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Forget Plan A or Plan B, it's Plan E for Euro Economic Emergency

By Tim Montgomerie
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Even Ken Clarke seems to believe that it's now only a matter of time before Greece leaves the €urozone although I must have missed his apology for his constant recommendations that Britain should have joined the burning building.

Over the coming weeks the Government will face its gravest test since coming to power. It will be judged on three criteria:

  1. Will it play its full part in helping the single currency area to manage Grexit and possibly the departure of other countries too? Although the end of the €urozone as we know it is essential surgery it will be surgery and painful surgery. When the scalpel is applied there is always a grave risk to the patient's life but in this case it will be a flow of money not blood that might run out of control. How will the Greek people react when there is no money in their ATMs, perhaps for weeks, not days? Will the world's banks stop lending to Spain, Portugal or even Italy if Greece defaults and devalues? There will be calls to lend more money to the IMF. While I am against using UK taxpayers' money to keep the €urozone together there may be an overwhelming case to use money to stop the end of the €urozone from becoming a full-scale global panic.
  2. Will it seize the opportunity of the break-up of the European Union's single currency area to refashion Britain's relationship with Europe? If necessarily unilaterally? Let's be in no doubt - if Greece leaves the €urozone it will be an historic event and it will shake the EU to its foundations. Greece will leave the single currency area illegally (there are provisions for it to do so legally) and in these historic circumstances Britain should take the opportunity to re-establish UK independence in all areas of competence that we choose. The new arrangement could be ratified by the sovereign British people in a referendum.
  3. Will it seize the opportunity to renew its growth policy?

It's this third question I briefly want to consider. Few people believe that the Coalition is doing enough to boost growth and that includes nearly every Conservative on the frontbenches as well as the backbenches. The €uro crisis gives the Coalition the best opportunity it is going to get to relaunch its economic policy. Will it take it?

There are plenty of ideas out there for what Iain Martin described as a Plan E for Emergency in his Sunday Telegraph column. Plenty of ideas that could form the basis for a ten year plan to turn Britain into the kind of competitive economy that can take us towards that Goldman Sachs vision of Britain being the most prosperous country in Europe by 2050 and one of the most prosperous in the world. This is a time for the Government to think big and for the Coalition partners to return to that radicalism of the rose garden period when they decided to rescue Britain from Labour's debts but didn't also decide to rescue Britain from Labour's neglect of our infrastructure and the way it had tied Britain up in red tape, tax complexity and with expensive energy costs. This is the moment when the Coalition can change the political trajectory too. Both governing parties are heading for defeat at present. They have no mission that has captured voters' attention and imagination. It's time for them to raise the stakes. So, what might a growth agenda look like?

A few ideas:

  • The TaxPayers' Alliance have today put forward radical ideas for a single income tax. If this is to radical for the Chancellor he should consider the idea once proposed by his PPS, Sajid Javid MP, when his PPS was still allowed to think aloud. Sajid proposed that taxpayers could choose to pay into an alternative flat tax system. You wouldn't abolish the existing complex system - certainly not overnight - but taxpayers could choose to opt into a flat tax system with a higher rate but no bureaucracy.
  • Later this week a group of Tory MPs are proposing that Britain could and should have a new hub airport by 2020 (Times report (£)). The country needs to stop seeing aircraft as an environmental nuisance and as a juicy source of tax revenues but as an essential connection between Britain and emerging economies. The queues at Heathrow (and now Gatwick) are going to get a lot worse before they get better. The time to act was five years ago. Catch up can't happen soon enough.
  • In the Mail on Sunday Kwasi Kwarteng MP proposed that we sell Infrastructure Bonds to take advantage of inflows of capital to Britain. That's probably too controversial for the fiscally conservative George Osborne but his other big idea of adopting the German model whereby employees get a tax-free income up to, say, £12,000 but waive employment protections in return might be a very effective way of getting businesses to take a risk and expand recruitment. It might also be a way of squaring the increasingly obstructionist Vince Cable.
  • Adopt Liz Truss' ideas on reforming the supply of childcare. There are fewer bigger barriers to the participation of women in the labour market than Britain's very expensive childcare sector.
  • We could also go further and faster education. How about the return of grammar schools? Mary Ann Sieghart makes the case for them today, in The Independent. Alternative educational ideas include much higher pay for maths and science teachers.

A national economic mission.

A port in the storm.

A plan to deliver the kind of economic growth that is essential if deficit reduction is to be digestible.

When George Osborne has finished celebrating Chelsea's victory he has a big job ahead of him.

Plan E for Economic Emergency but also Plan E for Electoral Recovery.


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