John Redwood: Why now that we have left the EU are we still yoked to Maastrict austerity?

26 Apr

Sir John Redwood is MP for Wokingham, and is a former Secretary of State for Wales.

The UK economy is currently being run on the Maastricht rules as if we had not left the EU. The Office for Budget Responsibility made clear in its March report that whilst it awaits the Government’s conclusions on a new fiscal framework, the economy will be guided by the two familiar requirements that we get the running deficit down below three per cent of GDP, and that state debt as a percentage of GDP is declining all the time it is above the 60 per cent level.

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. The truth is we did. We still do because we have never changed the rules, even though now we are free to do so.

We faithfully reported each year on progress with hitting the debt rules, and made clear that policy was primarily steered by the need to control debt. That was the central driver of George Osborne’s so-called austerity economics. The latest Government figures after Brexit continue to report our progress against these EU rules. This quote from the OBR’s March Report shows nothing has yet changed:

“The Chancellor has not set new fiscal targets in this Budget (despite two of the existing ones expiring this month) and is instead proceeding with the review of the fiscal framework proposed in last year’s Budget. But the absence of formal fiscal targets does not mean that the Chancellor has not been guided by particular metrics when selecting his medium-term Budget policies. The tax rises and spending cuts he has announced are sufficient to eliminate all but a £0.9 billion current budget deficit in 2025-26, while they are just enough to see underlying public sector net debt as a share of GDP fall by a similarly small margin of £0.7 billion in 2024-25 and £4.1 billion in 2025-26.”

I rest my case.

Requiring states to keep their overall state borrowing low makes a lot of sense in a single currency area where different governments have the right to borrow in a common currency. They need to avoid the free rider problem, whereby some states run up excessive debts, taking advantage of a low interest rate facilitated by the prudence of others.

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.

This means the best type of control over debt build-up for the UK should be a control over the size and growth of the interest burden. 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. The Government has used debt interest targets, and should draw up a new realistic one. Given the way debt interest has fallen despite the increase in debt, this should not prove difficult.

The idea that we should carry on controlling the economy by state debt as a percentage of GDP is particularly silly given the great monetary experiment the UK along with the USA, the ECB and the Bank of Japan is carrying out.

The state-owned Central Bank is buying up large quantities of the state debt. Claiming that the gross debt is still a real debt is therefore wrong. The Treasury pays interest on nearly £975 billion of the debt to the Bank which it owns. If I had bought in my own mortgage but still kept paying the interest, I would not regard it as a real debt in the way I did before I bought in the loan, since I would be paying myself. Despite this obvious anomaly, the Budget is constructed on the basis that we need to get gross debt down, not the debt net of that owned by the state itself.

So what should we use as guides for economic policy? To a control on state interest payments to others, we should add a growth target and we should keep the important two per cent inflation target as a restraint on excessive credit and money expansion. The growth target should encompass aims to increase employment and productivity. What we need is to promote a higher wage, higher productivity economy. Our economic targets should reflect those aims.

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 has been damaged by years in the single market where we lost out in many areas from steel to consumer electronics and from temperate food production to electricity generation.

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.

Richard Sloggett: There will be no levelling up for Britain if there’s no levelling up for health. Here’s a plan to deliver it.

14 Apr

Richard Sloggett is a former Special Advisor to the Secretary of State for Health and Social Care. He is the Founder and Programme Director of the Future Health Research Centre.

Covid-19 has had a devastating impact on the health and economy of our country, exposing our nation’s poor health and health inequalities, socially and geographically. The most deprived places have had double the Covid mortality rate of the least deprived.

Levelling up Health, a report for the All Party Parliamentary Group for Longevity projects, of which I’m a co-author, finds that there would have been 40,000 fewer deaths recorded if the national mortality rate had been as low as the least deprived places.

Poor health weakens our economic growth, nationally and locally. 1.2 million people aged between 50 and 64 are not working for health reasons. Health inequality between North and South costs £13bn a year in lost productivity.

In ‘building back better’ the Government rightly wants to promote economic growth.  But it is not credible to think you can ‘level up’ economically without improving health locally.

Before Covid arrived, we knew that health outcomes were subject to wild and unjust variations. People who live in the most deprived places in England get ill 19 years earlier on average than in the least deprived places. In the UK the lowest socio-economic group has 24 per cent fewer people in good health than in the richest. In New Zealand, Greece and France, the gap is only five to ten per cent between the lowest and highest socioeconomic groups.

Public health policy measures to tackle such problems are regularly pitched as divisive. Between those who dismiss any level of intervention as needless ‘nannying’; and those who want to completely transform the whole of society into a socialist state. It is the easiest type of media row to generate. It doesn’t help tackle the problem.

And the data shows we do have a problem. Life expectancy has stalled in the last decade, and Covid has set it back even further. Healthy life expectancy is also stuck. Analysis last year showed that it would take Government until after 2050 to deliver the improvement within the Conservative manifesto of five additional years of healthy life.

Leaving this to the state or individuals alone will not solve it.

The case for a new consensus

We need to now move on from this division. The All Parliamentary Party Group on Longevity is a cross party group of parliamentarians seeking to build a new consensus on this issue for action. This is not the first time this has been tried.

The New Labour Government published a White Paper in 1999, Saving Lives: Our Healthier Nation. The model pioneered a “new, modern approach to public health – an approach which refuses to accept that there is no role for anything other than individual improvement, or that only Government can do something.”

The results of this and subsequent interventions were seen in increases in the rate of life expectancy for both males and females until 2010. Such rises have gone into reverse since. The Coalition and subsequent Conservative Governments have failed to tackle the issue. The last major public health strategy was in 2010 and focused on a responsibility deal with business that was voluntary, full of holes and failed to deliver. The 2019 Prevention Green Paper still awaits a response.

It is time for Conservatives to accept that doing nothing, on grounds of personal freedom or choice or responsibility, is not an option.

All three Conservative Prime Ministers have gone on their own journey to realise this. All started out as sceptics of action on obesity, but switched to becoming converts. David Cameron created the sugar levy, Theresa May’s pushed ahead with a second chapter of measures, many of which still await implementation. Boris Johnson has had his own conversion to obesity action following his illness with Covid.

The opportunity of reform

The approach that will deliver post Covid will be one that uses both state measures and the work of communities, places, peoples and individuals.

As others in this series of articles have noted, the Government is looking to build a new public health system on the back of Covid 19. The decision to abolish Public Health England will see Ministers taking greater direct accountability for public health and working across Whitehall to embed health more in policy decision making.

Our APPG report ‘Levelling up Health’ calls for an ambitious plan to improve our nation’s health over the next decade. It includes action at four levels: central government, setting the goal, the plan, funding, regulation, and committing to action on high priority public health issues; regional and local action, by harnessing the power of communities, the NHS and local and regional government; the individual, by empowering and supporting people to lead healthier lives; and action by business to support healthy lifestyles and restrict harmful marketing practices.

