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.

Tackling unemployment might finally show us what sort of Conservative the Prime Minister really is

23 Feb

As the Prime Minister set out his roadmap out of lockdown in the House of Commons yesterday, there was for the first time a real sense that the nation might actually be on the path back to the distant, half-remembered state of ‘normal life’.

But today’s unemployment figures are a sobering reminder of the serious challenges the Government will face even when, deo volente, we have finally brought Covid-19 under control. According to the BBC:

“The Office for National Statistics said 1.74 million people were unemployed in the October to December period, up 454,000 from the same quarter in 2019. The figures show 726,000 fewer people are currently in payrolled employment than before the start of the pandemic. Almost three-fifths of this fall, 425,000, has come from those aged under-25.”

The figure for young people should be especially concerning. Voters in that age group are already deeply reluctant to vote Conservative, and have made huge sacrifices to protect older citizens during the pandemic. If ministers allow a joyous unlocking for some voters to be simply a transition to further economic hardship for others, they risk alienating an entire generation.

Fortunately, the ONS also reports that there are ‘tentative signs’ that the employment market is stabilising. But decisive action will be needed. We have previously explored what it might be, and looked at the measures already covered in the Plan for Jobs. Centre-right think-tanks such as the Centre for Policy Studies have also published their own proposals in reports such as After the Virus and A Northern Big Bang.

The Budget will therefore be illuminating because it might start to give us a firmer idea of what ‘Johnsonist’ economic policy might look like. Freed from the exigencies of the pandemic, the Prime Minister will have to start making more obviously ideological decisions than he has to date. Will he rely on traditional Tory measures, as the CPS would doubtless prefer? Or will he seek inspiration from John Maynard Keynes, as Jacob Rees-Mogg advises in our latest Moggcast?

A man with Johnson’s sense of history will know that his legacy may depend on getting it right. Memories of the Conservatives’ hard-nosed attitude towards unemployment in the 1980s (however justified) helped to lock the Party out of many of the ‘Red Wall’ seats he captured in 2019. Voters will be swift to punish, and slow to forgive, a perceived relapse to being the ‘same old Tories’.

Andy Street: I haven’t raised a mayoral tax during my term, and commit to not doing so if I’m re-elected

23 Feb

Andy Street is Mayor of the West Midlands, and is a former Managing Director of John Lewis.

As we await next week’s Budget from the Chancellor, here in the West Midlands we’ve just considered our own local financial plans for the next year. Approved by the West Midlands Combined Authority (WMCA), it is a budget of more than £900 million – funding infrastructure, regeneration and job training schemes that can support our post-Covid-19 recovery.

After such a difficult twelve months, and with significant challenges ahead, this year’s financial plan for the region stands out in terms of its ambition and breadth, delivering on my core commitments of new jobs, better transport and more homes.

But our plans aren’t just about big spending to kick-start the economy, they’re about public funds working hand-in-hand with private sector investment. This is about delivering investment into projects that are based on solid business cases.

In this column, I want to tell you about how we intend to spend that investment and also explain how, as Mayor, I believe it’s vital that I set a financial example to ask only for money when it is needed – and ensure it is used properly.

So what’s in the region’s budget? For a start, there is £142 million towards skills and training – to support people as they adapt to the new world we face and get high-quality, stable jobs in the industries of the future.

Despite the pandemic, we have already made a good start on the 20-year transport plan that I unveiled 12 months ago, and this budget includes a further £363 million towards delivering our ever-expanding Metro lines, reopened railway stations and better, greener buses.

Then there is ‘brownfield first’, our ground-breaking policy of reclaiming derelict industrial sites for development. Our budget includes £116 million towards maintaining our progress in making ‘brownfield first’ a reality, not a slogan – regenerating communities and easing the pressure on our Green Belt.

Plus, of course, millions have been allocated to other big regional investments we have secured, for a whole raft of projects that are generating jobs and sustaining livelihoods now – projects such as the Commonwealth Games, Coventry City of Culture, the rollout of 5G technology and many more.

All told, since becoming Mayor four years ago, we have brought in £3 billion of new Government funding, a figure rising every day, and topped up with millions more given to our councils, and supported by us as a regional body.

When the pandemic struck, the West Midlands economy was motoring, with record employment, record housebuilding and the strongest growth anywhere outside of London. Government support played a huge part in that success, but I believe that our ability as a region to put together compelling business cases has been crucial to winning that investment. Now, as we plot our recovery post-pandemic, this approach will be more important than ever.

It’s not surprising that I do things differently as Mayor, when you consider that I came to the role from a business background, rather than via the world of politics. My business experiences have certainly informed how I tackle the role, in terms of setting strategy, building a team, ensuring delivery and understanding that the UK’s regions are in a competitive race.

However, in financial terms, my 30 years at John Lewis have meant I build a budget based on business deals, not political decisions. Every penny we have brought into the region has been won through coherent business arguments, project by project, and working hard to make the case with Government.

