The IEA Brexit Prize – a timely and necessary development

Ruth Lea is an economist and is a former Director of the Centre for Policy Studies.

There is no question that the Prime Minister’s Bloomberg speech in January, promising the British people an in-out referendum on membership of the EU, was of the utmost significance. The speech was a game-changer despite the caveats attached to the promised referendum. Mr Cameron’s proposed timing was after the next General Election, by the end of 2017, which would require a Conservative victory in 2015. And he would allow the referendum after renegotiating the repatriation of certain powers from the EU, which many regard as something of a smokescreen. But, no matter, a firing pistol of sorts has been fired.

The referendum debate is gathering momentum. James Wharton MP’s European Union (Referendum) Bill was overwhelmingly supported (304-0) on second reading on 5 July, though it is likely to fall at future hurdles in the legislative process. And the pressures on Ed Miliband to provide a referendum can only increase. He will not want to be seen as the party leader who denies the electorate a democratic choice on Europe even though there are clear dangers for him. If he is the Prime Minister after the 2015 election, an “out” result in an EU referendum could be highly problematic, though it would, obviously, depend how he handled it.

Ruth Lea: How to attract more women’s votes? It’s the economy, stupid

Ruth Lea is an economist and is a former Director of the Centre for Policy Studies.

I am not a professional psephologist and I do not follow every twist and turn of the various fortunes of political parties. Neither do I specialise in the issues that can be regarded as “gender specific” – others are more qualified in these areas than I am. But when it comes to attracting more women’s votes (and indeed men’s) economic prosperity, the cost of living and the labour market are consistently high on the list of the electorate’s concerns.

Prosaic and hackneyed though it may seem, it really is the economy stupid. As we all know, the economy is struggling and the public finances are simply dreadful. Under these circumstances what policies should the Conservatives promote that the Coalition Government is not already pursuing? Firstly, there are no magic bullets and the return to robust growth is, to put it mildly, is not imminent. But a significantly more upbeat growth agenda of supply side policies, especially a tough deregulatory agenda, than is currently operative would surely help business and our economic prospects.

Of course supply side policies take time to bed down and stimulate activity but that is no reason not to implement them (as I have sometimes seen argued). And, of course, some of the Government’s policies, including the recent reduction in Corporation Tax, are wholly to be welcomed. And we are all aware of the compromises that coalition governments have to make. But, speaking as someone who worked in the 1980s in the Department of Trade and Industry in the days of Lords Tebbit and Young, I would like the Conservatives rediscover the feeling of excitement about business, entrepreneurship and growth that was so prevalent then. We must not forget the Thatcher Government’s enterprise agenda of the 1980s, promoted by a thought-through and internally consistent positive narrative, turned this country’s fortunes round. A spirit of can-do optimism, aspiration and opportunity inspired us all then, irrespective of gender.

Ruth Lea: There are two permanent solutions for the €uro area; full economic union or the division of the currency area into northern and southern zones

I’ve watched the Eurozone’s “dance of death” with increasing disquiet. And this is in spite of the fact that I have had deep misgivings about the project from the very start. At the time of the Maastricht Summit (1991) I scarce believed that the EU’s politicians would be so unwise and careless of economic stability and prosperity to proceed with Economic and Monetary Union (EMU) given the structural disparities in the EU’s economies. After the debacle, turned salvation, of Britain’s eviction from the ERM in September 1992 I was even more certain the project would fail. And it is now failing as the gulf between the competitive northern Eurozone economies and the painfully uncompetitive southern ones is tearing the Eurozone apart.

When the Eurozone debt crisis blew up last year, the Europe’s politicians treated it as a temporary liquidity crisis. The strategy was to tide these countries over a “difficult period of financing” (blamed on the markets) with very large bailout loans, giving them time to rectify their public finances with a good dose of Germanic austerity and return to the financial markets to raise funds when normality returned. This strategy always involved wishful thinking and has already failed for Greece – and is also likely to fail for Ireland and Portugal. It was assumed as part of Greece’s May 2010 package that the country would return to the markets in 2012. Once it was clear that this was not on the cards, negotiations began for a second bailout and on 21 July a complex fudge of a package was unveiled, much to bemusement and bewilderment of some commentators. Greece wasn’t experiencing a liquidity crisis at all. Greece was insolvent. It couldn’t fully finance its debts, a situation exacerbated by its dreadful growth prospects.

