Michael Fallon MP: How our share sales plan will boost Royal Mail and secure the universal service

Michael Fallon is the Minister for Business and Enterprise and MP for Sevenoaks

This is an important day for Royal Mail, its employees and customers.  Royal Mail needs to be able to compete with the internet, smart phones and international postal operators - and to be able to adapt to the changing postal market and seize new business opportunities.

That’s why I have announced that the Government will sell shares in Royal Mail through an initial public offering on the London Stock Exchange. This sale will complete the final part of our reforms of the postal sector which Parliament debated and decided over two years ago. Our objective is to continue to secure the universal service – the six day a week, same price, goes anywhere service which is vital to the UK economy. We have already put in place a proper regulatory framework and given Ofcom stronger powers to take the action necessary to protect the universal service. We have also taken away Royal Mail's historic pension liabilities which were crippling the company's financial position.

Our reforms, together with the hard work of Royal Mail employees, have put Royal Mail on the road to sustainable health. But under the restrictions of public ownership Royal Mail's core mails business lurched between profit and loss in 5 of the last 12 years. Losses were around £1bn, and over 50,000 jobs went during that period. The sale of shares will give Royal Mail the commercial freedom it needs to succeed. It will give the company future access to capital it needs for investment – to seize the opportunities for growth such as increasing parcel volumes from the boom in online shopping. It will give Royal Mail commercial confidence – free from Whitehall interference.

Michael Fallon MP: Why we're right to modernise Royal Mail

Michael Fallon is the Minister for Business and Enterprise and MP for Sevenoaks

Royal Mail rightly has a special place in public affection as an essential part of Britain ’s economic and social fabric.  The iconic red – and glittering Olympic gold - pillar boxes and the one price goes anywhere universal postal service are an important part of our heritage.  But as with all institutions, if we are to preserve Royal Mail for the long term then it needs to change to keep with the times.

That’s why the government is implementing a package that Parliament enshrined in the Postal Services Act 2011 to ensure that it is successful over the long term.  We’ve already reformed the regulatory regime and removed Royal Mail’s historic £10bn pension liability.  The final step is to give Royal Mail access to the private capital so that it can innovate and invest.  The Coalition is clear that 2013-4 is the year that this should happen.

Royal Mail is one of Britain ’s biggest businesses with a turnover approaching £9bn. It is ridiculous to deprive it of the same access to capital that other large businesses enjoy so it can make the investment necessary to seize new market opportunities. With the huge deficit we inherited, it’s simply not tenable for any government to prioritise scarce public capital for Royal Mail over schools and hospitals. There has been much speculation that we have decided to sell shares via an IPO. While this is a potentially attractive option the government remains open minded about what the best approach would be.  I meet both management and the CWU regularly to discuss the sale.

Michael Fallon MP: The banks failed. The FSA failed. Gordon Brown failed.

Michael Fallon MP is Deputy Chairman of the Treasury Select Committee.

They said they were sorry, deeply sorry.  One by one, each of the four disgraced bank chiefs apologised in front of the Treasury Select Committee.

But as the session went on, those apologies started to fade.  It was all down to the “turn of events”.  Things happened that nobody foresaw, that nobody could have foreseen.

This won’t do.  It wasn’t a “turn of events” that brought down RBS and HBOS.  Each bank made serious mistakes, and their boards failed to prevent them.

RBS made two huge mistakes.  Its funding gap – the gap between its liabilities and its deposits - grew from £83 billion in 2003 to £164 billion in 2008.  That gap was easily the biggest of any British bank, and twice the size of Barclays’ funding gap.  It was one third of the total funding gap of all six big UK banks.

Ten years ago banks didn’t lend out more than they had in on deposit.  But in the rush to get bigger and bigger – and to claim those bonuses for deals done rather than value added – they simply borrowed more and more from the wholesale money markets.

Much of RBS’s funding gap was the result of a further mistake – the acquisition of ABN Amro.   RBS paid £10 billion for Amro right at the top of the market.  They pressed ahead with the acquisition even after Amro had pre-sold LaSalle, the business RBS really wanted, even after every City investor and analyst said they were paying too much, even after the credit crunch had started.

Today the former chairman confirmed to me that RBS’s investment in Amro is now worthless.  They’re having to write off £15-20 billion on the deal. That’s almost exactly the amount the taxpayer has now had to put into the RBS balance sheet.  Thank you Sir Fred Goodwin.

A Government Worth Having... Needs To Increase Economic Growth

We asked a few friends of ConservativeHome to offer 100 word thoughts on how George Osborne might prepare to lift Britain's economy.  Our contributors didn't all keep to the word limit but their responses cover a wide range of economic policy angles.

Nicholas Boys-Smith, Consultant Director of Reform: "George Osborne is the most successful Conservative Shadow Chancellor since Geoffrey Howe. He has turned the debate on an iconic right of centre policy (inheritance tax), stymied plans for a 2007 election, prised open important new debates on tax complexity and green taxation and even managed to win the favours of the Prime Minister’s erstwhile mistress, Miss Prudence. Now it gets really hard. He has five key challenges;

1. Radically simplifying the tax system so that Britain is once again internationally attractive – merging National Insurance and aligning the accounting and tax systems would be a start;
2. Devising green taxes which can be implemented without increasing tax or complicating the system all over again – no easy task in the current climate;
3. Making sure that the Treasury can support the wealth of ideas now emerging to channel private funds and voluntary energy into mending our starkly broken society and benefits system (this means taking on debt and risk – again not easy);
4. Judging how many ideas to reveal in advance of the election (he needs substance) and how many to keep in reserve (he needs surprises and not all ideas will necessarily be election-winners); and
5. Perhaps hardest of all, devising the 200 day plan which will effect most of his programme – politics being the art of the possible and electoral honeymoons being short..."