Our report also calls for the establishment of a much needed health improvement fund.

The Fund would enable 60 places with the poorest health and the highest Covid death rates to access additional funding to support health improvement. The fund (which would sit alongside the existing public health grant) should be set for five years, worth an average of £10 million a year for each place, costing up to £600 million per year nationally. Access to continuing funds would be based on performance against agreed annual outcome targets and deliverables.

This framework across different layers of Government and society will be the basis for starting to level up our health.

Health is wealth

Despite its size and importance, the NHS only contributes some 20 per cent to people’s healthcare outcomes. But it dominates discussion on how to organise our healthcare policy; usually through ever greater demands for more resources. In adopting a longer term, population and public health view after the pandemic, we can start to change how we see healthcare and the roles and responsibilities of all of those involved with delivering it.

The pandemic has regularly pitched the economy and health on different sides of the policy response. This is a false choice. Improving health can support the economy, which in turn can deliver improvements in health and wellbeing. The UK’s healthcare sector is often overlooked as a large, regionally based employer with high growth potential, and there are some superb centres of research excellence across the regions from Newcastle, to Manchester, Leeds to Liverpool.

With our science, data and technology capability in the UK – as evidenced through the vaccine development process – now is the time for an ambitious programme for delivering health improvement that supports our economic and global leadership ambitions. Levelling up health should be a pandemic legacy for this Conservative Government.

David Gauke: Cameron’s values in government may be out of favour, but they are not wrong

13 Apr

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.

The Government’s announcement that it is undertaking an independent enquiry of the Greensill Capital affair is unlikely to bring much cheer to David Cameron. He has endured weeks of bad publicity, and there is little chance that the story is imminently going to ‘move on’.

Whatever the rights and wrongs of the former Prime Minister’s actions – and he has acknowledged making mistakes – the furore is all the more painful because his reputation as Prime Minister was already at a low ebb. Critics of his economic policy accuse him of inflicting austerity which, they argue, were unnecessary, stunted growth and damaged public services; he is castigated by Remainers for calling and losing the Brexit referendum and by Leavers for being a Remainer; some on both sides accuse him of deserting his post by resigning the morning after the poll; his electoral successes have been surpassed by Boris Johnson’s thumping majority in 2019. Not unrelated to this, neither the man nor his political values appears to have much influence on the modern Conservative Party.

Defending Cameron’s record in office is deeply unfashionable. So I will do so.

Let us start with the economy. There are few defenders of ‘austerity’ in today’s public debate. Labour still want to argue that the electorate got it wrong in 2010 and 2015, just as they tried to do in 2017 and 2019 (which, incidentally, suggests that this might not be a guaranteed route to success). Johnson, meanwhile, is not temperamentally an austerian and enjoys the opportunity to demonstrate that he is new and different from recent Conservative history.

The economic debate has also moved on. Governments have been able to borrow vast sums of money in the last year without much of a risk of a sovereign debt crisis. Central banks have played a more active role, debt servicing costs have fallen and international organisations have advocated expansionary fiscal policies. This may all go wrong at some point – there is more reason to worry about inflation than for many years – but it hasn’t gone wrong yet.

None of this means, however, that the concerns of fiscal conservatives back in 2010 should be dismissed. The global financial crisis had resulted in substantially higher spending and permanent damage to tax revenues. The risks of a sovereign debt crisis – with consequences for inflation, debt interest costs and consumer and business confidence – were not imaginary. The IMF and the OECD advocated that countries needed to have credible plans to put the public finances on a sound footing, and many countries did just that. In short, the balance of risks and the expectations of the markets in the years after 2010 were very different to where we are now.

Did fiscal consolidation significantly hamper our economic recovery? It is true that economic growth in 2011 and 2012 was disappointing (although not as bad as it appeared at the time when the ONS early estimates suggested that we had had a double dip recession), but it is worth remembering that the independent Office for Budget Responsibility put this down to the lasting effects of the banking crisis, higher commodity prices and the Eurozone – not fiscal consolidation.

Looked at in the round, over the 2010-2016 period, the UK had the joint highest growth for a G7 economy, level with the US. It was also a period of rapid jobs growth, with the highest employment rate in our history and income inequality falling. Had the Brexit referendum gone the other way, there is every reason to believe that the post-2016 UK economy would have been characterised by high economic growth, rapidly rising living standards and strong public finances, as opposed to us falling to the bottom of the G7 league table.

Were public services were unduly damaged? Difficult decisions had to be made, but many of them were unavoidable given that the spending plans that we inherited were based on an over-optimistic, pre-crash assessment of what was affordable. It was possible to drive greater efficiencies and find ways of getting more for less. The British state has been placed under enormous strain in the last year by Covid but there have been some real successes. Just looking at two areas where I have some familiarity through Ministerial experience, HMRC was able to introduce the furloughing system in a matter of weeks, and the Department for Work and Pensions was able to cope with an extraordinary surge in benefit claimants. Neither would have been possible without reforms undertaken by the Cameron Government.

Having said all that, we relied too heavily on spending cuts over tax rises. It was politically easier at the time to cut spending rather than raise taxes and, as time went on, we got the balance wrong. Some areas of government spending – justice, for example, or social care – were squeezed too hard. But a period of spending restraint was necessary and inevitable and too many of Cameron’s critics fail to acknowledge that.

It was the decision to hold a referendum on the UK’s membership of the EU and then lose it that hangs most heavily over Cameron’s reputation. It will, unfortunately, always be for what he is remembered and, for many Remainers, this will never be forgiven. The referendum result created huge uncertainty and will, in my view, inflict lasting damage to the UK. But we should not kid ourselves that had he adopted a different approach our membership of the EU would currently be assured.

The Conservative Party was moving in the direction of being a Vote Leave Party – in part because of the fear of UKIP peeling off Tory votes – and the decision to offer a referendum was motivated both by a desire to win the 2015 general election by winning back UKIP voters but also by a recognition that a post-Cameron Conservative opposition would, in all likelihood, favour Brexit.

The best chance of staying in the EU, Cameron concluded, was to settle the issue early with a decisive Remain victory – the longer the issue was left, the greater the chance we would leave the EU. As it turned out, he was wrong to believe that he could deliver a Remain victory but he may have been right that this was the best chance of defeating Brexit.

As for the criticism that he should not have resigned following the poll, one lesson of the last five years is that the referendum did not tell us what exactly ‘Leave’ meant. I do not believe it is plausible to think that the European Research Group would have allowed the leader of the Remain campaign to define the answer.

More broadly, much of his political approach has stood the test of time. In wanting more women and ethnic minority MPs, caring about climate change and the environment and introducing equal marriage he took positions that were controversial at the time but have aged well.

