Andy Street: Truss will deliver for the West Midlands. That is why she has my backing.

10 Aug

The Commonwealth Games are over. After a sporting spectacle that has shown the very best of the West Midlands to a global audience, we have passed on the baton to Victoria in Australia.

Now, the Conservative party is about to pass on the baton of leadership, selecting a new Prime Minister and the person who will lead us into the next General Election. Liz Truss is the favourite to win that race, and I am backing her.

I want to use this column to explain how I believe Truss will deliver for the West Midlands as Prime Minister – and why she can be a winner for the Conservatives at the ballot box.

Let’s be clear: the two are inextricably linked. The Midlands is at the heart of the ‘red wall’. In our region, 43 out of 59 local MPs are Conservatives. That means that delivering better outcomes for our citizens is not only mission critical for me in deciding who I think should be our next Prime Minister, but also to success in the next General Election.

Why? Sitting at the centre of the country, the West Midlands – with its long history of invention, its manufacturing and export prowess, and its diverse, innovative population ­– is the engine room of the nation. When we flourish economically, so does UK Plc. When we lag behind, the nation suffers.

So, when deciding which of the two Conservative leadership candidates to support, my overriding question was ‘who will deliver better outcomes for citizens of the West Midlands?’ I drew four conclusions.

First, we need a Prime Minister who will create more high-quality, well-paid jobs across the country, and inject dynamism into the economy. Truss’s proposal of a Plan for Growth, concentrating on new high tech sectors, can do this.

Here, in the Midlands, the Government must actively back our advanced manufacturing industries – such as electric vehicle production. This is already a real success story, but we need the levers the public sector has – from improving infrastructure and skills to targeted tax breaks – to attract more private investment, including the much-heralded battery Gigafactory in Coventry. This is how we will create higher-paid jobs across our region and super-charge the nation’s engine room.

Second, we need a Prime Minister fully committed to “Levelling Up”.  For decades, people here have not shared equally in the success of the UK. While strides are definitely now being made, expectations are understandably high that we will continue to make good on our promises.

The new Conservative leader must double down on policy commitments including accelerating devolution to English regions. I believe Truss is committed to this, and will follow through on the promised Trailblazer Devolution Deal to be negotiated with the West Midlands Combined Authority. This deal will show the new Government remains serious about Levelling Up, and enable us to use our new cash and powers to make a tangible difference to people’s lives. Freeing us from Treasury red tape, to spend our cash how we like, will show Levelling Up in action.

Third, I believe Truss is willing to do what it takes to seize the opportunities offered by Net Zero. Under her leadership we will see decisive action to reduce the UK’s dependence on fossil fuels – critical if we are to help those on low incomes cut their energy bills. The Government will double down on helping businesses to decarbonise, cutting their costs, just as we’ve piloted in the Black Country. And we will see new investment in public transport schemes ­– like building the Midlands Rail Hub, which will ease congestion, help people save money, time, and reduce their carbon footprint.

Finally, we need a PM whose leadership will be driven by values, and who will uphold our nation’s stature on the international stage. As she has shown when facing down Vladimir Putin, Truss is not afraid to stand up for our values. As Prime Minister I believe she will continue in that vein, ensure standards in public life, and battle for the values that have made Britain a modern, inclusive society.

Those are the reasons I think Truss can deliver for the UK and the West Midlands, but why do I believe she can deliver at the ballot box too?

Truss showed loyalty to the Prime Minister and laid out her stall for leadership after he had resigned. As a result, she is more able to draw a line under the past and, as a new leader, people will judge her on her merits.

She has an optimistic vision that can resonate with the electorate. She has the grip necessary to get our Government firing on all cylinders, to deliver tangible results that will impress voters.

Most crucially, she has the ability to connect with people. By appointing a cabinet of talents, she can unite our party and inspire the grassroots. By demonstrating her commitment to strong values in Government, and to improving our nation, she can reach out to resonate with the regions. That will be critical to success at the ballot box.

The Commonwealth Games were a confident, energetic triumph that celebrated both unity and diversity, illustrating the tangible results of investment while promoting our values to a global audience. In a way, they were an exemplar of what the UK can be.

Fittingly, this weekend I was able to welcome Truss to the Games ­– and what better place to think of her commitment to the regions, as it was her who signed the letter confirming Government funding for Birmingham to host!

She recognises the potential of the regions. I believe she is now committed to building on what we have already achieved here, delivering for the West Midlands, the Conservative party and the nation.

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Energy bill boycotts. Blackouts. Decline. Our next Prime Minister faces a winter nightmare.

10 Aug

In late 1973, Edward Heath called a secret Chequers meeting for the chairmen of BP and Shell. Facing the Arab oil crisis, soaring inflation, and striking miners, Broadstairs’ favourite son wanted the two companies to not cut their supplies to Britain as they planned to do for the rest of the world. The British state owned at least 40 percent of both. Surely, Heath thought, he could rely get these two chaps to do right by their fellow countrymen?

No dice. Shell, being owned 60 percent by the Dutch, were not wooable by tepid English hospitality. BP’s chairmen indicated that such a move would see the company’s sections in France and West Germany nationalised. Wanting to avoid a row with his new bedfellows in his sainted Common Market, Heath backed down. His plan was unreasonable and unworkable. But at least he tried to do something.

