ConservativeHome's 100policies

David Cooper: Regulatory freedom for small firms

David is a solicitor who has practised in employment law for 20 years, advising many small and medium sized businesses, and is a branch chairman of the party in South Staffordshire.

> Policy summary

The liberation of small business – employers of 20 or fewer – from the burden of unfair dismissal legislation, statutory disciplinary procedures, the discrimination regime and similar regulations.

> Policy explanation

Since 1997 small business has faced a hostile employment law regime. The former compensation cap of £12,000 for unfair dismissal now exceeds £58,000. The requirement for two years’ qualifying service has been reduced to one year. Procedures more suited to large organisations with dedicated personnel departments bear down on even the smallest of firms troubled by poor performance and misconduct. The need to abide by parental leave rules and “family friendly” policies takes its toll on productivity, alongside a discrimination claims environment where the burden of proof is now tantamount to guilty until proven innocent.

A big business can shrug off a bad outcome in the employment tribunal or an expensive settlement. The same payout might send a small business to the edge of insolvency, if not all the way there.

A succinct Employment Law Reform Bill is all that is needed to put this right. For example: “In the case of small businesses, the tribunal compensation limit in both dismissal and discrimination claims shall be capped at £10,000”; “the statutory disciplinary and grievance procedures, and the regulations relating to parental leave and flexible working, shall not be binding upon small businesses”; “an employee seeking to bring a tribunal claim against a small business must have been continuously employed for two years”; and so on.

Small businesses need to be liberated as far as possible from the dead hand of regulation and the waste of time and resources that it inflicts. Their owners can be left free to choose whether to recruit their 21st employee, and enter a tougher regime, as and when they have prospered sufficiently to bring themselves up to that level.

> Political risks and opportunities

The major risk - the inevitable talk of sweatshops and bullying from our political opponents - is mere scaremongering. The overwhelming majority of good employees in small businesses will want nothing more than to trade their time and skills, not talk of their rights. Just as the owner will want to grow the business by encouraging and rewarding them where due. Common sense does not need legislative gold plating.

Set small business free from these burdens and watch the reward: greater productivity, higher tax revenue and further employment opportunities.

The fact that EU regulation (e.g. the Social Chapter) was the driving force behind many of these legislative burdens will call for greater political will to put these countermeasures in place and face down the consequential criticism, but this is not something to be shirked.

> Questions for ConservativeHome readers

In context, a call for readers’ practical examples may be more useful. My interest in such a policy reflects almost 20 years’ experience as an employment lawyer and partner in a small firm of my own with a number of small business clients whose confidentiality I cannot breach.

> Costs

Direct cost, zero, save perhaps for the medium term financing of redundancies within the departments affected by the anticipated drop in tribunal claims that this reform would achieve. Contrast this with the direct and indirect reward as described above.

David Cooper's overall conclusion: "Our party ought to be the champions of those who consider themselves, under this government, to be over taxed, over regulated, over governed, badly governed and “governed by the wrong people” (aka the EU). A policy such as this one ought to strike a chord within that general context, without being open to criticism as a mere dog whistle issue."

   

Stewart Nairn: Two items of regulatory legislation must be repealed for every new piece of regulation enacted

Stewart is a Social Worker who splits his time between work in Glasgow and home on a West Highland croft. He doesn't have a picture of himself, but has a nice one of a cow and a horse.

> Policy Summary

A policy to arrest and reverse the exponential growth of legislation by requiring that a new piece of legislation can only be passed if at the same time two existing pieces of legislation are rescinded.

> Policy explanation

We are burdened by an ever increasing weight of rules and regulation, of legislation and proscription. As the state assumes more and more of our responsibilities is it surprising that we, without responsibility, act irresponsibly?

It is in the nature of legislators to legislate. Their motivation is honourable and some of their product no doubt beneficial. Unless their industry is fettered, however, our every movement and thought will be regulated with the entire population employed by the state to spy upon, inspect, regulate, prosecute, counsel, minister to, pursue, tax, fund and harangue the entire population.

There are many redundant laws that it will be easy trade off for new laws. However, as this supply dries up the policy will begin to bite and there will be shift of responsibility back from the state to the individual with the state retaining only those powers that it believes most important.

