Conservative orthodoxy on picking business ‘winners’ must change

James Willby

I’ve often listened incredulously to otherwise sensible Conservatives opposing the idea that Government should pick winners. The topic seems to cause consternation in many right-leaning circles. “Invest public money in companies? Pick winners? What is this: Cuba?!” they cry. What would you prefer, I ask them. That we pick losers? Cue more consternation and a reiteration of the fact its taxpayers’ money being invested. How is that in any way different to what a pension fund or banks does, I enquire. Why are you happy with commercial entities investing your money for a return, but not elected representatives using it to produce growth and jobs?

Needless to say its not a particularly well received notion – akin to being pro-EU – but as a rather brave Conservative confided to me recently, the words “industrial strategy” should not be a taboo for someone on the right.

If our aim is to get Britain back on its feet, it is utterly nonsensical to write-off a potential avenue of endeavor. Forget being economic Meatloafs – protesting how we’d do anything for growth, but we won’t do that – lets be fiscal Roy Orbisons and give business the Big O it deserves: anything it wants, anything it needs, it gets it, and sometimes that means doing what up until now has been utter heresy for many in the Conservative rank and file. It’s time to become proactive about identifying the industries of the future and giving them a leg-up, or more succinctly, pick some winners.

And yet unbeknownst to the party at large, that is exactly what the leadership has been doing.

In 2009 at the annual CBI conference, George Osborne was heard to lament the fact that the then Labour government had not conducted a single trade mission to sell British goods overseas. Since taking office in 2010, this has been completely reversed. Take the Prime Minister’s trade mission to China last week. In addition to ministers, ambassadors, and civil servants on the trip, there were a host of men and women from across British business. Yes, there were the Jaguar Land Rovers and the Rolls Royce’s, but there were also SMEs from across the UK. From food manufacturers to retailers, they encompassed an incredibly diverse range of fields. They were there because they showcase the best of British – being innovative, creative and dynamic. And they were there because they recognized the opportunity they were being afforded.

Do you think these SMEs could ever have secured access to China, the world’s largest economy, without the help of Her Majesty’s Government? No local business conference or trade show could possibly give them the opportunity that trip afforded. If that isn’t “picking winners”, I don’t what is. Further afield, we’ve seen the State investing in graphene, “quantum technology” (don’t laugh), giving tax breaks to video games and creating an office of unconventional gas to help monetise shale. These are all examples of the State seeing the growth potential in a technology and wisely choosing to invest.

So we do pick winners, we should pick winners and it’s about time we had the guts to say so. As GK Chesterton observed, “I did try to found a little heresy of my own; and when I had put the last touches to it, I discovered that it was orthodoxy.” Amen to that.

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We need to realise the economic potential of our other major cities

Andrew Thorpe-Apps

The announcement that Hull will be the City of Culture 2017 was met with a few chides and sniggers in the media. Whatever its cultural pedigree, Hull is a city tarnished by high unemployment and youth crime. It has seen the highest rate of Jobseeker claimants in the country.

Hull is not alone. A number of other cities and towns, particularly in the north of England, have been facing these challenges since the 1970s. While some people are able to travel in search of work, for others this is not an option. The result is that generation after generation are locked in a cycle of desperation and poverty.  

During the boom years prior to 2008, London’s financial sector was able to pull the whole national economy along. The Government did not need to concern itself with maximising the economic potential of other cities. This inertia allowed for the national economic imbalance to be further entrenched, and Britain fell behind its competitors in promoting regional growth.   

Yet this situation can no longer be accepted. The UK economy is growing again, but unemployment remains stubbornly high, particularly youth unemployment. With the rise of the BRIC nations, and with other developing countries hot on their heels, it is vital that Britain maximises all of its resources. This means encouraging innovation and creating jobs in our cities.   

Decentralised fiscal reform will boost the economic prospects of Britain’s cities. Greater financial freedom will allow local politicians to better direct growth to drive their local economies. The current formula of majority Government grant has long restricted the growth of cities outside London. Centralised funding, managed as it is by Whitehall bureaucrats lacking sufficient local knowledge, is ineffective in supplying the investment cities need to maximise growth.

Speaking at a recent TRG event, Lord Heseltine argued that more must be done to encourage city economic growth. The vast majority of the recommendations from Heseltine’s report No Stone Left Unturned, published last year, have now been adopted. Yet the UK economy remains staggeringly unbalanced, particularly in geographical terms.

