Lord Flight: David Cameron should govern with Conservative convictions on behalf of the silent majority

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

I loved the Diamond Jubilee celebrations. How fortunate we are to have a constitutional monarchy as a focal point of loyalty (imagine if we had had President Brown!); and even more fortunate to have had such a great and conscious lady as our Queen for most of my lifetime. But what the participation of millions in the celebrations also demonstrated, which I have always believed to be the case, is that the great majority of British citizens, of all backgrounds, are thoroughly decent, loyal and sensible citizens – the silent majority.

It was wonderful to hear people singing enthusiastically, and not just the National Anthem but Land of Hope and Glory and Rule Britannia, which our politically correct Masters have deemed “bad form” – even at the Proms. It was wonderful to hear support for our Commonwealth friends: and not a word about the EU. After the dictatorship of the pink Establishment and the BBC for so many years, it was wonderful to see how little impact their agenda has had on people. And at last, even the BBC’s presentation for the Diamond Jubilee was patriotic.

I am not arguing for a reactionary agenda but for solid common sense and traditional British values. Even the concept of “duty”, with which I was brought up by my parents, now seems to be coming back into fashion – it makes life so much more civilised for everybody. And it is what the Queen, above all things, personifies and why she is so greatly loved and admired by British citizens.

Lord Flight: The Treasury must prepare for the fact that it is only a matter of when and how the €uro breaks up

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

If I were of a conspiratorial nature I might think that the Government is wasting everybody’s time with pointless and unpopular House of Lords’ reform proposals and other minor issues as a smokescreen to support normality when we are facing the economic maelstrom of a potentially messy breakup of the Euro.

Self-evidently, there is a struggle to the death between the strong political will in Europe to retain the Euro and the fundamental economic and market forces requiring its breakup.  I was somewhat surprised to learn that the Treasury view is that the political forces will win out, where the main lessons of economic history are that powerful economic and market forces eventually drive the course of events.  Maybe this is a necessary official Treasury position to avoid any subsequent charge that Britain and the City of London were responsible for undermining the Euro?

There is little new to be said on the Euro crisis.  The simple point is that the economies of southern Europe, and particularly Greece, have become materially uncompetitive against Germany and its satellite economies – to the extent of some 35%; the German ‘medicine’ of forcing internal devaluation cannot work, as the extent of devaluation required is too great, grinding the economies of these countries into the dirt and causing major political upheaval.  Germany is unwilling to finance the transfer payments which would be required to retain a common EU currency as these would amount to some 35% of German GDP, p.a. The position is analogous to the Gold Standard crisis in the early 1930s – virtually a religion until economic and financial pressures forced it to be abandoned; and then everyone wondered why it had commanded such support.

Lord Flight: The Conservative leadership needs to rediscover the middle class values held by the "silent majority"

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

It was not surprising that the Conservative leadership sought to dismiss the poor Local Government Election results as the usual midterm swing, a reaction to the weak economy and part of a wider drift to the Left as witnessed in France.  I suggest, however, that Boris’s success and Cameron’s burst of popularity only a few months ago, when he vetoed crackpot EU internal devaluation proposals (albeit that people did not really know what they were about) both “tell the lie”.  Some unpalatable truths need to be faced.

For several different reasons people, and particularly Conservative supporters, have become disenchanted with the Tory Leadership.

