Gavin Rice: Free from EU rules, Government contracts can be used as a levelling up tool

28 Sep

Gavin Rice is the Head of Work & Welfare policy at the Centre for Social Justice think tank and is leading its levelling up work. He is a former Special Adviser. 

Whenever government contracts are making headlines, controversy is usually around the corner.

The word “procurement”, usually a term sufficiently dull to make eyes glaze over, has fresh connotations in the Covid era: of backroom negotiations, of test-and-trace systems that don’t work, of the Prime Minister texting James Dyson, of the £41 billion spent on Covid-related deals.

Much of this was actually very well spent, including on the life-saving vaccine programme. Some of it was not.

It may surprise you to learn that these are all very small figures in the world of government contracting. In fact, in normal times the Government spends £290 billion every single year on procurement – one third of all spending. That’s more than twice the total annual NHS budget, more than five times the total defence budget, and more than is spent each year on the whole welfare system.

What is this money spent on? Most of it is boring, but vital. It includes building schools and hospitals, running prisons, cleaning and maintaining public buildings, constructing and maintaining roads and rail rolling stock, running social care facilities, providing catering and other services for public institutions, and supplying our emergency services with vital equipment.

Incredibly, the way in which this money was spent was, until Brexit, determined almost entirely by EU law. These rules are hugely complex, and throughout the EU lawyers are paid handsomely to find ways of dodging them.

But in essence, their purpose is to ensure contracts are awarded to the most competitive – read “cheapest” – bidder. If a tenderer thinks they have lost out, they can sue the relevant public authority under European law, or make a complaint all the way up to the European Commission.

The rules had some catastrophic consequences. In 2011 a £1.5 billion public contract for City Thameslink was awarded to Siemens rather than the Bombardier site in Derby. Professor Karel Williams told the Transport Committee that the fallout from this was entirely foreseeable, including £100 million loss to the wider economy, £20 million lost tax revenue for HMRC and around 500 job losses.

Companies offering workers more than the minimum wage often found themselves frozen out of tenders for being too expensive, and regions especially exposed to job losses could be badly affected if a major local employer lost a contract. £18 billion annually was awarded to overseas suppliers, according to market research firm Tussell. Attempts to build in a wider understanding of the social value of contracts through the 2015 Social Value Act had limited effect.

Thankfully, leaving the European legal regime means we are now free of these rules, and the UK can redesign its own system from scratch (subject, of course, to the much less restrictive WTO rules). The Cabinet Office published a Green Paper, Transforming Public Procurement, in December 2020, and the government is currently responding to its consultation.

In a new report the Centre for Social Justice calls on the Government to establish as a national priority injecting much needed investment into our most deprived and struggling communities. Authorities responsible for awarding contracts should do so on the basis of a levelling up test: public bodies should be responsible for showing they have prioritised the award of contracts to tenderers operating in regions with the most economic need unless there is a good reason not to do so.

We also have a golden opportunity to devolve and diffuse this enormous spending power. Local authorities should be able to apply to the Cabinet Office for the right to award a central government contract locally where feasible. Councils should prioritise awarding their own contracts locally to keep revenues from leaving the area.

Through all this, job creation should be prioritised. The principle of “value for money” – a lynchpin of the old EU rules – should be expanded radically to include the costs to the welfare state of increased unemployment if a particular decision results in severe job losses in a particular community.

Economists have described Britain as one of the most regionally unequal countries in the industrialised world, and by every metric this has been getting worse for at least 20 years. After delivering Brexit, the Government has rightly identified tackling these vast disparities as its number one priority.

The biggest challenge with this worthy cause is the lack of direct levers – the state cannot click its fingers and change regional economic conditions overnight. But the Government has one such (enormous) lever at its direct disposal: the hundreds of billions it spends itself.

It should use this money to further the domestic policy objective of tackling deep regional inequality, as so many other developed economies do around the world. Far from being protectionist, this approach simply entails the state acting as a responsible purchaser (like you or I). And it isn’t new money – no fresh tax hikes are required. This is money the state already spends.

Britain’s newfound legal freedoms from Brexit can be used to deliver for those regions who voted for it, and to use taxpayers’ money more effectively through the principle of public money for public good. To use the Government’s own language, we should take back control of public contracts to level up the country.

David Gauke: Sunak’s options for a Budget windfall. Lower debt, tax cuts and higher spending. Which will he choose?

27 Sep

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

In a month’s time, Rishi Sunak will have some good news to deliver in his Budget. He will have more money to play with than was forecast at the time of the last as forecast by the Office for Budget Responsibility. How he uses these additional resources will tell us a great deal about his priorities and the priorities of the Government.

Before turning to his options, it is worth setting out some context. The overall state of the public finances cannot be described as being particularly cheery, even if they are significantly improved since March.

The debt to GDP ratio will still be nearly 100 per cent, higher than at any point since the early 1960s, and not forecast to fall fast. The Government still has substantial spending pressures in the short and medium term – Covid catch-up, levelling up, net zero and social care – as well as long term demographic pressures that will bite in the 2030s. In response, the Government has this year announced substantial tax increases with the Corporation Tax rise, a freeze on thresholds and allowances in the personal tax system and the National Insurance increase announced earlier in the month. We now have the highest tax burden in our peacetime history.

The tax rises have not taken effect yet, but many people are already facing a squeeze in living standards. Inflation is set to hit four per cent, with energy prices rising much faster than that and six million people are about to see the end of the £20 per week Universal Credit uplift.

So at a time of high debt, high taxes, falling living standards and unfunded spending commitments, a bit of good news does not come amiss.