Cities need devolution of property tax revenue streams. This includes council tax, stamp duty, land tax and business rates. Cities also need to have the power to reform these taxes to suit local conditions. These powers would provide stable funding to stimulate economic growth and allow cities to raise sustained investment for infrastructure such as transport, schools, housing, energy supply and technology. City governments are best placed to create jobs and free up spending.

In most developed countries, top cities outperform the national economic average. Yet in the UK, only London is able to do so consistently. This suggests that many of Britain’s ‘Core Cities’ – such as Birmingham, Manchester, Nottingham and Leeds – have a great deal of economic potential. More financial freedom would allow this potential to be realised and could contribute a further £1.5bn per year to the UK economy. 

Not only will city devolution benefit our national economy through jobs and growth, it will also help end welfare dependency for thousands of families across the country. The vast majority of those on benefits do not want to be clients of the state. City devolution, therefore, will give independence to the cities, but more importantly, it will give back power and self-respect to the individual.

In a recent cross-party initiative, London and some of England’s other largest cities have called on the Government for more substantial devolution. This follows on from the London Finance Commission’s report Raising the Capital, published in May 2013, which suggested measures that would give Londoners more say over a greater proportion of taxes raised in their city.

In London, only 7 per cent of tax paid by its residents and businesses is redistributed directly by the Mayor and borough councils. In New York City this figure is 70 per cent, in Paris it is 83 per cent, and in Tokyo it is 92 per cent.   

Despite devolution to Scotland, Wales and Northern Ireland, the UK remains far too centralised. City devolution is the most effective way to make Britain grow. It will be a positive step in answering England’s devolution question. It will also help deliver the Conservative Party’s localism agenda.

Cities are the engine of growth in any national economy, and if Britain is to compete in the future, that engine needs to be firing on all cylinders.

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The financial and Eurozone crises have changed the face of politics forever

Sara Benwell 6.45am

Economic policy has always been important in politics, and people have always cared about fiscal policies that affect them directly, but not such a long time ago broader economic strategy only made up a small percentage of the issues that mattered when people decided who to vote for.

Essentially, voters cared if their taxes were going up, but when it came to broader economic strategy the issues were sidelined compared to other policies that had more obvious effects on people’s lives. Moreover, much of the banking world and financial terminology remained a complete mystery to the majority of the electorate, so as long as things were going well, economic policy was seen to be less important. Everyone presumed that the government and the bankers knew what they were doing.

Then came recession and the onset of the Eurozone crisis - and everything changed.

Now more people have a better working understanding of finance. Almost everybody I meet has an opinion about Greece, about Spain, about whether the Eurozone will break up and most importantly about whether or not the Government is doing the right thing to deal with the financial crisis or whether now is the right time for a credible plan B, or even C.

People don’t merely care about the areas of policy that effect them; they now care about the broader economic strategy. The space allocated to business and financial news - not just in the broadsheets but also in the tabloids - is increasing and is reflective of a growing public interest. These days it’s rare you’ll see any business stories in the national press that don’t have a direct link to finance and the economic situation; more often the stories will reflect job creation or losses, financial results, or economic indicators.

While the economic crisis is clearly not a good thing, it’s arguable that the increase in public knowledge and awareness has to be the silver lining to the debt crisis cloud. How many people fifteen years ago knew about monetary policy decisions, about inflation and about quantitative easing, let alone had a good working understanding of these terms as well as an opinion on them? Wider comprehension has to be a good thing.

There has also been a shift towards people wanting their financial institutions and their government to be held accountable. Now that everybody has seen the impact of the poor financial policies of the last labour governments and the problems that can arise when the bankers are given a free rein with little or no fear of retribution, there is an increasing focus on making sure that somewhere somebody is held responsible.

This has been reflected by the recent ‘shareholder spring’. While I think this is an exaggeration, and the term is used too widely and too often, there is no denying that the recent spate of chief executives like Sir Martin Sorrell being denied their bonuses would have been unthinkable a few years ago and reflects growing popular demand for more accountability in the business world.