Two aspects of the 21 July package have proved toxic in recent days. The first was the agreement to extend the remit of the Eurozone’s bailout fund (the European Financial Stability Facility) so it could provide pre-emptive financial support for countries in trouble (i.e. Spain and Italy), recapitalize the banks and buy bonds of troubled sovereigns. Perhaps the Eurozone leaders felt that this was “job done” as they headed for their holidays. But as hapless Commission President Barroso pointed out last week these “enhancements” of the bailout fund are not yet operational as they need to be ratified by the 17 individual member parliaments. (And they are on holiday.) In candid mood, he also confirmed that the bailout fund was “inadequate” to deal with any potential bailouts for Spain and Italy. Given that the probability of bailouts for these two countries was rising as he spoke, his statement was indeed courageous. Under these circumstances, no-one can believe that the Eurozone leaders have a real grip on events, why should the markets? The leaders are muddling through, bickering between themselves and shirking permanent solutions.

Ruth Lea: Britain needs to shift its focus on trade from Europe to the Commonwealth

Ruth Lea is Economic Adviser and Director of Arbuthnot Banking Group.

The Commonwealth as an economic bloc is rarely discussed in Britain. But, as the global economic and political focus shifts to partnerships with non-western economies in the wake of the global financial crisis, this is an opportune moment to re-evaluate the economic potential of the Commonwealth both in the global economy generally and to us as trading partners more specifically.

The Commonwealth nations, taken together and including the UK, are an economic colossus comprising some 15% of world GDP, 54 member states (53 excluding Fiji, which is currently suspended) and two billion citizens. They will inevitably become more influential and powerful. The Commonwealth spans five continents and contains developed, emerging and developing economies.

Crucially, the Commonwealth in its richness and diversity mirrors today’s global economy in a way that the EU simply cannot start to aspire to. In its global reach it speaks of the future, and should not be regarded as a curious relic of Empire, whereas the EU will continue its inexorable, relative decline. As David Cameron said of Tony Blair, so is the EU. “You were the future once.”

Ruth Lea: Radical policies are required to rediscover Britain’s lost competitiveness

Ruth Lea is Economic Adviser and Director of Arbuthnot Banking Group.

One of the joys of being an economist is that there is never a shortage of material to read and figures to ponder over. A new report by the CBI entitled "Making the UK the best place to invest" struck me as of particular interest. It concluded that “much more needs to be done to improve the investment landscape to retain companies based here and attract fresh inward investment”.  Note the words “much more…”

The CBI’s report contained no surprises but its confirmation of what has been said many times before is not without value. Basically Britain has lost competitiveness in recent years with the top concerns being high personal and corporate taxes and the increasing regulatory burden.

This suggests that we need nothing less than a tough programme of tax cuts and a major reversal of the previous Government’s regulatory agenda if the country is to regain its lost competitiveness. I’m aware of the state of the public finances and the Chancellor’s tax-cutting measures in the Budget, but the 50% personal tax rate is an own goal which should be reversed.

Regulations have been heaped on businesses over the last 15 years. The British Chamber of Commerce has estimated that the total gross cost of regulations introduced since 1998 was around £88.3bn in 2010. Small businesses find the increasing cost and complexity of regulations especially burdensome, especially employment regulations. A true “bonfire” is required and vested interest groups need to be tackled.

Ruth Lea: It really is time for a referendum on EU membership

Ruth Lea is an Economic Adviser to the Arbuthnot Banking Group:

There has already been considerable traffic on ConservativeHome concerning the impending bailout of Portugal, in general, and Britain’s commitments to contribute, in particular. Of course Britain should not contribute. After all, we made the decision to stay out of this most dysfunctional of currency unions, but are now expected to help save face for those politicians who, grandstanding on the world stage, pushed ahead with this most grandiose of political projects.

To those of us who were energetic participants in the Euro debate in the late 1990s and early 2000s it was all too horribly obvious that the economies entering the “one size fits all” Eurozone were fundamentally incompatible. But such concerns were brushed aside as “eurosceptic” and somehow it was assumed that the German economy would become more Greek, and the Greek economy more German, so that all could live in perfect harmony and fulfill the integrationist dreams of the EU’s Founding Fathers. It was a fantasy of course.