1. The Murdoch, Budget, border controls, extradition, energy policy and other blunders have shaken people’s confidence in the Government’s competence.  It is apparent that the “Notting Hill set” who got control of the Parliamentary Party are young and inexperienced and generally unwilling to listen to the advice of older colleagues with more experience.
2. At a time when getting decisions right on the harsh realities of economic life is what really matters, the Government appears to be giving priority to wet, Liberal policies, of which unnecessary reform of the House of Lords is the biggest example.  There are many good reasons for having an appointed Upper House – as in Canada and India; – most Conservative MPs and Party members do not support an elected second House.  Cameron is in danger of finding himself in a position where he could need to use the Parliament Act to force through reform which would endanger splitting the Party.  The proposals should be dropped.
3. As the first Quarter fall in GNP witnessed (albeit that the figures may be revised) the economy is not performing as forecast and as needed.  The key problem is that Britain is not an attractive place in which to do business.  The cash surpluses of the corporate sector over the last 5 years have, in net terms, been invested virtually wholly overseas.  Excluding the overseas profits of British businesses, profits as a share of GDP have also fallen by some 2.5%, and are at a 25-year low.  It will also be difficult for the economy to rebound with public spending at 50% of GDP and taxes still rising.  Following Canada’s example of the 1990s and Britain’s example of the 1930s, what is needed is bold cuts in taxation financed by bold cuts in public spending.  An economy cannot afford over half of its public spending going on welfare and NHS alone.
4. The significant increase in the UKIP vote is now a real danger for the Tory Party.  Its policies are what the “silent majority” of the Tory Party support, and not just on Europe.  There are a lot of traditional Party members and aspirant Tory voters who are disenchanted with the Government’s apparent priorities and have had enough of the EU and its never ending impositions on the UK.  The Euro has turned out to be a disaster, as warned by many, and which will have to be dismembered sooner or later.  Never ending EU regulation and interference have also led to sclerotic economies.  What people want is an in-or-out referendum; which brings me to the point that there is no political need for the Conservatives to indulge the Liberals.  They have nowhere else to go.  The Coalition is being used as an excuse for wet Government policies.  From the perspective of purely Party politics, if the Conservatives were to insist on a referendum on the EU, this would dish the Liberals; they would likely lose every seat at an ensuing General Election and the Conservatives could win a resounding mandate to get Britain out of the EU.
5. The overall picture coming across to people is of a Government without convictions where it is difficult to take the right decisions on a purely pragmatic basis without a “star to steer by”.  The Conservative Party leadership needs to re-learn that the Party is about middle class values and aspirations; tax payer value; economic efficiency and the sensible agenda of what we used to call the silent majority.

A major part of the reason for Boris’ marked success is because he is sound on Europe, sound on spending (cutting a further £3.8bn) and comes across as having convictions as well as charisma.  Boris is fast becoming the “king across the water”.

Lord Flight: The Coalition needs to cut spending more to avoid counter-productive tax increases

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

As I have commented previously, what the Conservative-led Government is failing to realise is that the great majority of citizens have had enough of tax increases and will react with great hostility to any more. Emotive and unreasonable attacks on the better off are no substitute for facing up to the realities that public spending will have to be cut considerably more than planned.

The Treasury and Government might usefully read George Trefgarne’s recent CPS Pamphlet on “Lessons from Britain’s Recovery in the 1930s”.  A Conservative-led Government cut actual spending by 10% p.a. which included reductions in public sector pay and was thus able to cut taxation.  It had the similar advantages of devaluation and cheap money.  In 1934 it reduced the top rate of income tax to 22.5% and increased personal allowances for all families with children.  At the heart of its policies and objectives was supporting the rising middle class, in particular enabling 2.5 million new purchasers to buy their own homes.  Economic growth in the second half of the 1930s averaged 4% p.a., the highest rates of growth in the whole of the 20th Century.

There may not be much easy popularity in it, but the Chancellor needs to realise that the half million or so people with incomes over £100k p.a., who have suffered the greatest increases in personal taxation, are the back bone of the country comprising those running both private and public sector entities and the professionals.

Lord Flight: The Budget represented a very modest step in the right direction to regaining Britain's competitiveness

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

This week's Budget was a curate’s egg with a lot in it that is good, some that is bad, and quite radical where the Chancellor had little overall net room for manoeuvre.  Correctly, the Chancellor stuck to his deficit reduction programme where keeping our credit worthiness is crucial to our survival.  What was lacking was a philosophical (i.e. capitalist) framework although in some areas pragmatism is justified.

The Good

• Reducing Corporation Tax
• Raising Personal Allowances
• Public-Private Infrastructure Programme
• Better Export Credit Facilities
• Improvement in EIS/VCT/EMI and more Government loans to help SMEs
• Support for key life services industry
• Not fiddling further with pension saving tax relief
• £140 per week standard State Pension
• North Sea Oil tax reforms
• Next year’s reduction in top rate of income tax to 45%

Lord Flight: Don't cut family allowances - cut public spending

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

Having children is not a luxury.  The future of the country and its economy depends upon there being enough children to sustain the economy in the future.  It is expensive, and has become even more expensive, bringing up children who now have to be kept by their parents much longer with the extension of Higher Education.  It is thus economic sense as well as “fair” that the tax system should recognise this and that parents with the expense of bringing up children should pay less tax than people without the substantial expense of raising children.

Until the 1960s we had income tax allowances for children.  The Wilson Government replaced this with Child Benefits on the reasonable grounds that the better off benefitted more from tax allowances, that universal Child Benefit was easier to administer and, as it was paid to the mother, it was more likely to be spent on the children.