Furthermore, policies like the ring-fencing of the banks, which I have written about here before, illustrate a move by the Government to introduce financial legislation designed to protect the electorate. This policy has recently been watered down, but that doesn’t change the fact that political parties have recognised the importance of bringing in policies to ensure that an increasingly aware voting public are sheltered from having to bail out the banks once more.

One can quite easily argue that the Coalition will stand or fall on the success of its economic policies. And it is increasingly clear that you cannot spend your way out of a recession, despite what the Labour party might claim.

So the question confronting us now is whether the Coalition Government has enough time left for its economic policy to come good, or whether ministers need to be considering a new plan.

Rest assured that whatever the answers to those questions, the British public is no longer ignorant about economics. And if the Coalition partners, particularly the Conservative party, wants to win the next election, they shall need to prove the credibility of their economic strategy.

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A Shared Resolve

Rt Hon Danny Alexander MP 10.55am

This Coalition Government is delivering on its founding purpose – returning this country to a path of prosperity that is sustainable for the long term. Both the Liberal Democrats and the Conservatives should be proud of the decision we made to put the national interest before party politics. It wasn’t easy, but it was the right thing to do.

With massive market turbulence across Europe the backdrop to the election, both parties knew that economic stability could not be achieved without political stability too.

This historic decision and our shared resolve to tackle the deficit have resulted in interest rates staying low – keeping families in their home and workers in their jobs. Getting ahead of the curve on dealing with the deficit means that despite having a deficit larger than Portugal, UK government-backed bonds still attract interest rates that are as low as Germany’s. We have established financial discipline, motivated not by ideology, but because it is a vital precondition for effective government.

But recovering from the catastrophic legacy left by Labour cannot simply be achieved by tackling the deficit. Not only was the way of life they promised unaffordable, it relied disproportionately on the square mile of the city of London and an unsustainable house price bubble. Gordon Brown vowed to end boom and bust, but in the end presided over both.

We must ensure the lessons of Labour’s failure are learnt for good. Which means rebalancing the economy as well as tackling the deficit, and being straight with people about how long this will take, how hard it will be and what we will do to get it right.

Laying strong foundations for prosperity requires an economic strategy that invests in the future to deliver growth that is sustainable, balanced, competitive and fair. This strategy must seek to unlock our economy’s potential in every sector of the economy and in every part of the UK.

As a government that means prioritising infrastructure investment, as we already have in the Spending Review. The projects getting the go ahead have been assessed and selected on the basis of the economic benefit they will bring. As a result, we are spending more on transport infrastructure over these four years than Labour managed in their last four, which will help support businesses and growth across the entire country.

But we also realise that it is not possible just to impose growth from the centre. This government must also help local businesses and communities drive economic growth too. To this end, at the Liberal Democrat conference, I announced the launch of a £500 million Growing Places Fund. This money will go towards helping kick start developments that have been identified locally that are currently stalled by tough market conditions, difficult cash flow and a lack of confidence.

 Of course, our focus on supporting growth isn’t just about spending money – government must break down the barriers that regulation puts in the way too. The Red Tape Challenge is proving effective at identifying unhelpful and expensive regulations, but the government is tackling more controversial barriers too. That is why we must press ahead with our planning reforms. The current system means it can take years for development to get off the ground. A presumption in favour of sustainable development will ensure local protections are in place, but will help deliver much needed local homes and jobs.

Delivering growth also means looking beyond local and national horizons. Trade is vital too. In the 1980s, Britain led the agenda in developing the European Single Market, helping to create hundreds of thousands of new jobs. The Eurozone crisis means it’s now more important than ever that they deepen their integration, and for our own sakes it’s important we support them, to ensure we can continue to progress ensuring all areas of the European economy are open to British Business.

Finally, investment in the future also means investing in people – giving them the best opportunity possible to prosper. Raising the income tax threshold makes work pay better for millions in jobs on low incomes. Investment in apprenticeships and work experience placements is helping young people get started in a tough labour market. And even at the youngest age, the Pupil Premium is helping children from the poorest backgrounds get the best start in life.

We are putting this country on the path to prosperity for the long term, as well as introducing immediate incentives for growth. The years ahead will not be easy, and the economic storms surrounding us are still raging, but this government will not be distracted from its goal – a more prosperous future for us all.

Rt Hon Danny Alexander MP is Chief Secretary to the Treasury. This article first appeared in the most recent publication of Reformer, the journal of the Tory Reform Group.

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