The good news is that the OBR’s March assessments of GDP growth in 2021 (4 per cent) and of the long term scarring effect of Covid on the economy (or, to put it another away, the capacity for the UK economy to grow in future) of three per cent looks to be pessimistic. With GDP growth this year likely to be approximately seven per cent (although the current supply chain uncertainties may bring it down a little) and scarring as little as one per cent, the difference to the public finances could be low tens of billions – a very handy sum.

Assuming that this is the case, what are Rishi Sunak’s options?

First, he can strengthen the public finances by bringing debt down faster than originally planned. We are getting our debt away cheaply at the moment which, some argue, suggests that there is not an imperative to do make a further reduction. But our debt levels are uncomfortably high in the event of another recession, and even small increases in interest rates could result in us paying a lot more to service our debt. Maintaining market credibility is always important to the Treasury and, by all accounts, the Chancellor of the Exchequer. We can assume that he will be keen to ensure that a significant proportion of the improvement in the public finances is put to this purpose. It also means that the Government may have more choices available nearer the time of the general election.

Second, taxes could be cut. This seems very unlikely to be announced in October ,given that the Prime Minister has just announced some tax rises, there remain outstanding spending pressures and it is still relatively early in the electoral cycle. Many Conservative MPs are not happy with the historically high level of taxes, but that is not going to change any time soon.

Third, he could increase departmental spending. The Treasury is downplaying the chances of this option by stating that the spending envelope has been set and is not going to be re-opened, but I am somewhat sceptical that this is quite so hard and fast a position.

There are two conflicting views on the pressures on departmental spending. One view is that the current spending plans assume no Covid costs after 2021-22 which is unrealistic; that generous spending plans for health, education and defence mean that there is precious little left for other departments – to the extent that unprotected departments face a real terms reduction and, if you compare the departmental spending numbers with what was announced in March 2020, there has been a cut.

The alternative argument put forward by the Treasury spending hawks is to point out the extent to which March 2020 signalled a turning-on of the spending taps. The long term trend growth of our economy is forecast to be 1.5 per cent. If departmental spending is to remain constant as a share of GDP, it would also grow at 1.5 per cent but, instead, the plans involved increases of four per cent a year and the capital spending element by seveb per cent a year.

The Treasury gets very annoyed at any suggestion made by the good people at the Institute of Fiscal Studies that there are departmental ‘cuts’ because the current spending plans are lower than those announced in March 2020. It is reminiscent of the trick Gordon Brown used to pull of setting out steep increases in public spending and, when the Conservatives set out slightly shallower increases in spending but increases nonetheless, describing the differences in spending as ‘Tory cuts’.

The bigger point the Treasury will be making is that, for those departments that have much more to spend, they really should absorb the short-term Covid recovery costs because spending is going up fast enough as it is, thank you very much.

(And, by the way, given that we are giving you this extra money, how about some proper efficiency reforms in return? Spending reviews should be the moment when the Treasury and spending departments make some big strategic decisions as to how taxpayer value for money is achieved but, since the Prime Minister has just reshuffled many spending ministers and the Chief Secretary to the Treasury, such a development does not seem likely on this occasion.)

The real issue is the position with the unprotected departments. There is a political vulnerability if departments do, in fact, see real term cuts (“the return to austerity”). With regard to two departments of which I have experience, the Ministry of Justice clearly needs more resources to function effectively and, in terms of protecting the public finances, penny-pinching with HMRC is counter-productive. My guess is that, with the exception of overseas aid, the Chancellor at the very least will find the resources to ensure no department faces real term cuts.

The final choice is on welfare. The £20 per week Universal Credit uplift will have gone by the time we get to 27 October and, particularly at a time of rising prices, this is going to be painful for many. Lowering the taper rate will not help the poorest claimants, but it is consistent with the Government’s emphasis on incentivising work by essentially lowering the marginal tax rate. It would also provide a reasonably good answer to what the Government is doing to help people with the squeeze on living standards. Taken in the round, a reduction in the taper rate ticks so many boxes that I would be surprised if it does not happen.

So the Chancellor should have some positive announcements on borrowing, departmental spending and Universal Credit. In what may prove to be a difficult autumn for the Government, Sunak’s October Budget looks likely to be one of its better moments.

Snap guide to this session’s Government legislation 12) Health and Care Bill

26 Sep

The Bills announced in each session’s Queen’s Speech are the fulcrum of the Parliamentary year.  But they are easily lost sight of, separately and wholly, as the political cycle moves – and a mass of other news and events crowd them out.

So during the coming months, ConservativeHome will run a brief guide, on most Sunday mornings, to each Bill from this year’s Speech: what it is, whether it’s new, its main strengths and weaknesses – and whether it’s expected sooner or later.

11. Health and Care Bill

This Bill proposes the first major NHS reorganisation since the Lansley reforms of the early Coalition years.  It is divided into five main parts.

The first contains the organisational meat of the Bill – the clauses on integation and collaboration.  Part Two covers health and adult social care information, and Part Three the Secretary of State’s powers.  Part Four establishes a Health Services Safety Investigations Body.  And Part Five covers miscellaneous provisions, including the advertising of “less healthy food and drink”.

Responsible department

The Department of Health and Social Care, so Sajid Javid is in the lead.  And he indeed opened the debate on the Bill’s Second Reading during the summer.

Edward Argar, who wound up that debate and is still in place post-reshuffle, will presumably lead on the Bill in committee when it returns to the Commons.

Carried over or a new Bill?

New.

Expected when?

Currently under consideration – it received its Second Reading in July.

