Greg Clark is Financial Secretary to the Treasury and MP for Tunbridge Wells. Follow Greg on Twitter.
The Harvard economist Ricardo Hausmann has shown that most of the differences in income and wealth creation between nations can be attributed to how complex their economies are. Broadly speaking, poorer countries make simple things that everyone else can make, while richer countries make things that are complex that not everyone makes. According to one study, in the US, the average employee works with 100 other people to do their job, while in India the average employee works with four.
As Hausmann puts it: “for a complex society to exist, people who know about design, marketing, finance, technology, operations and trade law must be able to combine their knowledge to make products. Modern man is useless as an individual: making a computer is a team sport.” Adam Smith, of course, had the same insight two centuries earlier.
This is one of the reasons why, across the world, cities are emerging as the places where economic growth is strongest. The purpose of cities – their raison d’etre – is to bring people together to allow them to specialise in what they do best and to collaborate with each other. One of the reasons why London has been so successful is that you can find just about anything you want there – experts, specialists, products, services, finance and labour.
Greg Clark is Financial Secretary to the Treasury and MP for Tunbridge Wells. Follow Greg on Twitter.
Home ownership in Britain fell during the last decade for the first time in nearly 100 years. This is despite the fact most people still aspire to own their own home. It is an understandable aspiration: a well-supplied home rental market is important for choice and mobility, but home ownership brings the guarantee that you won’t be uprooted because the landlord gives notice, a valuable source of confidence and stability for many families. It’s one of the reasons why Conservatives from Harold Macmillan through Margaret Thatcher to David Cameron have tried to do what they can to help people fulfil this aspiration.
Simplifying the planning laws to remove national targets and giving councils the responsibility to plan for the homes their local community needs is improving the supply of homes. The number of new homes given planning permission has risen by 22 per cent since the National Planning Policy Framework was published last year.
But even so, thousands of people who could afford a mortgage don’t get the chance to own their own home because deposits required by lenders have increased since the financial crisis. In some parts of the country it can take a couple on average earnings ten years of saving to be able to afford a deposit for a house or flat, and for single people longer.
Help to Buy, the Government scheme to assist homebuyers with deposits is designed to address this recent obstacle to home ownership. If a homebuyer can provide a 5% equity deposit the Government will act as a guarantor on the next 15% of the property value.
Some people have worried that providing a route to providing a property with only 5% equity is too small a buffer to withstand any future turbulence in the housing market, in the light of the experience of negative equity in the early 1990s, and the rash lending policies of banks before the crisis.
But there is a vital difference between Help to Buy and the riskier mortgages of the recent past. Every Help to Buy mortgage is required to be taken out on a repayment basis, rather than interest-only. At the height of the boom, many banks advanced interest-only mortgages without any record of a repayment vehicle being in place. This makes a huge difference. For a property at the average UK price of £242,000 a Help to Buy mortgage taken out with a 5% deposit will, through repayments, have built up to a 11% equity share – even if house prices are totally flat – after three years, and a 16% equity share after five years. In subsequent years, the increase in equity accelerates as, typically, more capital is repaid in the later years of a repayment mortgage.
This critical requirement for repayment means that Help to Buy embodies, in effect, a savings scheme that builds to a substantial equity stake – and a buffer against future turbulence that is rapidly established.
In fact, Help to Buy, by reducing the deposit required to 5% and requiring a prudent repayment, is very similar to a scheme operated by Harold Macmillan’s Conservative Government, as this extract from the 1961 Which? Guide to Home Ownership shows:
Greg Clark is Financial Secretary to the Treasury and MP for Tunbridge Wells. Follow Greg on Twitter.
Amidst so much sunshine now, it’s easy to forget just how dismal the start of summer was last year – and not just weather-wise. It was at the end of June 2012 that the Libor fixing scandal broke, triggering high profile resignations and fierce public debate.