> Political risks and opportunities

There is the risk that the legislatures enthusiasm for new legislation will not be curbed by this self denying ordinance. The logical conclusion to removing two laws every time you create one is that the number of laws will reduce to one. At which point since there are not two to rescind no new one can be created. It might be interesting to ponder what that ultimate law might be.

> Questions for ConservativeHome readers

• Is this totally pie in the sky?
• Is it possible to quantify legislation?
• Given that it is impossible for the regulation to continue to grow exponentially what, short of the collapse of civilization, will actually stop it?

> Costs

No cost. It would save a fortune.

   

Richard Jenner: 100% reserve banking

Richard is a Postgrad student who has no economics qualification beyond A Level but is still going to give this a shot.

> Policy summary

To institute a system of 100% reserve banking and remove the Government from manipulation of the money supply, including the abolition of the Bank of England.

> Policy explanation

The free-market Austrian school of economics (Hayek was a member) have vociferously criticised the process by which banks create money by lending more than they have in their reserves. According to Austrian business cycle theory, the extra money artificially lowers interest rates and encourages investment in capital goods despite the lack of real savings. (This is because lower interest rates suggests less demand for consumer goods according to the Austrian theory of time preference.) As there is no genuine demand for the capital goods the investments will have to be liquidated - resulting in a bust. In short, bank-created money is the main culprit behind the business cycle. The Bank of England, by acting as lender of last resort, encourages this system by providing banks with backup funding if they are unable to pay their debts. Bank-created money also has the negative effect of benefiting those who first borrow the money at the expense of those who receive it in later transactions. Those who borrow first are able to take advantage of the fact that prices haven't yet risen. Suffice to say prices have risen (due to the extra credit) by the time the later recipients come to spend it.

The Austrian answer to this problem is to introduce a system of 100% reserve banking whereby banks are unable to lend more than they have in their reserves, thus ending the bank-created expansion of the money supply. This usually goes together with the idea of a gold standard although for practical reasons I wouldn't advocate that policy at this stage.

Milton Friedman and the Chicago School, although disagreeing with Austrian business cycle theory, have also supported the idea of a 100% reserve system. The difference is that they believe the Government should increase the money supply gradually by about 2% per year. The Austrians are opposed to this idea because they believe it has the same negative effects as bank-created inflation. Conservative policy, in my opinion, should be to implement a 100% reserve system, shut down the Bank of England and remove the Government from control of the money supply except for the minting of currency to replace lost or ruined coins and notes. All money created by loans that weren't backed up by real savings would have to be liquidated. It would be possible to back up all currently existing loan money with paper notes but as soon as the recession brought about by the business cycle kicked in, loans would have to be liquidated to prevent inflation. The advantage of immediately shrinking the money supply is it gets it over and done with in one go.

For a more in-depth analysis of the problem I recommend the following weblinks:

• Austrian Theory of the Business Cycle - a better summary than mine
• And here - another better summary than mine that is somewhat more in-depth
• And here - very in-depth explanation of the Austrian theory of the business cycle and proposed solutions
• The problem with Central Banks
• Application of the Austrian theory to the Great Depression
• Application of the Austrian theory to the dot.com boom

> Political risks and opportunities

It's a very radical idea. Very few free-market economists (if any) outside of the Austrian school (which is itself very small) accept the Austrian analysis of the business cycle and the idea of a 100% reserve system probably won't be espoused by many "mainstream" economists either, even if Friedman and co are sympathetic to it. One wouldn't expect to find the Bank of England happy about being shut down either.

Implementing the idea would also be highly painful at first - it would involve an immediate shrinkage of the money supply and a recession. As there would no longer be a lender of last resort banks and their customers would no longer be protected from bad investment decisions.

The primary political opportunity would be the promise of an end to the business cycle and inflation.

> Questions for ConservativeHome readers

• How do we measure the amount of money going missing and in need of replacement? Note that this proposal does not include the Chicago scheme of gradually increasing the money supply.
• What would be the technicalities of initially shrinking the money supply i.e. which loans and investments would have to be liquidated? Would it be a proportion of all loans for example?

> Costs

As mentioned above, an initial recession.