Today, we face an energy crisis of similarly terrifying proportions. This crisis comes as an aftershock to others: Covid, spiralling inflation, and Russia’s invasion of Ukraine. It has two inter-linked elements: surging costs of energy bills for consumers and potential energy rationing and blackouts this winter. If action is not taken urgently, the prospect is raised of widespread energy poverty, economic stagnation, and a serious breakdown in law and order. All of which won’t be dandy for Tory prospects.

Yesterday, the consultancy Cornwall Insight made headlines with their prediction that the energy price cap would reach more than £4,200 early next year. The cap is £1,971 now and expected to hit at least £3,300 in October. For context, it was £1,138 April last year. This is a rise that millions simply can’t pay. Mass boycotts or mass defaults – they amount to the same thing. To prevent the system collapsing, huge intervention by the Government will be required to pay peoples’ bills.

Ministers also face the prospect that this winter might see the lights go out. As James Forsyth has highlighted, we are better positioned than most of our European neighbours as we rely less on Russia for our gas. But we do so by relying disproportionately on Norway. This week, they announced they will prioritise refilling domestic reservoirs over exporting hydropower to the UK. We import vast quantities of energy during the winter. If Norway, Belgium, and other providers begin limiting supplies, we will face shortages.

And so, as skies darken, temperatures chill, and Noddy Holder shrieks out of our radios, Downing Street’s latest temporary resident will face a situation analogous to Heath’s tangle with the Three-Day Week. Germany faces a reduction of 20-30 percent in gas supplies as Russia tightens the screw. Industry is being asked to make huge reductions in gas use to protect consumers, care homes, and hospitals. There is not yet any suggestion that the situation will get that bad here. We will see.

Costs and disruption will be disastrous as we diminish further into recession. The prospect of millions being unable to pay their bills is simply unprecedented. As ever, our columnist James Frayne was ahead of the curve. He has raised the spectre of vast numbers of those on middling to lower incomes choosing not to pay their bills. Since then, this feeling has manifested as the anonymously-run Don’t Pay UK campaign. It aims to have a million signed up to cancel their direct debits by October if bills aren’t cut.

They currently have 94,000 signatures. Matthew Lesh of the Institute for Economic Affairs had an excellent rundown yesterday of the campaign’s flaws. As well as giving false hope to many vulnerable people, it will lead to boycotters seeing late payment fees, visits from the bailiffs, and even having their energy cut off. By focusing the public’s ire on the energy companies, it also ignores consumers’ ability to contact their suppliers for help. The situation is grim, but not hopeless.

Nevertheless, whilst Lesh is right to point out the campaign’s flaws, I feel he almost underplays just how serious a problem these boycotts could be. The comparison has been drawn with the socialist frothing against the Poll Tax. In their minds, leftie campaigning was to blame for up to 30 percent of ratepayers in some areas failing to cough up for Thatcher’s folly. Unsurprisingly, their take on history is not wholly accurate.

Instead, as more and more ratepayers became aware of the inefficiency of local councils in collecting the tax, increasingly large numbers chose not to pay. Local councils were ineffective in enforcing payment with so many not doing so. Failures to register, endless efforts at hauling people to court, and subsequent non-compliance meant that by November 1990, South Yorkshire policy admitted that they planned not to arrest even those defaulters that they had been told to do so by the courts. It was simply “physically impossible”.

Fast forward to today. If a similar phenomenon develops, the energy companies, the justice system, and the Government will be physically unable to cope. In a country where petty crime has effectively become legalised, who fears a ticking off from British Gas? Unlike in 1990, the Government cannot simply introduce another tax or borrow more to replace a failed policy. The energy companies are private companies. If people don’t pay, it is a genuine crisis of capitalism.

What can be done? One could imagine Boris Johnson imitating his predecessor, calling the energy bigwigs to Chequers and imploring them to act. But it would be pointless. Only 3 percent of energy bills comes from their profits, and they face the collective problem of spiking wholesale prices. Anyway, Johnson is currently more interested in playing Top Gun and Dad-dancing than in managing this crisis – especially as he will be out of Number 10 before the full impact of these bill hikes hit. Why should he care?

So the challenge will fall to his successor. The problem for them both is that neither really understands what the public are demanding. Truss wants to do too little; Sunak wants to act too slowly. In suggesting she opposes further handouts and will prioritise reversing her rival’s rise in corporate taxation, Truss appears not to have grasped the scale of the coming problem. But Sunak’s desire to wait until October to announce further action ensures two months where support for boycotts can grow. His Treasury-brain won’t compute that speed is a necessity.

Polling from Public First suggests the public wants a scale of government intervention comparable to that of the Covid pandemic. They will be outraged if their new Prime Minister prioritises cutting taxes on big businesses whilst they cannot heat their homes. They will not give a flying fig if MPs are babbling about the Laffer curve whilst they can’t feed their kids. They understand that the £15 billion package announced by Sunak in May does not cover the rise – if they think about it at all.

Yes, another huge bout of government intervention could lock inflation in for the foreseeable future, potentially trapping us in a seventies-style wage-price spiral. But we have already seen Sunak stand up in a national crisis and tell us he would do “whatever it takes” to get us through it. And the apparent £30 billion windfall from higher tax receipts that Truss to blow on appeasing backbenchers will have to be directed towards further handouts. It is better to acknowledge this now than be forced into a humiliating u-turn once in Downing Street.