The precise details of the bailout have, of course, yet to be agreed – not least of all because Portugal only has a caretaker government. But assuming that the total support for Portugal will be around €70-80billion, the British contribution could amount to €4billion, or about £3.5billion. This arises because of the British Government’s agreement to participate in the €750billion “shock ‘n’ awe” package that was put together at the height of the Eurozone crisis last May to bolster troubled Eurozone countries other than Greece. (Greece had its own €110billion bespoke package.)

ConHome's expert panel give their take on the Comprehensive Spending Review

This morning ConHome assembled a panel of economic and political experts to summarise their hopes, fears, advice and expectations in advance of George Osborne's statement on the Comprehensive Spending Review. Here they give us their reaction to the statement:

Sajid Javid is MP for Bromsgrove and a member of the Work and Pensions Select Committee who is a former senior Managing Director of Deutsche Bank:

Osborne delivered.

No change in the quantum of cuts.  No re-profiling.  No more structural budget deficit, if all goes to plan, in four years’ time. No mean feat. The financial markets took it in their stride.  It was spot on, as expected.  Interest rates will stay lower for longer and our AAA credit rating is secure – for now. The coalition had an historic opportunity to put the country first and make some long term decisions.  And it took its chance.

The key to full economic recovery is to deliver pro-growth measures. Ultimately, only a buoyant private sector will pull us out of this inherited mess. Which is why I was pleased to hear that spending on transport infrastructure will be prioritised and that the science budget will be protected in cash terms.  Whilst the bank levy was made permanent, there was, reassuringly, no announcement of any further “anti-bank” measures.

Equally significant was that Osborne put an end to the idea of an ever-growing state.  Government will be re-modelled so that it’s an efficient provider of services, not just an inefficient producer. Yes, we could have done more: shelving the unfair Barnett Formula, for example.  But we did enough. Hats off to Osborne and team.

Ruth Lea is an Economic Adviser to the Arbuthnot Banking Group:

 In broad macroeconomic terms, there is little to comment on.  There was a modest (£2bn) increase in total spending in cash terms, so the overall retrenchment spelt out in the Emergency Budget remains unchanged. The Chancellor, as widely expected, stuck to his guns.

Within the total, savings have been made to Annually Managed Expenditure (principally welfare payments) which have been relocated to departments. But even so, some of the departments facing swingeing cuts. The forecast for debt interest payments is unchanged – rising from £43bn (2010/11) to £63bn (2014/15). £20bn that could have been spent elsewhere or even used for tax cuts. The Spending Review’s toughness is essential. Rising indebtedness had to be tackled. The Coalition Government must now deliver.  

Andrew Lilico is Chief Economist at Policy Exchange:

George Osborne rightly stuck to his guns over the total consolidation, reducing discretionary spending cuts by only an irrelevant £2bn (all driven by less fall in capital spending).  The NHS and DFID ringfences were expected, but that Education was cut only 3.4% over the period was disappointing because we believed there were intrinsically desirable cuts greater than this. 

Cuts in most departments lay in the 20-25% range: Transport – 21%; CLG – 27%; BIS – 25%; Home Office – 23%; DEFRA – 29%; DCMS – 24%.  Our previous analysis suggests that cuts on this scale should be broadly feasible through a combination of intrinsically desirable and plausible measures, without needing to resort to much that is unpalatable (except the cuts to the Defence budget, which take it back below its 1993/4 level).

The ability to avoid too much unpalatable cutting was the consequence of finding £7bn extra cuts/effective tax rises from the Welfare budget and from Child Benefit, along with rises in public sector employee pension contributions, though it was disappointing (but not surprising) that misdirected programmes such as winter fuel payments survive intact.

There are a number of interesting points from specific departments:

The key DECC story is that about 5000 large, non-energy intensive companies which come under the new CRC Energy Efficiency Scheme need to buy carbon permits from 2012.  The cost of these permits will not now be recycled back to companies, as originally proposed, but retained by the Treasury.  This will raise £1bn pa by 2014-15.

The 6% savings each year from the Home Office budget (23% by 2014-15) should be delivered relatively straightforwardly.  There is big scope for cutting back bureaucracy in Home Office agencies, merging some organizations and scrapping others.  A 20% cut to police funding is in reality more like 14%, once one takes account of local funding through council tax. This is slightly more than the 12% that HMIC decided was perfectly possible for forces to deliver, without slashing officer numbers.

