Tom Papworth is Associate Director, Economic Policy, CentreForum. Follow Tom on Twitter.
This is the fourth article in ConservativeHome’s week-long series on the Spending Review, and follows those by Peter Hoskin, Sean Worth and Mark Wallace. It is intended to be a “yellow” account of what should be in Review to go against the “blue” account that Policy Exchange's Sean Worth wrote on Tuesday.
Deficit reduction has been the key policy of the coalition. Despite siren calls from disgruntled former spokesmen, getting public spending under control and not bequeathing crushing debt to future generations is a basic liberal principle. The coalition is right to continue the project of consolidation, but the way the government has gone about it has been poor.
Firstly, George Osborne and Danny Alexander deserve credit for designing a fiscal consolidation that broadly aligns with economic best practice: empirical evidence shows that a ratio of 4:1 spending cuts to tax rises appears to correlate with the fastest and strongest recoveries; raising taxes to fund government spending is counter-productive. But the phasing has been all wrong. Osborne introduced the tax rises up front, while the spending cuts have dribbled in over time. It would have been both economically sensible and politically expedient to get the pain over as early in the parliament as possible and give the economy as much time as possible to recover. The political opportunity is now passed, but the economic logic remains. The remainder of the cuts should be introduced promptly, while further tax rises should be avoided.
Chris Nicholson is Director and Chief Executive of CentreForum, the liberal think tank
The stagnant economy has forced the Office of Budget Responsibility to downgrade its economic forecasts. The structural deficit is now not forecast to be removed until the next Parliament, so the question arises: “what can be done to boost demand and growth in the Budget?” There are calls from some Conservatives for public spending to be cut further and for the savings to be used to fund tax cuts. That would be a mistake.
The coalition government was right to announce cuts in public spending in 2010 to show the financial markets and the public that the government was serious about cutting the deficit. That has been successful as proved by the unprecedentedly low borrowing rates for government. But to cut total public spending further would suck demand out of the economy and harm growth.
Tax cuts for low and middle income earners are necessary but should be funded by removing tax reliefs and allowances for the well off and by taxing wealth, as both Tim Montgomerie and I have argued before on Conservative Home. However, there are certainly areas where, within the present public spending framework, spencing could be cut but also areas where it could be increased.
So let me outline a couple of areas where spending should be cut – areas which many Conservatives might find difficult but which should be tackled nevertheless.
Chris Nicholson is director and chief executive of CentreForum, the liberal think tank.
For a party which is pro-private enterprise and keen to boost economic growth, the Conservatives' policies towards control of student immigration defy logic. Of course there have been past abuses of the system, where bogus colleges have brought in students with no real intention of studying, but much of this abuse has been stamped out by changes introduced by the last government. Several thousand institutions that were previously legally able to enrol visa students were dropped from the list. So the fact that the Coalition has now tightened the visa controls further is both counterproductive and hitting the wrong target.
Why does it matter? Well, first, overseas students contribute billions of pounds a year to the UK economy (estimates range from £3-8billion). This is a fast growing market internationally, estimated by McKinsey to be growing at seven percent per annum. There are many countries such as Australia, US and Singapore which are keen to attract students who would otherwise be applying to the UK. Second, around half of non-EU students at UK universities have previously done courses at language schools, or 'pathway colleges'. So clamping down on students applying to these colleges will likely cut the total number of students studying in the UK, as we warned in our 2011 report 'Pathway to prosperity' (pdf).
Chris Nicholson is director and chief executive of CentreForum, the liberal think tank. The CentreForum paper "Employee empowerment: towards greater workplace democracy" can be accessed here.
The papers this week are full of discussion about boardroom pay. The Financial Times is even running a series on "capitalism in crisis". Party leaders seem to be falling over themselves to advocate "responsible capitalism". But it is significant that not even Ed Miliband is challenging capitalism itself - despite this so called "crisis".
There is however a long way to go before it is clear what "responsible capitalism" looks like. Conservatives like Jesse Norman are making efforts to do so by promoting co-operatives and attacking monopolies and "crony capitalism". But one area of this debate where there currently seems to be a blind spot among Conservatives is the promotion of employee share ownership and participation. There shouldn't be.
In a CentreForum report, published on Monday, Patrick Briône and I argue that promoting employee share ownership and participation should be be an integral part of the coalition's supply side reforms. There is good research evidence that employee share ownership and participation has a positive impact on company performance. It also leads to greater long termism in company decision making and is shown to have a positive impact on workers’ wellbeing. But there is also the political case: employees should have some say over the decisions which affect their lives - and few affect them more than decisions made in the workplace.
Chris Nicholson is the Director and Chief Executive of CentreForum.
Opinion polling consistently shows that the Conservatives are still seen as the party of the rich and wealthy and not as the party that represents the ordinary working person. This has led some Tories such as Tim Montgomerie to advocate that the Government adopts Liberal Democrat ideas such as the mansion tax or other property taxes. In this way, the Conservatives can revive its appeal to today’s equivalent of Thatcher’s Essex Man or the Reagan Democrats.