But our next Prime Minister will enter office amidst crisis, disillusionment, and with a British state barely able to fulfil basic tasks. They will not, whatever their hopes, reverse our obvious decline. They are fated to be a Heath, not a Thatcher. They must try their best and be seen to fail. They must wake our stagnant party up by showing it the scale of the challenges we face. And then, and only then, might we have a leader ready to do what is needed to fix our broken country.

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Ryan Bourne: Anti-Truss commentators should try to understand nominal GDP targeting

10 Aug

Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.

Want an example of economic fatalism? Just read reactions to Liz Truss criticising the Bank of England’s inflation performance.

Truss suggested that rocketing prices necessitates reviewing the Bank’s mandate and learning from countries that haven’t endured double-digit inflation despite global supply-shocks. Shrill commentators react with knee-jerk horror, as if this must mean politicians setting interest rates, sacrificing the Bank’s independence and (heaven forfend) risking monetary credibility. Yes, the current regime might have delivered 9.4 percent inflation and rising, but why hope to do better? To question the Bank is to undermine it!

This is silly, of course. Credibility is earned. For the Old Lady, some soul-searching is necessary. With politicians talking about having to raise taxes to curb inflation, something has gone badly wrong. Whether it’s the Bank’s forecasting models, the 2 percent inflation target, or the tools used to hit it, the alleged advantages of central bank independence haven’t materialised. Autonomy promised to insulate us from wishful forecasts and allow the Monetary Policy Committee (MPC) to take away the punchbowl before the party got out-of-hand. It didn’t this time, on either count.

Team Truss doesn’t have all the answers, but good on them for asking questions. An intriguing staffer’s quote specifically implied she wanted to investigate changing the Bank’s mandate from inflation targeting to a nominal GDP level target. This is something I’m convinced would be an improvement, but one unlikely to satisfy the Bank’s most hawkish critics.

Right now, the Bank has a 2 percent inflation target. When a demand-shock raises aggregate spending and so prices, the Bank should tighten monetary conditions to offset this and keep inflation at bay. So far, so uncontroversial. The difficulty comes when a negative supply-shock such as an oil price surge or a major war disrupts supply-chains and raises costs. If the Bank is strictly targeting inflation, it should similarly tighten policy against this one-off price uplift, so that other non-oil prices fall, keeping annual inflation at bay.

In a world where some money wages are sticky (i.e. not fully flexible downwards), squeezing aggregate demand through tighter money on top of the worsened supply would reduce employment and output sharply. Pure inflation targeting therefore makes output more volatile when supply-shocks occur. The same is true inversely: if a new technology causes productivity to boom, lowering prices, then an inflation-targeting central bank must try to push the price level back up, eroding the consumer benefits of lower prices and exacerbating the business output cycle.

Central bankers are aware of this problem. The Bank’s remit even allows it to give “due consideration to output volatility.” When instances like the Ukraine war hit, the practical consequence is that we essentially abandon inflation targeting, with the Bank instead trying to parse supply-shocks from demand-shocks. They’ve proven poor at doing so arbitrarily, keeping demand policy too loose even accounting for supply problems.

The Bank governor won’t admit this publicly, but we’d have above-target inflation today even if the war and pandemic hadn’t cratered supply. Inflation is caused by too much money chasing too few goods, and we’ve suffered both squeezed production and excess demand. Not only have supply disruptions raised prices and lowered real output within money GDP growth, but the overall nominal GDP level (a good proxy for aggregate demand) has raced ahead of its pre-crisis trend. Monetary policy, by pushing spending higher, has therefore not just failed to counteract the rising price level caused by the war and pandemic, but has actively exacerbated inflation.

That rather uncomfortable truth – that the Bank should have tightened policy sooner to choke off excess demand, even if it tolerated supply-shocks – has not been articulated by Andrew Bailey. Yet last week’s monetary report showed that the MPC will now slam on the demand brakes harder than its forecasts imply is necessary to return inflation to target. Presumably, this is an admission of past failures – an attempt to look tough and strengthen its inflation-fighting bonafides.

A nominal GDP level target is interesting because it would have avoided all this supply-demand confusion by crystallising the trade-offs into one, simpler target.

Rather than inflation at 2 percent per year, the Bank would aim for a steady growth in overall economy-wide money spending (nominal GDP, or aggregate demand). In essence, the Bank would only try to squeeze inflation out when demand was expected to rise above target.

When oil price spikes hit, that nominal GDP target would be composed of more inflation and less real output. Higher prices would be tolerated. In years when productivity growth was strong, such as through the pre-2008 period, nominal GDP would be made up of less inflation and more real output. The Bank would let consumers benefit from lower prices by running tighter policy than under inflation targeting.

Under this mandate, the Bank would have a greater clarity of purpose under supply-shocks, with a mandate that reduced output volatility. By just looking at nominal GDP, the MPC wouldn’t need to second guess what price rises to ignore and what to react to. Overall spending would be its concern.

If this had been in place, the Bank would have been touching the brakes earlier through last year as indicators flashed that nominal GDP was surging and heading quickly above its pre-pandemic trend. Of course, nominal GDP itself is only estimated imperfectly and forecasts of it are often wrong. But issues of estimation aside, the Bank would have only worried about excess demand. To the disappointment of those who detest any periods of  inflation above 2 percent, the Bank still wouldn’t have tried to choke off the higher prices caused directly by the pandemic and Ukraine war.