The intense response was well-merited, given everything else that has happened: the bailing out of the banks with £66 billion of taxpayers’ money; the cynical mis-selling of worthless PPI products to ordinary working people; and the mis-selling of abusive interest rate swaps to small businesses. After all of that, the attempts to manipulate Libor – a benchmark so important it was known as the ‘price of money’ – dragged the reputation of the City of London to a new low (though, of course, similar activities took place in other financial centres around the world). I recall a double page spread in the German newspaper Handelsblatt, featuring a panoramic view from London Bridge and the headline, in English, ‘City of Shame’. Britain’s financial sector – our largest industry – depends totally on trust. So for such damage to have been done to its reputation was nothing short of catastrophic.
A year on, it is worth surveying how much has changed – and how this Government has moved further and faster than our competitors to restore trust in financial services and the rigour of the regulatory framework. We did so in challenging circumstances: Labour’s disastrous legacy on these (and other) issues, threatening moves from Europe and the usual pressure to water-down our reforms.
There are 158 constituencies in the North of England. Just 43 of them returned a Conservative MP at the last general election. By way of comparison, Labour took just ten of the 197 constituencies in the South of England outside London. We could comfort ourselves with the thought that Labour has the bigger problem, but complacency won’t win us a majority. Nor is national unity best served by the polarisation of the electoral map. Of course, in any democracy, there will geographical variations in support for different parties – but few countries are as starkly polarised as our own.
It’s therefore time to take the North-South divide seriously. And to do so we need a better understanding of the nature of that divide. For instance, this is much more than a matter of physical distance from Westminster – after all, you can travel hundreds of miles from Big Ben and still find yourself in true-blue territory. We also need to look past differences in the socio-economic make-up of North and South. Though these do exist, it’s also the case that if you compare people from the same backgrounds, Northern voters are less likely than their Southern counterpart to support Conservative candidates.
Clearly, there’s something else going on – a lot of things, in fact; but for me the biggest single factor that distinguishes the North from the South is cities. If you look at where people actually live, the North is much more urban place than the South. Of a total Northern population of 13.5 million people, 8.5 million – almost three-fifths – live in the metropolitan counties of Merseyside, Greater Manchester, South Yorkshire, West Yorkshire and Tyne and Wear. Other heavily urban areas such as Hull and my native Teesside are home to much of the other two-fifths.
Of course, the South has cities too. But leaving London aside, they’re fewer in number and generally smaller in size. Of England’s eight ‘Core Cities’ (the largest cities beyond the capital), five are in the North, two in the Midlands and only one (Bristol) in the South.
“Labour’s current muddled message would take several confusing paragraphs, filled with caveats and clarifications, covered in scribbles and crossings-out. Osborne has cut too far and too fast, they say, but we will stick to his plans. The Tory approach to cutting social security is wrong, though many of their underlying principles are right. Many of their cuts are as cruel as they are unnecessary, but we will not reverse them.”
Jones is a hardliner for whom no Labour leader can be left-wing enough, but his complaint actually plays into the Opposition’s hands – by suggesting that they have changed, when clearly they haven’t. The Shadow Cabinet certainly seem incapable of giving a straight answer on just about any policy question, but anyone who thinks they’ve swapped the red flag for white one is deluding themselves. Whether on the economy, welfare reform, education, localism or immigration, it’s just the same old Labour Party with added confusion.
In the face of determined action from reforming ministers like George Osborne, Iain Duncan Smith, Michael Gove, Eric Pickles and Theresa May, their shadows have been left scrabbling for words. But there’s been no change of mind and certainly no change of heart. In fact, what we’ve seen in the last few weeks doesn’t even count as a change of political strategy. As media scrutiny becomes more intense, it is not surprising that certain indefensible positions have been abandoned, but that’s just tactics. The contradictory statements we’ve heard from the Labour frontbench can be interpreted as a sign of panic, but they also provide a smokescreen for their true intentions.
