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The economic policy we have and the economic policy we need

By Tim Montgomerie
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So far, in launching MajorityConservatism, we've looked at the continuing weakness of the Conservative Party's electoral position; a weakness that has been disguised by the greater weakness of our principal political competitors. I've then summarised a plan to change this. Thirdly I've argued that we won't become a party winning more than 40% of the vote - and won't deserve to do so - until we do what every successful conservative party of the modern era has done and become a party for the 'little guy'. Today I want to briefly examine MajorityConservatism's next big theme - forging an economic policy that is as big as our challenges.


George will need a bigger weapon if he is to slay Britain's economic dragons

Right from the beginning of this Coalition ConservativeHome has supported the deficit plan but regretted the lack of radical action on growth. This is a theme we have explored on many occasions, notably here.

The three economic dragons: Britain faces much more than a debt challenge. Through no fault of their own Cameron and Osborne have inherited three historic economic challenges: massive levels of personal and government debt; the Eurozone crisis; and the long-term rise of China, India and other emerging economies. Taken together these challenges threaten to make the British economy dangerously uncompetitive in the years ahead.

Growth is not an optional extra: Some centre right commentators have argued we may need to get used to a period without any or much growth. Some have even suggested it might be desirable. Given Britain's ageing population, the rising costs of healthcare and increasing debt interest costs we will need modest growth just to afford to stand still as a country. Disposable incomes are already squeezed but are people ready for a ten year contraction? Unless economic growth picks up, falling incomes could last at least a decade. That is dangerous for social peace and for popular attitudes to our free enterprise system. Protests against capitalism are already gaining traction and that's before most of the pain has been felt. If Britain becomes a high tax and low growth nation we risk a brain drain as our most talented young people head to economies where they can afford their own property and aren't taxed to the hilt to pay off their parents' debts. This is a recipe for a vicious cycle.

This is no time for half measures: Up until now the Tory leadership has appeared reluctant, even frightened, to tell the electorate the truth about Britain's economic challenges. One of the reasons the electorate didn't support the Conservatives at the last election was uncertainty about our economic plan. No party told the people the truth about Britain's economic predicament and, consequently, no party won the trust of enough voters.  Conservative strategists believe that Cameron lost support in the autumn of 2009 after Osborne had begun to spell out the nature of his austerity measures. The reality is that other factors triggered the decline in Tory support. When you are personally very unwell the least reassuring thing is actually to go into a surgery and for the doctor to tell you less than the truth. Fear of the unknown is the greatest fear. When you are very ill you don't want warm words and a paracetamol you want a doctor who can cure you. That cure may involve unpalatable medicine - and potentially a long period of convalescence - but you'll probably swallow all that's necessary if you know you'll eventually get better. The Tories' current problem is that they have never won that doctor's mandate. They've won support for one course of treatment - on debt - but there is not confidence that they have a wider economic plan. The modern way of conducting politics is a big party of the problem here. Pollsters measure individual policy measures such as the reform of employment laws but don't measure the big picture and, crucially, context. If you ask someone if they approve of a surgeon's scalpel being used in their leg or of a vomit-inducing drug they may very well say no. But it's the wrong question. The thing that Tory pollsters are not testing (and is very difficult to test) is the huge benefit that accrues to a party that owns the rocky path to a great and necessary goal - in this case economic prosperity. There are big benefits to a political party from owning political qualities such as leadership, straight-talking and toughness. These qualities can be reinforced by doing unpopular things early enough in a parliament for them to yield results.

What will a growth agenda look like? The Government is doing many good things on growth. The Prime Minister has set out some of them in an article for today's Financial Times. Planning reforms, Gove's schools agenda and Iain Duncan Smith's overhaul of the welfare state are as significant for Britain's long-term future as anything Margaret Thatcher attempted. But are they enough in themselves and enough to compensate for the bad things that, sadly, the Coalition is doing? The coalition is presiding over an increase in the overall tax burden, is acquiescing in new EU regulations and its expensive climate change policies are handicapping the recovery. Here's a list of things that the government should consider doing:

  • Cutting spending faster and reversing damaging increases in NI, VAT, the 40% tax threshold and CGT. It may already be too late for this. The Coalition has actually chosen a very conventional approach to deficit reduction. The US Republicans, in contrast, are debating radical tax reform and are also resisting job-killing tax hikes as part of any fiscal solution. UK Conservatives, in contrast, have increased taxes and the size of the state. Britain's government will therefore continue to consume half of national income - a level of state activity that makes it very hard for British enterprise to breathe.
  • Rebalancing of the tax system. If the overall tax burden isn't going to be changed we should look to create a more efficient tax system - raising taxes on things like high value properties that don't undermine job creation and cutting taxes on, for example, petrol and employers. In raising some green taxes and cutting corporation tax George Osborne has made some modest steps in this direction.
  • Cheaper energy. British industry is currently paying much higher energy costs as part of our commitment to reduce Britain's carbon footprint. This amounts to unilateral economic disarmament because our economic competitors, notably China, are ploughing on regardless. George Osborne has recently become sensitive to this issue but policy, so far, is unchanged. The shale gas revolution looks a much more sensible solution to Britain's need for diverse and secure energy supplies than expensive and unreliable renewable power.
  • Roads privatisation. Mark Field MP made the case recently. The money could be used to fight congestion and reboot the construction industry. Unlike High Speed Rail the benefits would accrue soon.
  • Airports expansion. The politics of marginal seats in West London has dictated a very anti-airports policy. With Heathrow already at capacity Britain risks losing important international business to Amsterdam, Frankfurt and Paris if there isn't a change in policy. Today's FT (£) suggests the costs of non-expansion could equal up £1 billion every year for the next fifty years.
  • Trade union law reform. Damaging strikes should not be possible unless 50% of a union's membership votes for them. British business can currently be held to ransom by very small percentages of a unionised workforce.
  • Public sector reforms including the end of national pay bargaining would be easier if strike laws were modernised.
  • A move from crony capitalism to creative capitalism. Conservatives must distinguish between the interests of big business and the interests of consumers, taxpayers and small firms.  As I wrote on Friday: "We need more competitive banking and energy sectors... We need simpler annual reports so that directors cannot hide the remuneration packages that they are awarding themselves. We need reasonable limits on immigration so that firms are encouraged to recruit and develop the talents of local people. We need more taxation of unearned wealth so that we can cut taxes on the entrepreneur, the small business and the low-paid. The choice is between a crony capitalism that protects existing businesses and existing wealth and a creative capitalism where new ideas and new firms can flourish."
  • And finally the big one; European Union reform. The EU's threat to our economic well-being takes two forms. There are the immediate problems associated with our membership, including the red tape that comes from the Brussels machine. Most obviously it includes the desperate and incredibly costly attempts to keep the Eurozone together. Despite what the Tory leadership says we are involved in the costly bailouts through increased IMF subscriptions. It's in our economic self-interest to help the Eurozone nations with their difficulties but only if they recognise that countries like Greece need to leave the single currency. The second problem is that in being tied to Europe we are tied to a failing and declining economic model. We are tied to its regulations, its protectionism, its expensive energy policies and its high welfare costs. By renegotiating our relationship with the EU we have an opportunity to build a more open, low tax and lightly regulated economy. Inside the current EU that looks very difficult. Addressing our relationship with the EU is central to our economic challenge.

Despite the enormous challenges a modern Conservative Party can still be optimistic. Despite the economic challenges the world is still getting richer, healthier and more leisured. Even though incomes are being squeezed technological progress means that fewer hours need to be worked to earn access to more goods and services. We shouldn't lose sight of this as we raise our game for the immediate challenges.


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