This, in fact, raises an obvious disadvantage to making this mandate change now. It might risk being seen by markets and the public as merely “going soft” on inflation given our recent experience. Such a mandate would have probably led to tighter policy last year than we actually saw, but in principle it would be more tolerant of rising prices in the face of oil shocks than the inflation target we have on paper.

This nuance is one reason why a knee-jerk defence of the Bank’s performance is so destructive. Mainstream commentators’ wailing about Truss proposing a mandate change have ignored that she’s actually pondering a pragmatic shift that would have aided the Bank to deliver what it tried to achieve, but didn’t. Behind the tough talk and Bank criticism from Team Truss, this proposed mandate would be more forgiving than pure inflation targeting should be when oil prices spike, so is better suited to the difficult situation we’ve faced.

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‘Trussonomics’ sounds good. But it does not recognise the dire economic situation we face.

5 Aug

When Andrew Gimson and I interviewed Liz Truss last week, there were a variety of interesting topics on which we could have focused. We could have asked about her Damascene conversion to Toryism in the dying days of the Major government, or her zeal for challenging the Northern Ireland protocol. We could have quizzed her on her favourite Taylor Swift album, or inquired as to who she thought was going to win Love Island.

Instead, we spent most of the interview talking to her about ‘Trussonomics’: the heady mixture of tax cuts, changes to the Bank of England’s mandate, and supply-side reforms that she thinks Britain requires to get moving again. It was not as immediately exciting as discovering whether she preferred Red, Folklore, or Reputation. 

But I’m glad that our conversation went down that route, since yesterday saw two significant interventions that make Truss’s plans seem both increasingly unrealistic and unwelcome in our darkening economic climate. One intervention was monetary, the other intellectual.

The first was the Bank of England’s monumental decision to raise interest rates by 0.5 percent – the biggest rise in 27 years. Alongside this, the Bank announced it expects inflation to reach 13 percent, based on energy bills hitting £3,500 in October. This would lead to a recession lasting through the last three months of this year and the whole of next year – the longest downturn since the 2008 financial crisis.

All thoroughly depressing. That is especially as new analysis from the National Institute of Economic and Social Research predicts such a recession could leave over 5 million households without savings next year, shrink average incomes by 2.5 percent, and leave the lowest paid on the verge of poverty.

That is why that other aforementioned intervention deserves listening to. This was an article by Nigel Lawson, Margaret Thatcher’s longest serving Chancellor, in yesterday’s Telegraph.  In it, Lawson backed Rishi Sunak, and explained why he believes his fellow ex-Chancellor has learnt the economic lessons of the last few decades much better than his rival.

The man who gave us the biggest bang in 13 billion years, a 40 percent top rate of income tax, and, erm, Simply Nigella highlighted the contrasting approaches of two Tory Chancellors he observed first-hand: Anthony Barber and Geoffrey Howe. For Lawson, Barber’s approach best resembles Trussonomics, whilst Howe’s best reflects its Sunakian counterpart.

In his 1972 budget, Barber notoriously launched a ‘dash for growth’. He set growth targets of 10 percent for the following two years and shaved £1 billion off income tax. This came alongside his major liberalization of the banking system the previous year under the title of ‘Competition and Credit Control’ which had seen bank lending rise from £71 million to £1.33 billion. The money supply grew by 25 percent from 1971 to 1972 alone – the equivalent of the total growth in the three years leading up to 1970.

With all that stimulus, it was no shock that the economy grew by 4.32 percent in 1972 and 6.52 percent in 1973. But, just as unsurprisingly, inflation roared out of control – 7.07 percent in 1972, 9.2 percent in 1973, and 16.04 percent by 1974. All of this was exacerbated by the departure from fixed exchange rates in 1972 and the quadrupling of oil prices following the 1973 Yom Kippur War.

Within 15 months, Barber was introducing deflationary measures and Edward Heath’s government was forced into an incomes policy it had been elected to oppose. As Lawson notes, it was Barber’s failure that did more than anything else to convince many Conservatives that Keynesianism was dead and that monetarism was the necessary tonic for Britain’s economic woes.

So with Margaret Thatcher, Geoffrey Howe, and Lawson in office, so followed the notorious 1981 budget that raised taxes during a recession, designed to cut public sector borrowing, help curb inflation, and reduce interest rates. Only once that was done could Howe and Lawson be sure of the economic stability required for growth and tax cuts.

Lawson was right to draw parallels between then and today. For ‘Competition and Credit Control’, substitute the £360 billion by which the Bank increased the money supply in 2020 – more money than in the previous eleven post-crash years put together.

For Barber’s income tax cuts, read the £30-40 billion Truss wants to slash. For his ‘dash for growth’, swap in Truss’s identification of “a lack of economic growth” as the “number one problem in this country” in her interview.

Like Barber, Truss wants to go for growth. And like Barber, she wants this expansion to occur in an economy already suffering from an unprecedented monetary surge and a looming energy crisis. With rates expected to continue rising towards 3 percent as a recession looms, that outlook is only getting gloomier.

The apostles of Trussonomics would argue that her approach would bring enough growth to enable us to nip this stagflation in the bud. I am skeptical. Reversing tax rises designed primarily to raise revenue would mean the budget deficit and thus the national debt would increase more quickly.