Yes, Johnson’s majority in 2019 – and continued strength in the polls – exceeds anything achieved by Cameron, but it is not clear that a political strategy based on white voters without post-16 academic qualifications is the right long-term strategy for an electorate that is becoming more diverse and better educated.

Cameron represented fiscal conservativism, social liberalism and internationalism. These values may be out of favour but they are not wrong. It is too early to say to what extent his personal reputation will – in time – recover but the dismissal of the achievements of his Government is undeserved.

Ryan Bourne: We can never be certain of the costs and benefits of lockdowns

30 Mar

Ryan Bourne occupies the R Evan Scharf Chair for the Public Understanding of Economics at Cato, and is the author of Economics In One Virus.

A year since the first UK lockdown, the economic question most asked about Covid-19 is whether shutdowns would pass a simple cost-benefit test.

Such analyses have been demanded by Covid Recovery Group MPs and, indeed, the correlation between those wanting such evaluations and lockdown scepticism is now strong. Philip Lemoine, a shutdown critic,even suggested in the Wall Street Journal recently that the absence of government economic appraisals worldwide showed policymakers knew lockdowns would fail these economic tests.

I think there’s a more charitable explanation to policymakers’ reluctance to do them: a lockdown cost-benefit analysis is actually incredibly difficult to do well.

Certain issues, such as how much we should value lives saved from mitigating death risks, are contentious at the best of times. But the costs and benefits of crude business shutdowns, school closures, and stay-at-home mandates are far more uncertain than, say, assessing a minor work safety regulation.

First, defining the counterfactual from which to measure lockdowns’ marginal impacts is hard. Clearly, the alternative to lockdowns is not an unmitigated spread of the virus. Evidence from around the world shows that countries which spurned lockdowns also saw waves of infections, rather than a massive outbreak leading to herd immunity. Voluntary social distancing and other mitigation attempts, in other words, appear sensitive to the prevalence of the disease. When cases get high enough, human contact falls, eventually pushing the transmission rate of the virus below one.

The problem is that when these tipping points occur appears a moveable feast across time and countries, unmoored from any consistent prevalence threshold, influenced by pandemic fatigue, and probably strongly affected by chatter of potential lockdowns too. That leaves scope for lockdowns reducing human contact to have big marginal benefits if applied earlier, or in accelerating the downswing of curves. But it also makes it incredibly difficult to precisely set out what would happen in a counterfactual world.

Sceptics are right that unpicking lockdowns’ precise impact requires more than just eyeballing curves. Particularly because a government using lockdowns might exacerbate waves: if people expect governments to lockdown when things are bad, they might begin judging unlocked periods as “safe.” But it would be laughably convenient if you assumed the public would voluntarily mimic the effects of lockdowns precisely when they would otherwise be introduced, as some UK sceptics appear to allege.

A second, related difficulty in lockdown appraisal is that the costs and benefits change with our medical capabilities and knowledge of the virus: they are time and context specific. The UK’s first lockdown was introduced in spring 2020 under a cloud of uncertainty, with fears that, absent evasive action, hospital capacity could be overwhelmed, bringing severe social costs. At that time, we had little firm knowledge about whether a working vaccine would materialise either, and so whether “deaths averted” by lockdowns were merely “deaths delayed.”

The current national lockdown, in contrast, was introduced because of the highly transmissible variant and then-imminent vaccine rollout. The short-term benefits of this lockdown were thus more certain. But as vulnerable groups have now been jabbed at least once, the marginal benefits of lockdown days have now fallen dramatically, while the marginal costs of lockdowns continue to rise. Accounting for changing dynamics within a cost-benefit analysis, influenced by the availability of testing or vaccines that help “lock-in” any suppression of the virus, is therefore crucial to understanding lockdowns’ net effect.

A third and final difficulty arises because a whole range of lockdowns’ costs and benefits are subjective or highly uncertain. The worst attempted analyses so far just calculate the estimated value of lives saved and compare those to some estimate of lockdowns’ impact on GDP or, worse, government spending.

But this is hugely incomplete, ignoring worst-case tail risks and a range of other obvious impacts. On lockdowns’ benefits, for example, a lot of people self-evidently value avoiding infection risks, not just death risks. Some economists have even calculated that mitigating such non-fatality risks might double the monetary value of lockdowns’ health benefits.

On the cost side, the uncertainties are legion. Lost economic output is clearly a mere subset of lost wellbeing. How much should we value losses stemming from, say, someone being unable to attend the wedding of a family member, or visit a friend with depression? These are extremely subjective, but accumulate to very large costs indeed. That’s before we consider lost schooling’s effects on children’s life chances, or attempt to account for the impact of government shutdowns on entrepreneurialism.

No cost-benefit analysis I’ve seen so far has gotten close to developing a robust, country-specific counterfactual to lockdowns, nor accounted for all these effects. But that it is difficult doesn’t mean governments shouldn’t have attempted it, or that we now shouldn’t endeavour to carefully and retrospectively deliver such analysis.

Some dismiss cost-benefit analysis of lockdowns on the grounds that they may mislead the public given these uncertainties. Others, such as Mark Carney, think weighing health benefits against lost economic and social liberties is alien to society’s preferred values. The public clearly wanted to minimise the health impacts of Covid-19, Carney says, so governments should seek to deliver that in the least costly way possible.

Carney may be right on the psephology of what voters wanted and how this drove decision-making. But the trade-offs were real, and analysts shouldn’t shy away from highlighting them. Indeed, my own views on the UK lockdown experience are nuanced. They clearly “worked” in the sense of significantly reducing cases and deaths each time, while the case for them was strongest in Spring 2020 and December 2020, given the contexts of uncertainty and vaccine imminence.

And yet, overall, I still think the re-use of lockdowns after the summer Covid-19 lull is evidence of the failure of the government to think on the right margins. Even if lockdowns passed cost-benefit tests at certain times, that doesn’t make them “optimal.” The inability of the government to harness new knowledge and to unbundle the aspects of lockdowns that clearly imposed costs for scant public health gains, even after months to devise something less painful, is striking. Other countries likewise show how testing, tracing, cluster-busting, and guidance on ventilation, if done well, could have locked-in a lot of the gains of suppression without the massive downsides.

During the next few years, careful analyses will seek to unpick the effects of lockdown relative to counterfactual worlds. Such are the contestable assumptions and uncertainties, though, I suspect we’ll never get a cost-benefit analysis that “resolves” this debate.

Richard Holden: This spring’s local elections. For levelling-up to work, we need local councils and leaders who back it.

29 Mar

Richard Holden is MP for North West Durham.