Arguments for

The core of the Government’s case is that “the overwhelming majority of these proposals are changes that the health service has asked for”.  These feature, broadly speaking, a tilt away from the competition principle furthered by the Lansley changes, and one back to the co-operation principle which has been stressed less since the Clarke/Milburn/Lansley reforms, carried out under both main parties.

Ministers argue that the Covid pandemic has shown up organisational problems within the provision of health and social care – such as the unnecessary retendering of contracts, data that can’t be shared between different NHS and social care providers, and above all the siloes that prevent patients being moved seamlessly from one part of the system to others.

Arguments against

A classic pincer movement could be made against this Bill.  From the Right, it would be that the competition-based Clarke/Milburn/Lansley reforms have done much to improve choice, improve value for money and efficiency within the service, and that any shift away from the competititon principle risks creating cartels that cost more but deliver less value for patients.

From the Left, the case as made by Labour during the Second Reading debate welcomed the removal of the Lansley competition rules in Part One of the Bill; quarrelled with aspects of the new local health boards (including their boundaries, independent sector representation and composition) and objected to the new powers for the Secretary of State.

Politics

The context of Britain’s emergence from the pandemic, and the consequent challenges for the NHS and social care, is crucial to understanding the politics of the Bill.  The Government must grapple with a backlog of treatments, the cutback in face-to-face GP appointments, reforming Mental Health provision – and, not least, the unresolved issue of improving social care.

Labour’s main attack, for all the above, has been about what isn’t in the Bill: mainly, yet more money and resources.  The Opposition is preparing the ground for a political attack as queues for treatment grow.  This is more important to it than the reorganisation itself, on which their attack has been headed off (since Simon Stevens, the outgoing NHS Chief Executive, was clearly a force behind it).

Controversy rating 4/10

We give this Bill a low score because the attack from the Right in Parliament hasn’t materialised (only three Conservative MPs opposed it at Second Reading), and because the thrust of the Left’s healthcare attack comes elsewhere.  Javid’s hesitation about its timing hints at a bigger theme: this is scarcely the first NHS reorganisation, as those competition and co-operation principles clash, and it won’t be the last.

Bim Afolami: After the reshuffle, back to the future – NHS queues, rising energy bills, and higher prices

20 Sep

Bim Afolami is MP for Hitchin & Harpenden.

As the Prime Minister said at Cabinet on Friday morning, it is “half time” in this Parliament. We have two more years to deliver on our election pledges before shaping up for the next election. Covid has basically taken up the vast majority of this Parliament so far, not only preventing us from focusing on our wider domestic agenda (though, very importantly, we have delivered Brexit), but also creating new problems, such as lan extra £350 billion in public debt and huge NHS waiting lists.

By two years from now, levelling -p needs to be noticed on the ground, people need more money in their pockets, and public services need to be consistently improving. Is this going to be straightforward to deliver? In a word, no.

The Government reshuffle was a significant start on moving forwards. Much has rightly been made of the importance of Michael Gove’s new beefed-up MHCLG – now LUHC: the department for Levelling Up, Housing and Communities – with responsibility for housing, local government, devolution and the Union.

Education has severe challenges, from the difficulties of our exam system to the need to rebalance public spending from our universities towards the further education sector. Both Michael Gove (LUHC Secretary) and Nadhim Zahawi (Education Secretary) are extremely capable, with very good new junior ministers in their departments – in particular Neil O’Brien in LUHC and Alex Burghart in Education. But the stakes are high. If these departments fail over the next two years, the Government will fail too. We don’t have long to start delivering.

However, the most important domestic department for the next two years is the Department of Health. The public has gradually grown to trust us with the NHS, ignoring the propaganda from the Labour Party and the doctors’ and nurses’ unions. The most significant aspect of the Health and Social Care Levy which passed the Commons last week was the implicit realisation that the political risk of potential NHS failure is even worse than the risk of being seen as a Conservative Party who broke a manifesto commitment not to raise taxes. (Even though a pandemic was not in the manifesto!)

The NHS’s problems are of acute public and political importance. Since the start of the pandemic, the number of people waiting for NHS treatment in England has grown by a fifth. Some 5.3 million people were waiting for treatment in May 2021, up from 4.4 million in February 2020. There has been a particularly sharp increase in the number of people waiting for longer than a year.

Yet the number of people on the waiting list is expected to rise much further. Sajid Javid has warned that it is ‘going to get a lot worse before it gets better’, and could grow to 13 million.

The challenge here is monumental, and the department is also pushing through the Health and Care bill, which it seeks to remove barriers to integrating services to improve health outcomes and reduce health inequalities.

On top of all of this, we are not fully out of the woods on Covid yet, and doctors warn of a difficult winter with significant flu and RSV cases. This is a Department that may hold the fate of the Government in its hands.

The economy is facing its own headwinds too. Yes, we are bouncing back after Covid – according to the International Monetary Fund’s latest World Economic Outlook report, the UK economy will expand seven per cent this year, a sharp increase from the 5.3 per cent predicted in the Fund’s previous report in April. This is fastest in the G7.

However, the ghost of inflation past stalks us. I wrote about this here (in June, and worries about rising prices and costs of living are growing. One key aspect of inflation is energy prices, especially in the winter. Household energy bills are to rise after prices on the UK’s wholesale electricity market soared to a record high last month. The average market price reached £107.50/MWh – up 14 per cent on July, and well above the previous record of £96/MWh recorded in the run-up to the 2008 global financial crisis.

Last month, the industry regulator Ofgem announced it would lift the maximum price cap on energy deals by more than 12 per cent, after a sharp rise in the market price for gas and electricity. This increase is driven by a rise of over 50 per cent in energy costs over the last six months, with gas prices hitting a record high as the world emerges from lockdown. Coupled with rapidly rising costs for many foodstuffs, cars, and consumer goods (largely due to a combination of global macroeconomic factors), it is likely that most voters will feel a real pinch this autumn.