The 23% cuts to the Ministry of Justice constitute a bigger hit than the Home Office with this settlement because the savings are harder to find here. The cuts lead to a total budget of £7bn by 2014-2015, but it could have been worse.  There are major savings that can be made, in legal aid, in central staffing and in the bureaucratic NOMS empire, but a quarter of the department’s budget is spent on prisons, and this scale of savings can only be realised if prison numbers are less than expected in 2015, so jails can actually be closed, or not built in the first place.

Overall, however, perhaps the most noteworthy point was Osborne’s final jibe that the Coalition is proposing smaller cuts to DELs than Labour. It appears that the struggle to move politicians away from the formulation that “Increased public spending = All that is Good and Virtuous” still has some way to go

Matthew Sinclair is Director of the TaxPayers' Alliance:

It is great news that the Government has announced a good range of tangible cuts which will save a lot of money and mean lower taxes and less money wasted on debt interest over time.  Wasteful programmes including Train to Gain are going and there are healthy cuts in departments like the Treasury, BIS and DEFRA.

Unfortunately a number of measures that would save significant amounts of money without hitting the priorities of ordinary families haven't been taken: a freeze in the International Development budget; pay cuts for the best paid public sector staff; scrapping bodies like the Carbon Trust and the Equality and Human Rights Commission.

And in some areas they've introduced new spending. Carbon Capture and Storage and the Green Investment Bank get £1 billion each, for example.  That is a lot of money that will have to be found from other programmes or the pockets of ordinary families.

Sensible and necessary cuts have been announced today, but the Government need to do more to deliver good value for hard pressed taxpayers.

Nick Wood is Managing Director of Media Intelligence Partners and former press secretary to William Hague and Iain Duncan Smith:

A great sigh of relief will have gone up in Whitehall this afternoon now that George Osborne has announced the new spending totals. No longer will departments have to wake up to ghastly headlines about Minister A falling out with the Treasury or Osborne attempting to crucify some benighted colleague. At least the dark cloud of the cuts review is passing over the horizon.

There were few surprises. The nasty and the (few) nice bits of the CSR had been leaked or announced well before today. The pain is being spread around. The middle classes have been clobbered over child benefit, university tuition fees and pensions. The not so middle face a benefits squeeze, although their schools and hospitals have been afforded some protection.

Core Conservatives will be alarmed by the cutbacks at the MOD and comedians will enjoy the prospect of aircraft carriers that don't carry aircraft and are mothballed almost as soon as they have glided down the slipway.

But today's galaxy of numbers won't make much difference. The proof of this plate of gruel will lie in the eating. And that is months if not years away. Six months from now it is a fair bet that the Today programme will have become a parade ground for cuts sob stories and the Government can expect to find itself under mounting political pressure.

Next year is the period of maximum political danger for the Coalition. All eyes will now turn to the economy. If it double dips, then Cameron, Osborne and Co are in deep trouble. If by next autumn, the recovery is well
under way, people will look back on today's balancing act as a political masterstroke, in much the same way as the widely derided Geoffrey Howe Budget of 1981 is now seen as laying the foundations of the Thatcher economic miracle. It didn't look like it at the time. 

 

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

In terms of the savings which need to be made to restore the public finances, the Government is discharging its promise for which it is to be congratulated.

What is disappointing is that we have a typical 'Whitehall Package' of cuts, missing a once in a generation opportunity for the sort of radical reforms needed to propel the productive private sector economy into better growth and achievement and to reverse the nanny state intrusions of the last 20 years - analogous to the radical reforms of the early 1830s then to address excessive government borrowing and social policies damaging the economy in that era. We need higher savings and investment and - dare I say - an element of mercantilist policy to boost our exports.

I am not in the camp which believes means testing universal benefits is the key reform needed. This would only make sense if and when personal tax rates are reduced substantially. What I believe the UK needs is a fiscal and welfare environment which clearly rewards and incentivises upward mobility, skill acquisition, hard work and personal responsibility rather than the reverse. These are the underlying drivers of China's and India's current success.

Viewed from Asia, sadly the UK looks both to have Its political and economic priorities wrong and to be living in the past where it is rather Asia which will soon need to be helping us rather than the empty gesture of us increasing aid to Asia.

We will face falling standards of living unless we unleash the 'animal' drive to grow the productive economy - Government does still not appear to realise this.