Throughout my time as Mayor, I have worked with Ministers to secure the funding we need from across Government. I haven’t done this through megaphone diplomacy, or seeking out TV cameras to make demands, but through approaching each project as a business deal – and making sure we land as many as possible. Naturally, this approach also knits well with the business world, leading to big private sector investments which drive our economy forward.

There could have been another way. When it was established in 2017, the office of the Mayor was given considerable powers – powers I have often argued should be extended, for example to decentralise decision-making from London, or to give regions more ability to direct how money is spent locally.

However, there is one significant area where I have not used the powers on offer to me. During my time in office, I have not used the ability available to the Mayor to introduce a precept – an additional Mayoral tax.

In the last four years I have never used this power to tax the people of the West Midlands and, where we have borrowed, it has been to push forward projects – and never at a rate which means citizens end up with a precept.

Our model of retaining local business rates has also helped balance the books, by ensuring we benefit from the fruits of our strong economic growth, paying in part for the work of the WMCA.

I could have got our region into heavy debt to make my transport plan happen, or raised extra taxes to press ahead with Brownfield First. As a person with a business background, and someone who believes good housekeeping, this hasn’t been my way. Areas served by Labour mayors levy a precept. This has not happened here.

As households across the region face the hardships caused by Coronavirus, I’m proud to say that this year we have once again balanced our books and delivered a budget that hasn’t cost local people a penny in extra tax from their Mayor.

It is an approach I want to continue. After four years of no extra tax due to the Mayor’s office, I am planning to do the same again if I am fortunate enough to continue in this job – that’s zero tax again for another three years. I do not intend to introduce a precept.

I consider it a great privilege to be the Mayor of the region where I grew up, the place that made me what I am. I passionately believe that the office of Mayor should exist to the benefit of local people, not to their cost. By continuing to approach this job in a business-like way, I am confident I can continue to bring real money into their region, without taking it out of their pockets.

The Universal Credit Uplift. Easy in, but not easy out.

8 Feb

We can’t speak for other enthusiasts for the free market economy – including Allister Heath, our columnist Ryan Bourne, and John Redwood – who urged unprecedented state intervention when the pandemic broke.  (As we did: the economy was undergoing the equivalent of a heart attack, and needed emergency surgery urgently.)

But we believe that they also knew well that, when it comes to the expansion of government, it’s easy in, but not easy out.  Of which the Universal Credit uplift is providing a classic illustration.

The Benefits Uprating Order is being considered in the Commons this week, but a decision on the uplift’s future has been postponed.  Ministers are telling Conservative MPs that “a decision regarding its future will be made in due course…it is only right that we wait for more clarity on the national economic and social picture before assessing the best way to support low-income families moving forward”.

On the one hand, that is not a principle that has been applied to other benefits.  On the other, Universal Credit, though paid to some people who don’t as well as to some who do, is becoming the main employment-related benefit.

In the summer of 2019, 33 per cent of those receiving Universal Credit were in employment, and 41 per cent were in the Searching for Work conditionality regime.  That snapshot from before the arrival of Covid-19 gives a sense of what the payment does and where it was going.

But pandemic has exploded figures like those.  At the start of the pandemic, about three million people were claiming it; now, that figure has all but doubled.  Unemployment has already hit five per cent, or 1.7 million people.

However, this uncertainty isn’t the main reason for the delayed decision on uprating.  The driver of the pause is an institutional clash between the Treasury, the guardian of the public finances, and the Department of Work and Pensions, the steward of what goverments used to call the social security system.

Rishi Sunak has floated one-off payments to keep down costs to the taxpayer (or such has been the briefing); Therese Coffey has said that these are not her “preferred approach” (no briefing here: she said so publicly last week to the Work and Pensions Select Committee).

She can point to Universal Credit as one of the government’s pandemic success stories – the main one, arguably, before the vaccines came along.  As Iain Duncan Smith wrote on this site, “on the old system, these claimants would have to be processed physically ,and the queues and chaos at job centres would have dwarfed anything we have seen so far, as well as increasing infection rates”.

It can be argued that the payment does not target our poorest people.  Philippa Stroud, formerly Duncan Smith’s adviser when he was Work and Pensions Secretary, has put that case.

“The Government could decide to focus on those who are moving in and out of poverty and close to the labour market (the top seven million). That is in effect what the £20 uplift has done in Universal Credit. Or, it could decide to focus energy and resources on those in deep poverty – those who are 50 per cent below the poverty line (bottom 4.5 million),” she wrote on ConservativeHome.

“This is the most vulnerable group and where I would put my energy and effort at a time of national crisis.”  However, the poorest are not necessarily those who have been hit hardest by Covid.

Stroud is now at the Legatum Institute, and a recent report from the think tank found that “poverty has reduced among some groups…this is because many non-working families have seen their benefits increase, meaning that they are less likely to be in poverty than would have been the case in the absence of the Covid-19 pandemic.”

The story of the Coronavirus continues and all judgements must be provisional.  But our take on the virus so far is that manual workers, younger people, women, and a section of the self-employed have been disproportionately affected in economic terms.