Gordon Brown “muddied the waters”.  He wanted to increase financial support for those raising children but wished to save the expense of doing this on a universal basis.  He therefore introduced a separate Child Tax Credit to exclude those on higher incomes from benefitting.

The bottom line of all of this is that, from both an economic and fairness perspective, our tax or welfare system need to compensate parents for the expenses of bringing up children.

Lord Flight: Deficit financing might get a lot harder so Osborne should cut faster now

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

The brutal, internal devaluation measures being forced on Greece by Germany and the EU are likely to be self-defeating. They risk a recession so deep that Greece will not be able to climb out of its debt hole. The measures will lead inevitably to a higher debt to GDP ratio in the near term. Greece has been in recession for the last 4 years; Greek GDP fell by 6.8% last year, accelerating to 7% this year. Unemployment is likely to rise to at least 25%. Similar, if not as harsh, measures will be forced on Portugal, Spain and Italy. The problem with Southern Europe is that is has become some 30% uncompetitive against super-efficient Northern Europe. As Irving Fisher pointed out in “Debt Deflation Causes of Great Depressions”, in 1933, it is very difficult, if not impossible, for a country to regain lost competitiveness in a fixed exchange rate system if it has a high debt. Countries trapped in Euro membership with substantially overvalued exchange rates and no control over monetary policy face the choice of immense and on-going economic pain if major internal devaluation is attempted, or “dignified exits” from the Euro.

It may, therefore, appear strange and inconsistent that I believe the UK should follow a programme of stricter deficit cutting. The Greek and UK contexts are, however, quite different. The UK does not have a problem of competitiveness – with its own currency the exchange rate has already fallen and can fall further if needed. By contrast with Greece, there is still massive feather-bedding in UK public spending (whereas more and more Greek citizens face unemployment, they will receive no welfare assistance once their short term unemployment benefits run out). The Duncan Smith welfare reforms are, if anything, too generous; the “cap” on welfare payments is equivalent to a taxable income of £35,000 p.a., more than the average income. Massive waste continues in UK public spending; Government spending, both directly and indirectly through Quangos, continues to finance activities with which the State should not be involved. Aside from the criticism of Professor Les Ebdon’s appointment, what on earth is the taxpayer doing financing a “new universities access watchdog” – universities are the appropriate body to manage their admissions policies, which the evidence points to them doing well.

Lord Flight: The Government should now withdraw at least from the parts of the EU keeping our economy down

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

The parameters of the Eurozone crisis are really very straight forward.  Investors are unwilling to buy Southern European Government bonds, partly because these Governments are manifestly over-borrowed but, particularly, because they perceive a major exchange rate risk, in due course, as these economies have become some 35% uncompetitive against Germany since the Euro was launched.  This has happened, in part, because Germany has made particular efforts to exploit its position by making itself super-competitive within the Eurozone and, partly, because Southern European economies have not done this.  Rather as they have become less competitive, their economic growth has dwindled to little or nothing, resulting in higher unemployment, higher Government spending and lower tax revenues.  This is why Germany and “Germanic” Northern Europe are enjoying the biggest boom in jobs for 20 years, while Spain’s jobless has risen to 22.9% (with 48.7% for Youths) while Italian unemployment is lower at 8.8%, but climbing steadily. 

There is, at least in theory, a European fiscal integration solution – making the Eurozone like the USA.  This would require one Central Government debt borrower, (issuing Eurozone Bonds); a Central Bank which can buy and monetize Government debt on a limitless basis, and regular transfer payments from the prosperous to the less prosperous member countries to keep them afloat.  It has been estimated that the required transfer payments would amount to some 35% of German GDP, p.a. It is clear that Germany is not just playing politics but is implacably opposed to all 3, as these would cost too much. Germany’s solution – to force major, internal devaluation on Southern European economies is both impractical and economic nonsense, reminiscent of the Gold Standard in the 1930’s.  Starting from where we are, this would simply increase their fiscal deficits and borrowing requirement and drive their economies into downward spiral.  Given that Germany is not willing to finance (or risk) real fiscal integration, she must face up to the need for these economies (and Ireland) to devalue.