We’ve been here before. When Labour was in Government, they repeatedly signalled their intent to reform the public sector, while quietly strangling any genuine attempts to do so. Take welfare reform, for instance. In 1997 Frank Field was appointed as the Minister for Welfare Reform, with a brief to ‘think the unthinkable.’ Within a year he was forced out by Gordon Brown, then Chancellor. It would be 2005 before reform got underway again under John Hutton, who commissioned the Freud Report. However, when Gordon Brown became Prime Minister in 2007, Hutton was replaced with Peter Hain and the Freud Report was left to gather dust. As the economic situation worsened, a belated attempt was made in 2008 to revive reform under James Purnell, but, frustrated with the Prime Minister, he resigned the following year and was replaced by Yvette Cooper.
The lesson here is that every time the Brownites (who now have uncontested control of Labour Party) have an opportunity to reverse ferret on reform, they will take it. Unwilling to develop new ideas even in opposition, the chances of Miliband, Balls and Cooper pursuing meaningful reform in office are zero. But what about external pressures? Any future Labour government would have to operate under tighter financial constraints than the last Labour government, thus some people might think they’d be forced down the path of reform. This is to forget the essential difference between them and us.
Faced with the need to make massive savings in public spending, our instinct has been to give power away – providing local public service providers the freedom that they need to do more with less. Labour’s instincts, though, run in the opposite direction. If difficult decisions have to be made, they certainly wouldn’t trust others to make them – even if on matters best determined locally. Furthermore, without unlimited funds to buy off their key supporters, a future Labour Government would placate the likes of Len McCluskey by killing-off reforms to order.
Ed Balls, has already said that he would borrow more if he were Chancellor, but without reform, the pressure on the public purse would only intensify, pushing this country even closer to the cliff edge. That is why the current Government is committed both to deficit reduction and to the reform of our public services. Three years in, the deficit has been reduced by a third, the welfare system is being reformed, choice and rigour is returning to our schools, power has been given back to local communities and immigration is being controlled.
This is a record to be proud of. But these achievements are not irreversible. In fact, let us be under no illusion that Labour – if given the chance – would indeed reverse them. So, don’t be taken in by the toing and froing of recent weeks. With the Brownites in charge, Labour’s position is all too clear: the new policy is the old policy.
There’s was something odd about the clash between Ed Miliband and David Cameron at last week’s PMQs.
The exchange opened with a question about the final report of the Parliamentary Commission on Banking Standards. This wasn’t surprising as the report’s publication was one of the main stories of the day – however, it soon became apparent that Mr Miliband’s plan of attack was based on the assumption that the Government wouldn’t support the report’s major recommendations. And, so, with the Prime Minister making crystal clear that the Government did indeed welcome and endorse the report, the Labour leader was left with nowhere to go.
What made the whole thing even odder was that Government ministers, including myself, had appeared on the broadcast media throughout the morning making it perfectly plain that we backed the report.
Perhaps the problem was one of cognitive dissonance rather than mere inattention. It can’t be easy for those on the left to admit that it is a Conservative-led government that is reforming the financial services sector. They should get used to it – the future of Conservatism is all about putting right the problems caused by excesses that can happen in big business as well as in big government.
In the three years since it came to power the current Government has already made substantial progress on banking reform.
Firstly, we have passed the Financial Services Act 2012. It which has replaced Gordon Brown’s disastrous regulatory set-up, which Peter Lilley warned as Shadow Chancellor at the time “would cause regulators to take their eye off the ball, while crooks and spivs have a field day”. Instead, the Bank of England is once again in charge of ensuring the stability of the UK banking system, and a dedicated financial conduct regulator is charged with taking a forward-looking, rather than tick-box, approach to monitoring the behaviour of firms,.
Last week, I spoke at the Future of Regional Banking conference in Gateshead. Organised by Hexham MP Guy Opperman, it was a superb event – and I was delighted to be part of something that combines the two halves of my ministerial role: banking reform and returning power to local communities.