A substantial slice of these are the battlers, strivers and just-about managings of electoral legend.  And the number of them on Universal Credit has soared – as we have seen.  They will be well represented in the Red Wall and other former Labour seats in England’s provinces in which the Conservatives did so startling well at the last election.

The debate that Stroud wants about anti-poverty policy is made harder, she argues, by the absence of an offical measure of poverty – abolished in 2016.

“We are allowing others to create a narrative for us, and in the absence of an agreed poverty measure and subsequent strategy, we always will,” she says.  She champions a new measure from the Social Metrics Commission which she has helped to drive; the Centre for Social Justice disagrees, arguing for a focus on outcomes that reduce family breakdown, addiction, worklessness and poor schools instead.

We wrote yesterday that if Boris Johnson wants to take healthcare policy left (which Ministers are denying), Parliament will probably let him do so.  It may be a different matter with the Universal Credit decision.

Our sense is that Conservative backbenchers, as so often, will be driven by their constituents’ immediate needs, first and foremost.  Maybe there is some one-off compromise – the Prime Minister’s reflex will be to hunt for one – that involves some new scheme, such as that floated by the Centre for Policy Studies.

But it is hard to see how the Government can avoid running the uplift for another year: the alternative of doing so for a few months, which would do little if anything to abate the political pressure on Ministers, doesn’t look appealing.

We end where we began.  Once benefit payments have been raised, it is difficult to cut them.  The conventional means of establishing control is either to freeze their value, or replace them altogether – while getting more people into work.  That’s part of the recent story of benefits, through Peter Lilley’s reform of incapacity benefit under John Major to the Employment Support Allowance of the Labour years.

So much for the short term.  What about the medium?  Is the divided backbench reaction to Marcus Rashford’s campaigning the shape of things to come, with Tory MPs taking a less stringent view of welfare than during the years of much higher employment?

Howard Flight: Priority spending should go towards training the next generation

1 Feb

Lord Flight is Chairman of Flight & Partners Recovery Fund, and is a former Shadow Chief Secretary to the Treasury.

I submit that the most important territory to address when managing exposure to the pandemic is to ensure that the next generation is trained for worthwhile employment.

I question whether our reformed apprenticeship system is currently either achieving this or in the present context capable of achieving this. It is here that ongoing government management and funding are needed to finance and manage apprentices through their training courses.

My Livery company, the Carpenters, has for over a 100 years managed the Building Crafts College set up by Sir Banister Flight Fletcher. It has a leading reputation for the quality of its training. It has again just been closed due to the lockdown, although it is managing to continue with online teaching. Here I suggest pupils and staff might be empowered to hold their own vote on whether or not to stay open, with full protective clothing and gear provided. I could see an argument for government involvement in offering and financing apprenticeships.

Last August the Government set up a new online telephone support service for apprentices who have lost their jobs during the Covid-19 outbreak. The redundancy support service for apprentices should ensure they can access local and national services providing financial and other support to help them find a new job when they need this. Apprentices can also search and apply for other available apprenticeship opportunities across the country. I hope these support services are continuing during the lockdown.

Also, employers, large and small, have being encouraged to take advantage of generous new cash incentives designed to create more high-quality apprenticeship opportunities, so more people and especially the young can kick start a successful career. As part of the Government’s plan for jobs employers have being offered £2,000 for each new apprenticeship aged under 25 which they hire and £1,500 for each apprentice hired aged 25 or over up to January 31. This includes taking on an apprentice who has been made redundant.

For apprentices I submit government help and support should go further than this. It would be particularly positive if the Government could provide the finance for an apprenticeship and run a service placing young people seeking an apprenticeship – both those who have been made redundant and those new to the apprenticeship market.

The Government has been taking steps through its Plan for Jobs to both support and protect support jobs and to create jobs with a clear focus on ensuring people have the right skills to get into work. This includes creating more high-quality apprenticeship opportunities to help get our economy moving. The Redundancy Support Service for Apprentices should make sure those who have lost their jobs can get the help and support they need to get back on the path to a new career. These have now been damaged by the third lockdown.

Employers who have apprenticeship opportunities and who are willing to take on a redundant apprentice have also been encouraged to sign up to the new service and to advertise their vacancies. Apprentices who are looking for new opportunities can then see what is on offer.

The cash incentives for employers are in addition to the £1,000 payment for new 16-18 year old apprentices and those aged under 25 with an education, health and care plan. To support particularly young people affected by Covid-19, the Government introduced a portfolio of support covering £111 million cash boost to triple the number of traineeships available across England – the largest ever expansion of apprenticeships. The Government recognises we need to ensure more 16 to 24 year olds can get the skills and the experience they need to enter the world of work.

David Thomas: Five policies to help school pupils catch up after the Covid crisis

28 Jan

David Thomas is the headteacher of a secondary school in Norwich, and was awarded an OBE in 2020 for founding Oak National Academy – an online school to support children during the Covid-19 pandemic.

