Nick Faith is Director of Communications at Policy Exchange. Follow Nick on Twitter.
Expect to hear about living standards – stagnant pay packets, zero hours contracts, a lack of affordable housing, rising energy and water bills – from Ed Miliband in Brighton next week. The Labour leader knows that his party’s greatest electoral advantage is painting the Conservatives as looking out for their wealthy friends, not hard-pressed families struggling to get by even when the national economy is seemingly on the road to recovery.
Osborne knew he had to pre-empt Labour’s attack. Last week, he delivered an important speech. He signalled that while the economy was showing positive signs of life, much more needed to be done to ensure that everyone in the country could benefit from the proceeds of growth. The real challenge for the Chancellor is to show the British public that he can deliver on his promises. To do that he will need to announce a coherent set of economically sensible policies that cuts through to people already deeply disillusioned with politicians and distrustful of big shiny policies.
James Barty is head of financial policy at Policy Exchange.
When the last Labour government bought the stakes in the banks back at the peak of the financial crisis it did so to prevent a meltdown in the financial system. The idea was to provide RBS and Lloyds with enough breathing space to repair themselves, with the eventual objective of returning them to the private sector. We believe that process is nearing completion. The banks have delivered, increased their liquidity and built up their capital. Both returned to profitability in the first quarter of this year. Now is the time, therefore, to decide how to return them to the private sector.
In a paper published today we, at Policy Exchange, have examined the options open to the Government to do this. Up until now, the idea has been to privatise the banks in stages through sales to institutions. It was reported yesterday that the Treasury is considering doing this for up to 10% of Lloyds later this year. We think there are two main problems with this approach.
First, it takes too long to privatise the banks in this way. 10% of Lloyds is only a quarter of the Government's stake. Since there would have to be a gap (of we think at least a year) between such sales, at best it could sell half of its stake ahead of the election. For RBS the numbers would be much lower, and the Government would still be the majority shareholder by the time of the next election.
Second, the shares would likely have to be sold at a discount to attract buyers, since the government is known to be a seller.
Turning an institutional offering into a traditional privatisation might get more shares sold but would still require a discount and would, in our view, be quite risky given the size of the likely offering. Equally, we think the idea of giving the shares away, as proposed by Nadhim Zahawi, is unworkable because of the cost.
This is the second article in ConservativeHome’s week-long series on the Spending Review, which began yesterday with one by Peter Hoskin on the Government’s inability to count. It is intended to be a “blue” account of what should be in Review. In the spirit of Coalition, the think-tank CentreForum will present a “yellow” account later this week.
Spending reviews mid-way through an election cycle should be about communicating responsibility and steady progress, as the space for more radical thinking lies ahead in the coming election campaign. This one, however, is politically more important and there are seriously thorny and controversial issues that need grasping.
The first reason is that the Spending Review is earlier in the Parliament than originally planned and only covers a year into the next one. This allows the Coalition parties the space to progressively build the separate platforms they’ll need for the 2015 election, including campaigning against each other over differences like welfare and defence spending, if either were to form a new government (or different coalition). Expect a lot of fun and games on that front in future.
Everyone in Westminster is talking about UKIP. The purple surge that we saw in last week’s county council elections has got political anoraks talking. The Prime Minister needs to secure his core supporters with more of a focus on immigration, crime and the EU, say some. Others urge Cameron not to ape Farage as he won’t be able to out-Kip a Kipper. They’ll just come back to the table asking for more.
I personally don’t think there is a one-size-fits-all strategy for dealing with the Ukip problem. And here’s why.