Michael Fallon MP: "We will probably inherit public finances in their worst state since 1975.  The public are ready for honesty: they know that, like any household, government has to cut its costs and its borrowing. We can protect frontline public services but will have to be much tougher elsewhere: too many shadow ministers seem to assume that the current department budget is theirs to spend.  We also need to make in-work benefits more effective: tax credits are fine in principle but poorly administered and go too far up the income scale."

Mark Field MP, CentreRight contributor: "The Party needs to make a strong case for reduction of personal taxation paid by the lowest earners. I believe that far more attention now needs to be directed on the lowest paid in our communities. At the moment you barely have to earn £105 per week in order to start paying income tax.  Rather than institutionalising the complexities of tax credits, I should like the Conservative Party promote a system whereby no one earning less than £200 per week pays any income tax at all. Similarly by raising slightly the thresholds of those paying tax at the higher rate, the better-off in our society would not benefit from this long overdue extension of the zero rating."

Oliver Marc Hartwich, Chief Economist of Policy Exchange: ""How could an incoming Conservative government increase economic growth? On the one hand, of course, increasing economic growth should not be too difficult. If the experts are correct, there will hardly be any economic growth, maybe even a recession at the time of the next election.  On the other hand, and more seriously, these tough economic conditions require an adequate policy response. It is easy to say that Britain's structural deficit will leave little room for manoeuvre. True as this may be, the party should still find the courage to do the things that will make economic growth more likely in the long run: shrink the proportion of GDP that the state is consuming, keep taxes low, lower barriers to market entry by reducing regulatory burdens.  Conservative economic policy has always been best when it was economically liberal."

Andrew Lilico, Managing Director of Europe Economics and CentreRight contributor: "For an incoming Conservative government to increase long-term growth, I would recommend (a) the introduction of a robust price-level (average inflation) target; (b) enhanced use of market mechanisms in public services.  A price-level target would increase certainty over the long-term inflation rate, leading to more investment and less loss in inflation-proofing contracts, and hence to more growth.  Productivity growth in public services is very low, and so this very large portion of the economy contributes little to overall economic growth.  The use of more market mechanisms (especially on the demand side) would lead to higher productivity growth and more innovation, adding materially to the overall growth of the economy."

In the next part of this series, which will be published in a few days, we'll turn to foreign policy.

Michael Fallon MP: The dangers of taxing non-doms

Michael Fallon is MP for Sevenoaks and a member of the Treasury Select Committee.

A few years back the then governor of the Bank of England coined a metaphor.  The City of London, he said, was like Wimbledon: we might not have the best players but we had the best tournament.  Ownership wasn't the issue; foreign banks might dominate the City or buy up all the British banks but London was where everybody wanted to play.  And UK plc got the benefit.

A better analogy might be Silverstone. It's our Grand Prix but it doesn't have to be here.  Many newer places - in the Gulf states, the Far East - would like to host one.  Get the supporting infrastructure wrong - too much tax and tape - and Bernie gives it to somebody else.

That's where the non-doms come in.  Many are the people who make the City tick. They're not all Greek shipowners or Russian billionnaires: they''re just as often the supporting cast.

And they're highly mobile. They know how to live in Geneva or Dublin, Luxembourg or Dubai. Private equity houses or hedge funds don't have to be in Mayfair.

Labour's proposed tax would be disastrous for the City.  It's sent out a clear message that in seven year's time we simply don't want the non-doms here.

After eleven painful years, we expect Labour to be bad at tax.  The pensions tax, the CGT fiasco, the stealthy shifting of millions into the higher bracket - these are politicians who've never actually understood how the real world works.

But the real lesson of the non-doms row isn't for Labour - it's for us.

An annual levy combined with a guarantee of no intrusion is certainly more attractive than Darling's proposal.  But it only gives certainty for a single Parliament - perhaps three or four years after our first Budget.

Non-doms who've chosen to work here are looking for certainty. They now see two policies, each of which is a proposal. They worry that either party could tweak its policy again.

We need to be careful about soft targets, careful about taxing anybody just because we need the money rather than from principle, and above all very careful not to do anything that might undermine the one bit of our economy that really works.

Michael Fallon MP: Gordon Brown is the architect of the Northern Rock and HMRC crises

Michael Fallon is MP for Sevenoaks.

Architects can not escape their buildings.  The two crises engulfing the government at the moment have their origins in the decisions that Ministers themselves took.

HM Revenue and Customs (HMRC) and the Financial Services Authority (FSA) are the monsters that Brown created.  They’re two of the largest public departments, employing 100,000 and 3,000 staff respectively.

Both of them are super-agencies created by sticking other smaller departments together.  HMRC was the result of a merger between Inland Revenue and Customs and Excise.

The Treasury Committee investigated the proposed merger back in 2004.  We found that no cost benefit analysis of any kind had been done to justify the merger.  No efficiency savings were calculated.  No commercial organisation would proceed on this basis.

We warned of the risks involved.  We also pointed out the very different cultures involved – tax inspectors thrown together with cutter-riding “duty men”.