It is vital that our schools re-open as soon as possible. In many ways, however, re-opening is the easy bit. What we do to catch children up once they are back in school is much harder.

The majority of schools have done an excellent job at trying to keep children’s futures on track. But no matter how hard they may have worked, months of learning online is no substitute for months in the classroom. It is going to take more than goodwill to cancel out the impact of the pandemic on our children’s futures.

We should be using this period of school closure to think ahead and prepare to catch our children up when schools re-open. Here are some of the things the Government should be considering.

Triple the scale of the National Tutoring Programme

We know that one-to-one or small-group tutoring helps pupils catch up on their learning. The Government’s expanded ambition to provide tutoring to 450,000 school pupils is a good one – but we could go even further.

There are 1.5 million UK undergraduate students in UK universities. If every undergraduate tutored one school pupil then we’d have tripled the number of children being tutored in our schools. Government should launch tenders to coordinate this effort now. Students could also be paid through a combination of cash and loan forgiveness, which would reduce the present cost to the Treasury.

Provide a Mental Health Support Team for every school

Many of our schoolchildren will have spent months living in confined housing without being able to socialise with their peers. They will have suffered bereavements and seen their parents fear for their jobs. They will have missed out on many of the formative experiences of adolescence. This can’t help but have an impact, and it’s one we need to minimise.

In 2019 the Government launched a plan to have Mental Health Support Teams covering every school in the country by 2023. Each of these teams supports around twenty schools by training their staff and supporting them with cases. This can’t wait until 2023. We should aim for September 2021 instead.

Keep children learning next year, even when they can’t be in school

Our children have already fallen behind. They can’t afford to lose any time next school year. In a normal year children lose many days from minor illness, for example by staying off school for 48 hours after a stomach bug. Each one of these days counts.

A silver lining of this crisis is that schools have put in place the infrastructure to mean that being at home doesn’t have to mean missing learning. Schools have been providing remote learning to self-isolating children since September.

Government should support schools to make this a permanent feature of our education system. If a child is well enough to sit in front of a computer then they should be able to learn.

Fund schools to provide early support to vulnerable families

Many families are already in a vulnerable position because of the pandemic, and many more will come to light as the crisis ends. There will be redundancies that have been so far staved off by furlough; health conditions exacerbated by lockdowns; and domestic violence that only becomes apparent in a return to normality. Social services will struggle with the volume of referrals, and they need to be able to concentrate on the most acute cases.

Schools will often be the first to spot these issues, and already have families’ trust. They should be funded to provide support to families who need help, so that those families don’t later reach a crisis.

Get every unemployed school and college leaver a Kickstart placement

We know that there is a critical window of time when a young person finishes school or college. If they find employment in this period then they are likely to remain in the workforce for life. If they don’t, then their chances of lifelong unemployment begin to grow.

This summer a new cohort of young people will hit the labour market. Their education will have been disrupted, and they will need support to find stable employment. Kickstart is an excellent scheme where government pays the costs for employers to offer young people a six-month work placement. We should aim to match every young person to a Kickstart placement if they are not employed within three months of leaving education.

Our children’s lives don’t have to be determined by this pandemic. We can catch up lost ground. Yes, doing so will cost money and time. But it will cost a lot less than having a generation grow up without the knowledge and skills to keep our economy and society strong.

Ryan Bourne: A reassuringly conservative speech from Starmer’s Shadow Chancellor. The Tories will need to up their game.

20 Jan

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

Just in case the Conservatives hadn’t got the message: Labour under Keir Starmer is a very different beast to the party under Jeremy Corbyn.

Dueing the past fortnight, the Labour leader has parked his tanks on conservative lawns, talking first of Labour as “the party of the family,” then setting out a foreign policy vision of the UK as a “bridge between the U.S. and Europe.” Annelise Dodd’s Mais Lecture on economics was perhaps more striking still in the break of tone and type of criticisms made of Conservative policy compared with the last leadership.

Gone were the unhinged attacks on “neoliberalism” that characterised Corbynite bloviating. The fault-finding was specific and targeted. Dodds acknowledged the difficulties any government would face in a pandemic. Her surgical critique was that the UK’s Covid-19 outcomes were worsened by government foot-dragging on tightening lockdown restrictions, and Treasury attempts to fine-tune the balance between economic and public health.

Specifically, she claimed that its mixed-messaging on financial support to businesses, first delivering it and then threatening to withdraw it based on firms’ “viability,” created needless uncertainty. With the vaccines hopefully soon ending the pandemic, she argued that supporting firms until reopening was now more prudent than letting the chips fall when furlough ends in Spring. On the balance of costs and benefits, most economists would probably now agree.

There was little Corbyn-like wailing about past “austerity” either. Dodds’ criticisms of the last decade of government fiscal policy were restrained, and more plausible for it. She claimed that some spending cuts may have adversely impacted the pandemic response; that 16 fiscal targets coming and going since 2010 has created instability; that there should be more focus on the long-term public finances rather than the short-term; and that rapid deficit reduction coming out of the pandemic (including tax hikes, as Rishi Sunak reportedly wants) would be economically destructive. All these criticisms, individually, would not be surprising in ConservativeHome op-eds.