Constituency Office of Richard Holden MP, Medomsley Rd, Consett

The leaflets are landing on doorsteps. The Risograph is working overtime. Walk routes are being updated. First-time council candidates – a heady combination of apprehensive and excited – are getting to know each other on WhatsApp as they make friends with people in other wards. Experienced candidates impart nuggets of wisdom, ‘war stories’ and experience on our zoom calls. Labour’s keyboard warriors fight on , but there is very little sign of life in the party of Jeremy Corbyn and Keir Starmer on the ground.

These elections are taking place in a way that is like nothing I’ve known in two decades of campaigning – after over a year of gruelling Covid-19 restrictions and under the shadow of a virus whose lingering presence, even as Britain’s phenomenal vaccine programme knocks case numbers and deaths down, is still a real concern for many. It’s not been a normal year, and it’s not going to be a normal election.

As a new MP, I can barely remember a time that I wasn’t having to try and help those struggling with Covid-19 or the impact of measures to control it. The long tail of Coronavirus will continue in various guises. Many months of delayed operations and stifled economic growth need to take place. The impact on the education of children will last for years, especially for the poorest, even with the welcome efforts of the Government at top-up tuition. The Government debt taken on to support the people, jobs and businesses through the pandemic will stay for decades.

It is in that context that Rishi Sunak came up with a big offer to business: unprecedented tax relief to try and drive investment and help to deliver knock-on productivity gains. The Treasury and Department of Trade moves to Teesside and the new freeport are massive economic boons, too, for the North East. These moves are not just about the jobs – though that’s the main part. It’s about showing that we both care and want to do something about the problems faced by our new voters in the ‘Blue Wall’.

It’s clear that both the First Lord of the Treasury and the Second Lord of the Treasury “get it”. Short term, the plan is about recovery from Covid-19: getting jobs back and the economy moving again – which they’ve also got a plan for with Kickstarter and support for apprenticeships double.

And for the longer term, jobs in the next industrial revolution are coming down the track: batteries for our car industry and wind power for our transport and electricity. This big push to drive private enterprise to invest now is crucial, because we all know that only productivity gains can lead to real wage increases and the much talked about ‘levelling up’.

As we escape the shadow of Covid-19 we can see that much has changed but some things have stubbornly remained. In many parts of the North, moving back to the status quo ante – pronto – seems to be the order of the day from Labour. The debate over the coal mine on the West Coast of Cumbria brought this home in recent weeks.

To give you a bit of necessary background, Cumbria is a joint Labour/Lib Dem administration. Labour lost overall control in 2017 and formed a coalition (despite the Conservatives being by far the largest party). Labour retained control with their three tribes of Corbynites, Brownites and few Blairites, in what is a perpetual internal struggle.

To the mine itself. Robert Jenrick, the Housing, Communities and Local Government Secretary, has taken a lot of heat, but it’s clear that what’s really behind the palaver is vacillation among the Labour/LibDems who are running the council. Cumbria County Council has now put forward the proposal only then to decide to re-consider it no fewer than four times. Jenrick has done everything he can to let the council decide, but in the end its vacillation created a national controversy. A dangerous precedent.

Labour weakness and division doesn’t just stop at doing everything possible not to make a decision on bringing 500 really well-paid jobs in Cumbria. Look across the other side of the country and you see it caught up in another culture war with itself in Leeds.

West Yorkshire wants to rival Greater Manchester as the engine room of the North of England. Leeds is back in the premiership, and everyone’s longing for the old rivalry on the pitch and, more generally, some healthy competition across the Pennines.

But Labour politicians locally can’t even agree on whether to expand Leeds Bradford Airport. The Labour-run Council has, eventually, passed a proposal, but the local Labour MPs (more concerned about their own membership than their voters) have gone against it. Hilary Benn and Alex Sobel, amongst others, literally asked the Secretary of State to call in a decision by the local Labour council.

Scratch the surface anywhere in the North and you’ll find Labour in mini-civil wars everywhere. What does this mean for other big projects? The A1(M) upgrade? New train lines? The A66/68/69/74? Are we going to allow vacuous, vacillating, virtue-signalling Labour Councils to kibosh our levelling-up agenda?

Contrast Labour’s approach to Ben Houchen’s in Teesside or Andy Street’s in the West Midlands; pro-enterprise, and willing to work with the Government. Interestingly, Andy Burnham seemed to be too, during his early days of wanting to get stuff done but his rivalry with Sadiq Khan over who will be the next Labour leader has seen him go from pragmatic local leader to disingenuous leadership contender, in lock step with Starmer’s personal poll rating.

What I’m driving at is that for levelling-up to work, we’re going to need to see local authorities and local authority leaders who want it to work.   The sad truth is that many local Labour councils and local bureaucracies don’t want it: they’re scared of it. In County Durham, it would create further upheaval in the system of sinecures that, sadly, local council positions have been for 102 years. They don’t want to risk ‘levelling up’ – they’re happy with a lazy the politics of grievance. After all, it’s served them well for decades.

Meanwhile, when faced with big political calls, the Prime Minister tends to make the right ones. On running for Mayor. On Brexit. On standing for the Conservative leadership in 2019, doing what many said was impossible, and getting Tory MPs to back him. (I remember this ,because when I joined his campaign you could get six to one on him to make the ballot.) On the general election. On the vaccine.

He’s making a big call on the economy now – the big push to level up. This is his big bet on Britain.  To deliver it though we need strong aligned local leadership. Mid-term elections always hammer the party in power, and we’re coming from the 2017 local election high point and a year of Covid. Getting Conservative 2019 voters to come out again is the challenge on which the ability to deliver the agenda now rests. We’ve fifty days to show them it does.

Neil O’Brien: The view that manufacturing is a relic of the past is itself a relic of the past

22 Mar

Neil O’Brien is co-Chairman of the Conservative Party’s Policy Board, and is MP for Harborough.

“Nothing so much contributes to promote the public well-being as the exportation of manufactured goods”. From the King’s Speech at the opening of Parliament, 1721 (drafted by Robert Walpole).

Here’s a funny thing.  Wages and productivity in manufacturing are higher than the average across the whole economy. Productivity has also grown more quickly in manufacturing. But places where manufacturing is a larger share of the economy have, on average, lower wages and productivity.

The answer to this seeming paradox is that manufacturing provides an outsized proportion of the better paid jobs in poorer areas. And that they typically started with even more manufacturing, and lost more from deindustrialisation. Might manufacturing now have a particular role in levelling up poorer places and getting private sector growth going there?

Put simply, if manufacturing is a bigger chunk of the economy in less affluent places, and if you could do some things that caused manufacturing to grow faster then, other things equal, that would tend to particularly help worse-off places.

That’s not to say government shouldn’t also work hard to grow other sectors – just that manufacturing might be particularly helpful in levelling up.

Between 1978 and 2019, output per job grew an average of 0.36 per cent a quarter across the economy as a whole, but not far off twice as much (0.64 per cent) in manufacturing.  It’s not just the UK: looking at 26 OECD countries since 1996, all but one saw faster productivity growth in manufacturing.