Guy’s ambition, which I share, is to encourage the creation of new banks, rooted in their local economies and challenging the incumbents. As the Parliamentary Commission on Banking Standards has made clear today, banking has become far too concentrated in the hands of ever fewer competitors, whose decision-making has become too centralised and lacking in the local and personal knowledge that a diverse economy needs.
There’s a parallel here with the century-long flow of political power from the cities and shires of England to the over-mighty establishments of Westminster and Whitehall. I grew up in the North-East during the 1970s and 1980s, when the sense that industrial, financial and administrative influence was draining away to London was palpable. It wasn’t a new phenomenon, of course, just the continuation of decades of disempowerment – a period in history that stands in stark contrast to an earlier age of confident local leadership.
The town of Middlesbrough, where I was born and bred, rose from nothing in the 19th century. No permission from London was involved, just the extraordinary vision and determination of its founding fathers. Most notable among them were Henry Bolckow and John Vaughan, who built the blast furnaces that drove the astonishing expansion of the town. William Gladstone, visiting Middlesbrough, called it “an infant Hercules” – an apt description for a place whose industry would lead the world.
Bolckow and Vaughan weren’t only industrial leaders, but political leaders too. Both men served as Mayors of Middlesbrough and Bolckow was elected unopposed as the town’s first Member of Parliament. As with the other great centres of Britain’s industrial revolution, local growth went hand in hand with local decision-making.
But in the century that followed, things would change. Bolckow Vaughan and Dorman Long (Bolckow Vaughan’s rival and successor) eventually became British Steel and the focal point for the decisions determining the town’s future shifted from the banks of Tees to the banks of the Thames.
It was similar story across the land – a nation of proud and largely self-governing towns and cities became one of the most centralised countries in the western world. The last Labour Government represented the final, failed surge of centralisation and on taking office in 2010, the current Government set about turning the tide.
In next week’s Spending Review, we will be accelerating this process as we negotiate deals with every part of the country to return power and resources to the business and civic leaders of our towns, cities and shires – so that policy making increasingly becomes something that is done in – not done to – each locality. I am thrilled to be leading that work, building on the success of the eight City Deals we have already concluded, and galvanised further by Michael Heseltine’s landmark report, No Stone Unturned.
On banking reform, I am determined to pursue the same drive away from centralisation and concentration. Even before the financial crisis, we had too few banks serving UK businesses and customers; and the forced mergers made necessary by the impending threat of insolvency furthered narrowed a restricted field.
In replacing Gordon Brown’s disastrous system of financial regulation, we have been clear that the new regulatory bodies – the Financial Conduct Authority and the Prudential Regulatory Authority – must not solely see themselves as regulators of incumbents. The regulators have been given an explicit responsibility to advance competition, including the removal of barriers to market entry. They have started by reducing by as much as 80 per cent the capital required by new entrants, reflecting the much reduced systemic risk that a smaller bank contributes to overall financial system. They have also sped up the process for approving a new bank.
Then there’s the crucial issue of the payment system that is used to transfer money to, from, between and within banks. Currently this is controlled by the major incumbents, presenting a potential barrier to market entry. By bringing the system under regulatory control we will ensure that new entrants, including regional banks, can access it in a fair, non-discriminatory fashion.
If there’s one lesson we ought to learn from recent experience it is that Britain does not benefit from concentrations of power. Whether in the worlds of government or finance, we need decentralisation and competition to restore the balance and serve the common good.
While they’re still in office, it is the fate of most governments to get the least credit for their biggest achievements. That’s because, with few exceptions, the most important reforms that a government can undertake are those whose outcomes unfold over a long period of time.
For instance, the full impact of changes to the way that schools work can only be truly assessed after a generation of school children have passed through the reformed system. On the decentralisation agenda, we can already see pioneering local authorities and community groups making use of their new freedoms – but to fully reverse the effect of a century of centralisation will take years rather than months.