Yes, Labour still wants a bigger state than the Conservatives. Yet unlike many on the Left, Dodds appears under no illusions that running up debt is riskless or a free-lunch. “…it would be an irresponsible economic policymaker who planned on the assumption that low interest rates will continue indefinitely,” she said, while musing about a longer-term inflation risk. Her new “fiscal framework,” focused on planning to balance day-to-day spending and tax revenue, would be based on the recommendations of the Institute for Fiscal Studies.

Now none of this is particularly exciting. The speech was littered with boilerplate progressive assertions and the usual touching faith in the power of government. But it’s telling that Dodds actively shirked the opportunity to announce some glitzy new retail offer to grab newspaper headlines. There was no promise even of a Labour government “creating” high-wage jobs, or “transforming” the economy.

Instead, the speech was quintessentially small-c conservative. Labour, we were told, would protect the independence of the Bank of England, be “responsible” with the public finances, embrace free trade, protect businesses from Covid failure, focus policy on thorny structural problems rather than chasing day-to-day media coverage, and deliver “value for public money” from government spending.

Indeed, peer through the mundane parts of the speech, and you see a rhetorical critique of the current government that wouldn’t have looked out of place coming from Conservatives a decade ago. Dodds’ subtle message was that government decisions on infrastructure and procurement contracts were often determined more by short-term, pork-barrel political considerations than sound economic judgment, bringing with them at least a whiff of crony capitalism.

The speech highlighted waste and mismanagement through Covid-19, for example, including on the test-and-trace programme and the purchase of faulty antibody tests. Any errors are more forgivable in a pandemic when there were potentially huge returns on such investments and time is of the essence.

But those types of criticisms will likely amplify with Conservatives’ newfound penchant for large regional infrastructure projects (prone to massive cost overruns) and place-based revival packages (prone to political cronyism). Again, the argument that Conservative economic decisions are politically-motivated and wasteful is a very different attack than the more ideological opposition from Corbyn and McDonnell.

None of this is to say that all of Dodds’ analysis is coherent or correct. The theme of the speech was “resilience” – that is, how the pandemic shows the need for an economy robust to future shocks. Mercifully, Labour has not jumped on the bandwagon of saying the pandemic proves we need the government to actively re-shore a whole bunch of medical manufacturing production—the braindead, yet widespread “fight the last war” recommendation of those unable to conceive of shocks originating here. Yet there was still a bit of a “this crisis proves much of what I’ve always believed to be true” about her analysis.

Dodds suggested, for example, that a lack of savings among the poor, job insecurity among gig economy workers, and “socio-economic inequality” all help explain Britain’s poor Covid-19 outcomes. Perhaps on the margins those factors did make things worse. But the overwhelming reason why the UK has performed badly so far relative to countries such as South Korea, Taiwan, Australia, and New Zealand, is surely little to do with the labour market or macroeconomic policy, and almost entirely explained, to the extent that policy can actually explain things, by public health decisions at various times.

It is within Labour’s comfort zone to say reducing inequality and strengthening workers’ rights would have mitigated the costs of this pandemic. It would have been braver for them to expose failures in government bodies: say, Public Health England, whose centralisation of testing proved a disaster; or the NHS, with its systemic rationing reducing the incentive for spare capacity; or government scientists, who downplayed the early need for tough measures and told people mask wearing was unnecessary. If they really want “resilience,” they would surely explore the future case for deregulation in medical innovation. Earlier human challenge vaccine trials, for example, could have sped up delivery or a working vaccine, negating much of the last year’s pain.

Such a broad evaluation was perhaps always too much to hope for. But this speech proved that Labour is developing a more refined critique of the Conservatives. This is not the sort of emotional “blood on their hands” or anti-capitalist screeching we saw from Corbyn’s Labour.

Instead it is a crisp focus on the need for decisiveness, competence, and propriety in delivering effective government. The upgrade in opposition may well, in time, sharpen government decision-making. But a party with half-baked plans to rebalance the economy through massive infrastructure projects and shifting around government departments, led by a Prime Minister known for making late calls, may find such criticisms difficult to shake off.

Will Holloway: The challenges awaiting Ministers and MPs as Parliament returns today

11 Jan

Will Holloway is the Deputy Director of the think tank Onward and a former Special Adviser.

This is not the New Year reset that the Government was hoping for. Parliament has returned not to slowing transmission and a gradual reopening of the economy, but to the worst elements of last year: a lockdown, surging infection rates and all the hardship both entail.

But as easy as it is to be depressed with the new start of term, we should recognise that we are entering the final furlong of this crisis. And now that Brexit negotiations will no longer absorb political oxygen, the Government has an opportunity to push ahead not just with vaccinations, but with delivering the promises made on doorsteps in 2019.

As the final months of 2020 have demonstrated, progress can be made at speed. Trade deals are renowned for taking years to negotiate – take for example, the EU-Canada trade deal that took seven years – but the recently agreed EU/UK agreement that covers everything from security to energy bucked the trend, and was finalised in less than a year. 

