Gareth Davies: A new British Development Bank could drive our national recovery

2 Oct

Gareth Davies is the Conservative MP for Grantham and Stamford.

Much has rightly been said about the perilous economic situation facing our country as a result of this dreadful Coronavirus. But talk to people in our towns and cities across the regions and they will tell you the pandemic has merely amplified economic problems that were there already. For decades our regions have been hampered by systematic underinvestment in businesses, infrastructure and transport links that have held back opportunity for large parts of the electorate. Last December, those voters demanded change.

They are right to do so. The UK faces an infrastructure gap of £8 billion a year, according to McKinsey, and a lack of infrastructure investment is one of the reasons we suffer poor productivity relative to our global competitors. Productivity issues are even worse internally – regional disparities in investment have led to disparities in productivity with average gross value added per hour worked in the UK 35 per cent below that of London and the South East.

We need a long-term strategy to boost infrastructure investment, stimulate regional development and leverage much greater levels of private capital in the process. Today I have published a plan to restructure our investments to target the regions and help mobilise billions of new private savings and investment to reduce the burden on the Treasury and the taxpayer at a time of great challenge.

Together with the think tank Onward, I am proposing the creation of a new British Development Bank with a specific mandate to invest billions in the regions. The UK has never had such an independent institution despite the model being a tremendous success in other countries around the world.

Germany pioneered the use of development banks with their own organisation called KFW. After the Cold War it was critical for “levelling up” the previously occupied East Germany. Since 1991 one out of every ten euros invested in East Germany has come from KFW and the inequality gap between East and West reduced significantly – this is in contrast to the widening inequality between England’s North and South.

We have long needed to rethink how and what we build in this country. We all know the history of PFI schemes which failed to demonstrate value for money for the taxpayer. Now is our opportunity to put in place a dedicated institution of genuine finance experts to drive and mobilise funding.

Infrastructure helps an economy to grow. The investment and construction of new assets creates additional jobs and supports supply chains. The eventual infrastructure supports productivity by connecting people whether it is a new train line, better broadband or more energy. Infrastructure makes our country a more attractive place to live and do business, and by reducing transaction costs makes Britain a more competitive player in the global economy.

Therefore, our pervasively poor quality, low stock infrastructure is a serious issue if we are going to level up and boost economic growth.

However, I entirely sympathise with the dilemma our Treasury faces, infrastructure is the one thing we need to grow our way out of the crisis and truly level up and yet it becomes more and more difficult to pay for as every day passes. This is why we must mobilise private capital to supplement public spending.

A British Development Bank will do three critical things. First, it will provide long-term targeted financing by project, business or region to ensure that investment is ring-fenced to where it is most needed. Second, it will mobilise private savings and investments by a multiple of four, meaning that for every £1 of government spend, £4 of private capital spend will be unlocked. Thirdly, it will provide “counter-cyclical” investment so that in times of economic downturn when mainstream banks’ risk appetite dries up, required funding flows will be maintained.

This new institution would be modelled on Germany’s KFW. To do this, we would move the existing British Business Bank (BBB) and the Commonwealth Development Corporation (CDC) under the one umbrella organisation of the British Development Bank to bring about huge efficiencies, but critically, the combined assets of these two organisations (which is several billion pounds) would enable the Development Bank to issue its own targeted infrastructure bonds. The domestic work of BBB financing SMEs would be bolstered by an increase in assets, as would the reach of our overseas schemes under CDC.

Backed by the Treasury, a Development Bank could borrow at very low rates to fund and encourage infrastructure investment the private sector would not otherwise build. The bank could also issue “guarantees” or could buy shares in infrastructure projects, taking the risks of infrastructure construction the private sector is unwilling to take.

This Government has an opportunity to not only set out a long term plan for levelling up in the upcoming National Infrastructure Strategy, it has the chance to put in place a financial institution that will serve the needs of our regions for decades to come regardless of who holds the keys to Number 10.

Gareth Davies: A new British Development Bank could drive our national recovery

2 Oct

Gareth Davies is the Conservative MP for Grantham and Stamford.

Much has rightly been said about the perilous economic situation facing our country as a result of this dreadful Coronavirus. But talk to people in our towns and cities across the regions and they will tell you the pandemic has merely amplified economic problems that were there already. For decades our regions have been hampered by systematic underinvestment in businesses, infrastructure and transport links that have held back opportunity for large parts of the electorate. Last December, those voters demanded change.