The Just About Managings (remember them!) will have a much tougher time. This will be especially the case if the Bank of England seeks to spike the rise in inflation in the coming months with a rise in interest rates (though at the moment I think this is unlikely). Shortages of certain foods and other key goods, largely due to damaged supply chains after Covid and not enough HGV drivers, are growing in the short term. This not only likely to put up prices, but also become a very visible and real problem for ordinary people who just go about their daily lives without thinking much about politics: i.e. most voters. This will come at political cost, particularly if the press builds up public anxiety about Christmas shopping which leads to a degree of stockpiling.

The difficulties with rising prices and energy bills will coincide with the much awaited Net Zero strategy (expected in mid-October) followed by COP26 in November. The net zero strategy will have to answer the knottiest questions on the environmental agenda such as: how are we going to replace boilers in millions of homes or better insulate buildings? How are we going to manage the shift away from petrol and diesel cars?

Whilst I am confident that there are huge economic opportunities over the medium term, in the short term there will be certain costs. Though these costs are a necessary part of implementing this critically important task of getting to net zero, being seen to impose greater costs at a time of rising prices will be politically challenging.

The next year brings rising prices, higher energy bills, and NHS difficulties. This will not be an easy atmosphere for the Government, and the Party, to operate in.

David Orr: The pandemic has shown that now is the time to bring England’s homes up to scratch

16 Sep

David Orr CBE chaired the Good Home Inquiry, an independent inquiry to determine solutions to the poor quality of England’s housing.

We have known for a long time that the quality of England’s existing housing stock simply isn’t fit for purpose. Today, four million homes don’t meet basic standards of decency – and half of these (one in ten homes overall) contain a category one hazard, meaning they pose a serious risk to their inhabitants’ health or safety.

Successive governments have tried, through various interventions, to tackle the problem – but none has taken the action needed to address the scale of the challenge. Now, we face a unique set of circumstances which make this the time for action.

First, the pandemic has highlighted the profound impact that poor-quality housing can have on our physical and mental wellbeing. Our research with the King’s Fund last year found that those most at risk of Covid, including older people, those from Black, Asian and Minority Ethnic backgrounds, and people with pre-existing conditions, were also more likely to be living in non-decent homes.

During the lockdowns, when our homes became our refuge, we discovered that for millions of us they were not only unsafe but could even harm our prospects of survival. The link between our health and our home is undeniable. To narrow health inequalities, we need to look to the state of our homes.

At the same time, we are reaching a crunch point for driving down our carbon emissions – and it is becoming increasingly clear that our energy-inefficient homes are a major stumbling block in doing this. Without decarbonising our homes, we simply will not be able to fulfil our commitments to reaching net zero.

There is huge potential for job creation here. The Construction Industry Leadership Council have suggested thousands of skilled jobs could be created in retrofit and the opportunity of related home improvement work.

And finally, we must prepare for the reality of an ageing population. By 2041, one in four people in England will be aged 65 or over with the fastest increase in the 85+ group. We know that the vast majority of older people live in mainstream houses and flats – and would prefer to stay living independently in our homes and communities.

We need a transformation of our housing stock so that more people are able to stay safe and independent in their homes for longer, and to avoid placing additional strain on the NHS and social care system – poor housing currently costs the NHS an estimated £1.4 billion a year. With government grappling with the question of funding social care, we should not overlook this huge opportunity to make savings.

There is a great deal to be gained by tackling the crisis in poor-quality housing. Over the past year, the Good Home Inquiry has gathered evidence and examined the problem, looking at the causes of the crisis, what interventions have and haven’t worked, and what policies could make a real difference.

This isn’t an issue that national government can or should try and fix alone but it is an area where national leadership is needed. We recommend that government set out a cross-government housing strategy with a ministerial champion to implement it, and empowers Homes England with a clear mission to improve existing homes. And we need to see low-cost government-backed lending and grants to improve homes.

At a local level, Good Home Agencies should bring together in one place information and advice including on trusted traders, finance, home repairs, adaptations, and energy retrofit services.

The last 18 months have taught us that we can no longer stand back and do nothing. We have both an opportunity and an obligation to come up with a plan of action which gives the best possible chance for us all to live in homes that are safe, warm, affordable and energy efficient. By doing so, we can improve the quality of life for millions while reducing demands on our health service and helping to tackle the existential threat of global warming.

David Skelton: Why a lack of dogma is Johnson’s strength, not a weakness

16 Sep

David Skelton is the author of The New Snobbery.

In October 1958, Harold Macmillan gave his second conference speech as Prime Minister and party leader. Here was a man at the peak of his political powers, who would a year later lead his Party to a thumping election win.

Rather unusually for a man of his verve and swagger, Supermac spent part of his speech talking about the nature of his political philosophy.

He differentiated Toryism from liberalism and Socialism with a characteristically fine turn of phrase. Macmillan argued that his opponents were living:

“…either in the past or in a world of make-believe. The pure doctrine of laissez-faire and absolute free trade; the nationalisation of all the means of production, distribution and exchange – these were the cries of my boyhood. What a musty period flavour they have now. How utterly out of touch all this is with the problems and opportunities of today.”

I was reminded of the great man’s speech during the debate that followed the government’s necessary steps to support the NHS and social care last week. One Telegraph columnist even complained that it represented the “total victory of Socialism in Britain” and a “trashing” of “intellectual traditions.” The truth, of course, is much the opposite.