Welfare reform is another area in which fundamental changes are being made. As with our other major reforms, the legacy of the last Labour government could not be more unhelpful – years of neglect in the policy area itself and the disastrous fiscal context of record public debt. The state of our public finances mean that welfare reform, long overdue, is being pursued with the utmost urgency. In implementing key components like the Work Programme, speed is of the essence.
The primary contracts for delivering the Work Programme have been structured on a regional basis and have for the most part gone to large, private sector service providers such as A4E and Serco. Where they get people into work and provide value for the public purse, I have no absolutely no problem with the involvement of these businesses. However, I do understand the concerns of people who had hoped that there would be a greater role for a wider range of providers – such as those from the voluntary sector.
It is, of course, early days. Now that the Work Programme is underway and the stranglehold of the centralised state has been broken, new opportunities will present themselves. The public resources allocated to the programme are no longer under monopoly control. It is not good enough for a provider to be ‘good enough’ – they have to be the best or make way for someone who’s better.
Also, by learning from experience, the Government will be in a position to refine the way that contracts are structured and awarded. It is vital that competition takes place on a level playing field and that barriers to market entry are minimised.
Furthermore, it is my belief that potential service providers in any area of government policy should not have to wait for government action to allow them to participate. I think it is an important principle that if a potential service provider can show that they could do a better job than anyone else – then they should be able to make their case, regardless of artificial bureaucratic constraints imposed from on high.
This ‘right of initiative’ is the foundation of the City Deals programme. For instance, in the Sheffield City Deal the Local Enterprise Partnership combined funding from local businesses and councils with existing government skills funding to create thousands of extra apprenticeships to meet local employer needs.
City Deals are the starting point not an end point for the way in which communities take control of their future development. The first of wave of City Deals agreed with Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield, have demonstrated that these cities can bring together their local authorities, business leaders and community institutions through Local Enterprise Partnerships to undertake projects of major economic importance.
I see no reason why, either individually or in partnership with one another, these cities shouldn’t bid, on an equal basis to everyone else, for Work Programme contracts – even under their current regional structure.
Of course, not everyone will like the idea of entrepreneurially-minded partnerships of local councils and employers. There will be those who believe that national programmes should always be delivered by national public bodies. Equally, there will be others – representing particular corporate interests – who’d rather not have the competition.
However, when it comes to getting people into work and getting value for taxpayers, I’m sure that real Conservatives would like to see innovation and entrepreneurship coming from all directions.
Many things have been said about Ed Balls’ big speech on the economy – most of them including words like “hypocrisy” and “chutzpah”. Certainly, it takes some brass neck to complain about the deficit that a supposed Labour government would inherit in 2015 without first apologising for the fiscal mess that the last Labour government left behind in 2010. Indeed so far from apologising, Balls even denied there was ever a problem to apologise for: “Do I think that the last Labour government was profligate, spent too much, had too much national debt? No, I don’t think there’s any evidence for that”, he said.
Brass wasn’t the only metal to feature in the Shadow Chancellor’s speech, which revolved around a promise of “iron discipline” over government spending, to deal with “a difficult inheritance”. Sound familiar? In May 1996 Gordon Brown as Shadow Chancellor promised that Labour would display “iron discipline” to deal with “a difficult legacy”. The very language of this week’s speech shows that, as the pressure mounts on Labour’s economic policy, it is revealed to be not Balls’, but Brown’s.
The policy content of the speech was also back to Brown. Even at the height of his profligacy, he was given to mock displays of thrift – parading some supposed example of economy while ramping up spending everywhere else.
The main announcement in this week’s speech – the pledge to end Winter Fuel Payments for richer pensioners – was straight out of the Gordon Brown playbook: a modest saving that in no way answers the big budgetary questions. £100 million is, of course, a great deal of money. However, £12 billion – the cost of Labour’s proposal for a temporary cut in VAT – is a lot more money than that.
Then there’s the matter of the savings proposed and made by this Government and opposed by Labour – in particular vital welfare reforms, like the benefits cap, which Balls and Miliband have sought to obstruct at every stage.
