David Davis: What the Coalition should do next

As we ruminate on the (eminently predictable) results of the local elections, it is a good time to ponder the question “where do we go from here?”. The inevitable and painful consequences of what my crueller colleagues call the human shield strategy are now being felt by our Liberal partners. Headlines like “Clegg Humiliated” litter the newspapers. The cries of pain were vocalised, principally by Paddy Ashdown and Chris Huhne, in headlines about “betrayal”.

We can expect this cycle of electoral pain for the Liberals to repeat every year for most of the parliament. Conservatives might be forgiven for taking some wry pleasure in the despatch of Liberal councillors, many of whom have been amongst the grubbiest and most dishonest political operators to be found anywhere in our democracy.

That being said, we must beware of a paradox. Firstly, our council victories have been slightly flattered by Labour stealing votes from Liberals, and letting Tories in. Secondly, we should recognise that as the economic pain gets worse, our own electoral standing will take some of the hit. So what should we do? How should we preserve the coalition, and advance its cause?

First of all, we must not try to buy off Liberal discontent with a few more constitutional baubles.  What we should do, rather, is remember that the electorate will reward or punish both Lib Dems and Conservatives solely on the basis of how well we perform as a government - no more, no less. If the economy recovers, employment grows, people’s incomes go up, and public services improve, we will be returned to parliament with a Conservative majority, and most of the Liberal Party will be back in parliament. If we do not deliver, there will be a Labour government and the parliamentary Liberal Party will be destroyed. In my view, neither is a good outcome.

The key to both parties’ electoral success is, of course, the economy. Recovery is the key, and growth in the private sector is what will deliver that key. The difficulty is that the required private sector growth rate is very high by historical standards, and the primary growth strategy hangs on deficit reduction and little else. What is more, as John Redwood pointed out, even that reduction depends on an increase in tax of about £170 billion by 2015.

What we need is a sharp reduction in taxes, particularly those that effect growth, principally the 50% top rate and corporation tax. Without such tax cuts, and without a sharp reduction in regulation, we will struggle to deliver that growth.  This will be controversial with our allies. Lib Dems in general, and Vince Cable in particular, still have a semi-socialist hankering for higher taxes and more regulation, based to some extent on the politics of envy – remember the “mansion tax”? They should recognise, however, that their own parliamentary survival depends on a better than historic economic recovery, and that will not be achieved by a worse than historic tax and regulatory environment.

To deliver that deregulatory environment we have to step on another political minefield, namely our relations with Europe. Now I do not expect any Coalition involving Liberal Democrats to sign up to a Euro-sceptic strategy, but they might be amenable to some rather more hard-bitten European tactics. A massive proportion of our regulatory load comes from Europe, as a direct result of the structure of governance of the EU. This is having a devastating effect on the EU’s competitiveness, a fact well-known to Merkel, Sarkozy, Cameron, and, I suspect, Clegg. The Euro crisis is turning that uncompetitiveness into an existential threat to the whole European enterprise, so we may find more of an appetite for a regulatory freeze than has been the case for many years. There are a number of tactics for achieving this, ranging from the big-country alliances through to the sort of technical tactics used by parliament against the ECHR on prisoner votes. It is a second-best option, but tactical regulatory Euroscepticism may become massively important to our economic success.

There are other policy elements that are important to economic recovery. Stabilising our industrial relations is important, and Dominic Raab’s Bill on strike ballots might be a good place to start. In the past Liberals have been quite thoughtful about strike legislation, favouring a policy of compulsory pendulum arbitration at one point, so they may be willing to countenance some creative thoughts here. There are a number of other areas of necessary action to support our economy – digital infrastructure for one – but they are essays for another day.

Not all is economics, of course, and the electorate will make judgements about the nature of the society we are creating. Nick Clegg has hit upon one such issue in his (very worthy) adoption of enhanced social mobility as a coalition aim. I am afraid, however, that the Government is in some danger of making a mockery of itself with its approach. The people for whom social mobility matters mostly fall into a number of categories – young poor white males, children of single parents, inhabitants of sink estates, alienated young Moslems - to name but a few. Few, if any of them, will be impressed by seeing exceedingly wealthy ex-public school boys debate access arrangements for internships. Many will not know what an internship is!

There is a real risk that in its policies aimed at improving general levels of education - free schools, tuition fees and the like - the Government will “leave behind” a whole set of children, with devastating consequences for social mobility. There are ways of improving social mobility (over and above selective state schooling, which the government hates) but little sign that they have grasped the nettle. They do not have long.

One area where the government should emphatically not change its policy thrust is in welfare. It is to be expected that we will have a fierce row about welfare reforms in the next year. This is a sector where our policies will both help the economy in the short term and help social mobility in the long term. When the special interest bandwagons crash into us, as they will, on this one we should not flinch.

Finally, we should give some very hard thought to what might go wrong in years four and five of the government, on current coalition policies. One obvious risk area is crime.  Our current prison policy is frankly a cost-cutting measure dressed up as a penal reform. Even as a cost-cutting measure it is not rational. It costs, on the highest plausible estimates, about £30,000 a year to keep someone in a prison cell. That same criminal will, at liberty, commit 140 crimes a year, and cost the public over £400,000. Non-custodial sentences do harm to the economy, and are no better than prison at rehabilitating criminals.

Ken Clarke has a point that the effectiveness of prison in rehabilitating convicts has gone down. This is largely as a result of drugs, overcrowding, and poor management. The trouble is, more community sentences will make it worse, and will push up the crime rate just as we run into the next election.
I cannot think of a better electoral gift to Labour, particularly against Liberals. I can hear the slogans now – “Soft on crime, soft on the causes of crime”. So the irony, again, is that the best way of defending the Liberals against this attack is to have a Conservative policy on crime, which is not really what we have now.

Nick Clegg took a brave gamble at the beginning of this government, and bet everything on the success of a Conservative-led Coalition. If we fail he fails, and the Liberals face parliamentary extinction. That would be a bad outcome for British politics, since the Liberal tradition still has much to give British political thought.
For his gamble to succeed, the Coalition has to succeed. It will be neither slogan nor spat, it will be action not words that decide that success. This, of course, is the repetitive paradox throughout this essay. Given the position they are in now, only Conservative action can give the Liberal Democrats a future.