Conservatism – always adapting to meet the challenges of the day

The unifying thread that runs through the entire Tory tradition is a belief that the Party has a patriotic duty to tackle the big issues facing the country today, rather than become trapped by a tight partisan dogma. The Conservatives are the most successful political party of the democratic age because of their ability to adjust to changing circumstances and changing times, just as their opponents become trapped in ideological straightjackets.

When one of the major challenges was the degrading social conditions faced in factories, Disraeli’s Government pushed a radical agenda of social reform. When the state had grown too large, unions too powerful, and business too weak, Margaret Thatcher’s Government set out to restore the balance.

Conservatives have always believed that rigid dogma is the folly of our opponents and that we should do what is necessary to maintain balance and tackle the major issues we face today. We should not pretend that the solutions to the problems of the 1970s are somehow replicable as we face the very different problems of today.

Conservatism isn’t libertarianism

Conservatism has never been a libertarian concept. There’s a good reason why Hayek, the icon of the libertarians, wrote an essay entitled ‘Why I Am Not A Conservative’. In it, he argues that conservatism and liberalism have often been opposites, as conservatism is based on a “fear of change” and liberalism is based on “a preparedness to let change run its course even if we cannot predict where it will lead.”

Conservatism can never just be a simplistic championing of the unfettered free market. For Tories other things, such as family, community, nation, and belonging, matter just as much as the market. As Robert Tombs set out in his masterpiece, The English and Their History, the reality of conservatism “is more complex, and more intriguing” than modern liberals would argue. According to Tombs:

“Tory beliefs – state intervention to defend the vulnerable.. Spending on welfare, rejection of deflationary economics – chime more with modern sentiments than those of the progressive Whigs.”

As Conservatives, we understand that the state often has a role to play in solving the difficult problems we face, as long as this is done in a balanced way that doesn’t diminish the role or importance of civil society, the market or families. Rab Butler was emphatic when he argued that, “Conservatives have always been ready to use the power of the state. That has been our tradition since Bolingbroke.”

Lord Hugh Cecil, in his important work on Conservatism, even suggested that modern “Conservatism inherits the traditions of Toryism which are favourable to the activity and authority of the state.”

Tackling today’s challenges

The major challenges that we face as a country today are not going to be solved by a simplistic, dogmatic mantra of “small state, low tax.” Social care, for one, is a policy dilemma that successive governments have dragged their feet over, so last week’s announcement that the government will be prioritising a lasting social care solution has to be welcomed.

Similarly, ‘levelling up’ – reviving the “post-industrial” towns that gave us an 80-seat majority – is not going to happen with a dogmatic attachment to a small state. Ambitious infrastructure projects and an industrial policy committed to reviving manufacturing represent the pragmatic solutions to the problems of the day.

Boris Johnson has always instinctively understood the importance of a balanced conservatism. When he was Mayor of London, he was, for a time, one of the only leading Tories who advocated a Living Wage and used his office to extend and support the concept. The Prime Minister has always seen the value of flagship and important infrastructure projects and this is reflected in the ambition that lies behind the Levelling Up agenda.

To return to Macmillan’s pithy summary of the political divide, Conservatives should neither be living “in the past or in a world of make believe.” Conservatives have always done what is right to tackle the challenges of the day, which sometimes involves utilising the power of the state.

Despite the cries of dogmatists on both left and right, simplistic sloganeering is no substitute for making the hard choices that come with governing.

James Frayne: Johnson’s headroom to raise taxes, in the wake of the new levy, has been dramatically reduced

14 Sep

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

A few weeks ago, opinion polls showed three to one support for a national insurance rise to pay for social care. It’s hard to say for sure where the numbers on this question are now, but the evidence is they’ve moved considerably against the Government (although not irretrievably).

Some suggest that the mess in the media flipped the polls against the Conservatives and put Labour ahead; I think there’s much more to it than this but it clearly didn’t help.

So what went wrong? What were the alternatives that the Government should have considered? And what are the medium-term implications for the Conservatives?

Admittedly, I haven’t tested my sense in detail yet, but it is that three reasons help explain the the shift against the national insurance announcement.

First, and most importantly, it became clear that revenue raised by this higher tax won’t be ringfenced for social care. After a day or two of briefing that higher taxes would pay for care, the Government clarified that revenue raised would also pay for the hole in the NHS finances created by Covid.

Ordinarily, adding the letters “NHS” to a political message adds several points to a political message (ask Vote Leave). Here, it simply made people think (rightly) that pretty much all revenue raised would go into the great bottomless pit of NHS finances. It’s not that people don’t love the NHS; nor that they want to change the way the NHS is funded. It’s just that they quickly realised the Government wasn’t making a social care announcement but a debt repayment announcement.

Second, people got out their calculators quicker than I can ever recall – with the extra they’d pay pushed around widely by the likes of the Taxpayers’ Alliance. Politicians have long liked using national insurance as a tax-raising device; not only does it have perfect branding for health and social care announcements, but even people on PAYE – who see the national insurance line on their payslip each week – inexplicably find it less offensive than income tax. This time, a combination of media and social media scrutiny showed people what they’d be paying, and its transparency felt like a council tax rise.

Third, the announcement was too detached from the policy conversation on social care. People care deeply about it, as the Conservatives discovered to their cost during the 2017 election; social care is regularly raised as an issue in focus groups without prompting.

But it’s a complex area, and the Government would have done well to have reheated the policy conversation on social care for several weeks before springing this announcement on the public. Ordinarily, for a policy announcement of this magnitude, you’d expect (some) cross-party support, endorsements by experts from the sector, a formal announcement with the Health Secretary flanked by care workers and all the rest. This time, there was nothing.