They are right to do so. The UK faces an infrastructure gap of £8 billion a year, according to McKinsey, and a lack of infrastructure investment is one of the reasons we suffer poor productivity relative to our global competitors. Productivity issues are even worse internally – regional disparities in investment have led to disparities in productivity with average gross value added per hour worked in the UK 35 per cent below that of London and the South East.

We need a long-term strategy to boost infrastructure investment, stimulate regional development and leverage much greater levels of private capital in the process. Today I have published a plan to restructure our investments to target the regions and help mobilise billions of new private savings and investment to reduce the burden on the Treasury and the taxpayer at a time of great challenge.

Together with the think tank Onward, I am proposing the creation of a new British Development Bank with a specific mandate to invest billions in the regions. The UK has never had such an independent institution despite the model being a tremendous success in other countries around the world.

Germany pioneered the use of development banks with their own organisation called KFW. After the Cold War it was critical for “levelling up” the previously occupied East Germany. Since 1991 one out of every ten euros invested in East Germany has come from KFW and the inequality gap between East and West reduced significantly – this is in contrast to the widening inequality between England’s North and South.

We have long needed to rethink how and what we build in this country. We all know the history of PFI schemes which failed to demonstrate value for money for the taxpayer. Now is our opportunity to put in place a dedicated institution of genuine finance experts to drive and mobilise funding.

Infrastructure helps an economy to grow. The investment and construction of new assets creates additional jobs and supports supply chains. The eventual infrastructure supports productivity by connecting people whether it is a new train line, better broadband or more energy. Infrastructure makes our country a more attractive place to live and do business, and by reducing transaction costs makes Britain a more competitive player in the global economy.

Therefore, our pervasively poor quality, low stock infrastructure is a serious issue if we are going to level up and boost economic growth.

However, I entirely sympathise with the dilemma our Treasury faces, infrastructure is the one thing we need to grow our way out of the crisis and truly level up and yet it becomes more and more difficult to pay for as every day passes. This is why we must mobilise private capital to supplement public spending.

A British Development Bank will do three critical things. First, it will provide long-term targeted financing by project, business or region to ensure that investment is ring-fenced to where it is most needed. Second, it will mobilise private savings and investments by a multiple of four, meaning that for every £1 of government spend, £4 of private capital spend will be unlocked. Thirdly, it will provide “counter-cyclical” investment so that in times of economic downturn when mainstream banks’ risk appetite dries up, required funding flows will be maintained.

This new institution would be modelled on Germany’s KFW. To do this, we would move the existing British Business Bank (BBB) and the Commonwealth Development Corporation (CDC) under the one umbrella organisation of the British Development Bank to bring about huge efficiencies, but critically, the combined assets of these two organisations (which is several billion pounds) would enable the Development Bank to issue its own targeted infrastructure bonds. The domestic work of BBB financing SMEs would be bolstered by an increase in assets, as would the reach of our overseas schemes under CDC.

Backed by the Treasury, a Development Bank could borrow at very low rates to fund and encourage infrastructure investment the private sector would not otherwise build. The bank could also issue “guarantees” or could buy shares in infrastructure projects, taking the risks of infrastructure construction the private sector is unwilling to take.

This Government has an opportunity to not only set out a long term plan for levelling up in the upcoming National Infrastructure Strategy, it has the chance to put in place a financial institution that will serve the needs of our regions for decades to come regardless of who holds the keys to Number 10.

Allan Mallinson: What is the army for?

30 Aug

Allan Mallinson is a former soldier, novelist and writer. 

So it leaked out that the MoD is considering scrapping its tanks. And Tobias Ellwood, Chairman of the Defence Select Committee, says it would be better if the MoD waited for the strategic direction to emerge from the Cabinet Office’s Integrated Review of Security, Defence, Development and Foreign Policy.

They’re both right. Logically, decisions about tanks – the heavy end of army business – ought to follow from how the Review sees the future. On the other hand, the MoD has a budget to manage and can’t assume it will get bigger. They’ve been looking at options for a “strategic pause” in procurement for the past two years. That’s what staff work is about: possibilities, options, risks. Besides, they’ve been asked specifically by the Review “What changes are needed to Defence so that it can underpin the UK’s security and respond to the challenges and opportunities we face?”