Why? Much of the economy consists of people-intensive local services.  While there’s productivity growth in cafes, pubs, gyms, leisure and so on, it’s harder to achieve. A café is quite like it was 50 years ago.

Your smartphone really isn’t. There is no theoretical upper limit to how atoms can be arranged in new and more productive ways. Physical goods can also be exported in a way that haircuts can’t: so they can be traded in a more dynamic global market with stronger competition and more transmission of knowledge. That’s why manufacturing accounts for 42 per cent of our exports and two thirds of business investment in R&D.

But manufacturing is particularly relevant for levelling up because that higher productivity in manufacturing is particularly marked in less prosperous areas.  For the UK outside London, output per hour is 20 per cent higher in manufacturing than the economy as a whole.

Reflecting this, wages are also higher.  For example, in the North East the median wage in manufacturing was 22 per cent higher than average, in Wales 16 per cent it was higher and so on.  This earnings premium applies across qualification levels too: it’s not just more workers in manufacturing having higher qualifications, they’re earning more than similarly qualified people.

You might say, that’s all very well, but isn’t UK manufacturing doomed to shrink? Isn’t manufacturing too small to drive the wider growth of the economy much?

Having declined relentlessly as a share of the economy between the 1970s and 2010, manufacturing’s share has actually held pretty steady since then.

While it is now a relatively smaller share of employment (nine per cent of hours worked), manufacturing accounts for a larger share of output and a much larger share of productivity growth in poorer regions of the UK – accounting for more than 40 per cent of productivity growth between 1997 and 2017 in places like the West Midlands, Wales and the North West, creating a big multiplier effect on incomes and jobs in their local area.

Growth in manufacturing might particularly help places outside our large cities. As the UK economy has deindustrialised, higher productivity jobs have tended to be in professional services, typically located in large city centres. Across Europe, capital cities have grown faster than their countries.

The rise and then fall in manufacturing as a share of the economy since the Second World War was mirrored by a fall and then rise in differences in productivity: the shift to services has caused the richest region, London, to forge ahead, while deindustrialisation has seen poorer regions fall back.

The same effects are underway in smaller cities.  Between 2002 and 2018 productivity grew 76 per cent in Glasgow and Edinburgh and 62 per cent in the rest of Scotland. In Cardiff and Swansea it grew 59 per cent compared to 47 per cent in the rest of Wales. And in Belfast it grew 72 per cent compared to 49 per cent in the rest of Northern Ireland. Productivity grew 54 per cent in England’s large cities and 49 per cent in the rest of England outside London – even including the relatively prosperous south east.

It’s great to see our cities revive, powered by services growth. But we need to make sure places outside city centres grow faster too. Manufacturing is space-intensive, so more likely to locate outside the centres of the largest cities. It’s one high productivity activity in which less urban areas may have a natural advantage.

And those are just the sort of places our new majority is built on.  Nationally about one in twelve jobs are in manufacturing – but in the seats we gained in 2019 it’s higher: one in eight jobs.

Some say deindustrialisation is inevitable for all rich countries, so emphasising manufacturing is pointless.

While many richer countries have deindustrialised, almost none did so as much as the UK.  In 1970, the UK had the sixth largest share of manufacturing in the economy in the G20. Today, it is second from bottom.

Countries as diverse as South Korea and Ireland have caught up or overtaken our living standards while growing the share of manufacturing in their economy. Rising countries like India and China have seen manufacturing growing as a share of the economy share.

And many other rich countries have deindustrialised far less: manufacturing is about 10 per cent of GDP here, about 22.5 per cent in Germany.  In the Blair years this was actually seen as a UK strength. But post financial crisis it doesn’t look so smart, as productivity there has grown faster.

Another objection might be of principle. What would Margaret Thatcher think of all this?

Well, while Mrs T (rightly) let go lossmaking industries, it’s worth remembering she also worked hard to replace them. She used taxbreaks, factory start up costs (and lots of her time) to woo Japanese carmakers here.

She backed life sciences, founding a government-backed biotech company (Celltech) and using pharmaceutical pricing to lure pharma businesses to the UK.  In telecoms, Thatcher drove the adoption of the GSM standard at an EEC summit in 1986 to help create a huge market for equipment makers, and then let UK companies like Vodaphone charge yuppies a fortune for calls, meaning tha they had pots of cash to buy up more heavily regulated rivals overseas.

In 1981, she appointed the world first minister for IT (Ken Baker) and funded the “micros in schools” programme.  That put rocket boosters under the company that won the government contract to manufacture the computers, (Acorn), enabling it to create ARM, now one of the UK’s largest tech firms.

In aerospace Thatcher moved heaven and earth to sell British Aerospace products overseas, flying to Saudi Arabia to secure their biggest ever order. Visiting the factory, she said she would love to have flown a harrier.

Today, there are still massive security arguments for keeping the capacity to make things, underlined by EU threats over vaccine supply. But even without those arguments, the 1990s/2000s view that it would be fine if British manufacturing became a thing of the past now seems like… well – a thing of the past. The truth is that in many parts of the UK, making things goes hand in hand with making a decent living.

Looking back at the Budget a week on, its plan for growth is not convincing

12 Mar

The only worse judgement about a Budget than a snap article is an opinion poll – and we write that regardless of the reception that polls gave last week’s.

For just as a snap view can be based on less than the full picture (a particular feature of Gordon Brown’s), so a polling one tells one nothing about whether a Budget will work, or indeed will be as popular a month after its release rather than a day after.

Our own snap take was largely restricted to asking whether the tax rises announced for future years will really happen at all – or whether Boris Johnson will be able to take advantages of higher revenues to cancel them, and then seek a quick general election.

The end of the week after the Budget may be a better time to take a fuller view.  It would start by trying to understand the position that Rishi Sunak is in.

The post-Budget piece on this site by his Treasury colleague, John Glen, set out the scene as the Chancellor sees it in the latter’s first presentation since Brexit was done in full, and vaccines gave us hope that the pandemic will end.

The economy has shrunk by 10 per cent, the largest fall in over 300 years.  And our borrowing is the highest it has been outside of wartime.

That suggests going for growth in the short-term, as this site has recommended, with fiscal consolidation taking place later, as it will have to do in spades if the growth doesn’t come.  The timing of Rishi Sunak’s measures suggest that he agrees.

We believe that tax rises inevitably have to play some part in that consolidation along with spending cuts, and recognise that the run-up to an election is a difficult time to do either: the Chancellor is cursed by the economic and electoral cycles being out of kilter.

Certainly, government will always have to tax something to pay for public services, and the sensible view is that that something should be spending rather than income (or business).