Hoping to pay this off through greater headroom following higher tax receipts due to inflation bringing more taxpayers into higher tax bands through fiscal drag is misguided. The cost of servicing government debt goes up with interest rates. Already, as Sunak pointed out in the spring, that spending has quadrupled to hit £83 billion this year – exceeding the costs of schools, the Home Office, and the Ministry of Justice.

Truss’s proposals would only add to that burden, whilst boosting inflation and failing to boost growth. Sajid Javid has backed them; they reflect his own thinking. In a variety of Cabinet roles, he has backed increased borrowing and tax cuts to stimulate the economy. It was a potentially viable approach in an era of record-low interest rates and small, but real, economic growth. But that era is over.

Lawson is therefore right to argue that it is Sunak who has understand the demands of the moment better than his competitor. Getting inflation down is crucial. It is a cancer that disrupts the entire economy unless it is excised. Doing so will involve stringency on the part of the Bank of England, and tax rises on the part of the Treasury. As painful as it is, we must get borrowing, inflation, and ultimately interest rates down.

And whilst Trussonomics amounts to an attempt to stimulate growth in the short-term, Sunak at least has a plan to do so over the long-term, by encouraging business investment through policies such as his record super-deduction. As he laid out in his Mais lecture earlier this year, boosting business investment, increasing research and development, and tackling our anaemic productivity will do more for our growth and competitiveness than any crowd-pleasing tax cut now.

There are many good reasons to vote for Truss. She is a forthright on the culture wars, firm on the Northern Ireland Protocol, and a principled opponent of Russia and China. But her economic proposals are should not count in her favour. They sound good, but they do not recognise the needs of the moment. Party members have a duty to critique her on then over the next few weeks.

Sunak is flawed. His pandering to the Green Belt lobby would have made me a committed Truss-ite had she not been just as vague on how she was going to build more homes. There is a reason why ConservativeHome has not yet backed a candidate, if we choose to do so at all. Nevertheless, on this present crisis, he has the fundamentals right – and it is how the Government handles this mess that will decide whether it has even the remotest chance of being re-elected.

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Will Tanner: Both candidates must vow to end Britain’s neglect of its scientific capacity

4 Aug

Will Tanner is Director of Onward and a former Deputy Head of Policy in Number 10 Downing Street.

Two questions above all others animate this Conservative leadership contest: how to revive Britain’s woeful rate of economic growth, and how to secure Britain’s interests in a global order that is decreasingly Western.

Not for nothing have the biggest fireworks between Liz Truss and Rishi Sunak so far been around tax cuts and standing up to China.

But national prosperity and security depend on much more than headline rates of corporation tax and diplomatic assertiveness. Much more important is a country’s ability to operate at the scientific frontier, developing new technologies that can dominate future markets and applying existing innovation to improve national competitiveness.

Industrial revolution is what made Britain a superpower in the 19th Century and it is what will keep us there today.

Yet in the last few weeks, science, and innovation has proved the proverbial elephant in the husting. Party members have heard almost nothing from either candidate on how they will protect, or enhance, the UK’s scientific reputation or transform investment in R&D. This is despite the fact that Britain has been mostly neglecting its scientific capacity over the last three decades, while our competitors have been massively tooling up.

As Onward’s new paper Rocket Science shows, the UK used to be one of the most research-intensive economies in the world. Until the 1980s, we spent more on R&D than Japan and only slightly less than the United States, at around two per cent of GDP. Since then spending has flatlined, while countries like Israel and South Korea have more than doubled their innovation capacity to nearly five per cent of GDP.

The UK is the only major scientific economy that spent less, on average, on R&D during the 2010s than it did during the 1990s.

Thanks, in fairness, to Sunak’s decision to almost double government science spending to £22 billion by 2024, public investment in R&D is starting to recover to an internationally-respectable level.

But business investment still lags badly behind other countries, pulling down UK productivity and competitiveness. Just 55 per cent of UK R&D is funded by the private sector, compared to 64 per cent in the United States and 79 per cent in China and Japan.

A crucial but as yet unanswered question for the two contenders is: how will you change that?

One option is to encourage universities to focus less on early-stage discovery and more at the “near-market” industrial frontier.

Politicians regularly tout the fact that the UK has 18 universities in the global top 100 for academia, but perhaps more germane to growth is the fact that just five feature in the top 100 for innovation. The UK files fewer patents as a share of GDP than most of our competitors, and has seen the ratio of patents to R&D spend decline consistently for the last two decades.

This is partly because the UK’s research funding system tends to reward citations and academic impact rather than patents, and partly because universities are forced to cross-subsidise research through revenue from foreign students, which both undermines institutions’ ability to hire and retain top researchers and creates a strategic dependency on the very country we are competing against, given more than a third of non-EU students originate from China.

Another option would be to more actively use public R&D funding to leverage in private capital, for example by making grants conditional on business match-funding or by funding national labs in areas of strategic priority – from quantum computing to genomics – that can crowd in private capital alongside.

This is closer to how the UK operated before the 1980s, through initiatives like the Microelectronics Industry Support Programme and the National Research Development Corporation, which co-funded R&D with private businesses and retained patents publicly.

Most importantly, though, the two candidates need to offer a long-term and cast-iron commitment to improving the UK’s levels of scientific competitiveness and certainty. The UK has one of the most complex policy environments for science (with seven different types of R&D relief, for example) and one of the most unstable, with new reliefs and strategies announced almost annually over the last decade.

Compare this to Japan, which has maintained the same R&D tax credit since the 1980s, and the problem becomes clear.