I know this because I’ve been asked the same. Last week I received an invitation from the MoD to enter a submission. It was no particular honour. Everyone is invited: see the link here.

We’ve been here before. In 1998 the new Blair government had celebrity focus groups for its Strategic Defence Review. It made participants feel important. They bought into the outcome, which by and large they agreed was a good one, which it would have been if only the premises had held good, which they didn’t, and if Gordon Brown’s Treasury had funded it, which they didn’t. Perhaps this time things will be different.

The Integrated Review intends to “define the Government’s vision for the UK’s role in the world over the next decade”. It will set “the long-term strategic aims of our international policy and national security, rooted in our national interests, so that our activity overseas delivers for the British people.”

It will “re-examine the UK’s priorities and objectives in light of the UK’s departure from the European Union and at a time when the global landscape is changing rapidly.” For it foresees “increasing instability and challenges to global governance”, adding that last year witnessed the highest number of state-based conflicts since 1946.

In the last decade it estimates that “more than half the world’s population lived in direct contact with, or proximity to, significant political violence”, and that by 2030 some 80 per cent of the world’s extreme poor will live in fragile states.

It’s not all bad news, though. The Cabinet Office believes that in 2030 the UK will be “stronger, wealthier, more equal, more sustainable, more united across nations and regions.”

In asking what changes are needed to Defence, the Review adds that submissions “focusing on the changing character of warfare, broader concepts of deterrence, technological advantage and the role of the Armed Forces in building national resilience are particularly welcome.”

So, not exactly blue-sky thinking, but certainly not (too) constrained. My inclination, however, as I was first a soldier, is to leave vexed questions such as Trident replacement, the superiority of land-based airpower, and the vulnerability of our “carrier-strike”, and instead ask rather more basically “What is the army for?” (Not “will be for“, because that implies it has no enduring purpose).

For the army is in a very present predicament. According to one former Chief of the General Staff, the robustly pragmatic Sir Mike Jackson, the army is probably no longer capable of war because it is simply too small, a “shadow”, he says, of what it was just a few decades ago.

Too much of it is part-time, with all that that means for quality and readiness. At the end of the Cold War the regular army was more twice its present size, and the Territorials were 80,000. Now the regulars can barely muster 80,000, and the Reserve 30,000.

How did it happen? The answer could be instructive.

John Major cut numbers drastically at the end of the Cold War – his “peace dividend”. The then CGS, Sir John Chapple, argued in vain that the army needed the dividend more than the Treasury because the future was so uncertain. Indeed, at the time the army was still liberating Kuwait. But as William Cecil, Lord Burghley, wrote, “Soldiers in peace are like chimneys in summer”; and Major saw that the future was peaceful.

Blair and Brown, despite their interventionist appetites – Kosovo, Iraq, Afghanistan – cut troop and equipment numbers even further, justified by novel doctrines of limited scale and “fast in, fast out”, as if the enemy had no vote.

Worse still, in 2010 the Coalition government all but emasculated the infantry and armoured corps, even while fighting continued in Iraq and Afghanistan. The chancellor, George Osborne, anticipating the end of both campaigns and the coming of the elusive “summer”, demanded more chimneys be blocked up. Both Iraq and Afghanistan had been policy mistakes, ran the logic; policy mistakes could be avoided, and “winter”, if it returned at all, needn’t be too severe. Indeed, if there were a smaller army there’d be less incentive to use it.

This was nothing new. Writing of the Duke of Wellington’s struggle with the Whig government in the 1830s, the historian Sir John Fortescue concluded “Wellington’s care was less to improve the army than to save it from destruction.”

The same could be said of all army chiefs since the end of the Cold War. With no threat of invasion, no threat to internal security requiring a military response, and little need to defend overseas possessions, all that they’ve been able to do is point to residual Nato commitments, “defence engagement” (working and training with local forces in areas of instability) and peacekeeping.

But in auditing the manpower bill for this, the Treasury has always been able to find further economies because they’re good at measuring finite things. More cuts followed in 2015. Consequently there are now more postmen than regular troops.

The problem is that the MoD is always made to answer the wrong question. Or chooses to.