The Coalition Agreement aims to raise the personal tax allowance to £10,000 by 2015. But why wait that long? There is an easy way to do this in the next Budget in April. Let me explain how.
An area where the rich benefit from huge tax relief is in the tax treatment of pension contributions. Recent CentreForum reports, 'Tax and the coalition' (pdf) and 'A relief for some' (pdf), proposed limiting tax relief on contributions to pensions to the standard 20p rate and restricting the lump sum which can be taken tax-free on retirement to £42,475 (the rate at which higher rate tax starts) rather than the current £450,000. In both cases only the wealthiest would lose out.
Under James Crabtree the FT's Comment pages have become among the very best from Fleet Street. Today's pages are no exception and Julian Astle of the Centre Forum think tank has contributed an article challenging the Coalition to embrace profit-making schools.
Astle argues (£) that Michael Gove's free schools programme has not taken off and the lack of incentive for businesses to get involved is a primary reason:
"Last summer 700 groups registered an interest, but education secretary Michael Gove has since seen plans run into the sand. Although 250 applications were submitted, only 30 have been approved, and just eight will be ready to open in September... The avowedly social democratic Swedes allowed [profit-making] when they opened up their school system 20 years ago. Today almost three-quarters of their free schools are run on a for-profit basis. These companies succeed because they are entrepreneurial, and treat parents and pupils like valued customers. When faced with long waiting lists, they use their profits to set up new schools. And, crucially, because they meet their own start-up costs, the supply of places has expanded at almost no extra cost to the taxpayer."
ConservativeHome has long argued that the free schools revolution needs a profit-making dimension but chances were slim even before the election and Astle notes that the Liberal Democrat rank-and-file "hate" (his word) the idea of profit-making schools.
The New Schools Network would argue that there is reason for hope, however, and it carries a map on its website of the parent and teacher-led groups who have expressed an interest in setting up a new school:
By Tim Montgomerie
A report in the Mail on Sunday from James Forsyth notes a new gathering of Conservatives and Liberal Democrats to discuss future prospects for co-operation between the two parties.
James Forsyth asks at the top of his piece: "Are wedding bells ringing in Coalition ears?" The answer to that is "no". I should declare an interest in that I'm part of this group. I'm on record - not least in last Wednesday's Times (£) - for wanting the Conservatives to govern on our own in the future. The group hasn't even met yet and aims, very straightforwardly, to explore areas of possible co-operation in the second half of this parliament.
The group is meeting under the auspices of the Centre Forum think tank.
Members on the Liberal Democrat side include Julian Astle of Centre Forum, Chris Huhne, David Laws and Paul Marshall. There may be one or two more Liberal Democrat members to be added to the group.
On the Conservative side are myself, Greg Clark (the originator of the idea), Daniel Finkelstein, Michael Gove, Sajid Javid and Owen Paterson.
It really isn't a big plot. It is simply a dialogue about policies and ideas.
Last night Centre Forum held their summer party. The cross-party think tank which styles itself as "the liberal think tank" has been an important source of ideas for the Liberal Democrats since it was started by the philanthopist Paul Marshall (pictured above at the event with Nick Clegg).
CF had good relations with Conservatives for some time with Greg Clark and Michael Gove, notably, involved with it before the election. Last night there was a significant mingling of people from both governing parties. Paddy Ashdown and Danny Alexander, for example, were there from the Liberal Democrats. Dominic Grieve, Michael Gove and David Willetts were there from the Conservatives.
Mr Marshall announced a significant strengthening of CF's Board. David Laws is to become CF's Chairman and the existing board will include a number of extra Conservatives including Nicholas Boles, Daniel Finkelstein, Andrew Tyrie and David Willetts. Ex-Labour Minister for the City, Lord Myners has also joined the Board.
Julian Astle remains the Forum's Director after his aborted move to the Treasury. Mr Astle had been due to become Special Adviser to David Laws but the former Chief Secretary to the Treasury had to resign for well known reasons.
Centre Forum is well established to be a leading part of the Coalition's future.
Nick Clegg spoke only briefly to the event but predicted that life for the Coalition would become much easier in the second half of the Parliament. He predicted that the benefits of the Coalition's public sector reforms would start to materialise in years three, four and five and so boost the government's standing.
Less encouraging for the Coalition was Mr Clegg's jokey reference to the World Cup final. He abandoned any loyalty to Holland - his mother's home nation - at half-time because of their ugly behaviour and started cheering, without reservation, for his wife's home country, Spain. A warning to the Conservative Party not to be too rough?
A new report from the Centre Forum think tank (which although non-party has particularly good links with the Liberal Democrats), written by Professor Alison Wolf, has called for an end to national pay bargaining:
"Professor Wolf attacks national pay systems that ignore local differences, handicap struggling regional economies, and make it impossible for public sector managers and institutions to cope sensibly with our fiscal crisis."
Key arguments from the report:
Michael Fallon MP has also argued for the end of national pay bargaining.