Lord Flight: It is time everyone remembered that Braveheart was only a film

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

Here is something to take our minds off the Euro crisis, though it's a “can of worms”. Salmond’s target is apparently “Devolution max” – Scotland taking over responsibility for all of its affairs other than Defence and Foreign Affairs, leaving England to bail out RBS and HBOS, and continuing with its substantial Scotland subsidies – Government spending £1,600 more per person than in England, and an economy where some 60% work for a bloated public sector.

It is apparent that such a solution would not, however, be acceptable to the English. Rather like their view of the EU, the English have had enough of subsidising Scotland, only to be treated with discourtesy. I have been horrified by friends telling me of aggressive, racialist comments from Scottish staff at Edinburgh airport and when my children were at Edinburgh University, there were cases of English students being picked on by Scottish students and beaten up. I also grow weary of Salmond’s politicking. Not surprisingly, the ICM poll showed 43% of English voters approving Scottish independence with 32% disapproving, although 43% of Scottish voters disapproving of independence versus 40% approving.

On the other side of the coin my many Scottish friends in England are feeling embarrassed and uncomfortable – realising the English are fed up with Scotland’s shenanigans, albeit with some cause.

Lord Flight: Britain's economic fortunes may not be restored unless we have a major renegotiation of our EU membership

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

On the face of it, it is sensible and practical to argue that to support measures to head off a default and banking implosion in the Eurozone; to sort out Britain’s own public finances and to revive our economy, are the priorities for now: and that a fundamental reassessment of our involvement in the EU, including a potential In or Out Referendum, are for another day, and would not now be possible without potentially leading to a collapse of the Coalition. But it has to be questioned whether Britain’s economic fortunes can be restored and indeed our economy not damaged further – or the next General Election won – without a major and radical renegotiation of our relationship with, or withdrawal from, the EU.

Without the division of the Eurozone into a hard currency for the Germanic North and a weak currency for the South, at best the Eurozone economies will be hobbled. The Southern economies are dead in the water without a major currency devaluation. The economies of the Germanic North face the prospect of being shackled with huge bills subsidizing the South. For both North and South this raises the prospect of political turmoil and rising nationalism. The citizens of Southern Europe will resent what they see as being dictated to by Germany, and being forced to accept major cuts in pay and benefits. The citizens of the Germanic North will resent hugely being dragged into providing major subsidies to the South against their wills.

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.

Lord Flight: The Euro's decline and outrageous rioting are both symptomatic of irresponsible political leadership

Lord Flight a former Shadow Chief Secretary to the Treasury and Deputy Chairman of the Conservative Party, who is now chairman of Flight & Partners Recovery Fund.  He took his seat in January 2011.

The “death throes” of the Euro and the outrageous rioting and looting in London do not have common causes, but both are symptomatic of mistaken and irresponsible political leadership over the past decade. The response of our Government to these issues will determine both their future political fortunes and the success or otherwise of our country for many years to come.  

Put in simplistic terms, there has remained a “silent majority” of sensible British citizens who have known all along that the Euro project was a politically motivated economic nonsense, likely to end in the sort of disaster we are now facing.  Equally there has been a majority who are robust on “Law and Order” – and supportive of the basic principle that adequate defence of the Realm should have the first call on taxation.  The same silent majority has also been sceptical of excess public spending, an economy based on excessive borrowing and of unaffordable welfare spending, well beyond the provision of a “safety net” to look after people when they fall on hard times.  The same silent majority is also deeply sceptical of the “global warming agenda” involving massive increases in electricity costs likely to put much of our remaining manufacturing base out of business.  We also now see the impact of “the blame culture” which has paralysed on the spot, proactive measures by the Police, waiting for specific orders from their superiors, to ensure their responsibility.

Lord Flight: Germany should restore the Deutsche Mark

Lord Flight is a former Shadow Chief Secretary to the Treasury who is now chairman of Flight & Partners Recovery Fund. This article was submitted 24 hours before yesterday's latest "solution" to the €urozone's debt crisis.

It is perhaps not surprising that while we have been wallowing in the escalating Murdoch crisis, coverage of the escalating Eurozone debt crisis has been mostly confined to the financial media.  We have lived through the first round of the Irish, Greek and Portuguese crisis and nothing much seems yet to have affected the UK – albeit that our own position is none too rosy.  But what we now have is no longer the risk of contagion to larger Eurozone economies – it has already spread to Italy and Spain. Both countries have not only experienced sharp rises in their Bond interest rates but are also now finding it hard to sell the necessary Government Bonds to finance current deficits and to refinance Bond maturities.  I cannot see that the EU bailout Funds or the ECB – by the back door – and the IMF can raise the necessary funding to finance these economies’ borrowing requirements: and even if this is arranged for the short term, the problems will return speedily.