Even though it can sometimes take more than a decade to develop a new drug, vaccines for Covid were developed within the year. The UK is now fourth globally for doses of vaccine administered per 100 people. We have access to more than 350 million vaccine doses through a range of companies – the first of which have been approved by the independent regulator. Subsequent candidates will be submitted for approval in the near future.

Taken together, this means that enough vaccines have been procured to protect the whole of the UK population several times over. We have been fast to act while other European countries trail behind. Despite not having a major diagnostics manufacturing base in the UK, and at a time when countries around the world were competing for the same products, hundreds of thousands of Covid tests are now conducted every day.

Indeed, since the onset of the pandemic, less than a year ago, over 55 million tests have been carried out, and the UK is now testing more than any other advanced economy per 1,000 people.These are achievements that many would have regarded as impossible at the onset of the pandemic, and show what can be achieved with focus, resolve and urgency. It should be a lesson for the rest of the Parliament.

Already, we are a quarter of the way through this term and time is quickly running away. This year could be make or break for the Government’s new voter coalition. Not only will this year hold the first major test internationally of what the Government stands for globally post-Brexit, with the UK chairing the G7 and hosting of the COP26 climate summit, but it could face its first electoral test since the general election.

Should the elections go ahead, even if later in the year, the campaigns will inevitably be different, but the impact will be no less significant. While commentators are likely to focus on the Scottish Parliamentary elections, and the subsequent implications that they will have for the future of the Union, as well as the London mayoral elections, the results elsewhere may prove to be more of a bellwether for the behaviour of the 2019 general election coalition of Conservative voters.

As Onward’s landmark research before the election and a year on from it showed, the Prime Minister has a historic opportunity to build a new, lasting support base. The research found that Conservative voters – both “southern” and “Red Wall” conservatives – are more likely on balance to lean to the left, albeit marginally, on the economy and to the right on socio-economic issues.

Those who backed the Conservatives at the last general election are economically more interventionist, on balance supporting more regulation rather than less, as well as efforts to retrain workers, while at the same time backing a tough approach to crime and immigration.

With record levels of police recruitment, the launch of the Lifetime Skills Guarantee enabling adults to benefit from hundreds of fully-funded courses, and one of the biggest efforts to protect jobs and livelihoods in peacetime history, the government has a strong record of delivery on voters’ priorities.

But the biggest outstanding promise lies ahead. With Brexit done, the Prime Minister said that the Government’s focus will be to “level up and spread opportunity across the country”. A mission not without challenge, given the recent poll results to suggest that a third of voters had never heard of levelling up.

But terminology aside, increasing opportunities in communities that have for years seen prospects fail to be recognised is one of the great prizes available to the Government. To sustainably and successfully achieve that aim requires bold thinking and ruthless focus. We need to look ahead of the curve.

For example, Onward’s new research on Net Zero found that up to 10 million jobs may be affected as a result of the drive towards decarbonisation over the next 29 years, and the need to plan for and support the shift.  We need to ask challenging questions: what impact do taxes have on different parts of the country? How can innovation be spread beyond the London-Oxford-Cambridge triangle?  And now that we have left the European Union, how can the UK attract more foreign direct investment outside of the usual areas?

Success will involve bending every area of policy to achieve the objective. It is by no means assured. With an unforeseen global pandemic throwing a spanner into the machinery of government, combined with commitments for new infrastructure projects and legislative changes that will take time to come into effect, the pressure is on.

And the stakes are high. It is instructive that only a 4.3 per cent swing to Labour would be needed to generate a hung parliament in 2024. Anything more could deliver an SNP-Labour coalition.  Failure to deliver in the next 12 months may result in the loss of the majority in Parliament, and a return to the stasis and acrimony that succeeded the 2017 result. Success will mean a lasting change, a political realignment across the country, and a consolidated base of support for the future.

Neil Shastri-Hurst: Like a phoenix from the ashes of the Covid crisis, now is the time for a new social contract to arise

4 Jan

Dr Neil Shastri-Hurst is a barrister, surgeon, and former British Army Officer.

The year 2020 was the very definition of an annus horribilis. It was a year that will be etched upon our memories for all the wrong reasons. A year most would hope to forget. As we emerge from 2020 and into the dawn of a new year, the end may not be quite in sight; there are unquestionably significant challenges that lie ahead. However, there is real hope that 2021 will be a better year.

Crises, by their very nature, create opportunities. Whilst most would prefer not to go through the crisis in the first place, ignoring such opportunities would be a mistake. Coronavirus has been the mother of all crises. A global pandemic that has presented unimagined challenges to world governments. From the economic impact to the imposition on civil liberties, governments have had to make unprecedented decisions in the face of a rapidly evolving scientific picture.

It is with this backdrop in mind that the need to reimagine the social contract that underpins our nation has become even more pressing.