Two alternatives would have been better.

The Government could have announced that the country was going to have to cope with a few years of financial pain via higher taxes to pay off Covid debts – and not to have beamed in on social care at all.

I don’t understand why they didn’t do this. Polls have consistently showed the public supported the massive crisis payments to the NHS and furloughed workers. They’re well aware this led to massive debt and they’re also aware debt must be paid off – at least in part with higher taxes.

They would have completely accepted a straightforward explanation that taxes were going to rise – for everyone – to deal with this. Sunset clauses would have made this all go down better, but there’s something in the English psychology that revels in harsh, shared sacrifice. It was a huge, missed opportunity; it’s possible that the Government would even have secured a bounce from it (assuming they said they were going to tackle waste at the same time).

The alternative option would have simply been to have announced a smaller national insurance rise and explained it was going to be strictly ringfenced for social care. This would have given them the option to raise taxes again later. Wrapping social care, the NHS and Covid debt repayment looked shifty and ill-thought-through.

What are the implications for the Conservatives? It’s been said all this undermines the Party’s reputation as a low-tax party. I don’t think this is quite right; most of the public have rightly not viewed the Conservatives as a low-tax party for many, many years, but rather as a lower tax party than Labour.

There are worse things to be: in 2019, this contrast certainly made lower middle voters even more wary of Jeremy Corbyn. But it means that the sort of messages the Conservatives pump out at the annual party conference – around low tax, free enterprise, a small state etc – have zero traction with the public. (It’s weird to think that until a few years ago the party’s logo was a torch of freedom; the rainbow associated with the NHS would be more appropriate.)

If Corbyn were still Labour leader, it’s possible that the Conservatives would have retained this lower-tax advantage regardless of national insurance. Under Starmer, I think it’s reasonable to assume this advantage will no longer be there.

In turn, all there will be to choose between the Conservatives and Labour on the economy will be competence and stability – in the Conservatives’ case, because they’re in Government, this will be defined entirely by delivery. In other words, if the economy appears stable and grows, they’ll be fine; if not, they’ll be in a mess.

It also means that the party’s freedom on other issues is dramatically reduced. There’s no way now the Government can introduce any new tax rises; at that point, their polling numbers really would go off a cliff; everything now needs to be revenue neutral, with taxes raised balanced out by taxes cut. Most obviously, this somewhat complicates their Net Zero strategy; you would have expected fiscal policy increasingly to have rebalanced towards green taxes.

A new market in long-term fixed rate mortgages?

14 Sep

At one end of the age spectrum, Britain has older people in need of social care.  At the other, younger people who want to own their own homes.  The best one can say of Ministers’ attempts to help both to date is that these are a work in progress.

The social care plan that will be voted on these evening will do nothing much to improve the provision or quality of care, whether delivered in one’s own home or elsewhere.  It may not deal even partly, let alone wholly, with the problem it aims to address – namely, having to sell the family home to help pay for care.

This is because it’s more than likely, when the new Health and Social Care Levy kicks in during 2023, that the money raised from it will flow to health – that’s to say the NHS, the capacity of which to consume resources is inexhaustible – rather than social care.

None the less, we raise half a cheer for the Government for potentially ensuring that some people at least will no longer have to sell their houses to help fund care costs.  Even if the proposals that have been announced so far won’t deliver the Conservative Manifesto commitment of ensuring that “nobody needing care should be forced to sell their home to pay for it“.

Since the levy will be a form of national insurance, it will largely be paid by younger people.  So the generation that can’t afford to own their own home will have even less disposable income than they did before.

Which takes us to Ministers’ housing plans.  The Health and Social Care Levy scheme has been drawn up at short notice, and the Government is rushing it through Parliament speedily.  Neither condition applies to the housing measures.

The Planning Bill pledged in the Queen’s Speech hasn’t come to the Commons or Lords yet – and no wonder, since its terms are essentially being negotiated between Ministers and Conservative backbenchers (plus senior councillors).  Pre-election, any prospect of loosening Green Belt restrictions was seen off.  Post-election, Tory MPs did for the housing algorithm.

It is reported that the Government will now abandon the zoning system it had planned, plus targets for housebuilding.  One take is that such a retreat would damage Ministers’ aspiration to see more homes built.  Another is that is would make little difference.

This is because housebuilding numbers have been increasing during recent years: in 2019/20, 243,770 homes were delivered – the highest annual number in over 30 years, and the seventh year in a row that the number of homes delivered rose.  Furthermore, the Government has already persuaded Parliament to back an expansion of permitted development rights.

Developers will be able add two storeys to existing buildings without planning permission, and turn premises into homes.  There is a push for street votes to expand properties – see Bob Blackman’s recent piece on this site – as an alternative to concreting land.

Whatever happens next, any Minister who sought to solve all of Britain’s housing problems by building more would be the ultimate one-club golfer, since more homes wouldn’t address the other factors in the mix: limited space, smaller families, high immigration, powerful developers, a long tradition of property rights, a complex planning system, curtailed post-crash lending and new Net Zero requirements.

And if boosting home ownership is an aim of policy – as it should be – what we wrote in the ConservativeHome Manifesto, the best part of ten years ago, still applies.

“No matter how fast we can make land and construction capacity available, the money markets can always move faster – pumping cheap credit into property investments. Any government move to undermine sensible planning protections only serves to set off the feeding frenzy.”

Ministers have tried to help younger people get in on the act through Help to Buy (launched by the Coalition) and the 95 per cent mortgage guarantee (unveiled in the last Budget by the Chancellor).