The Greeks had a word for it. They called their army stratos, “a body of men”, while the Romans called theirs not by what it was but by what it did: exercitus – “practice”, “training”. Both took for granted the fundamental need for a body of men that trained constantly.

When in 1906, however, Britain’s great reforming war minister, the philosopher Richard Burdon Haldane, famously asked “What is the army for?” he posed a different and existential question. Did the army, like the Royal Navy, have a specifiable purpose that not just determined its form but justified its very being? 1914 rudely interrupted the discussion.

What answer should the Integrated Review expect of the same question today? The Royal Navy is responsible for the strategic nuclear deterrent, and minds Britain’s trade routes as advocated by Sir Walter Raleigh. The Royal Air Force exists for the air defence of the United Kingdom, for which it was founded in April 1918, the air arms of the other two services having been judged not up to the task.

These functions are 24/7. But the army has no comparable purpose. Not, at least, one that justifies its existence beyond its original purpose in 1660: a few guards and garrisons. It should therefore refuse battle on terms of mere accountancy.

Trotsky explained why: “You may not be interested in war, but war is interested in you.”

Only during the Cold War has Britain had remotely adequate defence insurance. Instead it has preferred to pay ruinous repair bills. In 1985, at the height of the Cold War, defence spending was 5.1 per cent of GDP. At present, as a Nato member the UK is committed to just two per cent of GDP.

In real terms, this will not fund armed forces capable of full-spectrum war. Can it really make sense for post-Brexit “Global Britain” to be paying an insurance policy comparable to those of Belgium and Luxembourg?

Indeed, rather than insurance, shouldn’t the Defence budget be regarded as infrastructure investment, like HS2?

Rather than trying to justify itself by specific tasks, which come and go at a whim, the army should insist on funding for its fundamental, enduring purpose: to be ready for war, war that cannot be foreseen or its character predicted – even, paradoxically, by the army itself.

That, ultimately, is what the army is for.

Roderick Crawford: Brexit is the beginning of a journey to transform Britain

20 Jul

Roderick Crawford works on conflict resolution in countries such as Yemen, South Sudan and Iraq, and on Brexit-related matters. He is a former editor of Parliamentary Brief.

Brexit means Brexit, said Theresa May.    She was right – but only in part. Under Boris Johnson, Brexit means much more than ‘getting it done’; it offers the opportunity as well as the necessity for the economic and social transformation of the UK itself, and thus of government too.

So much of what makes the UK tick was caught up in and by the EU – whether that was booming, coasting along or withering on the vine – that to simply ‘do Brexit’ is not enough. To make a success of Brexit requires the transformation of the UK: there can be no more business as normal: that was the case even before Covid-19 came along.   For that, success is needed right across economic and social policy, not just trade policy.

Post-Brexit, the UK needs to address the problem in the housing market, because it’s a key contributor to economic prosperity, social stability and individual and family wellbeing.  The house-building industry and the housing market need radical reshaping; the industry needs new entrants, new building opportunities, innovative building that delivers significant productivity gains – and all on a scale not seen for generations.

For that, we need a government that will change the current closed market into an open one – and make land available to new entrants and for new projects.  It needs to create new incentives for landlords to move from short-term tenancy agreements to three or five year leases for existing and future tenants thus changing insecure accommodation into secure homes at the stroke of a pen.

It has been suggested that York should become the seat of the Lords or Parliament while the Palace of Westminster is refurbished and long term a government hub.  For this, York needs tens of thousands of new houses and flats, along with offices and conference centres, improved infrastructure, including its own airport and better regional road and train links.

York as a permanent government hub in the North makes good sense, but it could also pull financiers and more creative and service businesses north to add value to the regional economy – including manufacturing.  That would be a serious boost to the North – and a defining moment in the remaking of the UK, not just England.

New technologies, new processes, new designs, new businesses, partnerships – and new regulatory frameworks – are key to economic transformation.  This formed the basis of the UK’s first industrial revolution and the subsequent industry-sector revolutions since then.  Whatever keeps new entrants and innovations out of business sectors ought in principle to be removed, subject to legal and moral considerations.

Government tends to consult with the same old bodies about changes to market regulation, but most of those it consults are beneficiaries of the system as it exists or are so immersed in it that they can only see the possibility of reform of the present system, they cannot see a totally new one.