Thus the idea that the Shadow Chancellor has seized the nettle of fiscal responsibility is as reliable a guide to Labour’s real position as Gordon Brown’s endless devotions to ‘prudence’. Far from providing a signpost to a comprehensive budgetary policy, the ‘big’ announcement was a distraction – designed to obscure the fact that Labour will do everything they can to avoid coming clean on their spending plans.
That is why Balls began his speech with an attack on the Government’s decision to hold a Spending Review this year. This “is a sign not of strength but weakness” he said. In reality, the Review’s timing is a sign that it’s been three years since the last one – the usual interval. Putting it off would hardly be showing strength – let alone ‘iron discipline’. Rather, a delay would reveal political cowardice. And guess who took that course? It was, needless to say, Gordon Brown, who put off his last Spending Review so it would fall after the 2010 general election.
Instead of saying how he would balance the books, Balls talks of striking the “right balance between economic growth and deficit reduction” – which is the classic Gordon Brown code for the same old Labour policy of massive spending funded by ever increasing debt. Or, as Brown put it in 2006, as spending spiralled out of control, "the right balance between keeping tax low and meeting the needs of public investment and stability."
There are those who say that Labour’s reputation on the economy is tarnished. But they’re wrong – under Gordon Brown and his acolytes it rusted right through and cannot be repaired. Brown’s so-called ‘iron discipline’, which a cornered Balls is now grasping for, is fit only for the scrapheap.
What could be more conservative than the principle and practice of insurance? Long before the advent of the welfare state, people were banding together to protect themselves against catastrophe and to make long-term provision for the future. In fact, many of the core public services we value so much today – like the fire service and the old age pension – have origins in the insurance industry. As for the private sector, businesses and markets would not be able to function without the ability to share and manage risk.
In fact, modern life would be unimaginable without insurance. Perhaps, its very ubiquity in our lives is why we tend to take the insurance industry for granted. But we shouldn’t – and certainly not in Britain where the industry itself is of huge importance to our economy.
Insurance companies employ almost 300,000 people in this country, they contribute over £10 billion in taxes to the Exchequer and they administer investments amounting to more than a quarter of the UK’s total net worth.
Despite these facts, when most people think about the financial services sector, the first thing that usually comes to mind is banking. Certainly, various issues surrounding the banks tend to dominate my in-tray as Financial Secretary to the Treasury. This is not, of course, for the happiest of reasons – and it is quite right that we should, as a Government, have attached such a high priority to restoring the stability and reputations of Britain’s banking system. And yet this is all more reason why we should celebrate our insurance industry, which continues to be an industry in which Britain has a global reputation.
Of course, sure and steadfast does not have to equal dull and boring. In fact, London is establishing itself as the world capital of the insurance industry. In the last year, Aon – one of the largest insurance brokers on the planet – has relocated its global headquarters from Chicago; while AIG – another insurance giant – has moved its European headquarters from Paris.
And this isn’t just good news for London, but also for the country as a whole. From Edinburgh to York to Norwich, insurance companies are of great importance to regional and local economies. This, I know, is true for my own constituency of Tunbridge Wells, where AXA PPP is the largest private sector employer.
Insurance, therefore, is a national success story – one, which I believe, to be of profound relevance to the wider economy. On the one hand, we have succeeded in this field as a free-trading, international economy that is open to people, investment and ideas from around the world; while, on the other, a tradition of fair play and high standards has built-up high levels trust in our public and private institutions.
In recent years and in other parts of the financial services sector, we saw the second half this very British combination compromised by actions that, at the time, were justified with appeals to the first half – as if dynamism could be traded-off against integrity. In fact, there is no trade-off, no balance to be struck. The dynamism and integrity of our financial institution are mutually dependent. The less we have of one, the less we will have of the other. Without integrity, dynamism degenerates into corruption; and without dynamism, integrity crumbles into officiousness.