But home ownership has only drifted up marginally in recent years – to 65 per cent in 2018 compared to its 71 per cent high in 2003.  And when one turns to who owns what, it’s a tale of two generations: last year, only nine per cent of owners were aged between 25 and 34; a whopping great 36 per cent were 65 or older.

One of the clubs that the Government wants to see used is long-term fixed rate mortgages. “We will encourage a new market in long-term fixed rate mortgages which slash the cost of deposits,” that 2019 manifesto said.

It doesn’t follow that, because some of its other commitments haven’t been honoured (such as the pledge not to raise national insurance), this one won’t be delivered.  However, the keys to making it happen lie not so much in the Treasury as in the Bank of England, and the new requirements that it placed on getting a mortgage in the wake of the financial crash.

The Government’s interest in long-term fixed rate mortgages owes much to the Centre for Policy Studies, and in particular to the case put forward in a report for the think tank by Graham Edwards.

He argues that, because of the certainty that these mortgages offer, they don’t need to be stress-tested – and so can be offered with the 95 per cent loan to value rates that were the norm before the financial crisis.

What about the danger of negative equity?  The counter-case is that, while this is always present, there was a minimal increase in default rates in the wake of the crash.  What if wages grew more slowly than the mortgage costs?  Edwards’ answer is that “there is still a lot of scope for borrowers to absorb the increase in housing cost before they reach a point of financial stress”.

It will be claimed that the Conservatives are fixated by home ownership – just as, returning to social care, the Prime Minister is concentrated on people selling their homes to help pay for it.

In theory, it is open to the Government to stress one Tory viewpoint, that “there’s no such thing as a free lunch” to the exclusion of another, that “wealth should cascade down the generations”.  But in practice, Ministers can’t be indifferent to younger people’s desire to own their own homes, at least if they wants them to have a stake in the capitalist system that the Conservatives support.

Nor can it ignore the wish of older ones to pass on family homes – at least, if the Party’s experience in the 2017 election is anything to go by.

As we say, Ministers need to deploy different clubs if they are to negotiate the course of “building beautifully”: smaller developers, migration control, more supply, control on costs (including those emerging as a consequence of Net Zero).  But these won’t be enough to deliver higher home ownership, too.

For that, the Government will need to help rebalance the playing field between those who own property and those who don’t, which requires help from the Bank of England and the financial institutions.  Otherwise, younger people, bereft of alternatives, will have an growing interest in levelling-down, not levelling-up.  In other words, in a housing market crash.

Andrew Griffith: If public services aren’t radically reformed, the new healthcare levy may be in vain

14 Sep

Andrew Griffith is MP for Arundel, founder of the Campaign for Economic Growth, and the former Chief Operating Officer of Sky plc.

Like most Conservatives, I support today’s Health and Social Care Levy Bill with some reluctance. Personal contact with the care system as well as that of my constituents made clear to me that more funding is part – but only one part – of any long-term fix. In particular, my heart goes out to the millions of unpaid caregivers who stoically provide cover for (when not actually falling through) the cracks in the system as it stands today.

Nor should we get carried away. The UK remains one of the lowest tax countries in the G7, and the choice at the next election will still be between a Conservative Government which raises taxes as a last resort out of necessity, and opposition parties who never see a question to which the answer is not to spend more of other people’s money. Margaret Thatcher increased taxes when required, before going on to reduce taxes and instigate reforms that unleashed Britain’s growth for decades to come.

Conservatives’ real concern – and my own greatest fear – should be if the new Levy turns out to be in vain. So far, it has to be said, the omens are not good. Rather than a ‘long march’ towards a radically overhauled, streamlined modern state, we have the ‘slow shuffle’ of public sector employees back to their desks.

Publicly funded salaries and pension are a privilege, not a right, and a growing pile of my correspondents are making the link between their own personal experience of the state – the delayed driving licence, slow motion planning application or a growing waiting list for a continuing healthcare or childs educational assessment – and the relative responsiveness of the private and public sectors. It was a different era but, the last time the UK tried to reconcile growth and prosperity with a three-day working week in 1974, things did not end well.

As we put the crisis stage of the pandemic behind us, it is therefore critical that we do not lose sight of, or the zeal for, the radical reform of government that is required. Only by changing the machine itself can we change what it delivers for the people of Britain. The normal clock speed of government is far too slow; memorably likened to the dream where you try to run but your feet will not move.

During the pandemic a heroic effort by all concerned overcame this. The epic recent Afghanistan evacuation was another similar example. But you can’t run the British state by constant exception management. Delivering our popular and bold programme will require better instrumentation, clearer goals and new ways of working.

Without near real time data, Ministers are forced to drive not just in the rear-view mirror but using a backwards-pointing telescope. One example, the latest NHS workforce statistics are only available for April: whilst we may shortly be dealing with the impact of a difficult winter, the NHS will be telling us how many staff it had back in the midst of summer.

The excellent Commission for Smart Government recently published actionable proposals for reform. It also identified the risk that the scale of the task might encourage leaders to put the intricacies of systemic reform to one side. Tired Ministers heading towards mid-political cycle and with busy in-trays may not have the energy or the freshness for the challenge.

One lens on a future reshuffle could be to inject a little more grit into the oyster. The current Spending Review is an opportunity that should not be missed, but such exercises rarely end up in the true zero-based scrutiny of departments and their operating model that real reform requires.

This Government has everything going for it. Clear leadership, an ambitious programme and political fuel in the tank in the form of a large majority. But the yardstick of long-term political success is real action impacting the real lives of citizens across the UK. To achieve this, reform is a necessity not a luxury.

David Gauke: Johnson’s health and social care plan. A betrayal of Conservative principles? No – because, at one level, there aren’t any.