Where you need new entrants, consult with those outside the sector wanting to get in or expand, not those established firms trying to keep competition out and act accordingly.  Tinkering with the regulatory frameworks isn’t enough anymore –  extensive deregulation and re-regulation are both required, and in heavy doses for some sectors.  That was a key element of Franklin D.Roosevelt’s New Deal.

The United Kingdom needs a foreign policy that both supports UK interests and which the public supports – one that brings the UK together; the current review needs to put these aims to the fore.  We should seek to play a leading global leadership role, but with limited resources that means – at the least — focus, innovation and partnership.

As a general set of principles for the UK global aims, post-Brexit, we would do well to turn for inspiration and leadership to the Atlantic Charter, drawn up in August 1941 between Roosevelt and Winston Churchill on the warships Augusta and Prince of Wales, off Argentia, Newfoundland.  Its sets out eight common principles on which they sought to base their hopes for the post-war world; it remains highly relevant today, not least because due to wartime events, the war aims of the Soviet Union and the Cold War, its full hopes were not realised.

In summary, the two nations:

  • Seek no aggrandisement, territorial or other;
  • Have no desire to see territorial changes not in accord with the freely expressed will of the peoples concerned;
  • Respect the right of all peoples to choose the form of government under which they live and to see sovereign rights and self-government restored to those forcibly deprived of them;
  • Endeavour to further the enjoyment of all states, great or small, of access, on equal terms, to the trade and the raw materials of the world which are needed for their economic prosperity;
  • To bring about the fullest co-operation between all nations in the economic field with the object of securing, for all, improved labour standards, economic advancement and social security;
  • They hope to see established a peace which will afford to all nations the means of dwelling in safety within their own boundaries, and which will afford assurance that all may live out their lives in freedom from fear and want;
  • Such a peace should enable all men and women to traverse the high seas and oceans without hindrance;
  • They believe that all the nations of the world, for realistic as well as spiritual reasons must come to the abandonment of the use of force.

Today we would want to add in a few more key principles — addressing climate change would of course be amongst them.

These principles could serve the UK well as a foundation for what it hopes for the world and its role in it; it could form the basis for future partnerships across the globe and guide its work through international bodies like the WTO or as it seeks to bring stability to the global order in a time marked by great change and challenges.

As we enter the next rounds of negotiations with the EU, it is as well to remember that any agreement we reach should support and not restrain the broader aims of national and state renewal for the UK and its freedom of action in foreign policy.  An equitable agreement at this stage would make a positive contribution to realising UK ambitions

Benedict Rogers: We are on the brink of a new Cold War. Hong Kong is the frontline.

24 Jun

Benedict Rogers is co-founder and Chair of Hong Kong Watch. He works full-time at the international human rights organisation CSW, which specializes in freedom of religion or belief for all, and also serves as the Deputy Chair of the UK Conservative Party’s Human Rights Commission. He is also on the advisory board of the new Inter-Parliamentary Alliance on China (IPAC).

It seems to me we are on the brink of war. Not a war between nations or peoples, and not a war that necessarily involves military hardware – yet. But a new Cold War, between values. A war between freedom and authoritarianism, between human rights and repression, between the international rules-based system and a winner-takes-all profiteering perspective. And the frontline in this new war is Hong Kong.

A month ago, the Chinese Communist Party regime shocked the world by announcing that it would impose on Hong Kong a national security law that would destroy Hong Kong’s basic freedoms, flagrantly flout an international treaty – the Sino-British Joint Declaration – and decimate Hong Kong’s “high degree of autonomy” under “one country, two systems”.

Democracies scrambled to respond, and their response – to their credit – has not been lacking in vigour. The United States announced that Beijing’s decision rendered their special treatment of Hong Kong as a special autonomous region redundant, since Beijing was so blatantly disregarding Hong Kong’s autonomy. The United Kingdom followed suit by pledging expanded protection for Hong Kong’s British National Overseas (BNO) passport holders, if the security law is imposed, on the basis that China has violated the Sino-British Joint Declaration. Now the European Parliament has passed a resolution calling for a case to be brought at the International Court of Justice against China for violation of the Joint Declaration, targeted sanctions, a UN Special Envoy or Special Rapporteur and a lifeboat policy to offer sanctuary for brave Hong Kong frontline activists who are not BNOs and who may be in grave danger under Beijing’s new security law. It is a resolution that mandates an immediate action plan.