Which explains why early Thatcher and Osborne budgets alike put up VAT, and why the latter wanted two new council tax bands on more expensive properties – as he confirmed to ConHome last year.

However, Sunak is boxed in on VAT.  The final headline pledge of the last Conservative Manifesto was “we will not raise the rate of income tax, VAT or National Insurance”.

We may know more about his plans for property taxes if any on tax day, March 23rd.  There is a plan on the table to replace council tax (and stamp duty) with a new property tax, but it is revenue neutral.

Since it would already create losers in more expensive properties in London, Sunak is unlikely to adapt it to create even more of them there and elsewhere.

Business rates were a dog that didn’t bark during the Budget, and any eventual reduction to them looks to come largely from a digital sales tax, not a residential property tax.  Some who would pay it belong to an interest group with little direct leverage: foreign companies.

But unable to turn to VAT and unwilling to turn to property – or so it appears – Sunak targeted income tax allowances and business in his Budget, via corporation tax (assuming, as we say, that these hikes ever happen at all).

On the first, the Office for Budget Responsibility says that the allowances freeze will haul a million more people into the higher rate band.  Fiscal drag is scarcely new – as the Institute for Fiscal Studies noted two years ago – but the move will do nothing to improve incentives.

On the second, there are some detailed arguments for the increase, as set out by Anthony Browne on ConservativeHome recently, but a general one against, which is based on certainty.

In essence, lower rates of corporation tax have been a feature of Conservative policy from Thatcher through to Osborne and beyond – together with an emphasis on lower income tax rates, supply side reform and a smaller state.

If these higher ones ever come in, the Chancellor will essentially be trading off higher corporation tax from some companies for the new super deduction for some companies.

That would mean a shift from a relatively simple and neutral system to a more complex and partial one, which would be more likely to help firms in the Midlands and North, according to sources that this site has spoken to.

We are not convinced that such a switch, if it ever happens, is a net plus for Britain.  But now that Sunak has turned on the super deduction it would be best for him, in order to help provide that certainty, not to turn it off in two years.

Elsewhere, those Thatcher-to-Osborne orthodoxies are also in flux.  They were first challenged in recent times not by Johnson, but by Theresa May, with her mantra of “the good that government can do”.

The Industrial Strategy was a product of her approach.  We are all for one in principle if it has a clear aim, namely turning pure research into translational research.

As Greg Clark, who had charge of it under May, conceded yesterday on this site: “it may have tried to do too much in one White Paper”.  His successor, in his swashbuckling way, dismissed in the Commons this week as “a pudding with no theme”.

That directness is a part of what makes Kwasi Kwarteng such an engaging politician, and it may be that he plans a slimming down of the strategy that will deliver results.

But one source close to the process worries that “individual policies will continue anyway but without consistency, ownership or scrutiny”.  And Clark has a point when he says that any strategy must be linked to place as well as sector – in other words, to levelling up.

We’re concerned that the Government has come to see such levelling up as incompatible with supply side reform and institutional change.  We can’t see much of the former in Build Back Better – the Government’s “plan for growth”.

It’s big on intrastructure and net zero; smaller on skills and innovation: as May said in the Commons this week, there’s a limit to how many times Ministers can review research and development tax credits.

If it really wants to go for sustainable and more even growth, the Government will need to devolve more power.  As a former senior Minister put it to ConHome recently: “we can’t deliver levelling up, a skills revolution, an industrial strategy and zero carbon from the centre”

“The new mayors have a convening power: they can get local businesses, the Chief Constable, the NHS bigwigs, the university vice-chancellors, the local enteprise partnerships round the table, and come up with a plan.”

On supply side reform, we understand why Kwarteng killed a planned review of workers’ rights.  But what is the plan to ease supply elsewhere – especially on housing?

On institutional change, there are commitments to reform the civil service and the courts, but almost none that apply to the major public services, especially health.

To date, tax rises are taking the strain of future consolidation, and the danger for the Chancellor is that he finds himself boxed into that position permanently – with Downing Street spooked by the consequences of a proper spending review for Tory red wall seats.

The Budget promises infrastructure spending, possible tax rises, pots of money from the centre for those provincial seats, limited localism, plus some levelling-up but little reform.  That’s a mix of pluses and minuses, but not a plan for growth.

Alan Mak: A week on from the Budget, it’s clear that it will boost innovation and productivity

10 Mar

Alan Mak is Vice Chairman of the Conservative Party, Co-Chairman of the Party’s Policy Board and MP for Havant

The pandemic has had a significant impact on the British economy. Over 700,000 people have tragically lost their jobs and the economy has shrunk by 10 per cent – the largest fall on record. And the impact could have been far worse had it not been for the Chancellor’s support schemes that have protected jobs and livelihoods throughout, from the furlough scheme to billions paid out in business grants and loans.

Last week’s Budget needed to continue this support for the economy in the short term. But crucially, it also needed to lay the foundations for building the economy of the future. What this country needs – and what Conservatives can wholeheartedly champion – is a robustly pro-growth, pro-enterprise and pro-innovation economy to turbo-charge our exit from the pandemic and help Britain lead the Fourth Industrial Revolution, all while remaining internationally competitive.

Last Wednesday, the Chancellor delivered, with a series of policies that will ensure technology and innovation are at the forefront of our economy. ConservativeHome readers agreed, overwhelmingly backing the Budget with 58 per cent saying it was “good” or “very good” in this site’s latest survey, as did voters polled by YouGov.

Last July, I proposed an IT scrappage & upgrade scheme to equip our promising start-ups, SMEs and scale-ups of tomorrow with better software and technology, in order to enhance productivity which has historically lagged behind our competitors. For years, governments have needed to target the least productive SMEs which have invested insufficiently in the latest software, automation or information technology. And too often, our brilliant small firms don’t have the time or resources to get the extra skills or technology tools they need to be more productive.

That’s why I warmly welcome the Chancellor’s two new Help to Grow schemes, specifically aimed at boosting the productivity of our small businesses. Help to Grow Management will help SMEs get world-class management training through government-funded programmes delivered through British business schools, with businesses contributing just £750 or 10 per cent of the cost of the course.

And Help to Grow Digital will level up the digital skills of our small businesses with vouchers entitling them to 50 per cent off the purchase of new productivity-enhancing software, up to a total of £5,000 each. Both these schemes are exactly what’s needed to tackle the UK’s longstanding productivity challenge, while laying strong foundations for the pro-growth future economy we all want to see.

The Budget went further by delivering other measures which high-growth, innovative companies should welcome. These businesses account for just one per cent of companies in the UK, but generate an amazing 80 per cent of our employment growth.

That’s why consultations to find ways to improve our research and development regime and reform the Enterprise Management Incentive scheme to support growing companies retain talent, are encouraging. Furthermore, ensuring firms have sufficient access to capital is vital, which is why the new Future Fund Breakthrough initiative, successor to the Future Fund, is welcome support for innovative tech businesses to access finance, match-funded by Government.