General Elections in the UK are won and lost in only a handful of seats. This week, I asked my brother-in-law, a data-set wizard, to pull together some figures showing the core marginal seats that will be up for grabs in 2015. There are 108 of these marginal constituencies where the majority is less than 6%. Ukip will have a major say in at least 53 of these based on its share of the vote in 2010 (i.e. the party’s vote share is larger than the majority in that marginal).Retention Plays
The Conservative party is incumbent in 24 of these seats, all but five of which are Tory-Labour battlegrounds. There is no doubt that MPs such as Jackie Doyle-Price in Thurrock, Eric Ollerenshaw in Lancaster and Fleetwood and David Mowat in Warrington South have a fight on their hands come 2015. They are under threat from UKIP eating into their very small majorities. However, they have to be conscious of another, arguably more dangerous problem – Labour eating into the Lib Dem vote as disillusioned progressives decide to back Miliband. Lord Ashcroft’s polling earlier in the year found that two fifths of Lib Dem voters from 2010 have switched to Labour or the Greens. And of all defectors from the Libs, those switching to Labour are the most likely to say they are sure how they will vote.
If, as a result of making overtures to Ukip, the Lib Dem vote breaks disproportionately for Labour, then holding onto seats in the North West and Midlands will be especially difficult for the Conservative incumbents.
However, a different approach might be required in other regions of the country. In the four Lib Dem battlegrounds down in the South West, for example, the local Conservative associations probably need to hold the vote and entice transient Kippers back into the Tory fold. Perhaps a more robust right-wing strategy is called for in the South West?
Fighting the Labour machine
As with the retention seats, the critical issue in the 15 constituencies that the Conservatives have to take from Labour to stand a chance of winning an overall majority at the next election, is how the Lib Dem vote will break for the Conservatives and Labour.
Tacking right probably won’t satisfy the 8.5% of voters who voted Ukip in Dudley North. And it will have the added effect of possibly pushing Lib Dem voters into the arms of Ed Miliband and Labour. However, any defections to Ukip will kill the chances of Tory gains in the Midlands and North West. This is an unenviable Catch-22 for the party machine.
There is no one-size-fits-all strategy for dealing with the Ukip problem. Party strategists have to ask themselves what is the biggest risk: Conservatives defecting to Ukip, or former Lib Dems breaking disproportionately for Labour?
For what it’s worth my advice to David Cameron would be to forget about the various electoral connotations and focus on leading the country. Elections are increasingly decided on competency as Policy Exchange’s report, Northern Lights, found last year. As every good business leader understands, you need to be aware of what the competition is up to and be prepared to second guess their next steps. But a good leader also sticks to what they think is the right course of action, even if others – including friends – disagree.
By Tim Montgomerie
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Matt Sinclair of the TaxPayers' Alliance liked the populist measures - #Crosbynomics according to Matthew d'Ancona - but worried about the Budget's complexity:
"Unfortunately, the great limitation of this budget was that it relied far too much on complicated targeted reliefs instead of tax cuts across the board. Simpler, strategic tax reforms that reduce the overall burden would be fairer and do more to produce the stronger economy Britain needs."
David Skelton of Policy Exchange also welcomed what he called the "Boddingtons Budget," citing the end of the beer duty escalator and another freeze in petrol duty. He worried, however, that more could have been done on housebuilding:
“Although measures to help first time buyers are welcome, the UK is still on track to preside over the lowest level of housebuilding since the 1920s. More radical planning reforms combined with the introduction of measures such as self-build should be introduced to get Britain building.”
Professor Philip Booth of the IEA is concerned that the Chancellor's housing measures have actually learnt little from recent economic history:
"The decision to provide further Treasury guarantees for mortgages is leading the government to get involved in exactly the sort of reckless behaviour that led to the failure of major banks in 2007-2008. Any attempts to provide support for the housing market whilst not liberalising the planning system will simply lead to higher house prices and rents.”
On behalf of the CPS, Ewen Stewart commented:
“The most significant announcement today was the proposed changes to the Bank of England’s inflation targeting remit. Whilst lip service was paid to maintaining the 2% inflation target, it’s clear Mark Carney will be given significant rope to engage in even more expansionary monetary policy. So far QE, despite being larger as a proportion of GDP than that undertaken in the US, has failed to generate growth. A further loosening risks embedding inflation and sterling weakness.”
