The story so far is one of dreadfully inaccurate forecasting by the OBR and the Treasury. We had the idiotic, wild forecasts about how we would have a recession, falling house prices and a big increase in unemployment if we voted to leave the European Union. They said that that would happen in the winter of 2016-17, whereas I am pleased to say that the economy continued to grow pretty well until March 2017. Jobs and employment went up and house prices did not tumble in the way that was forecast, because Brexit was not bad news. A lot of people thought that Brexit was very good news, and they went out and spent a bit more money because they liked it.

We then had a fiscal and monetary squeeze. The Bank of England has put interest rates up, and it withdrew special lines of credit from the clearing banks and issued instructions to lend less against cars and certain types of houses. That had a visible impact on the car and housing markets. We had a fiscal squeeze, because as we see in today’s figures, in this year alone £7.4 billion more has been collected in tax and £4.5 billion less has been spent on public services than was forecast in March. There has therefore been a £12 billion—I presume unplanned—fiscal squeeze on the economy since March, and there was also a squeeze in the previous year, combined with a rather sharp monetary squeeze, whereby money growth has now halved, as a result of what I think was the Bank of England’s fairly untimely and overdone interventions. I do not think there is a huge inflation problem out there, and I think the action that it has taken is too strong.

I am therefore delighted that something has been given back. What the Chancellor is giving back next year—about £11 billion—only matches the £12 billion of the squeeze that was being taken out this year. The OBR says, “This is a big giveaway,” but it is not actually a giveaway compared with what it said as recently as March this year. One needs to put that into perspective.

We now have to discuss what impact Brexit will have. All the forecasts grossly exaggerate the economic impact of Brexit. It is an extremely important political event, but I do not think we will see it on world economic graphs when we look back in two or three years’ time, and I think we would be hard pushed to see it on the graphs of the UK economy as well. The effect could be reasonably neutral. If we go for a no-deal Brexit because, unfortunately, the EU does not offer us something that is better than no deal, or if there is a continued breakdown in the negotiations—at the moment, the Chequers plan does not look very popular with the EU—then, yes, the Chancellor is right that we will need an additional Budget, but it will be a Budget full of good news because it will be the Budget to spend the £39 billion.

An awful lot of Brexit voters voted in part to take back control of our money. The OBR confirms that if we go ahead with the withdrawal agreement it has in mind, we will indeed be asked to spend £39 billion, sending that money over the exchanges to be spent in relatively rich continental Europe rather than having it available for our own priorities here. So will it not be great to have a Budget to confirm that we can spend £39 billion in a no-deal scenario?

Sir Henry Bellingham (North West Norfolk) (Con): A moment ago, as my right hon. Friend will recall, I also made the point about the £39 billion. It is incredibly important that the Government clarify the situation on that, because some Ministers are saying that part of it is owed contractually in many different ways, while other Ministers are saying that the whole lot would revert to the Treasury in the event of no deal. Surely, the Minister must clarify that when he winds up.

John Redwood: I have looked into this. I have taken advice from lawyers. I have also read the report from the House of Lords—not a known bastion of leave enthusiasm. Its legal conclusions were wholly admirable. It said, “No, there is no legal requirement to pay a penny to the EU after we have left.” If we leave on 29 March 2019, we would definitely save that money. There is no requirement to pay. We did not get a bonus when we joined the thing, because there were lots of inherited liabilities, so we do not have to go on paying for liabilities after we have left. That is quite an absurd proposition. We should be able to grasp this opportunity.

If we were able to spend that £39 billion over a three-year period—I know that it is spread over three years and does not come all in one year—there would be, over that period, a 2% boost to the UK economy. That could take our growth rate back up to about 2% per annum. The OBR forecasts are a bit gloomy, and it could be that our economy has grown by only 1.5%, but that is underperforming. We need to ask why that is, and it is certainly nothing to do with Brexit. The reason the growth rate fell is, as I say, deliberate policy by the Bank of England and possibly inadvertent policy by the Treasury creating a combined monetary and fiscal squeeze. This Budget does something to start to lift the fiscal part of that squeeze, and that is very welcome.

It is crucial that we do end austerity. I am absolutely with the Prime Minister on this.

Indeed, I fought two elections on the proposition that we want prosperity not austerity. I strongly agree with the Chancellor that we should define austerity, as the public do, in its wider sense. Austerity does not just mean not having enough money for social care, which we need to remedy; it means that people’s real wages have not gone up enough or at all, so they are not better off. People expect us collectively, as a result of our interventions in the economy and our supervision of the general position, to help them to progress and have real income increases so that they can afford more and improve their lifestyles as they go on life’s journey. That is what we should be doing. We should be in the business of promoting more jobs, better-paid jobs and lower taxes so that people keep more of the money from those jobs and the income they are earning. I therefore welcome the bringing forward of the income tax reductions, which will be very helpful.

I also strongly support tackling the problem of low pay. There is still too much low pay, and I am glad that the Government regard this as an important issue. We need to do more on productivity measures, because the real way to eradicate low pay is by higher productivity: “work smarter and get paid more” is what we need to be thinking and doing. That requires a whole raft of the policies that were mentioned in the parts of the Budget document on education, training, transport and many other areas. That will contribute to making a more productive economy.

I am fully behind the Government’s aim of banishing austerity. I am fully behind the aim of getting real wages up and allowing people to spend a lot more of their own money. I want the £39 billion because that would be a really knock-out blow in getting a stronger and better economy.