As the first MP of British-Chinese heritage, I also believe a global outlook and attracting world-class talent to the UK is pivotal to our future economic success. That’s why visa reforms aimed at making it easier for highly-skilled people to come to Britain are especially welcome. These include a new unsponsored points-based visa, and new simplified processes for scale-up founders and entrepreneurs.

These Budget measures to support our businesses and turbocharge our future economic growth build on the Treasury’s other impressive pandemic support schemes, such as extensions to the furlough scheme; temporary VAT cuts and business rates relief; two more self-employment grants; new recovery loans to help businesses access finance; and Restart grants of up to £18,000 for businesses who have been particularly hard hit. Overall, that’s over £400 billion of support this year and next to protect our economy.

I also welcomed the Chancellor’s frankness about the need to begin repairing our public finances. We cannot maintain the current levels of borrowing and debt and expect to be able to respond with another £400 billion when the next crisis hits. And as Conservatives, we believe in sound money and keeping our borrowing under control hence the Chancellor also explained why corporation tax is scheduled to rise for the biggest, most profitable businesses in two years’ time.

The unprecedented ‘Super Deduction’ policy to encourage companies to invest in capital assets such as new machinery – an effective tax cut worth around £25 billion – will also be key to incentivising our SMEs to adopt the latest productivity-enhancing technology. Last year I wrote about the dampening effect on capital expenditure (capex) and investment caused by Coronavirus already being large and destructive. The Bank of England predicted a 26 per cent drop in business investment for 2020. In 2009, as the financial crisis erupted, the fall was 16 per cent by comparison. The Super Deduction can help reverse the damage to our country’s technology base.

What we needed to hear from the Chancellor was a mixture of realism about keeping the economy going now, plus a dose of optimism for the future, by laying the groundwork for British businesses to lead the Fourth Industrial Revolution. We received both, building strong foundations for Britain’s growth and recovery.

Neil O’Brien: Lessons we can learn from fast-growing countries to help us to grow faster

8 Mar

Neil O’Brien is co-Chairman of the Conservative Party’s Policy Board, and is MP for Harborough.

Here’s a striking thing: several countries which suffered decades of communism are now richer than large parts of the UK. In 2018, the GDP per head of Yorkshire, Northern Ireland and the East Midlands (where I’m writing from) were all below Slovenia. Wales and the North East were lower: below Portugal, Estonia and Lithuania. All are now poorer than the old East Germany.

Radical change is needed to claw our way back into the top economic league. And unless we raise growth we won’t escape from demographic trends putting upward pressure on taxes. If you look at countries that have enjoyed rapid growth, they have in common a conscious drive to increase their knowledge, investment and technology.

Take the east Asian countries. Japan, Korea, Taiwan and now China, all followed the same playbook and saw dramatic growth.

Between 1945 and 1970 Japan went from a 20 per vent of the GDP per person of the US to two thirds, rising to 85 per cent by the late 80s. When I was born GDP per person in Korea was a quarter of the UK level. Now they are roughly the same. To have seen as much economic growth as a Korean pensioner has in their lifetime, a British pensioner would have to have been born in the reign of George III.

All four invested heavily in bringing new technologies to the country. Through a mix of government support for new industries and control over the financial system they supported firms to enter new higher tech industries, and soak up the inevitable losses as they learned on the job. For example, TSMC, now the world’s leading chipmaker, was a originally part owned by the Taiwanese government. Likewise Korea’s POSCO, now one of the world’s leading steelmakers.

But unlike many poor countries, they used internal competition between firms and global markets to discipline such subsidies. Companies that grew the national knowledge base and proved capable of export success got subsidies, tax breaks, free land and infrastructure; those that failed were ruthlessly culled (the opposite of what we did with British Leyland).

Industry ministries like MITI in Japan systematically researched and plotted the conquest of one industry after another. China’s NDRC and “Made in China 2025” are similar today. Taiwan created a huge science park and established consortiums of firms to share research, development and knowledge.

Various kinds of regulations and incentives encouraged sky-high rates of investment: even after easing off a lot Japan invests about 25 per cent GDP each year and Korea 30 per cent, compared to 17 per cent in the UK. All four went through periods of importing, copying or frankly ripping off western technologies.

Or if that seems too distant, take an example closer to home. Since 1990 average wages in Ireland went from being 5-12 per cent lower than the UK to being 7-15 per cent higher, depending how you measure it. Ireland attracted four times more inward investment than the UK relative to the size of its economy. Those foreign-owned firms have higher productivity: employing 22 per cent of people but accounting for 57 per cent of value added and 70 per cent R&D investment.

Some recent growth has been driven by highly specific and aggressive tax policies. But the seeds of Ireland’s growth were sown in earlier decades, when Ireland opened up to foreign direct investment and introduced a zero tax rate for manufacturing exporters. From the mid 80’s, Ireland specifically targetted investments from higher tech firms: Microsoft arrived in 1985, Intel arrived in 1989, Amazon, Bell Labs, MSD, Google, Twitter and Facebook in the 90’s and 00’s.

The Irish Development Agency operates a sort of concierge service for inward investors, and recent court cases like that brought by the European Commission regarding Apple show how far Ireland has been prepared to go to attract leading tech firms.

What would it mean to learn from these fast-growing countries today?

First, attracting firms with leading knowhow. We’ve done it before: Mrs Thatcher wooed Nissan to Sunderland with tax breaks. Although evidence suggests previous tax breaks increased foreign investment into poorer parts of Britain, we gradually phased them out, only partly due to EU rules. So the creation of the new Office for Investment is a good start.

Second, improving our innovation-industrial system. Total investment in R&D in the UK is just way too low. The UK invested 1.7 per cent GDP on R&D in 2018, China 2.1 per cent, the US 2.8 per cent, Germany 3.1 per cent, Sweden and Japan 3.3 per cent, South Korea 4.5 per cent and Israel 4.9 per cent. Across the world there’s a clear correlation between government investment and business investment.

However, government investment is more geared towards prompting business investment in some countries. We’re now growing government investment in R&D after decades of neglect, but we must also make it more business-focused. Government should implement the proposals set out in a recent NESTA report to support innovation in poorer parts of the UK.

Third, we need to bring the same focus to manufacturing and tech policy that we’ve had for decades on financial services. We have a city minister, and have quite rightly intervened and changed the tax system to promote financial services, because finance has high wages and productivity growth.

But so do manufacturing and IT. Between 1998 and 2018 output per hour grew £20.60 in manufacturing and £22.70 in IT, compared to £11.90 in leisure, £11.50 in retail, £9.50 in admin support services and £7.20 in accommodation.