In the emerging economies of the developing world, new opportunities are arising. As millions of people escape absolute poverty and gain access to mobile communications technology, the global demand for financial services will grow at an unprecedented rate. Insurance will be one of the most important of these services, granting individuals and businesses a level of financial security and confidence that they’ve never had before.
Britain’s insurance industry is ideally placed to play a leading role in this global revolution – and in doing so, it will have the full backing of the British Government.
Three weeks ago I wrote about Labour’s refusal to say whether they would borrow beyond the Government’s plans or not. As I said, this is an extremely basic question about economic policy – and the Official Opposition really ought to have an answer to it.
Sure enough, a few days later, Ed Miliband had a farcical interview with Martha Kearney on the World at One, during which he claimed – when tackled on the issue of Labour’s proposed VAT cut – that cutting government revenue would not require the government to borrow more. The next morning, on ITV’s Daybreak, he had to execute a volte face and admit that Labour planned “a temporary rise in borrowing”. But far from clarifying the issue, this latest twist begs a host of further questions.
As usual, almost all of the coverage of last week’s local elections was about national not local politics. So, once again, the huge contribution that local government makes to this country was all but overlooked. Amid the ongoing analysis, I think that this is a good time for Westminster politicians to pause and show some gratitude for the work of our councillors.
From my own perspective as a DCLG-turned-Treasury minister, I can certainly vouch for the fact that the progress that has been made so far in reducing Labour’s deficit would not have been possible without the contribution made by local government. If anyone doubts that our councils are important in this respect, then just consider the fact that a quarter of all public spending takes place at the local authority level. The fight to rebalance the nation’s books needs to be won in our town halls and county halls, not just Whitehall.
While all parts of the public sector need to go further and faster in learning to live within sensible spending constraints, local government is setting the pace. Local authorities have already made significant economies over the past three years. What’s more they have achieved these savings by focusing on reducing overheads and bureaucracy, while seeking to protect frontline public services. It is a tribute to their efforts that residents’ satisfaction with their councils has actually increased over this period.
In part, this is due to the fact that so many councils were ready for the inevitable and necessary squeeze on spending, having had the foresight to begin their preparations well before the 2010 general election. If the national government of the day had practiced a similar degree of prudence, then the current task of deficit reduction would have been a lot easier.
Britain was already an over-centralised country in 1997, but over the next thirteen years the Blair and Brown administrations added massively the burden of control by creating even more quangos, compliance mechanisms, targets and ring-fences. In 2010, the new government turned the tide of centralisation. As local government asked, we got rid of the unelected quangos that controlled our elected councils – the Government Offices of the Regions, the Regional Development Agencies, the Standards Board and other bodies have gone.
And we’ve scrapped the Regional Spatial Strategies, the Comprehensive Area Assessment inspection regime and the 4,700 targets that made up the Local Area Agreements system. Getting rid of so much bureaucracy has made a direct contribution to the task of deficit reduction. But even more importantly, it has made it easier for councils to innovate and achieve more with less – building on what they’ve already achieved.
Central government has much to learn from local government and its important that it does so. Through new measures like the City Deals programme, we need to give councils a much stronger right of initiative – giving them a full say in the devolution of resources and responsibility.
After all the fundamental mistakes of the previous decade, a little humility on the part of Westminster and Whitehall is surely in order – as is a little gratitude to those far beyond SW1 who are putting things right.
The success of Britain’s financial services industry matters to all of us. Together with the associated business services sector, it employs two million people up and down the country. Furthermore, it contributes one pound out of every eight of all the taxes paid in Britain.
That very importance carries risks – which is why this Government has done what the previous one failed to do: legislated to create a stringent supervisory regime so that banks can no longer look to the taxpayer to bail them out, and to charge a permanent annual levy to contribute to the greater risk they are associated with than other companies.