Also from CPS Kathy Gyngell echoed my concerns from earlier today about the anti-family dimension to the Budget:
“This budget is worse than nothing for the stay at home mother (the single earner couple family). Already grossly penalised in the tax and benefits system for the instinctive and reasonable choice to care for their infants at home, now this couple are meant to subsidise rich working women’s nannies.”
The Adam Smith Institute lists its good, back and ugly conclusions here.
Will a new runway at Heathrow or Boris Island solve this country’s growth problem? Boosting airport capacity may well help in the long term, but you only have to look at the delays over HS2 and the likelihood of upcoming legal wrangles to realise that, by their nature, large infrastructure projects take a long time to get off the ground.
With one in ten people currently unemployed in the North-East, the Coalition needs an approach which delivers growth and jobs now and ensures that all parts of the UK – not just the South-East - see the benefits. One answer may come from reform of public sector pay.Pay in the public sector tends to be negotiated through national collective agreements with the unions, meaning that nurses in Doncaster get paid the same as nurses in Devon. This has caused large differences between public and private sector pay to develop. Recent estimates from Policy Exchange suggest that the difference in pay that a public sector worker might expect compared to their private sector equivalents ranges from around an 11% premium in the North East to around a 6% penalty in the South East.
Chris Yiu is head of digital government at Policy Exchange and is the author of a new report – The Big Data Opportunity – released today
The tax gap – the difference between the tax people owe to HM Revenue & Customs and the amount they actually pay – stands at an astonishing £35 billion a year. Getting back just a quarter of this amount would pay for a 2p cut in the basic rate of income tax. A prize this big is attractive to politicians on all sides. The tax gap is as big now, however, as it was back in 2004, seemingly stuck at around 8 per cent of total receipts.
The government knows something needs to be done. In 2010, Ministers announced that HMRC would re-invest nearly £1 billion of the savings from its spending review settlement in initiatives to tackle non-compliance in the tax system. Part of this is earmarked for investment in CONNECT, the department's tool for cross-referencing data on individuals and businesses. This exists to help officials spot and target the most risky cases of fraud, error and criminal activity.
Matthew Tinsley is Economics & Social Policy Research Fellow at Policy Exchange.
The government finally launched its £1billion Youth Contract earlier this month in an attempt to help young unemployed people back into work. Today, the latest set of job market statistics will be published and yet again the focus will be on the plight of younger workers.
Employment prospects for young people are clearly important and helping them into work must be a key priority for any government. However, there remains a question over the impact this persistent focus might have had on unemployed people of other ages. Are we helping young people at the expense of older generations?
Many of the arguments used to back a strong focus of support on younger workers rely on evidence that young people suffer significant scars from periods of worklessness. The argument being that, as young people spend time unemployed their future employment and wage prospects deteriorate. Unemployment today causes long-term damage to their future prospects.
Alex Morton is Policy Exchange's Senior Research Fellow for Housing and Planning.
The current planning system has utterly failed. Even after recent falls, the current system has seen house prices triple since the mid 1990s, and rents have soared with them.
At the same time as prices have gone up, housing construction has fallen back, because market forces do not really operate in housing. Analysts like the McKinsey Institute and the London School of Economics say that our creaking planning system puts us at a huge competitive disadvantage compared to our international competitors. On top of this the planning system lowers our quality of life.
Planning affects everything else in the country. The current system leads to so many bad consequences, that it’s difficult to know where to start. But amongst other things it means:
By Tim Montgomerie
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Francis Maude - described by PX's current director Neil O'Brien as the organisation's godfather - delivered a lecture on Wednesday evening to mark the think tank's role in delivering "modernisation".
During the long, hard years in opposition Francis Maude was likened to the Private Fraser of the Conservative Party. He is a much more optimistic figure of late and I recently noted how such a controversial figure in opposition has become one of the Coalition's most effective ministers.