The “Science Superpower” agenda should not be alien to either Sunak, a former technology investor who studied at Stanford Business School, or Truss, a maths graduate who has been a fierce advocate for UK tech and STEM in schools. But it has so far proved curiously absent from either of their pitches to lead the country.

That is a mistake if they are remotely serious about either improving Britain’s long-term growth rate or competing with new world powers such as China.

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Grammar schools are not incompatible with the Conservatives’ educational revolution.

3 Aug

Both Rishi Sunak and Liz Truss have backed removing New Labour’s ban on new grammar schools. Sunak did so when asked by Nick Ferrari at the first leadership hustings, and Truss did so when asked by myself and Andrew Gimson in ConservativeHome’s very own interview.

That they did so is unsurprising. Few other policies – asides from declaring war on France, abolishing income tax, or reintroducing the Corn Laws – are as likely to get a roar of approval from the Tory faithful. Such shows of leg are easily made on the campaign trail, and then even more easily dumped as the distractions of government mutliply.

Nevertheless, it is interesting in light on the candidates’ own educational backgrounds. Much has been made of Sunak attending Winchester College, and whether it contributed to his, ahem, “shouty private school behaviour”. Having met him, I would say he is the first Wykehamist I have known since his good friend James Forsyth who isn’t an entitled and tedious Brideshead enthusiast. But don’t hold that against him.

Truss, meanwhile, has got into some hot water over her claim that Roundhay School, her old comprehensive, “let down” children whilst she was there. These claims have been criticised by both a current Tory councillor who attended the school, and the former MP. Whomever is right, one thing still stands: it was no longer a grammar school when she attended.

Like Sunak, she reflects the educational landscape after Anthony Crosland’s efforts to “destroy every fucking grammar school” – a world divided between private education for those who can afford it, and the local comp for (almost) everybody else, with almost 1,300 English and Welsh grammar schools lost, and only 163 left. I myself attended a public school, on a scholarship, having been state educated until the age of 11.

Fortunately, our reforms since 2010 have meant that the gap between state and private schools is not so stark. Since Gove, through supporting phonics, streaming, curriculum reform, academies and free schools, we have seen over 10,000 academy school places created, and standards raised across the country. By 2018, almost two million more pupils were in schools rated Good or Outstanding by Ofsted than in 2010. We now have Brampton Manor Academy sending more pupils to Oxbridge than Eton College

That might explain why some see the lifting of the ban on new grammar schools as a regressive measure. That is not because they necessarily see it as a step back towards the bad old day of a life-ruining Eleven Plus, crumbling secondary moderns, and tough-nosed teachers with mortar boards and canes. Instead, they see it as a narrow-minded retreat to an educational world before Gove’s life-changing reforms.

David Johnston, the MP for Wantage, didn’t resort to my lazy clichés when making his case against grammars for The Spectator. Instead, he eloquently argued that, when adjusted for backgrounds, grammars do little for raising attainment. He rightly highlighted that grammar schools today have five times the number of people that were at prep schools until the age of 11 than they do disadvantaged pupils, and that any programme of mass grammar building would require an awful lot of cash that we currently don’t have.

Nevertheless, Johnston misses some crucial facts about grammars today, and why lifting the ban would enhance the post-Gove educational landscape, rather than hinder it. As David Butterfield has highlighted, most counties no longer have grammar schools today, and those that do remain are overwhelmingly concentrated in wealthier, middle-class areas. Nearly a quarter are in Kent, and 45 out of the 50 most deprived upper-tier local authorities in England do not possess them.

This was not always the case. Butterfield pointed out, for example, that in 1959 60 percent of children in grammar schools in Yorkshire were the children of manual workers, at a point when 40 percent of pupils aged 15 nationwide were in grammars. Even more importantly, even in those grammar schools that exist today, the attainment gap between rich and poor is smaller than at all schools by a considerable amount – at only 4.3 percent, compared to 25 percent nationwide.

Why is this? The principle of selection means that focus can be directed at the naturally academic bright, whatever their background. If grammars were rolled out nationwide, I would not be surprised if their make up remained disproportionately middle-class. As Ed West has pointed out, middle-class children, on average, come from more literate households, read more widely, and possess a higher IQ. The more we learn about intelligence, the more it appears to be primarily genetic – and inheritable.

That could be used in a case against grammars. I disagree. Middle-class kids with pushy and literate parents will most likely be fine in whichever school you shove them, selective or not. But it is the bright children of disadvantaged or below-average IQ parents who lose out at schools where equality is placed before educational excellence. The purpose of selection is to provide them with the opportunities they would not otherwise have.

The coelacanth grammar schools we have today – living anachronisms from a past and damned age – are the post-code lottery at its worst, with parents shelling out on homes in catchment areas or tuition from just beyond the womb in order to get their kids to them and save on private school fees. Such was the world Crosland created (ably assisted, it must be said, by Margaret Thatcher).

The Cameroon answer to that question was to focus on raising the standard of all state schools, starting at the bottom – whilst studiously avoiding awkward questions over their own tendency to have attended private schools themselves.

Gove, the vessel for their aims but no Tartan Toff, has now been become so obsessed with his former quest to improve schools to have joined in Labour’s war on private schools. But removing charitable status from independent schools or charging VAT on fees will do nothing to better the life opportunities for the 93 percent of pupils not educated privately.