ConHome's expert panel previews the Comprehensive Spending Review

ConHome assembled a panel of economic and political experts to summarise their hopes, fears, advice and expectations In advance of George Osborne's statement on the Comprehensive Spending Review this afternoon. They will also all give us their reaction later this afternoon.

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

The economy would recover better if cuts in the low productivity, Public Sector were greater, and taxes were reduced; the 70/30 apportionment may be deemed politically the best that can be achieved, but if the Private Sector is to grow faster tax reductions are needed.

Quango abolition should be more aggressive but the two areas with the greatest scope for saving are public sector remuneration: (it is a scandal that it has grown to, on average, 25% more than private sector remuneration, even before allowing for much better public sector pensions); and welfare expenditure, bloated by Gordon Brown to buy votes.  There is scope to save £100bn p.a. in the combined territories – and now is the opportunity to be bold on both fronts.

Be cautious of means testing benefits – as established by Magna Carta, taxation still rests on consent, where the quid pro quo for higher earners paying much more taxation is universal entitlement to at least most benefits.  Means testing can also be costly to administer.  Also in limiting benefits avoid obvious unfairness on families as between 1 or 2 earners – for benefits relating to children entitlement should be based on combined family income.  Drop the crackpot Graduate Tax which would punish achievement and reward failure; and would also increase the brain drain.

Be prepared to have a row with the EU where ridiculous EU rules have resulted in unreasonable benefit entitlements.  Also small business needs massive regulatory exemption.

Finally be careful not to wreck retirement saving: a major long term cause of Britain’s economic problems is that savings and investment have been too low and the economy over dependent on consumption.

Sajid Javid is MP for Bromsgrove and a member of the Work and Pensions Select Committee who is a former senior Managing Director of Deutsche Bank:

The biggest risk to our economy is doing nothing to address the fiscal black hole left by Labour. Whether we like it or not, the bond markets demand action.

Had we failed to act decisively in June’s Emergency Budget, our AAA credit rating would have vanished and interest rates would have soared.  Our rapid action has already reaped rewards.

Although total cash spending by the government will actually rise by a cumulative 5% by the end of this Parliament, there will be a real fall of around 4%. This may not sound like much but after allowing for higher interest payments, entitlements and real spending freezes on health, schools and international development, we should expect cuts of almost 35% in other departments.  So these cuts – Labour’s cuts – will hurt.

The Chancellor needs to be as compassionate with his words today as possible.  Although the electorate understand, they need to be reassured that our actions are in their best interests.

We are right to get this tough fiscal retrenchment out of the way now.  We have time on our side and, as long as we follow through with pro-growth economic measures, these combined policies will result in robust job creation and a vibrant economy.

Ruth Lea is an Economic Adviser to the Arbuthnot Banking Group:

In the Emergency Budget the Chancellor provided the overall spending totals for 2011/12 to 2014/15, compatible with balancing the cyclically-adjusted current budget by 2014/15. He should stick to these totals. If he relaxes them, he will undermine his credibility with the markets. But further tightening is not required and would only serve to put a quite unecessary brake on the economy.

The plans showed that total spending in real terms will fall by 4% over the 4 years from 2011/12 to 2014/15. Such cuts shoudn't send the economy into "double dip".

Within the totals some budgets fare reasonably well. But others will be very badly hit. Given the ring-fencing of the NHS (£122bn this year) and international aid, the likelihood of still rising welfare payments (though there may be more savings here) and the exploding debt interest payments, many departments will be on very thin gruel.

Most are faced with at least 25% cuts in real terms. It seems however that MOD will be partly spared, facing only 7-8% cuts, and education may similarly be given preferential treatment with only 10% cuts. But for the others, including BIS, Communities and Local Government, DECC, the Home Office, Department of Justice and Transport, the medicine will be very nasty indeed.

Andrew Lilico is Chief Economist at Policy Exchange:

The most important thing in the Spending Review is absolute resolution in respect of the spending cuts.  There must be no suggestion that such cuts might be delayed or "reprofiled".  And Osborne should say “We are not currently expecting the economy to turn down again, but if it were to do so that would make it even more important to press ahead with the spending cuts planned.  To surrender to the Siren voices, to “unlash ourselves from the mast”, as Alan Johnson has urged, would be disastrous.”