The conceptual basis of the social contract is an important commitment to societal commonality. It rewards hard work. In return for paying your fair share through the taxation system, there is a tacit expectation that living standards will rise, there will be a pension pot upon retirement, and if all else fails the state will provide a sufficient safety net to support you.

Those are laudable aims. In pressing for the contract to be reimagined I do not seek to undermine those guiding principles. However, that contract was written in a different time. It was written when the number of taxpayers well outstripped the number of retirees. Times have changed. With increased life expectancy, retirement is considerably longer. Combined with inequalities in the share of wealth and public spending, the current social contract is being pushed to capacity.

In addition to the generation divide there is also a skills divide. With increasing automation of certain jobs, obtaining stable employment is, for some, a genuine battle.

It was the millennial generation that was disproportionately hit by the financial crisis that hit the world economy in 2008. It led to high levels of youth unemployment and job insecurity for those fortunate enough to be in work. Growth in wages was muted and did little to assist in paying off increasingly mounting student debts. With a market flooded with graduates, many were ending up in non-graduate roles. Prior to this year there were signs of improvement. The sensible fiscal policy of the Conservative led administrations from 2010 onwards had been rewarded with the signs of growth. There was cause for optimism for sunnier times. And then Coronavirus struck. And, once again it will be the millennials that bear the brunt.

Home ownership is a Conservative dream yet, back in 2018, the Resolution Foundation report found that millennials were 50 per cent less likely to own their own home by the age of 30 compared with the baby boomers born between 1946-1964. Faced with the economic constraints post-Covid that is only likely to get worse. Coupled with the fact that, as of 2017, average pensioner income outstrips those of working families, the threat to the social contract cannot be underestimated.

The welfare system, which operates in the UK, is on a “pay as you go” basis. Workers pay in now to fund benefits for the current crop of retirees, as that generation did for those before them. With individuals living for longer retirees will, inevitably, take out more than they have put in. That is not their fault; it is merely a by-product of improved life expectancy. What results however, is a scenario in which there is a redistribution of wealth towards those that live longest; statistically, this group is not only the longest living, but also the wealthiest in any event. This compounds the issue.

Of course, none of this is to say that there are not those of retired age who are struggling to make ends meet. Nor is it to suggest that the baby boomers have it all easy, enjoying a carefree retirement – far from it. With people living longer and millennials less able to strike out entirely independently, there is a generation above and below that needs their support. Rather than a carefree retirement it is often defined by being a carer to elderly parents and relatives and an alternative bank to their children.

It is with all of these competing factors in mind that we cannot put off revising the social contract any longer. That is not to say it will be easy. Older voters are more naturally Conservative voters; upsetting them goes against the natural instinct of politicians. Likewise manifesto promises have been made and should, in normal circumstances, be honoured. But we are no longer living in normal circumstances.

As we emerge from this crisis, we must use it as an opportunity to think differently on how the social contract works so that it works more fairly for all. The guiding principle must be that no generation should be in a worse position than those that go before them.

So what does this mean in reality?

Well, firstly a re-evaluation of retirement age beyond 65. With increasing life expectancy and improved health in later life, the artificial bar of retirement at 65 no longer makes sense. We must not see older people as less able to contribute; in fact, to the contrary, they have a wealth of experience to impart. Flowing from this is the inconsistency whereby those over the age of 65 are not expected to pay national insurance. There is no good reason for such an exemption and it should be closed off.

The second element for reform is the triple lock. Where once it was the right course of action, that cannot be said any longer. With sluggish wage growth, to maintain the 2.5 per cent provision is no longer defendable. Instead, it should be pegged to life expectancy.

And finally, we must look at social care provision. This is a mighty topic, a full analysis of which will need to wait for another day and another article. But as a starter we should be positively exploring an insurance funded care system. We should also take much closer heed of enhancing the role families play in the provision of care; and this means providing financial recompense to reflect the gratuitous nature of what would otherwise be picked up by the state.

As with everything in life, with time things evolve. The fundamental tenets of the social contract have withstood the test of time but the contract is now creaking under the strain. As the nation emerges, like a phoenix from the ashes of the Covid crisis, now is the time to reshapreshape it for future generations.

Stephen Booth: This trade deal delivers both the UK and the EU’s main objectives. It gives us freedom – which comes at a price.

29 Dec

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

Much of the analysis of the UK-EU Trade and Cooperation Agreement will flow from underlying prejudices. “The UK shouldn’t have left”, “we don’t need a trade deal with the EU”, “the UK should have or could have asked for X or Y”. It is, however, more instructive to assess the deal against the Government’s stated aims and, for that matter, what the EU said it wanted.

Brexit will have economic and geopolitical consequences. But, ultimately, it is a constitutional question for both Brexiteers and Brussels. In the foreword to the UK explainer, the Prime Minister cites “restoring national sovereignty” as the “central purpose of leaving the EU”.

Meanwhile, the EU’s brochure is quick to stress that, even under the new agreement, the UK will lose the benefits of membership. “This will recreate barriers to trade in goods and services and to cross-border mobility and exchanges that have not existed for decades,” it says. In other words, freedom comes at a price.