It is now almost three years into the current Parliament and Labour still doesn’t have an economic policy. This is despite having a Shadow Chancellor who was Gordon Brown’s Chief Economic Advisor and a leader who was Gordon Brown’s Chairman of the Council of Economic Advisors. Between them, they must surely have some idea of what they would do if they got into power.
Now, by ‘economic policy’ I’m not talking about the exhaustive detail that governments have to deal in and that only governments have the capacity to work out. Rather what I mean is an answer to the most basic of questions. Would a Labour government be committed to higher levels of spending and borrowing or would it live within the fiscal plans we have already laid out?
Though criminal suspects have the right to remain silent, there is a limit to how long those who would take office can keep the country in the dark.
Under increasing pressure to talk, Labour is beginning to crack. Anonymous, but well-placed, briefings to the media show that whereas one Ed wants continue Labour’s opportunistic attacks on government savings while getting ready to accept our spending plans at a later date, the other Ed wants to make a political virtue of spending and borrowing more.
On the record, however, the two Eds are united in silence – and will stay silent until such time as the battle between shamelessness and recklessness is settled. Yet they cannot remain completely quiet – something needs to be said to fill the dead air. And so, like a radio station eking its way through the small hours, Labour plays some old tunes from times gone by – re-announcing recycled policies to keep its listeners occupied.
But this presents a difficulty. Because Labour does not even have the rudiments of an overall budget, the only way they can answer questions about the funding of any announced policy is to have a parallel announcement on some specific standalone measure to raise the necessary revenues. In effect, this is a policy of hypothecated taxation, one that has no economic rationale, but which merely serves a political purpose – namely the avoidance of any statement on the general spending plans of a potential Labour government.
Labour’s specific problem is trying to get these revenue raising schemes to stand up. We had the most laughable example yet in last Wednesday’s Commons debate on the Finance Bill. Labour’s spokesman – my opposite number, Chris Leslie – claimed that a new programme of public sector jobs for the unemployed could be paid for by a repeat of the tax on bankers’ bonuses that Alistair Darling brought in between December 2009 and March 2010. In response to an intervention from my colleague Charlie Elphicke, Mr Leslie confidently claimed that the proposed tax would raise £2 billion – a ‘conservative estimate’, he called it.
However, according to the Centre for Economics and Business Research (which has studied City bonuses for several years), the bonus pool will amount to £1.6 billion this year, and less than that in the years ahead. Even the most arithmetically challenged observer will see that this poses a rather fundamental challenge to the credibility of Labour’s proposals.
When confronted with the fact that 2 billion into 1.6 billion won’t go, a discombobulated Mr Leslie promised to write to me with the authoritative basis for his calculations. I’m still waiting.
There is, of course, nothing wrong with requiring the banks to make a contribution given all the support they’ve received from the taxpayer. However, unlike Labour, this Government has introduced a permanent levy on banks, which raises £2.5 billion a year based on their balance sheets. It is a workable approach that has been emulated by other countries (though our levy is more than double that of France and Germany, relative to the size of each nation’s banking sector).
The moral of this story is that cobbled-together announcements are no substitute for an economic policy. Because some things never change, a full account of how the Labour Party proposes to pay for its promises is unlikely. But the time has now come for the two Eds to say where they stand on the most basic economic question of them all: do they plan to keep to the current spending plans or don’t they? This, surely, is the very least that should be expected from an open and honest Opposition.
Last weekend, George Osborne and I represented the United Kingdom at the European Finance Ministers summit in Dublin. Before the summit began, the finance ministers of the Eurozone countries met to approve formally their agreement to give financial support to Cyprus.
The chaotic handling of the Cyprus episode should be a wake up call for Europe’s financial regulators. It revealed that five years after the financial crisis no thought-through and predictable response was ready to deal with the difficulties of two banks which, while large for Cyprus, are tiny in European terms. Instead, policy morphed and uncertainty persisted while the banks had to go on an extended holiday. Just imagine the chaos if this had happened for bigger banks in larger eurozone member states.