I expect it to impose enormous cuts of above 35% in non-ringfenced departments apart from Defence (8%) and Education (~10%).  This will include some blunt and unpalatable cutting that will be extremely unpopular.  If they had been wise, they would have given up on the NHS ringfence by now, thereby avoiding the most unpalatable cuts elsewhere.  But I’m not expecting them to change that now.

They ought to announce the encompassing of the child benefit reductions planned within a longer-term review of the tax treatment of parents relative to those without dependent children.  They also ought to announce the abandonment of the inflation target and its replacement by a price-level target, with house prices included in a new CPI.

Time to see.

Matthew Sinclair is Director of the TaxPayers' Alliance:

What we should have after the Spending Review is announced are the targets for cuts in each of the different departments and more information about how they plan to reach those targets.  There will almost certainly still be a lot of uncertainty about some of the details.  You can see from the list of quangos to be abolished or retained that Francis Maude released last week that many items are still under review.

We have to hope that the Government will really take the axe to the public bodies and quangos that no one but their staff and some special interests will miss.  That won't do the job alone, but every penny saved by scrapping a body like the Carbon Trust is one that won't come from tax or spending measures that hit the pockets of ordinary families.

It is also vital that the Government avoid making a hash of the measures as they did with changes to Child Benefit.  They could have cut by more and faced less of a political backlash if they hadn't tried to be so clever in the way they limited the benefit.

The Government know they will be judged on how they handle the response to the fiscal crisis.  We will have a better idea of how they are doing this afternoon.

Nick Wood is Managing Director of Media Intelligence Partners and former press secretary to William Hague and Iain Duncan Smith:

"C'est magnifique, mais ce n'est pas la guerre," remarked the French Marshall Pierre Bosquet, our ally at the time, of the Charge of the Light Brigade. Of course, in broad terms, Chancellor George Osborne is doing the right thing by today announcing measures to wipe out a deficit of £150 billion over the next four years. Amid all the controversy that will erupt over the cuts package, no doubt greatly fanned by the BBC, no one should lose sight of Labour's responsibility for the greatest mismanagement of the nation's finances in living memory.

But grave dangers lie in wait for the Coalition. And I fear that the French Marshall's verdict on the heroism of the Light Brigade more than 150 years ago might yet find an echo in history's verdict on the spending review.

My concerns are twofold. Politically, no one is likely to be pleased by the Chancellor's £80 billion cuts package. Core Conservatives won't like the idea of an aircraft carrier that carries no aircraft. Nor do they like the idea that child benefit is to be axed for higher rate taxpayers - especially if the Chancellor pursues his barmy idea of leaving the £80,000-a-year couple better off than the stay-at-home mother couple on £44,000. Expect him to tweak the numbers eventually to inject an element of much vaunted "fairness" into the equation.

Economically, pitfalls also lie ahead. Smart analysts in the City are pointing out that because the private sector - household and business - is paying down debt at a rate of knots, this is not the time for the Government to apply a savage deflationary squeeze as well. At the least, Mr Osborne should take his foot off the brake for fear of spinning GB Racing into the crash barriers.

The double dip recession is the nightmare scenario, not least because it will wreck the Chancellor's carefully calibrated arithmetic and make a mockery of his deficit reduction plan. The Chancellor's courage is to be applauded. But he should also box clever today.

Ruth Lea: The Government's green energy policies are a threat to manufacturing industry

Ruth Lea is Economic Adviser and Director of Arbuthnot Banking Group plc and co-author (with Jeremy Nicholson) of British Energy Policy and the Threat to Manufacturing Industry, which is published today by Civitas.

In a newly released report. British Energy Policy and the Threat to Manufacturing Industry, I - with my co-author Jeremy Nicholson of the Energy Intensive Users Group (EIUG) - discuss the threat of the Government’s energy policies to business, in general, and manufacturing, especially intensive energy users, in particular. The key message from our report is that, whatever the reasoning behind current energy policies, we all need to be fully aware of the potentially damaging economic consequences arising from them. The report has been released by Civitas.