13 Sep

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire in the 2019 general election.

The Government’s plan for increases in National Insurance (NI) contributions to fund higher health spending and increased health spending has provoked a furious response from some on the right.

It “sounded the death knell to Conservatism” and drove “a coach and horses not only through the Tory Party manifesto, but Toryism itself”  according to Camilla Tominey in the Daily Telegraph.  In the same paper, Allister Heath fumed “shame on Boris Johnson, and shame on the Conservative Party…they have disgraced themselves, lied to their voters, repudiated their principles and treated millions of their supporters with utter contempt” and that “an entire intellectual tradition now lies trashed”.

In the Times, Iain Martin declared that “at this rate, the Conservative Party might as well rename itself the Labour Party”  and in the Spectator, Fraser Nelson questioned whether the “Boris Johnson” definition of conservatism as “a protection racket, where the tools of the state are used to extract money from minimum-wage workers and pass it on to the better-off?”

Meanwhile, Dominic Cummings has argued that “if you think you’re ‘conservative’, and you give those speeches about ‘enterprise’ and ‘responsibility’, why would you support making many more dependent on state money and bureaucracy?”

It’s all jolly strong stuff. And there are elements of the criticisms with which I have sympathy. I share the scepticism about prioritising a tax-funded social care cap, in that those who will gain most are those who have the most (thanks to rising house prices) and that is the wrong priority for public money.

There is a need for risk-pooling, but I think Peter Lilley’s proposal on this site is worth close examination (I suggested something similar when in Government). I also dislike NI as the choice of tax because of the narrowness of its base – and the distortions that this causes – and the dishonesty of employers NICs (no, Prime Minister, it is not a tax on business: it is a tax on jobs and employees’ wages).

In fairness to the Government, raising taxes is difficult, NI is less unpopular than income tax (largely because much of the public misunderstand it) and, being cynical, it is not surprising that Ministers exploit that misunderstanding.

Having said all that, is it a fair criticism to state that Johnson’s Health and Social Care plan undermines everything for which the Conservative Party stands? For a number of reasons (some of which reflect better on the Party than others), I think not.

First, the Conservative Party has an honourable record of fiscal responsibility. When the public finances are in trouble, Conservative governments have been willing to raise taxes in order to put the public finances on a sound footing – not least Margaret Thatcher’s, when Geoffrey Howe raised taxes in 1979 and 1981. The advocates of Reaganomics always find this disappointing, but responsible Conservatives do not believe that lower taxes will pay for themselves (as they did not for Reagan).

In reality, even putting aside any new commitments on social care spending, the prospects for the public finances are not great. Not only do we face some immediate challenges (Covid catch up, net zero and levelling up), but demography and rising health expectations will mean a tax-funded healthcare system will require higher taxes.

Some on the Right will argue for further cuts in spending or an alternative health model, but the political feasibility of such an approach is highly dubious. If we are going to spend more (and we are), taxes will need to rise to pay for it.

Second, the idea that a Conservative government prioritising homeowners is a complete break from the past does not bear scrutiny. Look at the arguments that Thatcher made in resisting the removal of mortgage interest tax relief (although the Treasury rightly prevailed in the end), or the general dislike of inheritance tax from the wider Conservative world. The reaction to Theresa May’s social care policy in 2017 suggests that the instinct to ‘defend our people’ (and their inheritances) amongst Conservatives is a formidable one.

Third, complaints about the Conservative Party not being the party of business are (how can I put this?) a little rich from some quarters. Imposing higher taxes, whether on employment or profits, is not great for business – but making it substantially harder to trade with our largest trading partner is a bigger problem.

It is all very well complaining about the anti-business instincts of this Conservative government, but hard to do if you have been a cheerleader for anti-business policies or, for that matter, Boris “f*** business” Johnson. If your expectation is that the Conservative Party would automatically be on the pro-business side of the argument, you have not been paying much attention in recent years.

The reason why the Conservative Party moved in the direction of an anti-business Brexit is that was where the votes were. And this brings me to the fourth and most important observation about the Conservative Party.

It has one purpose: to be in power. At one level, it is not possible for it to repudiate its principles because it does not have any. This can give it a tremendous advantage in a democracy because the public, as a whole, does not have political principles either – opinions and political alignments shift over time.

The Conservatives have been protectionists and free traders, the party of Empire and the party that facilitated the retreat from Empire, Keynesians and monetarists, the party of price controls and wages policies and the party of market economics, the party of Europe and the party of Brexit. It never stays on the wrong side of public opinion for long.

What is happening to our politics at the moment is that party support is realigning along cultural lines and, as a consequence, much more along generational lines. This has worked to the advantage of the Conservatives, so it is no surprise that it pursues policies that prioritises health spending over lower taxes for people of working age.

Polling suggests that the new, Red Wall voters who switched to the Conservatives at the last election are notably more left-wing on economic issues than traditional Conservative voters who are, in turn, to the left of Conservative MPs. The decision was made to pursue those voters and, if the Conservative Party wants to keep them, it cannot risk the NHS collapsing under financial pressure – which means higher spending and, ultimately, higher taxes.

Johnson’s critics are right to think that this will not be the end of it. Last week’s package was supposed to be an answer to how we fund social care. The reality is that it was a package to boost spending on the NHS. As Damian Green has argued on ConHome, it is hard to see how resources will be taken out of the NHS and switched to social care in three years’ time – and that, at that point, some expensive social care commitments will come into effect.

here will another funding gap and, on the basis of last week’s revealed preference, a further increase in the Health and Social Care Levy. Those who see the purpose of the Conservative Party as delivering low taxes are right to be glum.