Outside London, weekly pay in manufacturing is nearly a quarter higher than the economy as a whole. However, over recent decades poorer parts the UK have seen employment dramatically shifting out of manufacturing, and into these slower-growing local services. Though this holds down unemployment, it represents a sort of economic Dunkirk. The pace of this shift has dramatically slowed since 2010, but not been reversed.

Fourth, we need to address the UK’s longstanding low rates of physical investment. As the excellent Plan for Growth published last week noted: “The UK has a lower proportion of innovating firms overall than other advanced economies and weaker business investment”.

One cause of this is that Britain has had the most miserly tax allowances for investment in the G20. So the “super deduction” unveiled by Rishi Sunak last week is a huge step in the right direction. It should boost investment everywhere, but particularly in poorer places where there is more manufacturing.

Last but not least, a lesson from the high growth countries is about making sure that finance serves growth, rather than itself.

Again, the budget saw steps in the right direction. The Hill Review will enable dual class shares, which tech firms (like Google, Facebook, Lyft, Pintrest etc) increasingly use to offset market pressures for short termism. The new Infrastructure Bank in Leeds will catalyse private infrastructure investment, while further extensions of the British Business Bank will support lending and equity for growing companies (it is gradually filling the hole where 3i used to be).

The next challenge is to unlock more institutional investment into venture capital. Sunak has set in train a review of the EU-imposed Solvency II regulations for insurers. Shifting even a small sliver of such vast institutional cashpiles out of gilts and into growth enhancing venture capital could be transformative for growing businesses. There’s also arguments for reviewing similar rules around pensions too.

Making Britain into a tiger economy is a daunting challenge – particularly its less prosperous parts. But the challenges facing other countries at different times have been at least as daunting. If we don’t want a future of ever higher taxes and slow growth, we simply have to make it happen.

Richard Holden: We shouldn’t try to win a spending arms race with Labour in this Budget – which we would lose anyway

1 Mar

Fight Fitness Guru, Consett, Co. Durham

During the last fortnight, the white wasteland of frozen fields has given way to the flora of spring in County Durham.  The thaw in the land of the Prince Bishops is being met with a broader feeling in the towns and villages that spring is on the way.  With 20,000,000 vaccinations done and accelerating, as well as the Prime Minister’s roadmap providing clarity for the future, there is a real feeling that the tide is turning.

This week’s Budget must be another step along that road.  However, with so many competing concerns it will be a difficult balance to strike.  To get it right, it’s going to be essential to zoom out and look to where we want to be in a few years’ time.

Our economy has taken a pounding because of Covid-19.  Three hundred billion pounds in extra spending and support, paying people’s wages through furlough and supporting jobs and businesses has been provided.

Three hundred billion pounds extra: that is wartime levels of additional expenditure. For context, it is more than twice the size of the NHS budget annually. It’s an extra £4,500 for every man woman and child in the UK, or about £12,000 for every income-taxpayer in extra spending: money that’s had to be borrowed.

The support has been colossal and necessary. It has protected businesses and jobs and crucially will enable our economy to bounce back as quickly as it can. But this backing wouldn’t have been possible if the Government hadn’t taken the necessary decisions to keep spending under control during the last few years.

Colloquially, this point is made frequently by my constituents, along the lines of: “I’m glad it was you lot in and not Labour. If they’d been in ,God knows what would have happened.”

Which takes me to the political.  One of the biggest gateways to so-called “Blue Wall” voters switching from Labour to Conservative was Jeremy Corbyn. But this wasn’t just because of the terrorist sympathising and antisemitism. Or Keir Starmer’s policy of betraying democracy over Brexit. It was also because of Labour’s economic credibility.

People stopped listening to Labour’s promises when they became increasingly outlandish.  Remember them? Free broadband for all, give WASPI women £30,000 each, cancel student debt and make university education taxpayer-funded. The list went on – all with no plan to pay for it: it was fantasy economics that lacked basic credibility.

This is where we Conservatives now need to be careful, and why Rishi Sunak needs to tread a fine line. We cannot, nor should we wish to, win an arms race with Labour over who can spend more taxpayers’ cash.

We’ve not spent the long, hard yards of the last decade, undoing the catastrophic position Labour left in 2010, to let that credibility go. The reason we’ve been able to support the country through the global pandemic is because we’d had credible spending plans for the last decade. The reason Labour couldn’t win in 2010 is because Labour believed its own hubris about having ‘abolished boom and bust’ and, to nab a much-loved phrase from George Osborne, “failed to fix the roof while the sun was shining.” And the result was the famous note from Liam Byrne, then Chief Secretary to the Treasury: “there is no money left.”

Given such an analysis of where we are, then: what’s next? The budget must focus on three things:

  • Recovery. Allowing the country, especially our hardest hit sectors to bounce back from Covid – and in doing so avoid a massive spike in unemployment.  This week, I led 68 Conservative backbenchers in writing to the Chancellor about support for pubs (massive employers of young people) via keeping beer duty down. It’s vital that he also allows our high streets breathing space regarding business rates. And for families in constituencies like mine, where for so many a car is essential, fuel duty rises, which Conservatives have found hard against for a decade, need to be avoided.
  • Delivery. Keep building towards our key manifesto commitments on public services: more police, more nurses, crucial infrastructure and deliver on the levelling up promise that was made.
  • Credibility. Long-term economic stability with borrowing under control to allow us to keep our debt – and crucially our debt interest payments – under control.  We can’t just hope that interest rates stay this low forever: they won’t. Only a balanced plan will allow the Government the space to deliver on the first two objectives of recovery and delivery.

It’s a tall order, and the Chancellor needs to be clear, honest, and fair in what he spells out. Those who’ve profited during the pandemic and those with the broadest shoulders should take the lion’s share of slack as we now deal with the consequences of it.

As for Keir “Goldilocks” Starmer – naturally, nothing will be ‘just right’.  But he won’t come up with any other real proposals, either. He’s opposed to anything that will raise revenue, but Labour MPs will doubtless demand more spending.  The party is all over the place, with a front bench hopelessly out of its depth, and a broader one so divided as to the way forward that it’s hardly a surprise Sir Keir is unable to get them to agree on anything but to abstain.

So Labour’s economic credibility will remain in tatters. We need ours to remain strong.

This spring in North West Durham and across the “blue wall”, let’s ensure that the growth we see is built to last. Unsustainable borrowing might be Labour’s answer, but it can’t be ours. Without doubt, at some point, winter will come again.

And when it does, we’ll need to respond to it from a position of strength with flexibility – as we have this time.  The electorate will not forgive us is we don’t ensure long-term credibility. Without it we put both a sustainable recovery from the global Coronavirus pandemic and delivery of our manifesto in jeopardy.

Perhaps the simplest way of putting it on the Budget is: it’s all about economic credibility, stupid. Because come 2024, it certainly will be.