Lord Flight: The public will appreciate radical measures to tackle the country's problems

Lord Flight is a former Shadow Chief Secretary to the Treasury who is now chairman of Flight & Partners Recovery Fund.

Overall I suggest the electorate should both have sympathy with and support this Government which has been faced with more problems and challenges than any since World War II, in unrelenting sequence. It has tried to do a lot of the right things speedily. It is in this context that I suggest further resolution and action might be in order in a number of key territories.

First of all, there is little we can do to prevent the wholly ill-conceived Euro Project causing major financial and economic problems as and when it falls apart, but it would be a dereliction of British interests if we do not use the opportunity to extract Britain from much of the EU structure so damaging to our economy, particularly in the area of regulation and wasted costs.

The Government’s promise of a “red tape revolution” is time-consuming and difficult to achieve but the results so far are, to say the least, disappointing. One in three regulations proposed by Government departments in the first 6 months of this year have been questioned as “not fit for purpose” by the Regulatory Policy Committee. Government departments are not succeeding with the “one-in, one-out” discipline. As the British Chambers of Commerce have reported, most of their members tell them that the burden of compliance is moving even higher. What is needed is a “bonfire” of unnecessary and economically damaging regulations.

It is clear that the balance between raising taxes and cutting Government spending has rested too heavily on raising taxation, producing an unprecedented squeeze on household incomes; with prices continuing to rise but, at least in the private sector, pay rises and bonuses virtually non-existent. Ring-fencing the NHS and Overseas Aid has been a mistake where, together, they account for one-fifth of Government spending.  The political reasons for having done this are obvious but the economic consequences are not worth the political benefits. The principle has, moreover, encouraged other areas of the Public Sector to claim and win "special treatment". As a result, public spending is now some 5% higher in cash terms this year than last and falling disproportionately on the wrong areas such as the Armed Forces. Above all, it has been simply immoral to preside over continuing public sector pay rises where, level by level, public sector remuneration (including pensions) is already over 20% higher than private sector remuneration. The public sector pay “Implementation Unit” made the right noises, sighting Canada’s success in making effective reductions in public expenditure, but the results have not met the spin. In net terms, Central Government employees have increased by 4,000 and Civil Service employment by 7,000, with Compliance officers being one of the main growth areas. The public sector has failed to grasp the key private sector discipline of improving productivity - output per employee in the public sector continues to fall. Too many Quangos with overpaid bosses have not been closed down. Government should have an explicit objective over, e.g. over a 5-year period, to reduce public spending to below 40% of GDP from its present level of 53% (after some fudge in the official figures).

As the Office for National Statistics has found, more than half the adult population believes the welfare system is too generous and that if benefit payments were reduced “people would learn to stand on their own two feet”. On the official figures, benefit spending has risen by 130% in real terms since 1980. Adding back additional concealed welfare spending, e.g. tax credits and some aspects of regional spending, the figure is more like a 250% increase.

The difficult question of what Government can do to increase growth is ever stronger with a 20% unemployment rate for young people. The first truthful answer is not a great deal, and not without tougher policies to cut public spending, matched by reductions in taxation. As the BIS was warned, both UK Government and Private Sector debt are above the levels which are damaging for growth; reducing both is a painful necessity for economic survival. At the margin, more attractive and simpler tax rules for capital allowances might increase business investment where companies are full of cash, but UK business investment at 15% of GDP, is the lowest amongst G7 economies. The capital allowances system is over complicated and as a result has had little impact on small companies. It would clearly be a mistake to proceed next April with the reduction from £100,000 to £25,000 for the amount of capital investment which small businesses can write off against profit. It is also self-evident that there is scope for a great deal more infrastructure investment in the UK, where much of this could be financed by the private sector, given an attractive tax regime.

There is no logic in imposing Green levies on manufacturing industry by the end of the decade, rendering Britain uncompetitive, if electricity prices rise by between 7% and 58%. Policy here needs re-thinking, particularly for the iron, aluminium and steel industries. 

On a more positive front, it is crucial that young people leave education with the relevant skills to be employable. This starts with the “3 Rs”, but includes traditional artisan skills. The reason why so many people from Eastern Europe are being employed in the construction and related industries is the lack of “native Brits” with the requisite skills. Lord Baker is making a major contribution here with his Technical Colleges’ initiative. What is needed is a further increase in the Modern Apprenticeship Scheme and a matching increase in the provision of “sandwich scheme”, practical education.

I believe, passionately, that the overwhelming majority of British citizens understand not only that Gordon Brown’s public spending largesse was a disaster but, also, that it was unaffordable; and that Government and citizens now need to “cut their coats according to their cloth”. They will be supportive of a strong Government taking tough and radical decisions to this end to repair the economy, but critical of ‘fudge’.