The past year of negotiations has not simply been an exercise in haggling over the price of UK legal independence from the EU system. At times, it seemed Brussels was simply unwilling to recognise this principle as part of a negotiated settlement. The EU had initially demanded dynamic alignment with EU law, enforced via the European Court of Justice (ECJ). And it demanded a continuation of existing EU fishing rights in UK waters, despite the UK’s departure from the Common Fisheries Policy.

A Brexit government with a significant majority could not have accepted such a deal. Nonetheless, convincing the EU to conclude a deal that does recognise the UK as a “sovereign equal” is a significant achievement for the negotiating team led by David Frost. The agreement is based on international law, there is no role for the European Court of Justice (ECJ) and no requirement for the UK to continue following EU law. Under the terms of the Northern Ireland Protocol, ECJ jurisprudence will continue over some issues in the province. Despite this, there has been a calming of Northern Irish tensions over the issue.

As has been noted before, this negotiation was unique, since it was driven by the desire for separation rather than integration. Therefore, any agreement essentially had to do two things. First, establish the new baseline for the UK-EU economic relationship (or the degree of dislocation) and, second, address how further divergence (or convergence) in the future should be managed.

The deal’s main feature is ensuring there are no tariffs or quotas on goods traded between the UK and the EU, where they meet the relevant rules of origin. This is significant because it is the first time that the EU has agreed a zero-tariff, zero-quota deal with any other trading partner (for example, the EU retains a small number of tariffs on Canadian agricultural exports). Certainly, businesses would have liked more time to adjust to the new relationship, but the deal provides important stability for the sectors most vulnerable to a no deal Brexit, such as agriculture, automotive, aerospace and chemicals.

The UK has secured some simplifications for customs formalities and important provisions for haulage, but there will be new frictions on UK-EU trade. For example, the EU refused to reduce the frequency of checks on food imports and has insisted that some products be certified by EU rather than UK testing bodies. The provisions on services are limited. The cost of doing business with the EU will be increased as a result.

There are several issues that could evolve in future. UK professional qualifications will not be recognised at the outset, but there is a mechanism to do so in the future. Arrangements for personal data and financial services remain dependent on unilateral EU decisions, due to be taken next year, which might provide a basis for further cooperation.

On fishing, a delicate balance has been struck. 25 per cent of EU boats’ fishing quota in UK waters by value will be transferred to the UK fleet, over a period of five-and-a-half years. The Government says this will bring the share of the total catch taken in UK waters by UK vessels to around two thirds. After this period, there will be annual talks on the amount EU boats can catch in UK waters (and vice versa). The UK would then have the right to completely withdraw EU access to UK waters. However, in response, the EU could impose tariffs on fish or other goods exports from the UK. These measures would need to be proportionate to the impact of the loss of access and are subject to arbitration. This means that the annual negotiations from 2026 could yet become a difficult political battleground.

The UK probably gave a little more than it would have liked to. However, the amount of fish caught in UK waters by UK vessels will increase, the UK has maintained tariff- and quota-free access to the EU market where much of the UK catch is sold, and the agreement establishes the principle of the UK’s status as an independent coastal state. It is undoubtedly an improvement on the status quo and, at this point, it is not clear the UK has the capacity to catch all the fish available.

The other major contentious issue throughout the negotiations has been the level-playing field. The agreement is a reasonable solution to satisfy the UK’s demand for regulatory independence and address the EU’s concern that future divergence may result in distortions to trade or investment.

The UK has agreed not to lower its existing standards on employment and the environment or use subsidies to unfairly distort trade. Both sides would also have the right to take countermeasures, such as imposing tariffs, if they believe they are being damaged by future changes to subsidy policy, labour and social policy, or climate and environment policy. As such, any dispute would only concern the effects of any changes to UK legislation, rather than whether UK rules are exactly the same as the EU’s.

This “rebalancing mechanism” has the potential to get messy if it is used frequently. However, crucially, any countermeasures are subject to independent arbitration, which means there would need to be solid justification for any EU tariffs in response to UK divergence. Tariffs cannot be used arbitrarily by the EU for leverage over the UK in the future. Ultimately, a race to the bottom on standards was always likely to be a bigger EU concern in theory than in practice. The reality is that the UK is likely to be equally as ambitious as the EU in many of these areas, such as climate change or animal welfare commitments, and perhaps more so.

In summary, this agreement is a considerable political achievement, because it manages to combine independence from the EU’s regulatory system with a high degree of market access (relative to comparable trade agreements, rather than EU membership). At times, this appeared impossible and, therefore, the UK’s strategy has been vindicated.

The deal recognises that the UK-EU relationship will continue to evolve. There could be future disputes but the deal is likely to provide stability for the next five to ten years when the world will no doubt be different again.

It is equally important that the country can move on and devote its energies to the future, both with regards to domestic policy and international relationships beyond Europe.

This is the first of a new series of pieces by Policy Exchange for Conservative Home looking at the various issues that arise from the Brexit trade deal.