Instead, we can marry the free school revolution to the return of grammars. It was the fears of middle-class parents that their children would fail the Eleven Plus and be sent to an under-performing Secondary Modern that hastened the grammars’ departure.

So let us allow schools to become grammars if they like, selecting pupils based on ability. But let us also make sure that those who do not make the cut still attend schools that benefit from Gove’s reforms. Great schools for everyone, and selective schools for the more academic. The best of both worlds – and an end to Labour’s war on spiteful and erroneous war on educational success.

Or, if not the best world, then at least one where the contest to be our next Prime Minister does not dissolve into a meaningless squabble over who went where when.

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Sunak’s failure of imagination. He didn’t think that he would need to define himself to Tory members. So it’s now very late to stop his opponents doing it instead.

3 Aug

In his recent interview with Charles Moore in the Spectator, Rishi Sunak said that “I deliberately strived as Chancellor not to talk about things that were outside of my brief”.  This brief bit of a sentence, part of Sunak’s reply to a question about woke, explains why he is likely to lose this leadership election.

Neither of the two longest-serving recent chancellors, Gordon Brown and George Osborne, would have produced such a pared-back reply.  Actually, on second thoughts, they might have done – but only because they had expanded their brief to include matters that were originally nothing to do with it at all.

Take Brown’s tax credits.  In simple terms, they were a form of social security, usually but not always linked to work, for which the Treasury was responsible. (Or rather, HMRC was.  The Treasury answers for it in Parliament)

Now turn to Osborne’s Northern Powerhouse.  There is no reason why this scheme to link up urban areas in the Midlands and the North should have been masterminded from the Treasury, rather than from the Business Department or Downing Street.

Slate Brown turning a body that takes money in into one that also pays it out – and for making the Treasury the older brother of the Department for Work and Pensions (as he renamed it).

Or slag off Osborne for seeking to force elected mayors on areas that often had little enthusiasm for them, and creating the conditions for more urban Labour than Conservative ones.

All the same, both men were displaying a creative quality best called imagination – the power to conjure something out of nothing, and thereby “make the weather”, as Churchill said of Joe Chamberlain.

Another way of pondering the role of imagination in public life is to think about telling a story.  “My tax credits are part of New Labour’s mission to help make work pay, and so deliver economic opportunity and social justice,” Brown might have said.

And Osborne could have said that “our Northern Powerhouse is part of the Conservative commitment to spreading prosperity throughout the country, by joining up our great midlands and northern cities to produce more wealth, jobs and opportunity”.

Nor is imagination confined to Chancellors. Tony Blair had it in spades, Margaret Thatcher even more so.  Ronald Reagan had his “shining city on a hill”.  De Gaulle had his “certain idee de la France”. You will see where all this is leading.

I like Rishi Sunak, and this leadership election has confirmed that he is slick, smart, sharp and fantastically across his brief.  Nonetheless, he seems to be losing the contest, and has explained why himself.

For let me now give you the complete quote which contains the fragment with which I opened this article.  Sunak said the following –

“I deliberately strived as Chancellor not to talk about things that were outside of my brief, because every time I did it, or even remotely did it, everyone would start saying: ‘Oh, gosh, well, what does that mean?”

“And does it mean you’re interested in being leader one day?’ Now it’s painted as a criticism – ‘We didn’t hear enough from you on your views on, say, crime or migration’.”

And quite right, too, you may say: we’ve had enough of chancellors whose reach exceeded their grasp.  We need the traditional kind who sticks to his last in the Treasury, and keeps his fingers out of other Ministers’ pies.

Perhaps – but this model didn’t exactly worked well for Sunak, at least if relations with his colleagues are concerned.  Look at the long line of them queueing up to endorse Liz Truss.

Sure, Ben Wallace in government, say, and Tom Tugendhat outside have an obvious motive: they don’t want to get on the wrong side of the likely winner.

But there’s more to the matter than that.  Talk to their friends, and you will be told that they found the Chancellor inflexible when in dealings or negotiation.

Now I am firm, you are stubborn, and he is bloody-minded, as the old saying has it.  Intransigence is in the eye of the beholder.  And many of those who worked with the former Chancellor support him enthusiastically, and give a different account.

All the same, Sunak’s conventional approach didn’t work well for the Government, either.  After all, if it had, he wouldn’t have resigned.

That isn’t to say that Boris Johnson was right about the economy and that his Chancellor was wrong.  Far from it, in my view.  But the differences between the two men might have been negotiable were they other than they are.

Johnson is intuitive, untidy and formed by the chaotic trade in which I work: journalism, with its hectic deadlines, literary feuds and last minuteism.

Sunak is methodical, neat and shaped by his experience as an analyst in the more consensual and corporate world of investment banking.

To be sure, he was telling Moore the truth, and revealing more than he perhaps intended, when he explained why he trod a narrow path as Chancellor.

For he had no career need to venture wider at the time.  He was a fantastically popular Chancellor, topping our Cabinet League Table until December 2020, as furlough money poured out of the Treasury.

That cramped path might have led from Number 11 to Number 10, had Johnson’s Covid illness been even more severe.  But then came Downing Street parties, the bills for Covid, a record tax burden, his wife’s non-dom status, a Green Card – and resignation.

By then, it was very late in the day for Sunak to start carving out a distinctive position on big subjects outside his brief: Net Zero, say; or levelling up or – to pick up where Moore’s question let off – woke.