The essence of the point is that both countries need a significant currency devaluation.  The Euro Zone’s financial and economic problems cannot, in my view, be resolved unless the Euro splits into 2 currencies – a hard currency for Germanic Northern Europe and a soft currency for the less competitive Southern economies.  The unresolved question in this scenario is as to which way France would jump – certainly its economy would fare much better if it stayed with Southern Europe.  My March ConservativeHome contribution, “Watch out for the European Financial Crisis this year”, suggested the easier solution would be for super-competitive Northern Europe to adopt a new “strong DM” leaving the rest of the Euro Zone with a competitive, weak Euro; and I believe this remains the most manageable option.

The crucial political question is as to whether or not, albeit confidentially, the EU or Germany itself is now working urgently on such a “plan B”, or are burying their heads in political sands.  Clearly the break-up of the Euro would represent a major disaster for the “Europe Project” and potentially unleash effective opposition to its whole ill-conceived architecture.  The only financial alternative would be the issuing of Pan EU backed Bonds to finance the vulnerable economies, with the option for investors to switch out of the “PIIGS” Bond issues at a discount; but I doubt Germany would accept this as it would imply on going German underwriting of their economies’ borrowing.  Moreover, it would not solve the fundamental economic issue that they will not recover unless their competitiveness is registered.

Lord Flight: Britain's public spending crisis is not the fault of the banks - both the Labour Government and consumers were over-spending

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

I am a patriot and continue to believe that, given the right, capitalist, fiscal environment, the British people have the inventive and entrepreneurial talents to restore our economic health.  What is concerning is that people such as the Archbishop of Canterbury and his like, both amongst the Opposition and in the Coalition, do not seem to realise that the position of the UK is not far off that of Greece - “there but for the grace of God...” - and that the UK has to change its ways, if we are to recover.

The public has been misled, mostly by Labour politicians, into believing that the public spending crisis is the fault of the banks.  The reality is that from 2001, the Labour Government borrowed and spent too much, and also relied upon massive tax income from the financial sector at “the top of the froth”.  Thus, at the top of an economic cycle, not only was there an official deficit of £40 billion per annum, but also a reliance upon such “frothy” tax revenues of some £50 billion per annum.  Inevitably, tax revenues fall in less frothy economic times:  thus the Labour Government built up a structural deficit of the order of £100 billion per annum  The extent to which Britain consumed more than its income in the course of the first decade of this Century is reflected in the cumulative current account deficit built up over the period of £600 billion; in other words, we consumed £600 billion more than we produced.

The point also needs to be made that while the major problems which hit only two particular large banking groups owed much to their irresponsible leadership, the totality of the banking problems was the result of the Government’s mistaken monetary, economic and regulatory policies and, in particular, lax monetary conditions between 2001 and 2007.  If money is too easy, particularly in boom times, banks always tend to make unwise lending decisions.

Lord Flight: A stable family and the opportunity of attending a selective secondary school are key to promoting upwards social mobility

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

One of the main reasons why I have always supported the Conservative Party is because, going right back to the 1950s, I perceived it as the main supporter of meritocracy and upwards social mobility; and the Labour Party, as the main enemy here, bent on levelling down rather than up. 

In my youth it was the Conservative Party, on the back of the Butler Education Act, which opened up the Grammar Schools to bright children of all backgrounds, and particularly the less privileged, to get a first class education and so “climb up” through good universities.  It was also the Conservatives who opened up entry to bright children from all backgrounds to many of Britain’s excellent Independent Schools, through the Direct Grant Scheme and, subsequently, the Assisted Places Scheme. 

Back in 2005 when giving the Annual CPS 1900 Club Lecture, I argued that the Conservative Party should offer tangible and clear commitments to increase meritocratic social mobility which declined under the Labour Government; and that this might start with a powerful message, committing again, to provide the funding for anyone capable of meeting the standards to be able to go to Independent Schools on State Scholarships. 

I believe it is unwise, both morally and socially, that only those who can afford to pay can now go to Independent Schools.  I argued that the citizens of the suburbs of Manchester, London or Birmingham would be more interested in the Conservatives if again they promised to enable bright children living in these cities to be able to go, respectively, to Manchester Grammar School, St Paul’s or King Edward’s Birmingham, irrespective of their means.