The starting point is energy policy’s close links with climate change policy, which is principally concerned with cutting greenhouse gas emissions, especially CO₂, in order to “tackle climate change”. The economy is being “decarbonised”, at considerable cost, in order to save the planet from dangerous manmade global warming. I shall not discuss the scientific raison d’être behind this strategy here. But I cannot resist commenting on the need for our heroic lead, our sacrifice, to be supported by the large carbon emitters if global emissions are to be “controlled”. We account for less than 2% of the global total – and that’s shrinking. But in the wake of last December’s Copenhagen summit, where the EU was ignored and isolated, this prospect is vanishingly small. China and India are clearly not interested in encumbering their economies with large climate change costs and the jury is still out regarding the US.

The Government has two major legislative commitments concerning carbon emissions reduction. They are more draconian than in any of our major rivals. The first is the Climate Change Act (2008) which includes a “challenging” reduction in carbon emissions of at least 34% by 2020, not least of all because the “easy” cuts have already been made. The EU’s target is just 20% and there was vigorous resistance to the British Government’s recent suggestion that this should be raised to 30%. There are signs of “green fatigue” on the Continent.

The second piece of legislation is the EU’s Renewables Directive (2008), under which the UK has a target of meeting 15% of its final energy consumption through renewable sources. The equivalent figure in 2005 was less than 1½%. As a consequence, the share of electricity generated from renewable sources is officially projected to rise from the current 5½% to around 30% by 2020. Few commentators believe that this target is achievable. But even if it were achievable, it would prove costly. The BERR-commissioned Pöyry Report (2008) on the costs of hitting the renewables targets showed the UK was uniquely disadvantaged within the EU because we started from such a low renewables base and our “renewable source” of choice for generating electricity was wind-power. Wind power is intermittent, requiring expensive conventional back-up, and expensive, especially offshore.

Ruth Lea: Expose the underlying weaknesses of Brown’s economy and champion Euroscepticism

Ruth Lea is Director of the Centre for Policy Studies and Director of Global Vision.  She writes the sixth contribution to ConservativeHome's What David Cameron Should Do Next series.

In one of his leadership campaign speeches David Cameron said:

“Britain will do best if we apply our trusted Conservative principles of limited government, personal responsibility, sound money and national self-government”.

I, for one, would not disagree. And whilst I perfectly well understand the reasons for David’s re-branding of the party image – it was a necessary exercise - these basic principles behind Conservatism should surely drive his agenda forward in forthcoming months. It is only by using principles as the foundation for sound policies can any coherent strategy be developed and be understood by the electorate. 

Indeed I would suggest that it is already happening. Iain Duncan Smith’s report, warmly welcomed by the leadership, contained some long overdue truths about Britain’s social problems. David’s unqualified support for family and marriage is a breath of fresh air. Similarly, there are encouraging signs that John Redwood’s report on economic competitiveness, which promotes lower taxes and less onerous business regulation, will inform the leadership’s approach to economic policy. Gordon Brown’s 10 years of damage to the economy’s underlying health needs to be robustly challenged.

And then there is the EU – arguably the biggest issue of all. The Party’s recent insistence on the need for a referendum on the Reform Treaty is absolutely right. Gordon Brown’s claim that the Treaty is materially different from the Constitution is of course complete piffle. It cannot be emphasised enough that this Treaty is the final power grab by the EU in its determination to build economic and political union in Europe.

Polls show that the majority of British people, while liking Europe, are deeply suspicious, if not hostile, to the EU. David should not be embarrassed or deflected by the Party’s Federalist dinosaurs to drive forward a healthily sceptical European agenda which is in tune with the people.

NEXT IN THIS 'WHAT DAVID CAMERON SHOULD DO NEXT' SERIES: NICK WOOD AT 4PM

Ruth Lea: The British people must have a referendum on the new EU Treaty

Ruth Lea is Director of Global Vision.

Even though there are currently some rather lurid tales of EU splits, it is still expected that this week’s EU Summit will agree a framework for the new EU Treaty. Provided all goes according to plan, an Inter-Governmental Conference will start in July, with the objective of finalising the draft for signing by all 27 member states in December.

This Treaty is, of course, closely modelled on the unfortunate Constitutional Treaty (the “Constitution”) which was rejected by the French and Dutch electorates in 2005. But it is now clear, as if we ever thought otherwise, that these democratic outbursts have not just failed to stop the process of integration. They have barely altered the nature and scope of the next EU Treaty.   

Chancellor Angela Merkel, one of the main forces driving the new Treaty, has made this very clear. She said that, when drafting the new Treaty, her strategy was “to use different terminology without changing the substance”. In other words, there has been a cosmetic make-over, but little more.