All the same, he might have been able to do so (however firm, stubborn or bloody-minded he isn’t or isn’t) had he deployed just a bit more imagination, in the story-telling sense in which I’m using the word.

A friend of mine describes Sunak as “an investor, not an entrepreneur”, and as far as I know this is true of his Goldman Sachs and hedge fund work.

And just as being a journalist has shaped Johnson, so investing seems to have formed Sunak.  His bent is to look at an issue, analyse it systematically, and propose a solution, sometimes technocratic and instrumental in character.

So it is than in his Mais Lecture he declared that “businesses simply aren’t investing enough”, added that this is “a pervasive economy wide issue” and concluded that “it seems likely to me that a priority will be to cut taxes on business investment”.

Perhaps he was right to say that “it is unclear that cutting the headline corporation tax rate did lead to a step change in business investment; we need our future tax policy to be targeted and strategic”.

But it may be that he is underestimating the effect that big signals, such as raising Corporation Tax, have on business confidence and certainty.  This is where imagination comes in, or perhaps in this case may not.  At any rate, he now finds himself in a position where, if he can’t tell a story about himself, others will do so for him.

Sunak’s counter-gambit is to double down on jam tomorrow and gruel today, and present himself as the candidate of truth.  But it is late in the day.  His campaign may look better in retrospect, but it seems to be coming off worse now.  Truss may be less smooth but she’s shown more imagination – sometimes a bit too much so, as in the case of regional pay.

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James Frayne: Will levelling-up survive Johnson’s exist?

2 Aug
James Frayne is Director of Public First and author of Meet the People, a guide to moving public opinion.

Will “levelling-up” survive Boris Johnson’s exit? While both Liz Truss and Rishi Sunak have pledged support for levelling-up, neither candidate has prioritised it in this contest. This might simply reflect the obvious reality of this election: the need to announce right-leaning policies for right-leaning voters. But it’s hard not to sense levelling-up will be gently de-prioritised regardless of who wins.

Three big reasons stand out.

Firstly, most importantly, because cost-of-living is now the dominant issue nationally. That is particularly the case amongst working-class voters in levelling-up areas. As I have written before, anger is growing at the Government’s perceived failure (unwillingness, even) to reduce costs. In this context, the new Prime Minister might conclude levelling-up has been overtaken by economic events and simply preventing working-class families drowning is all that matters; levelling-up could seem like an irrelevance or a luxury.

If anything, this might be underplaying the scale of the problem. For cost-of-living won’t be the only massive issue the new PM deals with. They will also wrestle with ongoing war in Ukraine, the prospect of serious energy shortages, more strikes, and continued backlogs in NHS care. It might be levelling-up is allowed to get washed away in the mess of Government. Only a PM truly committed to the project – obsessed about it, even – would make progress on it.

Secondly, because favourite Liz Truss is known to be much more committed to classical-liberal economics. While she has given in principle support for major new investment in rail links for the North of England (the Northern Powerhouse Rail), her levelling-up policies lean towards pure free market economics elsewhere: she has effectively indicated she’ll cut the pay of provincial civil servants by introducing regional pay boards; and her commitment to levelling-up in a recent debate came in the form of prioritising low-tax zones and better education. In short, it feels like levelling-up is more likely to derive from national policies that will “raise all boats”.

There’s certainly a prospective levelling-up strategy grounded in free-market economics (by far the best advocate of this is Ben Houchen). But this would unquestionably take levelling-up away from its current focus on improving the daily lives of people in less affluent areas through incremental but meaningful change.

To many of those working on levelling-up at the Department and in Number 10, there was a belief in using the policy to re-build high streets, reduce anti-social behaviour in town centres and on estates, help small businesses, and more. This requires Government intervention in a way that seems unlikely to follow if Truss wins. In other words, the only thing the Truss approach to levelling-up and Boris Johnson’s approach will have in common is the name.

Thirdly, because I believe Truss doesn’t have the same instinctive understanding of working-class voters as Johnson had – and indeed as those that campaigned for Leave developed. Johnson came to understand working-class voters and their values and attitudes on the campaign trail in 2016 – and his ability to move them propelled him into Downing Street with a massive majority. I confess I’m not sure about this, but Truss doesn’t seem to share this basic, fundamental understanding. She may gain this of course.

There’s an additional factor that might see levelling-up de-prioritised: so few Northern and Midlands businesses have joined in the debate. Whilst some have campaigned for more action to be taken, not enough people in government have heard that levelling-up is a priority from businesses in the areas it is designed to help. Truss might reasonably conclude that there are other areas she ought to focus on (corporation tax, “red tape”, and so on).

We will find out very quickly whether levelling-up remains a priority. If it is a priority, Truss or Sunak will re-appoint Michael Gove and Neil O’Brien to the department – or appoint two politicians of similar ability and standing (with those two hopefully given big, reforming jobs elsewhere). If it is a priority, the new PM will give a speech in the Midlands or North very early on giving their firm commitment to the project – putting their own stamp on it.

Levelling-up can only work if the Prime Minister takes it so seriously they’re prepared to see most policy areas – or at least a good number of them – through the prism of it. For example, thinking about boosting high streets when they think about economic policy, or thinking about anti-social behaviour in town centres when they think about crime, or thinking about protecting old historic buildings in our towns and cities when they think about planning. I doubt this will be the case.

 

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