Now Beijing has revealed some of the details of its dreaded new law. And it is appalling. While a full draft is not yet released let alone approved, Chinese State media has let it be known that those convicted of “moderate” violations of the security law in Hong Kong – whatever “moderate” means – may be jailed for three years, and those convicted of “serious” crimes could face five or ten years, or more, in jail. The law suggests that Hong Kong’s Chief Executive – currently Carrie Lam, who has proved herself to be a totally subservient puppet of Beijing – can choose the judges in such cases, and that Beijing will oversee the process. In other words, judicial independence is dead and buried if this goes through and the rule of law becomes a historical fact rather than a present reassurance.

So all the theorizing, positioning and leveraging become no longer a matter of conjecture and now a matter of immediate action. Will the world’s democracies step up?

In plain English, we need everyone – absolutely everyone – who believes in freedom, human rights, democracy, the rule of law – to be all hands on deck. But not in a scattergun, isolated or egotistical way. No. It’s time to unite, coordinate and fight back. It’s not too much of an exaggeration to say that we are, in relation to Xi Jinping’s regime in mid-2020, how we were in regard to Adolf Hitler’s regime in the late-1930s, or in response to the Soviet Union at various stages of the Cold War. We either dismiss the dangers as Stanley Baldwin did, or we try to appease as Neville Chamberlain did, or we stand true to our values and stand up for freedom – as Winston Churchill did and as Ronald Reagan, in his Berlin Wall speech, the anniversary of which was last week, did. And I know what side I am on.

For that reason, we need to unleash a full volley of reactions. Yesterday I sat with my nephews playing the card game Uno Extreme, where you press a button and a mass of cards comes if you’re unable to cast a card. The current crisis is much more complex but the principle applies. We must marshal all our cards – and ensure we don’t play the wrong one.

That means Britain leading, because Britain has a responsibility to Hong Kong – moral and legal. The Prime Minister should be commended for his op-ed in the South China Morning Post pledging protections for BNOs, and the Foreign Secretary and Home Secretary should be saluted for their historic signals of intent to stand by Hong Kong. But much, much more is needed.

Britain must lead the world in establishing an international contact group to coordinate a global response. “Britain must lead” is indeed the refrain from many, and I agree – but Britain can’t do it alone. A precedent is set by the statements in past weeks by British, Australian, Canadian and US foreign ministers together. And by Japan leading the G7 statement. We need more of this. Why not build on this into an international contact group, as at least seven former foreign secretaries have suggested?

That international contact group should coordinate a lifeboat scheme to provide sanctuary for Hong Kongers who aren’t BNOs who need to escape. Helping Hong Kongers to safety is a moral responsibility – but it should also be remembered that Hong Kongers would bring wealth and entrepreneurialism, and so would be a boost to any economy rather than a burden. But a lifeboat is a last resort, not a first response. So the international contact group should coordinate international diplomatic efforts combined with targeted sanctions that will hit individuals in the Chinese and Hong Kong administrations hard.

And while many may argue that the United Nations lacks teeth, a global effort is needed to secure the establishment of a UN Special Envoy or Special Rapporteur on Hong Kong, to monitor the human rights situation and mediate a solution – as the last Governor Lord Patten, the head of the International Bar Association’s human rights centre Baroness Helena Kennedy QC, the chairs of foreign affairs committees in the parliaments of the UK, Canada, Australia and New Zealand and former UN officials themselves, including the former UN Special Rapporteur on human rights in Myanmar who is also a former Chair of the UN Committee on the rights of the child, Yanghee Lee, among others, recommend.

The wheels of diplomacy turn slowly and often lack teeth. The impact of individual countries’ actions is limited. But when the world pulls together and acts as one, it can speed up the process and enhance the impact. If the free world values freedom, then it must wake up to the imminent dangers exhibited in Hong Kong – but likely to spread further if allowed to pass unchallenged. This may not be the darkest hour, as things may get darker still. But that the hour to act has come is not in doubt. For as Churchill famously said, “you cannot reason with a tiger when your head is in its mouth”. It’s carpe diem time – for Hong Kong, and for freedom.